(Test Bank) Financial Accounting

Warren,Jones,Taylor, 17

Business

Test Bank

17th Edition

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Test Bank for Financial Accounting, The downloadable file consists of 793 pages, and the total size of the file is 7.5 MB. Purchase now only for highly discounted price.

Author(s): Warren, Jones, Taylor

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Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 1 Indicate whether the statement is true or false. 1. A corporation is a business that is legally separate and distinct from its owners. a. True b. False 2. The role of accounting is to provide many different users with financial information to make economic decisions. a. True b. False 3. Investing activities are those activities by which the company obtains funds to start and operate the business. a. True b. False 4. Managerial accounting information is used by external and internal users equally. a. True b. False 5. Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the companies where they work. a. True b. False 6. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to management. a. True b. False 7. Proper ethical conduct implies that you only consider what's in your best interest. a. True b. False 8. Some major fraudulent acts committed by senior executives started as what they considered to be small ethical lapses that grew out of control. a. True b. False 9. A business is an organization in which basic resources or inputs, like materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers. a. True b. False 10. Operating activities are those activities by which a company generates revenues from customers. a. True b. False Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 2 11. An example of a general -purpose financial statement would be a report about projected price increases related to transportation costs. a. True b. False 12. The Sarbanes -Oxley Act established standards for corporate responsibility and disclosure. a. True b. False 13. The main objective for all businesses is to maximize unrealized profits. a. True b. False 14. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing entities. a. True b. False 15. The basic difference between manufacturing and retail companies is the completion level of the products they purchase for resale to customers. a. True b. False 16. Proprietorships have one owner and provide only services to their customers. a. True b. False 17. About 90% of the businesses in the United States are organized as corporations. a. True b. False 18. An example of an external user of accounting information is the federal government. a. True b. False 19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles. a. True b. False 20. The cost principle is the basis for entering the purchase price into the accounting records. a. True b. False 21. The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States. a. True Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 3 b. False 22. If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000. a. True b. False 23. The financial statements of a proprietorship should include the owner's personal assets and liabilities. a. True b. False 24. No significant differences exist between the accounting standards issued by the FASB and the IASB. a. True b. False 25. Generally accepted accounting principles regulate how and what financial information is reported by businesses. a. True b. False 26. The accounting equation can be expressed as Assets – Liabilities = Owner's Equity. a. True b. False 27. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners. a. True b. False 28. The owner’s rights to the assets rank ahead of the creditors' rights to the assets. a. True b. False 29. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total $300,000. a. True b. False 30. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same period, the period's change in total liabilities was a $65,000 increase. a. True b. False 31. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner's equity was a $200,000 increase. a. True b. False Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 4 32. If net income for a company was $50,000, $20,000 in owner withdrawals were made, and the owners invested an additional $10,000 in cash, the owners' equity increased by $40,000. a. True b. False 33. An account receivable is typically classified as a revenue. a. True b. False 34. An account receivable is a claim against a customer resulting from a sale on account. a. True b. False 35. Paying an account payable increases liabilities and decreases assets. a. True b. False 36. Receiving payments on an account receivable increases both equity and assets. a. True b. False 37. Withdrawals paid to owners decrease assets and increase equity. a. True b. False 38. Purchasing supplies on account increases liabilities and decreases equity. a. True b. False 39. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid. a. True b. False 40. Revenue is earned only when money is received. a. True b. False 41. Assets that are used up during the process of earning revenue are called expenses. a. True b. False 42. The excess of revenue over the expenses incurred in earning the revenue is called capital. a. True b. False 43. The primary financial statements of a proprietorship are the income statement, the statement of owners’ equity, the Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 5 cash budget, and the balance sheet. a. True b. False 44. An income statement is a summary of the revenues and expenses of a business as of a specific date. a. True b. False 45. A statement of owners’ equity reports the changes in owner's equity for a period of time. a. True b. False 46. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities. a. True b. False 47. The balance sheet represents the accounting equation. a. True b. False 48. Net income and net profit do not mean the same thing. a. True b. False Indicate the answer choice that best completes the statement or answers the question. 49. Profit is the difference between a. assets and liabilities b. incoming cash and outgoing cash c. the assets purchased with cash contributed by the owner and the cash spent to operate the business d. the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services 50. Two common areas of accounting that respectively provide information to internal and external users are a. forensic accounting and financial accounting b. managerial accounting and financial accounting c. managerial accounting and environmental accounting d. financial accounting and tax accounting systems 51. Which of the following best describes accounting? a. records economic data but does not communicate the data to users according to any specific rules b. is an information system that provides reports to users regarding economic activities and condition of a business c. is of no use by individuals outside of the business Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 6 d. is used only for filling out tax returns and for financial statements for various types of governmental reporting requirements 52. Which type of accountant typically practices as an individual or as a member of a public accounting firm? a. Certified Public Accountant b. Certified Payroll Professional c. Certified Internal Auditor d. Certified Management Accountant 53. Financial reports are used by a. managers b. creditors c. investors d. all of these choices 54. All of the following are general -purpose financial statements except a(n) a. balance sheet b. income statement c. statement of owner's equity d. cash budget 55. Which of the following is a manufacturing business? a. General Motors b. Facebook c. American Airlines d. Target 56. Which of the following is a service business? a. Microsoft b. Dell Computers c. Facebook (Meta Platforms) d. Walmart 57. Which of the following groups of companies are all examples of a retail business? a. Delta Air Lines, Marriott, Gap b. Gap, Amazon.com, Delta Air Lines c. GameStop, Sony, Dell d. GameStop, Best Buy, Gap 58. Which of the following groups are considered to be internal users of accounting information? a. employees and customers b. customers and vendors c. employees and managers d. government entities and banks Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 7 59. All of the following are examples of external users of accounting information except a. government entities b. customers c. creditors d. managers 60. Which of the following is the best description of accounting’s role in business? a. Accounting provides owners with information regarding the market value of the company. b. Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company. c. Accounting helps in decreasing the credit risk of the company. d. Accounting is not responsible for providing any form of information to users. That is the role of the Information Syste ms Department. 61. Managerial accountants would be responsible for providing a. tax reports to government agencies b. profit reports to owners and management c. expansion of a product line report to management d. consumer reports to customers 62. Which of the following is not a certification for accountants? a. CIA b. CMA c. CISA d. CPI 63. Which of the following is a role of accounting in business? a. to provide reports to users about the economic activities and conditions of a business b. all of these choices c. to provide information to external users to determine the economic performance and condition of the business d. to assess the various informational needs of users and design a business' accounting system to meet those needs 64. Which of the following are guidelines for behaving ethically? I. Identify the consequences of a decision and its effect on others. II. Consider your obligations and responsibilities to those affected by your decision. III. Identify an ethical decision by using your personal ethical standards of honesty and fairness. a. I and II b. II and III c. I and III d. I, II, and III 65. Which of the following would not normally operate as a service business? a. pet groomer Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 8 b. grocery store c. lawn care company d. styling salon 66. Most businesses in the United States are a. proprietorships b. partnerships c. corporations d. cooperatives 67. Which of the following is not a business entity? a. entrepreneurship b. proprietorship c. partnership d. corporation 68. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a a. proprietorship b. corporation c. partnership d. governmental unit 69. Which of the following is true regarding a limited liability company? a. makes up 10% of business organizations in the United States b. combines the attributes of a partnership and a corporation c. provides tax and legal liability advantages to the owners d. all of these choices 70. On May 20, White Repair Service extended an offer of $108,000 for land that had been priced for sale at $140,000. On May 30, White Repair Service accepted the seller’s counteroffer of $115,000. On June 20, the land was assessed at a value of $95,000 for property tax purposes. On July 4, White Repair Service was offered $150,000 for the land by a national retail chain. At what value should the land be recorded in White Repair Service’s records? a. $108,000 b. $95,000 c. $140,000 d. $115,000 71. Which type of business is most likely to obtain large amounts of resources by issuing stock? a. partnership b. corporation c. proprietorship d. government entity 72. Which of the following is not a characteristic of a corporation? Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 9 a. Corporations are organized as a separate legal taxable entity. b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. 73. Within the United States, the dominant body in the primary development of accounting principles is the a. American Institute of Certified Public Accountants (AICPA) b. American Accounting Association (AAA) c. Financial Accounting Standards Board (FASB) d. Institute of Management Accountants (IMA) 74. The business entity assumption means that a. the owner is part of the business entity b. an entity is organized according to state or federal statutes c. an entity is organized according to the rules set by the FASB d. the business is an economic entity separate from its owners. 75. For accounting purposes, a business entity should be considered separate from its owners if the entity is a. a corporation b. a proprietorship c. a partnership d. all of these choices 76. The measurement principle requires that a. business transactions be consistent with the objectives of the entity b. the Financial Accounting Standards Board be fair and unbiased in its deliberations over new accounting standards c. accounting principles meet the objectives of the Securities and Exchange Commission d. amounts recorded in the financial statements be based on independently verifiable evidence 77. Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from Crystal Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The contribution of the $6,000 should be recorded on the accounting records of which of the following entities? a. Crystal Cleaning and the American Red Cross b. Karen Meyer's personal records and the American Red Cross c. Karen Meyer's personal records and Crystal Cleaning Company d. Karen Meyer's personal records, Crystal Cleaning Company, and the American Red Cross 78. Which of the following is an authoritative body in the United States that has the primary responsibility for developing accounting principles? a. FASB b. IRS c. SEC d. AICPA Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 10 79. Which of the following items relates to separating the reporting of business and personal economic transactions? a. cost principle b. monetary unit assumption c. business entity assumption d. measurement principle 80. Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company? a. $177,000 b. $212,000 c. $220,000 d. $232,000 81. Many countries outside of the United States use financial accounting standards issued by the a. AICPA b. SEC c. IASB d. FASB 82. The monetary unit assumption a. is only used in the financial statements of manufacturing companies b. is not important when applying the cost principle c. requires that different units be used for assets and liabilities d. requires that economic data be reported in yen in Japan or dollars in the United States 83. Which of the following is true of accounting principles? a. Financial accountants follow generally accepted accounting principles (GAAP). b. Following GAAP allows accounting information users to compare one company to another. c. All of these choices. d. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles. 84. The initials GAAP stand for a. general accounting procedures b. generally accepted plans c. generally accepted accounting principles d. generally accepted accounting practices 85. Assets are a. always lower than liabilities b. equal to liabilities less owner's equity c. the same as expenses because they are acquired with cash d. financed by the owners and/or creditors Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 11 86. Debts owed by a business are referred to as a. accounts receivable b. expenses c. owner's equity d. liabilities 87. The accounting equation may be expressed as a. Assets = Expenses − Liabilities b. Assets + Liabilities = Owner's Equity c. Assets = Revenues − Liabilities d. Assets − Liabilities = Owner's Equity 88. The assets and liabilities of a company are $128,000 and $84,000, respectively. Owner's equity should equal a. $212,000 b. $44,000 c. $128,000 d. $84,000 89. If total liabilities decreased by $46,000 during a period of time and owner's equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a a. $106,000 increase b. $14,000 increase c. $14,000 decrease d. $106,000 decrease 90. Which of the following is not a business transaction? a. make a sales offer b. sell goods for cash c. receive cash for services to be rendered later d. pay for supplies 91. A business paid $7,000 to a creditor for an amount owed. The effect of the transaction on the accounting equation was to a. increase an asset; decrease another asset b. decrease an asset; decrease a liability c. increase an asset; increase a liability d. increase an asset; increase owner's equity 92. Earning revenue a. increases assets; increases owner's equity b. increases assets; decreases owner's equity c. increases one asset; decreases another asset d. decreases assets; increases liabilities Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 12 93. The monetary value earned for selling goods or services to customers is called a. net profit b. net income c. capital d. revenue 94. Items purchased on account for future use in the business, such as supplies, are called a. prepaid liabilities b. revenues c. prepaid expenses d. liabilities 95. The asset created by a business when it makes a sale on account is termed a. accounts payable b. prepaid expense c. interest revenue d. accounts receivable 96. The debt created by a business when it makes a purchase on account is called an a. account payable b. account receivable c. asset d. expense payable 97. If total assets decreased by $88,000 during a period of time and owner's equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is a. a $17,000 increase b. an $88,000 decrease c. a $159,000 increase d. a $159,000 decrease 98. Cash withdrawals made by the owner for personal use a. increase expenses b. decrease expenses c. increase cash d. decrease owner's equity 99. How does paying a liability in cash affect the accounting equation? a. assets increase; liabilities decrease b. assets increase; liabilities increase c. assets decrease; liabilities decrease d. liabilities decrease; owner's equity increases 100. How does receiving a bill to be paid next month for services received affect the accounting equation? a. assets decrease; owner's equity decreases Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 13 b. assets increase; liabilities increase c. liabilities increase; owner's equity increases d. liabilities increase; owner's' equity decreases 101. How does the payment of rent for equipment affect the accounting equation? a. assets increase; assets decrease b. assets decrease; owner's equity decreases c. assets decrease; liabilities increase d. assets increase; owner's equity increases 102. Land, originally purchased for $30,000, is sold for $62,000 in cash. What is the effect of the sale on the accounting equation? a. assets increase by $62,000; owner's equity increases by $62,000 b. assets increase by $32,000; owner's equity increases by $32,000 c. assets increase by $62,000; liabilities decrease by $30,000; owner's equity increases by $32,000 d. assets increase by $30,000; no change in liabilities; owner's equity increases by $62,000 103. Which of the following accounts is a liability? a. Accounts Payable b. Accounts Receivable c. Wages Expense d. Service Revenue 104. As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2, owners invested an additional $73,000 and made $33,000 in owner withdrawals from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $995,000 and liabilities were $270,000? a. $45,000 b. $50,000 c. $106,000 d. $370,000 105. Which of the following asset accounts is increased when a receivable is collected? a. Accounts Receivable b. Supplies c. Accounts Payable d. Cash 106. Transactions affecting owner's equity include a. owner investments and payment of liabilities b. owner investments, owner withdrawals, earning of revenues, and incurrence of expenses c. owner investments, earning of revenues, incurrence of expenses, and collection of accounts receivable d. owner withdrawals, earning of revenues, incurrence of expenses, and purchase of supplies on account 107. Juan Chavez is starting a computer programming business and has invested $15,000. Identify how the accounting Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 14 equation will be affected by the owner's investment. a. increase in assets (Cash) and increase in liabilities (Accounts Payable) b. increase in assets (Cash) and increase in owner's equity (Juan Chavez, Capital) c. increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and increase in assets (Accounts Receivable) 108. R. Ramos, the owner of Ramos Repair Services, is withdrawing cash from the business for personal use. How does this transaction affect the accounting equation? a. increase in assets (Accounts Receivable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner's equity (R. Ramos, Drawing) c. decrease in assets (Cash) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and decrease in owner's equity (R. Ramos, Drawing) 109. Which of the following transactions would be omitted from the books of Bobby's Lawn Service? a. Roberta, the owner, deposits $15,000 in a bank account in the name of Bobby's Lawn Service. b. Roberta provides services to customers, earning fees of $600. c. Roberta purchased hedge trimmers for Bobby's Lawn Service, agreeing to pay the supplier next month. d. Roberta pays her monthly personal credit card bill. 110. Which of the following is a business transaction? a. purchase supplies on account b. plan advertising for upcoming sale c. give employees a raise beginning next month d. submit estimate for construction project 111. The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) a. prior period statement b. statement of owner's equity c. income statement d. balance sheet 112. Which of the following financial statements reports information as of a specific date? a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet 113. Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of owner's equity (SOE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain inform ation needed for the next statement. In what order are these three statements prepared? a. I, SOE, B b. B, I, SOE c. SOE, I, B d. B, SOE, I Name: Class: Date: Chapter 01: Introduction to Accounting and Business Powered by Cognero Page 15 114. Liabilities are reported on the a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet 115. Cash investments made by the owner in the business are reported on the statement of cash flows in the a. financing activities section b. investing activities section c. operating activities section d. supplemental schedule 116. The ending balance of the owner's capital account appears in a. both the statement of owner's’ equity and the income statement b. only the statement of owner's’ equity c. both the statement of owner's equity and the balance sheet d. both the statement of owner's equity and the statement of cash flows 117. A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the a. income statement b. balance sheet c. statement of cash flows d. statement of owner's equity 118. If the owner wanted to know how money flowed into and out of the company, which financial statement would the owner use? a. income statement b. statement of cash flows c. balance sheet d. statement of owner's equity 119. The Assets section of the balance sheet normally presents assets in a. alphabetical order b. the order of largest to smallest dollar amounts c. the order in which they will be converted into cash or used in operations d. the order of smallest to largest dollar amounts 120. Which of the following statements regarding the ratio of liabilities to stockholders' equity is not true? a. A ratio of 1 indicates that liabilities equal stockholders' equity. b. Sole proprietorships can use this ratio but substitute total owner's equity for total stockholders' equity. c. The higher this ratio, the better able a business is to withstand poor business conditions and pay creditors. d. The lower this ratio, the better able a business is to withstand poor business conditions and pay creditors.