74 test bank for accounting 24th edition

74 Test Bank for Accounting 24th Edition
by Warren Multiple Choice Questions - Page 1
Which of the following is not a characteristic of a corporation?
1.
2.
3.

Corporations are organized as a separate legal taxable entity
Ownership is divided into shares of stock.
Corporations experience an ease in obtaining large amounts of resources by
issuing stock.
4. A corporation’s resources are limited to their individual owners’ resources.

Debts owed by a business are referred to as
1.
2.
3.
4.

accounts receivables
equities
owner’s equity
liabilities

Equipment with an estimated market value of $55,000 is offered for
sale at $75,000. The equipment is acquired for $20,000 in cash and
a note payable of $40,000 due in 30 days. The amount used in the
buyer's accounting records to record this acquisition is
1.
2.
3.

4.

$55,000
$60,000
$20,000
$75,000

Which of the following group of companies are all examples of a
merchandising business?
1.
2.
3.
4.

Delta Airlines, Marriott, Gap
Gap, Amazon, NIKE
GameStop, Sony, Dell
GameStop, Best Buy, Gap

For accounting purposes, the business entity should be considered
separate from its owners if the entity is
1.
2.
3.
4.

a corporation
a proprietorship
a partnership
all of the above

The following are examples of external users of accounting
information except:
1.

government


2.
3.
4.

customers
creditors
all of the above

The Sarbanes-Oxley Act of 2002 prohibits employment of auditors
by their clients for what period after their last audit of the client?
1.
2.
3.
4.

Indefinitely
One year
Two years
There is no such prohibition.

On April 25, Gregg Repair Service extended an offer of $115,000 for
land that had been priced for sale at $140,000. On May 3, Gregg

Repair Service accepted the seller’s counteroffer of $127,000. On
June 20, the land was assessed at a value of $88,000 for property
tax purposes. On August 4, Gregg Repair Service was offered
$150,000 for the land by a national retail chain. At what value
should the land be recorded in Gregg Repair Service’s records?
1.
2.
3.
4.

$115,000
$88,000
$140,000
$127,000

Assets are
1.
2.
3.
4.

always greater than liabilities.
either cash or accounts receivables
the same as expenses because they are acquired with cash
financed by the owner and/or creditors

Which one of the following is the authoritative body in the United
States having the primary responsibility for developing accounting
principles?
1.

2.
3.
4.

FASB
IRS
SEC
AICPA

The objectivity concept requires that
1.
2.

business transactions must be consistent with the objectives of the entity
the Financial Accounting Standards Board must be fair and unbiased in its
deliberations over new accounting standards
3. accounting principles must meet the objectives of the Security and Exchange
Commission


4.

amounts recorded in the financial statements must be based on
independently verifiable evidence

Which of the following is not a role of accounting in business?
1.

To provide reports to users about the economic activities and conditions of a
business.

2. To personally guarantee loans of the business.
3. To provide information to other users to determine the economic performance
and condition of the business.
4. To assess the various informational needs of users and design its accounting
system to meet those needs.

Which of the items below is not a business entity?
1.
2.
3.
4.

entrepreneurship
proprietorship
partnership
corporation

Select the type of business that is most likely to obtain large
amounts of resources by issuing stock.
1.
2.
3.
4.

Partnership
Corporation
Proprietorship
None are correct.

Two common areas of accounting that respectively provide

information to internal and external users are:
1.
2.
3.
4.

forensic accounting and financial accounting
managerial accounting and financial accounting
managerial accounting and environmental accounting
financial accounting and tax accounting systems

Managerial accountants would be responsible for providing the
following information:
1.
2.
3.
4.

Tax reports to government agencies.
Profit reports to owners and management.
Expansion of a product line report to management.
Consumer reports to customers.

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
the decision; III.Identify your decision based on personal standards
of honesty and fairness.
1.

I and II.


2.
3.
4.

II and III.
I and III.
I, II, and III.

Financial reports are used by
1.
2.
3.
4.

management
creditors
investors
all are correct

Within the United States, the dominant body in the primary
development of accounting principles is the
1.
2.
3.
4.

American Institute of Certified Public Accountants (AICPA)

American Accounting Association (AAA)
Financial Accounting Standards Board (FASB)
Institute of Management Accountants (IMA)

Which of the following is the best description of accounting’s role in
business?
1.

Accounting provides stockholders with information regarding the market value
of the company’s stocks.
2. Accounting provides information to managers to operate the business and to
other users to make decisions regarding the economic condition of the
company.
3. Accounting provides creditors and banks with information regarding the credit
risk rating of the company.
4. Accounting is not responsible for providing any form of information to users.
That is the role of the Information Systems Department.

The business entity concept means that
1.
2.
3.
4.

the owner is part of the business entity
an entity is organized according to state or federal statutes
an entity is organized according to the rules set by the FASB
the entity is an individual economic unit for which data are recorded,
analyzed, and reported

An entity that is organized according to state or federal statutes and
in which ownership is divided into shares of stock is a
1.
2.
3.
4.

proprietorship
corporation
partnership
governmental unit

The initials GAAP stand for
1.

General Accounting Procedures


2.
3.
4.

Generally Accepted Plans
Generally Accepted Accounting Principles
Generally Accepted Accounting Practices

Which of the following is not true of accounting principles?
1.

Financial accountants follow generally accepted accounting principles

(GAAP).
2. Following GAAP allows accounting information users to compare one
company to another.
3. A new accounting principle can be adopted with stockholders approval.
4. The Financial Accounting Standards Board (FASB) has primary responsibility
for developing accounting principles.

Donner Company is selling a piece of land adjacent to their
business. An appraisal reported the market value of the land to be
$120,000. The Focus Company initially offered to buy the land for
$107,000. The companies settled on a purchase price of $115,000.
On the same day, another piece of land on the same block sold for
$122,000. Under the cost concept, what is the amount that will be
used to record this transaction in the accounting records?
1.
2.
3.
4.

$107,000
$115,000
$120,000
$122,000

Which of the following is not a certification for accountants?
1.
2.
3.
4.

CIA
CMA
CISA
All are certifications.

Which of the following is true in regards to a Limited Liability
Company?
1.
2.
3.
4.

Makes up 10% of business organizations in the United States.
Combines the attributes of a partnership and a corporation.
Provides tax and liability advantages to the owners.
All are correct.

Which of the following would not normally operate as a service
business?
1.
2.
3.
4.

Pet Groomers
Restaurant
Lawn Care Company
Styling Salon

Which of the following best describes accounting?
1.

records economic data but does not communicate the data to users according
to any specific rules.
2. is an information system that provides reports to users regarding economic
activities and condition of a business.
3. is of no use by individuals outside of the business.
4. is used only for filling out tax returns and for financial statements for various
type of governmental reporting requirements.

Denzel Jones owns and operates Crystal Cleaning Company.
Recently, Denzel withdrew $18,000 from Crystal Cleaning, and he
contributed $14,000, in his name, to Habitat for Humanity. The
contribution of the $14,000 should be recorded on the accounting
records of which of the following entities?
1.
2.
3.
4.

Crystal Cleaning and Habitat for Humanity
Denzel Jones' personal records and Habitat for Humanity
Denzel Jones’ personal records and Crystal Cleaning
Denzel Jones’ personal records, Crystal Cleaning, and Habitat for Humanity

Most businesses in the United States are
1.
2.
3.

4.

proprietorships
partnerships
corporations
separate entities

Which type of accountant typically practices as an individual or as a
member of a public accounting firm?
1.
2.
3.
4.

Certified Public Accountant
Certified Payroll Professional
Certified Internal Auditor
Certified Management Accountant

Which of the following concepts relates to separating the reporting
of business and personal economic transactions?
1.
2.
3.
4.

Cost Concept
Unit of Measure Concept
Business Entity Concept
Objectivity Concept

All of the following are general-purpose financial statements
except:
1.
2.
3.

balance sheet
income statement
statement of owner’s equity


4.

cash budget

Which of the following groups are considered to be internal users of
accounting information?
1.
2.
3.
4.

Employees and customers
Customers and vendors
Employees and managers
Government and banks

Which of the following is a manufacturing business?
1.

2.
3.
4.

Amazon.com.
Wal-Mart.
Ford Motors.
Delta Airlines

Due to various fraudulent business practices and accounting
coverups in the early 2000’s, Congress enacted the SarbanesOxley Act of 2002. The Act was responsible for establishing a new
oversight board for public accountants called the
1.
2.
3.
4.

Generally Accepted Accounting Practices for Public Accountants Board.
Public Company Accounting Oversight Board.
Congressional Accounting Oversight Board.
None are correct.

74 Free Test Bank for Accounting 24th Edition by
Warren Multiple Choice Questions - Page 2
The asset section of the Balance Sheet normally presents assets in
1.
2.
3.
4.

alphabetical order.
order of largest to smallest dollar amounts.
in the order what will be converted into cash.
any order.

A business paid $7,000 to a creditor in payment of an amount
owed. The effect of the transaction on the accounting equation was
to
1.
2.
3.
4.

increase one asset, decrease another asset
decrease an asset, decrease a liability
increase an asset, increase a liability
increase an asset, increase owner's equity

Expenses are recorded when
1.
2.

cash is paid for services rendered
a bill is received in advance of services rendered


3.
4.

assets are used in the process of earning revenue

none of these

Which of the following is not an asset?
1.
2.
3.
4.

Investments
Cash
Inventory
Owner’s Equity

Cash investments made by the owner to the business are reported
on the statement of cash flows in the
1.
2.
3.
4.

financing activities section
investing activities section
operating activities section
supplemental statement

A financial statement user would determine if a company was
profitable or not during a specific period of time by reviewing
1.
2.
3.

4.

the Income Statement.
the Balance Sheet.
the Statement of Cash Flows.
cannot be determined.

Countries outside the U.S. use financial accounting standards
issued by the:
1.
2.
3.
4.

LLC
SEC
IASB
GAAP

The monetary value charged to customers for the performance of
services sold is called a(n)
1.
2.
3.
4.

asset
net income
capital
revenue

The accounting equation may be expressed as
1.
2.
3.
4.

Assets = Equities - Liabilities
Assets + Liabilities = Owner's Equity
Assets = Revenues less Liabilities
Assets - Liabilities = Owner's Equity


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)
1.
2.
3.
4.

prior period statement
statement of owner's equity
income statement
balance sheet

Transactions affecting owner's equity include
1.
2.
3.

owner's investments and payment of liabilities
owner's investments and owner's withdrawals, revenues, and expenses
owner's investments, revenues, expenses, and collection of accounts
receivable
4. owner's withdrawals, revenues, expenses, and purchase of supplies on
account

Which of the following is not a business transaction?
1.
2.
3.

Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service.
Erin provided services to customers earning fees of $600.
Erin purchased hedge trimmers for her lawn service agreeing to pay the
supplier next month.
4. Erin pays her monthly personal credit card bill.

If the owner wanted to know how money flowed into and out of the
company, what financial statement would she use?
1.
2.
3.
4.

Income Statement
Statement of Cash Flows
Balance Sheet
None are correct.

Which of the following financial statements reports information as of
a specific date?
1.
2.
3.
4.

income statement
statement of owner's equity
statement of cash flows
balance sheet

The unit of measure concept:
1.
2.
3.
4.

is only used in the financial statements of manufacturing companies.
is not important when applying the cost concept.
requires that different units be used for assets and liabilities.
requires that economic data be reported in yen in Japan or dollars in the U.S.

Liabilities are reported on the


1.
2.
3.

4.

income statement
statement of owner's equity
statement of cash flows
balance sheet

If total assets decreased by $88,000 during a period of time and
owner's equity increased by $65,000 during the same period, then
the amount and direction (increase or decrease) of the period's
change in total liabilities is
1.
2.
3.
4.

$23,000 increase
$88,000 decrease
$153,000 increase
$153,000 decrease

The debt created by a business when it makes a purchase on
account is referred to as an
1.
2.
3.
4.

account payable
account receivable

asset
expense payable

Ramon Ramos has withdrawn $750 from Ramos Repair Company’s
cash account to deposit in his personal account. How does this
transaction affect Ramos Repair Company’s accounting equation?
1.
2.
3.
4.

Increase Assets (Accounts Receivable) and decrease Assets (Cash)
Decrease Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)
Decrease Assets (Cash) and decrease Liabilities (Accounts Payable)
Increase Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)

If total liabilities decreased by $55,000 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
1.
2.
3.
4.

$115,000 increase
$5,000 increase
$5,000 decrease
$115,000 decrease

Clifford Moore is starting his computer programming business and
has deposited in initial investment of $15,000 into the business
cash account. Identify how the accounting equation will be
affected.
1.
2.

Increase Assets (Cash) and increase Liabilities (Accounts Payable)
Increase Assets (Cash) and increase Owner’s Equity (Clifford Moore, Capital)


3.

Increase Assets (Accounts Receivable) and decrease Liabilities (Accounts
Payable)
4. Increase Assets (Cash) and increase Assets (Accounts Receivable)

The year-end balance of the owner's capital account appears in
1.
2.
3.
4.

both the statement of owner's equity and the income statement
only the statement of owner's equity
both the statement of owner's equity and the balance sheet
both the statement of owner's equity and the statement of cash flows

Gomez Service Company paid their first installment on their Notes
Payable in the amount of $2,000. How will this transaction affect the

accounting equation?
1.
2.

Increase Liabilities (Notes Payable) and decrease Assets (Cash)
Decrease Assets (Cash) and decrease Owner’s equity (Note Payable
Expense)
3. Decrease Assets (Cash) and decrease Assets (Notes Receivable)
4. Decrease Assets (Cash) and decrease Liabilities (Notes Payable)

Land, originally purchased for $20,000, is sold for $75,000 in cash.
What is the effect of the sale on the accounting equation?
1.
2.
3.

assets increase $75,000; owner's equity increases $75,000
assets increase $55,000; owner's equity increases $55,000
assets increase $75,000; liabilities decrease $20,000; owner's equity
increases $55,000
4. assets increase $20,000; no change for liabilities; owner's equity increases
$75,000

Allen Marks is the sole owner and operator of Great Marks
Company. As of the end of its accounting period, December 31,
2011, Great Marks Company has assets of $940,000 and liabilities
of $300,000. During 2012, Allen Marks invested an additional
$65,000 and withdrew $45,000 from the business. What is the
amount of net income during 2012, assuming that as of December
31, 2012, assets were $995,000, and liabilities were $270,000?

1.
2.
3.
4.

$ 65,000
$ 50,000
$105,000
$370,000

How does paying a liability in cash affect the accounting equation?
1.
2.
3.

assets increase; liabilities decrease
assets increase; liabilities increase
assets decrease; liabilities decrease


4.

liabilities decrease; owner's equity increases

Goods purchased on account for future use in the business, such
as supplies, are called
1.
2.
3.
4.

prepaid liabilities
revenues
prepaid expenses
liabilities

Earning revenue
1.
2.
3.
4.

increases assets, increases owner’s equity.
increases assets, decreases owner's equity
increases one asset, decreases another asset
decreases assets, increases liabilities

How does receiving a bill to be paid next month for services
rendered affect the accounting equation?
1.
2.
3.
4.

assets decrease; owner's equity decreases
assets increase; liabilities increase
liabilities increase; owner's equity increases
liabilities increase; owner's equity decreases

How does the purchase of equipment by signing a note affect the

accounting equation?
1.
2.
3.
4.

assets increase; assets decrease
assets increase; liabilities decrease
assets increase; liabilities increase
assets increase; owner's equity increases

The assets and liabilities of the company are $175,000 and
$40,000, respectively. Owner’s equity should equal
1.
2.
3.
4.

$215,000
$135,000
$175,000
$40,000

Owner's withdrawals
1.
2.
3.
4.

increase expenses

decrease expenses
increase cash
decrease owner's equity

All of the following statements regarding the ratio of liabilities to
owner’s equity are true except:
1.

A ratio of 1 indicates that liabilities equal owner’s equity.


2.

Corporations can use this ratio but substitute total stockholders’ equity for total
owner’s equity.
3. The higher this ratio is, the better able a business is to withstand poor
business conditions and pay creditors.
4. The lower this ratio is, the better able a business is to withstand poor business
conditions and pay creditors.

The asset created by a business when it makes a sale on account
is termed
1.
2.
3.
4.

accounts payable
prepaid expense
unearned revenue

accounts receivable

Four financial statements are usually prepared for a business. The
statement of cash flows is usually prepared last. The statement of
owner's equity (OE), the balance sheet (B), and the income
statement (I) are prepared in a certain order to obtain information
needed for the next statement. In what order are these three
statements prepared?
1.
2.
3.
4.

I,OE, B
B, I, OE
OE, I, B
B,OE, I

Which of the following is not a business transaction?
1.
2.
3.
4.

make a sales offer
sell goods for cash
receive cash for services to be rendered later
pay for supplies

Revenues are reported when

1.
2.
3.
4.

a contract is signed
cash is received from the customer
work is begun on the job
work is completed on the job