122 test bank for financial accounting fundamentals 4th

122 Test Bank for Financial Accounting Fundamentals
4th
Edition by Wild Mutiple Choice Questions - Page 1
Businesses can take all of the following forms except:
1.

A. Sole proprietorship

2.

B. Common stock

3.

C. Partnership

4.

D. Corporation

5.

E. Limited liability corporation

On December 15, 2013, Myers Legal Services signed a $50,000
contract with a client to provide legal services to the client in 2014.
Which accounting principle would require Myers Legal Services to
record the legal fees revenue in 2014 and not 2013?
1.

A. Monetary unit principle

2.

B. Going-concern principle

3.

C. Cost principle

4.

D. Business entity principle

5.

E. Revenue recognition principle

Which of the following is the correct sequence for the heading for
ABC Company’s 2013 balance sheet?
1.

A. ABC Company, For the year ended 12/31/13, Balance Sheet

2.

B. For the year ended 12/31/13, Balance Sheet, ABC Company

3.

C. Balance Sheet, 12/31/13, ABC Company

4.

D. 12/31/13, ABC Company, Balance Sheet

5.

E. ABC Company, Balance Sheet, 12/31/13


Technological advancement
1.

A. Has replaced accounting.

2.

B. Has not changed the work that accountants do.

3.

C. Has freed accounting professionals to concentrate more on the analysis
and interpretation of information.

4.

D. In accounting has replaced the need for decision makers.

5.

E. In accounting is only available to large corporations.

The Maximum Experience Company acquired a building for
$500,000. Maximum Experience had an appraisal done and found
that the building was worth $575,000. The seller had paid $300,000
for the building six years ago. Which accounting principle would
prescribe that Maximum Experience record the building on its
records at $500,000?
1.

A. Monetary unit principle

2.

B. Going-concern principle

3.

C. Cost principle

4.

D. Business entity principle

5.

E. Revenue recognition principle

The principle that (A) requires revenue to be recognized at the time
it is earned, (B) allows the inflow of assets associated with revenue

to be in a form other than cash, and (C) measures the amount of
revenue as the cash plus the cash equivalent value of any noncash
assets received from customers in exchange for goods or services
is called the:
1.

A. Going-concern principle

2.

B. Cost principle

3.

C. Revenue recognition principle

4.

D. Objectivity principle


5.

E. Business entity principle

Identifying business activities requires selecting transactions and
events relevant to an organization. Which of the following events
would be recorded in the accounting records of Acme Car Wash?
1.

A. Acme washes 500 cars.

2.

B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme
while waiting for her car to be washed.

3.

C. Clean Company, a supplier, sells 50 pounds of soap to ABC Company.

4.

D. Sudsey Company, a supplier, goes out of business.

5.

E. Acme hires Andrea as a receptionist.

A corporation:
1.

A. Is a legal entity separate and distinct from its owners.

2.

B. Must have many owners.

3.

C. Has shareholders who have unlimited liability for the acts of the
corporation.

4.

D. Is the same as a limited liability partnership.

5.

E. Does not have to pay taxes.

An asset is:
1.

A. Only acquired with cash.

2.

B. Something the company owns.

3.

C. Only contributed by stockholders.

4.

D. A company’s obligation to pay.

5.

E. Is also called contributed capital.

Social responsibility:
1.

A. Is a concern for the impact of one's actions on society as a whole.


2.

B. Is a code that helps in dealing with confidential information.

3.

C. Is required by the SEC.

4.

D. Requires that all businesses conduct social audits.

5.

E. Is mandated by the federal government.

Internal users of accounting information include:
1.

A. Shareholders

2.

B. Customers

3.

C. Creditors

4.

D. Government regulators

5.

E. Production managers

What is the opportunity component of the fraud triangle?
1.

A. A person thinks that there is a way to commit fraud without much chance of
getting caught.

2.

B. A person has a really good reason to commit fraud.

3.

C. A person does not think of the fraudulent activity as bad.

4.

D. A person persuades two or more other people to assist with the fraud.

5.

E. A person is concerned about the impact of their actions on society.

The area of accounting aimed at serving the decision-making needs
of internal users is:
1.

A. Financial accounting

2.

B. Managerial accounting

3.

C. External auditing

4.

D. SEC reporting

5.

E. Governmental accounting

The accounting principle that requires accounting information to be
based on actual cost and requires assets and services to be
recorded initially at the amount of cash or cash equivalent given in
exchange is the:
1.

A. Accounting equation

2.

B. Cost principle

3.

C. Going-concern principle

4.

D. Realization principle

5.

E. Business entity principle

Internal users of accounting information always include:
1.

A. Shareholders

2.

B. Managers

3.

C. Lenders

4.

D. Suppliers

5.

E. Customers

To include the personal assets and transactions of a business's
owner in the records and reports of the business would be in
conflict with the:
1.

A. Objectivity principle

2.

B. Realization principle

3.

C. Business entity principle

4.

D. Going-concern principle

5.

E. Revenue recognition principle

The objectivity principle:
1.

A. Means that information is supported by independent, unbiased evidence.


2.

B. Means that information can be based on what the preparer thinks is true.

3.

C. Means that financial statement should contain information that is optimistic.

4.

D. Means that a business may not recognize revenue until cash is received.

5.

E. Means the assets acquired must be recorded at what the company paid for
them.

A limited partnership:
1.

A. Includes a general partner with unlimited liability.

2.

B. Is subject to double taxation.

3.

C. Has owners called stockholders.

4.

D. Is the same as a corporation.

5.

E. Must only have two partners.

According to generally accepted accounting principles, a company's
balance sheet should show the company's assets at:
1.

A. The cash equivalent value of what was given up.

2.

B. The current market value of the assets at the balance sheet date.

3.

C. The cash paid to acquire them, even if something other than cash was
given in the exchange.

4.

D. The best estimate from a certified internal auditor.

5.

E. The objective value to external users.

Which of the following statements best describes the relationship of
U.S. GAAP and IFRS?
1.

A. They are identical.

2.

B. They are entirely different conceptual frameworks.

3.

C. They are similar but not identical.

4.

D. Neither has anything to do with accounting.


5.

E. They both relate only to publicly traded companies.

Ethical behavior requires:
1.

A. That an auditor’s pay not depend on the figures in the client's reports.

2.

B. Auditors to invest in businesses they audit.

3.

C. Analysts to report information favorable to their companies.

4.

D. Managers to use accounting information to benefit themselves.

5.

E. That an auditor provides a favorable opinion.

Congress passed the Sarbanes-Oxley Act to

1.

A. Provide jobs to U.S. accountants and limit the number of jobs sent outside
the country.

2.

B. Impose penalties on CEO's and CFO's who knowingly sign off on bogus
accounting reports, although at this time the penalties are token amounts.

3.
4.

5.

C. Help curb financial abuses at companies that issue their stock to the public.
D. Force auditors to attest to the absolute accuracy of the financial
statements.
E. Require that all companies publicly disclose their internal control plans.

The question of when revenue should be recognized on the income
statement (according to GAAP) is addressed by the:
1.

A. Revenue recognition principle

2.

B. Going-concern principle

3.

C. Objectivity principle

4.

D. Business entity principle

5.

E. Cost principle

Why are ethics crucial to accounting?
1.

A. Ethical behavior creates the most profit for the business.


2.

B. Ethics are a tool which help the accountants balance the accounting
equation.

3.

C. For accounting information to be useful, it must be trusted and therefore
the result of ethical decisions.

4.

D. Ethics are important to consider when applying GAAP but do not apply to
international accounting issues.

5.

E. Ethics are a way to compute revenues and expenses, but they do not apply
to assets, liabilities, and owners’ equity.

Which of the following elements are found on the income
statement?
1.

A. Cash

2.

B. Accounts receivable

3.

C. Common stock

4.

D. Retained earnings

5.

E. Salaries expense

Which of the following is the primary purpose of accounting?
1.

A. To establish a business.

2.

B. To identify, record, and communicate business transactions.

3.

C. To earn a large profit.

4.

D. To reduce taxes owed for the business.

5.

E. To establish credit for a company.

Recording the items on the financial statements in dollars is done
because of the:
1.

A. Objectivity principle

2.

B. Monetary unit principle

3.

C. Revenue recognition principle


4.

D. Going-concern principle

5.

E. Cost principle

Generally Accepted Accounting Principles:
1.

A. Focus on the review of a situation.

2.

B. Do not require financial statements.

3.

C. Never change.

4.

5.

D. Intend to make information on the financial statements relevant, reliable,
and comparable.
E. Oversees Security and Exchange Commission.

The principle prescribing that financial statements reflect the
assumption that the business will continue operating instead of
being closed or sold, unless evidence shows that it will not
continue, is the:
1.

A. Going-concern principle

2.

B. Business entity principle

3.

C. Objectivity principle

4.

D. Cost principle

5.

E. Monetary unit principle

Which of the following elements are found on the balance sheet?

1.

A. Service revenue

2.

B. Net income

3.

C. Operating activities

4.

D. Utilities expense

5.

E. Retained earnings

Which accounting assumption assumes that all accounting
information can be reported monthly or yearly?


1.

A. Business entity assumption

2.

B. Monetary unit assumption

3.

C. Value assumption

4.

D. Cost assumption

5.

E. Time period assumption

The private board that currently has the authority to establish U.S.
generally accepted accounting principles is the:
1.

A. APB

2.

B. FASB

3.

C. AAA

4.

D. AICPA

5.

E. SEC

The organization that attempts to create more harmony among the
accounting practices of different countries by identifying preferred
practices and encouraging their worldwide acceptance is the:
1.

A. AICPA

2.

B. FASB

3.

C. CAP

4.

D. SEC

5.

E. IASB

The International Accounting Standards Board (IASB)

1.

A. Hopes to create harmony among accounting practices of different
countries.

2.

B. Is the government group that establishes reporting requirements for
companies that issue stock to the public.

3.

C. Has the authority to impose its standards on companies


4.

5.

D. Is the only source of U.S. generally accepted accounting principles
(GAAP).
E. Applies only to companies that are members of the European Union.

The accounting guideline prescribing that financial statement
information be supported by independent, unbiased evidence other
than someone's belief or opinion is the:
1.

A. Business entity principle

2.

B. Monetary unit principle

3.

C. Going-concern principle

4.

D. Objectivity principle

5.

E. Full disclosure principle

The owners of a partnership:
1.

A. Have created an entity that can also be called a sole proprietorship.

2.

B. Have unlimited liability.

3.

C. Have to have a written agreement in order to be legal.

4.

D. Have created a legal organization separate from its owners.

5.

E. Are called shareholders.

Which of the following accounting principles dictates when
expenses are recognized?
1.

A. Revenue recognition principle

2.

B. Monetary unit principle

3.

C. Business entity principle

4.

D. Matching principle

5.

E. Full disclosure principle

The primary objective of financial accounting is:

1.
2.

3.
4.

5.

A. To serve the decision-making needs of internal users.
B. To provide financial statements to help external users analyze and interpret
an organization's activities.
C. To monitor and control company activities.
D. To provide information on both the costs and benefits of managing
products and services.
E. To know what, when and how much to produce.

A parcel of land is: offered for sale at $150,000, assessed for tax
purposes at $95,000, recognized by its purchasers as being worth
$140,000, and purchased for $137,000. The land should be
recorded in the purchaser's books at:
1.

A. $95,000

2.

B. $137,000

3.

C. $138,500

4.

D. $140,000

5.

E. $150,000

Marian Mosely is the owner of Mosely Accounting Services. Which
accounting assumption requires Marian to keep her personal
financial information separate from the financial information of
Mosely Accounting Services?
1.

A. Monetary unit assumption

2.

B. Going-concern assumption

3.

C. Cost assumption

4.

D. Business entity assumption

5.

E. Full disclosure assumption


122 Free Test Bank for Financial Accounting
Fundamentals 4th Edition by Wild Mutiple Choice
Questions - Page 2
Resources owned or controlled by a company that are expected to
yield benefits are:
1.

A. Assets

2.

B. Revenues

3.

C. Liabilities

4.

D. Stockholder's equity

5.

E. Expenses

Revenue is properly recognized:
1.

A. When the customer's order is received.

2.

B. Only if the transaction creates an account receivable.

3.

C. At the end of the accounting period.

4.

5.

D. Upon completion of the sale or when services have been performed and
the business obtains the right to collect the sale price.
E. When cash from a sale is received.

Reebok had income of $150 million and average assets of $1,800
million. Its return on assets is:
1.

A. 8.33%

2.

B. 83.3%

3.

C. 12.0%

4.

D. 120%

5.

E. 16.7%


A corporation purchased a $40,000 delivery truck by paying 4,000
cash and signing a $36,000 note payable. Immediately prior to this
transaction the corporation had assets, liabilities, and owners'
equity in the amounts of $75,000, $52,000, and $23,000
respectively. What is the total amount of the corporation's assets
after this transaction has been recorded?
1.

A. $115,000

2.

B. $111,000

3.

C. $79,000

4.

D. $71,000

5.

E. $75,000

6.

If the assets of a business increased $15,000 during a period of
time and its equity decreased $4,000 during the same period,
liabilities in the business must have:
1.

A. Increased $11,000

2.

B. Decreased $11,000

3.

C. Increased $19,000

4.

D. Decreased $19,000

5.

E. Increased $61,000

Planning activities:
1.
2.

A. Are the means organizations must use to pay for resources.
B. Involve the acquiring and disposing of resources that an organization uses
to acquire and sell its products or services.

3.

C. Involve defining the ideas, goals, and actions of an organization.

4.

D. Are the carrying out of an organization's plans.


5.

E. Involve using resources to research, develop, purchase, produce, and
market products and services.

Our company has three times as many assets as it does liabilities. If

total liabilities are $55,000, what is the amount of owners' equity?
1.

A. $55,000

2.

B. $110,000

3.

C. $165,000

4.

D. $220,000

5.

E. Owners’ equity cannot be determined from the given information.

If equity is $300,000 and liabilities are $192,000, then assets equal:
1.

A. $108,000

2.

B. $192,000

3.

C. $300,000

4.

D. $492,000

5.

E. $792,000

Operating activities:
1.

A. Are the means organizations must use to pay for resources like land,
buildings, and equipment.

2.

B. Involve using resources to research, develop, purchase, produce,
distribute, and market products and services.

3.

C. Involve acquiring and disposing of resources that a business uses to
acquire and sell its products or services.

4.

D. Are also called asset management.

5.

E. Are also called strategic management.

Expenses:
1.

A. Increase retained earnings.


2.

B. Are increases in retained earnings from a company's earning activity.

3.

C. Are the costs of assets or services used to earn revenues.

4.

D. Occur when retained earnings exceed revenue.

5.

E. Are creditors' claims on assets.

Net income is:
1.

A. Assets minus liabilities.

2.

B. The excess of revenues over expenses.

3.

C. An asset.

4.

D. The same as revenue.

5.

E. The excess of expenses over retained earnings.

Apatha Company has assets of $600,000, liabilities of $250,000,
and equity of $350,000. It buys office equipment on credit for
$75,000. The effects of this transaction include:
1.

A. Assets increase by $75,000 and expenses increase by $75,000.

2.

B. Assets increase by $75,000 and expenses decrease by $75,000.

3.

C. Liabilities increase by $75,000 and expenses decrease by $75,000.

4.

D. Assets decrease by $75,000 and expenses decrease by $75,000.

5.

E. Assets increase by $75,000 and liabilities increase by $75,000.

Photometer Company paid off $30,000 of its accounts payable in
cash. What would be the effects of this transaction on the
accounting equation?
1.

A. Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.

2.

B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.

3.

C. Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.

4.

D. Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.

5.

E. Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.

The assets of a company total $700,000; the liabilities, $200,000.
What are the total claims of the owners?
1.

A. $900,000

2.

B. $700,000

3.

C. $500,000

4.

D. $200,000

5.

E. It is impossible to determine unless the amount of owners' investment is
known.

Viscount Company collected $42,000 cash on its accounts

receivable. How does this transaction affect the company's
accounting equation?
1.

A. Assets decrease and equity increases

2.

B. Both assets and liabilities decrease

3.

C. Assets, liabilities, and equity are unchanged

4.

D. Both assets and equity are unchanged and liabilities increase

5.

E. Assets increase and equity decreases

Increases in retained earnings from a company's earnings activities
are:
1.

A. Assets

2.

B. Revenues

3.

C. Liabilities

4.

D. Stockholder's equity

5.

E. Expenses

Which of the following statements is not true about assets?
1.

A. They are economic resources owned or controlled by the business.


2.

B. They are expected to provide future benefits to the business.

3.

C. They appear on the balance sheet.

4.

D. They appear on the statement of retained earnings.

5.

E. Claims on them are shared between creditors and owners.

The major activities of a business include:
1.

A. Operating, investing, making a profit

2.

B. Investing, making a profit, operating

3.

C. Making a profit, operating, borrowing

4.

D. Operating, investing, financing

5.

E. Investing, making a profit, financing

An example of a financing activity is:
1.

A. Buying office supplies.

2.

B. Obtaining a long-term loan.

3.

C. Buying office equipment.

4.

D. Selling inventory.

5.

E. Buying land.

How would the accounting equation of Boston Company be affected
by the billing of a client for $10,000 of consulting work completed?
1.

A. +$10,000 accounts receivable, -$10,000 accounts payable.

2.

B. +$10,000 accounts receivable, +$10,000 accounts payable.

3.

C. +$10,000 accounts receivable, +$10,000 cash.

4.

D. +$10,000 accounts receivable, +$10,000 consulting revenue.

5.

E. +$10,000 accounts receivable, -$10,000 consulting revenue.


Which of the following accounting principles would prescribe that all
goods and services purchased are recorded at cost?
1.

A. Going-concern principle

2.

B. Continuing-concern principle

3.

C. Cost principle

4.

D. Business entity principle

5.

E. Consideration principle

An example of an operating activity is:
1.

A. Paying wages.

2.

B. Purchasing office equipment.

3.

C. Borrowing money from a bank.

4.

D. Selling stock.

5.

E. Paying off a loan.

Assets created by selling goods and services on credit are:
1.

A. Accounts payable

2.

B. Accounts receivable

3.

C. Liabilities

4.

D. Expenses

5.

E. Equity

If the assets of a business increased $89,000 during a period of
time and its liabilities increased $67,000 during the same period,
equity in the business must have:
1.

A. Increased $22,000

2.

B. Decreased $22,000

3.

C. Increased $89,000

4.

D. Decreased $156,000

5.

E. Increased $156,000

A company has twice as much owner's equity as it does liabilities. If
total liabilities are $50,000, what amount of assets are owned by the
company?
1.

A. $50,000

2.

B. $100,000

3.

C. $150,000

4.

D. $200,000

5.

E. Assets cannot be determined from the given information.

Net income:
1.

A. Occurs when revenues exceed expenses.

2.

B. Is the same as revenue.

3.

C. Equals resources owned or controlled by a company.

4.

D. Occurs when expenses exceed assets.

5.

E. Represents assets taken from a company for an owner's personal use.

Which of the following statements is true?
1.
2.

A. Assets and revenues are the same thing.
B. If employees have not yet been paid for their work, the company has
wages payable.

3.

C. Retained earnings equal cash that the company has earned and kept

4.

D. Revenue is another term for profit.

5.

E. Revenue minus expense equals retained earnings.

Revenues are:
1.

A. The same as net income.


2.

B. The excess of expenses over assets.

3.

C. Resources owned or controlled by a company.

4.

D. Increases in retained earnings from a company's earning activities.

5.

E. The costs of assets or services used.

Another name for equity is:
1.

A. Net income

2.

B. Expenses

3.

C. Net assets

4.

D. Revenue

5.

E. Net loss

The description of the relation between a company's assets,
liabilities, and equity, which is expressed as Assets = Liabilities +
Equity, is known as the:
1.

A. Income statement equation.

2.

B. Accounting equation.

3.

C. Business equation.

4.

D. Return on equity ratio.

5.

E. Net income.

If liabilities are $51,500 and assets are $173,425, then equity
equals:
1.

A. $224,925

2.

B. $51,500

3.

C. $173,425

4.

D. $121,925

5.

E. $103,000


An exchange of value between two entities is called:
1.

A. The accounting equation.

2.

B. Recordkeeping or bookkeeping.

3.

C. A business transaction.

4.

D. An asset.

5.

E. Net Income.

Return on assets is:
1.

A. Also called rate of return.

2.

B. Computed by dividing net income by average total assets.

3.

C. Computed by multiplying net income by average total assets.

4.

D. Used in helping evaluate expenses.

5.

E. Found on the balance sheet.

An example of an investing activity is:
1.

A. Paying wages of employees.

2.

B. Paying dividends.

3.

C. Purchasing land.

4.

D. Selling inventory.

5.

E. Contribution from owner.

Beta Corporation purchased $100,000 worth of land by paying
10,000 cash and signing a $90,000 mortgage. Immediately prior to
this transaction the corporation had assets, liabilities, and owners'
equity in the amounts of $150,000, $30,000, and $120,000
respectively. What is the total amount of Beta Corporation's assets
after this transaction has been recorded?
1.

A. $240,000


2.

B. $250,000

3.

C. $160,000

4.

D. $40,000

5.

E. $260,000

Decreases in retained earnings that represent costs of assets or
services that are used to earn revenues are called:
1.

A. Liabilities

2.

B. Equity

3.

C. Withdrawals

4.

D. Expenses

5.

E. Contributed capital

The difference between a company's assets and its liabilities is:
1.

A. Net income

2.

B. Expense

3.

C. Equity

4.

D. Revenue

5.

E. Net loss

Creditors' claims on the assets of a company are called:
1.

A. Net losses

2.

B. Expenses

3.

C. Revenues

4.

D. Equity

5.

E. Liabilities

The distribution of assets to stockholders is called a(n):


1.

A. Liability

2.

B. Dividend

3.

C. Expense

4.

D. Contribution

5.

E. Investment

Net income:
1.

A. Decreases equity.

2.

B. Represents the amount of assets owners put into a business.

3.

C. Equals assets minus liabilities.

4.

D. Is the excess of revenues over expenses.

5.

E. Represents the owners' claims against assets.

If the liabilities of a business increased $75,000 during a period of
time and the equity in the business decreased $30,000 during the
same period, the assets of the business must have:
1.

A. Decreased $105,000

2.

B. Decreased $45,000

3.

C. Increased $30,000

4.

D. Increased $45,000

5.

E. Increased $105,000

122 Free Test Bank for Financial Accounting
Fundamentals 4th Edition by Wild Mutiple Choice
Questions - Page 3
Revenue is properly recognized:
1.

A. When the customer's order is received.

2.

B. Only if the transaction creates an account receivable.


3.
4.

5.

C. At the end of the accounting period.
D. Upon completion of the sale or when services have been performed and
the business obtains the right to collect the sale price.
E. When cash from a sale is received.

Expenses:
1.

A. Increase retained earnings.

2.

B. Are increases in retained earnings from a company's earning activity.

3.

C. Are the costs of assets or services used to earn revenues.

4.

D. Occur when retained earnings exceed revenue.

5.

E. Are creditors' claims on assets.

Reebok had income of $150 million and average assets of $1,800
million. Its return on assets is:
1.

A. 8.33%

2.

B. 83.3%

3.

C. 12.0%

4.

D. 120%

5.

E. 16.7%

Our company has three times as many assets as it does liabilities. If

total liabilities are $55,000, what is the amount of owners' equity?
1.

A. $55,000

2.

B. $110,000

3.

C. $165,000

4.

D. $220,000

5.

E. Owners’ equity cannot be determined from the given information.