137 test bank for financial accounting information for decisions 6th edition

137 Test Bank for Financial Accounting Information for
Decisions 6th Edition
by Wild Mutiple Choice Questions-Page 1
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. Cost principle

5.

E. Measurement principle

The principle that (1) requires revenue to be recognized at the time
it is earned, (2) allows the inflow of assets associated with revenue
to be in a form other than cash and (3) measures the amount of
revenue as the cash plus the cash equivalent value of any non-cash
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

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

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

Which of the following accounting principles would prescribe that all
goods and services purchased is 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

The amounts reported in the accounts for assets used in operations
are based on their costs. This practice is best justified by the:
1.

A. Cost principle

2.

B. Going-concern principle

3.

C. Objectivity principle

4.

D. Business entity principle

5.

E. Revenue recognition principle


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

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

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

A. Objectivity principle

2.

B. Monetary unit principle

3.

C. Revenue recognition principle

4.

D. Going-concern principle

5.

E. Cost principle

Internal users of accounting information include:
1.

A. Shareholders

2.

B. Customers

3.

C. Creditors


4.

D. Government regulators

5.

E. Line Supervisor

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

Which accounting assumption assumes that all accounting
information is 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

On December 15, 2010, Myers Legal Services signed a $50,000
contract with a client to provide legal services to the client in 2011.
Which accounting principle would require Myers Legal Services to
record the legal fees revenue in 2011 and not 2010?
1.

A. Monetary unit principle

2.

B. Going-concern principle

3.

C. Cost principle

4.

D. Business entity principle

5.

E. Revenue recognition principle


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. None of these. Since Marian is a sole proprietor, she is not required to
separate her personal financial information from the financial information of
Mosely Accounting Services

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

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

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

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

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 6 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 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

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

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

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


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 is true of external information
users?
1.

A. They are directly involved in managing the organization

2.

B. Their needs are met by the managerial area of accounting

3.

C. They have limited access to an organization's accounting information

4.

D. They use accounting information to help improve the efficiency and
effectiveness of an organization

5.

E. They are the only users of accounting information who rely on internal
controls to monitor company activities

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

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

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

The International Accounting Standards Board (IASB)
1.
2.

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

D. Is the only source of U.S. generally accepted accounting principles (GAAP)

5.

E. Applies only to companies that are members of the European Union

Internal users of accounting information always include:
1.

A. Shareholders

2.

B. Managers

3.

C. Lenders

4.

D. Suppliers

5.

E. Customers


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

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 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 and what the company paid
for them

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.

C. Help curb financial abuses at companies that issue their stock to the public


4.

D. Force auditors to attest to the absolute accuracy of the financial statements

5.

E. Require that all companies publicly disclose their internal control plans

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

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

Ethical behavior requires:
1.

A. That an auditors' 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


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

Generally Accepted Accounting Principles:
1.

A. Focus on the review of a situation

2.

B. Does 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

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 deceive stockholders

4.

D. To keep from paying taxes

5.

E. To establish credit for a company

A partnership:
1.

A. Is also called a sole proprietorship

2.

B. Has unlimited liability


3.

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

4.

D. Is a legal organization separate from its owners

5.

E. Has owners called shareholders

The financing functions of a business include:
1.

A. Research and development

2.

B. Purchasing

3.

C. Marketing

4.

D. Distribution

5.

E. Selling common stock

Which of the following is the correct sequence for the heading for
ABC Company’s 2010 Balance Sheet?
1.

A. ABC Company, For the year ended 12/31/10, Balance Sheet

2.

B. For the year ended 12/31/10, Balance Sheet, ABC Company

3.

C. Balance Sheet, 12/31/10, ABC Company

4.

D. 12/31/10, ABC Company, Balance Sheet

5.

E. ABC Company, Balance Sheet, 12/31/10

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

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

137 Free Test Bank for Financial Accounting Information
for Decisions 6th Edition by Wild Mutiple Choice
Questions-Page 2
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

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

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

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

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

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

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

If assets are $365,000 and equity is $120,000, then liabilities are:
1.

A. $120,000

2.

B. $245,000

3.

C. $365,000

4.

D. $485,000

5.

E. $610,000

Fast-Forward has net income of $18,955 and assets at the
beginning of the year of $200,000. Its assets at the end of the year
total $246,000. Compute its return on assets.
1.

A. 7.7%

2.

B. 8.5%

3.

C. 9.5%

4.

D. 11.8%

5.

E. 13.0%

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

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

A. Net income

2.

B. Expense

3.

C. Equity

4.

D. Revenue

5.

E. Net loss

Another name for equity is:
1.

A. Net income

2.

B. Expenses

3.

C. Net assets

4.

D. Revenue

5.

E. Net loss

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


A company has twice as much owner's equity as it does liabilities. If
total liabilities are $50,000, what amounts 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. Cannot be determined from the given information

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. Cannot be determined from the given information

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 creditor's claims on assets

Compute return on assets given net income of $13,764, beginning
assets of $120,000 and ending assets of $176,000.
1.

A. 4.65%

2.

B. 7.82%


3.

C. 9.3%

4.

D. 11.47%

5.

E. 21.51%

U.S. government bonds are:
1.

A. High-risk and high-return investments

2.

B. Low-risk and low-return investments

3.

C. High-risk and low-return investments

4.

D. Low-risk and high-return investments

5.

E. High risk and no-return investments

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

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

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

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

If assets are $99,000 and liabilities are $32,000, then equity
equals:
1.

A. $32,000

2.

B. $67,000

3.

C. $99,000

4.

D. $131,000

5.

E. $198,000

Distributions of assets by a business to its stockholders are called:
1.

A. Dividends

2.

B. Expenses

3.

C. Assets

4.

D. Retained earnings


5.

E. Net Income

Nike had income of $350 million and average assets of $2,000
million. Its return on assets is:
1.

A. 1.8%

2.

B. 35%

3.

C. 17.5%

4.

D. 5.7%

5.

E. 3.5%

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

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

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

Return on assets is:
1.
2.

A. Also called rate of return

B. Computed by dividing net income by beginning assets plus ending assets
divided by two

3.

C. Computed by multiplying net income by total assets

4.

D. Used in helping evaluate expenses

5.

E. Found on the balance sheet

Which of the following statements regarding account classification
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 which the company has earned and kept

4.

D. Revenue is another term for profit

5.

E. Revenue minus expense equals retained earnings

Planning activities:
1.

A. Are the means organizations must use to pay for resources


2.

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

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

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

The balance sheet equation is:
1.

A. Revenues minus expenses equal net income

2.

B. Debits equal credits

3.

C. The bookkeeping phase of accounting

4.

D. Another name for the accounting equation

5.

E. Assets minus liabilities and equity


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

Assets = Liabilities + Equity is known as the:
1.

A. Income statement equation

2.

B. Cost principle

3.

C. Objectivity principle

4.

D. Accounting equation

5.

E. Transaction principle

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

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

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

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

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

The excess of expenses over revenues for a period is:
1.

A. Net assets