140 test bank for financial accounting information for decisions 7th edition

140 Test Bank for Financial Accounting Information for
Decisions 7th Edition
by Wild
Multiple Choice Questions
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.

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.

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 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

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.

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.

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 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.

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

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


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.

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 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.

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.

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

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.

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.

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.

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 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

Why are ethics crucial to accounting?
1.

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

2.

B. Ethics are a tool that helps 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.


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

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

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.

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.

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

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

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.

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 primary objective of financial accounting is to:
1.
2.

3.
4.

5.

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

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


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.

4.
5.

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

D. Means that a business may not recognize revenue until cash is received.
E. Means the assets acquired must be recorded at what the company paid
for them.

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 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.

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.

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

Internal users of accounting information include:
1.

A. Shareholders

2.

B. Customers

3.

C. Creditors

4.

D. Government regulators

5.

E. Production managers

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.
4.

5.

C. Has the authority to impose its standards on companies
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.


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

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

Another name for equity is:
1.

A. Net income

2.

B. Expenses

3.

C. Net assets

4.

D. Revenue

5.

E. Net loss

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

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.

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

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.

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.

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.

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

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

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.

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 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

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.

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


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

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.

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.

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

Internal users of accounting information always include:
1.

A. Shareholders

2.

B. Managers

3.

C. Lenders

4.

D. Suppliers

5.

E. Customers

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

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.

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

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.

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

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.

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

140 Free Test Bank for Financial Accounting
Information for Decisions 7th Edition by Wild Multiple
Choice Questions - Page 2
FastForward had cash inflows from operations of $62,500; cash
outflows from investing activities of $47,000; and cash inflows
from financing of $25,000. The net change in cash was:
1.

A. $40,500 increase

2.

B. $40,500 decrease

3.

C. $134,500 decrease

4.

D. $134,000 increase

5.

E. $9,500 increase

Canine Grooming purchased $600 of equipment on credit for its
grooming salon using a long-term note payable. How would

Canine Grooming record this transaction?
1.

A. Equipment increases by $600 and Accounts Payable increases by $600.

2.

B. Cash decreases by $600 and Equipment increases by $600.


3.

C. Cash decreases by $600 and Notes Payable decreases by $600.

4.

D. Equipment increases by $600 and Notes Payable increases by $600.

5.

E. Equipment increases by $600 and Notes Payable decreases by $600.

The statement of cash flows reports cash flows for:
1.

A. Operating activities

2.

B. Revenue activities

3.

C. Expense activities

4.

D. Planning activities

5.

E. Equity activities

Below is accounting information for Cascade Company for 2013:
Revenue $416,000; Cash $120,000; Common stock $200,000;
Expenses $300,000; Equipment $240,000; Accounts receivable
$35,000; Notes payable $50,000; Notes receivable $62,000.
What were the total assets at year-end?
1.

A. $320,000

2.

B. $296,000

3.

C. $316,000

4.

D. $457,000

5.

E. $116,000

FastForward 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%

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

Teasdale Printing Services purchases printing equipment on
credit for $8,000. How would Teasdale record this transaction?

1.

A. Cash decreases by $8,000 and Printing Equipment increases by $8,000.

2.

B. Cash decreases by $8,000 and Accounts Payable increases by $8,000.

3.

C. Cash decreases by $8,000 and Accounts Payable decreases by $8,000.

4.

D. Printing Equipment increases by $8,000 and Accounts Payable
increases by $8,000.

5.

E. Accounts Receivable increases by $8,000 and Accounts Payable
increases by $8,000.

Cash investments by owners in exchange for stock are listed on
which of the following statements?
1.

A. Balance sheet.

2.

B. Income statement.

3.

C. Statement of retained earnings.

4.

D. Statement of cash flows.


5.

E. Statement of cash received

The income statement reports all of the following except:
1.

A. Revenues earned by a business.

2.

B. Expenses incurred by a business.

3.

C. Assets owned by a business.

4.

D. Net income or loss earned by a business.

5.

E. The time period over which the earnings occurred.

Determine the net income of a company for which the following
information is available: Employee salaries expense……………..
$180,000; Interest expense………………………… 10,000; Rent
expense……………………………. 20,000; Consulting
revenue…………………….. 400,000
1.

A. $190,000

2.

B. $210,000

3.

C. $230,000

4.

D. $400,000

5.

E. $610,000

A company acquires equipment for $75,000 cash. This represents
a(n):
1.

A. Operating activity

2.

B. Investing activity

3.

C. Financing activity

4.

D. Revenue activity

5.

E. Expense activity


Refinishers Inc. receives cash of $2,000 from services performed
during its first week of business. How would Refinishers record
this transaction?
1.

A. Cash increases by $2,000 and Refinishing Revenue increases by

$2,000.

2.

B. Cash decreases by $2,000 and Refinishing Revenue decreases by
$2,000.

3.

C. Cash increases by $2,000 and Common Stock increases by $2,000.

4.

D. Cash decreases by $2,000 and Accounts Receivable decreases by
$2,000.

5.

E. Cash increases by $2,000 and Accounts Receivable decreases by
$2,000.

Beginning assets were $437,600, beginning liabilities were
$262,560, common stock issued during the year totaled $45,000,
revenue for the year was $414,250, expenses for the year were
$280,000, dividends declared were $22,700, and ending liabilities
were $350,000. What was the beginning equity for the year?
1.

A. $700,160

2.

B. $787,600

3.

C. $187,600

4.

D. $612,560

5.

E. $175,040

On August 1, Marietta Appliance Repair paid $2,500 cash to rent
office space for the month of August. How would Marietta record
this transaction?
1.

A. Accounts Payable increases by $2,500 and Rent Expense increases by
$2,500.

2.

B. Cash increases by $2,500 and Rent Revenue increases by $2,500.

3.

C. Cash decreases by $2,500 and Accounts Payable increases by $2,500.


4.

D. Cash decreases by $2,500 and Rent Expense decreases by $2,500.

5.

E. Cash decreases by $2,500 and Rent Expense increases by $2,500.

Margate Inc. purchases supplies on credit for $800. How would
Margate record this transaction?
1.

A. Supplies increases by $800 and Accounts Payable increases by $800.

2.

B. Cash decreases by $800 and Accounts Payable increases by $800.

3.

C. Cash decreases by $800 and Supplies increases by $800.

4.

D. Cash decreases by $800 and Accounts Payable decreases by $800.

5.

E. Equipment increases by $800 and Accounts Payable increases by $800.

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.

Use the following information as of December 31 to determine
equity. Accounts payable………………………… $ 800; Accounts
receivable……………………. 700;
Cash……………………………………… 2,300; Wages
expense………………………… 9,000; Wages
payable……………………… 1,200

1.

A. $1,000

2.

B. $3,000

3.

C. $5,000

4.

D. $10,000

5.

E. $11,000