85 test bank for principles of accounting 1st edition

85 Test Bank for Principles of Accounting 1st Edition

Multiple Choice Questions - Page 1
The primary responsibility for setting the rules of accounting
rests with the:
1.

A. Financial Accounting Standards Board (FASB).

2.

B. Generally Accepted Accounting Principles (GAAP).

3.

C. Security and Exchange Commission (SEC).

4.

D. American Institute of CPAs (AICPA).

Resources a business owns are called:
1.

A. Liabilities.

2.

B. Owner's equity.

3.

C. Revenues.

4.

D. Assets.

Unearned revenue is an example of a(n):
1.

A. Liability.

2.

B. Revenue.

3.

C. Asset.

4.

D. Expense.

Which of the following represents the fundamental accounting
equation?
1.

A. A + L = OE

2.

B. A - L = OE

3.

C. OE + A = L

4.

D. L - OE = A

The rules of accounting are known as:
1.

A. Security and Exchange Commission (SEC).

2.

B. Financial Accounting Standards Board (FASB).


3.

C. American Institute of CPAs (AICPA).

4.

D. Generally Accepted Accounting Principles (GAAP).

Which of the following would not be considered an external
user of accounting information?
1.

A. Bank

2.

B. Supplier

3.

C. Manager

4.

D. Investor

A bank is most likely a(n) ___________ user of accounting
information.
1.

A. external

2.

B. internal

3.

C. governmental

4.

D. managerial

Which financial statement links together the Income Statement
and the Balance Sheet?
1.

A. Statement of cash flows

2.

B. Statement of owner's equity

3.

C. Statement of operations

4.

D. Statement of financial position

Claims a business owes are called owners' equity when they are
held by:
1.

A. Creditors.

2.

B. Suppliers.

3.

C. Employees.

4.

D. Investors.

Inventory is an example of a(n):
1.

A. Liability.

2.

B. Revenue.


3.

C. Expense.

4.

D. Asset.

Which of the following is not one of the four basic financial
statements?
1.

A. Income statement

2.

B. Statement of cash flows

3.

C. Accounting equation

4.

D. Balance sheet

Land is an example of a(n):
1.

A. Liability.

2.

B. Asset.

3.

C. Revenue.

4.

D. Expense.

An example of an asset is:
1.

A. Wages expense.

2.

B. Revenue.

3.

C. Supplies.

4.

D. Accounts payable.

Which of the following is considered an internal user of
accounting information?
1.

A. Production manager

2.

B. Supplier

3.

C. Investor

4.

D. Customer

In a business, who has the primary responsibility for following
GAAP and preparing fair financial statements?
1.

A. Management

2.

B. The accountants

3.

C. The CPA


4.

D. The SEC

Which financial statement includes only those activities that

result in cash changing hands during the period?
1.

A. Income statement

2.

B. Balance sheet

3.

C. Statement of cash flows

4.

D. Statement of owner's equity

The _________________ outlines how the profits (or losses) are
shared.
1.

A. Stock certificate

2.

B. Partnership agreement

3.

C. Corporate charter

4.

D. Financial statements

The governmental agency that supervises the work of the
Financial Accounting Standards Board (FASB) is known
as the:
1.

A. Generally Accepted Accounting Principles (GAA).

2.

B. Securities and Exchange Commission (SEC).

3.

C. Public Company Accounting Oversight Board (PCAOB).

4.

D. American Institute of CPAs (AICPA).

Which of the following is not one of the types of business
activities included on the statement of cash flows?
1.

A. Investing

2.

B. Operating

3.

C. Financing

4.

D. Reporting

An example of a claim to resources of a business is:
1.

A. Cash.

2.

B. Land.


3.

C. Accounts payable.

4.

D. Accounts receivable.

Financial information that is __________ ensures that it is
unbiased and verifiable.
1.

A. relevant

2.

B. comparable

3.

C. reliable

4.

D. consistent

Which of the following is considered an external user of
accounting information?
1.

A. Production manager

2.

B. CEO

3.

C. IRS

4.

D. Controller

Which of the four basic financial statements provides a
snapshot of the business on a particular day?
1.

A. Balance sheet

2.

B. Income statement

3.

C. Statement of cash Flows

4.

D. Statement of owner's equity

All of the following include activities of external users of
accounting information except:
1.

A. Evaluating the risk of lending money to a business.

2.

B. Determining the amount of supplies on hand.

3.

C. Deciding whether to buy, sell or hold stock in a company.

4.

D. Assessing whether the company has paid the correct amount of taxes.

Which of the following is not a characteristic of an asset?
1.

A. It is a resource controlled by the business.

2.

B. It has measurable value.


3.

C. It is incurred to generate revenue.

4.

D. It is expected to provide future benefits.

Which financial statement should be prepared first?
1.

A. Balance sheet

2.

B. Statement of cash flows

3.

C. Income statement

4.

D. Statement of owner's equity

The Sarbanes-Oxley Act of 2002 requires that top managers
maintain an audited system of:
1.

A. Accounting.

2.

B. Reporting.

3.

C. Internal control.

4.

D. Financing.

55 Free Test Bank for Principles of Accounting 1st Edition
by Libby Multiple Choice Questions - Page 2
Technology and the low cost of computers have resulted in:
1.

A. Increased complexity in accounting systems.

2.

B. Higher fees charged by public accountants.

3.

C. Small businesses handling their own bookkeeping.

4.

D. An abundance of accounting reports.

On December 31 of the current year, a company reported the
following items on its balance sheet: Cash $10,500;
Accounts receivable $5,200; Inventory $2,300; Equipment
$102,400; Accounts payable $12,000; Notes payable
$56,000. What amount should be reported as owner's
equity?

1.

A. $108,400

2.

B. $52,400

3.

C. $120,400

4.

D. $188,400


Which of the following is an example of a service company?
1.

A. Wal-Mart

2.

B. Home Depot

3.

C. American Airlines

4.

D. Ford Motor Company

A company pays $3,400 for the current month utilities. What is
the effect on the accounting equation?
1.

A. Assets increase $3,400; no effect on liabilities; equity increases $3,400.

2.

B. Assets decrease $3,400; liabilities decrease $3,400; no effect on equity.

3.

C. Assets decrease $3,400; no effect on liabilities; equity decreases $3,400.

4.

D. Assets increase $3,400; liabilities increase $3,400; no effect on equity.

A company reported assets of $12,000 and liabilities of $2,500,
what amount would be reported for owner's equity?
1.

A. $14.500

2.

B. $9,500

3.

C. $12,000

4.

D. $2,000

If a company purchases supplies on account for $5,000, what is
the effect on the accounting equation?
1.

A. Assets increase $5,000; no effect on liabilities; equity increases $5,000.

2.

B. Assets decrease $5,000; liabilities decrease $5,000; no effect on equity.

3.

C. Assets decrease $5,000; no effect on liabilities; equity increases $5,000.

4.

D. Assets increase $5,000; liabilities increase $5,000; no effect on equity.

Accounting is an information system designed to:
1.

A. Provide information to external users only.

2.

B. Provide information to internal users only.

3.

C. Capture a business's activities and communicate results to all decision makers.

4.

D. Handle the record keeping of a business but other functions must be performed by a
CPA.


What business type has two or more owners and unlimited
liability?
1.

A. Corporation

2.

B. Sole proprietorship

3.

C. Partnership

4.

D. Retailer

_______ are the standards of conduct for judging right from
wrong.
1.

A. Ethics

2.

B. Rules

3.

C. Internal controls

4.

D. Conducts

The area of accounting which primarily serves the decision
making needs of internal users is:
1.

A. Financial accounting.

2.

B. Bookkeeping.

3.

C. Auditing.

4.

D. Managerial Accounting.

Accountants who are employed by a single business or
nonprofit organization work in:
1.

A. Public accounting.

2.

B. Private accounting.

3.

C. A CPA firm.

4.

D. Governmental accounting only.

A company purchases equipment for $45,000 cash. What is the

effect on the accounting equation?
1.

A. Assets increase $45,000; no effect on liabilities; equity increases $45,000.

2.

B. Assets decrease $45,000; liabilities decrease $45,000; no effect on equity.

3.

C. No effect on the accounting equation because assets increase and decrease by the
same amount.


4.

D. Assets increase $45,000; liabilities increase $45,000; no effect on equity.

A company reported revenue of $100,000 and a net loss of
$12,000. What amount was reported as expenses?
1.

A. $112,000

2.

B. $12,000

3.

C. $88,000

4.

D. $100,000

When a company distributes profits to its owners the result is
a(n):
1.

A. Decrease in profits.

2.

B. Decrease in assets and owner's equity.

3.

C. Increase in owner's equity.

4.

D. Increase in assets.

The following information is reported for Manco Company for
the month of March. Determine net income.
1.

A. $(21,500)

2.

B. $144,500

3.

C. $21,500

4.

D. $73,000

Which of the following is not one of the three major ways that a
business can be organized?
1.

A. Partnership

2.

B. Sole Proprietorship

3.

C. Corporation

4.

D. Wholesaler

Which of the following would not be an objective of an external
user analyzing a company's financial statements?
1.

A. Assessing the company's ability to pay its debts.

2.

B. Predicting the future profitability of the company.


3.

C. Determining whether the company should drop an unprofitable product line.

4.

D. Understanding the financial position of the company.

One advantage of the corporate form of business over the other
forms of business is:
1.

A. Limited liability.

2.

B. Ease of formation.

3.

C. Separate taxation.

4.

D. Lower legal fees.

Which of the following is not a required element of the title on a
financial statement?
1.

A. The company's name

2.

B. The reporting date or period

3.

C. The name of the financial statement

4.

D. The preparer's name

Assets should originally be recorded at:
1.

A. Market value.

2.

B. Replacement cost.

3.

C. Historical cost.

4.

D. Amount owed on the asset.

Companies which make products from raw inputs are known
as:
1.

A. Service Companies.

2.

B. Wholesalers.

3.

C. Retailers.

4.

D. Manufacturers.

If owners contribute $50,000 to start a new business what is the
effect on the accounting equation?
1.

A. Assets increase $50,000; no effect on liabilities; equity increases $50,000.

2.

B. Assets decrease $50,000; liabilities decrease $50,000; no effect on equity.


3.

C. Assets decrease $50,000; no effect on liabilities; equity decreases $50,000.

4.

D. Assets increase $50,000; liabilities increase $50,000; no effect on equity.

Which of the following is not a merchandiser?
1.

A. Target

2.

B. Best Western

3.

C. Staples

4.

D. Macy's

What is the effect on the accounting equation if a company
earns revenues of $23,000 on account?
1.

A. Assets increase $23,000; no effect on liabilities; equity increases $23,000.

2.

B. Assets decrease $23,000; liabilities decrease $23,000; no effect on equity.

3.

C. Assets decrease $23,000; no effect on liabilities; equity decreases $23,000.

4.

D. Assets increase $23,000; liabilities increase $23,000; no effect on equity.

A company reported total equity of $82,000 on its December 31,
2009 balance sheet. The following information is available
for the year ended December 31, 2010: What are the total
assets of the company as of December 31, 2010?
1.

A. $167,000

2.

B. $202,000

3.

C. $85,000

4.

D. $132,000

Boeing would be an example of what business type?
1.

A. Service company

2.

B. Merchandiser

3.

C. Manufacturer

4.

D. Retailer

How would the accounting equation be affected if a company
obtains a loan for $100,000 from a bank?
1.

A. Assets increase $100,000; no effect on liabilities; equity increases $100,000.


2.

B. Assets decrease $100,000; liabilities decrease $100,000; no effect on equity.

3.

C. Assets decrease $100,000; no effect on liabilities; equity decreases $100,000.

4.

D. Assets increase $100,000; liabilities increase $100,000; no effect on equity.

The income statement reports:
1.

A. Revenues, assets and expenses.

2.

B. Net income or loss for the period.

3.

C. Only sales amounts paid in cash.

4.

D. The financial position on a particular date.


True - False Questions
If net income is equal to $10,000 then the company's cash has
increased by $10,000.
1.

True

2.

False

An accounting system is a system of financial recordkeeping.
1.

True

2.

False

Managerial accounting reports produced by the accounting

system are made available for external users of
accounting.
1.

True

2.

False

A business owned by one individual is known as a corporation.
1.

True

2.

False

A company's managers have the primary responsibility for
following Generally Accepted Accounting Principles
(GAAP) and for preparing fair financial statements.
1.

True

2.

False

One objective of external users of financial information is to
assess the ability of a company to pay its liabilities.
1.

True

2.

False

A business that has one owner is a partnership.
1.

True

2.

False


Prepaid expenses are an example of an asset.
1.

True

2.

False

Companies which do not make or sell goods are known as

service companies.
1.

True

2.

False

The correct order to prepare the financial statements is: 1)
Balance Sheet, 2) Income Statement, 3) Statement of Cash
Flows, and 4) Statement of Owner's Equity.
1.

True

2.

False

Interest payable is an example of an expense.
1.

True

2.

False

Financial statements are only prepared at the end of the year.

1.

True

2.

False

The regulatory body responsible for setting the rules of
accounting is the Financial Accounting Standards Board
(FASB).
1.

True

2.

False

Financial information that is unbiased and verifiable is said to
be relevant.
1.

True

2.

False

One disadvantage of a sole proprietorship and a partnership is
unlimited liability.
1.

True

2.

False

The high cost of computers has made it more difficult for
business owners to do their own bookkeeping.
1.

True

2.

False

One advantage of a corporation over the other forms of
business is ease of formation.
1.

True

2.

False

An accountant who charges a fee to businesses for their
services works in private accounting.
1.

True

2.

False

Expenses are resources used to earn revenue.
1.

True

2.

False

An owner has a claim to a business for the amounts invested in
the business.
1.

True

2.

False

Wal-Mart is an example of a retailer.

1.

True

2.

False


Assets - Owner's Equity = Liabilities represents the fundamental
accounting equation.
1.

True

2.

False

The balance sheet reports a company's financial position at a
particular point in time.
1.

True

2.

False

The statement of owner's equity links together the income

statement and the balance sheet.
1.

True

2.

False

Southwest Airlines would be an example of a manufacturer.
1.

True

2.

False

Resources a business owns are called revenues.
1.

True

2.

False

Creditors and investors are examples of external users of
accounting information.
1.

True

2.

False

Accounts payable are claims a business owes to creditors.
1.

True

2.

False


A manager who is considering whether to continue or
discontinue a particular product would refer to financial
accounting information.
1.

True

2.

False

The difference between assets and liabilities is called profit.
1.

True

2.

False