89 test bank for fundamental financial and managerial accounting concepts 1st

89 Test Bank for Fundamental Financial and Managerial
Accounting Concepts 1st

True - False Questions
Investors in a business usually expect to receive a share of the
income earned by the business in the future
1.

True

2.

False

The Financial Accounting Standards Board is an agency of the
US government with authority for establishing accounting
standards for businesses in the US.
1.

True

2.

False

An asset source transaction increases a business's assets and
the claims to assets.
1.

True

2.

False

The Sarbanes-Oxley Act of 2002 eased the rules governing
auditors' independence.
1.

True

2.

False

A business can obtain resources from just two sources: from
owners and from creditors
1.

True

2.

False


The complete collection of a business's accounts is called the
journal of accounts.
1.

True

2.

False

The Sarbanes –Oxley Act of 2002 clarified the legal responsibility
of company managers for the entity's financial reports.
1.

True

2.

False

The accounting equation may be written, "Assets = Claims" or
"Assets = Liabilities + Equity."
1.

True

2.

False

Issuance of common stock is an asset use transaction.
1.

True

2.

False

A business and the person who owns the business are separate
reporting entities.
1.

True

2.

False

A merchandising company earns revenue primarily by selling
goods to its customers.
1.

True

2.

False

Both liabilities and equity are sources of a business's assets.
1.

True

2.

False


The value created by a business may be called income or
earnings.
1.

True

2.

False

Financial resources are provided to businesses by investors and
consumers.
1.

True

2.

False

The historical cost concept requires that most assets be
reported at the amount paid for them.
1.

True

2.

False

A business's equity is the future obligations of the entity.
1.

True

2.

False

The accounting term, "reliability" refers to information that is
consistent from one accounting period to the next.
1.

True

2.

False

Financial accounting information is usually more detailed than
managerial accounting information.
1.

True

2.

False

All major professional accounting organizations have adopted
formal codes of professional ethics.
1.

True

2.

False


The income statement matches expenses and revenues.
1.

True

2.

False

The types of resources needed by a business are financial,
physical, and capital resources.
1.

True

2.

False

A business's internal controls are policies and procedures
designed to reduce opportunities for fraud.
1.

True

2.

False

The four financial statements prepared by a business bear no
relationship to each other.
1.

True

2.

False

Accounts are subclassifications of the various elements of the
financial statements.
1.

True

2.

False

In a market, a company that manufactures cars would be referred
to as a conversion agent.
1.

True

2.

False

A business's creditors have a priority claim to its assets in the
event of liquidation.
1.

True

2.

False


Resource providers use accounting information to identify the
businesses they wish to provide resources to.
1.

True

2.

False

The balance sheet reports a business's assets and the claims on
those assets.
1.

True

2.

False

Accounting is sometimes described as an information system or
as the language of business.
1.

True

2.

False

In a market, consumers are resource providers.
1.

True

2.

False

An asset exchange transaction does not affect the total amount
of assets of an entity.
1.

True

2.

False

Dividends that a company pays to its stockholders are treated as
an expense of the business.
1.

True

2.

False

Companies are required to comply with GAAP when preparing
financial information for their managers' use.
1.

True

2.

False


Multple Choice Questions - Page 1
Generally accepted accounting principles (GAAP) are
measurement rules for
1.

A. managerial accounting.

2.

B. tax accounting.

3.

C. financial accounting.

4.

D. measuring the cost of goods or services provided to customers.

During 2007, Cruz Company earned $5,000 in cash revenue,
incurred $3,700 in cash expenses, and paid $500 in cash
dividends to its owners. Based on this information,
1.

A. retained earnings increased by $800 during the year.

2.

B. net income was $800 for 2007.

3.

C. the net cash flow from operating activities was $800 for the year.

4.

D. total assets increased by $1,300 during 2007.

Which of the following groups has primary responsibility for
establishing generally accepted accounting principles for
businesses in the United States?
1.

A. the US Congress

2.

B. the Securities and Exchange Commission

3.

C. the Financial Accounting Standards Board

4.

D. the Internal Revenue Service

Open markets are created by and made up of
1.

A. resource owners.

2.

B. conversion agents.

3.

C. consumers.

4.

D. all of the above.

Which is the only financial statement for which FASB required a
specific title?
1.

A. balance sheet


2.

B. income statement

3.

C. statement of cash flows

4.

D. statement of changes in stockholders' equity

A business's equity comes from
1.

A. its creditors.

2.

B. investments by owners.

3.

C. amounts earned by the business.

4.

D. both B and C

Which financial statement reports the results of a business's
operations?
1.

A. income statement

2.

B. statement of changes in equity

3.

C. balance sheet

4.

D. statement of cash flows

Conversion agents acquire financial resources from
1.

A. consumers.

2.

B. investors.

3.

C. creditors.

4.

D. both B and C.

The broad categories of information reported on a business's

financial statements are referred to as
1.

A. accounts.

2.

B. elements of the financial statements.

3.

C. components.

4.

D. assets.


The balance sheet for Moore Company shows total assets of
$4,000, liabilities of $1,500, and retained earnings of $800.
Based on this information, the amount of common stock
must be
1.

A. $700.

2.

B. $5,500.

3.

C. $4,700.

4.

D. $1,700.

A stockholder in a corporation would use ___ to learn about the
company
1.

A. financial accounting information

2.

B. managerial accounting information

3.

C. not-for-profit accounting information

4.

D. both A and C

In a market, _____ are resource users.
1.

A. businesses

2.

B. consumers

3.

C. financial institutions

4.

D. governments

Shale Corporation acquired cash by issuing common stock for
$50,000. As a result of this event,
1.

A. retained earnings increased.

2.

B. assets increased.

3.

C. liabilities increased.

4.

D. both B and C.

In event of liquidation of a business,
1.

A. creditors have priority claim on the business's assets.

2.

B. investors have priority claim on the business's assets.

3.

C. resource users have priority claim on the business's assets.


4.

D. stakeholders are assured of receiving the resources they had provided to the
business.

An investor provides resources to a business in exchange for
1.

A. physical resources.

2.

B. priority of claims in event of liquidation.

3.

C. an ownership interest in the business.

4.

D. a promise that the resources will be repaid at a given date.

A business's resources are called
1.

A. assets.

2.

B. liabilities.

3.

C. equity.

4.

D. revenue.

Accounting information focused on the needs of external users
is
1.

A. financial accounting.

2.

B. managerial accounting.

3.

C. claims accounting.

4.

D. not-for-profit accounting.

The accounting equation may be written,
1.

A. Revenues – Expenses = Net Income.

2.

B. Assets = Liabilities.

3.

C. Liabilities = Equity.

4.

D. Assets = Claims.

As of December 31, 2007, Bueno Company had $2,000 in

liabilities, $8,000 in common stock, and $2,500 in retained
earnings. The total amount of assets on that date is
1.

A. $10,000.

2.

B. $12,500.

3.

C. $3,500.


4.

D. $7,500.

The claims side of the accounting equation
1.

A. lists the resources that a business owns or controls.

2.

B. is a listing of the sources of the business's assets.

3.

C. must balance out to zero.

4.

D. indicates the amount of profit that a business has earned.

Which financial statement is sometimes called the statement of
financial position?
1.

A. income statement

2.

B. statement of changes in equity

3.

C. balance sheet

4.

D. statement of cash flows

Resources that a business uses to produce earnings are called
1.

A. assets.

2.

B. equity.

3.

C. revenues.

4.

D. liabilities.

Liabilities are
1.

A. claims of creditors.

2.

B. the owner's interest in the company.

3.

C. claims of investors.

4.

D. both A and B.

In a market, _____ are conversion agents.
1.

A. businesses

2.

B. consumers

3.

C. financial institutions

4.

D. governments


A creditor
1.

A. provides financial resources to a business in exchange for an ownership interest.

2.

B. provides labor resources to a business.

3.

C. provides financial resources to a business on a lending basis.

4.

D. is a resource user.

56 Free Test Bank for Fundamental Financial and
Managerial Accounting Concepts 1st Edition By
Edmonds Multple Choice Questions - Page 2
Which of the following transactions is an asset use transaction?
1.

A. payment of cash dividends to owners

2.

B. paying cash to acquire furniture

3.

C. acquiring cash by issuing stock to owners

4.

D. providing services to customers for cash

The term "articulation"
1.

A. indicates that there are interrelationships among the financial statements.

2.

B. requires that asset decreases (expenses) be matched with asset increases
(revenues).

3.

C. refers to the requirement that separate financial statements be prepared for separate
entities.

4.

D. means that a business's financial statements are prepared for specified periods of
time.

If a company's expenses are greater than its revenues for the
year,
1.

A. its assets increased during the period.

2.

B. the company incurred a net loss during the period.

3.

C. the company's liabilities must have increased.

4.

D. the company's stockholders' equity must have decreased during the period.

Which of the following is NOT an asset use transaction?
1.

A. paying cash dividends


2.

B. purchasing land

3.

C. paying off the principal on a loan

4.

D. paying salaries to employees

A company's retained earnings at the beginning and ending of
the accounting period were $48,000 and $55,000,
respectively. If the company had revenues of $61,000 and
expenses of $52,000, the amount of cash dividends paid
must have been
1.

A. $2,000.

2.

B. $9,000.

3.

C. $3,000.D. $4,000.

Beatrice Company earned $4,000 in cash revenues, paid cash
expenses of $3,450, and paid a cash dividend of $300 to its
owners. It engaged in no other transactions during the
period. Which of the following statements is true?
1.

A. The cash flow from financing activities was $0.

2.

B. The net cash flow from operating activities was an inflow or increase of $550.

3.

C. The net cash flow from operating activities was an inflow or increase of $250.

4.

D. The cash flow from investing activities was an increase of $250.

An asset decrease resulting from consumption of resources to
earn revenue is
1.

A. a net loss.

2.

B. a liability.

3.

C. an expense.

4.

D. an asset source transaction.

Which of the following items would be an example of revenue?
1.

A. cash investments made by owners

2.

B. cash received from a bank loan

3.

C. cash received from customers for services provided

4.

D. all of the above

Dayton Company provided services to a customer for $700 cash.
As a result of this event,
1.

A. total assets decreased.

2.

B. total liabilities increased.

3.

C. retained earnings increased.

4.

D. cash flows from financing activities increased.

In 1998, Parker Corporation purchased land for $85,000. In 2007,
Parker Company had the land appraised, and its value was
estimated to be $190,000. Also during 2007, another
company offered Parker $145,000 for the parcel of land.
When the balance sheet is prepared at the end of 2007, at
what dollar amount should the land be reported?
1.

A. $190,000

2.

B. $85,000

3.

C. $145,000

4.

D. none of the above

An asset use transaction
1.

A. increases one asset and decreases another.

2.

B. decreases an asset and decreases a liability or equity.

3.

C. increases an asset and decreases a liability or equity.

4.

D. increases an asset and increases a liability or equity.

Hamilton Company began operations in 2007. During the year,
the following cash transactions occurred: (1.) issued stock
for $40,000; (2.) borrowed $20,000 from bank; (3.) provided
services to customers for $53,000 cash; (4.) paid back
$8,000 of the loan from the bank; (5.) paid rent expense,
$9,000; (6.) purchased equipment costing $15,000; (7.) paid
operating expenses, $25,000; (8.) paid $4,000 dividend to
stockholders. What was the cash flow from operating
activities?
1.

A. an inflow of $4,000

2.

B. an inflow of $19,000

3.

C. an inflow of $11,000

4.

D. an inflow of $15,000

Expenses are shown on the
1.

A. income statement.

2.

B. statement of changes in stockholders' equity.

3.

C. balance sheet.

4.

D. all of the above.

Grace Company purchased equipment for $45,000. As a result of
this event, Grace had a
1.

A. $45,000 cash outflow from financing activities.

2.

B. $45,000 cash inflow from financing activities.

3.

C. $45,000 cash outflow from investing activities.

4.

D. $45,000 cash outflow from operating activities.

Hamilton Company began operations in 2007. During the year,
the following cash transactions occurred: (1.) issued stock
for $40,000; (2.) borrowed $20,000 from bank; (3.) provided
services to customers for $53,000 cash; (4.) paid back
$8,000 of the loan from the bank; (5.) paid rent expense,
$9,000; (6.) purchased equipment costing $15,000; (7.) paid
operating expenses, $25,000; (8.) paid $4,000 dividend to
stockholders. What was the cash flow from financing
activities?
1.

A. an inflow of $60,000

2.

B. an inflow of $52,000

3.

C. an inflow of $36,000

4.

D. an inflow of $48,000

An asset source transaction
1.

A. increases one asset and decreases another.

2.

B. increases an asset and increases a liability or equity.

3.

C. increases an asset and decreases a liability or equity.

4.

D. decreases an asset and increases a liability.

Dividends paid by a company are shown on the
1.

A. income statement.

2.

B. balance sheet.

3.

C. statement of changes in stockholders' equity.

4.

D. all of the above.

Chen Company paid $3,000 cash for utility expenses. What kind
of transaction is this?
1.

A. asset source transaction

2.

B. asset use transaction

3.

C. asset exchange transaction

4.

D. claims source transaction


Paradox Company earned $45,000 of cash revenue. What kind of
transaction is this?
1.

A. asset source transaction

2.

B. asset use transaction

3.

C. asset exchange transaction

4.

D. claims source transaction

Which of the following transactions is an asset source
transaction?
1.

A. acquired office supplies by signing a short-term note payable

2.

B. paid cash to purchase land

3.

C. paid cash for operating expenses

4.

D. paid cash dividends to owners

Which of the following financial statements provides information
at a specific point in time?
1.

A. income statement

2.

B. statement of changes in stockholders' equity

3.

C. statement of cash flows

4.

D. balance sheet

Liabilities are shown on the
1.

A. income statement.

2.

B. statement of changes in stockholders' equity.

3.

C. statement of cash flows.

4.

D. balance sheet.

Hamilton Company began operations in 2007. During the year,
the following cash transactions occurred: (1.) issued stock
for $40,000; (2.) borrowed $20,000 from bank; (3.) provided
services to customers for $53,000 cash; (4.) paid back
$8,000 of the loan from the bank; (5.) paid rent expense,
$9,000; (6.) purchased equipment costing $15,000; (7.) paid
operating expenses, $25,000; (8.) paid $4,000 dividend to
stockholders. What was the cash flow from investing
activities?
1.

A. an outflow of $15,000

2.

B. an outflow of $19,000

3.

C. an inflow of $65,000

4.

D. an outflow of $23,000

Which of the following items would appear in the financing
activities section of a statement of cash flows?
1.

A. received cash revenue from customers

2.

B. paid cash for dividends

3.

C. purchased equipment for cash

4.

D. paid cash for utility bill

If a company receives cash for providing services to customers,
that transaction is
1.

A. an asset source transaction.

2.

B. an asset use transaction.

3.

C. an asset exchange transaction.

4.

D. either A or C

Most assets must be reported on the balance sheet at
1.

A. their current replacement cost.

2.

B. fair market value.

3.

C. an amount estimated by the company's management.

4.

D. historical cost.


Hamilton Company began operations in 2007. During the year,
the following cash transactions occurred: (1.) issued stock
for $40,000; (2.) borrowed $20,000 from bank; (3.) provided
services to customers for $53,000 cash; (4.) paid back
$8,000 of the loan from the bank; (5.) paid rent expense,
$9,000; (6.) purchased equipment costing $15,000; (7.) paid
operating expenses, $25,000; (8.) paid $4,000 dividend to
stockholders. What amount of cash did Hamilton have at
the end of 2007?
1.

A. $48,000

2.

B. $56,000

3.

C. $52,000

4.

D. $67,000

Which of the following items would appear on a balance sheet?
1.

A. Notes Payable

2.

B. Dividends

3.

C. Expenses

4.

D. Revenues

Raven Company spent cash to purchase equipment. As a result
of this event,
1.

A. total liabilities increased.

2.

B. total assets increased.

3.

C. net income increased.

4.

D. total assets were unchanged.

Accounting information is said to be reliable if
1.

A. it is based on recent information.

2.

B. it was prepared by someone with good credentials in accounting, such as a CPA
certificate.

3.

C. it can be independently verified.

4.

D. it complies with rules and standards of the Internal Revenue Service.


The amount of land owned by a business appears on which
financial statement?
1.

A. income statement

2.

B. statement of changes in stockholders' equity

3.

C. statement of cash flows

4.

D. balance sheet