147 test bank for accounting 9th edition by horngren

147 Test Bank for Accounting 9th Edition by Horngren
True False Questions - Free Text Questions -

True-False Questions
A business owner starts a new business and invests $6,000 of capital. This
transaction results in an increase in the business's liabilities.
1.

True

2.

False

IFRS are the international accounting rules that U.S. companies must follow
for their international operations.
1.

True

2.

False

A proprietor may have to pay self-employment tax in addition to income tax.
1.

True

2.

False

GAAP refer to the set of accounting rules for international accounting.
1.

True

2.

False

Similar to partnerships, in a limited-liability company (LLC., the members are
personally liable for the debts and obligations of the business.
1.

True


2.

False

Independent accountants that audit public companies come under the
regulatory supervision of the PCAOB.
1.

True

2.

False

The most that a proprietor can lose, as a result of business debts or lawsuits,
is limited to the amount he/she has invested in the proprietorship itself.
1.

True

2.

False

The balance sheet shows whether or not a business is earning a profit.
1.

True

2.

False

IFRS (international accounting rules. are much more specific than GAAP and
allow for far less professional judgment.
1.

True

2.

False

The AICPA's Code of Professional Conduct for Accountants provides
guidance to CPAs in the performance of their work.
1.

True

2.

False


A U.S. publicly traded company does not come under SEC regulations as long
as it follows the rules of GAAP.
1.

True

2.

False

The balance sheet of a business represents the account balances as of a
particular date in time.
1.

True

2.

False

Business owners use accounting information to set goals, evaluate progress
toward those goals, and take corrective action when needed.
1.

True

2.

False

Board members of a not-for-profit organization have fiduciary responsibilities
which constitute legal obligations to manage the organization in a trustworthy manner.
1.

True

2.

False

Outside investors would ordinarily use financial accounting information to
decide whether or not to invest in a business.
1.

True

2.

False


IFRS accounting rules apply to all U.S. corporations.
1.

True

2.

False

A creditor is a party that has an ownership interest in a business.
1.

True

2.

False

By looking at a statement of owner's equity, you can evaluate the effect of
drawings on the ending balance in owner's equity.
1.

True

2.

False

Managerial accounting focuses on information for decision makers outside of
the business, such as creditors and taxing authorities.
1.

True

2.

False

The relative proportion of economic resources and obligations would be
shown by the balance sheet.
1.

True

2.

False

A not-for-profit organization has owners just like other forms of business.
1.

True

2.

False

The income statement shows whether or not a business can generate enough
cash to pay its liabilities.
1.

True

2.

False

Accounting is the information system that measures business activity,
processes the data into reports, and communicates the results to decision
makers.
1.

True

2.

False

Accounting is "the language of business."
1.

True

2.

False

Different users of financial statements (investors, creditors, tax authorities,
etc.. all focus on the same parts of the financial statements for the information
they need.
1.

True

2.

False

In an LLC, the business, not the owners, is responsible for the corporation's
debts.
1.

True

2.

False


Many liabilities have the word "receivable" in their titles.
1.

True

2.

False

There are four major forms of business organizations.
1.

True

2.

False

A proprietor has unlimited liability for the debts and obligations of the
proprietorship.
1.

True

2.

False

The faithful representation principle requires that information is complete,
neutral and free from material error.
1.

True

2.

False

The PCAOB is a watchdog agency that monitors the work of small, privately
owned businesses.
1.

True

2.

False

An investor is someone who loans money to a business.
1.

True

2.

False



Multiple Choice Questions-Page 1
Regarding accounting information and records, a proprietorship is an entity
entirely separate from its:
1.

A. stockholders.

2.

B. vendors.

3.

C. customers.

4.

D. proprietor.

Which of the following organizations requires publicly owned companies to
be audited by independent accountants (CPAs.?
1.

A. SEC

2.

B. PCAOB

3.

C. FASB

4.

D. AICPA

Corporate ownership is a very popular type of ownership in the United States.

Which of the following is a major reason that corporate ownership is popular?
1.

A. Corporate shareholders have limited liability for the debts of the corporation.

2.

B. Most corporations are small or medium-sized.

3.

C. The life of a corporation is limited by the death of an owner.

4.

D. A corporation is usually managed by the owners.


Businesses can be organized in a variety of forms. The types of businesses
commonly found in the U.S. include all of the following EXCEPT:
1.

A. corporations.

2.

B. state government-run companies.

3.

C. partnerships.

4.

D. proprietorships.

David has decided to open an auto-detailing business. He will pick up an
automobile from the client, take it to his parents' garage, detail it, and return it
to the client. If he does all of the work himself and takes no legal steps to form
a special organization, which type of business organization, in effect, has he
chosen?
1.

A. Limited liability company

2.

B. Partnership

3.

C. Corporation

4.

D. Proprietorship

There are relatively few types of revenue. Which of the following in NOT a type
of revenue?
1.

A. Common Stock

2.

B. Service

3.

C. Interest

4.

D. Sales


A relatively low amount of government regulation is a key advantage of a:
1.

A. partnership.

2.

B. not-for-profit.

3.

C. corporation.

4.

D. proprietorship.

Caleb Brown has been the sole owner of a bicycle sales and repair shop for
many years. Which of the following business types would best protect Caleb's
personal assets from product liability exposure?
1.

A. Partnership

2.

B. Limited liability company

3.

C. Proprietorship

4.

D. Not-for-profit

Dylan Chase is a partner in a CPA practice. One of Dylan's partners
sometimes takes a very aggressive position when auditing clients. Which of
the following business types would protect Dylan's personal assets from
malpractice liability for his partner's aggressive auditing tactics?
1.

A. Limited liability partnership

2.

B. Traditional partnership

3.

C. Not-for-profit

4.

D. Proprietorship


The largest businesses are usually organized as:
1.

A. corporations.

2.

B. partnerships.

3.

C. proprietorships.

4.

D. LLCs.

Which of the following statements BEST describes managerial accounting?
1.

A. Managerial accounting focuses on information for internal decision making.

2.

B. Managerial accounting focuses on outside investors and lenders.

3.

C. Managerial accounting provides information for the public.

4.

D. Managerial accounting provides information for taxing authorities.

A debt that a business owes to an outside party is called:
1.

A. an asset.

2.

B. a liability.

3.

C. stockholders' equity.

4.

D. revenue.

Which of the following is NOT a characteristic of a traditional partnership?
1.

A. A partnership is owned by shareholders or stockholders.

2.

B. If a partnership cannot pay its debts, lenders can take the owners' personal assets
to satisfy the obligations.

3.

C. A partnership joins two or more individuals as co-owners.


4.

D. Each partner has the authority to commit the entire partnership to a binding contract.

The primary objective of financial reporting is to provide information useful
for making investment and lending decisions. To be useful, information must
possess certain characteristics. Which of the following is NOT one of the
basic characteristics that financial information must possess to be useful?
1.

A. Reliability

2.

B. Creativity

3.

C. Relevance

4.

D. Comparability

From a legal perspective, a proprietorship is:
1.

A. an entity separate from its proprietor.

2.

B. authorized under state charter.

3.

C. not a distinct entity from its proprietor.

4.

D. subject to regulation by the SEC.

The taxable income of a proprietorship is:
1.

A. combined with the personal income of the proprietor on a single return.

2.

B. reported on a separate return from the proprietor's personal income.

3.

C. not taxable.

4.

D. handled similarly to that of a corporation.


Which of the following are most likely to be users of managerial accounting
information?
1.

A. Potential investors

2.

B. Creditors

3.

C. Customers

4.

D. Company managers

Which of the following is TRUE for a proprietorship?
1.

A. A proprietorship joins two or more individuals as co-owners.

2.

B. The proprietor is not personally liable for the debts of the proprietorship.

3.

C. A proprietorship has a single owner.

4.

D. A proprietorship has an indefinite life.

A promise received from a business's customers to pay for goods and
services that they received from the business is called a(n.:
1.

A. account receivable.

2.

B. account payable.

3.

C. revenue.

4.

D. expense.

Which of the following is a characteristic of a limited liability partnership
(LLP.?
1.

A. A limited liability partnership issues shares of stock to shareholders.

2.

B. Each partner is liable only for the actions under his or her control.


3.

C. A limited liability partnership is owned by a single investor.

4.

D. The limited liability partners are subject to "double taxation."

Phillip and Reed have developed a new technology for home computer
systems. However, they need to raise a large amount of capital to build the
production and support facilities to market their product successfully. Which
of the following business types would be best suited to help the company
raise the necessary capital to begin production?
1.

A. Corporation

2.

B. Proprietorship

3.

C. Partnership

4.

D. Limited liability partnership

Many organizations have contributed to the establishment of generally
accepted accounting principles. Which of the following organizations has the
PRIMARY responsibility for formulating accounting standards?
1.

A. FASB

2.

B. CMA

3.

C. AICPA

4.

D. SEC

Which of the following is a licensed accountant who serves the general public
rather than an accountant who serves one particular company?
1.

A. CPA

2.

B. CMA


3.

C. SEC

4.

D. FASB

Which of the following are likely to be users of financial accounting

information?
1.

A. Taxing authorities

2.

B. Creditors

3.

C. Potential investors

4.

D. All of the above

A corporation possesses all but one of the following characteristics. Which of
the following is NOT a characteristic of a corporation?
1.

A. If a corporation cannot pay its debts, lenders can take the owners' personal assets
to satisfy the obligations.

2.

B. A corporation is a distinct entity in the eyes of the law.

3.

C. Corporation ownership is divided into shares of stock.

4.

D. A corporation is owned by shareholders or stockholders.

Which of the following organizations or groups issue an opinion on whether a
company's financial statements are a fair representation of the company's
financial situation?
1.

A. SEC

2.

B. Board of Directors

3.

C. Shareholders


4.

D. Independent Accountants (CPAs.

Which of the following statements BEST defines financial statements?
1.

A. Financial statements are the information systems that record and measure business

transactions.

2.

B. Financial statements are the verbal statements made to business news
organizations by chief financial officers.

3.

C. Financial statements are documents that report on a business in monetary terms,
providing information to help people make informed business decisions.

4.

D. Financial statements are plans and forecasts for future time periods.

Items such as buildings and land are:
1.

A. liabilities.

2.

B. equity.

3.

C. assets.

4.

D. revenues.

Accounting standards are formulated by the:
1.

A. SEC.

2.

B. AICPA.

3.

C. FASB.

4.

D. IRS.

The financial examination of a company's financial records is called a(n.:
1.

A. audit.


2.

B. criminal investigation.

3.

C. financial analysis.

4.

D. appraisal.

A proprietorship is created by:
1.

A. electing a board of directors.

2.

B. obtaining a state charter.

3.

C. issuing shares of stock.

4.

D. one individual deciding to start a business.

The Sarbanes-Oxley Act ("SOX". made it a criminal offense to:
1.

A. steal shareholders' money.

2.

B. default on loans from creditors.

3.

C. declare bankruptcy.

4.

D. falsify financial information.

Accountants often refer to GAAP. What do the letters GAAP represent in
accounting?
1.

A. Globally accepted and accurate policies

2.

B. Global accommodation accounting principles

3.

C. Generally accredited accounting policies

4.

D. Generally accepted accounting principles

In an LLC, who is responsible for the company's debts?
1.

A. The company itself

2.

B. The partners

3.

C. The individual investors

4.

D. The proprietor

By definition, which of the following represents the owners of a corporation?
1.

A. Customers

2.

B. Creditors

3.

C. Stockholders

4.

D. Employees

If a proprietorship cannot pay its debts, the creditors may make claims
against the:
1.

A. assets of the proprietorship only.

2.

B. assets of the proprietor.

3.

C. state government.

4.

D. employees of the business.

115 Free Test Bank for Accounting 9th Edition by
Horngren Multiple Choice Questions-Page 2


A business receives a bill for services rendered from one of its suppliers. The
business will pay the supplier next month. When the business receives the bill
from its supplier, how does this affect the accounting equation?

1.

A. Assets decrease; owner's equity decreases.

2.

B. Liabilities increase; owner's equity decreases.

3.

C. Assets increase; liabilities increase.

4.

D. Liabilities increase; owner's equity increases.

Assets are $270,000 and owner's equity is $90,000. Liabilities will be:
1.

A. $60,000.

2.

B. $360,000.

3.

C. $270,000.

4.

D. $180,000.

Which of the following concepts (or principles. would require that an item be
recorded at the amount actually paid rather than at the estimated market
value?
1.

A. Going-concern concept

2.

B. Entity concept

3.

C. Cost principle

4.

D. Stable monetary unit concept.


Scott's Camera Shop started the year with total assets of $80,000 and total
liabilities of $40,000. During the year, the business earned revenues of
$120,000 and incurred expenses of $70,000. Scott made no capital
contributions during the year, but did make withdrawals of $60,000. What is
the amount of Scott's net income for the year?
1.

A. $50,000

2.

B. $10,000

3.

C. $30,000

4.

D. $40,000

Which of the following concepts (or principles. addresses the ability of
partners to commit other partners and the business to a contract?
1.

A. Going-concern concept

2.

B. Cost principle

3.

C. Mutual agency

4.

D. Objectivity principle

Scott's Camera Shop started the year with total assets of $80,000 and total
liabilities of $40,000. During the year, the business earned revenues of
$120,000 and incurred expenses of $70,000. Scott made no capital
contributions during the year, but did make withdrawals of $60,000. What is
the amount of Scott's owner's equity at the end of the year?
1.

A. $40,000

2.

B. $50,000

3.

C. $30,000


4.

D. $10,000

Equipment is sold for cash in an amount equal to the cost of the equipment
recorded on the books. How does this sale affect the accounting equation?
1.

A. One asset increases; one asset decreases.

2.

B. Assets increase; liabilities increase.

3.

C. Assets increase; liabilities decrease.

4.

D. Assets increase; owner's equity increases.

A business performs services for its customers. Payment is expected to be
received next month. How does the performance of services affect the
accounting equation?
1.

A. Liabilities increase; owner's equity decreases.

2.

B. Assets increase; owner's equity increases.

3.

C. Assets decrease; owner's equity decreases.

4.

D. Assets increase; owner's equity decreases.

Which of the following is the CORRECT accounting equation?
1.

A. Assets + Liabilities = Owners' equity

2.

B. Assets = Liabilities + Owners' equity

3.

C. Assets + Revenue = Owners' equity

4.

D. Assets + Revenue = Liabilities + Expenses


An American business records transactions using the U.S. dollar and
disregards fluctuation in the buying power of the dollar over time. This
represents the:
1.

A. entity concept.

2.

B. going-concern concept.

3.

C. faithful representation principle.

4.

D. stable monetary unit principle.

The business collects a $5,000 account receivable from its customer. How is
the accounting equation affected?
1.

A. Assets increase $5,000; liabilities decrease $5,000.

2.

B. One asset increases by $5,000; another asset decreases $5,000.

3.

C. Assets increase $5,000; liabilities increase $5,000.

4.

D. Assets increase $5,000; owner's equity increases $5,000.

Which of the following concepts (or principles. would dictate that a person
with three different businesses keep three different checking accounts?
1.

A. Cost principle

2.

B. Faithful representation principle

3.

C. Going-concern concept

4.

D. Entity concept


A business settles a liability by making a payment with cash. How does
paying this liability affect the accounting equation?
1.

A. Assets decrease; liabilities decrease.

2.

B. Liabilities decrease; owner's equity increases.

3.

C. Assets increase; liabilities increase.

4.

D. Assets increase; liabilities decrease.

The business receives cash from a customer that is owed to the company "on
account," based on services rendered to the customer previously. How does
the collection of the cash affect the accounting equation?
1.

A. Assets increase; owner's equity increases.

2.

B. Assets increase; liabilities increase.

3.

C. One asset increases; one asset decreases.

4.

D. Assets decrease; owner's equity decreases.

Net income is $29,000. Beginning capital balance was $34,000. Ending capital
balance was $55,000. No capital contributions were made by the owner during
the year. What amount of drawings was made?
1.

A. $18,000

2.

B. $8,000

3.

C. $5,000

4.

D. $60,000


Lindsey Smith decided to start her own CPA practice as a professional
corporation, Smith CPA PC. Her corporation purchased an office building for
$35, 000 which her real estate agent said was worth $50,000 in the current
market. The corporation records the building as a $50,000 asset because
Lindsey believes that is the real value of the building. Which of the following
concepts or principles of accounting is being violated?
1.

A. Cost principle

2.

B. Entity concept

3.

C. Stable monetary unit concept

4.

D. Going-concern concept

Owner's equity is $150,000 and total liabilities are $90,000. Total assets would
be:
1.

A. $300,000.

2.

B. $180,000.

3.

C. $60,000.

4.

D. $240,000.

The Ragun Cajun Bar and Grill, Inc. has been a popular restaurant in
Beaumont, Texas. With no insurance, a recent hurricane has left the business
with large losses due to a damaged building and lost business income. Which
of the following concepts or principles of accounting will be of the greatest
concern to Ragun Cajun's auditors?
1.

A. Going-concern concept

2.

B. Faithful representation principle

3.

C. Entity concept


4.

D. Stable monetary unit concept

Land was originally purchased for $20,000. It is sold for $20,000 in cash. How
does the sale affect the accounting equation?
1.

A. Assets increase $20,000; liabilities decrease $20,000.

2.

B. Assets increase $20,000; liabilities increase $20,000.

3.

C. Assets increase $20,000; owner's equity increases $20,000.

4.

D. Assets increase $20,000; assets decrease $20,000.

Land is purchased by the business for $100,000. The company pays for land
with a $20,000 cash payment and the execution of an $80,000 promissory note
payable to the seller. How does this purchase affect the business's
accounting equation?
1.

A. Assets increase $80,000; liabilities decrease $20,000.

2.

B. Assets increase $20,000; liabilities decrease $80,000.

3.

C. Assets increase $80,000; owner's equity increases $80,000.

4.

D. Assets increase $80,000; liabilities increase $80,000.

Which of the following concepts (or principles. require an assumption that the
entity will remain in operation for the foreseeable future?
1.

A. Entity concept

2.

B. Faithful representation principle

3.

C. Going-concern concept

4.

D. Cost principle.