225 test bank for fundamental accounting principles 21st editio1

225 Test Bank for Fundamental Accounting Principles
21st Edition
True False Questions - Free Text Questions - Multiple Choice Questions
If a parcel of land that was originally purchased for $85,000 is offered for sale
at $150,000, is assessed for tax purposes at $95,000, is recognized by its
purchasers as easily being worth $140,000, and is sold for $137,000. What is
the effect of the sale on the accounting equation for the seller?
1.

A. Assets increase $52,000; owner's equity increases $52,000.

2.

B. Assets increase $85,000; owner's equity increases $85,000.

3.

C. Assets increase $137,000; owner's equity increases $137,000.

4.

D. Assets increase $140,000; owner's equity increases $140,000.

5.

E. Assets decrease $85,000; owner's equity decreases $85,000.

The accounting concept that requires financial statement information to be
supported by independent, unbiased evidence other than someone's belief or
opinion is:
1.

A. Business entity assumption.

2.

B. Monetary unit assumption.

3.

C. Going-concern assumption.

4.

D. Time-period assumption.

5.

E. Objectivity


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. May only have two partners.

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 assumption.

3.

C. Objectivity principle.

4.

D. Business entity assumption.

5.

E. Cost principle.

The rule 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 noncash assets received from customers in exchange
for goods or services, is called the:
1.

A. Going-concern assumption.

2.

B. Cost principle.

3.

C. Revenue recognition principle.


4.

D. Objectivity principle.

5.

E. Business entity assumption.

All of the following regarding a Certified Public Accountant are true except:

1.

A. Must meet education and experience requirements.

2.

B. Must pass an examination.

3.

C. Must exhibit ethical character.

4.

D. May also be a Certified Management Accountant.

5.

E. Cannot hold any certificate other than a CPA.

The primary objective of financial accounting is:
1.

A. To serve the decision-making needs of internal users.

2.

B. To provide financial statements to help external users analyze an organization's
activities.

3.

C. To monitor and control company activities.

4.

D. To provide information on both the costs and benefits of looking after products and
services.

5.

E. To know what, when, and how much to produce.

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.

D. Upon completion of the sale or when services have been performed and the

business obtains the right to collect the sales price.

5.

E. When cash from a sale is received.

All of the following are true regarding ethics except:
1.

A. Ethics are beliefs that separate right from wrong.

2.

B. Ethics rules are often set for CPAs.

3.

C. Ethics do not affect the operations or outcome of a company.

4.

D. Are critical in accounting.

5.

E. Ethics can be hard to apply.

Marian Mosely is the owner of Mosely Accounting Services. Which accounting
principle 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 principle.

4.

D. Business entity assumption.

5.

E. Matching principle.

Technology:
1.

A. Has replaced accounting.

2.

B. Has not changed the work that accountants do.

3.

C. Has closely linked accounting with consulting, planning, and other financial services.


4.

D. In accounting has replaced the need for decision makers.

5.

E. In accounting is only available to large corporations.

If a parcel of land that was originally purchased for $85,000 is offered for sale
at $150,000, is assessed for tax purposes at $95,000, is recognized by its
purchasers as easily being worth $140,000, and is sold for $137,000, the land
account transaction amount to handle the sale of the land in the seller's books
is:
1.

A. $85,000 increase.

2.

B. $85,000 decrease.

3.

C. $137,000 increase.

4.

D. $137,000 decrease.

5.

E. $140,000 decrease.

The Maxim Company acquired a building for $500,000. Maxim had the building
appraised, and found that the building was easily worth $575,000. The seller
had paid $300,000 for the building 6 years ago. Which accounting principle
would require Maxim to record the building on its records at $500,000?
1.

A. Monetary unit assumption.

2.

B. Going-concern assumption.

3.

C. Cost principle.

4.

D. Business entity assumption.

5.

E. Revenue recognition principle.

The rule that requires financial statements to 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 assumption.

2.

B. Business entity assumption.

3.

C. Objectivity principle.

4.

D. Cost Principle.

5.

E. Monetary unit assumption.

If a parcel of land that was originally purchased for $85,000 is offered for sale
at $150,000, is assessed for tax purposes at $95,000, is recognized by its
purchasers as easily being worth $140,000, and is sold for $137,000. At the
time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on
the land that was purchased for $85,000. Immediately after the sale, the seller

paid off the loan to TrustOne Bank. What is the effect of the sale and the
payoff of the loan on the accounting equatio
1.

A. Assets increase $52,000; owner's equity increases $22,000; liabilities decrease
$30,000

2.

B. Assets increase $52,000; owner's equity increases $30,000; liabilities decrease
$30,000

3.

C. Assets increase $22,000; owner's equity increases $52,000; liabilities decrease
$30,000

4.

D. Assets decrease $30,000; owner's equity decreases $30,000; liabilities decrease
$30,000

5.

E. Assets decrease $55,000; owner's equity decreases $55,000; liabilities decrease
$30,000


External users of accounting information include all of the following except:
1.

A. Shareholders.

2.

B. Customers.

3.

C. Purchasing managers.

4.

D. Government regulators.

5.

E. Creditors.

A corporation:
1.

A. Is a business legally separate from its owners.

2.

B. Is controlled by the FASB.

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. Is not subject to double taxation.

A partnership:
1.

A. Is also called a sole proprietorship.

2.

B. Has unlimited liability for its partners.

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 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. Bookkeeping.

The accounting assumption that requires every business to be accounted for
separately from other business entities, including its owner or owners is
known as the:
1.

A. Time-period assumption.

2.

B. Business entity assumption.

3.

C. Going-concern assumption.

4.

D. Revenue recognition principle.

5.

E. Cost 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. Monetary unit assumption.

3.

C. Business entity assumption.

4.

D. Going-concern assumption.


5.

E. Revenue recognition principle.

Which of the following accounting principles prescribes that a company
record its expenses incurred to generate the revenue reported?
1.

A. Going-concern assumption.

2.

B. Matching principle.

3.

C. Cost principle.

4.

D. Business entity assumption.

5.

E. Consideration assumption.

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 accounting principle that requires accounting information to be based on
actual cost and requires assets and services to be recorded initially at the
cash or cash-equivalent amount given in exchange, is the:
1.

A. Accounting equation.

2.

B. Cost principle.

3.

C. Going-concern assumption.

4.

D. Realization principle.


5.

E. Business entity assumption.

Ethical behavior requires:
1.

A. That auditors' pay not depend on the success of the client's business.

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 auditors' pay depend on the success of the client's business.

If a parcel of land that was originally acquired for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its
purchasers as easily being worth $140,000, and is sold 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.

The private group that currently has the authority to establish generally
accepted accounting principles in the United States is the:
1.

A. APB.

2.

B. FASB.

3.

C. AAA.


4.

D. AICPA.

5.

E. SEC.

Accounting is an information and measurement system that does all of the
following except:
1.

A. Identifies business activities.

2.

B. Records business activities.

3.

C. Communicates business activities.

4.

D. Does not use technology to improve accuracy in reporting.

5.

E. Helps people make better decisions.

Which of the following accounting principles would require that all goods and
services purchased be recorded at cost?
1.

A. Going-concern assumption.

2.

B. Matching principle.

3.

C. Cost principle.

4.

D. Business entity assumption.

5.

E. Consideration assumption.

The group that attempts to create more harmony among the accounting
practices of different countries is the:
1.

A. AICPA.

2.

B. IASB.

3.

C. CAP.


4.

D. SEC.

5.

E. FASB.

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.

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

4.

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

5.

E. Only applies to companies that are members of the European Union.

Social responsibility:
1.

A. Is a concern for the impact of our actions on society.

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 limited to large companies.

On December 15 of the current year, Myers Legal Services signed a $50,000
contract with a client to provide legal services to the client in the following
year. Which accounting principle would require Myers Legal Services to
record the legal fees revenue in the following year and not the year the cash
was received?
1.

A. Monetary unit assumption.


2.

B. Going-concern assumption.

3.

C. Cost principle.

4.

D. Business entity assumption.

5.

E. Revenue recognition principle.

95 Free Test Bank for Fundamental Accounting
Principles 21st Edition by Wild Multiple Choice Questions
- Part 2
On June 30 of the current year, the assets and liabilities of Phoenix, Inc. are
as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650;
Equipment, $12,000; Accounts Payable, $9,300. What is the amount of owner's
equity as of June 30 of the current year?
1.

A. $8,300

2.

B. $13,050

3.

C. $20,500

4.

D. $31,100

5.

E. $40,400

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.

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.

An exchange of value between two entities is called:
1.

A. The accounting equation.

2.

B. Recordkeeping or bookkeeping.

3.

C. An external transaction.

4.

D. An asset.

5.

E. Net Income.

Operating activities:
1.

A. Are the means organizations 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.

If the liabilities of a company increased $74,000 during a period of time and
equity in the company decreased $19,000 during the same period, what was
the effect on the assets?
1.

A. Assets would have increased $55,000.

2.

B. Assets would have decreased $55,000.

3.

C. Assets would have increased $19,000.

4.

D. Assets would have decreased $19,000.

5.

E. None of these.

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. The increase in equity from a company’s earning activities.

5.

E. The costs of assets or services used.

A payment to an owner is called a(n):
1.

A. Liability.

2.

B. Withdrawal.

3.

C. Expense.


4.

D. Contribution.

5.

E. Investment.

Another name for equity is:
1.

A. Net income.

2.

B. Expenses.

3.

C. Net assets.

4.

D. Revenue.

5.

E. Net loss.

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 revenue.

5.

E. +$10,000 accounts receivable, -$10,000 revenue.

Increases in equity from a company's earnings activities are:
1.

A. Assets.

2.

B. Revenues.

3.

C. Liabilities.

4.

D. Owner's Equity.


5.

E. Expenses.

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.

Decreases in equity that represent costs of assets or services used to earn
revenues are called:
1.

A. Liabilities.

2.

B. Equity.

3.

C. Withdrawals.

4.

D. Expenses.

5.

E. Owner's Investment.

An example of an investing activity is:
1.

A. Paying wages of employees.

2.

B. Withdrawals by the owner.

3.

C. Purchase of land.

4.

D. Selling inventory.


5.

E. Contribution from owner.

Photometer Company paid off $30,000 of its accounts payable in cash. What
would be the effects of this transaction on the accounting equation?
1.

A. Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.

2.

B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.

3.

C. Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.

4.

D. Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.

5.

E. Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.

Resources that are expected to yield future benefits are:
1.

A. Assets.

2.

B. Revenues.

3.

C. Liabilities.

4.

D. Owner's Equity.

5.

E. Expenses.

Viscount Company collected $42,000 cash on its accounts receivable. The
effects of this transaction as reflected in the accounting equation are:
1.

A. Total assets decrease and equity increases.

2.

B. Both total assets and total liabilities decrease.

3.

C. Total assets, total liabilities, and equity are unchanged.

4.

D. Both total assets and equity are unchanged and liabilities increase.


5.

E. Total assets increase and equity decreases.

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.

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.

Zion Company has assets of $600,000, liabilities of $250,000, and equity of
$350,000. It buys office equipment on credit for $75,000. What would be the
effects of this transaction on the accounting equation?
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.

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

A. Withdrawals.

2.

B. Expenses.

3.

C. Assets.

4.

D. Retained earnings.

5.

E. Net Income.

Reston had income of $150 million and average invested assets of $1,800

million. Its return on assets is:
1.

A. 8.3%.

2.

B. 83.3%.

3.

C. 12%.

4.

D. 120%.

5.

E. 16.7%.

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

A. Net income.

2.

B. Expense.

3.

C. Equity.

4.

D. Revenue.

5.

E. Net loss.


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.

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

A. Net assets.

2.

B. Equity.

3.

C. Net loss.

4.

D. Net income.

5.

E. A liability.

If the liabilities of a business increased $75,000 during a period of time and
the owner's 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.


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.

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 owners' claims against assets.

The assets of a company total $700,000; the liabilities, $200,000. What are the
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 this owners' investment is known.


If a company paid $38,000 of its accounts payable in cash, what was the effect
on the assets, liabilities, and equity?
1.

A. Assets would decrease $38,000, liabilities would decrease $38,000, and equity
would decrease $38,000.

2.

B. Assets would decrease $38,000, liabilities would decrease $38,000, and equity
would increase $38,000.

3.

C. Assets would decrease $38,000, liabilities would decrease $38,000, and equity
would not change.

4.

D. There would be no effect on the accounts because the accounts are affected by the
same amount.

5.

E. None of these.

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.

95 Free Test Bank for Fundamental Accounting
Principles 21st Edition by Wild Multiple Choice Questions
- Part 3


Flash had cash inflows from operations $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.

Flash has beginning equity of $257,000, net income of $51,000, withdrawals of
$40,000 and investments by owners of $6,000. Its ending equity is:
1.

A. $223,000.

2.

B. $240,000.

3.

C. $268,000.

4.

D. $274,000.

5.

E. $208,000.

Rent expense that is paid with cash appears on which of the following
statements?
1.

A. Balance sheet.

2.

B. Income statement.

3.

C. Statement of owner's equity.

4.

D. Income statement and statement of cash flows.


5.

E. Statement of cash flows only.

Cash investments by owners are listed on which of the following statements?
1.

A. Balance sheet.

2.

B. Income statement.

3.

C. Statement of owner's equity only.

4.

D. Statement of cash flows only.

5.

E. Statement of owner's equity and statement of cash flows.

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.

Nick’s had income of $350 million and average invested assets of $2,000
million. Its ROA is:
1.

A. 1.8%.

2.

B. 35%.

3.

C. 17.5%.

4.

D. 5.7%.

5.

E. 3.5%.