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

238 Test Bank for Financial Accounting Information for
Decisions 7th Edition

Multiple Choice Questions - Page 1
The primary objective of financial accounting is to:
1.

A. Serve the decision-making needs of internal users.

2.

B. Provide financial statements to help external users analyze and interpret an
organization's activities.

3.

C. Monitor and control company activities.

4.

D. Provide information on both the costs and benefits of managing products and
services.

5.

E. 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 sale price.

5.

E. When cash from a sale is received.

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.

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

4.

D. Means that a business may not recognize revenue until cash is received.

5.

E. Means the assets acquired must be recorded at what the company paid for them.

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.

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.

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

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 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


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.

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

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


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.

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.

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.

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.

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

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.

Internal users of accounting information include:
1.

A. Shareholders

2.

B. Customers

3.

C. Creditors

4.

D. Government regulators

5.

E. Production managers

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.

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.

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.

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 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

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

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

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.

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.

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

Internal users of accounting information always include:
1.

A. Shareholders

2.

B. Managers

3.

C. Lenders

4.

D. Suppliers


5.

E. Customers

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 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.

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

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.

Another name for equity is:
1.

A. Net income

2.

B. Expenses

3.

C. Net assets

4.

D. Revenue

5.

E. Net loss

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

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

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


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.

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.

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

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

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

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

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 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 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


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

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 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


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 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 U.S. generally accepted accounting principles (GAAP).

5.

E. Applies only to companies that are members of the European Union.

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.


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.

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.

D. Intend to make information on the financial statements relevant, reliable, and
comparable.

5.

E. Oversees Security and Exchange Commission.

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

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

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. 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.


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.

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

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.


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

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

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.


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.

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.

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.


140 Free Test Bank for Financial Accounting Information
for Decisions 7th Edition by Wild Multiple Choice
Questions - Page 2
Ending liabilities were $67,000, beginning equity was $87,000, common stock
issued during year totaled $31,000, expenses for the year were $22,000,

dividends declared totaled $13,000, ending equity for the year was $181,000,
and beginning assets for the year were $222,000. What was revenue for the
year?
1.

A. $154,000

2.

B. $155,000

3.

C. $ 53,000

4.

D. $ 98,000

5.

E. $135,000

A company's balance sheet shows: cash $22,000, accounts receivable
$16,000, office equipment $50,000, and accounts payable $17,000. What is the
amount of equity?
1.

A. $17,000

2.

B. $29,000

3.

C. $71,000

4.

D. $88,000

5.

E. $105,000


Below is accounting information for Cascade Company for 2013, its first year
of business: 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 was total equity at year end?
1.

A. $320,000

2.

B. $296,000

3.

C. $316,000

4.

D. $457,000

5.

E. $116,000

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

Compute return on assets given net income of $13,764, beginning assets of
$120,000, and ending assets of $176,000.
1.

A. 4.65%

2.

B. 7.82%

3.

C. 9.3%