Test bank for horngrens accounting the financial chapters 10th edition

Test Bank for Horngrens Accounting The Financial Chapters
10th Edition

According to the ________, the acquired assets should be recorded at the
amount actually paid rather than at the estimated market value.

1. A) going concern assumption
2. B) economic entity concept
3. C) cost principle
4. D) monetary unit assumption


Gunnie Inc., located in Texas, records business transactions in dollars and
disregards changes in the value of a dollar over time. Which of the following
accounting assumptions does this represent?

1. A) economic entity assumption
2. B) going concern assumption
3. C) accounting period assumption
4. D) monetary unit assumption
The taxable income of a sole proprietorship is:

1. A) combined with the personal income of the proprietor.
2. B) not combined with the proprietor's personal income.
3. C) not taxable.
4. D) handled similarly to that of a corporation.
From a legal perspective, a sole proprietorship:

1. A) is an entity separate from its proprietor.
2. B) must have at least two owners.
3. C) is not a distinct entity from its proprietor.

4. D) is subject to strict regulation of the SEC.
In a limited-liability company:

1. A) the members are personally liable to pay the entity's debts.
2. B) tax on earnings is paid by the business.


3. C) the members are liable for each other's actions.
4. D) the members pay tax on their share of earnings.
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) Sole proprietorship
Caleb Brown is the sole owner of a bicycle sales and repair shop from several
years. Which of the following business types would limit Caleb's personal
liability exposure to the entity's debts?

1. A) Partnership
2. B) Limited-liability company
3. C) Sole proprietorship
4. D) Limited-liability partnership
Which of the following is a characteristic of a limited-liability company
(LLC)?

1. A) An LLC's life is terminated at any member's choice or death.
2. B) Each member of an LLC is liable only for his or her own actions.
3. C) An LLC must have more than five members.
4. D) The income of members from an LLC is not taxed.


Which of the following statements is true of a sole proprietorship?

1. A) A sole proprietorship joins two or more individuals as co-owners.
2. B) The sole proprietor is personally liable for the liabilities of the business.
3. C) A sole proprietorship is taxed separately from the owner.
4. D) A sole proprietorship does not terminate at the choice or death of the
owner.
Which of the following is a characteristic of a corporation?

1. A) A corporation is owned by stockholders.
2. B) Lenders of a corporation do not have the right to claim the corporation's
assets to satisfy their obligations.
3. C) All shares of a corporation must be held by a single individual.
4. D) Each stockholder has the authority to commit the corporation to a binding
contract through his actions.
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) Stockholders 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 the owner.
4. D) A corporation is usually managed by the owners.
The formation of a partnership firm requires a minimum of:

1. A) four partners.


2. B) three partners.
3. C) one partner.
4. D) two partners.
GAAP are the rules that govern accounting in the United States. The acronym
GAAP in this statement refers to:

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.
Which of the following organizations is responsible for the creation and
governance of accounting standards in the United States?

1. A) Financial Accounting Standards Board
2. B) Institute of Management Accountants
3. C) American Institute of Certified Public Accountants
4. D) Securities and Exchange Commission
Which of the following organizations requires publicly owned companies to be
audited by independent accountants (CPAs)?

1. A) Securities and Exchange Commission (SEC)
2. B) Public Company Accounting Oversight Board (PCAOB)
3. C) Financial Accounting Standards Board (FASB)
4. D) American Institute of Certified Public Accountants (AICPA)

The Sarbanes-Oxley Act (SOX) made it a criminal offense to:

1. A) transfer shares of stock.
2. B) issue debentures.
3. C) declare bankruptcy.
4. D) falsify financial information.
A business can be organized as a sole proprietorship, partnership,
corporation, or limited-liability company (LLC).

1. True
2. False
In a limited-liability company (LLC), the members are personally liable for the
debts of the business.

1. True
2. False
Members of a limited-liability company (LLC) are not personally liable for the
debts of the business.

1. True
2. False
In a sole proprietorship, the owner is personally liable for the debts of the
business.

1. True


2. False
The most that the owner of a sole proprietorship can lose, as a result of
business debts or lawsuits, is the amount he/she has invested in the

business.

1. True
2. False
The Sarbanes-Oxley Act (SOX) requires companies to review internal control
and take responsibility for the accuracy and completeness of their financial
reports.

1. True
2. False
The Public Company Accounting Oversight Board is a watchdog agency that
monitors the work of independent accountants who audit public
companies.

1. True
2. False
An examination of a company's financial statements and records is called an
audit.

1. True
2. False


IFRS are comparatively more specific and more rule based than U.S.
GAAP.

1. True
2. False
A publicly traded company in the United States does not come under SEC
regulations as long as it follows the rules of GAAP.

1. True
2. False
International Financial Reporting Standards (IFRS) are the international
accounting rules that U.S. companies must follow for their international
operations.

1. True
2. False
IFRS is the main U.S. accounting rule book and is currently created and
governed by the FASB.

1. True
2. False
As per the economic entity assumption, an organization and its owner should
be seen as the same entity.

1. True
2. False


The guidelines for accounting information are called Generally Accepted
Accounting Principles (GAAP).

1. True
2. False
________ are professional accountants who serve the general public, not one
particular company.

1. A) Certified public accountants

2. B) Certified management accountants
3. C) Cost accountants
4. D) Controllers
Which of the following is an external user of a business' financial
information?

1. A) customers
2. B) cost accountant
3. C) company manager
4. D) the board of directors
Which of the following users would rely on management accounting
information for decision-making purposes?

1. A) potential investors
2. B) creditors
3. C) customers


4. D) company managers
The field of accounting that focuses on providing information for internal
decision makers is:

1. A) managerial accounting.
2. B) financial accounting.
3. C) nonmonetary accounting.
4. D) governmental accounting.
The field of accounting that focuses on providing information for external
decision makers is:

1. A) managerial accounting.

2. B) financial accounting.
3. C) cost accounting.
4. D) nonmonetary accounting.
Which of the following statements best defines financial statements?

1. A) Financial statements are the information systems that record monetary
and nonmonetary 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 based
on information from past financial periods.


Managerial accounting provides information to:

1. A) internal decision makers.
2. B) outside investors and lenders.
3. C) auditors.
4. D) taxing authorities.
Any person or business to whom a business owes money is called the
business's creditor.

1. True
2. False
Different users of financial statements focus on the different parts of the
financial statements for the information they need.

1. True
2. False
Outside investors would ordinarily use managerial accounting information to
decide whether or not to invest in a business.

1. True
2. False
A creditor is any person who has an ownership interest in a business.

1. True
2. False


Business owners use accounting information to set goals, evaluate progress
toward those goals, and make adjustments when needed.

1. True
2. False
Local, state, and federal governments use accounting information to calculate
income tax.

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

1. True
2. False
A creditor is a person who owes money to the business.

1. True
2. False
Managerial accounting focuses on information for external decision
makers.

1. True
2. False


Stockholders primarily use managerial accounting information for decisionmaking purposes.

1. True
2. False
Accounting is the information system that measures business activities,
processes the information into reports, and communicates the results to
decision makers.

1. True
2. False
Accounting is referred to as the language of business because it is the
method of communicating business information to stakeholders.

1. True
2. False
According to the ________, the acquired assets should be recorded at the
amount actually paid rather than at the estimated market value.

1. A) going concern assumption
2. B) economic entity concept
3. C) cost principle

4. D) monetary unit assumption


Gunnie Inc., located in Texas, records business transactions in dollars and
disregards changes in the value of a dollar over time. Which of the following
accounting assumptions does this represent?

1. A) economic entity assumption
2. B) going concern assumption
3. C) accounting period assumption
4. D) monetary unit assumption
The taxable income of a sole proprietorship is:

1. A) combined with the personal income of the proprietor.
2. B) not combined with the proprietor's personal income.
3. C) not taxable.
4. D) handled similarly to that of a corporation.
From a legal perspective, a sole proprietorship:

1. A) is an entity separate from its proprietor.
2. B) must have at least two owners.
3. C) is not a distinct entity from its proprietor.
4. D) is subject to strict regulation of the SEC.
In a limited-liability company:

1. A) the members are personally liable to pay the entity's debts.
2. B) tax on earnings is paid by the business.


3. C) the members are liable for each other's actions.

4. D) the members pay tax on their share of earnings.
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) Sole proprietorship
Caleb Brown is the sole owner of a bicycle sales and repair shop from several
years. Which of the following business types would limit Caleb's personal
liability exposure to the entity's debts?

1. A) Partnership
2. B) Limited-liability company
3. C) Sole proprietorship
4. D) Limited-liability partnership
Which of the following is a characteristic of a limited-liability company
(LLC)?

1. A) An LLC's life is terminated at any member's choice or death.
2. B) Each member of an LLC is liable only for his or her own actions.
3. C) An LLC must have more than five members.
4. D) The income of members from an LLC is not taxed.


Which of the following statements is true of a sole proprietorship?

1. A) A sole proprietorship joins two or more individuals as co-owners.
2. B) The sole proprietor is personally liable for the liabilities of the business.
3. C) A sole proprietorship is taxed separately from the owner.
4. D) A sole proprietorship does not terminate at the choice or death of the
owner.
Which of the following is a characteristic of a corporation?

1. A) A corporation is owned by stockholders.
2. B) Lenders of a corporation do not have the right to claim the corporation's
assets to satisfy their obligations.
3. C) All shares of a corporation must be held by a single individual.
4. D) Each stockholder has the authority to commit the corporation to a binding
contract through his actions.
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) Stockholders 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 the owner.
4. D) A corporation is usually managed by the owners.
The formation of a partnership firm requires a minimum of:

1. A) four partners.


2. B) three partners.
3. C) one partner.
4. D) two partners.
GAAP are the rules that govern accounting in the United States. The acronym

GAAP in this statement refers to:

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.
Which of the following organizations is responsible for the creation and
governance of accounting standards in the United States?

1. A) Financial Accounting Standards Board
2. B) Institute of Management Accountants
3. C) American Institute of Certified Public Accountants
4. D) Securities and Exchange Commission
Which of the following organizations requires publicly owned companies to be
audited by independent accountants (CPAs)?

1. A) Securities and Exchange Commission (SEC)
2. B) Public Company Accounting Oversight Board (PCAOB)
3. C) Financial Accounting Standards Board (FASB)
4. D) American Institute of Certified Public Accountants (AICPA)


The Sarbanes-Oxley Act (SOX) made it a criminal offense to:

1. A) transfer shares of stock.
2. B) issue debentures.
3. C) declare bankruptcy.
4. D) falsify financial information.
A business can be organized as a sole proprietorship, partnership,
corporation, or limited-liability company (LLC).

1. True
2. False
In a limited-liability company (LLC), the members are personally liable for the
debts of the business.

1. True
2. False
Members of a limited-liability company (LLC) are not personally liable for the
debts of the business.

1. True
2. False
In a sole proprietorship, the owner is personally liable for the debts of the
business.

1. True


2. False
The most that the owner of a sole proprietorship can lose, as a result of
business debts or lawsuits, is the amount he/she has invested in the
business.

1. True
2. False
The Sarbanes-Oxley Act (SOX) requires companies to review internal control
and take responsibility for the accuracy and completeness of their financial
reports.

1. True
2. False
The Public Company Accounting Oversight Board is a watchdog agency that
monitors the work of independent accountants who audit public
companies.

1. True
2. False
An examination of a company's financial statements and records is called an
audit.

1. True
2. False


IFRS are comparatively more specific and more rule based than U.S.
GAAP.

1. True
2. False
A publicly traded company in the United States does not come under SEC
regulations as long as it follows the rules of GAAP.

1. True
2. False
International Financial Reporting Standards (IFRS) are the international
accounting rules that U.S. companies must follow for their international
operations.

1. True

2. False
IFRS is the main U.S. accounting rule book and is currently created and
governed by the FASB.

1. True
2. False
As per the economic entity assumption, an organization and its owner should
be seen as the same entity.

1. True
2. False


The guidelines for accounting information are called Generally Accepted
Accounting Principles (GAAP).

1. True
2. False
________ are professional accountants who serve the general public, not one
particular company.

1. A) Certified public accountants
2. B) Certified management accountants
3. C) Cost accountants
4. D) Controllers
Which of the following is an external user of a business' financial
information?

1. A) customers
2. B) cost accountant

3. C) company manager
4. D) the board of directors
Which of the following users would rely on management accounting
information for decision-making purposes?

1. A) potential investors
2. B) creditors
3. C) customers


4. D) company managers
The field of accounting that focuses on providing information for internal
decision makers is:

1. A) managerial accounting.
2. B) financial accounting.
3. C) nonmonetary accounting.
4. D) governmental accounting.
The field of accounting that focuses on providing information for external
decision makers is:

1. A) managerial accounting.
2. B) financial accounting.
3. C) cost accounting.
4. D) nonmonetary accounting.
Which of the following statements best defines financial statements?

1. A) Financial statements are the information systems that record monetary
and nonmonetary 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 based
on information from past financial periods.


Managerial accounting provides information to:

1. A) internal decision makers.
2. B) outside investors and lenders.
3. C) auditors.
4. D) taxing authorities.
Any person or business to whom a business owes money is called the
business's creditor.

1. True
2. False
Different users of financial statements focus on the different parts of the
financial statements for the information they need.

1. True
2. False
Outside investors would ordinarily use managerial accounting information to
decide whether or not to invest in a business.

1. True
2. False
A creditor is any person who has an ownership interest in a business.

1. True
2. False


Business owners use accounting information to set goals, evaluate progress
toward those goals, and make adjustments when needed.

1. True
2. False
Local, state, and federal governments use accounting information to calculate
income tax.

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

1. True
2. False
A creditor is a person who owes money to the business.

1. True
2. False
Managerial accounting focuses on information for external decision
makers.

1. True
2. False

Stockholders primarily use managerial accounting information for decisionmaking purposes.

1. True
2. False
Accounting is the information system that measures business activities,
processes the information into reports, and communicates the results to
decision makers.

1. True
2. False
Accounting is referred to as the language of business because it is the
method of communicating business information to stakeholders.

1. True
2. False
________ represents the right to receive cash in the future from customers for
goods sold or for services performed.

1. A) Accounts receivable
2. B) Accounts payable
3. C) Equity
4. D) Expenses