Test bank for accounting principles 11th edition

Test Bank for Accounting Principles 11th Edition

Accountants refer to an economic event as a

1. a. purchase.
2. b. sale.
3. c. transaction.
4. d. change in ownership.


The process of recording transactions has become more efficient because

1. a. fewer events can be quantified in financial terms.
2. b. computers are used in processing business events.
3. c. more people have been hired to record business transactions.
4. d. business events are recorded only at the end of the year.
Communication of economic events is the part of the accounting process that
involves

1. a. identifying economic events.
2. b. quantifying transactions into dollars and cents.
3. c. preparing accounting reports.
4. d. recording and classifying information.
Which of the following events cannot be quantified into dollars and cents and
recorded as an accounting transaction?

1. a. The appointment of a new CPA firm to perform an audit.
2. b. The purchase of a new computer.
3. c. The sale of store equipment.
4. d. Payment of income taxes.
The use of computers in recording business events

1. a. has made the recording process more efficient.
2. b. does not use the same principles as manual accounting systems.


3. c. has greatly impacted the identification stage of the accounting process.
4. d. is economical only for large businesses.
The accounting process involves all of the following except

1. a. identifying economic transactions that are relevant to the business.
2. b. communicating financial information to users by preparing financial
reports.
3. c. recording nonquantifiable economic events.
4. d. analyzing and interpreting financial reports.
The accounting process is correctly sequenced as

1. a. identification, communication, recording.
2. b. recording, communication, identification.
3. c. identification, recording, communication.
4. d. communication, recording, identification.
Which of the following techniques are not used by accountants to interpret
and report financial information?

1. a. Graphs.
2. b. Special memos for each class of external users.
3. c. Charts.
4. d. Ratios.


Which of the following would not be considered an internal user of accounting

data for the GHI Company?

1. a. President of the company.
2. b. Production manager.
3. c. Merchandise inventory clerk.
4. d. President of the employees' labor union.
Which of the following would not be considered an external user of
accounting data for the GHI Company?

1. a. Internal Revenue Service Agent.
2. b. Management.
3. c. Creditors.
4. d. Customers.
Which of the following would not be considered internal users of accounting
data for a company?

1. a. The president of a company.
2. b. The controller of a company.
3. c. Creditors of a company.
4. d. Salesmen of the company.
Which of the following is an external user of accounting information?

1. a. Labor unions.
2. b. Finance directors.


3. c. Company officers.
4. d. Managers.
Which one of the following is not an external user of accounting
information?

1. a. Regulatory agencies.
2. b. Customers.
3. c. Investors.
4. d. All of these answers choices are external users.
Bookkeeping differs from accounting in that bookkeeping primarily involves
which part of the accounting process?

1. a. Identification.
2. b. Communication.
3. c. Recording.
4. d. Analysis.
All of the following are services offered by public accountants except

1. a. budgeting.
2. b. auditing.
3. c. tax planning.
4. d. consulting.


Which list below best describes the major services performed by public
accountants?

1. a. Bookkeeping, mergers, budgets.
2. b. Employee training, auditing, bookkeeping.
3. c. Auditing, taxation, management consulting.
4. d. Cost accounting, production scheduling, recruiting.
Preparing tax returns and engaging in tax planning is performed by

1. a. public accountants only.

2. b. private accountants only.
3. c. both public and private accountants.
4. d. IRS accountants only.
A private accountant can perform many activities in a business organization
but would not work in

1. a. budgeting.
2. b. accounting information systems.
3. c. external auditing.
4. d. tax accounting.
The origins of accounting are generally attributed to the work of

1. a. Christopher Columbus.
2. b. Abner Doubleday.


3. c. Luca Pacioli.
4. d. Leonardo da Vinci.
Financial accounting provides economic and financial information for all of
the following except

1. a. creditors.
2. b. investors.
3. c. managers.
4. d. other external users.
The final step in solving an ethical dilemma is to

1. a. identify and analyze the principal elements in the situation.
2. b. recognize an ethical situation.
3. c. identify the alternatives and weigh the impact of each alternative on

stakeholders.
4. d. recognize the ethical issues involved.
The first step in solving an ethical dilemma is to

1. a. identify and analyze the principal elements in the situation.
2. b. identify the alternatives.
3. c. recognize an ethical situation and the ethical issues involved.
4. d. weigh the impact of each alternative on various stakeholders.


Ethics are the standards of conduct by which one's actions are judged as

1. a. right or wrong.
2. b. honest or dishonest.
3. c. fair or unfair.
4. d. all of these answer choices are correct.
Generally accepted accounting principles are

1. a. income tax regulations of the Internal Revenue Service.
2. b. standards that indicate how to report economic events.
3. c. theories that are based on physical laws of the universe.
4. d. principles that have been proven correct by academic researchers.
The historical cost principle requires that when assets are acquired, they be
recorded at

1. a. appraisal value.
2. b. cost.
3. c. market price.
4. d. book value.
The historical cost of an asset and its fair value are

1. a. never the same.
2. b. the same when the asset is sold.
3. c. irrelevant when the asset is used by the business in its operations.


4. d. the same on the date of acquisition.
The body of theory underlying accounting is not based on

1. a. physical laws of nature.
2. b. concepts.
3. c. principles.
4. d. definitions.
The private sector organization involved in developing accounting principles
is the

1. a. Feasible Accounting Standards Body.
2. b. Financial Accounting Studies Board.
3. c. Financial Accounting Standards Board.
4. d. Financial Auditors' Standards Body.
The SEC and FASB are two organizations that are primarily responsible for
establishing generally accepted accounting principles. It is true that

1. a. they are both governmental agencies.
2. b. the SEC is a private organization of accountants.
3. c. the SEC often mandates guidelines when no accounting principles exist.
4. d. the SEC and FASB rarely cooperate in developing accounting standards.
GAAP stands for

1. a. Generally Accepted Auditing Procedures.

2. b. Generally Accepted Accounting Principles.
3. c. Generally Accepted Auditing Principles.
4. d. Generally Accepted Accounting Procedures.
Financial information that is capable of making a difference in a decision
is

1. a. faithfully representative.
2. b. relevant.
3. c. convergent.
4. d. generally accepted.
The Duce Company has five plants nationwide that cost a total of $100
million. The current fair value of the plants is $500 million. The plants will be
recorded and reported as assets at

1. a. $100 million.
2. b. $600 million.
3. c. $400 million.
4. d. $500 million.
The fair value principle is applied for

1. a. all assets.
2. b. current assets.
3. c. buildings.
4. d. investment securities.


The proprietorship form of business organization

1. a. must have at least three owners in most states.
2. b. represents the largest number of businesses in the United States.
3. c. combines the records of the business with the personal records of the
owner.
4. d. is characterized by a legal distinction between the business as an
economic unit and the owner.
The economic entity assumption requires that the activities

1. a. of different entities can be combined if all the entities are corporations.
2. b. must be reported to the Securities and Exchange Commission.
3. c. of a sole proprietorship cannot be distinguished from the personal
economic events of its owners.
4. d. of an entity be kept separate from the activities of its owner.
A business organized as a corporation

1. a. is not a separate legal entity in most states.
2. b. requires that stockholders be personally liable for the debts of the
business.
3. c. is owned by its stockholders.
4. d. terminates when one of its original stockholders dies.
The partnership form of business organization

1. a. is a separate legal entity.


2. b. is a common form of organization for service-type businesses.
3. c. enjoys an unlimited life.
4. d. has limited liability.
Which of the following is not an advantage of the corporate form of business
organization?

1. a. Limited liability of stockholders
2. b. Transferability of ownership
3. c. Unlimited personal liability for stockholders
4. d. Unlimited life
A small neighborhood barber shop that is operated by its owner would likely
be organized as a

1. a. joint venture.
2. b. partnership.
3. c. corporation.
4. d. proprietorship.
John and Sam met at law school and decide to start a small law practice after
graduation. They agree to split revenues and expenses evenly. The most
common form of business organization for a business such as this would be
a

1. a. joint venture.
2. b. partnership.
3. c. corporation.
4. d. proprietorship.


Which of the following is true regarding the corporate form of business
organization?

1. a. Corporations are the most prevalent form of business organization.
2. b. Corporate businesses are generally smaller in size than partnerships and
proprietor-ships.
3. c. The revenues of corporations are greater than the combined revenues of

partnerships and proprietorships.
4. d. Corporations are separate legal entities organized exclusively under
federal law.
A basic assumption of accounting that requires activities of an entity be kept
separate from the activities of its owner is referred to as the

1. a. stand alone concept.
2. b. monetary unit assumption.
3. c. corporate form of ownership.
4. d. economic entity assumption.
Ted Leo is the proprietor (owner) of Ted's, a retailer of golf apparel. When
recording the financial transactions of Ted's, Ted does not record an entry for
a car he purchased for personal use. Ted took out a personal loan to pay for
the car. What accounting concept guides Ted's behavior in this situation?

1. a. Pay back concept
2. b. Economic entity assumption
3. c. Cash basis concept
4. d. Monetary unit assumption


A basic assumption of accounting assumes that the dollar is

1. a. unrelated to business transactions.
2. b. a poor measure of economic activities.
3. c. the common unit of measure for all business transactions.
4. d. useless in measuring an economic event.
The assumption that the unit of measure remains sufficiently constant over
time is part of the

1. a. economic entity assumption.
2. b. cost principle.
3. c. historical cost principle.
4. d. monetary unit assumption.
A business that enjoy limited liability is a

1. a. proprietorship.
2. b. partnership.
3. c. corporation.
4. d. sole proprietorship.
A problem with the monetary unit assumption is that

1. a. the dollar has not been stable over time.
2. b. the dollar has been stable over time.
3. c. the dollar is a common medium of exchange.


4. d. it is impossible to account for international transactions.
The common characteristic possessed by all assets is

1. a. long life.
2. b. great monetary value.
3. c. tangible nature.
4. d. future economic benefit.
Owner's equity is best depicted by the following:

1. a. Assets = Liabilities.
2. b. Liabilities + Assets.
3. c. Residual equity + Assets.
4. d. Assets – Liabilities.

The basic accounting equation may be expressed as

1. a. Assets = Equities.
2. b. Assets – Liabilities = Owner's Equity.
3. c. Assets = Liabilities + Owner's Equity.
4. d. All of these answer choices are correct..
Liabilities

1. a. are future economic benefits.
2. b. are existing debts and obligations.


3. c. possess service potential.
4. d. are things of value used by the business in its operation.
Liabilities of a company would not include

1. a. notes payable.
2. b. accounts payable.
3. c. salaries and wages payable.
4. d. cash.
Liabilities of a company are owed to

1. a. debtors.
2. b. benefactors.
3. c. creditors.
4. d. underwriters.
Owner's equity can be described as

1. a. creditorship claim on total assets.
2. b. ownership claim on total assets.

3. c. benefactor's claim on total assets.
4. d. debtor claim on total assets.
Owner's equity is often referred to as

1. a. residual equity.


2. b. leftovers.
3. c. spoils.
4. d. second equity.
When an owner withdraws cash or other assets from a business for personal
use, these withdrawals are termed

1. a. depletions.
2. b. consumptions.
3. c. drawings.
4. d. a credit line.
Capital is

1. a. an owner's permanent investment in the business.
2. b. equal to liabilities minus owner's equity.
3. c. equal to assets minus owner's equity.
4. d. equal to liabilities plus drawings.
Revenues would not result from

1. a. sale of merchandise.
2. b. initial investment of cash by owner.
3. c. performance of services.
4. d. rental of property.

Sources of increases to owner's equity are

1. a. additional investments by owners.
2. b. purchases of merchandise.
3. c. withdrawals by the owner.
4. d. expenses.
The basic accounting equation cannot be restated as

1. a. Assets – Liabilities = Owner's Equity.
2. b. Assets – Owner's Equity = Liabilities.
3. c. Owner's Equity + Liabilities = Assets.
4. d. Assets + Liabilities = Owner's Equity.
Owner's equity is decreased by all of the following except

1. a. owner's investments.
2. b. owner's withdrawals.
3. c. expenses.
4. d. owner's drawings.
A net loss will result during a time period when

1. a. liabilities exceed assets.
2. b. drawings exceed investments.
3. c. expenses exceed revenues.


4. d. revenues exceed expenses.
If total liabilities increased by $30,000 and owner’s equity increased by
$20,000 during a period of time, then total assets must change by what
amount and direction during that same period?

1. a. $50,000 decrease
2. b. $10,000 decrease
3. c. $10,000 increase
4. d. $50,000 increase
If total liabilities decreased by $30,000 and owner’s equity increased by
$20,000 during a period of time, then total assets must change by what
amount and direction during that same period?

1. a. $50,000 decrease
2. b. $10,000 decrease
3. c. $10,000 increase
4. d. $50,000 increase
If total liabilities decreased by $50,000 and owner’s equity increased by
$30,000 during a period of time, then total assets must change by what
amount and direction during that same period?

1. a. $80,000 decrease
2. b. $20,000 decrease
3. c. $20,000 increase
4. d. $80,000 increase


If total liabilities decreased by $30,000 and owner’s equity decreased by
$20,000 during a period of time, then total assets must change by what
amount and direction during that same period?

1. a. $50,000 decrease
2. b. $10,000 decrease
3. c. $10,000 increase

4. d. $50,000 increase
If total liabilities increased by $25,000 during a period of time and owner’s
equity decreased by $9,000 during the same period, then the amount and
direction (increase or decrease) of the period’s change in total assets is
a(n)

1. a. $34,000 decrease.
2. b. $16,000 decrease.
3. c. $16,000 increase.
4. d. $34,000 increase.
The accounting equation for Quattro Enterprises is as follows: Assets
Liabilities Owner’s Equity $120,000 = $60,000 + $60,000 If Quattro purchases
office equipment on account for $25,000, the accounting equation will change
to Assets Liabilities Owner’s Equity

1. a. $120,000 = $60,000 + $60,000
2. b. $145,000 = $60,000 + $85,000
3. c. $145,000 = $72,500 + $72,500
4. d. $145,000 = $85,000 + $60,000


As of June 30, 2014, Actual Tigers Company has assets of $100,000 and
owner’s equity of $40,000. What are the liabilities for Actual Tigers Company
as of June 30, 2014?

1. a. $40,000
2. b. $60,000
3. c. $100,000
4. d. $140,000
Owner's equity is increased by

1. a. drawings.
2. b. revenues.
3. c. expenses.
4. d. liabilities.
Owner's equity is decreased by

1. a. assets.
2. b. revenues.
3. c. expenses.
4. d. liabilities.
If total liabilities increased by $8,000, then

1. a. assets must have decreased by $8,000.
2. b. owner's equity must have increased by $8,000.


3. c. assets must have increased by $8,000, or owner's equity must have
decreased by $8,000.
4. d. assets and owner's equity each increased by $4,000.
Collection of a $1,000 Accounts Receivable

1. a. increases an asset $1,000; decreases an asset $1,000.
2. b. increases an asset $1,000; decreases a liability $1,000.
3. c. decreases a liability $1,000; increases owner's equity $1,000.
4. d. decreases an asset $1,000; decreases a liability $1,000.
Revenues are

1. a. the cost of assets consumed during the period.
2. b. gross increases in owner's equity resulting from business activities.

3. c. the cost of services used during the period.
4. d. actual or expected cash outflows.
If an individual asset is increased, then

1. a. there must be an equal decrease in a specific liability.
2. b. there must be an equal decrease in owner's equity.
3. c. there must be an equal decrease in another asset.
4. d. All of these answer choices are possible.
If services are rendered for credit, then

1. a. assets will decrease.


2. b. liabilities will increase.
3. c. owner's equity will increase.
4. d. liabilities will decrease.
If expenses are paid in cash, then

1. a. assets will increase.
2. b. liabilities will decrease.
3. c. owner's equity will increase.
4. d. assets will decrease.
If an owner makes a withdrawal of cash from a proprietorship, then

1. a. there has been a violation of accounting principles.
2. b. owner's equity will increase.
3. c. owner's equity will decrease.
4. d. there will be a new liability showing the owner owes money to the
business.
If supplies that have been purchased are used in the course of business,

then

1. a. a liability will increase.
2. b. an asset will increase.
3. c. owner's equity will decrease.
4. d. owner's equity will increase.


As of December 31, 2014, Calexico Company has assets of $42,000 and
owner's equity of $20,000. What are the liabilities for Calexico Company as of
December 31, 2014?

1. a. $22,000.
2. b. $20,000.
3. c. $42,000.
4. d. $62,000.
Which of the following events is not a business transaction?

1. a. Investment of cash by the owner.
2. b. Hired employees.
3. c. Incurred utility expenses for the month.
4. d. Earned revenue for services provided.
Net income results when

1. a. Assets > Liabilities.
2. b. Revenues = Expenses.
3. c. Revenues > Expenses.
4. d. Revenues < Expenses.
Owner's capital at the end of the period is equal to

1. a. owner's capital at the beginning of the period plus net income minus
liabilities.


2. b. owner's capital at the beginning of the period plus net income minus
drawings.
3. c. net income.
4. d. assets plus liabilities.
A balance sheet shows

1. a. revenues, liabilities, and owner's equity.
2. b. expenses, drawings, and owner's equity.
3. c. revenues, expenses, and drawings.
4. d. assets, liabilities, and owner's equity.
An income statement

1. a. summarizes the changes in owner's equity for a specific period of time.
2. b. reports the changes in assets, liabilities, and owner's equity over a period
of time.
3. c. reports the assets, liabilities, and owner's equity at a specific date.
4. d. presents the revenues and expenses for a specific period of time.
If the owner's equity account increases from the beginning of the year to the
end of the year, then

1. a. net income is less than owner drawings.
2. b. a net loss is less than owner drawings.
3. c. additional owner investments are less than net losses.
4. d. net income is greater than owner drawings.