1. The main objective of a not-for-profit business is not to make a profit.
a. True
*b. False
2. An example of an external user of accounting information is the federal government.
*a. True
b. False
3. A corporation is a business that is legally separate and distinct from its owners.
*a. True
b. False
4. About 90% of the businesses in the United States are organized as corporations.
a. True
*b. False
5. The role of accounting is to provide many different users with financial information to make economic decisions.
*a. True
b. False
6. Proprietorships are owned by one owner and provide only services to their customers.
a. True
*b. False
7. Only large companies such as Wal-Mart, JCP, General Motors, and the Bank of America can be organized as corporations.
a. True
*b. False
8. Accounting information users need reports about the economic activities and condition of businesses.
*a. True
b. False
9. Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where they work.
a. True
*b. False
10. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing entities.
a. True
*b. False
11. An account receivable is typically classified as a revenue.
a. True
*b. False
12. Managerial accounting information is used by external and internal users equally.
a. True
*b. False
13. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management.
*a. True
b. False
14. Proper ethical conduct implies that you only consider what's in your best interest.
a. True
*b. False
15. Some of the major fraudulent acts by senior executives started as what they considered to be small ethical lapses which grew out of control.
*a. True
b. False
16. Two factors that typically lead to ethical violations are relevance and timeliness of accounting information.
a. True
*b. False
17. A business is an organization in where basic resources or inputs, like materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers.
*a. True
b. False
18. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles.
*a. True
b. False
19. The cost concept is the basis for entering the exchange price into the accounting records.
*a. True
b. False
20. The unit of measurement concept requires that economic data be recorded in a common unit of measurement.
*a. True
b. False
21. If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000.
a. True
*b. False
22. Generally accepted accounting principles regulate how and what financial information is reported by businesses.
*a. True
b. False
23. The accounting equation can be expressed as Assets - Liabilities = Owner's Equity.
*a. True
b. False
24. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners.
*a. True
b. False
25. The owner’s rights to the assets rank ahead of the creditors' rights to the assets.
a. True
*b. False
26. If the liabilities owed by a business total $300,000 and owners equity is equal to $300,000, then the assets also total $300,000.
a. True
*b. False
27. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same period, the period's change in total liabilities was an $65,000 increase.
a. True
*b. False
28. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner's equity was a $200,000 increase.
*a. True
b. False
29. If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash and the owner invested $10,000 in cash, the capital of the owner increased by $40,000.
*a. True
b. False
30. An account receivable is a claim against a customer arising from a sale on account.
*a. True
b. False
31. Paying an account payable increases liabilities and decreases assets.
a. True
*b. False
32. Receiving payments on an account receivable increases both equity and assets.
a. True
*b. False
33. Cash withdrawals by owners decrease assets and increase equity.
a. True
*b. False
34. Purchasing supplies on account increases liabilities and decreases equity.
a. True
*b. False
35. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
a. True
*b. False
36. Revenue is earned only when money is received.
a. True
*b. False
37. Expenses are assets that are used up during the process of earning revenue.
*a. True
b. False
38. The excess of revenue over the expenses incurred in earning the revenue is called capital.
a. True
*b. False
39. The principal financial statements of a proprietorship are the income statement, statement of owner's equity, and the balance sheet.
a. True
*b. False
40. An income statement is a summary of the revenues and expenses of a business as of a specific date.
a. True
*b. False
41. A statement of owner's equity reports the changes in the owner's equity for a period of time.
*a. True
b. False
42. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities.
a. True
*b. False
43. The financial statements of a proprietorship should include the owner's personal assets and liabilities.
a. True
*b. False
44. The balance sheet represents the accounting equation.
*a. True
b. False
45. An example of a general-purpose financial statement would be a report about projected price increases related to transportation costs.
a. True
*b. False
46. No significant differences exist between the accounting standards issued by the FASB and the IASB.
a. True
*b. False
47. The Sarbanes-Oxley Act prohibits CPAs from providing nonaudit investment banking services.
*a. True
b. False
48. The main objective for all business is to maximize unrealized profits.
a. True
*b. False
49. The basic difference between manufacturing and merchandising companies is the completion level of the products they purchase for resale to customers.
*a. True
b. False
50. Net income and net profit do not mean the same thing.
a. True
*b. False
51. Match each transactions with its effect on the accounting equation. Each letter may be used more than once.Received cash for services providedReceived utility bill to be paid next monthInvestment of land by ownerPaid part of an amount owed to a creditorPaid cash for the purchase of a one year insurance policy Received payment from a customer on accountCash withdrawal by ownerProvided a service to a customer on accountPurchased supplies on creditPaid wagesCash investment by ownerBorrowed money from a bankPurchased equipment for cashReceived cash for providing services to customersUsed up supplies that were already on handIncrease assets, increase owner’s equity Increase liabilities, decrease owner’s equity Increase assets, increase owner’s equity Decrease assets, decrease liabilities No effect No effect Decrease assets, decrease owner’s equity Increase assets, increase owner’s equity Increase assets, increase liabilities Decrease assets, decrease owner’s equity Increase assets, increase owner’s equity Increase assets, increase liabilities No effect Increase assets, increase owner’s equity Decrease assets, decrease owner’s equity
[d] 1. Received cash for services provided
[m] 2. Received utility bill to be paid next month
[n] 3. Investment of land by owner
[o] 4. Paid part of an amount owed to a creditor
[a] 5. Paid cash for the purchase of a one year insurance policy
[k] 6. Received payment from a customer on account
[l] 7. Cash withdrawal by owner
[j] 8. Provided a service to a customer on account
[h] 9. Purchased supplies on credit
[i] 10. Paid wages
[f] 11. Cash investment by owner
[e] 12. Borrowed money from a bank
[b] 13. Purchased equipment for cash
[g] 14. Received cash for providing services to customers
[c] 15. Used up supplies that were already on hand
a. No effect
b. No effect
c. Decrease assets, decrease owner’s equity
d. Increase assets, increase owner’s equity
e. Increase assets, increase liabilities
f. Increase assets, increase owner’s equity
g. Increase assets, increase owner’s equity
h. Increase assets, increase liabilities
i. Decrease assets, decrease owner’s equity
j. Increase assets, increase owner’s equity
k. No effect
l. Decrease assets, decrease owner’s equity
m. Increase liabilities, decrease owner’s equity
n. Increase assets, increase owner’s equity
o. Decrease assets, decrease liabilities
52. Match the following business types with each business listed below.Each may be used more than once.A tax preparation firmA law firmA health club and spaAn automobile dealerA book publisherA hospitalA supermarketA modular homebuilderA men’s clothing storeA dressmaking companyService firm Service firm Service firm Merchandising firm Manufacturing firm Service firm Merchandising firm Manufacturing firm Merchandising firm Manufacturing firm
[j] 1. A tax preparation firm
[g] 2. A law firm
[d] 3. A health club and spa
[b] 4. An automobile dealer
[a] 5. A book publisher
[i] 6. A hospital
[c] 7. A supermarket
[f] 8. A modular homebuilder
[e] 9. A men’s clothing store
[h] 10. A dressmaking company
a. Manufacturing firm
b. Merchandising firm
c. Merchandising firm
d. Service firm
e. Merchandising firm
f. Manufacturing firm
g. Service firm
h. Manufacturing firm
i. Service firm
j. Service firm
53. Match each of the following with the transactions below. Each may be used more than once. A business had revenues of $825,000 and operating expenses of $708,000.A business had revenues of $430,000 and operating expenses of $615,000.Land with an assessed value of $400,000 for property tax purposes is acquired by a business for $525,000. Ten years later, the land is sold for $700,000A company’s ratio of liabilities to owner’s equity is 1.50.Stan Clark’s Capital account for January 1, 2010 is $25,000 and his Capital account for December 31, 2010 is $24,900. Stan withdraws $800 during the year.Stan Clark’s Capital account at January 1, 2011 was $25,000 and his Capital account at December 31, 2011 was $23,500. Stan withdraws $800 during the year.Jim Starr began his business on January 1, 2011 with a capital account of $0. Jim withdrew $2,000 during the year and had an ending capital balance on December 31, 2011 of $26,050. A company’s ending owner’s equity for the year is $5,000 more than the beginning owner’s equity.A company’s cash account was $25,000 at the beginning of the year and $47,000 at the end of the year.realized net income incurred a net loss Not enough information to choose (a) or (b). Not enough information to choose (a) or (b). realized net income incurred a net loss realized net income Not enough information to choose (a) or (b). Not enough information to choose (a) or (b).
[a] 1. A business had revenues of $825,000 and operating expenses of $708,000.
[d] 2. A business had revenues of $430,000 and operating expenses of $615,000.
[f] 3. Land with an assessed value of $400,000 for property tax purposes is acquired by a business for $525,000. Ten years later, the land is sold for $700,000
[e] 4. A company’s ratio of liabilities to owner’s equity is 1.50.
[i] 5. Stan Clark’s Capital account for January 1, 2010 is $25,000 and his Capital account for December 31, 2010 is $24,900. Stan withdraws $800 during the year.
[h] 6. Stan Clark’s Capital account at January 1, 2011 was $25,000 and his Capital account at December 31, 2011 was $23,500. Stan withdraws $800 during the year.
[b] 7. Jim Starr began his business on January 1, 2011 with a capital account of $0. Jim withdrew $2,000 during the year and had an ending capital balance on December 31, 2011 of $26,050.
[g] 8. A company’s ending owner’s equity for the year is $5,000 more than the beginning owner’s equity.
[c] 9. A company’s cash account was $25,000 at the beginning of the year and $47,000 at the end of the year.
a. realized net income
b. realized net income
c. Not enough information to choose (a) or (b).
d. incurred a net loss
e. Not enough information to choose (a) or (b).
f. Not enough information to choose (a) or (b).
g. Not enough information to choose (a) or (b).
h. incurred a net loss
i. realized net income
54. Match the following characteristics with the form of business entity that best describes it. Each may be used more than once.Comprises 70% of business entities in the United StatesGenerates 90% of business revenuesOwned by two or more individualsOrganized as a separate legal taxable entity Easy and cheap to organizeOften used as an alternative to a partnershipUsed by large businessHas the ability to obtain large amounts of resources Offers tax and legal liability advantages for ownersProprietorship Corporation Partnership Corporation Proprietorship Limited liability company (LLC) Corporation Corporation Limited liability company (LLC)
[i] 1. Comprises 70% of business entities in the United States
[b] 2. Generates 90% of business revenues
[g] 3. Owned by two or more individuals
[d] 4. Organized as a separate legal taxable entity
[e] 5. Easy and cheap to organize
[f] 6. Often used as an alternative to a partnership
[a] 7. Used by large business
[c] 8. Has the ability to obtain large amounts of resources
[h] 9. Offers tax and legal liability advantages for owners
a. Corporation
b. Corporation
c. Corporation
d. Corporation
e. Proprietorship
f. Limited liability company (LLC)
g. Partnership
h. Limited liability company (LLC)
i. Proprietorship
55. Match the following characteristics with the financial statement it describes it. Each may be used more than once.Reports as of a specific dateThe first statement preparedHas three sections: operating, investing and financingReports only revenues and expensesThe second statement preparedA formal presentation of the accounting equationThe connecting link between the income statement and balance sheetBalance Sheet Income Statement Statement of Cash Flows Income Statement Statement of Owner’s Equity Balance Sheet Statement of Owner’s Equity