74 Free Test Bank for Accounting 24th Edition by Warren Multiple Choice Questions Which of the following is not a characteristic of a corporation? Corporations are organized as a separate legal taxable entity Ownership is divided into shares of stock Corporations experience an ease in obtaining large amounts of resources by issuing stock A corporation’s resources are limited to their individual owners’ resources Donner Company is selling a piece of land adjacent to their business An appraisal reported the market value of the land to be $120,000 The Focus Company initially offered to buy the land for $107,000 The companies settled on a purchase price of $115,000 On the same day, another piece of land on the same block sold for $122,000 Under the cost concept, what is the amount that will be used to record this transaction in the accounting records? $107,000 $115,000 $120,000 $122,000 Assets are always greater than liabilities either cash or accounts receivables the same as expenses because they are acquired with cash financed by the owner and/or creditors Which of the following is not a role of accounting in business? To provide reports to users about the economic activities and conditions of a business To personally guarantee loans of the business To provide information to other users to determine the economic performance and condition of the business To assess the various informational needs of users and design its accounting system to meet those needs Which of the following is true in regards to a Limited Liability Company? Makes up 10% of business organizations in the United States 2 Combines the attributes of a partnership and a corporation Provides tax and liability advantages to the owners All are correct Which of the following best describes accounting? records economic data but does not communicate the data to users according to any specific rules is an information system that provides reports to users regarding economic activities and condition of a business is of no use by individuals outside of the business is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements For accounting purposes, the business entity should be considered separate from its owners if the entity is a corporation a proprietorship a partnership all of the above Which one of the following is the authoritative body in the United States having the primary responsibility for developing accounting principles? FASB IRS SEC AICPA Due to various fraudulent business practices and accounting coverups in the early 2000’s, Congress enacted the SarbanesOxley Act of 2002 The Act was responsible for establishing a new oversight board for public accountants called the Generally Accepted Accounting Practices for Public Accountants Board Public Company Accounting Oversight Board Congressional Accounting Oversight Board None are correct Select the type of business that is most likely to obtain large amounts of resources by issuing stock Partnership Corporation Proprietorship None are correct Which of the following are guidelines for behaving ethically? I.Identify the consequences of a decision and its effect on others; II.Consider your obligations and responsibilities to those affected by the decision; III.Identify your decision based on personal standards of honesty and fairness I and II II and III I and III I, II, and III Debts owed by a business are referred to as accounts receivables equities owner’s equity liabilities Which of the following is not a certification for accountants? CIA CMA CISA All are certifications Financial reports are used by management creditors investors all are correct Which of the following groups are considered to be internal users of accounting information? Employees and customers Customers and vendors Employees and managers Government and banks Which of the following is a manufacturing business? Amazon.com Wal-Mart Ford Motors Delta Airlines The initials GAAP stand for General Accounting Procedures Generally Accepted Plans Generally Accepted Accounting Principles Generally Accepted Accounting Practices The objectivity concept requires that business transactions must be consistent with the objectives of the entity the Financial Accounting Standards Board must be fair and unbiased in its deliberations over new accounting standards accounting principles must meet the objectives of the Security and Exchange Commission amounts recorded in the financial statements must be based on independently verifiable evidence All of the following are general-purpose financial statements except: balance sheet income statement statement of owner’s equity cash budget Two common areas of accounting that respectively provide information to internal and external users are: forensic accounting and financial accounting managerial accounting and financial accounting managerial accounting and environmental accounting financial accounting and tax accounting systems The business entity concept means that the owner is part of the business entity an entity is organized according to state or federal statutes an entity is organized according to the rules set by the FASB the entity is an individual economic unit for which data are recorded, analyzed, and reported The Sarbanes-Oxley Act of 2002 prohibits employment of auditors by their clients for what period after their last audit of the client? Indefinitely One year Two years There is no such prohibition Equipment with an estimated market value of $55,000 is offered for sale at $75,000 The equipment is acquired for $20,000 in cash and a note payable of $40,000 due in 30 days The amount used in the buyer's accounting records to record this acquisition is $55,000 $60,000 $20,000 $75,000 The following are examples of external users of accounting information except: government customers creditors all of the above Which of the following would not normally operate as a service business? Pet Groomers Restaurant Lawn Care Company Styling Salon Which of the following concepts relates to separating the reporting of business and personal economic transactions? Cost Concept Unit of Measure Concept Business Entity Concept Objectivity Concept On April 25, Gregg Repair Service extended an offer of $115,000 for land that had been priced for sale at $140,000 On May 3, Gregg Repair Service accepted the seller’s counteroffer of $127,000 On June 20, the land was assessed at a value of $88,000 for property tax purposes On August 4, Gregg Repair Service was offered $150,000 for the land by a national retail chain At what value should the land be recorded in Gregg Repair Service’s records? $115,000 $88,000 $140,000 $127,000 Managerial accountants would be responsible for providing the following information: Tax reports to government agencies Profit reports to owners and management Expansion of a product line report to management 4 Consumer reports to customers An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a proprietorship corporation partnership governmental unit Which of the following is not true of accounting principles? Financial accountants follow generally accepted accounting principles (GAAP) Following GAAP allows accounting information users to compare one company to another A new accounting principle can be adopted with stockholders approval The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles Most businesses in the United States are proprietorships partnerships corporations separate entities Which of the following group of companies are all examples of a merchandising business? Delta Airlines, Marriott, Gap Gap, Amazon, NIKE GameStop, Sony, Dell GameStop, Best Buy, Gap Within the United States, the dominant body in the primary development of accounting principles is the American Institute of Certified Public Accountants (AICPA) American Accounting Association (AAA) Financial Accounting Standards Board (FASB) Institute of Management Accountants (IMA) Denzel Jones owns and operates Crystal Cleaning Company Recently, Denzel withdrew $18,000 from Crystal Cleaning, and he contributed $14,000, in his name, to Habitat for Humanity The contribution of the $14,000 should be recorded on the accounting records of which of the following entities? Crystal Cleaning and Habitat for Humanity Denzel Jones' personal records and Habitat for Humanity Denzel Jones’ personal records and Crystal Cleaning Denzel Jones’ personal records, Crystal Cleaning, and Habitat for Humanity Which of the following is the best description of accounting’s role in business? Accounting provides stockholders with information regarding the market value of the company’s stocks Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company Accounting provides creditors and banks with information regarding the credit risk rating of the company Accounting is not responsible for providing any form of information to users That is the role of the Information Systems Department Which of the items below is not a business entity? entrepreneurship proprietorship partnership corporation Which type of accountant typically practices as an individual or as a member of a public accounting firm? Certified Public Accountant Certified Payroll Professional Certified Internal Auditor Certified Management Accountant 74 Free Test Bank for Accounting 24th Edition by Warren Multiple Choice Questions - Page Four financial statements are usually prepared for a business The statement of cash flows is usually prepared last The statement of owner's equity (OE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement In what order are these three statements prepared? I,OE, B B, I, OE OE, I, B B,OE, I Liabilities are reported on the income statement statement of owner's equity statement of cash flows balance sheet How does paying a liability in cash affect the accounting equation? assets increase; liabilities decrease assets increase; liabilities increase assets decrease; liabilities decrease liabilities decrease; owner's equity increases Which of the following financial statements reports information as of a specific date? income statement statement of owner's equity statement of cash flows balance sheet How does receiving a bill to be paid next month for services rendered affect the accounting equation? assets decrease; owner's equity decreases assets increase; liabilities increase liabilities increase; owner's equity increases liabilities increase; owner's equity decreases The debt created by a business when it makes a purchase on account is referred to as an account payable account receivable asset expense payable A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the Income Statement the Balance Sheet the Statement of Cash Flows cannot be determined Which of the following is not an asset? Investments Cash Inventory Owner’s Equity Transactions affecting owner's equity include owner's investments and payment of liabilities owner's investments and owner's withdrawals, revenues, and expenses owner's investments, revenues, expenses, and collection of accounts receivable owner's withdrawals, revenues, expenses, and purchase of supplies on account The year-end balance of the owner's capital account appears in both the statement of owner's equity and the income statement only the statement of owner's equity both the statement of owner's equity and the balance sheet both the statement of owner's equity and the statement of cash flows The accounting equation may be expressed as Assets = Equities - Liabilities Assets + Liabilities = Owner's Equity Assets = Revenues less Liabilities Assets - Liabilities = Owner's Equity If the owner wanted to know how money flowed into and out of the company, what financial statement would she use? Income Statement Statement of Cash Flows Balance Sheet None are correct Ramon Ramos has withdrawn $750 from Ramos Repair Company’s cash account to deposit in his personal account How does this transaction affect Ramos Repair Company’s accounting equation? Increase Assets (Accounts Receivable) and decrease Assets (Cash) Decrease Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal) Decrease Assets (Cash) and decrease Liabilities (Accounts Payable) Increase Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal) Allen Marks is the sole owner and operator of Great Marks Company As of the end of its accounting period, December 31, 2011, Great Marks Company has assets of $940,000 and liabilities of $300,000 During 2012, Allen Marks invested an additional $65,000 and withdrew $45,000 from the business What is the amount of net income during 2012, assuming that as of December 31, 2012, assets were $995,000, and liabilities were $270,000? $ 65,000 $ 50,000 $105,000 $370,000 Clifford Moore is starting his computer programming business and has deposited in initial investment of $15,000 into the business cash account Identify how the accounting equation will be affected Increase Assets (Cash) and increase Liabilities (Accounts Payable) Increase Assets (Cash) and increase Owner’s Equity (Clifford Moore, Capital) Increase Assets (Accounts Receivable) and decrease Liabilities (Accounts Payable) Increase Assets (Cash) and increase Assets (Accounts Receivable) The assets and liabilities of the company are $175,000 and $40,000, respectively Owner’s equity should equal $215,000 $135,000 $175,000 $40,000 Cash investments made by the owner to the business are reported on the statement of cash flows in the financing activities section investing activities section operating activities section supplemental statement The monetary value charged to customers for the performance of services sold is called a(n) asset net income capital revenue Goods purchased on account for future use in the business, such as supplies, are called prepaid liabilities revenues prepaid expenses liabilities How does the purchase of equipment by signing a note affect the accounting equation? assets increase; assets decrease assets increase; liabilities decrease assets increase; liabilities increase assets increase; owner's equity increases A business paid $7,000 to a creditor in payment of an amount owed The effect of the transaction on the accounting equation was to increase one asset, decrease another asset decrease an asset, decrease a liability increase an asset, increase a liability increase an asset, increase owner's equity Owner's withdrawals increase expenses decrease expenses increase cash decrease owner's equity The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) prior period statement statement of owner's equity income statement balance sheet Revenues are reported when a contract is signed cash is received from the customer work is begun on the job work is completed on the job The unit of measure concept: is only used in the financial statements of manufacturing companies is not important when applying the cost concept requires that different units be used for assets and liabilities requires that economic data be reported in yen in Japan or dollars in the U.S The asset created by a business when it makes a sale on account is termed accounts payable prepaid expense unearned revenue accounts receivable The asset section of the Balance Sheet normally presents assets in alphabetical order order of largest to smallest dollar amounts in the order what will be converted into cash any order Land, originally purchased for $20,000, is sold for $75,000 in cash What is the effect of the sale on the accounting equation? assets increase $75,000; owner's equity increases $75,000 assets increase $55,000; owner's equity increases $55,000 assets increase $75,000; liabilities decrease $20,000; owner's equity increases $55,000 assets increase $20,000; no change for liabilities; owner's equity increases $75,000 Earning revenue increases assets, increases owner’s equity increases assets, decreases owner's equity increases one asset, decreases another asset decreases assets, increases liabilities Countries outside the U.S use financial accounting standards issued by the: LLC SEC IASB GAAP All of the following statements regarding the ratio of liabilities to owner’s equity are true except: A ratio of indicates that liabilities equal owner’s equity Corporations can use this ratio but substitute total stockholders’ equity for total owner’s equity The higher this ratio is, the better able a business is to withstand poor business conditions and pay creditors 4 The lower this ratio is, the better able a business is to withstand poor business conditions and pay creditors If total assets decreased by $88,000 during a period of time and owner's equity increased by $65,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is $23,000 increase $88,000 decrease $153,000 increase $153,000 decrease Gomez Service Company paid their first installment on their Notes Payable in the amount of $2,000 How will this transaction affect the accounting equation? Increase Liabilities (Notes Payable) and decrease Assets (Cash) Decrease Assets (Cash) and decrease Owner’s equity (Note Payable Expense) Decrease Assets (Cash) and decrease Assets (Notes Receivable) Decrease Assets (Cash) and decrease Liabilities (Notes Payable) Expenses are recorded when cash is paid for services rendered a bill is received in advance of services rendered assets are used in the process of earning revenue none of these Which of the following is not a business transaction? make a sales offer sell goods for cash receive cash for services to be rendered later pay for supplies Which of the following is not a business transaction? Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service Erin provided services to customers earning fees of $600 Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month Erin pays her monthly personal credit card bill If total liabilities decreased by $55,000 during a period of time and owner's equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is $115,000 increase $5,000 increase $5,000 decrease $115,000 decrease ... public accounting firm? Certified Public Accountant Certified Payroll Professional Certified Internal Auditor Certified Management Accountant 74 Free Test Bank for Accounting 24th Edition by Warren. .. of accounting that respectively provide information to internal and external users are: forensic accounting and financial accounting managerial accounting and financial accounting managerial accounting. .. of the company Accounting provides creditors and banks with information regarding the credit risk rating of the company Accounting is not responsible for providing any form of information to users