Accounting Ch. 1-4 Test Bank Questions with correct Answers

T or F, Owners of business firms are the only people who need accounting information - ANSWERSF T or F Transactions that can be measured in dollars and cents are recorded in the financial information system - ANSWERST T or F The hiring of a new company president is an economic event recorded by the financial information system - ANSWERSF T or F Management of a business enterprise is the major external user of information - ANSWERSF T or F Accounting communicates financial information about a business enterprise to both internal and external users - ANSWERST T or F Accounting information is used only by external users with a financial interest in a business enterprise - ANSWERSF T or F Financial statements are the major means of communicating accounting information to interested parties - ANSWERST T or F Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process - ANSWERSF T or F The origins of accounting are attributed to Luca Pacioli, a famous mathematician - ANSWERST T or F The State Administration of Taxation in the People's Republic of China is an example of an internal user of accounting informa - ANSWERSF T or F The German Confederation of Trade Union is an example of an external user of accounting information - ANSWERST T or F Accountants rely on a fundamental business concept - ethical behaviour - in reporting financial information - ANSWERST T or F The process of reducing the differences between GAAP and IFRS is known as convergence - ANSWERST T or F Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owner - ANSWERST T or F The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities - ANSWERST T or F The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records - ANSWERST T or F In order to possess future service potential, an asset must have physical substance - ANSWERSF T or F Owners' claims to total business assets take precedence over the claims of credits because owners invest assets in the business and are liable for losses. - ANSWERSF T or F The basic accounting equation states that Assets = Liabilities - ANSWERSF T or F Share capital is the total amount paid in by shareholders for shares purchased - ANSWERST T or F The principal source of equity is amounts paid in by shareholders - ANSWERSF T or F Expenses are increases in equity that result from operating the business - ANSWERSF T or F The two components of equity are retained earnings and share capital - ANSWERST T or F The purchase of an asset on account increases assets and decreases equity - ANSWERSF T or F Providing services for cash increases assets and equity - ANSWERST T or F Accountants record both internal and external transactions - ANSWERST T or F Internal transactions do not affect the basic accounting equations because they are economic events that occur entirely within one company - ANSWERSF T or F The purchase of store equipment for cash reduces the equity by an equal amount - ANSWERSF T or F The purchase of office equipment on credit increases total assets and total liabilities - ANSWERST T or F The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period - ANSWERST T or F Net income for the period is determined by subtracting total expenses and dividends from total revenues - ANSWERSF T or F The ending retained earnings balance is reported on the statement of financial position - ANSWERST T or F The statement of financial position is also known as the balance sheet - ANSWERST T or F Expressing an opinion as to the fairness of the information presented statements is a service performed by CAs and CPAa - ANSWERST T or F Identifying is the process of keeping a chronological diary of events measured and cents - ANSWERSF T or F Management consulting includes examining the financial statements of companies expressing an opinion as to the fairness of their presentation - ANSWERSF T or F Accountants do not have to worry about issues of ethics - ANSWERSF T or F The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar - ANSWERSF T or F The basic accounting equation is in balance when the creditor and ownership claims against the business is equal to the assets - ANSWERST T or F External transactions involve economic events between the company and some other enterprise of party - ANSWERST T or F The the retained earnings statement, revenues are listed first, followed by expenses, and the net income or loss - ANSWERSF Accountants refer to an economic event as a - ANSWERStransaction The accounting process includes each of the following except: a. communication b. convergence c. identification d. recording - ANSWERSconvergence Communication of economic events is the part of the accounting process that involves a. identifying economic events b. quantifying transactions into dollars and cents c. preparing accounting reports d. recording and classifying information - ANSWERSpreparing accounting reports Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction a. The appointment of a new accounting firm to perform an audit b. The purchase of a new computer c. The sale of store equipment d. Payment of income taxes - ANSWERSA Recording of economic events involves a. keeping a systemic, chronological diary of events b. analyzing reported information c. explaining the meaning of reported data d. preparing reports - ANSWERSa The accounting process involves all of the following except a. identifying economic events that are relevant to the business b. communicating financial information to users by preparing financial reports c. recording non-quantifiable economic events d. analyzing and interpreting financial reports - ANSWERSc The accounting process is correctly sequenced as a. identification, communication, recording b. recording, communication, identification c. identification, recording, communication d. communication, recording, identification - ANSWERSc Which of the following techniques is not used by accountants to interpret and report financial information? a. Graphs b. Special memos for each class of external users c. Charts d. Ratios - ANSWERSb Bookkeeping primarily involves which fo the following parts of the accounting process? a. Identification b. Communication c. Recording d. Analysis - ANSWERSC Which of the following would not be considered an external user of accounting data for the GHI company? a. Taxing authority representative b. Management c. Creditors d. Customers - ANSWERSb Which of the following would not be considered internal users of accounting for a company? a. The president of a company b. The controller of a company c. Creditors of a company d. Salesmen of a company - ANSWERSc. Which of the following is an external user of accounting information? a. labor unions b. finance directors c. company officers d. managers - ANSWERSa Which one of the following is not an external user of accounting information? a. Regular agencies b. customers c. investors d. all of the above - ANSWERSd Which of the following would not be considered an internal user of accounting data for a company a. president of the company b. production manager c. merchandise inventory clerk d. president of the employees' labor union - ANSWERSd Internal users of accounting information include all of the following except the a. CEO of sony b. human resource department at Hyundai c. marketing department at Braun d. Shareholders of Airbus - ANSWERSd Internal users of accounting information include a. The shareholders of Royal Dutch Shell b. the State Administration of Taxation of China c. the Chief Financial Officers of Credit Suisse d. The International Accounting Standards Board - ANSWERSc External users of accounting information include all of the following except: a. The shareholders of Air Italy b. The management of Pirelli c. A potential customers of Olivetti d. All of the above are correct - ANSWERSb The originals of accounting are generally attributed to the work of: a. Christopher Columbus b. Abner Doubleday c. Luca Pacioli d. Leonardo Da Vinci - ANSWERSc Financial accounting provides economic and financial information for each of the following except: a. credits b. investors c. managers d. other external users - ANSWERSc The final step in solving an ethical dilemma is to a. Identify and analyze the principal elements in the situation b. recognize an ethical situation c. identify the alternatives and weight the impact of each alternative on stakeholders d. recognize the ethical issues involved - ANSWERSc Ethics are the standards of conduct by which one's actions are judges as a. right or wrong b. honest or dishonest c. fair or unfair d. all of the choices are correct - ANSWERSd The historical cost principle requires that companies record assets as their a. appraisal value b. cost c. market price d. list price - ANSWERSb GAAP Stands for - ANSWERSGenerally Accepted Accounting Principles The Duce Company has five plants nationwide that cost a total of $200 million. The current fair value of the plants is $500 million. The plants will be recorded and reported as assets at - ANSWERS$200 million Most assets should be valued at cost because fair values a. are not useful for decision-making b. may not be representationally faithful c. are not relevant d. may be higher or lower than historical cost - ANSWERSb Harod's Inc. purchased land for $55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is $65,000. If Harrod's follows the historical cost principle, in the 2014 financial statements, the land will be reported at - ANSWERS$55,000 Hyundai Inc. purchase land for 118,000,000KRW in 2005. At December 31, 2014, an appraisal determined the fair value of the land is 136,000,000KRW. If Hyundai follows the cost principle, the land will be reported not eh statement of financial position at - ANSWERS118,000,000KRw The proprietorship form of business organization a. must have at least three owners b. requires that the owner he personally liable for all debts of the business c. combines the records of the business with the personal records of the owner d. is characterized by a legal distinction between the business as an economic unit and the owner - ANSWERSb. The economic entity assumption requires that the activities a. of different entities can be combined if all the entities are corporations b. must be reported the the Securities and Exchange Commissions c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners d. of an entity be kept separate from the actives of its owner - ANSWERSd A business organized as a corporation a. is not a separate legal entity in most countries b. requires that shareholders be personally liable for the debts of the business c. is owned by its shareholders d. terminates when one of its original shareholders dies - ANSWERSc. The partnership form of business organization a. is a separate legal entity b. is a common form of organization for service-type businesses c. enjoys na unlimited life d. has limited liability - ANSWERSb Which of the following is not an advantage of the corporate form of business organization? a. Limited liability of shareholders b. Transferability of ownership c. Unlimited personal liability for shareholders d. Unlimited life - ANSWERSc A small neighbourhood barber shop that is operated by its owner would likely be organized as a a. join venture b. partnership c. corporation d. proprietorship - ANSWERSd 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 a. join venture b. partnership c. corporation d. proprietorship - ANSWERSb Which of the following is true regarding the corporate form of business organization? a. Corporations are the most prevalent form of business organization b. Corporate businesses are generally smaller in size than partnerships and proprietorships. c. The revenues of corporations are greater than the combined revenues of partnerships and proprietorships d. Corporations are separate legal entities organized exclusively under federal law - ANSWERSc A basic assumption of accounting that requires activities of an entity be kept separate from the actives of the owner is referred to as the a. stand alone concept b. monetary unit assumption c. corporate form of ownership d. economic entity assumption - ANSWERSd The assumption that enables accounting to quantify economic events is the a. economic entity assumption b. cost principle c. historical cost principle d. monetary unit assumption - ANSWERSd A business whose owners enjoy limited liability is a a. proprietorship b. partnership c. corporation d. sole proprietorship - ANSWERSc The common characteristic possessed by all asset is a. long life b. great monetary value c. tangible nature d. future economic benefit - ANSWERSd Equity is best described as a. Assets = Liabilities b. Liabilities + Assets c. Residual Equity + Assets d. Assets - Liabilities - ANSWERSd Liabilities a. are future economic benefits b. are existing debts and obligations c. possess service potential d. are things of value used by the business in its operation - ANSWERSb Liabilities of a company would not include a. notes payable b. accounts payable c. wages payable d. cash - ANSWERSd Liabilities of a company are owed to a. debtors b. benefactors c. creditors d. underwriters - ANSWERSc Equity can be described as a. creditorship claim on total assets b. ownership claim on total assets c. benefactor's claim on total assets d. debtor claim on total assets - ANSWERSb Equity is often referred to as a. residual equity b. leftovers c. spoils d. second equity - ANSWERSa When assets are distributed to the shareholders of a corporation, thee distributions are termed what? - ANSWERSdividends A dividend is a. a distribution of the company's earnings to its shareholders b. equal to liabilities minus equity c. equal to assets minus equity d. equal to revenues less expenses - ANSWERSa Revenues would not result from a. sale of merchandise. b. issuance of common stock. c. performance of services. d. rental of property. - ANSWERSb Sources of increases to equity are a. issuance of shares b. purchases of merchandise c. dividends d. expenses - ANSWERSa Equity is decreased by all of the following except a. issuance of shares b. dividends c. expenses d. net losses - ANSWERSa If total liabilities increased by 35,000 and equity increased by 10,00 during a period of time, then the total assets must change by what amount and direction during the same period?` - ANSWERS45,000 increase If total liabilities decreased by 35,000 and equity increased by 10,000 during a period of time, then total assets must change by what amount and direction during that same period? - ANSWERS25,000 decrease The equity section of a statement of financial position has two components a. share capital and liabilities b. assets and liabilities c. share capital and retained earnings d. share capital and assets - ANSWERSc A company increases its share capital by a. selling ordinary shares to its investors b. performing services for cash c. selling goods on account d. paying dividends to its shareholders - ANSWERSa The retained earnings section of the statement of financial position is determined by a. assets, liabilities and share capital b. revenues, expenses and share capital c. share capital, dividends and residual equity