MBA 700 Exam 1 UPDATED ACTUAL
Questions and CORRECT Answers
A company purchased a building twenty years ago for $150,000. The building currently has an
appraised market value of $235,000. The company reports the building on its balance sheet at
$235,000. What concept or principle has been violated?
a. monetary measurement conceptb. separate entity concept
c. recognition principle
d. cost principle - CORRECT ANSWER d. cost principle
A governmental agency can best be described by which of the following statements?
a. has regular shareholder meetings
b. produces goods for sale to the public
c. has a primary purpose of using taxpayer funds to provide services
d. has a primary purpose of making a profit - CORRECT ANSWER c. has a primary
purpose of using taxpayer funds to provide services
Accounting is sometimes called the "language of _____."
a. Main Street
b. financial statements
c. business
d. Wall Street - CORRECT ANSWER c. business
All the following are ways in which accounting information is used by financial accounting users
except to
a. make management decisions related to planning and controlling the company's operations.
b. buy, sell, and hold equity and debt instruments.
c. evaluate borrowing capacity to determine the extent of a loan to grant.
d. decide whether to invest in the company. - CORRECT ANSWER a. make management
decisions related to planning and controlling the company's operations
,Assume a company has a $350 credit (not cash) sale. How would the transaction appear if the
business uses accrual accounting?
a. $350 would show up on the income statement as a sale.
b. $350 would show up on the balance sheet as a sale.
c. $350 would show up on the statement of cash flows as a cash outflow.
d. The transaction would not be reported because the cash was not exchanged. - CORRECT
ANSWER a. $350 would show up on the income statement as a sale.
Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and
credit would be:
a. Debit Prepaid Insurance $18,000, credit Cash $18,000.
b. Debit Cash $18,000, credit Prepaid Insurance $18,000.
c. Debit Insurance Expense $18,000, credit Prepaid Insurance $18,000.
d. Debit Prepaid Insurance $18,000, credit Insurance Expense $18,000. - CORRECT
ANSWER a. Debit Prepaid Insurance $18,000, credit Cash $18,000.
Exchanges of assets for assets have what effect on equity?
a. decrease equity
b. may have no impact on equity
c. increase equity
d. There is no relationship between assets and equity. - CORRECT ANSWER b. may have
no impact on equity
External users of financial accounting information include all of the following except ________.
a. potential investors
b. employees of a business
c. lenders such as bankers
d. governmental agencies such as the IRS - CORRECT ANSWER b. employees of a
business
, Financial accounting information ________.
a. should be incomplete in order to confuse competitors
b. summarizes what has already occurred
c. provides investors guarantees about the future
d. should be prepared differently by each company - CORRECT ANSWER b. summarizes
what has already occurred
Financing activities include:
a. Issuing common stock to stockholders.
b. Selling goods or services to customers.
c. Transactions with company employees.
d. The purchase of a building. - CORRECT ANSWER a. Issuing common stock to
stockholders.
Identify the correct components of the income statement.
a. revenues, expenses, investments by owners, distributions to owners
b. assets, liabilities, and dividends
c. revenues, losses, expenses, and gains
d. assets, liabilities, and owner's equity - CORRECT ANSWER c. revenues, losses,
expenses, and gains
In the United States, the body of rules and procedures that guide public companies to provide
financial accounting information is known as:
a. Generally Accepted Accounting Standards (GAAS)
b. Generally Accepted Rules of Reporting (GARR)
c. Generally Accepted Professional Standards (GAPS)
d. Generally Accepted Accounting Principles (GAAP) - CORRECT ANSWER d.
Generally Accepted Accounting Principles (GAAP)
Questions and CORRECT Answers
A company purchased a building twenty years ago for $150,000. The building currently has an
appraised market value of $235,000. The company reports the building on its balance sheet at
$235,000. What concept or principle has been violated?
a. monetary measurement conceptb. separate entity concept
c. recognition principle
d. cost principle - CORRECT ANSWER d. cost principle
A governmental agency can best be described by which of the following statements?
a. has regular shareholder meetings
b. produces goods for sale to the public
c. has a primary purpose of using taxpayer funds to provide services
d. has a primary purpose of making a profit - CORRECT ANSWER c. has a primary
purpose of using taxpayer funds to provide services
Accounting is sometimes called the "language of _____."
a. Main Street
b. financial statements
c. business
d. Wall Street - CORRECT ANSWER c. business
All the following are ways in which accounting information is used by financial accounting users
except to
a. make management decisions related to planning and controlling the company's operations.
b. buy, sell, and hold equity and debt instruments.
c. evaluate borrowing capacity to determine the extent of a loan to grant.
d. decide whether to invest in the company. - CORRECT ANSWER a. make management
decisions related to planning and controlling the company's operations
,Assume a company has a $350 credit (not cash) sale. How would the transaction appear if the
business uses accrual accounting?
a. $350 would show up on the income statement as a sale.
b. $350 would show up on the balance sheet as a sale.
c. $350 would show up on the statement of cash flows as a cash outflow.
d. The transaction would not be reported because the cash was not exchanged. - CORRECT
ANSWER a. $350 would show up on the income statement as a sale.
Assume that $18,000 cash is paid for insurance to cover the next year. The appropriate debit and
credit would be:
a. Debit Prepaid Insurance $18,000, credit Cash $18,000.
b. Debit Cash $18,000, credit Prepaid Insurance $18,000.
c. Debit Insurance Expense $18,000, credit Prepaid Insurance $18,000.
d. Debit Prepaid Insurance $18,000, credit Insurance Expense $18,000. - CORRECT
ANSWER a. Debit Prepaid Insurance $18,000, credit Cash $18,000.
Exchanges of assets for assets have what effect on equity?
a. decrease equity
b. may have no impact on equity
c. increase equity
d. There is no relationship between assets and equity. - CORRECT ANSWER b. may have
no impact on equity
External users of financial accounting information include all of the following except ________.
a. potential investors
b. employees of a business
c. lenders such as bankers
d. governmental agencies such as the IRS - CORRECT ANSWER b. employees of a
business
, Financial accounting information ________.
a. should be incomplete in order to confuse competitors
b. summarizes what has already occurred
c. provides investors guarantees about the future
d. should be prepared differently by each company - CORRECT ANSWER b. summarizes
what has already occurred
Financing activities include:
a. Issuing common stock to stockholders.
b. Selling goods or services to customers.
c. Transactions with company employees.
d. The purchase of a building. - CORRECT ANSWER a. Issuing common stock to
stockholders.
Identify the correct components of the income statement.
a. revenues, expenses, investments by owners, distributions to owners
b. assets, liabilities, and dividends
c. revenues, losses, expenses, and gains
d. assets, liabilities, and owner's equity - CORRECT ANSWER c. revenues, losses,
expenses, and gains
In the United States, the body of rules and procedures that guide public companies to provide
financial accounting information is known as:
a. Generally Accepted Accounting Standards (GAAS)
b. Generally Accepted Rules of Reporting (GARR)
c. Generally Accepted Professional Standards (GAPS)
d. Generally Accepted Accounting Principles (GAAP) - CORRECT ANSWER d.
Generally Accepted Accounting Principles (GAAP)
