ACCOUNTING 27TH EDITION BY CARL S. WARREN JAMES - TEST BANK

True / False 1. A merchandising business buys products from other businesses to sell to customers. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 2. The role of accounting is to provide many different users with financial information to make economic decisions. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 3. Accounting information users need reports about the economic activities and condition of businesses. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 4. Managerial accounting information is used by external and internal users equally. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.25 - Managerial Characteristics/Terminology ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 5. Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the companies where they work. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics 6. 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 ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 7. Proper ethical conduct implies that you only consider what's in your best interest. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics   8. Some of the major fraudulent acts committed by senior executives started as what they considered to be small ethical lapses that grew out of control. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics 9. A business is an organization in which basic resources or inputs, such as materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.BB.06 - Resource Management BUSPROG: Analytic 10. Two factors that typically lead to ethical violations are relevance and timeliness of accounting information. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 11. Financial accounting reports are relevant only to users within the business. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 12. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.20 - Accounting for Corporations ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics 13. The main objective for all business is to maximize unrealized profits. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 14. 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 ANSWER: False DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 15. 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 ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 16. An example of an external user of accounting information is the federal government. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 17. Proprietorships are owned by one owner and provide only services to their customers. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 18. About 90% of the businesses in the United States are organized as corporations. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 20. The cost concept is the basis for entering the purchase price into the accounting records. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 21. The unit of measurement concept requires that economic data be recorded in dollars. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 22. If a building is appraised for $85,000, it is 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 ANSWER: False DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 23. The financial statements of a proprietorship should include the owner's personal assets and liabilities. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   24. No significant differences exist between the accounting standards issued by the FASB and the IASB. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 25. Generally accepted accounting principles regulate how and what financial information is reported by businesses. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 26. The accounting equation can be expressed as Assets – Liabilities = Owner's Equity. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 27. 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 ANSWER: True DIFFICULTY: Challenging Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   28. The owner’s rights to the assets rank ahead of the creditors' rights to the assets. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 29. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total $300,000. a. True b. False ANSWER: False RATIONALE: Assets = Liabilities + Owner's Equity = $300,000 + $300,000 = $600,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 30. 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 a $65,000 increase. a. True b. False ANSWER: False RATIONALE: Assets = Liabilities + Owner's Equity –$30,000 = Liabilities + (–$35,000) Liabilities = +$5,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   31. 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 ANSWER: True RATIONALE: Assets = Liabilities + Owner’s Equity +$190,000 = –$10,000 + Owner’s Equity Owner’s Equity = +$200,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 32. 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 ANSWER: True RATIONALE: Increase in Capital = Net Income for the Year – Withdrawals + Additional Investment by Owner = $50,000 – $20,000 + $10,000 = $40,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 33. An account receivable is typically classified as a revenue. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   34. An account receivable is a claim against a customer resulting from a sale on account. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.12 - Receivables Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 35. Paying an account payable increases liabilities and decreases assets. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 36. Receiving payments on an account receivable increases both equity and assets. a. True b. False ANSWER: False DIFFICULTY: Challenging Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 37. Cash withdrawals by owners decrease assets and increase equity. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   38. Purchasing supplies on account increases liabilities and decreases equity. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 39. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 40. Revenue is earned only when money is received. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 41. Assets that are used up during the process of earning revenue are called expenses. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 42. The excess of revenue over the expenses incurred in earning the revenue is called capital. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 43. The primary financial statements of a proprietorship are the income statement, statement of owner's equity, and balance sheet. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 44. An income statement is a summary of the revenues and expenses of a business as of a specific date. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 45. A statement of owner's equity reports the changes in the owner's equity for a period of time. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 46. 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 ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 47. The balance sheet represents the accounting equation. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 48. Net income and net profit do not mean the same thing. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   Multiple Choice 49. Profit is the difference between a. assets and liabilities b. the incoming cash and outgoing cash c. the assets purchased with cash contributed by the owner and the cash spent to operate the business d. the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 50. Two common areas of accounting that respectively provide information to internal and external users are a. forensic accounting and financial accounting b. managerial accounting and financial accounting c. managerial accounting and environmental accounting d. financial accounting and tax accounting systems ANSWER: b DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 51. Which of the following best describes accounting? a. records economic data but does not communicate the data to users according to any specific rules b. is an information system that provides reports to users regarding economic activities and condition of a business c. is of no use by individuals outside of the business d. is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements ANSWER: b DIFFICULTY: Moderate Bloom's: Evaluating LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 52. Which type of accountant typically practices as an individual or as a member of a public accounting firm? a. Certified Public Accountant b. Certified Payroll Professional c. Certified Internal Auditor d. Certified Management Accountant ANSWER: a DIFFICULTY: Easy Bloom's: Evaluating LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 53. Financial reports are used by a. management b. creditors c. investors d. All of these choices ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 54. Which of the following is a manufacturing business? a. General Motors b. Facebook c. American Airlines d. Target ANSWER: a DIFFICULTY: Moderate Bloom's: Evaluating LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   55. Which of the following is a service business? a. Microsoft b. Dell Computers c. Facebook d. Walmart ANSWER: c DIFFICULTY: Easy Bloom's: Evaluating LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 56. Which of the following groups of companies includes examples of merchandising businesses? a. Delta Air Lines, Marriott, Gap Inc. b. Gap Inc., Amazon, Nike Inc. c. GameStop, Sony, Dell d. GameStop, Best Buy, Gap Inc. ANSWER: d DIFFICULTY: Easy Bloom's: Evaluating LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 57. Which of the following groups is considered to be internal users of accounting information? a. employees and customers b. customers and vendors c. employees and managers d. government entities and banks ANSWER: c DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   58. The following are examples of external users of accounting information except a. government entities b. customers c. creditors d. managers ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 59. Which of the following is the best description of accounting’s role in business? a. Accounting provides stockholders with information regarding the market value of the company’s stocks. b. Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company. c. Accounting helps in decreasing the credit risk of the company. d. Accounting is not responsible for providing any form of information to users. That is the role of the Information Systems Department. ANSWER: b DIFFICULTY: Moderate Bloom's: Evaluating LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 60. Managerial accountants would be responsible for providing information regarding a. tax reports to government agencies b. profit reports to owners and management c. expansion of a product line report to management d. consumer reports to customers ANSWER: c DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.25 - Managerial Characteristics/Terminology ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   61. Which of the following is not a certification for accountants? a. CIA b. CMA c. CISA d. IRS ANSWER: d DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 62. Which of the following is not a role of accounting in business? a. to provide reports to users about the economic activities and conditions of a business b. to personally guarantee loans of the business c. to provide information to external users to determine the economic performance and condition of the business d. to assess the various informational needs of users and design an accounting system to meet those needs ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 63. Which of the following is a guideline 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. a. I and II b. II and III c. I and III d. I, II, and III ANSWER: d DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics   64. Which of the following would not normally operate as a service business? a. pet groomer b. grocer c. lawn care company d. styling salon ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 65. Most businesses in the United States are a. proprietorships b. partnerships c. corporations d. cooperatives ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 66. Which of the following is not a business entity? a. entrepreneurship b. proprietorship c. partnership d. corporation ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. LOCAL STANDARDS: United States - OH - Default City - ACBSP: APC-03-Business Forms United States - OH - Default City - AICPA: FN-Measurement ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry BUSPROG: Analytic   67. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a a. proprietorship b. corporation c. partnership d. governmental unit ANSWER: b DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 68. Which of the following is true regarding a limited liability company? a. makes up 10% of business organizations in the United States b. combines the attributes of a partnership and a corporation c. provides tax and liability advantages to the owners d. All of these choices ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 69. On May 20, White Repair Service extended an offer of $108,000 for land that had been priced for sale at $140,000. On May 30, White Repair Service accepted the seller’s counteroffer of $115,000. On June 20, the land was assessed at a value of $95,000 for property tax purposes. On July 4, White Repair Service was offered $150,000 for the land by a national retail chain. At what value should the land be recorded in White Repair Service’s records? a. $108,000 b. $95,000 c. $140,000 d. $115,000 ANSWER: d DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 70. Which of the following is most likely to obtain large amounts of resources by issuing stock? a. partnership b. corporation c. proprietorship d. government entity ANSWER: b DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 71. Which of the following is not a characteristic of a corporation? a. Corporations are organized as a separate legal taxable entity. b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. ANSWER: d DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.ACBSP.APC.20 - Accounting for Corporations ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 72. The initials GAAP stand for a. general accounting procedures b. generally accepted plans c. generally accepted accounting principles d. generally accepted accounting practices ANSWER: c DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18.1-02 - 01 - 02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   73. Within the United States, the dominant body in the primary development of accounting principles is the a. American Institute of Certified Public Accountants (AICPA) b. American Accounting Association (AAA) c. Financial Accounting Standards Board (FASB) d. Institute of Management Accountants (IMA) ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 74. The business entity concept means that a. the owner is part of the business entity b. an entity is organized according to state or federal statutes c. an entity is organized according to the rules set by the FASB d. the entity is an individual economic unit for which data are recorded, analyzed, and reported ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 75. For accounting purposes, the business entity should be considered separate from its owners if the entity is a. a corporation b. a proprietorship c. a partnership d. All of these choices ANSWER: d DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   76. The objectivity concept requires that a. business transactions be consistent with the objectives of the entity b. the Financial Accounting Standards Board be fair and unbiased in its deliberations over new accounting standards c. accounting principles meet the objectives of the Securities and Exchange Commission d. amounts recorded in the financial statements be based on independently verifiable evidence ANSWER: d DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 77. Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from Crystal Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The contribution of the $6,000 should be recorded on the accounting records of which of the following entities? a. Crystal Cleaning and the American Red Cross b. Karen Meyer's personal records and the American Red Cross c. Karen Meyer's personal records and Crystal Cleaning d. Karen Meyer's personal records, Crystal Cleaning, and the American Red Cross ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 78. Equipment with an estimated market value of $30,000 is offered for sale at $45,000. The equipment is acquired for $15,000 in cash and a note payable of $20,000 due in 30 days. The amount used in the buyer's accounting records to record this acquisition is a. $30,000 b. $35,000 c. $15,000 d. $45,000 ANSWER: b RATIONALE: Amount in Buyer's Accounting Records = Amount Paid in Cash + Amount Paid through Note Payable = $15,000 + $20,000 = $35,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   79. Which of the following is the authoritative body in the United States that has the primary responsibility for developing accounting principles? a. FASB b. IRS c. SEC d. AICPA ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 80. Which of the following concepts relates to separating the reporting of business and personal economic transactions? a. cost concept b. unit of measure concept c. business entity concept d. objectivity concept ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 81. Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost concept, at what amount should the land be recorded in the accounting records of Focus Company? a. $177,000 b. $212,000 c. $220,000 d. $232,000 ANSWER: b DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   82. Many countries outside the United States use financial accounting standards issued by the a. AICPA b. SEC c. IASB d. FASB ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 83. The unit of measure concept a. is only used in the financial statements of manufacturing companies b. is not important when applying the cost concept c. requires that different units be used for assets and liabilities d. requires that economic data be reported in yen in Japan or dollars in the United States ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 84. Which of the following is not true of accounting principles? a. Financial accountants follow generally accepted accounting principles (GAAP). b. Following GAAP allows accounting information users to compare one company to another. c. A new accounting principle can be adopted with stockholders' approval. d. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles. ANSWER: c DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   85. Assets are a. always lower than liabilities b. equal to liabilities less owner’s equity c. the same as expenses because they are acquired with cash d. financed by the owner and/or creditors ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 86. Debts owed by a business are referred to as a. accounts receivable b. expenses c. owner’s equity d. liabilities ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 87. The accounting equation may be expressed as a. Assets = Equities − Liabilities b. Assets + Liabilities = Owner's Equity c. Assets = Revenues − Liabilities d. Assets − Liabilities = Owner's Equity ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   88. Which of the following is not an asset? a. investments b. cash c. inventory d. owner’s equity ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 89. The assets and liabilities of a company are $128,000 and $84,000, respectively. Owner’s equity should equal a. $212,000 b. $44,000 c. $128,000 d. $84,000 ANSWER: b RATIONALE: Assets = Liabilities + Owner's Equity $128,000 = $84,000 + Owner's Equity Owner's Equity = $44,000 DIFFICULTY: Easy Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 90. If total liabilities decreased by $46,000 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 would be a a. $106,000 increase b. $14,000 increase c. $14,000 decrease d. $106,000 decrease ANSWER: b RATIONALE: Assets = Liabilities + Owner's Equity = –$46,000 + $60,000 = $14,000 Change in Assets = +$14,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   91. Which of the following is not a business transaction? a. make a sales offer b. sell goods for cash c. receive cash for services to be rendered later d. pay for supplies ANSWER: a DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 92. 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 a. increase an asset, decrease another asset b. decrease an asset, decrease a liability c. increase an asset, increase a liability d. increase an asset, increase owner's equity ANSWER: b RATIONALE: Assets = Liabilities + Owner's Equity Asset (Cash) decreases by $7,000 Liability (Accounts Payable) decreases by $7,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 93. Earning revenue a. increases assets, increases owner’s equity b. increases assets, decreases owner's equity c. increases one asset, decreases another asset d. decreases assets, increases liabilities ANSWER: a DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   94. The monetary value charged to customers for the performance of services sold is called a(n) a. asset b. net income c. capital d. revenue ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 95. Revenues are reported when a. a contract is signed b. cash is received from the customer c. work is begun on the job d. work is completed on the job ANSWER: d DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 96. Expenses are recorded when a. cash is paid for services rendered b. a bill is received in advance of services rendered c. assets are used in the process of earning revenue d. assets are purchased ANSWER: c DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   97. Goods purchased on account for future use in the business, such as supplies, are called a. prepaid liabilities b. revenues c. prepaid expenses d. liabilities ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 98. The asset created by a business when it makes a sale on account is termed a. accounts payable b. prepaid expense c. unearned revenue d. accounts receivable ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.12 - Receivables Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 99. The debt created by a business when it makes a purchase on account is referred to as an a. account payable b. account receivable c. asset d. expense payable ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   100. If total assets decreased by $88,000 during a period of time and owner's equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities would be a(n) a. $17,000 increase b. $88,000 decrease c. $159,000 increase d. $159,000 decrease ANSWER: d RATIONALE: Assets = Liabilities + Owner's Equity –$88,000 = Liabilities + $71,000 Liabilities = –$159,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 101. Owner's withdrawals a. increase expenses b. decrease expenses c. increase cash d. decrease owner's equity ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 102. How does paying a liability in cash affect the accounting equation? a. assets increase; liabilities decrease b. assets increase; liabilities increase c. assets decrease; liabilities decrease d. liabilities decrease; owner's equity increases ANSWER: c DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   103. How does receiving a bill to be paid next month for services received affect the accounting equation? a. assets decrease; owner's equity decreases b. assets increase; liabilities increase c. liabilities increase; owner's equity increases d. liabilities increase; owner's equity decreases ANSWER: d DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 104. How does the purchase of equipment by signing a note affect the accounting equation? a. assets increase; assets decrease b. assets increase; liabilities decrease c. assets increase; liabilities increase d. assets increase; owner's equity increases ANSWER: c DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. STATE STANDARDS: United States - OH - ICPA: FN-Measurement ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 105. Land originally purchased for $30,000 is sold for $62,000 in cash. What is the effect of the sale on the accounting equation? a. assets increase by $62,000; owner's equity increases by $62,000 b. assets increase by $32,000; owner's equity increases by $32,000 c. assets increase by $62,000; liabilities decrease by $30,000; owner's equity increases by $32,000 d. assets increase by $30,000; no change in liabilities; owner's equity increases by $62,000 ANSWER: b RATIONALE: Net Change in Assets = Increase in Cash – Decrease in Land = $62,000 – $30,000 = +$32,000 Change in Owner's Equity = +$32,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   106. Which of the following accounts is a liability? a. Accounts Payable b. Accounts Receivable c. Wages Expense d. Service Revenue ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 107. Abbie Marson is the sole owner and operator of Great Plains Company. As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2, Marson invested an additional $73,000 and withdrew $33,000 from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $995,000 and liabilities were $270,000? a. $45,000 b. $50,000 c. $106,000 d. $370,000 ANSWER: a RATIONALE: Assets = Liabilities + Owner's Equity Owner's Equity (Year 1) = $940,000 – $300,000 = $640,000 Owner's Equity (Year 2) = $995,000 – $270,000 = $725,000 Increase in Owner's Equity = Owner's Equity (Year 2) – Owner's Equity (Year 1) = $725,000 – $640,000 = $85,000 Net Income during Year 2 = Increase in Owner's Equity – Additional Investment + Withdrawals = $85,000 – $73,000 + $33,000 = $45,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   108. Which of the following asset accounts is increased when a receivable is collected? a. Accounts Receivable b. Supplies c. Accounts Payable d. Cash ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 109. Transactions affecting owner's equity include a. owner's investments and payment of liabilities b. owner's investments, owner's withdrawals, earning of revenues, and incurrence of expenses c. owner's investments, earning of revenues, incurrence of expenses, and collection of accounts receivable d. owner's withdrawals, earning of revenues, incurrence of expenses, and purchase of supplies on account ANSWER: b DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 110. Michael Anderson is starting a computer programming business and has deposited an initial investment of $15,000 into the business cash account. Identify how the accounting equation will be affected. a. increase in assets (Cash) and increase in liabilities (Accounts Payable) b. increase in assets (Cash) and increase in owner’s equity (Michael Anderson, Capital) c. increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and increase in assets (Accounts Receivable) ANSWER: b RATIONALE: Assets = Liabilities + Owner's Equity Assets (Cash) increase by $15,000 Owner's equity increases by $15,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   111. Gomez Service Company paid its first installment on a note payable of $2,000. How will this transaction affect the accounting equation? a. increase in liabilities (Notes Payable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner’s equity (Note Payable Expense) c. decrease in assets (Cash) and decrease in assets (Notes Receivable) d. decrease in assets (Cash) and decrease in liabilities (Notes Payable) ANSWER: d RATIONALE: Assets = Liabilities + Owner's Equity Assets (Cash) decrease by $2,000 Liabilities (Notes Payable) decrease by $2,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 112. 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? a. increase in assets (Accounts Receivable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) c. decrease in assets (Cash) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) ANSWER: b RATIONALE: Assets = Liabilities + Owner's Equity Assets (Cash) decrease by $750 Owner's equity decreases by $750 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 113. Which of the following is not a business transaction? a. Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service. b. Erin provided services to customers earning fees of $600. c. Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month. d. Erin pays her monthly personal credit card bill. ANSWER: d DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 114. Which of the following is a business transaction? a. purchase inventory on account b. plan advertising for upcoming sale c. give employees a raise beginning next month d. submit estimate for construction project ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 115. All of the following are general-purpose financial statements except a(n) a. balance sheet b. income statement c. statement of owner’s equity d. cash budget ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 116. 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) a. prior period statement b. statement of owner's equity c. income statement d. balance sheet ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   117. Which of the following financial statements reports information as of a specific date? a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 118. 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? a. I,OE, B b. B, I, OE c. OE, I, B d. B,OE, I ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 119. Liabilities are reported on the a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   120. Cash investments made by the owner to the business are reported on the statement of cash flows in the a. financing activities section b. investing activities section c. operating activities section d. supplemental statement ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 121. The year-end balance of the owner's capital account appears in a. both the statement of owner's equity and the income statement b. only the statement of owner's equity c. both the statement of owner's equity and the balance sheet d. both the statement of owner's equity and the statement of cash flows ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 122. A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the a. income statement b. balance sheet c. statement of cash flows d. statement of retained earnings ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   123. If an owner wanted to know how money flowed into and out of the company, which financial statement would the owner use? a. income statement b. statement of cash flows c. balance sheet d. statement of retained earnings ANSWER: b DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 124. The assets section of the balance sheet normally presents assets in a. alphabetical order b. the order of largest to smallest dollar amounts c. the order in which they will be converted into cash or used in operations d. the order of smallest to largest dollar amounts ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 125. All of the following statements regarding the ratio of liabilities to owner’s equity are true except a. a ratio of 1 indicates that liabilities equal owner’s equity b. corporations can use this ratio but substitute total stockholders’ equity for total owner’s equity c. the higher this ratio, the better able a business is to withstand poor business conditions and pay creditors d. the lower this ratio, the better able a business is to withstand poor business conditions and pay creditors ANSWER: c DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   126. Given the following data: Dec. 31,Year 2 Dec. 31,Year 1 Total liabilities $128,250 $120,000 Total owner’s equity 95,000 80,000 Compute the ratio of liabilities to owner’s equity for each year. Round to two decimal places. a. 1.50 and 1.07, respectively b. 1.35 and 1.50, respectively c. 1.07 and 1.19, respectively d. 1.19 and 1.35, respectively ANSWER: b RATIONALE: Ratio of Liabilities to Owner’s Equity = Total Liabilities/Total Owner's Equity Dec. 31, Year 2 Dec. 31, Year 1 $128,250/$95,000 $120,000/$80,000 1.35 1.50 DIFFICULTY: Challenging Bloom's Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   Matching Match the following business types with each business listed below. Each may be used more than once. a. Service business b. Manufacturing business c. Merchandising business DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 127. A tax preparation firm ANSWER: a 128. A law firm ANSWER: a 129. A health club and spa ANSWER: a 130. An automobile dealer ANSWER: c 131. A book publisher ANSWER: b 132. A hospital ANSWER: a 133. A supermarket ANSWER: c 134. A modular homebuilder ANSWER: b 135. A men’s clothing store ANSWER: c 136. A dressmaking company ANSWER: b   Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. a. Proprietorship b. Partnership c. Corporation d. Limited liability company (LLC) DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 137. Comprises 70% of business entities in the United States ANSWER: a 138. Generates 90% of business revenues ANSWER: c 139. Owned by two or more individuals ANSWER: b 140. Organized as a separate legal taxable entity ANSWER: c 141. Easy and cheap to organize ANSWER: a 142. Often used as an alternative to a partnership ANSWER: d 143. Used by large business ANSWER: c 144. Has the ability to obtain large amounts of resources ANSWER: c 145. Offers tax and legal liability advantages for owners ANSWER: d   Match each transaction with its effect on the accounting equation. Each letter may be used more than once. a. Increase assets, increase liabilities b. Increase liabilities, decrease owner’s equity c. Increase assets, increase owner’s equity d. No effect e. Decrease assets, decrease liabilities f. Decrease assets, decrease owner’s equity DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 146. Received cash for services provided ANSWER: c 147. Received utility bill to be paid next month ANSWER: b 148. Investment of land by owner ANSWER: c 149. Paid part of an amount owed to a creditor ANSWER: e 150. Pa