Test Bank for Accounting Principles 14th Edition by Jerry J. Weygandt, Paul D. Kimmel

CHAPTER 1 ACCOUNTING IN ACTION CHAPTER LEARNING OBJECTIVES 1. Identify the activities and users associated with accounting. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. The major users and uses of accounting are as follows: (a) Management uses accounting information to plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their financial interests on the basis of accounting data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on the basis of accounting information. Other groups that use accounting information are taxing authorities, regulatory agencies, customers, and labor unions. 2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics are the standards of conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound ethical behavior. Generally accepted accounting principles are a common set of standards used by accountants. The primary accounting standard-setting body in the United States is the Financial Accounting Standards Board. 3. State the accounting equation, and define its components. The basic accounting equation is: Assets = Liabilities + Owner's Equity Assets are resources a business owns. Liabilities are creditorship claims on total assets. Owner's equity is the ownership claim on total assets. The expanded accounting equation is: Assets  Liabilities + Owner's Capital  Owner's Drawings + Revenues  Expenses Investments by owners (assets the owner puts into the business) are recorded in a category called owner‘s capital. Owner‘s drawings are the withdrawal of assets by the owner for personal use. Revenues are the gross increase in owner‘s equity from business activities for the purpose of earning income. Expenses are the costs of assets consumed or services used in the process of earning revenue. Owner‘s equity is increased by an owner‘s investments and by revenues from business operations. Owner‘s equity is decreased by an owner‘s withdrawals of assets and by expenses. 4. Analyze the effects of business transactions on the accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase in a specific liability, or (3) increase in owner's equity. 5. Describe the four financial statements and how they are prepared. An income statement presents the revenues and expenses, and resulting net income or net loss for a specific period of time. An owner's equity statement summarizes the changes in owner's equity for a specific period of time. A balance sheet reports the assets, liabilities, and owner's equity at a specific date. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.21A - 2 Test Bank for Accounting Principles, Fourteenth Edition a6. Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and private accounting, governmental, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement. TRUE-FALSE STATEMENTS 1. Owners of business firms are the only people who need accounting information. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting 2. Transactions that can be measured in dollars and cents are recorded in the financial information system. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 3. The hiring of a new company president is an economic event recorded by the financial information system. Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 4. Management of a business enterprise is the major external user of information. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 5. Accounting communicates financial information about a business enterprise to both internal and external users. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 6. Accounting information is used only by external users with a financial interest in a business enterprise. Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 7. Financial statements are the major means of communicating accounting information to interested parties. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 8. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process. Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 3 9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 10. The study of accounting is not useful for a business career unless your career objective is to become an accountant. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 11. A working knowledge of accounting is not relevant to a lawyer or an architect. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 12. Identifying is the process of keeping a chronological diary of events measured in dollars and cents. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 13. Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 14. A partnership must have more than one owner. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 15. 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. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 16. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 17. Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting21A - 4 Test Bank for Accounting Principles, Fourteenth Edition 18. The primary accounting standard-setting body in the United States is the International Accounting Standards Board. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 19. The Financial Accounting Standards Board is a part of the Securities and Exchange Commission. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 20. The Securities and Exchange Commission oversees U.S. financial markets and accounting standard-setting bodies. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 21. The cost and fair market value of an asset are the same at the time of acquisition and in all subsequent periods. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 22. 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 owners. Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 23. Accountants do not have to worry about issues of ethics. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: Professional Behavior, IMA: Reporting 24. At the time an asset is acquired, cost and fair value should be the same. Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 25. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 26. In order to possess future service potential, an asset must have physical substance. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 27. Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 5 28. The basic accounting equation states that Assets = Liabilities. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 29. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets. Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 30. Accountants record both internal and external transactions. Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 31. Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company. Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 32. The purchase of store equipment for cash reduces assets and owner's equity by an equal amount. Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 33. The purchase of office equipment on credit increases total assets and total liabilities. Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 34. External transactions involve economic events between the company and some other enterprise or party. Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 35. 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. Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 36. Net income for the period is determined by subtracting total expenses and drawings from total revenues. Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, Reporting, AICPA PC: None, IMA: Reporting 37. In the owner's equity statement, revenues are listed first, followed by expenses, and net income (or net loss).21A - 6 Test Bank for Accounting Principles, Fourteenth Edition Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting a38. The study of accounting will be useful only if a student is interested in working for a profitoriented business firm. Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting a39. Private accountants are accountants who are not employees of business enterprises. Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting a40. Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs. Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting MULTIPLE CHOICE QUESTIONS 41. Accountants refer to an economic event as a a. purchase. b. sale. c. transaction. d. change in ownership. Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 42. The starting point of the accounting process is a. communicating information to users. b. identifying economic events. c. recording economic events. d. None of these answers are correct. Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 43. 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. Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 44. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction? a. The appointment of a new CPA firm to perform an audit. b. The purchase of a new computer. c. The sale of store equipment. d. Payment of income taxes.Process Costing21A - 7 Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 45. Interpretation of reported information involves each of the following except a. limitations of reported data. b. meaning of reported data. c. uses of reported data. d. All of these choices are correct. Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 46. The accounting process involves all of the following except a. identifying economic transactions that are relevant to the business. b. communicating financial information to users by preparing financial reports. c. recording nonquantifiable economic events. d. analyzing and interpreting financial reports. Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 47. The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c. identification, recording, communication. d. communication, recording, identification. Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 48. Which of the following techniques are 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. Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 49. Which of the following would not be considered an internal user of accounting data for the LMN Company? a. President of the company. b. Production manager. c. Merchandise inventory clerk. d. President of the employees' labor union. Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 50. Which of the following would not be considered an external user of accounting data for the LMN Company? a. Internal Revenue Service Agent. b. Management. c. Creditors. d. Customers. Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting21A - 8 Test Bank for Accounting Principles, Fourteenth Edition 51. Which of the following would not be considered internal users of accounting data for a company? a. The president of a company. b. The controller of a company. c. Creditors of a company. d. Salesmen of the company. Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 52. Which of the following is an external user of accounting information? a. Labor unions. b. Finance directors. c. Company officers. d. Managers. Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 53. Which one of the following is not an external user of accounting information? a. Regulatory agencies. b. Customers. c. Investors. d. All of these answer choices are external users. Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 54. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process? a. Identification. b. Communication. c. Recording. d. Analysis. Ans: Ct, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 55. The origins of accounting are generally attributed to the work of a. Christopher Columbus. b. Abner Doubleday. c. Luca Pacioli. d. Leonardo da Vinci. Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 56. Financial accounting has a primary purpose pf providing economic and financial information for all of the following except a. creditors. b. investors. c. managers. d. other external users. Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 9 57. Which of the following is not part of the accounting process? a. Recording b. Identifying c. Financial decision making d. Communicating Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 58. The first part of the accounting process is a. communicating. b. identifying. c. processing. d. recording. Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 59. Keeping a systematic, chronological diary of events that are measured in dollars and cents is called a. communicating. b. identifying. c. processing. d. recording. Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 60. Internal users of accounting information include all of the following except a. company officers. b. investors. c. marketing managers. d. production supervisors. Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 61. 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 weigh the impact of each alternative on stakeholders. d. recognize the ethical issues involved. Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 62. The first step in solving an ethical dilemma is to a. identify and analyze the principal elements in the situation. b. identify the alternatives. c. recognize an ethical situation and the ethical issues involved. d. weigh the impact of each alternative on various stakeholders. Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: Professional Behavior, IMA: Reporting21A - 10 Test Bank for Accounting Principles, Fourteenth Edition 63. Ethics are the standards of conduct by which one's actions are judged as a. right or wrong. b. honest or dishonest. c. fair or unfair. d. All of these answer choices are correct. Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: Professional Bahavior, IMA: Reporting 64. Generally accepted accounting principles are a. income tax regulations of the Internal Revenue Service. b. standards that indicate how to report economic events. c. theories that are based on physical laws of the universe. d. principles that have been proven correct by academic researchers. Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 65. The historical cost principle requires that when assets are acquired, they be recorded at a. appraisal value. b. cost. c. market price. d. book value. Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 66. The historical cost of an asset and its fair value are a. never the same. b. the same when the asset is sold. c. irrelevant when the asset is used by the business in its operations. d. the same on the date of acquisition. Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 67. The body of theory underlying accounting is not based on a. physical laws of nature. b. concepts. c. principles. d. definitions. Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 68. The private sector organization involved in developing accounting principles is the a. Feasible Accounting Standards Body. b. Financial Accounting Studies Board. c. Financial Accounting Standards Board. d. Financial Auditors' Standards Body. Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 11 69. The SEC and FASB are two organizations that are primarily responsible for establishing generally accepted accounting principles. It is true that a. they are both governmental agencies. b. the SEC is a private organization of accountants. c. the SEC often mandates guidelines when no accounting principles exist. d. the SEC and FASB rarely cooperate in developing accounting standards. Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 70. GAAP stands for a. Generally Accepted Auditing Procedures. b. Generally Accepted Accounting Principles. c. Generally Accepted Auditing Principles. d. Generally Accepted Accounting Procedures. Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 71. Financial information that is capable of making a difference in a decision is a. faithfully representative. b. relevant. c. convergent. d. generally accepted. Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 72. The Dulce Company has five factories nationwide that cost a total of $200 million. The current fair value of the factories is $600 million. The factories will be recorded and reported as assets at a. $200 million. b. $600 million. c. $400 million. d. $800 million. Ans: A, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 73. The fair value principle is applied for a. all assets. b. current assets. c. buildings. d. investment securities. Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 74. The proprietorship form of business organization a. must have at least three owners in most states. b. represents the largest number of businesses in the United States. 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.21A - 12 Test Bank for Accounting Principles, Fourteenth Edition Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 75. 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 to the Securities and Exchange Commission. 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 activities of its owner. Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 13 76. A business organized as a corporation a. is not a separate legal entity in most states. b. requires that stockholders be personally liable for the debts of the business. c. is owned by its stockholders. d. terminates when one of its original stockholders dies. Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 77. 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 an unlimited life. d. has limited liability. Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 78. Which of the following is not an advantage of the corporate form of business organization? a. Limited liability of stockholders b. Transferability of ownership c. Unlimited personal liability for stockholders d. Unlimited life Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 79. A small neighborhood barber shop that is operated by its owner would likely be organized as a a. joint venture. b. partnership. c. corporation. d. proprietorship. Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 80. George and Ringo 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. joint venture. b. partnership. c. corporation. d. proprietorship. Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 81. 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.21A - 14 Test Bank for Accounting Principles, Fourteenth Edition Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 15 82. A basic assumption of accounting that requires that the activities of an entity be kept separate from the activities of its owner is referred to as the a. stand alone concept. b. monetary unit assumption. c. corporate form of ownership. d. economic entity assumption. Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 83. Sam Ryo is the proprietor (owner) of Sam's, a retailer of golf apparel. When recording the financial transactions of Sam's, Sam does not record an entry for a car he purchased for personal use. Sam took out a personal loan to pay for the car. What accounting concept guides Sam's behavior in this situation? a. Pay back concept b. Economic entity assumption c. Cash basis concept d. Monetary unit assumption Ans: B, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 84. A basic assumption of accounting assumes that the dollar is a. unrelated to business transactions. b. a poor measure of economic activities. c. the common unit of measure for all business transactions. d. useless in measuring an economic event. Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 85. The assumption that the unit of measure remains sufficiently constant over time is part of the a. economic entity assumption. b. cost principle. c. historical cost principle. d. monetary unit assumption. Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 86. A business whose owners enjoy limited liability is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 87. A problem with the monetary unit assumption is that a. the dollar has not been stable over time. b. the dollar has been stable over time. c. the dollar is a common medium of exchange. d. it is impossible to account for international transactions. Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting21A - 16 Test Bank for Accounting Principles, Fourteenth Edition 88. A proprietorship is a business a. owned by one person. b. owned by two or more persons. c. organized as a separate legal entity under state corporation law. d. owned by a governmental agency. Ans: a, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: ReportingProcess Costing21A - 17 89. The organization(s) primarily responsible for establishing generally accepted accounting principles is(are) the FASB SEC a. no no b. yes no c. no yes d. yes yes Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 90. The primary accounting standard-setting body in the United States is the a. Financial Accounting Standards Board. b. International Accounting Standards Board. c. Internal Revenue Service. d. Securities and Exchange Commission. Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 91. The common characteristic possessed by all assets is a. long life. b. great monetary value. c. tangible nature. d. future economic benefit. Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 92. Owner's equity is best depicted by the following: a. Assets = Liabilities. b. Liabilities + Assets. c. Residual equity + Assets. d. Assets – Liabilities. Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Governance Perspective, AICPA FC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting 93. The basic accounting equation may be expressed as a. Assets = Total Claims on Assets. b. Assets – Liabilities = Owner's Equity. c. Assets = Liabilities + Owner's Equity. d. All of these answer choices are correct.. Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, A