978-1337276337 Test Bank Chapter 1 Part 3

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108. At December 31, 2017, the accounting records of Tasty Foods Corporation contain the following:

Accounts payable $ 16,000 Accounts receivable $ 40,000

Land 240,000 Cash ?

Capital stock ? Equipment 120,000

Building 180,000 Notes payable 190,000

Retained earnings 160,000

If capital stock is $260,000, what is the December 31, 2017 cash balance?

a. $46,000

b. $506,000

c. $94,000

d. $86,000

109. At December 31, 2017, the accounting records of Tasty Foods Corporation contain the following:

Accounts payable $ 16,000 Accounts receivable $ 40,000

Land 240,000 Cash ?

Capital stock ? Equipment 120,000

Building 180,000 Notes payable 190,000

Retained earnings 160,000

If Cash is $26,000, what is the December 31, 2017 capital stock balance?

a. $272,000

b. $240,000

c. $220,000

d. $400,000

110. Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee’s

total assets increased by $80,000 and its total liabilities increased by $57,000 during the year, what is the amount of

Sawaddee’s owners’ equity at the end of the year?

a. $197,000

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b. $543,000

c. $243,000

d. $220,000

111. Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee’s

total liabilities increased by $31,000 and its owners’ equity decreased by $53,000 during the year, what was the amount of

its total assets at the end of the year?

a. $472,000

b. $242,000

c. $198,000

d. $428,000

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112. The natural progression in items from one statement to another and preparation of financial statements is best

represented by the following order:

a. Balance sheet and statement of cash flows > statement of retained earnings > income statement

b. Balance sheet and statement of cash flows > income statement > statement of retained earnings.

c. Statement of retained earnings > income statement > balance sheet and statement of cash flows

d. Income statement > statement of retained earnings > balance sheet and statement of cash flows

113. All of the following are different expressions for net income except

a. capital.

b. excess of revenues over expenses.

c. profits.

d. earnings.

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114. Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee’s

total assets doubled to $900,000 and its owners’ equity remained the same during the year, what was the amount of its

total liabilities at the end of the year?

a. $220,000

b. $680,000

c. $780,000

d. $900,000

115. The statement of retained earnings accomplishes which of the following?

a. It summarizes income earned and dividends paid over a single period of the business.

b. It accumulates all revenues for the year.

c. It summarizes the balance sheet accounts.

d. It summarizes the capital stock accounts over the life of the business.

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116. Lawton Corporation’s end-of-year balance sheet consisted of the following amounts:

Cash $ 25,000 Accounts receivable $58,000

Property, plant, and equipment 69,000 Long-term debt 40,000

Capital stock 100,000 Accounts payable 20,000

Retained earnings ? Inventory 43,000

What amount should Lawton report on its balance sheet for total assets?

a. $100,000

b. $161,000

c. $194,000

d. $195,000

117. Which one of the following items does not accurately describe stockholders’ equity?

a. Stockholders’ equity is created when a company issues stock to an investor.

b. Total stockholders’ equity should be equal to assets in a publicly held entity.

c. Stockholders’ equity represents amounts contributed by the owners to the company.

d. As owners of shares in a corporation, stockholders have claims on the assets of a business when it is profitable.

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118. Which concept is the reason the dollar is used in the preparation of financial statements?

a. Going concern

b. Legal entity

c. Consistency

d. None of these choices.

119. Which one of the following is an assumption made in the preparation of financial statements?

a. Financial statements are prepared for a specific entity that is distinct from the entity owners.

b. Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit

c. Preparation of financial statements for a specific time period assumes that the balance sheet covers a period of

time.

d. Market values are always assumed to be irrelevant when preparing financial statements.

120. Why is the time period assumption required?

a. Inflation exists.

b. External users of financial statements want statements that accurately reflect net income or earnings for a specific

time period.

c. The dollar is the monetary unit in the United States.

d. The federal government requires it.

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121. Which one of the following statements is true concerning assets?

a. They are recorded at market value and then adjusted for inflation.

b. They are recorded at market value for financial reporting purposes as historical cost may be arbitrary.

c. Assets are used using the time-period approach.

d. Accountants use the term historical cost to refer to the original cost of an asset.

122. Domenico Enterprises purchased land for $2,000,000 in 2000. In 2017, an independent appraiser assessed the value

at $4,400,000. What amount should appear on the financial statements in 2017 with respect to the land?

a. $2,400,000

b. $2,000,000

c. $4,400,000

d. Whatever amount the company believes is the best indicator of the true value of the land

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123. Drew Mellow, owner of Mellow’s Melodies, also owns a personal residence that costs $400,000. The market value of

his residence is $600,000. During preparation of the financial statements for Mellow’s Melodies, the accounting concept

most relevant to the presentation of Drew’s home is

a. monetary unit.

b. a going concern entity.

c. the economic entity concept.

d. the time period assumption.

124. Sawyer Corporation purchased land in 2009 for $490,000. In 2015, it purchased a nearly identical parcel of land for

$660,000. In its 2015 balance sheet, Sawyer valued these two parcels of land at a combined value of $1,320,000. By

reporting the land in this manner, Sawyer Corporation has violated which of the following?

a. Going concern assumption

b. Cost principle

c. Monetary unit measure

d. Time Period assumption

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125. Which of the following is a five-member body that has the authority from Congress to set standards for conducting

audits?

a. FASB

b. SEC

c. PCAOB

d. AICPA

126. Which the following organizations is primarily responsible for establishing GAAP today?

a. IRS

b. Securities and Exchange Commission (SEC)

c. SEC

d. None of these choices

127. Which of the following organizations is responsible for setting auditing standards followed by public accounting

firms in conducting independent audits of financial statements?

a. Financial Accounting Standards Board (FASB)

b. Securities and Exchange Commission (SEC)

c. Public Company Accounting Oversight Board (PCAOB)

d. International Accounting Standards Board (IASB)

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128. Which organization, in addition to the Financial Accounting Standards Board (FASB), occasionally issues

authoritative rules for financial statements?

a. The Accounting Profession

b. International Accounting Standards Board (IASB)

c. Securities and Exchange Commission (SEC)

d. Internal Revenue Service (IRS)

129. The Securities and Exchange Commission (SEC) is concerned with

a. companies that issue securities to the general public.

b. all companies in the U.S. regardless of size.

c. accounting reports issued by government entities.

d. all domestic and international companies that issue accounting reports.

130. To which of the following entities must a company report if it sells its stock on the organized stock market?

a. American Institute of Certified Public Accountants (AICPA)

b. American Accounting Association (AAA)

c. International Accounting Standards Board (IASB)

d. Securities and Exchange Commission (SEC)

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131. The reliability of the information in a company’s financial statements is the responsibility of which of the following?

a. The Securities and Exchange Commission (SEC)

b. The Certified Public Accountant in charge of the audit of the company’s financial statements

c. Clients

d. None of these choices

132. Which one of the following best describes the external auditor’s report?

a. The external auditor’s report is an opinion.

b. The external auditor’s report is a statement of fact.

c. The external auditor’s report must comply with both FASB and IASB standards.

d. The firms that provide external audit reports are restricted to 20 partners, based on authoritative standards issued

by the PCAOB.

133. In order for accounting information to be useful in making informed decisions, it must be

a. relevant.

b. reliable.

c. neither relevant nor reliable.

d. both relevant and reliable.

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134. The second step in the ethical decision-making model is to

a. list alternatives and evaluate the impact of each on those affected.

b. select the best alternative.

c. recognize an ethical dilemma.

d. analyze the key elements in the situation.

135. All of the following are important provisions of the Sarbanes-Oxley Act except

a. the establishment of a new Public Company Accounting Oversight Board.

b. the requirement to prepare both FASB and IASB financial statements.

c. a requirement that the external auditors report directly to the company’s audit committee.

d. a clause to prohibit public accounting firms that audit a company from providing any other services that could

impair their ability to act independently in the course of their audit.

136. When selecting between the best alternatives regarding an ethical dilemma in accounting, all of the following should

be considered except

a. which alternative provides the most relevant information.

b. which alternative provides the most accurate information.

c. which alternative provides the most neutral information.

d. which alternative provides the most profitable information.

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Multiple Response

137. Choose the user group that is most likely to have the need listed below. (Select all that apply.)

The ability of the company to pay its debts as they become due.

a. Stockholder

b. Company management

c. Supplier

d. Banker

e. Internal Revenue Service

f. Securities and Exchange Commission

g. Labor union

138. ______________________ consists of all activities necessary to provide the members of an economic system with

goods and services.

139. Owners of corporations are called ____________________.

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140. A ____________ is a certificate that represents a corporation’s promise to repay a certain amount of money and

interest in the future.

141. A ____________ is the type of accounting used by nonbusiness entities.

142. The three types of business activities in which all corporations engage are _______________________,

______________________, and _____________________.

143. The process of identifying, measuring, and communicating economic information to various users is called

____________________.

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144. _____________ is the type of accounting used by external parties.

145. The names of the four financial statements are ________________________________,

________________________________, ________________________________, and

________________________________

146. Another name for net income of a business is _________________________.

147. The concept that assumes that assets are recorded at the amount to acquire them is called the

_________________________.

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148. The concept that assumes that an entity is not in the process of liquidation is _________________________.

149. The federal government agency with the ultimate authority to determine the rules in preparing statements for

companies whose stock is sold to the public is the __________________________________________________.

150. The various methods, rules, practices, and other procedures that have evolved over time in response to the need to

regulate the preparation of financial statements are called __________________________________________________.

151. The private sector group with authority to set accounting standards is the

_______________________________________________.

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152. ___________________ means the presentation of information is free from bias toward a particular result.

153. In 2002, Congress passed the ________________ Act to bring reform to corporate accountability and stewardship in

the wake of a number of major corporate scandals.

154. Good quality information should be both _____________ and present a __________________.

155. Must file articles of incorporation with the state

156. Easy to raise large sums of money

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157. Single owner

158. Need an agreement about contributions to the business

159. Usually owned and operated by the same person

160. Owned by two or more individuals

161. Control most private resources in the U.S.

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164. The financial status of a company issuing securities to the public for the first time

165. The profitability of the company based upon the Internal Revenue Code

166. The profitability of each division of the company

167. The exact amount of profit on each product of the company

168. The company’s profitability since the last work force contract was signed

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169. The portion of owners’ equity that represents the net income less any dividends paid over the life of the entity

170. The owners’ claims on the assets of an entity

171. A distribution of the net income of a business to its owners

172. The sale of goods or the performance of services

173. A category on the balance sheet to indicate the owners’ direct investment in a corporation

174. The cost of doing business that results from the process of generating revenues

175. A future benefit

176. An artificial segment on the calendar used as a basis for preparing financial statements

177. The assumption that an entity is not in the process of liquidation and that it will continue indefinitely

178. The principle or rule that specifies the amount recorded for an asset upon acquisition

179. An entity that lends a company money with the expectation of repayment

180. Claims of the creditors against the assets of a company