79. The statement of cash flows identifies cash flows separated into operating, investing, and
financing activities over a period of time.
80. Ending capital reported on the statement of owner’s equity is calculated by adding owner
investments and net losses and subtracting net incomes and withdrawals.
81. Accounting is an information and measurement system that does all of the following
except:
A. Identifies business activities.
B. Records business activities.
C. Communicates business activities.
D. Does not use technology to improve accuracy in reporting.
E. Helps people make better decisions.
82. Technology:
A. Has replaced accounting.
B. Has not changed the work that accountants do.
C. Has closely linked accounting with consulting, planning, and other financial services.
D. In accounting has replaced the need for decision makers.
E. In accounting is only available to large corporations.
83. The primary objective of financial accounting is:
A. To serve the decision-making needs of internal users.
B. To provide financial statements to help external users analyze an organization’s activities.
C. To monitor and control company activities.
D. To provide information on both the costs and benefits of looking after products and
services.
E. To know what, when, and how much to produce.
84. The area of accounting aimed at serving the decision making needs of internal users is:
A. Financial accounting.
B. Managerial accounting.
C. External auditing.
D. SEC reporting.
E. Bookkeeping.
85. External users of accounting information include all of the following except:
A. Shareholders.
B. Customers.
C. Purchasing managers.
D. Government regulators.
E. Creditors.
86. All of the following regarding a Certified Public Accountant are true except:
A. Must meet education and experience requirements.
B. Must pass an examination.
C. Must exhibit ethical character.
D. May also be a Certified Management Accountant.
E. Cannot hold any certificate other than a CPA.
87. Ethical behavior requires:
A. That auditors’ pay not depend on the success of the client’s business.
B. Auditors to invest in businesses they audit.
C. Analysts to report information favorable to their companies.
D. Managers to use accounting information to benefit themselves.
E. That auditors’ pay depend on the success of the client’s business.
88. Social responsibility:
A. Is a concern for the impact of our actions on society.
B. Is a code that helps in dealing with confidential information.
C. Is required by the SEC.
D. Requires that all businesses conduct social audits.
E. Is limited to large companies.
89. All of the following are true regarding ethics except:
A. Ethics are beliefs that separate right from wrong.
B. Ethics rules are often set for CPAs.
C. Ethics do not affect the operations or outcome of a company.
D. Are critical in accounting.
E. Ethics can be hard to apply.
90. The accounting concept that requires financial statement information to be supported by
independent, unbiased evidence other than someone’s belief or opinion is:
A. Business entity assumption.
B. Monetary unit assumption.
C. Going-concern assumption.
D. Time-period assumption.
E. Objectivity
91. A corporation:
A. Is a business legally separate from its owners.
B. Is controlled by the FASB.
C. Has shareholders who have unlimited liability for the acts of the corporation.
D. Is the same as a limited liability partnership.
E. Is not subject to double taxation.
92. The group that attempts to create more harmony among the accounting practices of
different countries is the:
A. AICPA.
B. IASB.
C. CAP.
D. SEC.
E. FASB.
93. The private group that currently has the authority to establish generally accepted
accounting principles in the United States is the:
A. APB.
B. FASB.
C. AAA.
D. AICPA.
E. SEC.
94. The accounting assumption that requires every business to be accounted for separately
from other business entities, including its owner or owners is known as the:
A. Time-period assumption.
B. Business entity assumption.
C. Going-concern assumption.
D. Revenue recognition principle.
E. Cost principle.
95. The rule that requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold, unless evidence shows that it will not
continue, is the:
A. Going-concern assumption.
B. Business entity assumption.
C. Objectivity principle.
D. Cost Principle.
E. Monetary unit assumption.
96. If a parcel of land that was originally acquired for $85,000 is offered for sale at $150,000,
is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth
$140,000, and is sold for $137,000, the land should be recorded in the purchaser’s books at:
A. $95,000.
B. $137,000.
C. $138,500.
D. $140,000.
E. $150,000.
97. To include the personal assets and transactions of a business’s owner in the records and
reports of the business would be in conflict with the:
A. Objectivity principle.
B. Monetary unit assumption.
C. Business entity assumption.
D. Going-concern assumption.
E. Revenue recognition principle.
98. The accounting principle that requires accounting information to be based on actual cost
and requires assets and services to be recorded initially at the cash or cash-equivalent amount
given in exchange, is the:
A. Accounting equation.
B. Cost principle.
C. Going-concern assumption.
D. Realization principle.
E. Business entity assumption.
99. The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the
inflow of assets associated with revenue to be in a form other than cash, and (3) measures the
amount of revenue as the cash plus the cash equivalent value of any noncash assets received
from customers in exchange for goods or services, is called the:
A. Going-concern assumption.
B. Cost principle.
C. Revenue recognition principle.
D. Objectivity principle.
E. Business entity assumption.
100. The question of when revenue should be recognized on the income statement (according
to GAAP) is addressed by the:
A. Revenue recognition principle.
B. Going-concern assumption.
C. Objectivity principle.
D. Business entity assumption.
E. Cost principle.
101. The International Accounting Standards Board (IASB):
A. Hopes to create harmony among accounting practices of different countries.
B. Is the government group that establishes reporting requirements for companies that issue
stock to the public.
C. Has the authority to impose its standards on companies.
D. Is the only source of generally accepted accounting principles (GAAP).
E. Only applies to companies that are members of the European Union.
102. The Maxim Company acquired a building for $500,000. Maxim had the building
appraised, and found that the building was easily worth $575,000. The seller had paid
$300,000 for the building 6 years ago. Which accounting principle would require Maxim to
record the building on its records at $500,000?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Revenue recognition principle.
103. On December 15 of the current year, Myers Legal Services signed a $50,000 contract
with a client to provide legal services to the client in the following year. Which accounting
principle would require Myers Legal Services to record the legal fees revenue in the following
year and not the year the cash was received?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Revenue recognition principle.
104. Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle
requires Marian to keep her personal financial information separate from the financial
information of Mosely Accounting Services?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Matching principle.
105. A limited partnership:
A. Includes a general partner with unlimited liability.
B. Is subject to double taxation.
C. Has owners called stockholders.
D. Is the same as a corporation.
E. May only have two partners.
106. A partnership:
A. Is also called a sole proprietorship.
B. Has unlimited liability for its partners.
C. Has to have a written agreement in order to be legal.
D. Is a legal organization separate from its owners.
E. Has owners called shareholders.
107. Which of the following accounting principles would require that all goods and services
purchased be recorded at cost?
A. Going-concern assumption.
B. Matching principle.
C. Cost principle.
D. Business entity assumption.
E. Consideration assumption.
108. Which of the following accounting principles prescribes that a company record its
expenses incurred to generate the revenue reported?
A. Going-concern assumption.
B. Matching principle.
C. Cost principle.
D. Business entity assumption.
E. Consideration assumption.
109. Revenue is properly recognized:
A. When the customer’s order is received.
B. Only if the transaction creates an account receivable.
C. At the end of the accounting period.
D. Upon completion of the sale or when services have been performed and the business
obtains the right to collect the sales price.
E. When cash from a sale is received.
110. If a parcel of land that was originally purchased for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily
being worth $140,000, and is sold for $137,000, the land account transaction amount to
handle the sale of the land in the seller’s books is:
A. $85,000 increase.
B. $85,000 decrease.
C. $137,000 increase.
D. $137,000 decrease.
E. $140,000 decrease.
111. If a parcel of land that was originally purchased for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily
being worth $140,000, and is sold for $137,000. What is the effect of the sale on the
accounting equation for the seller?
A. Assets increase $52,000; owner’s equity increases $52,000.
B. Assets increase $85,000; owner’s equity increases $85,000.
C. Assets increase $137,000; owner’s equity increases $137,000.
D. Assets increase $140,000; owner’s equity increases $140,000.
E. Assets decrease $85,000; owner’s equity decreases $85,000.
112. If a parcel of land that was originally purchased for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily
being worth $140,000, and is sold for $137,000. At the time of the sale, assume that the seller
still owed $30,000 to TrustOne Bank on the land that was purchased for $85,000.
Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of
the sale and the payoff of the loan on the accounting equation?
A. Assets increase $52,000; owner’s equity increases $22,000; liabilities decrease $30,000
B. Assets increase $52,000; owner’s equity increases $30,000; liabilities decrease $30,000
C. Assets increase $22,000; owner’s equity increases $52,000; liabilities decrease $30,000
D. Assets decrease $30,000; owner’s equity decreases $30,000; liabilities decrease $30,000
E. Assets decrease $55,000; owner’s equity decreases $55,000; liabilities decrease $30,000
113. An example of a financing activity is:
A. Buying office supplies.
B. Obtaining a long-term loan.
C. Buying office equipment.
D. Selling inventory.
E. Buying land.
114. An example of an operating activity is:
A. Paying wages.
B. Purchasing office equipment.
C. Borrowing money from a bank.
D. Selling stock.
E. Paying off a loan.
115. Operating activities:
A. Are the means organizations use to pay for resources like land, buildings and equipment.
B. Involve using resources to research, develop, purchase, produce, distribute and market
products and services.
C. Involve acquiring and disposing of resources that a business uses to acquire and sell its
products or services.
D. Are also called asset management.
E. Are also called strategic management.
116. An example of an investing activity is:
A. Paying wages of employees.
B. Withdrawals by the owner.
C. Purchase of land.
D. Selling inventory.
E. Contribution from owner.
117. Net Income:
A. Decreases equity.
B. Represents the amount of assets owners put into a business.
C. Equals assets minus liabilities.
D. Is the excess of revenues over expenses.
E. Represents owners’ claims against assets.
118. If equity is $300,000 and liabilities are $192,000, then assets equal:
A. $108,000.
B. $192,000.
C. $300,000.
D. $492,000.
E. $792,000.
119. Resources that are expected to yield future benefits are:
A. Assets.
B. Revenues.
C. Liabilities.
D. Owner’s Equity.
E. Expenses.
120. Increases in equity from a company’s earnings activities are:
A. Assets.
B. Revenues.
C. Liabilities.
D. Owner’s Equity.
E. Expenses.
121. The difference between a company’s assets and its liabilities, or net assets is:
A. Net income.
B. Expense.
C. Equity.
D. Revenue.
E. Net loss.
122. Creditors’ claims on the assets of a company are called:
A. Net losses.
B. Expenses.
C. Revenues.
D. Equity.
E. Liabilities.
123. Decreases in equity that represent costs of assets or services used to earn revenues are
called:
A. Liabilities.
B. Equity.
C. Withdrawals.
D. Expenses.
E. Owner’s Investment.
124. The description of the relation between a company’s assets, liabilities, and equity, which
is expressed as Assets = Liabilities + Equity, is known as the:
A. Income statement equation.
B. Accounting equation.
C. Business equation.
D. Return on equity ratio.
E. Net income.
125. Revenues are:
A. The same as net income.
B. The excess of expenses over assets.
C. Resources owned or controlled by a company
D. The increase in equity from a company’s earning activities.
E. The costs of assets or services used.
126. If assets are $99,000 and liabilities are $32,000, then equity equals:
A. $32,000.
B. $67,000.
C. $99,000.
D. $131,000.
E. $198,000.
127. Another name for equity is:
A. Net income.
B. Expenses.
C. Net assets.
D. Revenue.
E. Net loss.
128. The excess of expenses over revenues for a period is:
A. Net assets.
B. Equity.
C. Net loss.
D. Net income.
E. A liability.
129. A payment to an owner is called a(n):
A. Liability.
B. Withdrawal.
C. Expense.
D. Contribution.
E. Investment.