80) The statement of cash flows identifies cash flows separated into operating, investing, and
financing activities over a period of time.
81) Ending retained earnings reported on the statement of retained earnings is calculated by
adding stockholder investments and net income and subtracting net losses and dividends.
82) The cost-benefit constraint prescribes that only information with benefits of disclosure less
than the costs of providing it, need be disclosed.
83) The cost-benefit constraint says that information disclosed must have benefits to the user that
are greater than the costs of providing it.
84) Net income is sometimes called earnings or profit.
85) 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) Eliminates the need for interpreting financial data.
E) Helps people make better decisions.
86) Technology:
A) Has replaced accounting.
B) Has not improved the clerical accuracy of accounting.
C) Reduces the time, effort and cost of recordkeeping.
D) In accounting has replaced the need for decision makers.
E) In accounting is only available to large corporations.
87) The primary objective of financial accounting is to:
A) Serve the decision-making needs of internal users.
B) Provide accounting information that serves external users.
C) Monitor consumer needs, tastes, and price concerns.
D) Provide information on both the costs and benefits of looking after products and services.
E) Know what, when, and how much product to produce.
88) 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.
89) External users of accounting information include all of the following except:
A) Shareholders.
B) Customers.
C) Purchasing managers.
D) Government regulators.
E) Creditors.
90) Which of the following is not true regarding a Certified Public Accountant?
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.
91) Which of the following factors is not a component of the fraud triangle?
A) Opportunity
B) Pressure
C) Rationalization
D) All of the above are components of the fraud triangle.
92) Which of the following is not true regarding ethics:
A) Ethics are beliefs that distinguish right from wrong.
B) Good ethics are good business.
C) Ethics do not affect the operations or outcome of a company.
D) Are critical in accounting.
E) Ethics are accepted standards of good and bad behavior.
93) A corporation is:
A) A business legally separate from its owners.
B) Controlled by the FASB.
C) Not responsible for its own acts and own debts.
D) The same as a limited liability partnership.
E) Not subject to double taxation.
94) The group that sets international preferred accounting practices is called the:
A) AICPA.
B) IASB.
C) CAP.
D) SEC.
E) FASB.
95) The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the:
A) APB.
B) FASB.
C) AAA.
D) AICPA.
E) IASB.
96) The accounting concept 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) Measurement (Cost) principle.
97) 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) Measurement (Cost) Principle.
E) Monetary unit assumption.
98) If a company is considering the purchase of a parcel of land that was acquired by the seller
for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is considered
by the purchaser as easily being worth $140,000, and is purchased 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.
99) To include the personal assets and transactions of a business’s owner(s) 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.
100) 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) Measurement (Cost) principle.
C) Going-concern assumption.
D) Realization principle.
E) Business entity assumption.
101) The rule that (1) requires revenue to be recognized when goods or services are provided to
customers and (2) at the amount expected to be received from the customer is called the:
A) Going-concern assumption.
B) Measurement (Cost) principle.
C) Revenue recognition principle.
D) Objectivity principle.
E) Business entity assumption.
102) 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) Measurement (Cost) principle.
103) The Superior Company acquired a building for $500,000. The building was appraised at a
value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting
principle would require Superior to record the building on its records at $500,000?
A) Monetary unit assumption.
B) Going-concern assumption.
C) Measurement (Cost) principle.
D) Business entity assumption.
E) Revenue recognition principle.
104) On December 15 of the current year, Conrad Accounting Services signed a $40,000
contract with a client to provide bookkeeping services to the client in the following year. Which
accounting principle would require Conrad Accounting Services to record the bookkeeping
revenue in the following year and not the year the cash was received?
A) Monetary unit assumption.
B) Going-concern assumption.
C) Measurement (Cost) principle.
D) Business entity assumption.
E) Revenue recognition principle.
105) Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting
principle requires Marsha to keep her personal financial information separate from the financial
information of Bogswell Legal Services?
A) Monetary unit assumption.
B) Going-concern assumption.
C) Measurement (Cost) principle.
D) Business entity assumption.
E) Expense recognition (Matching) principle.
106) A limited liability company (LLC):
A) Has owners called members.
B) Is subject to double taxation.
C) Includes a general owner with unlimited liability.
D) Is the same as a corporation.
E) Must have more than one owner.
107) 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.
108) Which of the following accounting principles require that all goods and services purchased
be recorded at actual cost?
A) Going-concern assumption.
B) Expense recognition (Matching) principle.
C) Measurement (Cost) principle.
D) Business entity assumption.
E) Consideration assumption.
109) Which of the following accounting principles prescribes that a company record its expenses
incurred to generate the revenue reported?
A) Going-concern assumption.
B) Expense recognition (Matching) principle.
C) Measurement (Cost) principle.
D) Business entity assumption.
E) Consideration assumption.
110) Revenue is properly recognized:
A) When the customer makes an order.
B) Only if the transaction creates an account receivable.
C) At the end of the accounting period.
D) When goods or services are provided to customers and at the amount expected to be received
from the customer.
E) When cash from a sale is received.
111) All of the following are external users of accounting information except:
A) Lenders.
B) Shareholders.
C) Board of directors.
D) Chief executive officer (CEO).
E) Customers.
112) All of the following are external users of accounting information except:
A) customers.
B) Internal Revenue Service.
C) human resource managers.
D) shareholders.
E) lenders.
113) If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting
equation would be:
A) Assets increase $1,300 and liabilities decrease $1,300.
B) One asset increases $1,300 and another asset decreases $1,300, causing no effect.
C) Assets decrease $1,300 and equity decreases $1,300.
D) Assets decrease $1,300 and equity increases $1,300.
E) Assets increase $1,300 and liabilities increase $1,300.
114) If a company receives $12,000 from a stockholder, the effect on the accounting equation
would be:
A) Assets decrease $12,000 and equity decreases $12,000.
B) Assets increase $12,000 and liabilities decrease $12,000.
C) Assets increase $12,000 and liabilities increase $12,000.
D) Liabilities increase $12,000 and equity decreases $12,000.
E) Assets increase $12,000 and equity increases $12,000.
115) If a company purchases equipment costing $4,500 on credit, the effect on the accounting
equation would be:
A) Assets increase $4,500 and liabilities decrease $4,500.
B) Equity decreases $4,500 and liabilities increase $4,500.
C) One asset increases $4,500 and another asset decreases $4,500.
D) Assets increase $4,500 and liabilities increase $4,500.
E) Equity increases $4,500 and liabilities decrease $4,500.
116) 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.
117) 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.
118) 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.
119) An example of an investing activity is:
A) Paying wages of employees.
B) Cash dividends paid.
C) Purchase of land.
D) Selling inventory.
E) Stockholder investments.
120) 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.
121) 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.
122) If assets are $300,000 and liabilities are $192,000, then equity equals:
A) $108,000.
B) $192,000.
C) $300,000.
D) $492,000.
E) $792,000.
123) Resources a company owns or controls that are expected to yield future benefits are:
A) Assets.
B) Revenues.
C) Liabilities.
D) Owner’s Equity.
E) Expenses.
124) Increases in equity from a company’s sales of products or services are:
A) Assets.
B) Revenues.
C) Liabilities.
D) Stockholders’ Equity.
E) Expenses.
125) 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.
126) Creditors’ claims on the assets of a company are called:
A) Net losses.
B) Expenses.
C) Revenues.
D) Equity.
E) Liabilities.
127) Decreases in equity from costs of providing products or services to customers are called:
A) Liabilities.
B) Equity.
C) Withdrawals.
D) Expenses.
E) Stockholders’ Investment.
128) 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.