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101
206)
The going concern assumption:
A)
Means that we can express transactions and events in monetary, or money, units.
B)
Means that a business is accounted for separately from other business entities, including its
owner.
C)
Presumes that the life of a company can be divided into time periods, such as months and
years, and that useful reports can be prepared for those periods.
D)
Prescribes that a company record the expenses it incurred to generate the revenue reported.
E)
Means that accounting information reflects a presumption that the business will continue
operating instead of being closed or sold.
207)
The monetary assumption:
A)
Means that accounting information reflects a presumption that the business will continue
operating instead of being closed or sold.
B)
Presumes that the life of a company can be divided into time periods, such as months and
years, and that useful reports can be prepared for those periods.
C)
Means that we can express transactions and events in monetary, or money, units.
D)
Prescribes that a company record the expenses it incurred to generate the revenue reported.
E)
Means that a business is accounted for separately from other business entities, including its
owner.
102
208)
The time period assumption:
A)
Presumes that the life of a company can be divided into time periods, such as months and
years, and that useful reports can be prepared for those periods.
B)
Means that accounting information reflects a presumption that the business will continue
operating instead of being closed or sold.
C)
Means that we can express transactions and events in monetary, or money, units.
D)
Means that a business is accounted for separately from other business entities, including its
owner.
E)
Prescribes that a company record the expenses it incurred to generate the revenue reported.
209)
The business entity assumption:
A)
Presumes that the life of a company can be divided into time periods, such as months and
years, and that useful reports can be prepared for those periods.
B)
Means that we can express transactions and events in monetary, or money, units.
C)
Means that a business is accounted for separately from other business entities, including its
owner.
D)
Prescribes that a company record the expenses it incurred to generate the revenue reported.
E)
Means that accounting information reflects a presumption that the business will continue
operating instead of being closed or sold.
103
210)
Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (or
Dodd-Frank) to:
A)
Protect the taxpayer by ending bailouts.
B)
Promote accountability and transparency in the financial system.
C)
All of the above.
D)
Put an end to the notion of "too big to fail."
E)
Protect consumers from abusive financial services.
211)
Which of the following accounts is not included in the asset section of the balance sheet?
A)
Services revenue.
B)
Accounts receivable.
C)
Supplies.
D)
Cash.
E)
Land.
104
212)
Which of the following accounts is not included in the asset section of the balance sheet?
A)
Wages expense.
B)
Land.
C)
Buildings.
D)
Furniture.
E)
Supplies.
213)
Which of the following accounts is not included in the liability section of the balance sheet?
A)
Accounts receivable.
B)
Notes payable.
C)
Wages payable.
D)
Accounts payable.
E)
Taxes payable.
105
214)
Which of the following accounts is not included in the calculation of net income?
A)
Rent expense.
B)
Cash.
C)
Rent revenue.
D)
Services revenue.
E)
Wages expense.
215)
Which of the following combinations results in a net loss reported on the income statement?
A)
Total revenues of $70,000 and total expenses of $74,000.
B)
Total revenues of $80,000 and total expenses of $74,000.
C)
Total revenues of $40,000 and total expenses of $31,000.
D)
Total revenues of $20,000 and total expenses of $16,000.
E)
Total revenues of $60,000 and total expenses of $52,000.
216)
Which of the following combinations results does not result in the same amount of net income
reported on the income statement?
A)
Total revenues of $70,000 and total expenses of $60,000.
B)
Total revenues of $40,000 and total expenses of $20,000.
C)
Total revenues of $80,000 and total expenses of $60,000.
D)
Total revenues of $60,000 and total expenses of $40,000.
E)
Total revenues of $170,000 and total expenses of $150,000.
SHORT ANSWER QUESTIONS
217)
Match the following terms with the appropriate definition.
a. Financial accounting
b. Ethics
c. Recordkeeping
d. Internal users
e. Accounting
f. Certified Public Accountant (CPA)
g. Fraud triangle
h. Managerial accounting
i. External users
1. An information and measurement system that identifies, records and communicates relevant
reliable and comparable information about an organization's business activities.
____ 2. The part of accounting that involves recording transactions and events, either electronically
or manually.
____ 3. Persons using accounting information who are not directly involved in running the
organization.
____ 4. Persons using accounting information who are directly involved in managing and operating
the organization.
5. The area of accounting that serves the decision-making needs of internal users.
____ 6. The area of accounting aimed at serving external users by providing them with
107
general-purpose financial statements.
7. Accounting specialists that have met educational and experience requirements, passed an
examination and exhibit ethical characteristics to achieve a professional certification.
____ 8. Beliefs that distinguish right from wrong, considered accepted standards of good and bad
behavior.
____ 9. A model that asserts the factors that must exist for a person to commit fraud.
108
218)
Match each of the following terms with the most appropriate definition.
a. Return on assets
b. Assets
c. Expenses
d. Risk
e. Liabilities
f. Owner withdrawals
g. Accounting equation
h. Owner capital
1. The uncertainty about the return to be earned.
____ 2. Resources such as cash that an owner puts into the company.
____ 3. A financial ratio stated as income divided by assets invested.
____ 4. Creditor's claims on a company's assets.
____ 5. Decreases in equity from costs of providing products or services to customers.
____ 6. Resources such as cash that an owner takes from the company for personal use.
____ 7.Resources a company owns or controls that are expected to yield future benefit.
8. Expresses the relation of assets, liabilities and equity in a company, comparing the resources
the company owns to the sources of funds to acquire the resources.
109
219)
The following is a list of selected users of accounting information. Match the appropriate user to the
following decisions they make with accounting information.
a. Suppliers
b. Lenders
c. Shareholders
d. Purchasing Managers
e. Regulators
____ 1. Know what, when, and how much to purchase.
____ 2. Judge the soundness of a customer before making sales on credit.
3. Assess whether a company has paid all required taxes and complied with securities rules.
____ 4. Assess whether an organization is likely to repay its loans with interest.
____ 5. Decide whether to buy, hold, or sell a company's stock.
220)
Match the following definitions with terms 1 through 8. Place the letter that identifies the best
definition in the blank space next to the term.
_ _ 1. Generally accepted accounting principles
____ 2. Time period assumption
____ 3. Statement of owner's equity.
____ 4. Balance sheet
____ 5. Objectivity principle
____ 6. Measurement (Cost) principle
____ 7. Securities and Exchange Commission
____ 8. IASB
____ 9. Full disclosure principle
10. Statement of cash flows
a. Prescribes that assets and services to be recorded initially on a cash or equal-to-cash basis.
b. A principle that requires the information in financial statements to be supported by independent
unbiased evidence.
c. An independent group consisting of individuals from many countries that identify preferred
accounting practices.
d. Presumes that the life of a company can be divided into periods for reporting purposes.
e. The concepts and rules that govern financial accounting.
110
f. A financial statement that reports the changes in equity over the reporting period; including
increases such as owner investment and net income and for decreases such as owner withdrawals or
net loss.
g. A report that identifies cash receipts and cash payments over a period of time.
h. Prescribes that a company report the details behind financial statements that would impact user
decisions.
i. The governmental agency that has the legal authority to establish accounting rules.
j. A report that describes a company's financial position at a point in time.
221)
Match the following definitions with the terms 1 through 9. Place the letter that identifies the best
definition in the blank space next to the term.
1. Statement of cash flows
____ 2. Events
3. Monetary unit principle
____ 4. Business entity principle
____ 5. Revenue recognition principle
____ 6. Accounting equation
7. Income statement
____ 8. Expenses
9. Liabilities
a. The relation between a company's assets, liabilities, and equity.
b. Happenings, such as changes in market value, that effect the accounting equation and are reliably
measured.
c. The principle that assumes transactions and events can be expressed in money units.
d. Describes a company's revenues and expenses along with the resulting net income or loss over a
period of time.
e. A financial statement that lists cash inflows (receipts) and cash outflows (payments); the cash flows
are arranged by operating, investing, and financing activities.
f. Creditor's claims on assets.
g. The cost of assets or services used to earn revenue.
h. The principle that requires a business to be accounted for separately from its owners.
i. The principle that revenue is recorded when earned through providing goods or services.
111
222)
Identify each of the following business activities 1 through 6 into the appropriate category a, b, and
c.
a. Operating
b. Investing
c. Financing
____ 1. Paid utilities expenses.
____ 2. Withdrawal of funds by owners.
____ 3. Purchase of land.
____ 4. Sale of used equipment.
5. Borrowed money from a bank on a long-term note.
6. Paid employee wages.
____ 7. Received investment from owner.
____ 8. Paid an amount due on a long-term bank loan.
223)
Match each of the following items 1 through 8 with the financial statement a through d in which each
item would most likely appear. An item may appear on more than one statement.
a. Income statement
b. Statement of owner's equity
c. Balance sheet
d. Statement of cash flows
_____1. Assets.
_____2. Withdrawals.
_____3. Revenues.
_____4. Cash from investing activities.
_____5. Expenses.
_____6. Liabilities.
7. Cash from operating activities.
8. Cash from financing activities.
113
224)
Classify the following activities according to the appropriate section of the statement of cash flows.
a. Operating activity
b. Investing activity
c. Financing activity
1. Cash received from a one-time sale of used office equipment.
____ 2. Cash paid for withdrawals by owners.
____ 3. Cash received from customers.
____ 4. Cash received from owner contributions.
____ 5. Cash paid for utilities.
____ 6. Cash paid for a delivery van to be used in the business.
ESSAY QUESTIONS
225)
Explain the role of accounting in the information age.
114
226)
What is the balance sheet? What is its purpose?
227)
Identify the users and uses of accounting information.
228)
Identify several opportunities in accounting and distinguish between private accounting and public
accounting.
115
229)
Explain why ethics are an integral part of accounting.
230)
Describe the three important guidelines for revenue recognition.
231)
Identify the three basic forms of business organizations and their key attributes.
116
232)
How does the objectivity principle support ethical behavior?
233)
Identify and describe the two main groups involved in establishing generally accepted accounting
principles.
234)
How does the going-concern principle affect reporting asset values of a business?
117
235)
Describe the income statement and the relation between revenues, expenses, and net income or
loss.
236)
Explain the accounting equation and define its terms.
237)
What distinguishes liabilities from equity?
238)
What is the purpose of return on assets as an analytical tool?
239)
Define risk and return and discuss the relation between them.
240)
Describe the three types of activities reported on the statement of cash flows.
118
241)
Identify and describe the four basic financial statements:
242)
The characteristics below apply to at least one of the forms of business organization.
a. Is a separate legal entity.
b. Is allowed to be owned by one person only.
c. Owner or owners are personally liable for debts of the business.
d. Is a separately taxable entity.
e. Is a business entity.
f. May have a contract specifying the division of profits among the owners.
g. Has an unlimited life
Use the following format to indicate (with a "yes" or "no") whether or not a characteristic applies to
each type of business organization.
Proprietorship
Partnership
Corporation
a.
b.
c.
d.
e.
f.
g.
120
243)
A parcel of land is offered for sale at $600,000, is assessed for tax purposes at $500,000, is
recognized by its purchasers as easily being worth $575,000, and is sold for $570,000. At what
amount should the land be recorded in the purchaser's books? What accounting principle supports
your answer?
