Chapter 1 – Introduction to Accounting and Business
1. A corporation is a business that is legally separate and distinct from its owners.
a.
True
b.
False
2. The role of accounting is to provide many different users with financial information to make economic decisions.
a.
True
b.
False
3. Accounting information users need reports about the economic activities and condition of businesses.
a.
True
b.
False
4. Managerial accounting information is used by external and internal users equally.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
5. Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where
they work.
a.
True
b.
False
6. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide
information to the management.
a.
True
b.
False
7. Proper ethical conduct implies that you only consider what’s in your best interest.
a.
True
b.
False
8. Some of the major fraudulent acts by senior executives started as what they considered to be small ethical lapses which
grew out of control.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
9. A business is an organization in which basic resources or inputs, like materials and labor, are assembled and processed
to provide outputs in the form of goods or services to customers.
a.
True
b.
False
10. Two factors that typically lead to ethical violations are relevance and timeliness of accounting information.
a.
True
b.
False
11. An example of a general-purpose financial statement would be a report about projected price increases related to
transportation costs.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
12. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
a.
True
b.
False
13. The main objective for all business is to maximize unrealized profits.
a.
True
b.
False
14. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing
entities.
a.
True
b.
False
15. The basic difference between manufacturing and merchandising companies is the completion level of the products
they purchase for resale to customers.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
16. Proprietorships are owned by one owner and provide only services to their customers.
a.
True
b.
False
17. About 90% of the businesses in the United States are organized as corporations.
a.
True
b.
False
18. An example of an external user of accounting information is the federal government.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for
developing accounting principles.
a.
True
b.
False
20. The cost principle is the basis for entering the purchase price into the accounting records.
a.
True
b.
False
21. The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.
a.
True
b.
False
22. If a building is appraised for $85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer
would record the building at $85,000.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
23. The financial statements of a proprietorship should include the owner’s personal assets and liabilities.
a.
True
b.
False
24. No significant differences exist between the accounting standards issued by the FASB and the IASB.
a.
True
b.
False
25. Generally accepted accounting principles regulate how and what financial information is reported by businesses.
a.
True
b.
False
26. The accounting equation can be expressed as Assets – Liabilities = Shareholder’s Equity.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
27. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of stockholders.
a.
True
b.
False
28. The stockholders’ rights to the assets rank ahead of the creditors’ rights to the assets.
a.
True
b.
False
29. If the liabilities owed by a business total $300,000 and stockholders’ equity is equal to $300,000, then the assets also
total $300,000.
a.
True
b.
False
30. If total assets decreased by $30,000 during a specific period and stockholders’ equity decreased by $35,000 during the
same period, the period’s change in total liabilities was a $65,000 increase.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
31. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same
period, the period’s change in total stockholders’ equity was a $200,000 increase.
a.
True
b.
False
32. If net income for a company was $50,000, $20,000 in cash dividends were paid and the shareholders invested $10,000
in cash, the stockholders’ equity increased by $40,000.
a.
True
b.
False
33. An account receivable is typically classified as a revenue.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
34. An account receivable is a claim against a customer resulting from a sale on account.
a.
True
b.
False
35. Paying an account payable increases liabilities and decreases assets.
a.
True
b.
False
36. Receiving payments on an account receivable increases both equity and assets.
a.
True
b.
False
37. Dividends paid to stockholders decrease assets and increase equity.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
38. Purchasing supplies on account increases liabilities and decreases equity.
a.
True
b.
False
39. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
a.
True
b.
False
40. Revenue is earned only when money is received.
a.
True
b.
False
41. Assets that are used up during the process of earning revenue are called expenses.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
42. The excess of revenue over the expenses incurred in earning the revenue is called capital.
a.
True
b.
False
43. The primary financial statements of a corporation are the income statement, retained earnings statement, and the
balance sheet.
a.
True
b.
False
44. An income statement is a summary of the revenues and expenses of a business as of a specific date.
a.
True
b.
False
45. A retained earnings statement reports the changes in the retained earnings for a period of time.
a.
True
b.
False
Chapter 1 – Introduction to Accounting and Business
46. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income
activities, and cash flows from equity activities.
a.
True
b.
False
47. The balance sheet represents the accounting equation.
a.
True
b.
False
48. Net income and net profit do not mean the same thing.
a.
True
b.
False
49. Profit is the difference between
a.
assets and liabilities
b.
the incoming cash and outgoing cash
c.
the assets purchased with cash contributed by the owner and the cash spent to operate the business
d.
the amounts received from customers for goods or services and the amounts paid for
the inputs used to provide the goods or services
Chapter 1 – Introduction to Accounting and Business
50. Two common areas of accounting that respectively provide information to internal and external users are
a.
forensic accounting and financial accounting
b.
managerial accounting and financial accounting
c.
managerial accounting and environmental accounting
d.
financial accounting and tax accounting systems
51. Which of the following best describes accounting?
a.
records economic data but does not communicate the data to users according to any specific rules
b.
is an information system that provides reports to users regarding economic activities and condition of a
business
c.
is of no use by individuals outside of the business
d.
is used only for filling out tax returns and for financial statements for various type of governmental reporting
requirements
52. Which type of accountant typically practices as an individual or as a member of a public accounting firm?
a.
Certified Public Accountant
b.
Certified Payroll Professional
c.
Certified Internal Auditor
d.
Certified Management Accountant
Chapter 1 – Introduction to Accounting and Business
53. Financial reports are used by
a.
management
b.
creditors
c.
investors
d.
all are correct
54. All of the following are general-purpose financial statements except
a.
balance sheet
b.
income statement
c.
retained earnings statement
d.
cash budget
55. Which of the following is a manufacturing business?
a.
General Motors
b.
Facebook
c.
American Airlines
d.
Target
Chapter 1 – Introduction to Accounting and Business
56. Which of the following is a service business?
a.
Microsoft
b.
Dell Computers
c.
Facebook
d.
Walmart
57. Which of the following groups of companies are all examples of a merchandising business?
a.
Delta Airlines, Marriott, Gap
b.
Gap, Amazon, NIKE
c.
GameStop, Sony, Dell
d.
GameStop, Best Buy, Gap
58. Which of the following groups are considered to be internal users of accounting information?
a.
employees and customers
b.
customers and vendors
c.
employees and managers
d.
government entities and banks
Chapter 1 – Introduction to Accounting and Business
59. The following are examples of external users of accounting information except
a.
government entities
b.
customers
c.
creditors
d.
managers
60. Which of the following is the best description of accounting’s role in business?
a.
Accounting provides stockholders with information regarding the market value of the company’s stocks.
b.
Accounting provides information to managers to operate the business and to other users to make decisions
regarding the economic condition of the company.
c.
Accounting helps in decreasing the credit risk of the company.
d.
Accounting is not responsible for providing any form of information to users. That is the role of the
Information Systems Department.
61. Managerial accountants would be responsible for providing information regarding
a.
tax reports to government agencies
b.
profit reports to owners and management
c.
expansion of a product line report to management
d.
consumer reports to customers
Chapter 1 – Introduction to Accounting and Business
62. Which of the following is not a certification for accountants?
a.
CIA
b.
CMA
c.
CISA
d.
IRS
63. Which of the following is not a role of accounting in business?
a.
to provide reports to users about the economic activities and conditions of a business
b.
to personally guarantee loans of the business
c.
to provide information to external users to determine the economic performance and condition of the business
d.
to assess the various informational needs of users and design its accounting system to meet those needs
64. Which of the following are guidelines for behaving ethically?
I.
Identify the consequences of a decision and its effect on others.
II.
Consider your obligations and responsibilities to those affected by the decision.
III.
Identify your decision based on personal standards of honesty and fairness.
a.
I and II.
b.
II and III.
c.
I and III.
d.
I, II, and III.
Chapter 1 – Introduction to Accounting and Business
65. Which of the following would not normally operate as a service business?
a.
pet groomer
b.
grocer
c.
lawn care company
d.
styling salon
66. Most businesses in the United States are
a.
proprietorships
b.
partnerships
c.
corporations
d.
cooperatives
67. Which of the items below is not a business entity?
a.
entrepreneurship
b.
proprietorship
c.
partnership
d.
corporation
Chapter 1 – Introduction to Accounting and Business
68. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock
is a
a.
proprietorship
b.
corporation
c.
partnership
d.
governmental unit
69. Which of the following is true in regards to a limited liability company?
a.
Makes up 10% of business organizations in the United States.
b.
Combines the attributes of a partnership and a corporation.
c.
Provides tax and liability advantages to the owners.
d.
All are correct.
70. On May 20, White Repair Service extended an offer of $108,000 for land that had been priced for sale at $140,000.
On May 30, White Repair Service accepted the seller’s counteroffer of $115,000. On June 20, the land was assessed at a
value of $95,000 for property tax purposes. On July 4, White Repair Service was offered $150,000 for the land by a
national retail chain. At what value should the land be recorded in White Repair Service’s records?
a.
$108,000
b.
$95,000
c.
$140,000
d.
$115,000