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
Chapter 1: Introduction to Accounting and Business
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.
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
Chapter 1: Introduction to Accounting and Business
67.
Which of the items below is not a business entity?
a.
entrepreneurship
b.
proprietorship
c.
partnership
d.
corporation
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.
Chapter 1: Introduction to Accounting and Business
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
71.
Select the type of business that is most likely to obtain large amounts of resources by issuing stock.
a.
partnership
b.
corporation
c.
proprietorship
d.
government entity
Chapter 1: Introduction to Accounting and Business
72.
Which of the following is not a characteristic of a corporation?
a.
Corporations are organized as a separate legal taxable entity.
b.
Ownership is divided into shares of stock.
c.
Corporations experience an ease in obtaining large amounts of resources by issuing stock.
d.
A corporation’s resources are limited to its individual owners’ resources.
73.
The initials GAAP stand for
a.
General Accounting Procedures
b.
Generally Accepted Plans
c.
Generally Accepted Accounting Principles
d.
Generally Accepted Accounting Practices
74.
Within the United States, the dominant body in the primary development of accounting principles is the
a.
American Institute of Certified Public Accountants (AICPA)
b.
American Accounting Association (AAA)
c.
Financial Accounting Standards Board (FASB)
d.
Institute of Management Accountants (IMA)
Chapter 1: Introduction to Accounting and Business
75.
The business entity concept means that
a.
the owner is part of the business entity
b.
an entity is organized according to state or federal statutes
c.
an entity is organized according to the rules set by the FASB
d.
the entity is an individual economic unit for which data are recorded, analyzed, and reported
76.
For accounting purposes, the business entity should be considered separate from its owners if the entity is
a.
a corporation
b.
a proprietorship
c.
a partnership
d.
any of these
77.
The objectivity concept requires that
a.
business transactions be consistent with the objectives of the entity
b.
the Financial Accounting Standards Board be fair and unbiased in its deliberations over new
accounting
standards
c.
accounting principles meet the objectives of the Security and Exchange Commission
d.
amounts recorded in the financial statements be based on independently verifiable evidence
Chapter 1: Introduction to Accounting and Business
78.
Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from
Crystal
Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The contribution of
the $6,000
should be recorded on the accounting records of which of the following entities?
a.
Crystal Cleaning and the American Red Cross
b.
Karen Meyer’s personal records and the American Red Cross
c.
Karen Meyer’s personal records and Crystal Cleaning
d.
Karen Meyer’s personal records, Crystal Cleaning, and the American Red Cross
79.
Equipment with an estimated market value of $30,000 is offered for sale at $45,000. The equipment is acquired
for $15,000 in cash and a note payable of $20,000 due in 30 days. The amount used in the buyer’s accounting
records
to record this acquisition is
a. $30,000
b. $35,000
c. $15,000
d. $45,000
80.
Which one of the following is the authoritative body in the United States having the primary responsibility
for
developing accounting principles?
a.
FASB
b.
IRS
c.
SEC
d.
AICPA
Chapter 1: Introduction to Accounting and Business
81.
Which of the following concepts relates to separating the reporting of business and personal economic transactions?
a.
cost concept
b.
unit of measure concept
c.
business entity concept
d.
objectivity concept
82.
Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market
value of the land to be $220,000. The Focus Company initially offered to buy the land for $177,000. The
companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block
sold
for $232,000. Under the cost concept, at what amount should the land be recorded in the accounting records
of
Focus Company?
83.
Many countries outside the United States use financial accounting standards issued by the
a.
AICPA
b.
SEC
c.
IASB
d.
FASB
Chapter 1: Introduction to Accounting and Business
84.
The unit of measure concept
a.
is only used in the financial statements of manufacturing companies
b.
is not important when applying the cost concept
c.
requires that different units be used for assets and liabilities
d.
requires that economic data be reported in yen in Japan or dollars in the United States
85.
Which of the following is not true of accounting principles?
a.
Financial accountants follow generally accepted accounting principles (GAAP).
b.
Following GAAP allows accounting information users to compare one company to another.
c.
A new accounting principle can be adopted with stockholders’ approval.
d.
The Financial Accounting Standards Board (FASB) has primary responsibility for developing
accounting
principles.
86.
Assets are
a.
always lower than liabilities
b.
equal to liabilities less owner’s equity
c.
the same as expenses because they are acquired with cash
d.
financed by the owner and/or creditors
Chapter 1: Introduction to Accounting and Business
87.
Debts owed by a business are referred to as
a.
accounts receivables
b.
expenses
c.
owner’s equity
d.
liabilities
88.
The accounting equation may be expressed as
a.
Assets = Equities − Liabilities
b.
Assets + Liabilities = Owner’s Equity
c.
Assets = Revenues − Liabilities
d.
Assets − Liabilities = Owner’s Equity
89.
Which of the following is not an asset?
a.
investments
b.
cash
c.
inventory
d.
owner’s equity
Chapter 1: Introduction to Accounting and Business
90.
The assets and liabilities of the company are $128,000 and $84,000, respectively. Owner’s equity should equal
a. $212,000
b. $44,000
c. $128,000
d. $84,000
91.
If total liabilities decreased by $46,000 during a period of time and owner’s equity increased by $60,000 during
the
same period, the amount and direction (increase or decrease) of the period’s change in total assets is
a.
$106,000 increase
b.
$14,000 increase
c.
$14,000 decrease
d.
$106,000 decrease
92.
Which of the following is not a business transaction?
a.
make a sales offer
b.
sell goods for cash
c.
receive cash for services to be rendered later
d.
pay for supplies
Chapter 1: Introduction to Accounting and Business
93.
A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the
accounting
equation was to
a.
increase one asset, decrease another asset
b.
decrease an asset, decrease a liability
c.
increase an asset, increase a liability
d.
increase an asset, increase owner’s equity
94.
Earning revenue
a.
increases assets, increases owner’s equity
b.
increases assets, decreases owner’s equity
c.
increases one asset, decreases another asset
d.
decreases assets, increases liabilities
95.
The monetary value charged to customers for the performance of services sold is called a(n)
a.
asset
b.
net income
c.
capital
d.
revenue
Chapter 1: Introduction to Accounting and Business
96.
Revenues are reported when
a.
a contract is signed
b.
cash is received from the customer
c.
work is begun on the job
d.
work is completed on the job
97.
Expenses are recorded when
a.
cash is paid for services rendered
b.
a bill is received in advance of services rendered
c.
assets are used in the process of earning revenue
d.
assets are purchased
98.
Goods purchased on account for future use in the business, such as supplies, are called
a.
prepaid liabilities
b.
revenues
c.
prepaid expenses
d.
liabilities
Chapter 1: Introduction to Accounting and Business
99.
The asset created by a business when it makes a sale on account is termed
a.
accounts payable
b.
prepaid expense
c.
unearned revenue
d.
accounts receivable
100.
The debt created by a business when it makes a purchase on account is referred to as an
a.
account payable
b.
account receivable
c.
asset
d.
expense payable
101.
If total assets decreased by $88,000 during a period of time and owner’s equity increased by $71,000 during
the
same period, then the amount and direction (increase or decrease) of the period’s change in total liabilities
is
a.
$17,000 increase
b.
$88,000 decrease
c.
$159,000 increase
d.
$159,000 decrease
Chapter 1: Introduction to Accounting and Business
102.
Owner’s withdrawals
a.
increase expenses
b.
decrease expenses
c.
increase cash
d.
decrease owner’s equity
103.
How does paying a liability in cash affect the accounting equation?
a.
assets increase; liabilities decrease
b.
assets increase; liabilities increase
c.
assets decrease; liabilities decrease
d.
liabilities decrease; owner’s equity increases
104.
How does receiving a bill to be paid next month for services received affect the accounting equation?
a.
assets decrease; owner’s equity decreases
b.
assets increase; liabilities increase
c.
liabilities increase; owner’s equity increases
d.
liabilities increase; owner’s equity decreases
Chapter 1: Introduction to Accounting and Business
105.
How does the purchase of equipment by signing a note affect the accounting equation?
a.
assets increase; assets decrease
b.
assets increase; liabilities decrease
c.
assets increase; liabilities increase
d.
assets increase; owner’s equity increases
106.
Land, originally purchased for $30,000, is sold for $62,000 in cash. What is the effect of the sale on the
accounting
equation?
a.
assets increase $62,000; owner’s equity increases $62,000
b.
assets increase $32,000; owner’s equity increases $32,000
c.
assets increase $62,000; liabilities decrease $30,000; owner’s equity increases $32,000
d.
assets increase $30,000; no change for liabilities; owner’s equity increases $62,000
107.
Which of the following is a liability?
e.
Accounts payable
f.
Accounts receivable
g.
Wages expense
h.
Service revenue
Chapter 1: Introduction to Accounting and Business
108.
Abbie Marson is the sole owner and operator of Great Plains Company. As of the end of its accounting period,
December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2,
Marson invested an additional $73,000 and withdrew $33,000 from the business. What is the amount of net
income
during Year 2, assuming that as of December 31, Year 2, assets were $995,000, and liabilities were
$270,000?
a. $45,000
b. $50,000
c. $106,000
d. $370,000
109.
Which of the following asset accounts is increased when a receivable is collected?
a.
Accounts receivable
b.
Supplies
c.
Accounts payable
d.
Cash
110.
Transactions affecting owner’s equity include
a.
owner’s investments and payment of liabilities
b.
owner’s investments, owner’s withdrawals, earning of revenues, and incurrence of expenses
c.
owner’s investments, earning of revenues, incurrence of expenses, and collection of accounts receivable
d.
owner’s withdrawals, earning of revenues, incurrence of expenses, and purchase of supplies on account
Chapter 1: Introduction to Accounting and Business
111.
Michael Anderson is starting his computer programming business and has deposited in initial investment of
$15,000
into the business cash account. Identify how the accounting equation will be affected.
a.
Increase Assets (Cash) and increase Liabilities (Accounts Payable)
b.
Increase Assets (Cash) and increase Owner’s Equity (Michael Anderson, Capital)
c.
Increase Assets (Accounts Receivable) and decrease Liabilities (Accounts Payable)
d.
Increase Assets (Cash) and increase Assets (Accounts Receivable)
112.
Gomez Service Company paid its first installment on a note payable in the amount of $2,000. How will
this
transaction affect the accounting equation?
a.
Increase Liabilities (Notes Payable) and decrease Assets (Cash)
b.
Decrease Assets (Cash) and decrease Owner’s Equity (Note Payable Expense)
c.
Decrease Assets (Cash) and decrease Assets (Notes Receivable)
d.
Decrease Assets (Cash) and decrease Liabilities (Notes Payable)
Chapter 1: Introduction to Accounting and Business
113.
Ramon Ramos has withdrawn $750 from Ramos Repair Company’s cash account to deposit in his
personal
account. How does this transaction affect Ramos Repair Company’s accounting equation?
a.
Increase Assets (Accounts Receivable) and decrease Assets (Cash)
b.
Decrease Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)
c.
Decrease Assets (Cash) and decrease Liabilities (Accounts Payable)
d.
Increase Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)
114.
Which of the following is not a business transaction?
a.
Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service.
b.
Erin provided services to customers earning fees of $600.
c.
Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month.
d.
Erin pays her monthly personal credit card bill.
115.
Which of the following is a business transaction?
e.
purchase inventory on account
f.
plan advertising for upcoming sale
g.
give employees a raise beginning next month
h.
submit estimate for construction project
Chapter 1: Introduction to Accounting and Business
116.
The financial statement that presents a summary of the revenues and expenses of a business for a specific period
of time, such as a month or year, is called a(n)
a.
prior period statement
b.
statement of owner’s equity
c.
income statement
d.
balance sheet
117.
Which of the following financial statements reports information as of a specific date?
a.
income statement
b.
statement of owner’s equity
c.
statement of cash flows
d.
balance sheet
118.
Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared
last. The statement of owner’s equity (OE), the balance sheet (B), and the income statement (I) are prepared in a
certain order to obtain information needed for the next statement. In what order are these three statements
prepared?
a.
I,OE, B
b.
B, I, OE
c.
OE, I, B
d.
B,OE, I