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Accounting: Concepts and Applications, 11th Edition Test Bank

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    Chapter 1—Accounting Information: Users and Uses MULTIPLE CHOICE 1. Which of the following is NOT typically true of accounting information? a. The information is quantitative in nature. b. The information relates to future time periods. c. The information relates to specific accounting entities. d. The information is primarily financial in nature. ANS: B PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 2. Which of the following is true about the double-entry system of bookkeeping? a. It was developed in the 1300s − 1400s in France. b. It was developed in the 1800s in Italy. c. It was developed in the 1300s − 1400s in Italy. d. It was developed in the 1800s in the United States. ANS: C PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 3. Businesses use accounting systems to a. Analyze transactions b. Handle routine bookkeeping tasks c. Evaluate the performance and health of the business d. All of these are correct ANS: D PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 4. Which of the following is the most correct definition of accounting? a. A system for providing quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. b. An entity without a profit objective, oriented toward providing services efficiently and effectively. c. The preservation of a systematic, quantitative record of an activity. d. The procedures and processes used by a company to analyze transactions and handle routine bookkeeping tasks. ANS: A PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 5. Which of the following is NOT a function of accounting? a. Accumulating economic information about organizations b. Measuring economic information about organizations c. Executing sales transactions for organizations d. Communicating economic information about organizations ANS: C PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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    6. Which of the following is NOT a key component of the definition of accounting? a. Financial b. Qualitative c. Useful d. Decision-oriented ANS: B PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 7. Which of the following is NOT a step in the decision making process? a. Identify the issue. b. Identify alternatives. c. Select the option that will result in the greatest financial increase. d. Gather information. ANS: C PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Decision Modeling 8. Accounting can be best described as a a. Manufacturing activity b. Service activity c. Retailing activity d. All of these are correct ANS: B PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 9. Which of the following is NOT a typical source of monetary resources for a business enterprise? a. Investors b. Creditors c. Business earnings d. Employees ANS: D PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 10. Accountants typically perform what action related to the financial results of business activities? a. Report the results of business activities b. Advise on how to structure business activities c. Both report the results of and advise on how to structure business activities d. None of these are correct ANS: C PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Reporting 11. The accounting cycle includes all of the following, EXCEPT: a. Recording b. Summarizing c. Analyzing d. Interpreting ANS: D PTS: 1 DIF: Easy OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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    12. The emphasis in financial accounting is on which of the following external user groups? a. Management b. Certified public accountants c. Investors and creditors d. Educators ANS: C PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 13. The primary internal group that uses accounting information is a. Government agencies b. Investors c. Management d. Competitors ANS: C PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 14. Internal reports are generally used by a. Management b. Suppliers c. Lenders d. Employees ANS: A PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 15. Which of the following is NOT an important aspect of management accounting? a. Planning b. Product design c. Implementing plans d. Controlling costs ANS: B PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 16. The area of accounting that is concerned with providing information for external users is referred to as a. Financial accounting b. Governmental accounting c. Management accounting d. Not-for-profit accounting ANS: A PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 17. Which of the following is NOT one of the three primary financial statements? a. Statement of cash flows b. Income statement c. Statement of retained earnings d. Balance sheet ANS: C PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting

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    18. Which of the following financial statements reports a company's resources, obligations, and owner's equity? a. Balance sheet b. Income statement c. Statement of retained earnings d. Statement of cash flows ANS: A PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 19. Which of the following financial statements reports the excess of a company's revenues over its expenses? a. Balance sheet b. Income statement c. Statement of retained earnings d. Statement of cash flows ANS: B PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 20. Which of the following financial statements reports the amount of cash collected and paid out by a company? a. Balance sheet b. Income statement c. Statement of retained earnings d. Statement of cash flows ANS: D PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 21. Which of the following is NOT an external user of financial information? a. Competitors b. Employees c. Management d. Suppliers ANS: C PTS: 1 DIF: Easy OBJ: 1.2 NAT: AACSB Reflective Thinking | AICPA FN Reporting 22. Which of the following is NOT one of the factors that influences the accounting environment? a. International business b. Technology c. The development of generally accepted accounting principles (GAAP) d. Investors ANS: D PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Reporting

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    23. Which of the following is NOT true of the Financial Accounting Standards Board (FASB)? a. It consists of five full-time members b. It is a government agency c. It seeks consistency for its proposed standards d. It has no legal power to enforce the standards it sets ANS: B PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Reporting 24. Generally accepted accounting principles are a. Natural laws b. Based on scientific proofs c. Developed by accounting rule makers d. None of these are correct ANS: C PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Reporting 25. The initials GAAP stand for a. General Accounting Administration Practices b. Generally Applied Accounting Procedures c. Generally Accepted Accounting Principles d. Generally Accepted Accounting Practices ANS: C PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Reporting 26. The current standard-setting board for accounting in the private sector is the a. Financial Accounting Standards Board (FASB) b. Securities and Exchange Commission (SEC) c. International Accounting Standards Board (IASB) d. American Accounting Association (AAA) ANS: A PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Legal 27. Which of the following organizations has specific legal authority to establish accounting standards for publicly held companies? a. Financial Accounting Standards Board (FASB) b. Securities and Exchange Commission (SEC) c. Internal Revenue Service (IRS) d. American Institute of Certified Public Accountants (AICPA) ANS: B PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Legal 28. The Sarbanes-Oxley Act created the a. Financial Accounting Standards Board b. Public Company Accounting Oversight Board c. American Institute of Certified Public Accountants d. Enron-WorldCom Fraud Committee ANS: B PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Legal

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    29. The initials CPA stand for a. Certified Professional Appraiser b. Certified Professional Accountant c. Certified Public Accountant d. Certified Public Auditor ANS: C PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Legal 30. Which of the following is NOT a service typically provided by large public accounting firms? a. Performing audits b. Making management decisions c. Redesigning operating procedures d. Establishing accounting systems ANS: B PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Reporting 31. Which of the following is the government agency that stipulates the rules and regulations that govern the collection of taxes in the United States? a. Securities and Exchange Commission b. Federal Accounting Standards Board c. Internal Revenue Service d. American Institute of Certified Public Accountants ANS: C PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Legal 32. Accountants are MOST concerned with a. Foreign companies operating in the US b. U.S. companies with domestic customers c. U.S. companies with foreign customers d. All of these are correct ANS: D PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Global 33. The organization that develops worldwide accounting standards is the a. International Committee on Accounting Standards (ICAS) b. International Accounting Standards Board (IASB) c. International Board of Accounting Standards (IBAS) d. International Accounting Standards Committee (IASC) ANS: B PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Global 34. Standards established by the International Accounting Standards Board are referred to as a. Generally Accepted Accounting Standards b. International Auditing Standards c. International Financial Reporting Standards d. International Financial Accounting Standards ANS: C PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Global

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    35. In 2008, the SEC began to a. Allow U.S. companies trading on the U.S. stock exchange to issue their financial reports using IASB standards b. Require U.S. companies trading on the U.S. stock exchange to issue their financial reports using IASB standards c. Require non-U.S. companies trading on the U.S. stock exchange to issue their financial reports using IASB standards d. Allow non-U.S. companies trading on the U.S. stock exchange to issue their financial reports using IASB standards ANS: D PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA BB Global 36. Ethics are especially important in accounting because a. Independent accountants represent the public interest b. Accountants can steal money more easily than other employees c. Accountants have historically committed more company thefts than other employees d. The accounting profession does not have a code of professional conduct ANS: A PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Ethics | AICPA FN Reporting 37. Which of the following is NOT one of the ways that technology has changed the way accounting is done? a. Technology easily allows companies to collect large amounts of data about transactions b. Technology allows greater access to a company's financial statements and other financial information c. Technology is able to perform the mechanics of accounting therefore, people are not required to understand the mechanics d. Technology allows for large amounts of data to be compiled quickly and accurately ANS: C PTS: 1 DIF: Easy OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Measurement 38. Which of the following is a reason that you may need to understand accounting information in the future? a. To evaluate an employer's short and long-term potential b. To perform a personal budget c. To perform responsibilities in future employment d. All of these are reasons to study accounting ANS: D PTS: 1 DIF: Easy OBJ: 1.4 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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    PROBLEM 1. Identify and describe the functions of an accounting system. ANS: The functions of an accounting system are analysis, bookkeeping, and evaluation. Analysis involves analyzing business transactions to determine what information should be captured by the accounting system. Bookkeeping is tracking activities on a day-to-day basis. Evaluation uses summary information to evaluate the financial health and performance of a business. PTS: 1 DIF: Medium OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Reporting 2. The definition of accounting is a system for providing "quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions." List and explain the key components of this definition. ANS: Quantitative Accounting relates to numbers. Financial The health and performance of a company are affected and reflected in many dimensions but accounting focuses only on the financial aspect. Useful Accounting exists only because it is useful. Decisions Accounting is only useful as the past information can be used to impact future decisions. PTS: 1 DIF: Medium OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 3. List the four steps in the decision making process. ANS: 1. Identify the issue. 2. Gather information. 3. Identify alternatives. 4. Select the option that will most likely result in the desired objective. PTS: 1 DIF: Medium OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Decision Modeling

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    4. Identify the three primary financial statements and discuss the content of each. ANS: The balance sheet reports the assets, liabilities, and owners' equity of a business. The income statement reports the net income or net loss of a company, which represents the difference between revenues and expenses. The statement of cash flows reports the cash inflows and outflows from operating, investing, and financing activities. PTS: 1 DIF: Medium OBJ: 1.1 NAT: AACSB Reflective Thinking | AICPA FN Reporting 5. List six users of accounting information and indicate whether they are an internal or an external user. ANS: Management internal Creditors (Lenders) external Investors external Suppliers external Customers external Employees external Competitors external Government agencies external The press external PTS: 1 DIF: Medium OBJ: 1.2 NAT: AACSB Analytic | AICPA FN Reporting 6. Lenders, investors, and management are three potential users of external financial statements. Discuss how the information found in external financial statements can benefit each of these external users. ANS: Lenders want to be repaid. External financial statements help lenders predict the future ability of the borrower to repay the loan. Investors want to be able to estimate how much cash they will receive in the future if they invest in a company now. Financial statements, along with knowledge of business plans, market forecasts, and character of management, can help investors to assess future cash flows. Management can use the information found in external financial statements to state goals, calculate management bonuses, and analyze the company in order to pinpoint weaknesses. PTS: 1 DIF: Medium OBJ: 1.2 NAT: AACSB Analytic | AICPA FN Reporting

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    7. Describe the major difference between internal reports and external reports. ANS: Internal reports are dynamic and created to meet the needs of management. These reports may vary greatly among companies. External reports generally consist of general-purpose financial statements and must follow certain standards or guidelines. These reports are more uniform among companies. PTS: 1 DIF: Medium OBJ: 1.2 NAT: AACSB Analytic | AICPA FN Reporting 8. It is often said that companies must keep two sets of books. Isn't this dishonest? Explain. ANS: No, it is not dishonest. Companies are subject to both the rules governing financial accounting and those governing tax accounting. One set of books must be maintained according to GAAP from which the company's financial statements are prepared. The other set of books is maintained in compliance with income tax regulations, from which the company's tax return is prepared. PTS: 1 DIF: Medium OBJ: 1.3 NAT: AACSB Analytic | AICPA FN Reporting 9. FASB, GAAP, SEC, CPA, AICPA, IRS, IASB, IFRS are all acronyms used in accounting. For the preceding list of acronyms, state what the acronym stands for and then give a definition of each acronym. ANS: FASB: Financial Accounting Standards Board. The private organization responsible for establishing the standards for financial accounting and reporting in the United States. GAAP: Generally Accepted Accounting Principles. Authoritative guidelines that define accounting practice at a particular time. SEC: Securities and Exchange Commission. The government body responsible for regulating the financial reporting practices of most publicly owned corporations in connection with the buying and selling of stocks and bonds. CPA: Certified Public Accountant. A special designation given to an accountant who has passed a national uniform examination and has met other certifying requirements. AICPA: American Institute of Certified Public Accountants. The national organization of CPAs in the United States. IRS: Internal Revenue Service. A government agency that prescribes the rules and regulations that govern the collection of tax revenues in the United States. IASB: International Accounting Standards Board. The committee formed in 1973 to develop worldwide accounting standards. IFRS: International Financial Reporting Standards. The accounting standards produced by the IASB and envisioned to be a set of standards that can be used by all companies regardless of where the company is based. PTS: 1 DIF: Medium OBJ: 1.3 NAT: AACSB Reflective Thinking | AICPA FN Reporting

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    Chapter 2—Financial Statements: An Overview MULTIPLE CHOICE 1. The financial statement that reports resources owned, the obligations to transfer resources to other organizations, and the claims by the entity's owners is known as the a. Income statement b. Statement of retained earnings c. Balance sheet d. Statement of cash flows ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 2. Another name for the balance sheet is the a. Statement of cash flows b. Statement of earnings c. Statement of financial position d. Retained earnings statement ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 3. Which of the following types of accounts are NOT found on the balance sheet? a. Revenues b. Assets c. Liabilities d. Owners' equity ANS: A PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 4. Economic resources that are owned or controlled by an enterprise are called a. Assets b. Liabilities c. Revenues d. Gains ANS: A PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 5. Which of the following is generally considered to be an asset? a. Notes payable b. Mortgage payable c. Accounts receivable d. Unearned revenue ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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    6. Which of the following accounts is NOT an asset account? a. Equipment b. Accounts Receivable c. Accounts Payable d. Supplies ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 7. Which of the following generally is NOT considered to be a liability? a. Notes payable b. Taxes payable c. Inventory d. Accounts payable ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 8. An enterprise's obligations to pay cash or other economic resources to others are called a. Liabilities b. Expenses c. Losses d. Assets ANS: A PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 9. Which of the following is generally considered to be a liability? a. Accounts receivable b. Capital stock c. Notes payable d. Retained earnings ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 10. Which of the following types of accounts show how resources came into a firm? a. Liabilities b. Owners' equity c. Assets d. Both liabilities and owners' equity ANS: D PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 11. A business owned by one person is called a a. Nonprofit organization b. Partnership c. Corporation d. Sole proprietorship ANS: D PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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    12. A business owned by two or more individuals or entities is called a(n) a. Nonprofit organization b. Partnership c. Institution d. Sole proprietorship ANS: B PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 13. Owners of a corporation are referred to as a. Debtors b. Partners c. Stockholders d. Creditors ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 14. Distributions by a corporation to its stockholders are called a. Dividends b. Retained earnings c. Income d. Withdrawals ANS: A PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 15. Which of the following usually is NOT considered to be an owners' equity account? a. Capital stock b. Retained earnings c. Inventory d. All these are owners' equity accounts ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 16. The total amount invested to acquire an ownership interest in a corporation is called a. Retained earnings b. Capital stock c. Net assets d. Owners' equity ANS: B PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 17. Net assets are equal to a. Total assets minus owners' equity b. Total assets minus net income c. Total assets minus dividends paid d. Total assets minus total liabilities ANS: D PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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    18. Which of the following decreases owners' equity? a. Additional investments in the company are made by the owners b. Operations generate a loss c. Operations generate a profit that is retained in the company d. None of these decreases owners' equity ANS: B PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 19. The basic accounting equation is a. Assets = Liabilities + Owners' Equity b. Assets + Liabilities = Owners' Equity c. Assets + Owners' Equity = Liabilities d. Liabilities − Owners' Equity = Assets ANS: A PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 20. Which of the following is the reason that the accounting equation is true by definition? a. Liabilities are the source that funds the purchase of assets b. Assets are the source that funds the purchase of liabilities and owner's equity c. Liabilities and owner's equity are the sources that fund the purchase of assets d. None of these are true, the accounting equation is merely a coincidence ANS: C PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 21. The idea that an increase or decrease on one side of the accounting equation must be offset exactly by an increase or decrease on the other side of the accounting equation is called a. Additive concept b. Going concern assumption c. Monetary measurement concept d. Double-entry accounting ANS: D PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 22. A transaction that causes an increase in an asset may also cause a. A decrease in owners' equity b. An increase in another asset c. A decrease in a liability d. An increase in a liability ANS: D PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement 23. If a corporation has total assets of $350,000, total liabilities of $150,000, and retained earnings of $100,000, what is the amount of capital stock? a. $150,000 b. $0 c. $100,000 d. $250,000

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    ANS: C Capital stock: $350,000 − $150,000 − $100,000 = $100,000 PTS: 1 DIF: Medium OBJ: 2.1 NAT: AACSB Analytic | AICPA FN Measurement Exhibit 2-1 The following data were taken from the records of Moss Corporation for the year ending December 31, 2012: 01/01/12 12/31/12 Assets $11,250 ? Liabilities 8,580 $10,365 Owners' equity ? 6,465 24. Refer to Exhibit 2-1. Given the above information, owners' equity on January 1, 2012 was a. $19,830 b. $2,670 c. $885 d. $7,695 ANS: B Owners' equity: $11,250 − $8,580 = $2,670 PTS: 1 DIF: Medium OBJ: 2.1 NAT: AACSB Analytic | AICPA FN Measurement 25. Refer to Exhibit 2-1. Given the above information, assets on December 31, 2012, were a. $16,830 b. $5,025 c. $18,060 d. $11,250 ANS: A Assets: $10,365 + $6,465 = $16,830 PTS: 1 DIF: Medium OBJ: 2.1 NAT: AACSB Analytic | AICPA FN Measurement 26. Current assets usually are listed on a balance sheet in a. Decreasing order of liquidity b. Increasing order of liquidity c. A random fashion d. Decreasing order of profitability ANS: A PTS: 1 DIF: Easy OBJ: 2.1 NAT: AACSB Reflective Thinking | AICPA FN Measurement

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