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Fundamental Accounting Principles 19th Edition Test Bank

Fundamental Accounting Principles 19th Edition Test Bank is an essential resource to help you tackle your upcoming exams with confidence. This guide includes key questions and answers to boost your exam preparation.

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    Chapter 1 Testbank Student: ___________________________________________________________________________ 1. Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable formation about an organization's business activities. True False 2. Bookkeeping is the same as accounting. True False 3. Bookkeeping is the recording of transactions and events and is only part of accounting. True False 4. An accounting information system communicates data to help businesses make better decisions. True False 5. Managerial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users. True False 6. Internal operating activities include research and development, distribution, and human resources. True False 7. The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities. True False 8. External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles. True False 9. External users include lenders, shareholders, customers, and regulators. True False 10. Regulators often have legal authority over certain activities of organizations. True False 11. Internal users include lenders, shareholders, brokers and managers. True False 12. Opportunities in accounting include auditing, consulting, market research, and tax planning. True False 13. Identifying the proper ethical path is easy. True False 14. The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose whether is has adopted a code of ethics for its senior financial officers and the contents of that code. True False 15. Good ethics are good business. True False 16. The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting oversight and stringent internal controls. True False

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    17. A partnership is a business owned by two or more people. True False 18. Owners of a corporation are called shareholders or stockholders. True False 19. In the partnership form of business, the owners are called stockholders. True False 20. A sole proprietorship is one or more individuals selling products or services for profit. True False 21. Accounting information is communicated to various parties through financial statements. True False 22. The balance sheet shows whether or not the firm had net income or loss over a period of time. True False 23. The Financial Accounting Standards Board is the private group that sets both broad and specific accounting principles. True False 24. The business entity principle means that a business will continue operating for an indefinite period of time. True False 25. Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements. True False 26. The business entity principle means that a business is accounted for separately from other business entities, including its owner or owners. True False 27. As a general rule, revenues should not be recognized in the accounting records until it is received in cash. True False 28. Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice. True False 29. General accounting principles arise from long-used accounting practice. True False 30. A sole proprietorship is a business owned by one or more persons. True False 31. Unlimited liability is an advantage of a sole proprietorship. True False 32. Understanding generally accepted accounting principles is not necessary to use and interpret financial statements. True False 33. The International Accounting Standards board (IASB) has the authority to impose its standards on companies around the world. True False 34. Objectivity means that financial information is supported by independent unbiased evidence. True False

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    35. The idea that a business will continue to operate until it can sell its assets to pay its creditors underlies the going-concern assumption. True False 36. According to the cost principle, it is preferable for managers to report an estimate of an asset's value. True False 37. The monetary unit assumption means that all international transactions must be expressed in dollars. True False 38. The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public. True False 39. A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation. True False 40. The Securities and Exchange Commission (SEC) is the government group that establishes reporting requirements for companies that issue stock to the public. True False 41. The Securities and Exchange Commission (SEC) is the private group that sets both broad and specific accounting standards. True False 42. The three common forms of business ownership include sole proprietorship, partnership, and non- profit. True False 43. The three major types of business activities are operating, financing, and investing. True False 44. Planning is defining an organization's ideas, goals, and actions. True False 45. Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans, and its markets. True False 46. Planning activities are the means an organization uses to pay for resources like land, buildings, and equipment to carry out its plans. True False 47. The three major activities of a business are recording, financing, and investing. True False 48. Investing activities are the acquiring and selling of resources that an organization uses to acquire and sell its products or services. True False 49. Owner financing refers to resources contributed by creditors or lenders. True False 50. Revenues are increases in equity from a company's earning activities. True False 51. A net loss occurs when revenues exceed expenses. True False

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    52. Net income occurs when revenues exceed expenses. True False 53. Expenses decrease equity and are the costs of assets or services used to earn revenues. True False 54. Liabilities are the owner's claim on assets. True False 55. Assets are the resources owned or controlled by a business. True False 56. Withdrawals are expenses. True False 57. The accounting equation can be restated as: Assets - Equity = Liabilities. True False 58. The accounting equation implies that: Assets + Liabilities = Equity. True False 59. The balance sheet is also called the statement of financial position because it describes the financial position of the business at a point in time. True False 60. Revenues occur when expenses exceed assets. True False 61. A company might provide a service or product on credit. "On credit" implies that the cash payment will occur on a later date. True False 62. Owner's investments are gross increases in equity from a company's earnings activities. True False 63. The legitimate claims of a business's creditors take precedence over the claims of the business owner. True False 64. Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. True False 65. Every business transaction leaves the accounting equation in balance. True False 66. An external transaction is an exchange of value within an organization. True False 67. From an accounting perspective, an event is a happening that affects an entity's accounting equation, but cannot be measured. True False 68. Owner's equity is increased when cash is received from customers in payment of previously recorded accounts receivable. True False 69. An owner's investment in a business always creates an asset (cash), a liability (note payable), and owner's equity (investment.) True False

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    70. Net assets always increase when revenue is recorded. True False 71. Return on assets is often stated in ratio form as the amount of average total assets divided by income. True False 72. Return on assets is also known as return on investment. True False 73. Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits, and in planning activities. True False 74. Reebok's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%. True False 75. Return on assets measures the effectiveness of an organization's ability to generate profit using its assets. True False 76. Risk is the amount of uncertainty about the return we expect to earn. True False 77. Generally the lower the risk, the lower the return that can be expected. True False 78. U. S. Government Treasury bonds provide high return and low risk to investors. True False 79. The four basic financial statements include the balance sheet, income statement, statement of owner's equity, and statement of cash flows. True False 80. An income statement reports on investing and financing activities. True False 81. A balance sheet covers a period of time such as a month or year. True False 82. The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time. True False 83. The statement of cash flows shows the net effect of revenues and expenses for a reporting period. True False 84. The income statement shows the financial position of a business on a specific date. True False 85. The first section of the income statement reports cash from operations. True False 86. The balance sheet is based on the accounting equation. True False 87. Owner's contributions and withdrawals are reported on the income statement. True False

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    88. Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business. True False 89. Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner. True False 90. The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets. True False 91. The income statement reports on operating activities at a point in time. True False 92. The statement of cash flows reports on cash flows separated into operating, investing, and financing activities over a period of time. True False 93. Chuck Taylor invested $175,000 cash in FastForward. This amount would be reported in the statement of cash flows under financing activities. True False 94. Chuck Taylor withdrew $6,000 in cash from FastForward. This amount should be included as an expense on the income statement. True False 95. Accounting is an information and measurement system that: A. Identifies business activities. B. Records business activities. C. Communicates business activities. D. Helps people make better decisions. E. All of these. 96. Technology A. Has replaced accounting. B. Has not changed the work that accountants do. C. Has closely linked accounting with consulting, planning, and other financial services. D. In accounting has replaced the need for decision makers. E. In accounting is only available to large corporations. 97. The primary objective of financial accounting is: A. To serve the decision-making needs of internal users. B. To provide financial statements to help external users analyze an organization's activities. C. To monitor and control company activities. D. To provide information on both the costs and benefits of looking after products and services. E. To know what, when, and how much to produce. 98. Internal users of accounting information include: A. Shareholders. B. Managers. C. Lenders. D. Suppliers. E. Customers.

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    99. 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. 100.The operating functions of a business include: A. Research and development. B. Purchasing. C. Marketing. D. Distribution. E. All of these. 101.External users of accounting information include: A. Shareholders. B. Customers. C. Creditors. D. Government regulators. E. All of these. 102.Career opportunities in accounting include: A. Auditing. B. Management consulting. C. Tax accounting. D. Cost accounting. E. All of these. 103.Career opportunities in accounting include: A. Budgeting. B. Auditing. C. Cost accounting. D. Internal Auditing. E. All of these. 104.Accounting certifications include the: A. Certified Public Accountant. B. Certified Management Accountant. C. Certified Internal Auditor. D. Personal Financial Specialist E. All of these. 105.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. All of these. 106.Ethical behavior requires: A. That auditors' pay not depend on the figures in the client's reports. B. Auditors to invest in businesses they audit. C. Analysts to report information favorable to their companies. D. Managers to use accounting information to benefit themselves. E. All of these.

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    107.Social responsibility: A. Is a concern for the impact of our actions on society. B. Is a code that helps in dealing with confidential information. C. Is required by the SEC. D. Requires that all businesses conduct social audits. E. All of these. 108.Ethics: A. Are beliefs that separate right from wrong. B. And law often coincide. C. Help to prevent conflicts of interest. D. Are critical in accounting. E. All of these. 109.The accounting guideline that requires financial statement information to be supported by independent, unbiased evidence other than someone's belief or opinion is the: A. Business entity principle. B. Monetary unit principle. C. Going-concern principle. D. Cost principle. E. Objectivity principle. 110.Businesses can take the following form(s): A. Sole proprietorship. B. Common stock. C. Partnership. D. A and C only. E. All of these. 111.A corporation: A. Is a business legally separate from its owners. B. Is controlled by the FASB. C. Has shareholders who have unlimited liability for the acts of the corporation. D. Is the same as a limited liability partnership. E. All of these. 112.The rules adopted by the accounting profession as guides in preparing financial statements are: A. Comprised of both general and specific principles. B. Known as generally accepted accounting principles. C. Abbreviated as GAAP. D. Intended to make information in financial statements relevant, reliable, and comparable. E. All of these. 113.The committee that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the: A. AICPA. B. FASB. C. CAP. D. SEC. E. IASB. 114.The private group that currently has the authority to establish generally accepted accounting principles is the: A. APB. B. FASB. C. AAA. D. AICPA. E. SEC.

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    115.The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A. Objectivity principle. B. Business entity assumption. C. Going-concern assumption. D. Revenue recognition principle. E. Cost principle. 116.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 principle. B. Business entity principle. C. Objectivity principle. D. Cost Principle. E. Monetary unit principle. 117.Rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial condition and activities of a business: A. Are comprised of both general and specific principles. B. Are known as generally accepted accounting principles. C. Are abbreviated as GAAP. D. Arise from both long-used practices and from rulings of authoritative groups. E. All of these. 118.If a parcel of land that was originally acquired for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold 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. 119.To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the: A. Objectivity principle. B. Realization principle. C. Business entity principle. D. Going-concern principle. E. Revenue recognition principle. 120.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. Cost principle. C. Going-concern principle. D. Realization principle. E. Business entity principle. 121.Generally accepted accounting principles: A. Are based on long used accounting practices. B. Are basic assumptions, concepts, and guidelines in preparing financial statements. C. Are detailed rules used in reporting on business transactions and events. D. Arise from the rulings of authoritative bodies. E. All of these.

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    122.The objectivity principle: A. Means that information is supported by independent, unbiased evidence. B. Means that information can be based on what the preparer thinks is true. C. Means that financial statements should contain information that is optimistic. D. Means that a business may not reorganize revenue until cash is received. E. All of these. 123.The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the: A. Going-concern principle. B. Cost principle. C. Revenue recognition principle. D. Objectivity principle. E. Business entity principle 124.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 principle. C. Objectivity principle. D. Business entity principle. E. Cost principle. 125.The International Accounting Standards Board (IASB) A. Hopes to create harmony among accounting practices of different countries B. Is the government group that establishes reporting requirements for companies that issue stock to the public. C. Has the authority to impose its standards on companies. D. Is the only source of generally accepted accounting principles (GAAP). E. Only applies to companies that are members of the European Union. 126.The Maximum Experience Company acquired a building for $500,000. Maximum Experience had the building appraised, and found that the building was easily worth $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Maximum Experience use to record the building on its records at $500,000? A. Monetary unit principle B. Going-concern principle C. Cost principle D. Business entity principle E. Revenue recognition principle 127.On December 15, 2007, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2008. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2008 and not 2007? A. Monetary unit principle B. Going-concern principle C. Cost principle D. Business entity principle E. Revenue recognition principle

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    128.Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services? A. Monetary unit principle B. Going-concern principle C. Cost principle D. Business entity principle E . None of these. Since Marian is a sole proprietor, she is not required to separate her personal financial information from the financial information of Mosely Accounting Services. 129.A limited partnership: A. Includes a general partner with unlimited liability. B. Is subject to double taxation. C. Has owners called stockholders. D. Is the same as a corporation. E. May only have two partners. 130.A partnership: A. Is also called a sole proprietorship. B. Has unlimited liability. 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. 131.According to generally accepted accounting principles, a company's balance sheet should show the company's assets at: A. The cash equivalent value of what was given up or received. B. The current market value of the asset received in all cases. C. The cash paid only, even if something other than cash was given in the exchange. D. The best estimate of a certified internal auditor. E. The objective value to external users. 132.If a business is not being sold or closed, the amounts reported in the accounts for assets used in operations are based on costs. This practice is best justified by the: A. Cost principle. B. Going-concern principle. C. Objectivity principle. D. Business entity principle. E. Both A and B. 133.Which of the following accounting principles would require that all goods and services purchased be recorded at cost? A. Going-concern principle. B. Continuing-concern principle. C. Cost principle. D. Business entity principle. E. Consideration principle. 134.Revenue is properly recognized: A. When the customer's order is received. B. Only if the transaction creates an account receivable. C. At the end of the accounting period. D.Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price. E. When cash from a sale is received.

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    135.If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000, the land account transaction amount to handle the sale of the land in the seller's books is: A. $85,000 increase B. $85,000 decrease C. $137,000 increase D. $137,000 decrease E. None of these 136.If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. What is the effect of the sale on the accounting equation for the seller? A. Assets increase $52,000; owner's equity increases $52,000 B. Assets increase $85,000; owner's equity increases $85,000 C. Assets increase $137,000; owner's equity increases $137,000 D. Assets increase $140,000; owner's equity increases $140,000 E. None of these 137.If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. At the time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on the land that was purchased for $85,000. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale and the payoff of the loan on the accounting equation? A. Assets increase $52,000; owner's equity increases $22,000; liabilities decrease $30,000 B. Assets increase $52,000; owner's equity increases $30,000; liabilities decrease $30,000 C. Assets increase $22,000; owner's equity increases $52,000; liabilities decrease $30,000 D. Assets decrease $30,000; owner's equity decreases $30,000; liabilities decrease $30,000 E. Assets decrease $55,000; owner's equity decreases $55,000; liabilities decrease $30,000 138.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. 139.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. 140.Planning activities: A. Are the means organizations use to pay for resources. B. Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services. C. Involve defining the ideas, goals, and actions of an organization. D. Are the carrying out of an organization's plans. E. Involve using resources to research, develop, purchase, produce, and market products and services.

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    141.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. 142.The major activities of a business include: A. Operating. B. Financing. C. Investing. D. All of these. 143.An example of an investing activity is: A. Paying wages of employees. B. Withdrawals by the owner. C. Purchase of land. D. Selling inventory. E. Contribution from owner. 144.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. 145.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. 146.Resources owned or controlled by a company that are expected to yield future benefits are: A. Assets. B. Revenues. C. Liabilities. D. Owner's Equity. E. Expenses. 147.Gross increases in equity from a company's earnings activities are: A. Assets. B. Revenues. C. Liabilities. D. Owner's Equity. E. Expenses. 148.Net income is: A. Assets minus liabilities. B. The excess of revenues over expenses. C. An asset. D. The same as revenue. E. The excess of expenses over equity.

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    149.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. 150.Creditors' claims on the assets of a company are called: A. Net losses. B. Expenses. C. Revenues. D. Equity. E. Liabilities. 151.Decreases in equity that represent costs of assets or services used to earn revenues are called: A. Liabilities. B. Equity. C. Withdrawals. D. Expenses. E. Owner's Investment. 152.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. 153.Assets = Liabilities + Equity is known as the: A. Income statement equation. B. Cost principle. C. Objectivity principle. D. Accounting equation. E. Transaction principle. 154.Expenses: A. Increase equity. B. Are gross increases in equity from a company's earning activity. C. Are the costs of assets or services used to earn revenues. D. Occur when equity exceeds revenue. E. Are creditors claims on assets. 155.Net income: A. Occurs when revenues exceed expenses. B. Is the same as revenue. C. Equals resources owned or controlled by a company. D. Occurs when expenses exceed assets. E. Represents assets taken from a company for an owner's personal use. 156.Revenues are: A. The same as net income. B. The excess of expenses over assets. C. Resources owned or controlled by a company D. The gross increase in equity from a company's earning activities. E. The costs of assets or services used.

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    157.Accounting A. Is an information and measurement system. B. Identifies, records, and communicates information about business activities C. Helps people make better decisions D . Involves interpreting information and designing information systems to provide useful reports that monitor and control a company's activities. E. All of these 158.If assets are $99,000 and liabilities are $32,000, then equity equals: A. $32,000. B. $67,000. C. $99,000. D. $131,000. E. $198,000. 159.Another name for equity is: A. Net income. B. Expenses. C. Net assets. D. Revenue. E. Net loss. 160.The excess of expenses over revenues for a period is: A. Net assets. B. Equity. C. Net loss. D. Net income. E. A liability. 161.Which of the following statements is true about assets? A. They are economic resources owned or controlled by the business. B. They are expected to provide future benefits to the business. C. They appear on the balance sheet. D. Claims on them can be shared between creditors and owners. E. All of these. 162.A payment to an owner is called a(n): A. Liability. B. Withdrawal. C. Expense. D. Contribution. E. Investment. 163.Distributions by a business to its owners are called: A. Withdrawals. B. Expenses. C. Assets. D. Retained earnings. E. Net Income. 164.The balance sheet equation is: A. Revenues minus expenses equals net income. B. Debits equal credits. C. The bookkeeping phase of accounting. D. Another name for the accounting equation. E. Assets minus liabilities and equity.

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