Fundamental Accounting Principles 19th Edition Test Bank

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Chapter 1 TestbankStudent: ___________________________________________________________________________1.Accounting is an information and measurement system that identifies, records, and communicatesrelevant, reliable, and comparable formation about an organization's business activities.TrueFalse2.Bookkeeping is the same as accounting.TrueFalse3.Bookkeeping is the recording of transactions and events and is only part of accounting.TrueFalse4.An accounting information system communicates data to help businesses make better decisions.TrueFalse5.Managerial accounting is the area of accounting that provides internal reports to assist the decisionmaking needs of internal users.TrueFalse6.Internal operating activities include research and development, distribution, and human resources.TrueFalse7.The primary objective of financial accounting is to provide general purpose financial statements to helpexternal users analyze and interpret an organization's activities.TrueFalse8.External auditors examine financial statements to verify that they are prepared according to generallyaccepted accounting principles.TrueFalse9.External users include lenders, shareholders, customers, and regulators.TrueFalse10. Regulators often have legal authority over certain activities of organizations.TrueFalse11. Internal users include lenders, shareholders, brokers and managers.TrueFalse12. Opportunities in accounting include auditing, consulting, market research, and tax planning.TrueFalse13. Identifying the proper ethical path is easy.TrueFalse14. The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose whether is has adopted acode of ethics for its senior financial officers and the contents of that code.TrueFalse15. Good ethics are good business.TrueFalse16. The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting oversightand stringent internal controls.TrueFalse

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17. A partnership is a business owned by two or more people.TrueFalse18. Owners of a corporation are called shareholders or stockholders.TrueFalse19. In the partnership form of business, the owners are called stockholders.TrueFalse20. A sole proprietorship is one or more individuals selling products or services for profit.TrueFalse21. Accounting information is communicated to various parties through financial statements.TrueFalse22. The balance sheet shows whether or not the firm had net income or loss over a period of time.TrueFalse23. The Financial Accounting Standards Board is the private group that sets both broad and specificaccounting principles.TrueFalse24. The business entity principle means that a business will continue operating for an indefinite period oftime.TrueFalse25. Generally accepted accounting principles are the basic assumptions, concepts, and guidelines forpreparing financial statements.TrueFalse26. The business entity principle means that a business is accounted for separately from other businessentities, including its owner or owners.TrueFalse27. As a general rule, revenues should not be recognized in the accounting records until it is received incash.TrueFalse28. Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financialstatements and arise out of long-used accounting practice.TrueFalse29. General accounting principles arise from long-used accounting practice.TrueFalse30. A sole proprietorship is a business owned by one or more persons.TrueFalse31. Unlimited liability is an advantage of a sole proprietorship.TrueFalse32. Understanding generally accepted accounting principles is not necessary to use and interpret financialstatements.TrueFalse33. The International Accounting Standards board (IASB) has the authority to impose its standards oncompanies around the world.TrueFalse34. Objectivity means that financial information is supported by independent unbiased evidence.TrueFalse

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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 thegoing-concern assumption.TrueFalse36. According to the cost principle, it is preferable for managers to report an estimate of an asset's value.TrueFalse37. The monetary unit assumption means that all international transactions must be expressed in dollars.TrueFalse38. The International Accounting Standards Board (IASB) is the government group that establishes reportingrequirements for companies that issue stock to the public.TrueFalse39. A limited liability company offers the limited liability of a partnership or proprietorship and the taxtreatment of a corporation.TrueFalse40. The Securities and Exchange Commission (SEC) is the government group that establishes reportingrequirements for companies that issue stock to the public.TrueFalse41. The Securities and Exchange Commission (SEC) is the private group that sets both broad and specificaccounting standards.TrueFalse42. The three common forms of business ownership include sole proprietorship, partnership, and non-profit.TrueFalse43. The three major types of business activities are operating, financing, and investing.TrueFalse44. Planning is defining an organization's ideas, goals, and actions.TrueFalse45. Strategic management is the process of determining the right mix of operating activities for the type oforganization, its plans, and its markets.TrueFalse46. Planning activities are the means an organization uses to pay for resources like land, buildings, andequipment to carry out its plans.TrueFalse47. The three major activities of a business are recording, financing, and investing.TrueFalse48. Investing activities are the acquiring and selling of resources that an organization uses to acquire and sellits products or services.TrueFalse49. Owner financing refers to resources contributed by creditors or lenders.TrueFalse50. Revenues are increases in equity from a company's earning activities.TrueFalse51. A net loss occurs when revenues exceed expenses.TrueFalse

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52. Net income occurs when revenues exceed expenses.TrueFalse53. Expenses decrease equity and are the costs of assets or services used to earn revenues.TrueFalse54. Liabilities are the owner's claim on assets.TrueFalse55. Assets are the resources owned or controlled by a business.TrueFalse56. Withdrawals are expenses.TrueFalse57. The accounting equation can be restated as: Assets - Equity = Liabilities.TrueFalse58. The accounting equation implies that: Assets + Liabilities = Equity.TrueFalse59. The balance sheet is also called the statement of financial position because it describes the financialposition of the business at a point in time.TrueFalse60. Revenues occur when expenses exceed assets.TrueFalse61. A company might provide a service or product on credit. "On credit" implies that the cash payment willoccur on a later date.TrueFalse62. Owner's investments are gross increases in equity from a company's earnings activities.TrueFalse63. The legitimate claims of a business's creditors take precedence over the claims of the business owner.TrueFalse64. Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues overexpenses.TrueFalse65. Every business transaction leaves the accounting equation in balance.TrueFalse66. An external transaction is an exchange of value within an organization.TrueFalse67. From an accounting perspective, an event is a happening that affects an entity's accounting equation, butcannot be measured.TrueFalse68. Owner's equity is increased when cash is received from customers in payment of previously recordedaccounts receivable.TrueFalse69. An owner's investment in a business always creates an asset (cash), a liability (note payable), and owner'sequity (investment.)TrueFalse

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70. Net assets always increase when revenue is recorded.TrueFalse71. Return on assets is often stated in ratio form as the amount of average total assets divided by income.TrueFalse72. Return on assets is also known as return on investment.TrueFalse73. Return on assets is useful to decision makers for evaluating management, analyzing and forecastingprofits, and in planning activities.TrueFalse74. Reebok's net income of $117 million and average assets of $1,400 million results in a return on assets of8.36%.TrueFalse75. Return on assets measures the effectiveness of an organization's ability to generate profit using itsassets.TrueFalse76. Risk is the amount of uncertainty about the return we expect to earn.TrueFalse77. Generally the lower the risk, the lower the return that can be expected.TrueFalse78. U. S. Government Treasury bonds provide high return and low risk to investors.TrueFalse79. The four basic financial statements include the balance sheet, income statement, statement of owner'sequity, and statement of cash flows.TrueFalse80. An income statement reports on investing and financing activities.TrueFalse81. A balance sheet covers a period of time such as a month or year.TrueFalse82. The income statement is a financial statement that shows revenues earned and expenses incurred during aspecified period of time.TrueFalse83. The statement of cash flows shows the net effect of revenues and expenses for a reporting period.TrueFalse84. The income statement shows the financial position of a business on a specific date.TrueFalse85. The first section of the income statement reports cash from operations.TrueFalse86. The balance sheet is based on the accounting equation.TrueFalse87. Owner's contributions and withdrawals are reported on the income statement.TrueFalse

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88. Investing activities involve the buying and selling of assets such as land and equipment that are held forlong-term use in the business.TrueFalse89. Operating activities include long-term borrowing and repaying cash from lenders, and cash investmentsor withdrawals by the owner.TrueFalse90. The purchase of supplies appears on the statement of cash flows as an investing activity because itinvolves the purchase of assets.TrueFalse91. The income statement reports on operating activities at a point in time.TrueFalse92. The statement of cash flows reports on cash flows separated into operating, investing, and financingactivities over a period of time.TrueFalse93. Chuck Taylor invested $175,000 cash in FastForward. This amount would be reported in the statement ofcash flows under financing activities.TrueFalse94. Chuck Taylor withdrew $6,000 in cash from FastForward. This amount should be included as an expenseon the income statement.TrueFalse95. 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. TechnologyA. 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 SpecialistE. All of these.105.A Certified Public AccountantA. Must meet education and experience requirementsB. Must pass an examinationC. Must exhibit ethical characterD. 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 differentcountries 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 isthe: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 otherbusiness 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 continueoperating 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 financialcondition 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 fortax 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 thebusiness 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 requiresassets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, isthe: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 assetsassociated with revenue to be in a form other than cash, and (3) measures the amount of revenue as thecash plus the cash equivalent value of any noncash assets received from customers in exchange for goodsor services, is called the:A. Going-concern principle.B. Cost principle.C. Revenue recognition principle.D. Objectivity principle.E. Business entity principle124.The question of when revenue should be recognized on the income statement (according to GAAP) isaddressed 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 countriesB. Is the government group that establishes reporting requirements for companies that issue stock to thepublic.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 thebuilding appraised, and found that the building was easily worth $575,000. The seller had paid $300,000for the building 6 years ago. Which accounting principle would require Maximum Experience use torecord the building on its records at $500,000?A. Monetary unit principleB. Going-concern principleC. Cost principleD. Business entity principleE. Revenue recognition principle127.On December 15, 2007, Myers Legal Services signed a $50,000 contract with a client to provide legalservices to the client in 2008. Which accounting principle would require Myers Legal Services to recordthe legal fees revenue in 2008 and not 2007?A. Monetary unit principleB. Going-concern principleC. Cost principleD. Business entity principleE. Revenue recognition principle

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128.Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle requires Marianto keep her personal financial information separate from the financial information of Mosely AccountingServices?A. Monetary unit principleB. Going-concern principleC. Cost principleD. Business entity principleE.None of these. Since Marian is a sole proprietor, she is not required to separate her personal financialinformation 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 thecompany'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 operationsare 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 berecorded 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 rightto 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 assessedfor tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is soldfor $137,000, the land account transaction amount to handle the sale of the land in the seller's booksis:A. $85,000 increaseB. $85,000 decreaseC. $137,000 increaseD. $137,000 decreaseE. None of these136.If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessedfor tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is soldfor $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 $52,000B. Assets increase $85,000; owner's equity increases $85,000C. Assets increase $137,000; owner's equity increases $137,000D. Assets increase $140,000; owner's equity increases $140,000E. None of these137.If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessedfor tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is soldfor $137,000. At the time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on theland that was purchased for $85,000. Immediately after the sale, the seller paid off the loan to TrustOneBank. 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 $30,000B. Assets increase $52,000; owner's equity increases $30,000; liabilities decrease $30,000C. Assets increase $22,000; owner's equity increases $52,000; liabilities decrease $30,000D. Assets decrease $30,000; owner's equity decreases $30,000; liabilities decrease $30,000E. Assets decrease $55,000; owner's equity decreases $55,000; liabilities decrease $30,000138.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 itsproducts 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 andservices.C. Involve acquiring and disposing of resources that a business uses to acquire and sell its products orservices.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 asAssets = 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 companyD. The gross increase in equity from a company's earning activities.E. The costs of assets or services used.

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157.AccountingA. Is an information and measurement system.B. Identifies, records, and communicates information about business activitiesC. Helps people make better decisionsD.Involves interpreting information and designing information systems to provide useful reports thatmonitor and control a company's activities.E. All of these158.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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