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Principles of Financial Accounting 12th Edition Test Bank

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    Chapter 1: Accounting Principles and the Financial Statements Student: ___________________________________________________________________________ 1. The processing stage of accounting is accomplished by the recording of data. True False 2. The terms “ bookkeeping ” and “ accounting ” are not synonymous. True False 3. A company's management information system is a subsystem of its accounting information system. True False 4. Accountants focus on the needs for financial information by both internal and external decision makers. True False 5. Accountants consider money the common unit of measure for all business transactions. True False 6. Payment to a creditor is an example of a nonexchange business transaction. True False 7. For accounting purposes, a business and its owner are considered the same entity. True False 8. Knowledge of the exchange rate is necessary to apply the money measure concept in case of international transactions. True False

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    9. For reporting purposes, the personal assets and debts of a business owner should be combined with the assets and debts of the business. True False 10. Exchange rates for currency change daily according to the supply and demand for each currency. True False 11. The day - by - day accumulation of interest is considered a transaction involving an exchange of value. True False 12. Sole proprietorships in the United States generate more business (in terms of receipts) than partnerships and corporations put together. True False 13. A corporation is an economic unit that is legally separate from its owners. True False 14. Corporations represent the largest number of businesses in the United States. True False 15. The liability of corporate stockholders is limited to their percentage share of ownership. True False 16. The stockholders of a corporation elect the board of directors. True False 17. In general, one partner acting alone cannot obligate the partnership to another party. True False 18. A partnership is dissolved when any partner leaves the business or dies. True False

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    19. The personal resources of any partner can be called upon to pay the obligations of the partnership. True False 20. When a corporate stockholder sells his or her shares of stock, the corporation is technically dissolved. True False 21. Creditors' equities is another term for liabilities . True False 22. One way of stating the accounting equation is: Assets - Liabilities = Owner's Equity. True False 23. The economic resources invested in a business by the owner are represented by owner's equity. True False 24. Accounts Receivable is an asset that is considered nonmonetary in nature. True False 25. Net income is another term for revenues . True False 26. Cash is another term for owner's equity . True False 27. Equity is reduced when owner's withdrawals exceed net income. True False 28. Revenues have the effect of increasing owner's capital. True False

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    29. Owner withdrawals are an example of an expense. True False 30. The obligation to provide services to another entity is a type of liability. True False 31. If a company has suffered only net losses since its inception, the owner's equity account will always have a negative balance. True False 32. Net assets equal owner ’ s equity. True False 33. Owner's equity equals assets minus liabilities. True False 34. Inventory is an example of a nonmonetary asset. True False 35. Owner's equity equals cumulative net income or loss plus owner investments minus cumulative withdrawals. True False 36. Financial position may be assessed by referring to a balance sheet. True False 37. The purchase of land with cash would be disclosed on the statement of cash flows. True False 38. The expenses incurred by an accounting firm would appear on its balance sheet. True False

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    39. A proper heading for the income statement could include “ For the Year Ended December 31, 20 -- . ” True False 40. The account ‘ Wages Payable ’ would appear on the income statement. True False 41. An increase in expenses will have the effect of reducing owner's equity. True False 42. The account ‘ Supplies ’ will appear as an expense on the income statement. True False 43. The statement of owner's equity discloses the owner's withdrawals made during the period. True False 44. The heading for a balance sheet might include the line “ For the Month Ended December 31, 20 -- . ” True False 45. The balance sheet is also known as the statement of financial position. True False 46. The statement of cash flows discloses significant events related to the operating, investing, and financing activities of a business. True False 47. The statement of owner's equity relates the income statement to the balance sheet by showing how the owner's capital account changed during the accounting period. True False

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    48. The International Accounting Standards Board is the primary and most important determinant of generally accepted accounting principles. True False 49. Companies whose securities are sold to the general public must adhere to standards established by the Securities and Exchange Commission. True False 50. The Internal Revenue Service is responsible for issuing accounting standards for state and local governments. True False 51. Objectivity is the avoidance of all relationships that impair or appear to impair the objectivity of the accountant. True False 52. Both public accountants and management accountants are required to adhere to a code of professional conduct. True False 53. Due care means carrying out one's professional responsibilities with competence and diligence. True False 54. Independence means subordinating personal gain to service and the public trust. True False 55. The Public Company Accounting Oversight Board (PCAOB) was created to determine the standards that auditors must follow. True False 56. The board of directors appoints the audit committee, which in turn performs an independent audit of the company's records. True False

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    57. Generally accepted accounting principles encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. True False 58. Financial accounting information is used primarily by management. True False 59. Accounting ratios are useful as management performance measures. True False 60. The purchase of equipment is an example of an investing activity. True False 61. Buying and selling goods and services are examples of operating activities. True False 62. A major function of financial accounting is to provide the investor with relevant and useful information. True False 63. The evaluation and interpretation of financial statements and related performance measures is called technical analysis. True False 64. The Federal Reserve Board is an example of a consumer group. True False 65. The primary external users of accounting information are investors and management. True False

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    66. The Securities and Exchange Commission is an accounting information user with an indirect financial interest. True False 67. Taxing authorities are considered accounting information users with a direct financial interest. True False 68. Creditors are those who lend money to others or deliver goods and services before being paid. True False 69. Net income is a measure of profitability. True False 70. Financing a business means obtaining funds so the business can begin and continue operating. True False 71. Using cash to expand by purchasing land and a building is an example of an operating activity. True False 72. Less than 20 percent of the U.S. economy is generated by governmental and not - for - profit organizations. True False 73. Paying taxes to the government is an example of an operating activity. True False 74. Managerial accounting focuses on internal decision making. True False 75. Regulatory agencies are considered information users with an indirect financial interest. True False

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    76. Not - for - profit organizations have no obligation to report their financial performance to outside parties. True False 77. Two major goals of business are to achieve profitability and to achieve liquidity. True False 78. Liquidity means not having enough funds on hand to pay debts when they fall due. True False 79. The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting. True False 80. Misleading financial reports are not considered fraudulent if they are the result of the misapplication of accounting principles. True False 81. Criminal penalties can be imposed on those who prepare fraudulent financial statements. True False 82. Staff accountants express their duty to ensure financial reports are not false or misleading in the management report that appears as part of the company ’ s annual report. True False 83. The Sarbanes - Oxley Act orders the SEC to hold chief executives and CFOs responsible for the accuracy of their company's financial statements. True False 84. Responsibility for ethical financial reporting rests solely with the accountant. True False

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    85. The correct order of the three stages of accounting is A. communication, processing, and measurement. B. measurement, communication, and processing. C. processing, measurement, and communication. D. measurement, processing, and communication. 86. The communication stage of accounting is accomplished by A. storing data. B. reporting to decision makers. C. processing data. D. recording data. 87. Which of the following is the most appropriate definition of accounting ? A. Electronic collection, organization, and communication of vast amounts of information B. The interconnected network of subsystems necessary to operate a business C. A means of recording transactions and keeping records D. The measurement, processing, and communication of financial information about an identifiable economic entity 88. The recording of data falls under which stage of accounting? A. measurement B. processing C. communication D. decision making 89. Which of the following transactions does not involve an exchange of value? A. Payment of a debt B. Purchase of a building on credit C. Borrowing money D. Loss from theft 90. An accounting measurement is concerned with all except which of the following? A. Money measure B. Financial position C. Separate entity D. Business transaction

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    91. The personal assets and liabilities of an owner are not shown on the business ’ s financial statements because of the A. separate entity concept. B. sole proprietorship concept. C. financial position concept. D. objectivity concept. 92. The topic of foreign exchange rates relates most closely to the concept of A. separate entity. B. money measure. C. nonexchange transactions. D. business transactions. 93. All of the following are considered nonexchange transactions except A. the day - by - day accumulation of interest. B. the wear and tear on machinery. C. the sale of goods and services. D. losses from fire, flood, and theft. 94. Which of the following transactions involves an exchange of value? A. Accumulation of interest B. Sale of services C. Fire damage D. Wear and tear on machinery 95. Which of the following is legally a separate entity from its owner(s)? A. Sole proprietorship only B. Sole proprietorship and partnership only C. Corporation only D. Partnership only 96. Most business enterprises in the United States are A. government units. B. partnerships. C. sole proprietorships. D. corporations.

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    97. Transfer of ownership will affect the continuity of a A. corporation. B. sole proprietorship. C. partnership. D. sole proprietorship or partnership. 98. All of the following statements about partnerships are true except A. partners must share profits and losses equally. B. a change in ownership will dissolve the partnership. C. any partner can enter into a binding agreement with a third party. D. all partners have unlimited liability. 99. All of the following statements about corporations are true except A. they are chartered by the state. B. ownership is represented by shares of stock. C. the sale of stock does not dissolve the business. D. the stockholders have direct control of the business. 100. Which of the following forms of organization are considered to be separate entities by accountants ? A. Partnerships only B. Sole proprietorships only C. Corporations only D. Sole proprietorships, partnerships, and corporations 101. Which of the following is the correct accounting equation? A. Assets = Liabilities + Owner's Equity B. Assets + Owner's Equity = Liabilities C. Assets = Liabilities – Owner's Equity D. Assets + Liabilities = Owner's Equity 102. The best definition of assets is the: A. cash owned by the company. B. resources belonging to a company having future benefit to the company. C. collection of resources belonging to the company and the claims on these resources. D. owner's investment in the business.

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    103. Which of the following items has no effect on owner's equity? A. Receipt of cash owed to the business (accounts receivable) B. Sale of a service C. Payment of an expense D. Withdrawal by the owner 104. Which of the following accounts is not considered an asset? A. Accounts Receivable B. Inventory C. Accounts Payable D. Trademark 105. An example of a monetary asset is A. Accounts Receivable. B. Copyright. C. Retained Earnings. D. Land. 106. A liability would not include an obligation to A. transfer assets. B. hire an employee. C. pay cash. D. provide services. 107. Which of the following assets could be described as nonphysical? A. Inventory B. Cash C. Trademarks D. Supplies 108. Sinoyianis Realty Company had the following balance sheet accounts and balances: Accounts Payable $12,000 Flora Sinoyianis, Capital $ ? Accounts Receivable 2,000 Equipment 14,000 Building 16,000 Land 14,000 Cash 6,000

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    What is the balance of the Flora Sinoyianis, Capital account? A. $8,000 B. $12,000 C. $28,000 D. $40,000 109. Sinoyianis Realty Company had the following balance sheet accounts and balances: Accounts Payable $12,000 Flora Sinoyianis, Capital $ ? Accounts Receivable 2,000 Equipment 14,000 Building 16,000 Land 14,000 Cash 6,000 What is the total of liabilities and owner's equity? A. $26,000 B. $32,000 C. $36,000 D. $52,000 110. Sinoyianis Realty Company had the following balance sheet accounts and balances: Accounts Payable $12,000 Flora Sinoyianis, Capital $ ? Accounts Receivable 2,000 Equipment 14,000 Building 16,000 Land 14,000 Cash 6,000 If the equipment were sold for $14,000, what would be the total of owner's equity? A. $8,000 B. $22,000 C. $36,000 D. $40,000 111. Sinoyianis Realty Company had the following balance sheet accounts and balances: Accounts Payable $12,000 Flora Sinoyianis, Capital $ ? Accounts Receivable 2,000 Equipment 14,000 Building 16,000 Land 14,000 Cash 6,000 If, $6,000 of Accounts Payable were paid in cash, what would be the balance of the Flora Sinoyianis, Capital account? A. $8,000 B. $28,000 C. $36,000 D. $40,000

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    112. Sinoyianis Realty Company had the following balance sheet accounts and balances: Accounts Payable $12,000 Flora Sinoyianis, Capital $ ? Accounts Receivable 2,000 Equipment 14,000 Building 16,000 Land 14,000 Cash 6,000 If, $6,000 of Accounts Payable were paid in cash, what would be the total of liabilities and owner's equity? A. $28,000 B. $34,000 C. $46,000 D. $52,000 113. Use this information to answer the following question. Here is the balance sheet for Costello Container Company: Costello Container Company Balance Sheet December 31, 2014 Assets Liabilities Cash $ 8,000 Accounts payable $16,000 Accounts receivable 3,000 Land 14,000 Owner's Equity Building 44,000 Jose Costello, capital 66,000 Equipment 13,000 Total liabilities and Total assets $82,000 owner's equity $82,000 If the equipment were sold for $13,000, then the Jose Costello, Capital account would A. increase by $37,000. B. increase by $13,000. C. decrease by $13,000. D. stay the same.

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