Test Bank Financial Accounting Fundamentals 7th Edition By John Wild

$35.00
Test Bank Financial Accounting Fundamentals 7th Edition By John Wild

Test Bank Financial Accounting Fundamentals 7th Edition By John Wild

$35.00
Test Bank Financial Accounting Fundamentals 7th Edition By John Wild

Test Bank Financial Accounting Fundamentals 7th Edition By John Wild

Financial Accounting Fundamentals, 7e (Wild)

Chapter 1 Accounting in Business

1) Accounting is an information and measurement system that identifies, records, and communicates an organization's business activities.

Answer: TRUE

Difficulty: 1 Easy

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

2) Recordkeeping, or bookkeeping, is the recording of transactions and events, either manually or electronically. This is just one part of accounting.

Answer: TRUE

Difficulty: 1 Easy

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

3) An accounting system captures relevant data about transactions and then classifies, records, and reports data.

Answer: TRUE

Difficulty: 1 Easy

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

4) Financial accounting is the area of accounting aimed at serving external users by providing them with general-purpose financial statements.

Answer: TRUE

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

5) Internal users of accounting information do not directly run the organization and have limited access to its accounting information.

Answer: FALSE

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

6) Auditors verify the effectiveness of internal controls.

Answer: TRUE

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

7) External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

Answer: TRUE

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

8) External users include lenders, shareholders, customers, and regulators.

Answer: TRUE

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

9) Regulators often have legal authority over certain activities of organizations.

Answer: TRUE

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

10) Internal users include lenders, shareholders, brokers and nonexecutive employees.

Answer: FALSE

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

11) Opportunities in accounting include auditing, consulting, market research, and tax planning.

Answer: TRUE

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

12) Ethics is defined as maximizing personal wealth, regardless the cost.

Answer: FALSE

Difficulty: 2 Medium

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

13) The Sarbanes-Oxley Act (SOX) requires documentation and verification of internal controls. It also emphasizes effective internal controls.

Answer: TRUE

Difficulty: 1 Easy

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Remember

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Legal; FN Reporting

14) The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization.

Answer: TRUE

Difficulty: 2 Medium

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Decision Making

15) Management is not responsible for implementing internal controls and does not need to issue a report on internal controls.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Legal; FN Reporting

16) A partnership is a business owned by two or more people.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

17) Owners of a corporation are called shareholders or stockholders.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

18) In the partnership form of business, the owners are called stockholders.

Answer: FALSE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

19) The balance sheet shows a company's net income or loss over a period of time.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

20) The Financial Accounting Standards Board (FASB) is a group tasked with setting generally accepted accounting principles (GAAP).

Answer: TRUE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

21) The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

22) General principles are the basic assumptions, concepts, and guidelines for preparing financial statements. GAAP aims to make information relevant and representationally faithful.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

23) The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

24) As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

25) Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

26) Limited liability and indefinite business life are characteristics of a corporation.

Answer: TRUE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

27) A sole proprietorship is a business with multiple owners.

Answer: FALSE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

28) Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

29) A partnership must pay an additional business income tax.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

30) Objectives, qualitative characteristics, elements, and recognition and measurement are components of the FASB conceptual framework.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

31) Objectivity means that financial information is supported by independent, unbiased evidence; it demands more than a person's opinion.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

32) The going-concern assumption presumes that a business will continue operating instead of being closed or sold.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

33) The measurement principle prescribes that accounting information is based on subjective opinion rather than cost.

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

34) The monetary unit assumption means that companies should express transactions in terms such as "a lot" or "very little."

Answer: FALSE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

35) The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices.

Answer: TRUE

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

36) A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation.

Answer: FALSE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Global; FN Measurement

37) A limited liability company offers the limited liability of a corporation and the tax treatment of a partnership or proprietorship.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Global; FN Measurement

38) The Securities and Exchange Commission (SEC) is a U.S. government agency that oversees proper use of GAAP by companies that sell stock and debt to the public.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

39) The four common forms of business ownership include sole proprietorship, partnership, corporation, and non-profit.

Answer: FALSE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

40) The four common forms of business ownership include sole proprietorship, partnership, limited liability company (LLC), and corporation.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

41) The three major types of business activities are operating, financing, and investing.

Answer: TRUE

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

42) Planning is a part of each business activity (operating, investing, and financing), and gives each activity meaning and focus.

Answer: TRUE

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

43) Financing activities provide the resources organizations use to pay for resources such as land, buildings, and equipment.

Answer: TRUE

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

44) Investing activities include long-term borrowing and repaying of cash from lenders.

Answer: FALSE

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Critical Thinking; FN Decision Making

45) Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.

Answer: TRUE

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Critical Thinking; FN Decision Making

46) Owner financing refers to resources contributed by creditors or lenders.

Answer: FALSE

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

47) Revenues are increases in equity (via net income) from a company's sales of products and services to customers.

Answer: TRUE

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

48) A net loss occurs when revenues exceed expenses.

Answer: FALSE

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

49) Net income occurs when revenues exceed expenses.

Answer: TRUE

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

50) Liabilities are owners' claims on assets.

Answer: FALSE

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Critical Thinking; FN Measurement; FN Reporting

51) Assets are the resources a company owns or controls that are expected to yield future benefits.

Answer: TRUE

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Critical Thinking; FN Measurement; FN Reporting

52) Dividends are subtracted as expenses in the calculation of net income.

Answer: FALSE

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

53) The accounting equation can be restated as: Assets − Equity = Liabilities.

Answer: TRUE

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

54) The accounting equation implies that: Assets + Liabilities = Equity.

Answer: FALSE

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

55) Stock issuances are increases in equity from the sale of products or services.

Answer: FALSE

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

56) Every business transaction leaves the accounting equation in balance.

Answer: TRUE

Difficulty: 1 Easy

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

57) An external transaction is an exchange within an entity that may or may not affect the accounting equation.

Answer: FALSE

Difficulty: 1 Easy

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Critical Thinking; FN Measurement

58) From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured.

Answer: FALSE

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

59) Stockholders' equity is increased when cash is received from customers in payment of previously recorded accounts receivable.

Answer: FALSE

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making: FN Measurement

60) Stockholder investments increase equity via net income.

Answer: FALSE

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making: FN Measurement

61) Return on assets is often stated in ratio form as the amount of average total assets divided by revenue.

Answer: FALSE

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Critical Thinking; FN Measurement

62) Return on assets is often stated in ratio form as the amount of income divided by assets invested.

Answer: TRUE

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Critical Thinking; FN Measurement

63) Return on assets is useful in evaluating management, analyzing and forecasting profits, and planning activities.

Answer: TRUE

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Resource Management; FN Measurement

64) Arrow's net income of $120 million and average total assets of $1,500 million results in a return on assets of 8%.

Answer: TRUE

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = $120 million/$1,500 million = 8%

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Resource Management; FN Measurement

65) Risk is the uncertainty about the return we will earn.

Answer: TRUE

Difficulty: 1 Easy

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Remember

AACSB/Accessibility: Reflective Thinking/Keyboard Navigation

AICPA: BB Resource Management; FN Decision Making

66) Generally, the lower the risk, the higher the return that can be expected.

Answer: FALSE

Difficulty: 2 Medium

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Understand

AACSB/Accessibility: Reflective Thinking/Keyboard Navigation

AICPA: BB Resource Management; FN Measurement

67) U.S. Government Treasury bonds provide low return and low risk to investors.

Answer: TRUE

Difficulty: 2 Medium

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Understand

AACSB/Accessibility: Reflective Thinking/Keyboard Navigation

AICPA: BB Industry; FN Risk Analysis

68) The four basic financial statements include the balance sheet, income statement, statement of retained earnings, and statement of cash flows.

Answer: TRUE

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Risk Analysis

69) An income statement reports on investing and financing activities.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis

70) A balance sheet covers activities over a period of time such as a month or year.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

71) The income statement describes revenues earned and expenses incurred along with the resulting net income or loss over a specified period of time.

Answer: TRUE

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

72) The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

Answer: FALSE

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

73) The income statement shows the financial position of a business on a specific date.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

74) The first section of the income statement reports cash flows from operating activities.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

75) The balance sheet is based on the accounting equation.

Answer: TRUE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

76) Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

Answer: TRUE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

77) Operating activities include long-term borrowing and repaying cash from lenders, stockholder investments and dividends paid to stockholders.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

78) The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

79) The income statement reports on operating activities at a point in time.

Answer: FALSE

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

80) The statement of cash flows identifies cash flows separated into operating, investing, and financing activities over a period of time.

Answer: TRUE

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

81) Ending retained earnings reported on the statement of retained earnings is calculated by adding stockholder investments and net income and subtracting net losses and dividends.

Answer: FALSE

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

82) The cost-benefit constraint prescribes that only information with benefits of disclosure less than the costs of providing it, need be disclosed.

Answer: FALSE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

83) The cost-benefit constraint says that information disclosed must have benefits to the user that are greater than the costs of providing it.

Answer: TRUE

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Critical Thinking; FN Reporting

84) Net income is sometimes called earnings or profit.

Answer: TRUE

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

85) Accounting is an information and measurement system that does all of the following except:

A) Identifies business activities.

B) Records business activities.

C) Communicates business activities.

D) Eliminates the need for interpreting financial data.

E) Helps people make better decisions.

Answer: D

Difficulty: 2 Medium

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

86) Technology:

A) Has replaced accounting.

B) Has not improved the clerical accuracy of accounting.

C) Reduces the time, effort and cost of recordkeeping.

D) In accounting has replaced the need for decision makers.

E) In accounting is only available to large corporations.

Answer: C

Difficulty: 2 Medium

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Understand

AACSB/Accessibility: Technology/Keyboard Navigation

AICPA: BB Industry; FN Leveraging Technology

87) The primary objective of financial accounting is to:

A) Serve the decision-making needs of internal users.

B) Provide accounting information that serves external users.

C) Monitor consumer needs, tastes, and price concerns.

D) Provide information on both the costs and benefits of looking after products and services.

E) Know what, when, and how much product to produce.

Answer: B

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

88) 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.

Answer: B

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

89) External users of accounting information include all of the following except:

A) Shareholders.

B) Customers.

C) Purchasing managers.

D) Government regulators.

E) Creditors.

Answer: C

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

90) Which of the following is not true regarding 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) Cannot hold any certificate other than a CPA.

Answer: E

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

91) Which of the following factors is not a component of the fraud triangle?

A) Opportunity

B) Pressure

C) Rationalization

D) All of the above are components of the fraud triangle.

Answer: D

Difficulty: 2 Medium

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

92) Which of the following is not true regarding ethics:

A) Ethics are beliefs that distinguish right from wrong.

B) Good ethics are good business.

C) Ethics do not affect the operations or outcome of a company.

D) Are critical in accounting.

E) Ethics are accepted standards of good and bad behavior.

Answer: C

Difficulty: 2 Medium

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

93) A corporation is:

A) A business legally separate from its owners.

B) Controlled by the FASB.

C) Not responsible for its own acts and own debts.

D) The same as a limited liability partnership.

E) Not subject to double taxation.

Answer: A

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

94) The group that sets international preferred accounting practices is called the:

A) AICPA.

B) IASB.

C) CAP.

D) SEC.

E) FASB.

Answer: B

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

95) The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the:

A) APB.

B) FASB.

C) AAA.

D) AICPA.

E) IASB.

Answer: B

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

96) The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

A) Time-period assumption.

B) Business entity assumption.

C) Going-concern assumption.

D) Revenue recognition principle.

E) Measurement (Cost) principle.

Answer: B

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

97) 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 assumption.

B) Business entity assumption.

C) Objectivity principle.

D) Measurement (Cost) Principle.

E) Monetary unit assumption.

Answer: A

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

98) If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is considered by the purchaser as easily being worth $140,000, and is purchased 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.

Answer: B

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication; Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

99) To include the personal assets and transactions of a business's owner(s) in the records and reports of the business would be in conflict with the:

A) Objectivity principle.

B) Monetary unit assumption.

C) Business entity assumption.

D) Going-concern assumption.

E) Revenue recognition principle.

Answer: C

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

100) 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) Measurement (Cost) principle.

C) Going-concern assumption.

D) Realization principle.

E) Business entity assumption.

Answer: B

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

101) The rule that (1) requires revenue to be recognized when goods or services are provided to customers and (2) at the amount expected to be received from the customer is called the:

A) Going-concern assumption.

B) Measurement (Cost) principle.

C) Revenue recognition principle.

D) Objectivity principle.

E) Business entity assumption.

Answer: C

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

102) 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 assumption.

C) Objectivity principle.

D) Business entity assumption.

E) Measurement (Cost) principle.

Answer: A

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

103) The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

A) Monetary unit assumption.

B) Going-concern assumption.

C) Measurement (Cost) principle.

D) Business entity assumption.

E) Revenue recognition principle.

Answer: C

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication; Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

104) On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

A) Monetary unit assumption.

B) Going-concern assumption.

C) Measurement (Cost) principle.

D) Business entity assumption.

E) Revenue recognition principle.

Answer: E

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

105) Marsha Bogswell is the sole stockholder of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services?

A) Monetary unit assumption.

B) Going-concern assumption.

C) Measurement (Cost) principle.

D) Business entity assumption.

E) Expense recognition (Matching) principle.

Answer: D

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Apply

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

106) A limited liability company (LLC):

A) Has owners called members.

B) Is subject to double taxation.

C) Includes a general owner with unlimited liability.

D) Is the same as a corporation.

E) Must have more than one owner.

Answer: A

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

107) A partnership:

A) Is also called a sole proprietorship.

B) Has unlimited liability for its partners.

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.

Answer: B

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

108) Which of the following accounting principles require that all goods and services purchased be recorded at actual cost?

A) Going-concern assumption.

B) Expense recognition (Matching) principle.

C) Measurement (Cost) principle.

D) Business entity assumption.

E) Consideration assumption.

Answer: C

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

109) Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

A) Going-concern assumption.

B) Expense recognition (Matching) principle.

C) Measurement (Cost) principle.

D) Business entity assumption.

E) Consideration assumption.

Answer: B

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

110) Revenue is properly recognized:

A) When the customer makes an order.

B) Only if the transaction creates an account receivable.

C) At the end of the accounting period.

D) When goods or services are provided to customers and at the amount expected to be received from the customer.

E) When cash from a sale is received.

Answer: D

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

111) All of the following are external users of accounting information except:

A) Lenders.

B) Shareholders.

C) Board of directors.

D) Chief executive officer (CEO).

E) Customers.

Answer: D

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

112) All of the following are external users of accounting information except:

A) customers.

B) Internal Revenue Service.

C) human resource managers.

D) shareholders.

E) lenders.

Answer: C

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

113) If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

A) Assets increase $1,300 and liabilities decrease $1,300.

B) One asset increases $1,300 and another asset decreases $1,300, causing no effect.

C) Assets decrease $1,300 and equity decreases $1,300.

D) Assets decrease $1,300 and equity increases $1,300.

E) Assets increase $1,300 and liabilities increase $1,300.

Answer: B

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

114) If a company receives $12,000 from a stockholder, the effect on the accounting equation would be:

A) Assets decrease $12,000 and equity decreases $12,000.

B) Assets increase $12,000 and liabilities decrease $12,000.

C) Assets increase $12,000 and liabilities increase $12,000.

D) Liabilities increase $12,000 and equity decreases $12,000.

E) Assets increase $12,000 and equity increases $12,000.

Answer: E

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

115) If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

A) Assets increase $4,500 and liabilities decrease $4,500.

B) Equity decreases $4,500 and liabilities increase $4,500.

C) One asset increases $4,500 and another asset decreases $4,500.

D) Assets increase $4,500 and liabilities increase $4,500.

E) Equity increases $4,500 and liabilities decrease $4,500.

Answer: D

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

116) 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.

Answer: B

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

117) 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.

Answer: A

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

118) 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.

Answer: B

Difficulty: 2 Medium

Topic: Financial Statements; Business Activities and the Accounting Equation

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.; 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

119) An example of an investing activity is:

A) Paying wages of employees.

B) Cash dividends paid.

C) Purchase of land.

D) Selling inventory.

E) Stockholder investments.

Answer: C

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

120) 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.

Answer: D

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

121) 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.

Answer: D

Explanation: Assets = Liabilities + Equity

Assets = $192,000 + $300,000 = $492,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

122) If assets are $300,000 and liabilities are $192,000, then equity equals:

A) $108,000.

B) $192,000.

C) $300,000.

D) $492,000.

E) $792,000.

Answer: A

Explanation: Assets = Liabilities + Stockholder's Equity

Equity = $300,000 − $192,000 = $108,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

123) Resources a company owns or controls that are expected to yield future benefits are:

A) Assets.

B) Revenues.

C) Liabilities.

D) Owner's Equity.

E) Expenses.

Answer: A

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

124) Increases in equity from a company's sales of products or services are:

A) Assets.

B) Revenues.

C) Liabilities.

D) Stockholders' Equity.

E) Expenses.

Answer: B

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

125) 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.

Answer: C

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

126) Creditors' claims on the assets of a company are called:

A) Net losses.

B) Expenses.

C) Revenues.

D) Equity.

E) Liabilities.

Answer: E

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

127) Decreases in equity from costs of providing products or services to customers are called:

A) Liabilities.

B) Equity.

C) Withdrawals.

D) Expenses.

E) Stockholders' Investment.

Answer: D

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

128) 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.

Answer: B

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

129) 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 increase in equity from a company's sales of products and services.

E) The costs of assets or services used.

Answer: D

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

130) 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.

Answer: B

Explanation: Assets = Liabilities + Stockholders' Equity

$99,000 = $32,000 + Stockholders' Equity; Stockholders' Equity = $67,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

131) Another name for equity is:

A) Net income.

B) Expenses.

C) Net assets.

D) Revenue.

E) Net loss.

Answer: C

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

132) When expenses exceed revenues, the result is called:

A) Net assets.

B) Negative equity.

C) Net loss.

D) Net income.

E) A liability.

Answer: C

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

133) Outflows of cash and other resources to stockholders are:

A) Liabilities.

B) Dividends.

C) Expenses.

D) Stock issuances.

E) Revenues.

Answer: B

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

134) Distributions of cash or other resources by a business to its stockholders:

A) Reduce assets and equity.

B) Increase assets and equity.

C) Reduce assets and equity (via net income).

D) Reduce retained earnings.

E) Reduce contributed capital.

Answer: A

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

135) The assets of a company total $700,000; the liabilities, $200,000. What is the amount of equity?

A) $900,000.

B) $700,000.

C) $500,000.

D) $200,000.

E) It is impossible to determine unless the amount of the stock issuances is known.

Answer: C

Explanation: Assets = Liabilities + Stockholders' Equity

$700,000 = $200,000 + Stockholders' Equity (or Claims of the Stockholders); Stockholders' Equity = $500,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

136) On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of stockholders' equity as of May 31 of the current year?

A) $49,700.

B) $13,050.

C) $20,500.

D) $31,100.

E) $40,400.

Answer: D

Explanation: Assets = Liabilities + Stockholders' Equity

Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Stockholders' Equity

$20,500 + $7,250 + $650 + $12,000 = $9,300 + Stockholders' Equity

$40,400 = $9,300 + Stockholders' Equity; Stockholders' Equity = $31,100

Difficulty: 3 Hard

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

137) On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as follows: Cash $30,000; Supplies, $600; Equipment, $10,000; Accounts Payable, $8,500. What is the amount of stockholders' equity as of August 31 of the current year?

A) $49,100.

B) $32,100.

C) $12,100.

D) $10,900.

E) $30,900.

Answer: B

Explanation: Assets − Liabilities = Stockholders' Equity

Cash + Supplies + Equipment − Accounts Payable = Stockholders' Equity

$30,000 + $600 + $10,000 − $8,500 = $32,100

Difficulty: 3 Hard

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

138) Assets created by selling goods and services on credit are:

A) Accounts payable.

B) Accounts receivable.

C) Liabilities.

D) Expenses.

E) Equity.

Answer: B

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

139) An exchange of value between two entities that yields a change in the accounting equation is called:

A) The accounting equation.

B) Recordkeeping or bookkeeping.

C) An external transaction.

D) An asset.

E) Net Income.

Answer: C

Difficulty: 1 Easy

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

140) Saddleback Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

A) Assets, $30,000 increase; equity, $30,000 increase.

B) Assets, $30,000 decrease; liabilities, $30,000 decrease.

C) Assets, $30,000 decrease; liabilities, $30,000 increase.

D) Liabilities, $30,000 decrease; equity, $30,000 increase.

E) Assets, $30,000 decrease; equity $30,000 decrease.

Answer: B

Explanation: Assets = Liabilities + Stockholders' Equity

Assets would decrease by $30,000 in Cash due to the payment of the accounts payable.

Liabilities would also decrease by $30,000 in Accounts Payable due to the payment of an obligation. There is no effect on Stockholders' Equity.

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

141) If Houston Company billed a client for $10,000 of consulting work completed, the accounts receivable asset increases by $10,000 and:

A) Accounts payable decreases $10,000.

B) Accounts payable increases $10,000.

C) Cash increases $10,000.

D) Revenue increases $10,000.

E) Revenue decreases $10,000

Answer: D

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

142) Alpha Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

A) Assets increase by $75,000 and expenses increase by $75,000.

B) Assets increase by $75,000 and expenses decrease by $75,000.

C) Liabilities increase by $75,000 and expenses decrease by $75,000.

D) Assets decrease by $75,000 and expenses decrease by $75,000.

E) Assets increase by $75,000 and liabilities increase by $75,000.

Answer: E

Explanation: Assets = Liabilities + Stockholders' Equity

$600,000 = $250,000 + $350,000

Assets increase by $75,000 (Equipment) due to the purchase.

Liabilities also increase by $75,000 (Accounts Payable) due to the purchase on credit.

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

143) Contessa Company collected $42,000 cash on its accounts receivable. The effects of this transaction as reflected in the accounting equation are:

A) Total assets decrease and equity increases.

B) Both total assets and total liabilities decrease.

C) Total assets, total liabilities, and total equity are unchanged.

D) Both total assets and equity are unchanged and liabilities increase.

E) Total assets increase and equity decreases.

Answer: C

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

144) If the liabilities of a business increased $75,000 during a period of time and the stockholders' equity in the business decreased $30,000 during the same period, the assets of the business must have:

A) Decreased $105,000.

B) Decreased $45,000.

C) Increased $30,000.

D) Increased $45,000.

E) Increased $105,000.

Answer: D

Explanation: Assets = Liabilities + Stockholders' Equity

Change in Assets = Change in Liabilities + Change in Stockholders' Equity

Change in Assets = + $75,000 − $30,000

Change in Assets = Increase of $45,000

Difficulty: 3 Hard

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

145) If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:

A) Increased $22,000.

B) Decreased $22,000.

C) Increased $89,000.

D) Decreased $156,000.

E) Increased $156,000.

Answer: A

Explanation: Assets = Liabilities + Stockholders' Equity

Change in Assets = Change in Liabilities + Change in Stockholders' Equity

Increase of $89,000 = Increase of $67,000 + Change in Stockholders' Equity

Change in Stockholders' Equity = Increase of $22,000

Difficulty: 3 Hard

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

146) If the liabilities of a company increased $74,000 during a period of time and equity in the company decreased $19,000 during the same period, what was the effect on the assets?

A) Assets would have increased $55,000.

B) Assets would have decreased $55,000.

C) Assets would have increased $93,000.

D) Assets would have decreased $93,000.

E) None of the above.

Answer: A

Explanation: Assets = Liabilities + Stockholders' Equity

Change in Assets = Change in Liabilities + Change in Stockholders' Equity

Change in Assets = + $74,000 − $19,000

Change in Assets = + $55,000

Difficulty: 3 Hard

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

147) If a company paid $38,000 of its accounts payable in cash, what was the effect on the accounting equation?

A) Assets would decrease $38,000, liabilities would decrease $38,000, and equity would decrease $38,000.

B) Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase $38,000.

C) Assets would decrease $38,000, liabilities would decrease $38,000, and equity remains unchanged.

D) There would be no effect on the accounts because the accounts are affected by the same amount.

E) Assets would increase $38,000 and liabilities would decrease $38,000.

Answer: C

Explanation: Assets = Liabilities + Stockholders' Equity

Assets will decrease by $38,000 in Cash due to the payment of the debt.

Liabilities will decrease by $38,000 in Accounts payable due to the payment of the debt.

Stockholders' Equity would not be affected by this transaction.

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

148) If assets are $365,000 and equity is $120,000, then liabilities are:

A) $120,000.

B) $245,000.

C) $365,000.

D) $485,000.

E) $610,000.

Answer: B

Explanation: Assets = Liabilities + Stockholders' Equity

$365,000 = Liabilities + $120,000

Liabilities = $245,000

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

149) Rushing had net income of $240 million and average total assets of $2,000 million. Its return on assets is:

A) 12%.

B) 120%.

C) 80%.

D) 8%.

E) 800%.

Answer: A

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = $240 million/$2,000 million = 0.12 = 12%

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

150) Cage Company had net income of $160 million and average total assets of $2,000 million. Its return on assets (ROA) is:

A) 80%.

B) 0.8%.

C) 8%.

D) 12.5%.

E) 125%.

Answer: C

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = $160 million/$2,000 million = 0.08 = 8%

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

151) Speedy has net income of $18,955, and assets at the beginning of the year of $200,000. Assets at the end of the year total $246,000. Compute its return on assets.

A) 7.7%.

B) 8.5%.

C) 9.5%.

D) 11.8%.

E) 13.0%.

Answer: B

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = $18,955/[($200,000 + $246,000)/2]

Return on Assets = $18,955/$223,000 = 0.085 = 8.5%

Difficulty: 3 Hard

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

152) Chou Co. has a net income of $43,000, assets at the beginning of the year are $250,000 and assets at the end of the year are $300,000. Compute its return on assets.

A) 8.4%.

B) 17.2%.

C) 14.3%.

D) 15.6%.

E) 1.5%.

Answer: D

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = $43,000/[($250,000 + $300,000)/2]

Return on Assets = $43,000/$275,000 = 0.156 = 15.6%

Difficulty: 3 Hard

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

153) U.S. treasury bonds are:

A) High-risk and high-return investments.

B) Low-risk and low-return investments.

C) High-risk and low-return investments.

D) Low-risk and high-return investments.

E) High risk and no-return investments.

Answer: B

Difficulty: 2 Medium

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

154) Risk is:

A) Net income divided by average total assets.

B) The reward for investment.

C) The uncertainty about the return we will earn.

D) Unrelated to return expected.

E) Derived from the idea of getting something back from an investment.

Answer: C

Difficulty: 1 Easy

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

155) The statement of cash flows reports all of the following except:

A) Cash flows from operating activities.

B) Cash flows from investing activities.

C) Cash flows from financing activities.

D) The net increase or decrease in assets for the period reported.

E) The net increase or decrease in cash for the period reported.

Answer: D

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

156) The basic financial statements include all of the following except:

A) Balance Sheet.

B) Income Statement.

C) Statement of Retained Earnings.

D) Statement of Cash Flows.

E) Statement of Changes in Assets.

Answer: E

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

157) The statement of retained earnings:

A) Reports changes in equity due to stockholder investments.

B) Reports changes in equity due to net income, net losses and dividends.

C) Reports on cash flows for operating, financing, and investing activities over a period of time.

D) Reports on cash flows for operating, financing, and investing activities at a point in time.

E) Reports on amounts for assets, liabilities, and equity at a point in time.

Answer: B

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

158) The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:

A) Balance sheet.

B) Statement of retained earnings.

C) Statement of cash flows.

D) Income statement.

E) Statement of financial position.

Answer: D

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

159) A balance sheet lists:

A) The types and amounts of the revenues and expenses of a business.

B) Only the information about what happened to equity during a time period.

C) The types and amounts of assets, liabilities, and equity of a business as of a specific date.

D) The inflows and outflows of cash during the period.

E) The assets and liabilities of a company but not the stockholders' equity.

Answer: C

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

160) A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n):

A) Balance sheet.

B) Income statement.

C) Statement of cash flows.

D) Statement of retained earnings.

E) Financial Status Statement.

Answer: A

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

161) The financial statement that identifies a company's cash receipts and cash payments over a period of time is the:

A) Statement of financial position.

B) Statement of cash flows.

C) Balance sheet.

D) Income statement.

E) Statement of changes in stockholders' equity.

Answer: B

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

162) The financial statement that shows the changes in equity that resulted from net income (or net loss); and dividends to stockholders is the:

A) Statement of financial position.

B) Statement of cash flows.

C) Balance sheet.

D) Income statement.

E) Statement of retained earnings.

Answer: E

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

163) Cash investments by stockholders are listed on which of the following statements?

A) Statement of retained earnings and income statement.

B) Income statement only.

C) Retained earnings only.

D) Statement of retained earnings and statement of cash flows.

E) Statement of cash flows only.

Answer: E

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

164) Accounts payable appear on which of the following statements?

A) Balance sheet.

B) Income statement.

C) Statement of retained earnings.

D) Statement of cash flows.

E) Transaction statement.

Answer: A

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

165) The income statement reports all of the following except:

A) Revenues earned by a business.

B) Expenses incurred by a business.

C) Assets owned by a business.

D) Net income or loss earned by a business.

E) The time period over which the earnings occurred.

Answer: C

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

166) Use the following information as of December 31 to determine equity.

Cash

$

57,000

Buildings

175,000

Equipment

206,000

Liabilities

141,000

A) $57,000.

B) $141,000.

C) $297,000.

D) $438,000.

E) $579,000.

Answer: C

Explanation: Assets = Liabilities + Stockholders' Equity

Cash + Equipment + Buildings = Liabilities + Stockholders' Equity

$57,000 + $206,000 + $175,000 = $141,000 + Stockholders' Equity

$438,000 = $141,000 + Stockholders' Equity; Stockholders' Equity = $297,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

167) Use the following information for Meeker Corp. to determine the amount of equity to report.

Cash

$

70,000

Buildings

125,000

Land

205,000

Liabilities

130,000

A) $390,000.

B) $140,000.

C) $20,000.

D) $530,000.

E) $270,000.

Answer: E

Explanation: Assets − Liabilities = Stockholders' Equity

Cash + Buildings + Land − Liabilities = Stockholders' Equity

$70,000 + $125,000 + $205,000 − $130,000 = $270,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

168) Determine the net income of a company for which the following information is available for the month of July.

Employee salaries expense

$

180,000

Interest expense

10,000

Rent expense

20,000

Consulting revenue

400,000

A) $190,000.

B) $210,000.

C) $230,000.

D) $400,000.

E) $610,000.

Answer: A

Explanation: Net Income = Revenues − Expenses

Net Income = Consulting Revenue − Employee Salaries Expense − Interest Expense − Rent Expense

Net Income = $400,000 − $180,000 − $10,000 − $20,000; Net Income = $190,000

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

169) Determine the net income of a company for which the following information is available for the month of September.

Service revenue

$

300,000

Rent expense

48,000

Utilities expense

3,200

Salaries expense

81,000

A) $263,800.

B) $432,200.

C) $171,000.

D) $167,800.

E) $252,000.

Answer: D

Explanation: Revenues − Expenses = Net Income

Service Revenue − Rent Expense − Utilities Expense − Salaries Expense

$300,000 − $48,000 − $3,200 − $81,000 = $167,800

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

170) A company acquires equipment for $75,000 cash. This represents a(n):

A) Operating activity.

B) Investing activity.

C) Financing activity.

D) Revenue activity.

E) Expense activity.

Answer: B

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

171) A company borrows $125,000 from the Northern Bank and receives the loan proceeds in cash. This represents a(n):

A) Revenue activity.

B) Operating activity.

C) Expense activity.

D) Investing activity.

E) Financing activity.

Answer: E

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

172) Zippy had cash inflows from operations of $60,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:

A) $38,500 increase.

B) $38,500 decrease.

C) $132,500 decrease.

D) $132,000 increase.

E) $11,500 decrease.

Answer: A

Explanation: Net Change in Cash = Cash Flows from Operating Activities + Cash Flows from Investing Activities + Cash Flows from Financing Activities

Net Change in Cash = $60,500 + ($47,000) + $25,000; Net Change in Cash = $38,500

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

173) Zapper has beginning equity of $257,000, net income of $51,000, dividends paid of $40,000 and stockholder investments of $6,000. Its ending equity is:

A) $223,000.

B) $240,000.

C) $268,000.

D) $274,000.

E) $208,000.

Answer: D

Explanation: Ending Equity = Beginning Equity + Stockholder Investments + Net Income − Dividends

Ending Equity = $257,000 + $6,000 + $51,000 − $40,000; Ending Equity = $274,000

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

174) Cragmont has beginning equity of $277,000, net income of $63,000, dividends of $25,000 and no additional investments by stockholders during the period. Its ending equity is:

A) $365,000.

B) $239,000.

C) $189,000.

D) $315,000.

E) $277,000.

Answer: D

Explanation: Beginning Equity + Stockholder Investments + Net Income − Dividends = Ending Equity

$277,000 + $0 + $63,000 − $25,000 = $315,000

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

175) Rent expense appears on which of the following statements?

A) Balance sheet.

B) Income statement.

C) Statement of retained earnings.

D) Income statement and balance sheet.

E) Statement of cash flows and balance sheet.

Answer: B

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

176) A company's balance sheet shows: cash $22,000, accounts receivable $16,000, office equipment $50,000, and accounts payable $17,000. What is the amount of stockholders' equity?

A) $17,000.

B) $29,000.

C) $71,000.

D) $88,000.

E) $105,000.

Answer: C

Explanation: Assets = Liabilities + Stockholders' Equity

Cash + Accounts Receivable + Office Equipment = Accounts Payable + Stockholders' Equity

$22,000 + $16,000 + $50,000 = $17,000 + Stockholders' Equity

$88,000 = $17,000 + Stockholders' Equity; Stockholders' Equity = $71,000

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

177) A company reported total equity of $145,000 at the beginning of the year. The company reported $210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year?

A) $45,000.

B) $92,000.

C) $98,000.

D) $210,000.

E) $282,000.

Answer: E

Explanation: Assets = Liabilities + Stockholders' Equity

Assets = $92,000 + (Beginning Equity + Revenues − Expenses)

Assets = $92,000 + ($145,000 + $210,000 − $165,000)

Assets = $92,000 + $190,000; Assets = $282,000

Difficulty: 3 Hard

Topic: Transaction Analysis; Financial Statements

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

178) Flitter reported net income of $17,500 for the past year. At the beginning of the year the company had $200,000 in assets and $50,000 in liabilities. By the end of the year, assets had increased to $300,000 and liabilities were $75,000. Calculate its return on assets:

A) 8.8%.

B) 7.0%.

C) 5.8%.

D) 35.0%.

E) 23.3%.

Answer: B

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = $17,500/[($200,000 + $300,000)/2]

Return on Assets = $17,500/$250,000 = 0.07 = 7.0%

Difficulty: 3 Hard

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

179) Dawson Electronic Services had revenues of $80,000 and expenses of $50,000 for the year. Its assets at the beginning of the year were $400,000. At the end of the year assets were worth $450,000. Calculate its return on assets.

A) 7.1%.

B) 7.5%.

C) 6.7%.

D) 20.0%.

E) 18.8%.

Answer: A

Explanation: Return on Assets = Net Income/Average Total Assets

Return on Assets = (Revenues − Expenses)/Average Total Assets

Return on Assets = ($80,000 − $50,000)/[($400,000 + $450,000)/2]

Return on Assets = $30,000/$425,000 = 0.0705 = 7.1%

Difficulty: 3 Hard

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

180) Rico's Taqueria had cash inflows from operating activities of $27,000; cash outflows from investing activities of $22,000, and cash outflows from financing activities of $12,000. Calculate the net increase or decrease in cash.

A) $61,000 increase.

B) $37,000 increase.

C) $7,000 decrease.

D) $7,000 increase.

E) $34,000 decrease.

Answer: C

Explanation: Net Increase/(Decrease) in Cash = Cash Flows from Operating Activities + Cash Flows from Investing Activities + Cash Flows from Financing Activities

Net Increase/(Decrease) in Cash = $27,000 + ($22,000) + ($12,000)

Net Increase/(Decrease) in Cash = ($7,000)

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

181) Charlie's Chocolates' had stock issuances of $50,000 and dividends of $20,000. The company has revenues of $83,000 and expenses of $64,000. Calculate its net income.

A) $30,000.

B) $83,000.

C) $64,000.

D) $19,000.

E) $49,000.

Answer: D

Explanation: Net Income = Revenues − Expenses

Net Income = $83,000 − $64,000; Net Income = $19,000

Difficulty: 3 Hard

Topic: Transaction Analysis; Financial Statements

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

182) Savvy Sightseeing had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and dividends to stockholders of $9,000; there were no stock issuances. Calculate the ending equity.

A) $88,000.

B) $25,000.

C) $97,000.

D) $38,000.

E) $47,000.

Answer: A

Explanation: Ending Equity = Beginning Equity + Revenues − Expenses + Stock issuances − Dividends

Ending Equity = $72,000 + $90,000 − $65,000 + 0 − $9,000

Ending Equity = $88,000

Difficulty: 3 Hard

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

183) Doc's Ribhouse had beginning equity of $52,000; net income of $35,000, and dividends of $12,000. There were no stockholder investments during the year. Calculate the ending equity.

A) $(5,000).

B) $29,000.

C) $5,000.

D) $99,000.

E) $75,000.

Answer: E

Explanation: Ending Equity = Beginning Equity + Net Income − Dividends

Ending Equity = $52,000 + $35,000 − $12,000 = $75,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

184) A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

A) $104,000.

B) $76,000.

C) $32,000.

D) $68,000.

E) $176,000.

Answer: C

Explanation: Assets − Equity = Liabilities

Cash + Accounts Receivable + Equipment − Equity = Liabilities

$24,000 + $30,000 + $50,000 − $72,000 = $32,000

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

185) If a company has excess space in its building that it rents to another company for $700, what is the effect on the accounting equation during the first month?

A) Assets would decrease $700 and liabilities would decrease $700.

B) Assets would decrease $700 and equity would increase $700.

C) Assets would increase $700 and equity would decrease $700.

D) Assets would increase $700 and equity would increase $700.

E) Liabilities would decrease $700 and equity would increase $700.

Answer: D

Explanation: Assets and equity both increase at the time the rent is earned.

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

186) All of the following are classified as assets except:

A) Accounts Receivable.

B) Supplies.

C) Equipment.

D) Accounts Payable.

E) Land.

Answer: D

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

187) Which of the following accounts is not included in the calculation of a company's ending retained earnings?

A) Revenues.

B) Expenses.

C) Dividends.

D) Beginning Retained Earnings.

E) Cash.

Answer: E

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

188) All of the following are classified as liabilities except:

A) Accounts Receivable.

B) Notes Payable.

C) Wages Payable.

D) Accounts Payable.

E) Taxes Payable.

Answer: A

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

189) Billington Corp borrows $80,000 cash from Second National Bank. How does this transaction affect the accounting equation for Billington?

A) Assets would decrease $80,000 and liabilities would decrease $80,000.

B) Assets would decrease $80,000 and equity would increase $80,000.

C) Assets would increase $80,000 and equity would decrease $80,000.

D) Assets would increase $80,000 and liabilities would increase $80,000.

E) Liabilities would decrease $80,000 and equity would increase $80,000.

Answer: D

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Legal; FN Measurement; FN Reporting

190) If the assets of a company increase by $55,000 during the year and its liabilities increase by $25,000 during the same year, then the change in equity of the company during the year must have been:

A) An increase of $80,000.

B) A decrease of $80,000.

C) An increase of $30,000.

D) A decrease of $30,000.

E) An increase of $25,000.

Answer: C

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

191) All of the following are classified as assets except:

A) Accounts Payable.

B) Accounts Receivable.

C) Cash.

D) Supplies.

E) Prepaid Insurance.

Answer: A

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

192) Grandmark Printing pays the current month's rent of $2,000 to the landlord of the building where its facilities are located. How does this transaction affect the accounting equation for Grandmark?

A) Assets would decrease $2,000 and liabilities would decrease $2,000.

B) Assets would decrease $2,000 and equity would decrease $2,000.

C) Assets would increase $2,000 and equity would increase $2,000.

D) Assets would increase $2,000 and liabilities would increase $2,000.

E) Liabilities would decrease $2,000 and equity would increase $2,000.

Answer: B

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

193) Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins?

A) Assets would decrease $1,750 and liabilities would decrease $1,750.

B) One asset would increase $1,750 and a different asset would decrease $1,750, causing no net change in the accounting equation.

C) Assets would increase $1,750 and equity would increase $1,750.

D) Assets would increase $1,750 and liabilities would increase $1,750.

E) Liabilities would decrease $1,750 and equity would increase $1,750.

Answer: B

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

194) The accounting equation for Ying Company shows a decrease in its assets and a decrease in its equity. Which of the following transactions could have caused that effect?

A) Cash was received from providing services to a customer.

B) The company paid an amount due on credit.

C) Equipment was purchased for cash.

D) A utility bill was received for the current month, to be paid in the following month.

E) Advertising expense for the month was paid in cash.

Answer: E

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

195) The accounting equation for Long Company shows an increase in its assets and an increase in its liabilities. Which of the following transactions could have caused that effect?

A) Cash was received from providing services to a customer.

B) Cash was received as a stockholder investment.

C) Equipment was purchased on credit.

D) Supplies were purchased for cash.

E) Advertising expense for the month was paid in cash.

Answer: C

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Legal; FN Measurement

196) The expense recognition principle, also called the matching principle:

A) Prescribes that accounting information is based on actual cost.

B) Provides guidance on when a company must recognize revenue.

C) Prescribes that a company report the details behind financial statements that would impact users' decisions.

D) Prescribes that a company record the expenses it incurred to generate the revenue reported.

E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Answer: D

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement

197) The measurement principle, also called the cost principle:

A) Prescribes that accounting information is based on actual cost.

B) Provides guidance on when a company must recognize revenue.

C) Prescribes that a company report the details behind financial statements that would impact users' decisions.

D) Prescribes that a company record the expenses it incurred to generate the revenue reported.

E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Answer: A

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement

198) The revenue recognition principle:

A) Prescribes that accounting information is based on actual cost.

B) Provides guidance on when a company must recognize revenue.

C) Prescribes that a company report the details behind financial statements that would impact users' decisions.

D) Prescribes that a company record the expenses it incurred to generate the revenue reported.

E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Answer: B

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement

199) The full disclosure principle:

A) Prescribes that accounting information is based on actual cost.

B) Provides guidance on when a company must recognize revenue.

C) Prescribes that a company report the details behind financial statements that would impact users' decisions.

D) Prescribes that a company record the expenses it incurred to generate the revenue reported.

E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Answer: C

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement

200) The materiality constraint:

A) Prescribes that accounting information is based on actual cost.

B) Provides guidance on when a company must recognize revenue.

C) Prescribes that only information that would influence the decisions of a reasonable person need be disclosed.

D) Prescribes that a company record the expenses it incurred to generate the revenue reported.

E) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Answer: C

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement

201) The going concern assumption:

A) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

B) Means that we can express transactions and events in monetary, or money, units.

C) Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

D) Means that a business is accounted for separately from other business entities, including its owner.

E) Prescribes that a company record the expenses it incurred to generate the revenue reported.

Answer: A

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Measurement

202) The monetary unit assumption:

A) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

B) Means that we can express transactions and events in monetary, or money, units.

C) Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

D) Means that a business is accounted for separately from other business entities, including its owner.

E) Prescribes that a company record the expenses it incurred to generate the revenue reported.

Answer: B

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

203) The time period assumption:

A) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

B) Means that we can express transactions and events in monetary, or money, units.

C) Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

D) Means that a business is accounted for separately from other business entities, including its owner.

E) Prescribes that a company record the expenses it incurred to generate the revenue reported.

Answer: C

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

204) The business entity assumption:

A) Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

B) Means that we can express transactions and events in monetary, or money, units.

C) Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

D) Means that a business is accounted for separately from other business entities, including its owner.

E) Prescribes that a company record the expenses it incurred to generate the revenue reported.

Answer: D

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

205) Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (or Dodd-Frank). Which of the following are two of the important provisions of Dodd-Frank?

A) Clawback and dividend mandate.

B) Clawback and whistleblower.

C) Whistleblower and dividend mandate.

D) Dividend mandate and shareholder loss limitation.

E) Whistleblower and shareholder loss limitation.

Answer: B

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles; Ethics

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Legal; FN Reporting

206) Clawback provisions and whistleblower provisions are components of which legislation?

A) Sarbanes-Oxley Act.

B) Dodd-Frank Act.

C) Glass-Steagall Act.

D) Securities Exchange Act.

E) Gramm-Leach-Bliley Act.

Answer: B

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Ethics/Keyboard Navigation

AICPA: BB Legal; FN Reporting

207) Which of the following accounts is not included in the asset section of the balance sheet?

A) Cash.

B) Accounts receivable.

C) Supplies.

D) Land.

E) Services revenue.

Answer: E

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

208) Which of the following accounts is not included in the asset section of the balance sheet?

A) Buildings.

B) Wages expense.

C) Supplies.

D) Land.

E) Furniture.

Answer: B

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

209) Which of the following accounts is not included in the liability section of the balance sheet?

A) Accounts receivable.

B) Wages payable.

C) Accounts payable.

D) Notes payable.

E) Taxes payable.

Answer: A

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

210) Which of the following accounts is not included in the calculation of net income?

A) Services revenue.

B) Wages expense.

C) Rent expense.

D) Cash.

E) Rent revenue.

Answer: D

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

211) Which of the following combinations results in a net loss reported on the income statement?

A) Total revenues of $80,000 and total expenses of $74,000.

B) Total revenues of $70,000 and total expenses of $74,000.

C) Total revenues of $60,000 and total expenses of $52,000.

D) Total revenues of $20,000 and total expenses of $16,000.

E) Total revenues of $40,000 and total expenses of $31,000.

Answer: B

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

212) Which of the following combinations results does not result in the same amount of net income reported on the income statement?

A) Total revenues of $80,000 and total expenses of $60,000.

B) Total revenues of $170,000 and total expenses of $150,000.

C) Total revenues of $60,000 and total expenses of $40,000.

D) Total revenues of $70,000 and total expenses of $60,000.

E) Total revenues of $40,000 and total expenses of $20,000.

Answer: D

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

213) Match the following terms with the appropriate definition.

a. Financial accounting

b. Ethics

c. Recordkeeping

d. Internal users

e. Accounting

f. Certified Public Accountant (CPA)

g. Fraud triangle

h. Managerial accounting

i. External users

____ 1. An information and measurement system that identifies, records and communicates relevant reliable and comparable information about an organization's business activities.

____ 2. The part of accounting that involves recording transactions and events, either electronically or manually.

____ 3. Persons using accounting information who are not directly involved in running the organization.

____ 4. Persons using accounting information who are directly involved in managing and operating the organization.

____ 5. The area of accounting that serves the decision-making needs of internal users.

____ 6. The area of accounting aimed at serving external users by providing them with general-purpose financial statements.

____ 7. Accounting specialists that have met educational and experience requirements, passed an examination and exhibit ethical characteristics to achieve a professional certification.

____ 8. Beliefs that distinguish right from wrong, considered accepted standards of good and bad behavior.

____ 9. A model that asserts the factors that must exist for a person to commit fraud.

Answer: 1. E; 2. C; 3. I; 4. D; 5. H; 6. A; 7. F; 8. B; 9. G

Difficulty: 1 Easy

Topic: Importance of Accounting; Users of Accounting Information; Ethics

Learning Objective: 01-C1 Explain the purpose and importance of accounting.; 01-C2 Identify users and uses of, and opportunities in, accounting.; 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Remember

AACSB/Accessibility: Communication; Ethics/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting

214) Match each of the following terms with the most appropriate definition.

a. Return on assets

b. Assets

c. Expenses

d. Risk

e. Liabilities

f. Dividends

g. Accounting equation

h. Contributed capital

____ 1. The uncertainty about the return to be earned.

____ 2. Resources such as cash that a stockholder puts into the company.

____ 3. A financial ratio stated as income divided by assets invested.

____ 4. Creditor's claims on a company's assets.

____ 5. Decreases in equity from costs of providing products or services to customers.

____ 6. Resources such as cash that a company distributes to stockholders for personal use.

____ 7.Resources a company owns or controls that are expected to yield future benefit.

____ 8. Expresses the relation of assets, liabilities and equity in a company, comparing the resources the company owns to the sources of funds to acquire the resources.

Answer: 1. D; 2. H; 3. A; 4. E; 5. C; 6. F; 7. B; 8. G

Difficulty: 1 Easy

Topic: The Accounting Equation; Return on Assets; Return and Risk Analysis

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.; 01-A2 Compute and interpret return on assets.; 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting; FN Risk Analysis

215) The following is a list of selected users of accounting information. Match the appropriate user to the following decisions they make with accounting information.

a. Suppliers

b. Lenders

c. Shareholders

d. Purchasing Managers

e. Regulators

____ 1. Know what, when, and how much to purchase.

____ 2. Judge the soundness of a customer before making sales on credit.

____ 3. Assess whether a company has paid all required taxes and complied with securities rules.

____ 4. Assess whether an organization is likely to repay its loans with interest.

____ 5. Decide whether to buy, hold, or sell a company's stock.

Answer: 1. D; 2. A; 3. E; 4. B; 5. C

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting; FN Risk Analysis

216) Match the following definitions with terms 1 through 8. Place the letter that identifies the best definition in the blank space next to the term.

____ 1. Generally accepted accounting principles

____ 2. Time period assumption

____ 3. Statement of retained earnings

____ 4. Balance sheet

____ 5. Income statement

____ 6. Measurement (Cost) principle

____ 7. Securities and Exchange Commission

____ 8. IASB

____ 9. Full disclosure principle

____ 10. Statement of cash flows

a. Prescribes that assets and services to be recorded initially on a cash or equal-to-cash basis.

b. Describes a company's revenues and expenses and computes net income or loss over a period of time.

c. An independent group consisting of individuals from many countries that identify preferred accounting practices.

d. Presumes that the life of a company can be divided into periods for reporting purposes.

e. The concepts and rules that govern financial accounting.

f. A financial statement that reports the changes in equity over the reporting period, excluding stockholder investments.

g. A report that identifies cash receipts and cash payments over a period of time.

h. Prescribes that a company report the details behind financial statements that would impact user decisions.

i. The governmental agency that has the legal authority to establish accounting rules.

j. A report that describes a company's financial position at a point in time.

Answer: 1. E; 2. D; 3. F; 4. J; 5. B; 6. A; 7. I; 8. C; 9. H; 10. G

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles; Financial Statements

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting; FN Measurement

217) Match the following definitions with the terms 1 through 9. Place the letter that identifies the best definition in the blank space next to the term.

____ 1. Statement of cash flows

____ 2. Events

____ 3. Monetary unit principle

____ 4. Business entity principle

____ 5. Revenue recognition principle

____ 6. Accounting equation

____ 7. Income statement

____ 8. Expenses

____ 9. Liabilities

a. The relation between a company's assets, liabilities, and equity.

b. Happenings, such as changes in market value, that effect the accounting equation and are reliably measured.

c. The principle that assumes transactions and events can be expressed in money units.

d. Describes a company's revenues and expenses along with the resulting net income or loss over a period of time.

e. A financial statement that lists cash inflows (receipts) and cash outflows (payments); the cash flows are arranged by operating, investing, and financing activities.

f. Creditor's claims on assets.

g. The cost of assets or services used to earn revenue.

h. The principle that requires a business to be accounted for separately from its owners.

i. The principle that revenue is recorded when earned through providing goods or services.

Answer: 1. E; 2. B; 3. C; 4. H; 5. I; 6. A; 7. D; 8. G; 9. F

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles; Business Activities and the Accounting Equation; The Accounting Equation; Financial Statements

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.; 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.; 01-A1 Define and interpret the accounting equation and each of its components.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Reporting; FN Measurement

218) Identify each of the following business activities 1 through 6 into the appropriate category a, b, and c.

a. Operating

b. Investing

c. Financing

____ 1. Paid utilities expenses.

____ 2. Dividends paid to stockholders.

____ 3. Purchase of land.

____ 4. Sale of used equipment.

____ 5. Borrowed money from a bank on a long-term note.

____ 6. Paid employee wages.

____ 7. Received investment from stockholders in exchange for common stock.

____ 8. Paid an amount due on a long-term bank loan.

Answer: 1. A; 2. C; 3. B; 4. B; 5. C; 6. A; 7. C; 8. C

Difficulty: 3 Hard

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Apply

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

219) Match each of the following items 1 through 8 with the financial statement a through d in which each item would most likely appear. An item may appear on more than one statement.

a. Income statement

b. Statement of retained earnings.

c. Balance sheet

d. Statement of cash flows

____ 1. Assets.

____ 2. Dividends

____ 3. Revenues.

____ 4. Cash from investing activities.

____ 5. Expenses.

____ 6. Liabilities.

____ 7. Cash from operating activities.

____ 8. Cash from financing activities.

Answer: 1. C; 2. B; 3. A; 4. D; 5. A; 6. C; 7. D; 8. D

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

220) Classify the following activities according to the appropriate section of the statement of cash flows.

a. Operating activity

b. Investing activity

c. Financing activity

____ 1. Cash received from a one-time sale of used office equipment.

____ 2. Cash paid for dividends.

____ 3. Cash received from customers.

____ 4. Cash received from stockholder contributions.

____ 5. Cash paid for utilities.

____ 6. Cash paid for a delivery van to be used in the business.

Answer: 1. B; 2. C; 3. A; 4. C; 5. A; 6. B

Difficulty: 3 Hard

Topic: Business Activities and the Accounting Equation; Financial Statements

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

221) Explain the role of accounting in the information age.

Answer: Accounting is an information and measurement system. It identifies, records, and communicates relevant, reliable and comparable information about business activities. Accounting also includes the crucial process of analysis and interpretation. It is part of our everyday lives, through such activities as banking, paying taxes, and receiving payroll checks. Technology plays a major role in accounting by reducing the time effort and cost or recordkeeping while improving clerical accuracy.

Difficulty: 2 Medium

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Understand

AACSB/Accessibility: Communication; Technology/Keyboard Navigation

AICPA: BB Industry; FN Reporting

222) What is the balance sheet? What is its purpose?

Answer: The balance sheet is one of the four required financial statements a company prepares periodically. It describes a company's financial position by listing the types and amounts of assets, liabilities, and equity of a business at a specified point in time. The statement's purpose is to provide information that helps users assess the financial condition of the business.

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

223) Identify the users and uses of accounting information.

Answer: There are two general types of users of accounting information. Internal users are managers and officers of businesses. They require information about business activities in order to make decisions about planning, monitoring, and control. External users rely on financial statements to make business decisions. These users include lenders, and shareholders. Lenders need information for measuring the risk and return of loans. Shareholders need information for assessing the risk and return in owning shares.

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

224) Identify several opportunities in accounting and distinguish between private accounting and public accounting.

Answer: The four broad areas of accounting are financial accounting, managerial accounting, taxation and other accounting related employment. The majority of the employment opportunities are in private accounting where employees work for businesses. Private sector jobs would include general accounting, taxation, budgeting, and cost accounting activities. Public accounting offers opportunities to perform work such as auditing, tax services, and consulting.

Difficulty: 2 Medium

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

225) Explain why ethics are an integral part of accounting.

Answer: The purpose of accounting is to provide useful information for decision makers. For information to be useful, it must be trusted. This requires ethical behavior by accountants and managers in all phases of gathering, analyzing and reporting financial information so that good decisions are made.

Difficulty: 2 Medium

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Understand

AACSB/Accessibility: Communication; Ethics/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

226) Describe the two important guidelines for revenue recognition.

Answer: The two important guidelines for revenue recognition include: Revenue is recognized (1) when goods or services are provided to customers and (2) at the amount expected to be received from the customer. Assets received from selling products and services do not need to be in cash. Revenue recognized is measured by cash received plus the cash equivalent of other assets received.

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

227) Identify the four basic forms of business organizations and their key attributes.

Answer: The four basic forms of business organizations are sole proprietorships, partnerships, corporations, and limited liability companies (LLC). Sole proprietorships are businesses owned by one person. They are separate entities for accounting purposes, but are not separate from the owner legally or for tax purposes. Partnerships are businesses owned by two or more people who are jointly liable for tax and other obligations. Corporations are businesses legally separate from their owners, making them responsible for their own acts and own debts. They conduct business with the rights, duties and responsibilities of a person. Limited liability companies owned by one or more ‘members'. LLCs are legally separate from their owners, the owners have limited liability and do not pay taxes.

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Legal

228) Identify and describe the two main groups involved in establishing generally accepted accounting principles.

Answer: The Financial Accounting Standards Board (FASB) is the private-sector group that has been delegated the task to set both the broad and specific principles of GAAP. The Securities and Exchange Commission (SEC) is a government agency that has the legal authority to set GAAP and oversees proper use of GAAP by companies that issue stock and debt to the public.

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Reporting

229) How does the going-concern principle affect reporting asset values of a business?

Answer: The going-concern principle means that financial statements reflect an assumption that the business continues in operation instead of being closed or sold. Assets are therefore reported at cost rather than at liquidation value.

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

230) Describe the income statement and the relation between revenues, expenses, and net income or loss.

Answer: The income statement describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities. Revenues are the increases in equity from sales of products and services to customers. Expenses are the costs of providing products and services to customers. When revenues exceed expenses, net income occurs. When expenses exceed revenues, a net loss occurs.

Difficulty: 2 Medium

Topic: Financial Statements; The Accounting Equation

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.; 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

231) Explain the accounting equation and define its terms.

Answer: The accounting equation is stated as: Assets = Liabilities + Equity. Assets are resources owned or controlled by a business that are expected to provide future benefit. Creditors' claims on assets are called liabilities. Stockholders' claims on assets are called equity. The accounting equation shows that the resources (assets) of the business equal the source of funds to acquire and the claims against those resources.

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

232) What distinguishes liabilities from equity?

Answer: Liabilities are creditors' claims on assets. They reflect obligations to transfer assets or provide products or services to others in a future outflow of resources. Equity is stockholders' claim to assets. It includes the investments of stockholders and what the company earns on the stockholders' behalf. Equity is also called net assets or residual interest.

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

233) What is the purpose of return on assets as an analytical tool?

Answer: Return on assets is useful in evaluating management, analyzing and forecasting profits, and planning activities. It shows the effectiveness of using assets to earn profit.

Difficulty: 2 Medium

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; BB Resource Management; FN Measurement

234) Define risk and return and discuss the relation between them.

Answer: Net income is often related to return, which is what is earned from investments. Risk is the uncertainty about the return that will be earned. All investments involve risk, but risk and return vary among investment opportunities. In general, the lower the risk of an investment; the lower the expected return. Higher return is expected in exchange for accepting higher risk.

Difficulty: 2 Medium

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Understand

AACSB/Accessibility: Communication; Reflective Thinking/Keyboard Navigation

AICPA: BB Critical Thinking; FN Risk Analysis

235) Describe the three types of activities reported on the statement of cash flows.

Answer: The three types of activities reported in the statement of cash flows are (1) operating, which involve using cash to research, develop, purchase, produce, distribute, and market products and services as well as receiving cash from selling products and services; (2) financing, which are the cash inflows and cash outflows related to stockholder investments and dividends and long-term borrowing and repaying cash from lending and (3) investing, which represent the cash inflows and outflows from the purchase and sale of long-term assets.

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

236) Identify and describe the four basic financial statements:

Answer: The four basic financial statements are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. The balance sheet describes the company's financial position and lists the types and amounts of assets, liabilities, and equity at a point in time. The income statement describes the company's revenues, expenses, and net income over a period of time. The statement of retained earnings explains changes in equity from net income or loss, and dividends over a period of time. The statement of cash flows reports on cash flows for operating, investing, and financing activities over a period of time.

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

237) The characteristics below apply to at least one of the forms of business organization.

a. Is a separate legal entity.

b. Is allowed to be owned by one person only.

c. Owner or owners are personally liable for debts of the business.

d. Is a separately taxable entity.

e. Is a business entity.

f. May have a contract specifying the division of profits among the owners.

g. Has an unlimited life

Use the following format to indicate (with a "yes" or "no") whether or not a characteristic applies to each type of business organization.

Proprietorship

Partnership

Corporation

LLC

a.

b.

c.

d.

e.

f.

g.

Answer:

Proprietorship

Partnership

Corporation

LLC

a.

no

no

yes

yes

b.

yes

no

yes

yes

c.

yes

yes

no

no

d.

no

no

yes

no

e.

yes

yes

yes

yes

f.

no

yes

no

yes

g.

no

no

yes

yes

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

238) A parcel of land is offered for sale at $600,000, is assessed for tax purposes at $500,000, is recognized by its purchasers as easily being worth $575,000, and is sold for $570,000. At what amount should the land be recorded in the purchaser's books? What accounting principle supports your answer?

Answer: $570,000. The Measurement (Cost) principle requires the acquisition of an asset to be recorded in the accounting records at cost.

Difficulty: 2 Medium

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

239) You are reviewing the accounting records of Buddy's Foreign Automotive, owned by a single stockholder, Bruce Jones. You have uncovered the following situations. List the appropriate accounting principle related to each independent scenario and suggest a correct action for each.

1. In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daughter Cassie.

2. Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a month-long vacation in July. He plans to reopen August 1 and will continue operating Buddy's Foreign Automotive indefinitely.

3. Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars.

4. Sandy Lane paid $1,500 for a major repair services. The amount was recorded as revenue. The parts for the repair must be ordered from overseas and the service won't be complete until the following month.

Answer: 1. Business entity assumption. Buddy should refund the $500 to the business or record it as a dividend. In the future, he should use a personal check to pay for soccer camp.

2. Going-concern assumption. Buddy's Foreign Automotive is not going out of business. The business is just closing for vacation. He could hold an appropriate sale to generate extra business before going on vacation.

3. Monetary unit assumption. The invoice should be restated in U.S. dollars for accounting purposes.

4. Revenue recognition principle. Since the service has not been completed, revenue should not be recognized. The $1,500 should be placed in an account such as Deposits Received from Customers (a type of unearned revenue) until the service is completed.

Difficulty: 3 Hard

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; BB Legal; FN Measurement

240) At the beginning of the year, a company had $120,000 worth of liabilities. During the year, assets increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during the year. Calculate the beginning and ending values of equity.

Answer: Beginning equity = $80,000; Ending equity = $260,000

Beginning Assets = Beginning Liabilities + Beginning Equity

$200,000 = $120,000 + $80,000

Ending Assets = Ending Liabilities + Ending Equity

$360,000 = $100,000 + $260,000

Difficulty: 3 Hard

Topic: The Accounting Equation; Financial Statements

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

241) At the beginning of the period, a company had $350,000 worth of assets, $110,000 worth of liabilities, and $240,000 worth of equity. Assume the only change during the period was a $30,000 purchase of equipment by issuing a note payable. Show the accounting equation with the appropriate amounts at the end of the period.

Answer: $380,000 = $140,000 + $240,000

Ending assets = $350,000 + $30,000

Ending liabilities = $110,000 + $30,000

Ending equity = $240,000 (no change)

Difficulty: 2 Medium

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

242) The accounts of Odie Company with the increases or decreases that occurred during the past year are as follows:

Account Increase Decrease

Cash............................................. $25,000

Accounts receivable..................... $(5,000)

Accounts payable........................ (11,000)

Notes payable.............................. 16,000

Except for net income, an investment of $3,000 by stockholders, and a cash dividend of $11,000 to stockholders, no other items affected stockholders' equity. Using the balance sheet equation, compute net income for the past year.

Answer: $23,000

Assets = Liabilities + Stockholders' Equity

Assets Increased by $20,000; Liabilities Increased by $5,000; Therefore, Equity needs to Increase by $15,000.

Change in Equity = Contributed Capital + Net Income — Dividends

Increase of $15,000 = $3,000 + Net Income — $11,000

$15,000 = Net Income — $8,000

Net Income = $23,000

Difficulty: 3 Hard

Topic: Transaction Analysis; Financial Statements

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

243) The accounts of Mason Company at the end of the past year report the following amounts:

Accounts Amount

Dividends……. $15,500

Revenues…………………………… $97,000

Expenses……………………………. $43,800

Stock issuances………………..... 2,000

If the beginning equity for the year was $173,000, calculate the ending equity for Mason Company.

Answer: $212,700

Beginning Equity + Stock issuances — Dividends + Revenues — Expenses = Ending Equity

$173,000 + $2,000 — $15,500 + $97,000 — $43,800 = $212,700

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

244) Cornelia's Closet has the following assets and liabilities for the dates given:

October 1 October 31

Cash....................................................... $40,000 60,000

Accounts Receivable............................. 40,000 38,000

Accounts Payable.................................. 6,000 ?

Also, its net income, for October 1 through October 31 was $20,000 and there were no stock issuances or dividends. Determine the equity at both October 1 and October 31.

Answer: October 1st Equity = $74,000; October 31st Equity = $94,000

Total assets:

October 1 October 31

Cash $40,000 60,000

Accounts Receivable 40,000 38,000

Total assets $80,000 $98,000

At October 1:

Assets = Liabilities + Equity

$80,000 = $6,000 + Equity

Equity = $74,000

At October 31:

Equity, October 1 $74,000

Plus October net income 20,000

Equity, October 31 $94,000

At October 31:

Assets = Liabilities + Equity

$98,000 = $4,000 + $94,000

Liabilities = $4,000

Difficulty: 3 Hard

Topic: Transaction Analysis; Financial Statements

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

245) If the liabilities of a company increased $92,000 during a period of time and equity in the

business decreased $30,000 during the same period, did the assets of the company increase or decrease? By what amount?

Answer: Assets increased by $62,000.

Assets = Liabilities + Equity

$62,000 = $92,000 — $30,000

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

246) Soo Lin, the sole stockholder, began an Internet Consulting practice and completed these transactions during April of the current year:

April

1

Invested $100,000 of her personal savings into a checking account opened in the name of the business in exchange for common stock.

2

Rented office space and paid $1,200 cash for the month of September.

3

Purchased office equipment for $30,000, paying $8,000 cash and agreeing to pay the balance in one year.

4

Purchased office supplies for $750 cash.

8

Completed work for a client and immediately collected $2,700 cash for the services.

15

Completed $3,600 services for a client on credit.

20

Received $3,600 from a client for the work completed on September 15.

30

Paid the office secretary's monthly salary, $3,000 cash.

30

The company paid $2,000 in cash dividends to Lin.

Show the effects of the above transactions on the accounting equation of Soo Lin, Consultant. Use the following format for your answers. The first item is shown as an example.

Increase = I Decrease = D No effect = N

Date

Assets

Liabilities

Equity

Example:

April 1

I

N

I

Answer:

Date

Assets

Liabilities

Equity

April 1

I

N

I

April 2

D

N

D

April 3

I,D

I

N

April 4

I,D

N

N

April 8

I

N

I

April 15

I

N

I

April 20

I,D

N

N

April 30

D

N

D

April 30

D

N

D

Difficulty: 3 Hard

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

247) For each of the following transactions, identify the effects as reflected in the accounting equation. Use "+" to indicate an increase and "-" to indicate a decrease. Use "A", "L", and "E" to indicate assets, liabilities, and equity, respectively. Part A has been completed as an example.

a.

L. Chester invested $100,000 in a corporation in exchange for common stock.

+A

+E

b.

Land was purchased for $50,000. A down payment of $15,000 cash was made and a note was signed for the balance.

c.

Services were rendered to customers for cash.

d.

A building was purchased for cash.

e.

Supplies were purchased for cash.

f.

Paid the office secretary's salary.

g.

The amount owed on the land from Part (b) was paid.

Answer: a. +A; +E

b. +A; +L

c. +A; +E

d. +A; —A

e. +A; —A

f. -A; —E

g. —A; —L

Difficulty: 3 Hard

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

248) The following schedule reflects shows the first month's transactions of the Green Construction Company, owned by Jennifer Green, its sole stockholder:

Accounts

Accounts

Stockholder's

Cash

+

Receivable

+

Supplies

+

Equipment

=

Payable

+

Equity

1.

+20,000

+20,000

2.

—5,000

+5,000

3.

+$1,500

+1,500

4.

+3,000

+3,000

5.

+1,000

+1,500

+2,500

6.

—750

—750

7.

+500

—500

8.

—400

—400

9.

—2,000

—2,000

Provide descriptions for each transaction.

Answer: 1. Investment of cash in business by stockholder or performed services for cash.

2. Purchased equipment for cash.

3. Purchased supplies on credit.

4. Investment of cash in business by stockholder or performed services for cash.

5. Performed services for both cash and on credit.

6. Paid accounts payable.

7. Received cash for an account receivable.

8. Used supplies in business.

9. Paid cash dividends or paid expense of business.

Difficulty: 3 Hard

Topic: Transaction Analysis; Accounting Equation

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

249) The accountant of Action Adventure Games prepared a balance sheet after every 10-day period. The only resources invested by the stockholder were at the start of the company on June 1. During June, the first month of operation, the following balance sheets were prepared:

ACTION ADVENTURE GAMES

Balance Sheet

June 10

Assets

Equity

Cash……………………..

$60,000

Common stock……………..

$60,000

Total assets………………

$60,000

Total liabilities and equity…

$60,000

ACTION ADVENTURE GAMES

Balance Sheet

June 20

Assets

Liabilities

Cash…………………….

$48,000

Notes payable…….

$18,000

Land…………………….

10,000

Equity

Building…………………

20,000

Common stock…..

60,000

Total assets…………..

$78,000

Total liabilities and equity

$78,000

ACTION ADVENTURE GAMES

Balance Sheet

June 30

Assets

Liabilities

Cash…………………….

$51,000

Accounts payable….

$2,000

Office supplies…………

2,000

Notes payable…….

18,000

Land…………………….

10,000

Equity

Building…………………

20,000

Common stock…..

60,000

Retained earnings

3,000

Total assets…………..

$83,000

Total liabilities and equity

$83,000

Required: Describe the nature of each of the four transactions that took place between the balance sheet dates shown. Assume only one transaction affected each account.

June

10

20

30

Answer:

June

10

The stockholder invested $60,000 cash in the company.

20

Land and building were purchased for $12,000 cash and an $18,000 note payable.

30

Office supplies were purchased for $2,000 on account. Cash was received for $3,000 of services provided.

Difficulty: 3 Hard

Topic: Accounting Equation; Transaction Analysis; Financial Statements

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Measurement

250) Identify the risk and the return in each of the following examples.

a. Investing $500 in a certificate of deposit at 4.5% interest.

b. Placing a $100 bet on an NBA game.

c. Investing $10,000 in Microsoft stock.

d. Borrowing $20,000 in student loans.

Answer:

a. The risk involved is that the investor may need the money in the CD before the CD matures and would have to give up the interest. The return is the 4.5% interest on the $500 invested in the CD.

b. The risk is that the team bet on may not beat the point spread and the bet would be lost. The return would be any winnings based on the odds.

c. The risk is that the value of Microsoft stock could go down. The return would come from increase in the value of the stock.

d. The risk is that the student might not be able to find a job that pays enough to live on and allow for loan payments with interest. The return is that the student would be able to finance an education and earn higher wages.

Difficulty: 3 Hard

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Apply

AACSB/Accessibility: Reflective Thinking/Keyboard Navigation

AICPA: BB Critical Thinking; FN Risk Analysis

251) Prepare a April 30 balance sheet in proper form for Two Rivers Vending Service from the following alphabetical list of the accounts at April 30:

Accounts receivable……………………….

$10,000

Accounts payable…………………………..

18,000

Building……………………………………....

28,000

Cash………………………….……………....

10,000

Common Stock……………...……………..

20,000

Notes payable……………………………….

47,000

Office equipment……………...……………..

12,000

Retained earnings…………………………….

?

Trucks………………………………………..

55,000

Answer:

TWO RIVERS VENDING SERVICE

Balance Sheet

April 30

Assets

Liabilities

Cash……………………..

$ 10,000

Accounts payable………

$ 18,000

Accounts receivable……

10,000

Notes payable…………..

47,000

Office equipment……….

12,000

Total liabilities…………

$ 63,000

Building………………….

28,000

Trucks…………………..

55,000

Equity

Common Stock……..

20,000

Retained Earnings……..

32,000

Total assets…………….

$115,000

Total liabilities and equity

$115,000

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Create

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

252) Prepare a December 31 balance sheet in proper form for Smokey River Supplies from the following list of the accounts:

Cash………………………….…………….........

$10,000

Accounts receivable……………………………..

8,000

Supplies………………………………………….

12,000

Equipment……………………………………..

35,000

Land……………………………………..............

18,000

Accounts payable……………………………..

13,000

Notes payable……………………………….….

41,000

Common stock………………………….…..

20,000

Retained earnings………………………….…..

9,000

Answer:

SMOKEY RIVER SUPPLIES

Balance Sheet

December 31

Assets

Liabilities

Cash……………………..

$10,000

Accounts payable………

$13,000

Accounts receivable……

8,000

Notes payable…………..

41,000

Supplies………………....

12,000

Total liabilities……………

$54,000

Equipment……………….

35,000

Land……………………..

18,000

Equity

Common stock ……..

20,000

Retained earnings……..

9,000

Total assets…………….

$83,000

Total liabilities and equity

$83,000

Difficulty: 2 Medium

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

253) Prepare a December 31 balance sheet in proper form for Cane Property Management using the following accounts and amounts:

Commissions earned……............

$40,000

Accounts payable………………

3,500

Accounts receivable……………

5,000

Common stock ………………

60,000

Retained earnings………………

44,500

Office equipment……………….

10,000

Advertising expense…………. …

3,200

Cash…………………………….

7,500

Land...............................................

35,000

Note payable.................................

50,000

Office supplies..............................

1,500

Salaries expense...........................

12,000

Salaries payable...........................

1,000

Building.........................................

100,000

Answer:

CANE PROPERTY MANAGEMENT

Balance Sheet

December 31

Assets

Liabilities

Cash……………………..

$ 7,500

Accounts payable………..

$ 3,500

Accounts receivable……

5,000

Salaries payable…………..

1,000

Office supplies………….

1,500

Note payable…………

50,000

Land……………………..

35,000

Total liabilities………..

$ 54,500

Building………………….

100,000

Equity

Office equipment……….

10,000

Common stock…………

60,000

Retained earnings……

44,500

Total assets…………….

$159,000

Total liabilities and Equity

$159,000

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Create

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

254) From the information given below, prepare a November income statement, a November statement of retained earnings, and a November 30 balance sheet. On November 1 of the current year, Victoria Garza, the sole stockholder, began Garza Décor with an initial investment of $50,000 cash. On November 30, her records showed the following (alphabetically arranged) items and amounts.

Accounts payable…………….

$12,000

Notes payable………………

4,250

Accounts receivable……….

19,000

Office furnishings………..

$40,000

Cash………………………

21,200

Rent expense……………

9,600

Dividends……………….

6,000

Salaries expense……….

4,200

Fees earned……………….

34,000

Telephone expense…….

250

Answer:

GARZA DÉCOR

Income Statement

For Month Ended November 30

Revenue:

Fees earned………………………..

$34,000

Operating expenses:

Rent expense…………………………….

$9,600

Salaries expense…………………………

4,200

Telephone expense………………………

250

14,050

Net income……………………………………..

$19,950

GARZA DÉCOR

Statement of Retained earnings

For Month Ended November 30

Retained earnings, November 1………………………..

$ 0

Plus: Net income…………………………….

19,950

19,950

Less dividends…………………….

(6,000)

Retained earnings, November 30……………….

$13,950

GARZA DECOR

Balance Sheet

November 30

Assets

Liabilities

Cash……………………..

$21,200

Accounts payable…

$12,000

Accounts receivable……

19,000

Notes payable

4,250

Office furnishings………..

40,000

Total liabilities

$16,250

Equity

Common stock……

50,000

Retained earnings

13,950

Total assets…………….

$80,200

Total liabilities and

equity…

$80,200

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Create

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

255) Data for Kennedy Realty are as follows:

Total assets at January 1

$100,000

Total liabilities at January 1

35,000

Total revenues for the year

79,000

Total expenses for the year

47,000

Dividends of $30,000 were paid during the year. There were no stockholder investments. Using the above data, prepare Kennedy Realty's Statement of Retained Earnings for the year ended December 31.

Answer:

KENNEDY REALTY

Statement of Retained Earnings

For year Ended December 31

Retained earnings, January 1*

$ 65,000

*

Plus Net income

32,000

$ 97,000

Less: Dividends

(30,000

)

Retained earnings, December 31

$ 67,000

*Total assets at January 1

$100,000

Less total liabilities at January 1

35,000

Total stockholders' equity at January 1

$ 65,000

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Create

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

256) Jet Styling has the following beginning cash balance and cash transactions for the month of January. Using this information prepare a statement of cash flows.

a.

Beginning cash balance……………..

$ 3,200

b.

Cash investment by stockholders…………..

15,000

c.

Cash payment toward long-term loan

1,000

d.

Cash payment of rent………………..

1,800

e.

Purchased equipment for cash……..

7,500

f.

Purchased store supplies for cash…

1,500

g.

Cash collected from customers…….

7,750

h.

Dividends …………..

2,000

i.

Cash payment of wages…………….

4,000

Answer:

Jet Styling

Statement of Cash Flows

For Month Ended January 31

Cash flows from operating activities:

Cash collected from customers…………………

$ 7,750

Cash paid for supplies……………………………

(1,500)

Cash paid for rent…………………………………

(1,800)

Cash paid for wages……………………………..

(4,000)

Cash flows from operating activities…………………

$ 450

Cash flows from investing activities:

Purchase of equipment………………………….

(7,500)

Cash flows from financing activities:

Investment by stockholders…………………………….

15,000

Dividends ……………………………

(2,000)

Payment of loan…………………………………

(1,000)

Cash flows from financing activities………………..

12,000

Net increase in cash…………………………………

$ 4,950

Beginning cash balance…………………………….

3,200

Ending cash balance………………………………..

$ 8,150

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Create

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

257) At the end of its first year of operations, the records of Roadmaster Auto Rentals show the following information. $52,000 of cash dividends were paid during the year. Prepare a December income statement, a December statement of retained earnings, and a December 30 balance sheet.

Accounts payable

$36,000

Wages expense

$75,000

Insurance expense

2,000

Advertising expense

22,000

Accounts receivable

24,000

Cash

11,000

Common stock

150,000

Office Furniture

15,000

Airplanes

150,000

Maintenance expense

39,000

Notes payable

47,000

Revenues

217,000

Hangar

60,000

Answer:

ROADMASTER AUTO RENTALS

Income Statement

For Year Ended December 31

Revenues

$ 217,000

Expenses:

Insurance expense

$ 2,000

Wages expense

75,000

Advertising expense

22,000

Maintenance expense

39,000

Total expenses

138,000

Net income

$ 79,000

ROADMASTER AUTO RENTALS

Statement of Retained earnings

For Year Ended December 31

Retained earnings, January 1

$0

Add: Net income

79,000

Less: Dividends

(52,000

)

Retained earnings, December 31

$27,000

ROADMASTER AUTO RENTALS

Balance Sheet

December 31

Assets

Liabilities

Cash

$ 11,000

Accounts payable

$ 36,000

Accounts receivable

24,000

Notes payable

47,000

Airplanes

150,000

Total liabilities

83,000

Hangar

60,000

Equity

Common stock

150,000

Office furniture

15,000

Retained earnings

27,000

________

Total liabilities and

Total assets

$260,000

equity

$260,000

Difficulty: 3 Hard

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Create

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

258) Verity Siding Company, owned by S. Verity, its sole stockholder, began operations in May and completed the following transactions during that first month of operations. Show the effects of the transactions on the accounts of the accounting equation by recording increases and decreases in the appropriate columns in the table below. Do not determine new account balances after each transaction. Determine the final total for each account and verify that the equation is in balance.

May

1

S. Verity invested $90,000 cash in the company in exchange for common stock.

2

The company purchased $25,000 in office equipment. It paid $10,000 in cash and signed a note payable promising to pay the $15,000 over the next three years.

2

The company rented office space and paid $3,000 for the May rent.

6

The company installed new vinyl siding for a customer and immediately collected $5,000.

7

The company paid a supplier $2,000 for siding materials used on the May 6 job.

8

The company purchased a $2,500 copy machine for office use on credit.

9

The company completed work for additional customers on credit in the amount of $16,000.

15

The company paid its employees' salaries $2,300 for the first half of the month.

17

The company installed new siding for a customer and immediately collected $2,400.

20

The company received $10,000 in payments from the customers billed on May 9.

28

The company paid $1,500 on the copy machine purchased on May 8. It will pay the remaining balance in June.

31

The company paid its employees' salaries $2,400 for the second half of the month.

31

The company paid a supplier $5,300 for siding materials used on the remaining jobs completed during May.

31

The company paid $450 for this month's utility bill.

Answer:

Difficulty: 3 Hard

Topic: Transaction Analysis

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.

Bloom's: Analyze

AACSB/Accessibility: Analytical Thinking/Keyboard Navigation

AICPA: BB Industry; FN Reporting

259) ________ is an information and measurement system that identifies, records and communicates relevant, reliable and comparable information about an organization's economic activities.

Answer: Accounting

Difficulty: 1 Easy

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

260) A ________ is a business that is owned by only one person.

Answer: Sole proprietorship

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

261) ________ users of accounting information are not directly involved in running the organization.

Answer: External

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

262) ________ is the area of accounting aimed at serving external users by providing them with general-purpose financial statements.

Answer: Financial accounting

Difficulty: 1 Easy

Topic: Users of Accounting Information

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

263) Congress passed the ________ to help curb financial abuses at companies that issue their stock to the public.

Answer: Sarbanes-Oxley Act

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication; Ethics/Keyboard Navigation

AICPA: BB Legal; FN Reporting

264) ________ are beliefs that separate right from wrong and are considered accepted standards of good and bad behavior.

Answer: Ethics

Difficulty: 1 Easy

Topic: Ethics

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Remember

AACSB/Accessibility: Communication; Ethics/Keyboard Navigation

AICPA: BB Industry; FN Decision Making

265) The assumption that requires that a business be accounted for separately from its owners is the ________ assumption.

Answer: business entity

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

266) The ________ assumption assumes that a business will continue operating indefinitely instead of being closed or sold.

Answer: going-concern

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

267) The ________ assumption states that transactions and events are expressed in money units.

Answer: monetary unit

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

268) In accounting, the rule that requires that assets, services, and liabilities be recorded initially at the cash or cash-equivalent value of what was given up or of the item received is called the ________.

Answer: Measurement (Cost) principle

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Measurement

269) A disadvantage of a sole proprietorship is the fact that the owner has ________.

Answer: unlimited liability

Difficulty: 1 Easy

Topic: Generally Accepted Accounting Principles

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Legal; FN Decision Making

270) There are three major types of business activities. ________ activities are the means organizations use to pay for resources such as land, building, and equipment to carry out plans.

Answer: Financing

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

271) There are three major types of business activities. ________ activities involve the acquisition and disposal of resources that an organization uses to acquire and sell its products or services.

Answer: Investing

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

272) There are three major types of business activities. ________ activities involve using resources to research, develop, purchase, produce, distribute, and market products and services and receiving amounts from selling products and services.

Answer: Operating

Difficulty: 1 Easy

Topic: Business Activities and the Accounting Equation

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

273) Resources such as cash distributed to stockholders by the business are called ________.

Answer: dividends

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

274) ________ are the increases in equity from a company's sales of products and services to customers.

Answer: Revenues

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

275) A common characteristic of ________ is their ability to yield expected future benefits to a business.

Answer: assets

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

276) Creditors' claims on assets that reflect company obligations to provide assets, products, or services to others are called ________.

Answer: liabilities

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

277) The stockholders' claim on assets, also known as net assets, is called ________.

Answer: equity

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

278) The accounting equation is ________.

Answer: Assets = Liabilities + Stockholders' Equity

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

279) The term ________ refers to a liability that promises a future outflow of resources.

Answer: payable

Difficulty: 1 Easy

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

280) Using the accounting equation, equity is equal to ________.

Answer: assets minus liabilities

Difficulty: 2 Medium

Topic: The Accounting Equation

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

281) ________, which is one part of accounting, is the recording of transactions and events, either manually or electronically.

Answer: Record-keeping or Bookkeeping

Difficulty: 1 Easy

Topic: Importance of Accounting

Learning Objective: 01-C1 Explain the purpose and importance of accounting.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

282) ________ is net income divided by average total assets.

Answer: Return on assets

Difficulty: 1 Easy

Topic: Return on Assets

Learning Objective: 01-A2 Compute and interpret return on assets.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

283) Risk is the ________ about the return an investor expects to earn.

Answer: uncertainty

Difficulty: 1 Easy

Topic: Return and Risk Analysis

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Risk Analysis

284) ________ explains changes in the stockholders' claim on the business's assets from net income or loss and dividends over a period of time.

Answer: The statement of retained earnings

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

285) The ________ describes a company's revenues and expenses along with the resulting net income or net loss over a period of time due to earnings activities.

Answer: income statement

Difficulty: 1 Easy

Topic: Financial Statements

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember

AACSB/Accessibility: Communication/Keyboard Navigation

AICPA: BB Industry; FN Reporting

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