1) Accounting is the information system that measures business activity, processes the data into reports, and communicates the results to decision makers.
Answer: TRUE
Diff: 1
LO: 1-1
EOC: QC1-6
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) Accounting is "the language of business."
Answer: TRUE
Diff: 1
LO: 1-1
EOC: Accounting Vocabulary
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Reporting
3) A debt that a corporation owes to an outside party is called:
A) an asset.
B) a liability.
C) stockholders' equity.
D) revenue.
Answer: B
Diff: 1
LO: 1-1
EOC: E1-14
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
4) There are relatively few types of revenue. Which of the following in NOT a type of revenue?
A) Common Stock
B) Service
C) Interest
D) Sales
Answer: A
Diff: 1
LO: 1-1
EOC: S1-1
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
5) A promise received from a company's customers to pay for goods and services that they received from the company is called a(n):
A) account receivable.
B) account payable.
C) revenue.
D) expense.
Answer: A
Diff: 1
LO: 1-1
EOC: Accounting Vocabulary
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
6) Which of the following statements BEST describes managerial accounting?
A) Managerial accounting focuses on information for internal decision making.
B) Managerial accounting focuses on outside investors and lenders.
C) Managerial accounting provides information for the public.
D) Managerial accounting provides information for taxing authorities.
Answer: A
Diff: 1
LO: 1-1
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Reporting
7) By definition, which of the following represent the owners of a corporation?
A) Customers
B) Creditors
C) Stockholders
D) Employees
Answer: C
Diff: 1
LO: 1-1
EOC: QC1-2
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
8) Which of the following statements BEST defines financial statements?
A) Financial statements are the information system that records and measures business transactions.
B) Financial statements are the verbal statements made to business news organizations by chief financial officers.
C) Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions.
D) Financial statements are plans and forecasts for future time periods.
Answer: C
Diff: 2
LO: 1-1
EOC: Accounting Vocabulary
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
9) Items such as buildings and land are:
A) liabilities.
B) equity.
C) assets.
D) revenues.
Answer: C
Diff: 1
LO: 1-1
EOC: Accounting Vocabulary
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
Learning Objective 1-2
1) Managerial accounting focuses on information for decision makers outside the company, such as creditors and taxing authorities.
Answer: FALSE
Diff: 1
LO: 1-2
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
2) Business owners use accounting information to set goals, evaluate progress toward those goals, and take corrective action when needed.
Answer: TRUE
Diff: 1
LO: 1-2
EOC: E1-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Reporting
3) Outside investors would ordinarily use financial accounting information to decide whether or not to invest in a business.
Answer: FALSE
Diff: 1
LO: 1-2
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
4) An investor is someone who loans money to a business.
Answer: FALSE
Diff: 1
LO: 1-2
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
5) A creditor is a party that has an ownership interest in a business.
Answer: FALSE
Diff: 1
LO: 1-2
EOC: S1-2A
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
6) Different users of the financial statements (investors, creditors, tax authorities, etc.) all focus on the same parts of the financial statements for the information they need.
Answer: FALSE
Diff: 1
LO: 1-2
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling, Measurement
7) Many organizations have contributed to the establishment of generally accepted accounting principles. Which of the following organizations has the primary responsibility for formulating accounting standards?
A) FASB
B) CMA
C) AICPA
D) SEC
Answer: A
Diff: 1
LO: 1-2
EOC: QC1-1
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
8) Which of the following is a licensed accountant who serves the general public rather than an accountant who serves one particular company?
A) CPA
B) CMA
C) SEC
D) FASB
Answer: A
Diff: 1
LO: 1-2
EOC: S1-3A
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
9) The primary objective of financial reporting is to provide information useful for making investment and lending decisions. Which of the following is NOT one of the basic characteristics that financial information must possess to be useful?
A) Reliability
B) Creativity
C) Relevance
D) Comparability
Answer: B
Diff: 1
LO: 1-2
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
10) Accountants often refer to GAAP. What do the letters GAAP represent in accounting?
A) Globally accepted and accurate policies
B) Global accommodation accounting principles
C) Generally accredited accounting policies
D) Generally accepted accounting principles
Answer: D
Diff: 1
LO: 1-2
EOC: Accounting Vocabulary
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
11) Which of the following are MOST likely to be users of managerial accounting information?
A) Potential investors
B) Creditors
C) Customers
D) Company managers
Answer: D
Diff: 1
LO: 1-2
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
12) Which of the following are likely to be users of financial accounting information?
A) Taxing authorities
B) Creditors
C) Potential investors
D) All of the above
Answer: D
Diff: 1
LO: 1-2
EOC: S1-2
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Research
Learning Objective 1-3
1) The AICPA's Code of Professional Conduct for Accountants provides guidance to CPAs in the performance of their work.
Answer: TRUE
Diff: 1
LO: 1-3
EOC: S1-3
AACSB: Ethical Understanding
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
2) GAAP is the set of accounting rules for international accounting.
Answer: FALSE
Diff: 1
LO: 1-3
EOC: QC1-1
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
3) IFRS accounting rules apply to all U.S. corporations.
Answer: FALSE
Diff: 1
LO: 1-3
EOC: QC1-1
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
4) A U.S. publicly traded company does not come under SEC regulations as long as it follows the rules of GAAP.
Answer: FALSE
Diff: 1
LO: 1-3
EOC: QC1-1
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
5) IFRS are the international accounting rules that U.S. companies must follow for their international operations.
Answer: TRUE
Diff: 1
LO: 1-3
EOC: E1-17
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
6) IFRS (international accounting rules) are much more specific than GAAP and allow for far less professional judgment.
Answer: FALSE
Diff: 1
LO: 1-3
EOC: E1-17
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
7) The PCAOB is a watchdog agency that monitors the work of small, privately owned businesses.
Answer: FALSE
Diff: 1
LO: 1-3
EOC: S1-3
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
8) Independent accountants that audit public companies come under the regulatory supervision of the PCAOB.
Answer: TRUE
Diff: 1
LO: 1-3
EOC: S1-3
AACSB: Communication
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
9) Accounting standards are formulated by the:
A) SEC.
B) AICPA.
C) FASB.
D) IRS.
Answer: C
Diff: 1
LO: 1-3
EOC: S1-3
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
10) The Sarbanes-Oxley Act ("SOX") made it a criminal offense to:
A) steal shareholders' money.
B) default on loans from creditors.
C) declare bankruptcy.
D) falsify financial information.
Answer: D
Diff: 1
LO: 1-3
EOC: Accounting Vocabulary
AACSB: Ethical Understanding
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
11) Which of the following organizations requires publicly owned companies to be audited by independent accountants (CPAs)?
A) SEC
B) PCAOB
C) FASB
D) AICPA
Answer: A
Diff: 1
LO: 1-3
EOC: QC1-1
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
12) Which of the following organizations or groups issue an opinion on whether a company's financial statements are a fair representation of the company's financial situation?
A) SEC
B) Board of Directors
C) Shareholders
D) Independent Accountants (CPAs)
Answer: D
Diff: 1
LO: 1-3
EOC: S1-3
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
Learning Objective 1-4
1) A not-for-profit organization has owners just like other forms of business.
Answer: FALSE
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
2) Board members of a not-for-profit organization have fiduciary responsibilities that constitute legal obligations to manage the organization in a trustworthy manner.
Answer: TRUE
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Ethical Understanding
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
3) There are four major forms of business organizations.
Answer: FALSE
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
4) Similar to partnerships, in a limited-liability company (LLC), the members are personally liable for the debts and obligations of the business.
Answer: FALSE
Diff: 1
LO: 1-4
EOC: P1-29A
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Risk Analysis
5) The largest businesses are usually organized as:
A) corporations.
B) partnerships.
C) proprietorships.
D) LLCs.
Answer: A
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
6) Businesses can be organized in a variety of forms. The types of businesses commonly found in the U.S. include all of the following EXCEPT:
A) corporations.
B) state government-run companies.
C) partnerships.
D) proprietorships.
Answer: B
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
7) A corporation possesses all but one of the following characteristics. Which of the following is NOT a characteristic of a corporation?
A) If a corporation cannot pay its debts, lenders can take the owners' personal assets to satisfy the obligations.
B) A corporation is a distinct entity in the eyes of the law.
C) Corporation ownership is divided into shares of stock.
D) A corporation is owned by shareholders or stockholders.
Answer: A
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
8) Corporate ownership is a very popular type of ownership in the United States because:
A) corporate shareholders have limited liability for the debts of the corporation.
B) most corporations are small or medium-sized companies.
C) the life of a corporation is limited by the death of an owner.
D) a corporation is usually managed by the owners.
Answer: A
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
9) Which of the following is NOTa characteristic of a traditional partnership?
A) A partnership is owned by shareholders or stockholders.
B) If a partnership cannot pay its debts, lenders can take the owners' personal assets to satisfy the obligations.
C) A partnership joins two or more individuals as co-owners.
D) Each partner has the authority to commit the entire partnership to a binding contract.
Answer: A
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
10) Which of the following is TRUE for a proprietorship?
A) A proprietorship joins two or more individuals as co-owners.
B) The proprietor is not personally liable for the debts of the proprietorship.
C) A proprietorship has a single owner.
D) A proprietorship has an indefinite life.
Answer: C
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
11) Which of the following is a characteristic of a limited liability partnership (LLP)?
A) A limited liability partnership issues shares of stock to shareholders.
B) Each partner is liable only for the actions under his or her control.
C) A limited liability partnership is owned by a single investor.
D) The limited liability partners are subject to "double taxation."
Answer: B
Diff: 2
LO: 1-4
EOC: S1-4
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
12) Caleb Brown has been the sole owner of a bicycle sales and repair shop for many years. Which of the following business types would best protect Caleb's personal assets from product liability exposure?
A) Partnership
B) Limited liability company
C) Proprietorship
D) Not-for-profit
Answer: B
Diff: 2
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
13) Dylan Chase is a partner in a CPA practice. One of Dylan's partners sometimes takes a very aggressive position when auditing clients. Which of the following business types would protect Dylan's personal assets from malpractice liability for his partner's aggressive auditing tactics?
A) Limited liability partnership
B) Traditional partnership
C) Not-for-profit
D) Proprietorship
Answer: A
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
14) Phillip and Reed have developed a new technology for home computer systems. However, they need to raise a large amount of capital to build the production and support facilities to market their product successfully. Which of the following business types would be best suited to help the company raise the necessary capital to begin production?
A) Corporation
B) Proprietorship
C) Partnership
D) Limited liability partnership
Answer: A
Diff: 1
LO: 1-4
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
15) David has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organization, which type of business organization, in effect, has he chosen?
A) Limited liability company
B) Partnership
C) Corporation
D) Proprietorship
Answer: D
Diff: 2
LO: 1-4
EOC: S1-4
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
Learning Objective 1-5
1) In an LLC, the business-not the owners-are responsible for the corporation's debts.
Answer: TRUE
Diff: 1
LO: 1-5
EOC: P1-29A
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Risk Analysis
2) Corporations are subject to stricter regulation than other forms of businesses, so it is more difficult for corporations to raise large amounts of investment capital.
Answer: FALSE
Diff: 1
LO: 1-5
EOC: S1-4
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
3) The most an investor in a corporation can lose-in the event the business fails-is limited to the amount the party has invested.
Answer: TRUE
Diff: 1
LO: 1-5
EOC: S1-4
AACSB: Ethical Understanding
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
4) Stockholders of a corporation each have "mutual agency," meaning they are authorized to carry out transactions on behalf of the corporation.
Answer: FALSE
Diff: 1
LO: 1-5
EOC: S1-4
AACSB: Ethical Understanding
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
5) The first step in incorporation is to:
A) have the board of directors designate a president.
B) agree to a set of bylaws.
C) issue the first shares of stock.
D) obtain a charter from the state.
Answer: D
Diff: 1
LO: 1-5
EOC: S1-5
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
6) In an LLC, who is responsible for the company's debts?
A) The company itself
B) The partners
C) The individual investors
D) The proprietor
Answer: A
Diff: 1
LO: 1-5
EOC: P1-29A
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Risk Analysis
7) A corporation is a legal entity entirely distinct from its:
A) proprietors.
B) vendors.
C) customers.
D) stockholders.
Answer: D
Diff: 1
LO: 1-5
EOC: S1-5
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Decision Modeling
8) A corporation has all of the following EXCEPT:
A) a state charter.
B) a board of directors.
C) unlimited liability for shareholders.
D) shares of stock.
Answer: C
Diff: 2
LO: 1-5
EOC: S1-5
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
9) A financial examination of a company's financial records is called a(n):
A) audit.
B) criminal investigation.
C) financial analysis.
D) appraisal.
Answer: A
Diff: 1
LO: 1-5
EOC: Accounting Vocabulary
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
10) If a corporation cannot pay its debts, the creditors may make claims against the:
A) assets of the shareholders.
B) assets of the company only.
C) assets of the board of directors.
D) employees of the company.
Answer: B
Diff: 1
LO: 1-5
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Risk Analysis
11) The owner(s) of a business will most likely face "double taxation" if their business is organized as a(n):
A) corporation.
B) LLC.
C) partnership.
D) proprietorship.
Answer: A
Diff: 1
LO: 1-5
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement
12) The ability to raise large amounts of capital is a key characteristic of a:
A) partnership.
B) not-for-profit.
C) corporation.
D) proprietorship.
Answer: C
Diff: 1
LO: 1-5
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement
13) The separation between the owners and the managers of a business is most distinct in a(n):
A) corporation.
B) LLP.
C) partnership.
D) proprietorship.
Answer: A
Diff: 1
LO: 1-5
EOC: S1-4
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
Learning Objective 1-6
1) Many liabilities have the word "receivable" in their titles.
Answer: FALSE
Diff: 1
LO: 1-6
EOC: Accounting Vocabulary
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
2) The faithful representation principle requires that information is complete, neutral and free from material error.
Answer: TRUE
Diff: 1
LO: 1-6
EOC: P1-29A
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3) Which of the following concepts (or principles) would dictate that a person with three different businesses keep three different checking accounts?
A) Cost principle
B) Faithful representation principle
C) Going-concern concept
D) Entity concept
Answer: D
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
4) Which of the following concepts (or principles) would be most likely to require that data be complete, neutral, and free from error?
A) Cost principle
B) Faithful representation principle
C) Entity concept
D) Going-concern concept
Answer: B
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Reporting
5) Which of the following concepts (or principles) addresses the ability of partners to commit other partners and the business to a contract?
A) Going-concern concept
B) Cost principle
C) Mutual agency
D) Objectivity principle
Answer: C
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
6) Counting the actual physical inventory of a company and comparing it to accounting records would be an example of the:
A) faithful representation principle.
B) entity concept.
C) going-concern concept.
D) stable monetary unit concept.
Answer: A
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
7) An American business records transactions using the U.S. dollar and disregards fluctuation in the buying power of the dollar over time. This represents which of the following concepts or principles?
A) The entity concept
B) The going-concern concept.
C) The faithful representation
D) The stable monetary unit principle
Answer: D
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
8) Which of the following concepts (principles) would require that an item be recorded at the amount actually paid rather than at estimated market value?
A) Going-concern concept
B) Entity concept
C) Cost principle
D) Stable monetary unit concept
Answer: C
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
9) Which of the following concepts (principles) require an assumption that the entity will remain in operation for the foreseeable future?
A) Entity concept
B) Faithful representation principle
C) Going-concern concept
D) Cost principle
Answer: C
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Reflective Thinking
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
10) Bill Rogers has three different businesses. He has only one bank account for transactions relating to all his various businesses. Which of the following concepts or principles of accounting is Bill violating?
A) Faithful representation principle
B) Entity concept
C) Cost principle
D) Going-concern concept
Answer: B
Diff: 2
LO: 1-6
EOC: S1-6
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Lindsey Smith decided to start her own CPA practice as a professional corporation, Smith CPA PC. Her corporation purchased an office building for $35,000 which her real estate agent said was worth $50,000 in the current market. The corporation records the building as a $50,000 asset because Lindsey believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?
A) Cost principle
B) Entity concept
C) Stable monetary unit concept
D) Going-concern concept
Answer: A
Diff: 1
LO: 1-6
EOC: S1-6
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
12) Tate Corporation purchased a building for its grocery store for $30,000 in 1970. Based on inflation estimates, the amount of this asset has been adjusted in the accounting records. The building is now reported at $75,000. Which of the following concepts or principles of accounting is being violated?
A) Going-concern concept
B) Stable monetary unit concept
C) Entity concept
D) None of the above
Answer: B
Diff: 2
LO: 1-6
EOC: S1-6
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
13) The Ragun Cajun Bar and Grill, Inc. has been a popular restaurant in Beaumont, Texas. With no insurance, a recent hurricane has left the business with large losses due to a damaged building and lost business income. Which of the following concepts or principles of accounting will be of the greatest concern to Ragun Cajun's auditors?
A) Going-concern concept
B) Faithful representation principle
C) Entity concept
D) Stable monetary unit concept
Answer: A
Diff: 2
LO: 1-6
EOC: S1-6
AACSB: Analytic Skills
AICPA Business: Legal/Regulatory
AICPA Functional: Measurement, Reporting
Learning Objective 1-7
1) Which of the following is the CORRECT accounting equation?
A) Assets + Liabilities = Stockholders' equity
B) Assets = Liabilities + Stockholders' equity
C) Assets + Revenue = Stockholders' equity
D) Assets + Revenue = Liabilities + Expenses
Answer: B
Diff: 1
LO: 1-7
EOC: E1-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) Stockholders' equity is $150,000 and total liabilities are $90,000. Total assets would be:
A) $300,000.
B) $180,000.
C) $60,000.
D) $240,000.
Answer: D
Explanation: D) Calculations: $150,000 + $90,000 = $240,000
Diff: 1
LO: 1-7
EOC: E1-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3) The owners' claims to the assets of the business are called:
A) revenues.
B) liabilities.
C) owners' equity.
D) expenses.
Answer: C
Diff: 1
LO: 1-7
EOC: E1-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4) A $5,000 account payable is paid by the company. How is the accounting equation affected?
A) Assets decrease $5,000; stockholders' equity increases $5,000.
B) Assets decrease $5,000; liabilities decrease $5,000.
C) Assets increase $5,000; stockholders' equity decreases $5,000.
D) Assets increase $5,000; liabilities increase $5,000.
Answer: B
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
5) Assets are $150,000 and total liabilities are $90,000. Total stockholders' equity will be:
A) $180,000.
B) $300,000.
C) $240,000.
D) $60,000.
Answer: D
Explanation: D) Calculations: $150,000 - $90,000 = $60,000
Diff: 1
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
6) Assets are $270,000 and stockholders' equity is $90,000. Liabilities will be:
A) $60,000.
B) $360,000.
C) $270,000.
D) $180,000.
Answer: D
Explanation: D) Calculations: $270,000 - $90,000 = $180,000
Diff: 1
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
7) A business performs services for its customers. Payment is expected to be received next month. How does the performance of services affect the accounting equation?
A) Liabilities increase; stockholders' equity decreases.
B) Assets increase; stockholders' equity increases.
C) Assets decrease; stockholders' equity decreases.
D) Assets increase; stockholders' equity decreases.
Answer: B
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
8) A business receives a bill for services rendered from one of its suppliers. The business will pay the supplier next month. When the business receives the bill from its supplier, how does this affect the accounting equation?
A) Assets decrease; stockholders' equity decreases.
B) Liabilities increase; stockholders' equity decreases.
C) Assets increase; liabilities increase.
D) Liabilities increase; stockholders' equity increases.
Answer: B
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
9) A business settles a liability by making a payment with cash. How does paying this liability affect the accounting equation?
A) Assets decrease; liabilities decrease.
B) Liabilities decrease; stockholders' equity increases.
C) Assets increase; liabilities increase.
D) Assets increase; liabilities decrease.
Answer: A
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
10) A corporation pays cash dividends. How does the payment of these dividends affect the accounting equation?
A) There is no effect on the assets, liabilities, or stockholders' equity.
B) Assets decrease; stockholders' equity decreases.
C) Assets increase; liabilities decrease.
D) Assets decrease; stockholders' equity increases.
Answer: B
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Equipment is sold for cash in an amount equal to the cost of the equipment recorded on the books. How does this sale affect the accounting equation?
A) One asset increases; one asset decreases.
B) Assets increase; liabilities increase.
C) Assets increase; liabilities decrease.
D) Assets increase; stockholders' equity increases.
Answer: A
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) The business receives cash from a customer that is owed to company "on account," based on services rendered to the customer previously. How does the collection of the cash affect the accounting equation?
A) Assets increase; stockholders' equity increases.
B) Assets increase; liabilities increase.
C) One asset increases; one asset decreases.
D) Assets decrease; stockholders' equity decreases.
Answer: C
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
13) Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the accounting equation?
A) Assets increase $20,000; liabilities decrease $20,000.
B) Assets increase $20,000; liabilities increase $20,000.
C) Assets increase $20,000; stockholders' equity increases $20,000.
D) Assets increase $20,000; assets decrease $20,000.
Answer: D
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
14) Land is purchased by the company for $100,000. The company pays for land with a $20,000 cash payment and the execution of an $80,000 promissory note payable to the seller. How does this purchase affect the company's accounting equation?
A) Assets increase $80,000; liabilities decrease $20,000.
B) Assets increase $20,000; liabilities decrease $80,000.
C) Assets increase $80,000; stockholders' equity increases $80,000.
D) Assets increase $80,000; liabilities increase $80,000.
Answer: D
Diff: 3
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
15) The business collects a $5,000 account receivable from its customer. How is the accounting equation affected?
A) Assets increase $5,000; liabilities decrease $5,000.
B) One asset increases by $5,000; another asset decreases $5,000.
C) Assets increase $5,000; liabilities increase $5,000.
D) Assets increase $5,000; stockholders' equity increases $5,000.
Answer: B
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
16) Total liabilities increase by $7,000. How is the accounting equation affected?
A) Either assets have increased by $7,000, or stockholders' equity has decreased by $7,000.
B) Assets have decreased by $7,000.
C) Assets and stockholders' equity have each decreased by $3,500.
D) Stockholders' equity has increased by $7,000.
Answer: A
Diff: 3
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
17) An individual asset has increased. Which of the following is possible?
A) There is an equal decrease in another asset.
B) There is an equal decrease in stockholders' equity.
C) There is an equal decrease in a liability account.
D) Both liabilities and stockholders' equity decrease.
Answer: A
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
18) Scott's Camera Shop, Inc. started the year with total assets of $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott paid dividends of $60,000.
What is the amount of Scott's stockholders' equity at the end of the year?
A) $40,000
B) $50,000
C) $30,000
D) $10,000
Answer: C
Explanation: C) Calculations: $80,000 - $40,000 + 120,000 - $70,000 - $60,000 = $30,000
Diff: 3
LO: 1-7
EOC: P1-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
19) Scott's Camera Shop, Inc. started the year with total assets $80,000 and total liabilities of $40,000. During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott paid dividends of $60,000.
What is the amount of Scott's Camera Shop Inc.'s net income for the year?
A) $50,000
B) $10,000
C) $30,000
D) $40,000
Answer: A
Explanation: A) Calculations: $120,000 - $70,000 = $50,000
Diff: 2
LO: 1-7
EOC: E1-24
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
20) Scott's Camera Shop, Inc. started the year with total assets $80,000 and total liabilities of $40,000.
During the year, the business earned revenues of $120,000 and incurred expenses of $70,000. Scott paid dividends of $60,000.
The net change in Scott's stockholders' equity for the year is a:
A) $10,000 decrease.
B) $40,000 increase.
C) $30,000 decrease.
D) $50,000 increase.
Answer: A
Explanation: A) Calculations: $120,000 - $70,000 - $60,000 = $(10,000)
Diff: 2
LO: 1-7
EOC: P1-34A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
21) Net income is $29,000. Beginning retained earnings were $34,000. Ending retained earnings are $55,000. What amount of cash dividends was paid out?
A) $18,000
