Test Bank for Financial Accounting 1st Edition
Test Bank for Financial Accounting 1st Edition
Items such as revenue, expenses and dividends are classified as:
1. A. stockholders’ equity.
2. B. retained earnings.
3. C. liabilities.
4. D. assets.
The payment of cash dividends would have which of the following effects on the
accounting equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Payment of expenses would have which of the following effects on the accounting
equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Monies owed to a company by customers are classified as:
1. A. payables.
2. B. dividends.
3. C. cash.
4. D. receivables.
Casey’s is famous for their submarine sandwiches. At the end of 2009, Casey’s total
assets were $345,000, and total liabilities were $129,500. How much was Casey’s
stockholders’ equity?
1. A. $474,500
2. B. $345,000
3. C. $215,500
4. D. Some other number
ABC purchased office supplies on account for $50,000. How would this transaction
affect ABC’s accounting equation?
1. A. Increase assets and stockholders’ equity by $50,000.
2. B. Increase liabilities and stockholders’ equity by $50,000.
3. C. Increase assets by $50,000 and decrease liabilities by $50,000.
4. D. Increase assets by $50,000 and increase liabilities by $50,000.
Lauren purchased a computer on account for her business. How will this transaction
affect the accounting equation?
1. A. Assets increase; liabilities decrease.
2. B. Assets increase; stockholder equity increases.
3. C. Assets increase; liabilities increase.
4. D. Assets decrease; liabilities increase.
Beginning retained earnings are $65,000; sales are $29,500; expenses were $33,000
and dividends paid are $3,500. How much is the net income or loss for the
company?
1. A. $26,000
2. B. ($3,500)
3. C. ($7,000)
4. D. $0
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the net income or loss for the company?
1. A. $3,300
2. B. $ 500
3. C. $34,300
4. D. ($3,300)
Beginning retained earnings are $65,000; sales are $29,500; expenses are $33,000 and
dividends paid are $3,500. How much is the amount in ending retained earnings?
1. A. $58,000
2. B. $61,500
3. C. $68,500
4. D. $65,000
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the amount in ending retained earnings?
1. A. $34,400
2. B. $28,200
3. C. $34,300
4. D. $31,500
Which of the following is a FALSE statement?
1. A. Revenues provide inward flows of assets.
2. B. Revenue is categorized as an asset.
3. C. Revenue is categorized as part of retained earnings.
4. D. Revenues are generated from the sale of goods and services.
Which of the following is a TRUE statement?
1. A. Purchasing office equipment for cash is a shift of assets.
2. B. Buying something on account decreases total liabilities.
3. C. Retained earnings do not include payments of dividends.
4. D. Paying off an account increases the total of assets.
Dividends are part of:
1. A. sales.
2. B. expenses.
3. C. retained earnings.
4. D. assets.
Payables are categorized as:
1. A. liabilities.
2. B. assets.
3. C. retained earnings.
4. D. common stock.
Celia buys a new machine for her shop on credit. The effect on the accounting equation
is:
1. A. increase liabilities, increase assets.
2. B. decrease liabilities, increase assets.
3. C. increase assets, increase stockholders’ equity.
4. D. increase liabilities, decrease stockholders’ equity.
The first financial statement that is prepared is the:
1. A. Statement of Cash Flows.
2. B. Income Statement.
3. C. Statement of Retained Earnings.
4. D. Balance Sheet.
The net income figure is needed to prepare:
1. A. a balance sheet.
2. B. a statement of retained earnings.
3. C. a statement of liabilities.
4. D. some other report.
A statement of cash flows is usually prepared:
1. A. first.
2. B. second.
3. C. third.
4. D. last.
A net income or loss is originally shown on the:
1. A. statement of cash flows.
2. B. balance sheet.
3. C. statement of retained earnings.
4. D. income statement.
Which of the following financial statements illustrates the accounting equation?
1. A. Statement of retained earnings
2. B. Income statement
3. C. Balance sheet
4. D. Statement of cash flows
Beginning retained earnings for the period would be shown on the:
1. A. Statement of retained earnings.
2. B. Income statement.
3. C. Balance sheets.
4. D. Statement of cash flows.
Of the financial statements, which is dated as of a specific date?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
Which of the financial statements includes a listing of assets owned by the
company?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
The correct order for the preparation of financial statements is: 1. Statement of cash
flows 2. Income statement 3. Balance sheet 4. Statement of retained earnings
1. A. 4, 3, 2, 1
2. B. 1, 2, 3, 4
3. C. 2, 3, 4, 1
4. D. 2, 4, 3, 1
Dividends are shown on the:
1. A. income statement.
2. B. statement of retained earnings.
3. C. balance sheet.
4. D. statement of cash flows.
The balance sheet is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
The income statement is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
The __________ issues pronouncements that are guidelines for accounting
practice.
1. A. GAAP
2. B. SEC
3. C. FASB
4. D. IRS
The guidelines that describe the rules of accounting are called:
1. A. GAAS.
2. B. GAAP.
3. C. FASB.
4. D. SEC.
When a person combines separate business accounts, what concept or principle of
accounting is being violated?
1. A. Going concern
2. B. Objectivity
3. C. Entity
4. D. Cost
To take an inventory of goods to be sold would be representative of what accounting
concept or principle?
1. A. Going concern
2. B. Objectivity
3. C. Entity
4. D. Cost
Which accounting concept or principle specifically states that we should record
transactions that can be verified?
1. A. Going-concern concept
2. B. Cost principle
3. C. Reliability principle
4. D. Entity concept
Financial statements are prepared based on which of the following?
1. A. Generally accepted accounting principles
2. B. State and local laws
3. C. Internal revenue service rules
4. D. Generally accepted auditing standards
What is the purpose of financial accounting information?
1. A. To provide biased information to the markets for trading
2. B. To help investors, creditors, and others to make decisions
3. C. To help managers plan and to control business operations
4. D. To comply with SEC and IRS rules
Which of the following is considered an asset?
1. A. Accounts payable
2. B. Sales
3. C. Accounts receivable
4. D. Common stock
Liabilities represent:
1. A. items owned by the company.
2. B. future economic benefits of the company.
3. C. earnings kept in the business
4. D. monies owed to third parties.
A business pays off a note payable. What effect does this have on the accounting
equation?
1. A. Assets go up, liabilities go down, and stockholders’ equity remains the same.
2. B. Assets go down, liabilities remain the same, and stockholders’ equity goes up.
3. C. Assets go down, liabilities go down, and stockholders’ equity remains the same.
4. D. Assets go up, liabilities remain the same, and stockholders’ equity goes up.
A business purchases a computer for cash. What effect does this have on the accounting
equation?
1. A. Stockholders’ equity and assets go up.
2. B. There is no change in total assets.
3. C. Assets go up and liabilities go down.
4. D. Stockholders’ equity and liabilities go up.
Revenues, expenses and dividends are all a part of:
1. A. assets.
2. B. retained earnings.
3. C. liabilities.
4. D. common stock.
Cash and Accounts receivable are both a part of:
1. A. assets.
2. B. retained earnings.
3. C. liabilities.
4. D. common stock.
Miranda opens her business by investing $12,000. How does this affect the accounting
equation?
1. A. Increase in assets; increase in stockholders’ equity.
2. B. Increase in liabilities; increase in stockholders’ equity.
3. C. Decrease in assets; increase in stockholders’ equity.
4. D. Increase in assets; decrease in stockholders’ equity.
Brandon borrowed money for his business from a local bank. What accounts will be
affected?
1. A. Cash and accounts payable
2. B. Cash and notes payable
3. C. Accounts payable and revenue
4. D. Accounts receivable and revenue
Revenues would have which of the following effects on the accounting equation?
1. A. Decrease stockholders’ equity
2. B. Increase common stock
3. C. Increase liabilities
4. D. Increase stockholders’ equity
Which of the following is a written promise to pay?
1. A. Accounts receivable
2. B. Accounts payable
3. C. Notes payable
4. D. Dividends payable
A company has liabilities of $23,500 and stockholders’ equity of $56,500. How much
does the company have in assets?
1. A. $56,500
2. B. $33,000
3. C. $80,000
4. D. $23,500
A company has $123,000 in assets and $65,000 in liabilities. How much does the
company have in stockholders’ equity?
1. A. $188,000
2. B. $123,000
3. C. $ 65,000
4. D. $ 58,000
If total assets remain the same and total stockholders’ equity increases, liabilities
will:
1. A. increase by the same amount.
2. B. decrease by the same amount.
3. C. remain the same.
4. D. increase by a different amount.
A company purchases merchandise (inventory) for cash. What is the net result on the
accounting equation?
1. A. Total assets will go up and total liabilities will go down.
2. B. Total assets will go up and stockholders’ equity will go up.
3. C. Total assets will not change.
4. D. Total liabilities will go up.
ABC Company sold $34,000 worth of merchandise for cash. Which of the following best
describes the effect on the expanded accounting equation?
1. A. Total assets and total liabilities will increase.
2. B. Total assets and total revenue will increase.
3. C. Total liabilities will increase and total revenue will decrease.
4. D. Total assets will decrease and total liabilities will increase.
In the expanded accounting equation, revenues minus expenses are part of:
1. A. assets.
2. B. retained earnings.
3. C. liabilities.
4. D. dividends.
Having a net loss will:
1. A. decrease retained earnings.
2. B. increase retained earnings.
3. C. force the company into bankruptcy.
4. D. force the company to pay dividends.
Casey invested $5,000 into his business. He would:
1. A. increase cash and increase stockholders’ equity.
2. B. decrease cash and increase stockholders’ equity.
3. C. increase liabilities and increase stockholders’ equity.
4. D. increase cash only.
Liabilities are defined as:
1. A. earnings retained in the business.
2. B. amounts owed to third parties.
3. C. stockholders’ claims to assets.
4. D. future economic benefits of a company.
Assets are defined as:
1. A. earnings retained in the business.
2. B. amounts owed to others.
3. C. stockholders’ claims to assets.
4. D. future economic benefits of a company.
Payables are classified as:
1. A. stockholders’ equity.
2. B. retained earnings.
3. C. liabilities.
4. D. assets.
Words such as sales, expenses, financial statements, etc. are all part of the:
1. A. rule of ethics.
2. B. rules of accounting.
3. C. language of business
4. D. language of profitability
Which of the following is NOT a reason to study accounting?
1. A. A student will become aware of ethics in business.
2. B. A student will learn the language of business.
3. C. A student will better their math skills.
4. D. A student will learn to analyze financial information.
Which statement is FALSE about ethics?
1. A. Ethics are rules.
2. B. Ethics are guidelines of how we perceive right and wrong.
3. C. Ethics are a vital part of the accounting profession.
4. D. Things may be unethical but still be legal.
To ensure that the guidelines for right behavior are followed, a corporation should
follow:
1. A. ethical principles.
2. B. accounting law.
3. C. the corporate culture.
4. D. the leaders in their category of business.
The main goal of understanding the process of accounting is to help ensure that the
business is:
1. A. profitable.
2. B. ethical.
3. C. competitive.
4. D. admired by the customer.
Ethical dilemmas may be created by all of the following EXCEPT:
1. A. individual actions contradicting the goals of the business.
2. B. the culture of the organization clashing with ethical principles.
3. C. personal beliefs being different than organizational beliefs.
4. D. all of the employees having the same belief systems.
Which of the following may create an ethical dilemma?
1. A. A company takes an order in November for delivery in December.
2. B. A person sees another employee stealing and reports it.
3. C. A company underestimates its expenses.
4. D. All employee evaluations follow identical procedures.
Ethical behavior is encouraged because:
1. A. our society expects ethical behavior.
2. B. ethics and legality are the same things.
3. C. laws are the same as ethics.
4. D. it makes the world a better place.
A tax service is primarily a:
1. A. merchandising operation.
2. B. service operation.
3. C. not-for-profit operation.
4. D. manufacturing operation.
Which of the following types of organization would probably sell goods?
1. A. Merchandising operation
2. B. Service operation
3. C. Not-for-profit operation
4. D. Manufacturing operation
Which of the following types of organizations would produce goods?
1. A. Merchandising operation
2. B. Service operation
3. C. Not-for-profit operation
4. D. Manufacturing operation
Which of the following is a disadvantage of the corporate form of business?
1. A. Ease of raising capital
2. B. Double taxation
3. C. Limited resources
4. D. Limited liability
By definition, which type of organization has stockholders?
1. A. Partnerships
2. B. Sole proprietorships
3. C. Corporations
4. D. Limited liability companies
Which of the following business forms is similar to a corporation in regard to owner
liability?
1. A. Limited liability corporation
2. B. Limited liability company
3. C. Sole proprietorship
4. D. Partnership
Which of the following do NOT pay taxes through their individual owners?
1. A. S-corporation
2. B. Sole proprietorship
3. C. Partnership
4. D. Corporation
One of the newer forms of business discussed in the text is a:
1. A. corporation.
2. B. sole proprietorship.
3. C. partnership.
4. D. limited liability company.
Home Depot would primarily be considered a:
1. A. manufacturing business.
2. B. merchandising business.
3. C. service business.
4. D. not-for-profit business.
Which type of business organization is owned by its stockholders?
1. A. Corporation
2. B. Partnership
3. C. Limited liability company
4. D. Sole proprietorship
Which type of company is best described as having ownership by stock and double
taxation of earnings?
1. A. Limited liability company
2. B. Proprietorship
3. C. Corporation
4. D. Partnership
Which of the following concepts would NOT be considered if you were to compare the
price of a Camaro in 1979 to the price of a Camaro in 2009?
1. A. Reliability of the price in 1979
2. B. Objectivity of the price in 1979
3. C. Market price in 1979
4. D. Current cost in 2009
Rick owns a sporting goods store. In his initial accounting records, he included his
personal computer and all of his personal sporting gear. Rick is violating what principle
of accounting?
1. A. Going concern
2. B. Cost
3. C. Reliability
4. D. Entity
Rick lists his building at current replacement value, rather than the price he paid for the
building. What principle is Rick violating?
1. A. Going concern
2. B. Cost
3. C. Reliability
4. D. Entity
Rick is negotiating with friends who may buy some camping equipment in the near
future. He records this information as possible sales. What principle is Rick
violating?
1. A. Going concern
2. B. Cost
3. C. Reliability
4. D. Entity
FASB is made up of ___________ members.
1. A. 3
2. B. 5
3. C. 7
4. D. 9
GAAP is the acronym for generally accepted _______________ principles.
1. A. auditing
2. B. accounting
3. C. averaging
4. D. associated
Accountants who ignore the effect of inflation on prices may be violating which
accounting principle?
1. A. Going concern
2. B. Entity
3. C. Reliability
4. D. Something other than what is listed
Most assets should be listed at:
1. A. current replacement cost.
2. B. current market value.
3. C. historical cost.
4. D. inflation-adjusted cost.
The accounting principle that best defines a business is:
1. A. entity.
2. B. cost.
3. C. reliability.
4. D. going concern.
By taking accounting classes, the student is learning the “language of business.”
1. True
2. False
Ethics refers to the principles of right behavior in making decisions.
1. True
2. False
To manage a business effectively, an owner or manager would benefit greatly from
having some knowledge of accounting.
1. True
2. False
Being unethical is the same thing as being unlawful.
1. True
2. False
The knowledge gained from studying accounting will aid you in making decisions about
a business to enhance its profitability.
1. True
2. False
Accounting is important because the process “keeps score” of the financial aspects of a
business.
1. True
2. False
Financial statements are historical reports of what has taken place financially in a
business.
1. True
2. False
The main role of accounting is to compile reports to determine the profit made by a
company over a period of time.
1. True
2. False
Financial statements can help the managers of a business in making decisions regarding
the business.
1. True
2. False
Generally Accepted Accounting Principles (GAAP) are the rules and guidelines governing
accounting.
1. True
2. False
The Financial Accounting Standards Board (FASB) established the standards for
managerial accounting.
1. True
2. False
The definition of the business entity concept includes the requirement that personal
assets must be separated from business assets.
1. True
2. False
Financial information that is verifiable violates the principle of objectivity.
1. True
2. False
Market value and historical cost (value) are the same concept.
1. True
2. False
The fundamental accounting equation is Assets plus Liabilities equals Stockholders’
Equity.
1. True
2. False
Liabilities are those obligations that are owed to third parties.
1. True
2. False
Stockholders’ equity consists of Retained earnings and Common stock.
1. True
2. False
The income statement details how cash changed over an accounting period or
cycle.
1. True
2. False
The balance sheet is dated as of a period of time.
1. True
2. False
The Statement of Retained Earnings is prepared to determine the final amount of
retained earnings to show on the balance sheet.
1. True
2. False
The Income Statement is the first financial statement prepared.
1. True
2. False
Financial statements are prepared primarily for internal company use.
1. True
2. False
A business with one owner is called a sole proprietorship and it must be a service
business.
1. True
2. False
Wal-Mart and Target would be examples of corporate merchandising businesses.
1. True
2. False
Many law and accounting firms are set up as partnerships.
1. True
2. False
In a corporation, taxes are paid on the dividends earned by the shareholders.
1. True
2. False
A limited liability company (LLC) is a legal entity like a corporation, but the income is
taxed like a sole proprietorship or partnership.
1. True
2. False
Assets consist of revenues, expenses, and dividends.
1. True
2. False
A transaction is a business event that does NOT have an impact on the finances of a
company.
1. True
2. False
Items such as revenue, expenses and dividends are classified as:
1. A. stockholders’ equity.
2. B. retained earnings.
3. C. liabilities.
4. D. assets.
The payment of cash dividends would have which of the following effects on the
accounting equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Payment of expenses would have which of the following effects on the accounting
equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Monies owed to a company by customers are classified as:
1. A. payables.
2. B. dividends.
3. C. cash.
4. D. receivables.
Casey’s is famous for their submarine sandwiches. At the end of 2009, Casey’s total
assets were $345,000, and total liabilities were $129,500. How much was Casey’s
stockholders’ equity?
1. A. $474,500
2. B. $345,000
3. C. $215,500
4. D. Some other number
ABC purchased office supplies on account for $50,000. How would this transaction
affect ABC’s accounting equation?
1. A. Increase assets and stockholders’ equity by $50,000.
2. B. Increase liabilities and stockholders’ equity by $50,000.
3. C. Increase assets by $50,000 and decrease liabilities by $50,000.
4. D. Increase assets by $50,000 and increase liabilities by $50,000.
Lauren purchased a computer on account for her business. How will this transaction
affect the accounting equation?
1. A. Assets increase; liabilities decrease.
2. B. Assets increase; stockholder equity increases.
3. C. Assets increase; liabilities increase.
4. D. Assets decrease; liabilities increase.
Beginning retained earnings are $65,000; sales are $29,500; expenses were $33,000
and dividends paid are $3,500. How much is the net income or loss for the
company?
1. A. $26,000
2. B. ($3,500)
3. C. ($7,000)
4. D. $0
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the net income or loss for the company?
1. A. $3,300
2. B. $ 500
3. C. $34,300
4. D. ($3,300)
Beginning retained earnings are $65,000; sales are $29,500; expenses are $33,000 and
dividends paid are $3,500. How much is the amount in ending retained earnings?
1. A. $58,000
2. B. $61,500
3. C. $68,500
4. D. $65,000
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the amount in ending retained earnings?
1. A. $34,400
2. B. $28,200
3. C. $34,300
4. D. $31,500
Which of the following is a FALSE statement?
1. A. Revenues provide inward flows of assets.
2. B. Revenue is categorized as an asset.
3. C. Revenue is categorized as part of retained earnings.
4. D. Revenues are generated from the sale of goods and services.
Which of the following is a TRUE statement?
1. A. Purchasing office equipment for cash is a shift of assets.
2. B. Buying something on account decreases total liabilities.
3. C. Retained earnings do not include payments of dividends.
4. D. Paying off an account increases the total of assets.
Dividends are part of:
1. A. sales.
2. B. expenses.
3. C. retained earnings.
4. D. assets.
Payables are categorized as:
1. A. liabilities.
2. B. assets.
3. C. retained earnings.
4. D. common stock.
Celia buys a new machine for her shop on credit. The effect on the accounting equation
is:
1. A. increase liabilities, increase assets.
2. B. decrease liabilities, increase assets.
3. C. increase assets, increase stockholders’ equity.
4. D. increase liabilities, decrease stockholders’ equity.
The first financial statement that is prepared is the:
1. A. Statement of Cash Flows.
2. B. Income Statement.
3. C. Statement of Retained Earnings.
4. D. Balance Sheet.
The net income figure is needed to prepare:
1. A. a balance sheet.
2. B. a statement of retained earnings.
3. C. a statement of liabilities.
4. D. some other report.
A statement of cash flows is usually prepared:
1. A. first.
2. B. second.
3. C. third.
4. D. last.
A net income or loss is originally shown on the:
1. A. statement of cash flows.
2. B. balance sheet.
3. C. statement of retained earnings.
4. D. income statement.
Which of the following financial statements illustrates the accounting equation?
1. A. Statement of retained earnings
2. B. Income statement
3. C. Balance sheet
4. D. Statement of cash flows
Beginning retained earnings for the period would be shown on the:
1. A. Statement of retained earnings.
2. B. Income statement.
3. C. Balance sheets.
4. D. Statement of cash flows.
Of the financial statements, which is dated as of a specific date?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
Which of the financial statements includes a listing of assets owned by the
company?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
The correct order for the preparation of financial statements is: 1. Statement of cash
flows 2. Income statement 3. Balance sheet 4. Statement of retained earnings
1. A. 4, 3, 2, 1
2. B. 1, 2, 3, 4
3. C. 2, 3, 4, 1
4. D. 2, 4, 3, 1
Dividends are shown on the:
1. A. income statement.
2. B. statement of retained earnings.
3. C. balance sheet.
4. D. statement of cash flows.
The balance sheet is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
The income statement is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
Items such as revenue, expenses and dividends are classified as:
1. A. stockholders’ equity.
2. B. retained earnings.
3. C. liabilities.
4. D. assets.
The payment of cash dividends would have which of the following effects on the
accounting equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Payment of expenses would have which of the following effects on the accounting
equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Monies owed to a company by customers are classified as:
1. A. payables.
2. B. dividends.
3. C. cash.
4. D. receivables.
Casey’s is famous for their submarine sandwiches. At the end of 2009, Casey’s total
assets were $345,000, and total liabilities were $129,500. How much was Casey’s
stockholders’ equity?
1. A. $474,500
2. B. $345,000
3. C. $215,500
4. D. Some other number
ABC purchased office supplies on account for $50,000. How would this transaction
affect ABC’s accounting equation?
1. A. Increase assets and stockholders’ equity by $50,000.
2. B. Increase liabilities and stockholders’ equity by $50,000.
3. C. Increase assets by $50,000 and decrease liabilities by $50,000.
4. D. Increase assets by $50,000 and increase liabilities by $50,000.
Lauren purchased a computer on account for her business. How will this transaction
affect the accounting equation?
1. A. Assets increase; liabilities decrease.
2. B. Assets increase; stockholder equity increases.
3. C. Assets increase; liabilities increase.
4. D. Assets decrease; liabilities increase.
Beginning retained earnings are $65,000; sales are $29,500; expenses were $33,000
and dividends paid are $3,500. How much is the net income or loss for the
company?
1. A. $26,000
2. B. ($3,500)
3. C. ($7,000)
4. D. $0
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the net income or loss for the company?
1. A. $3,300
2. B. $ 500
3. C. $34,300
4. D. ($3,300)
Beginning retained earnings are $65,000; sales are $29,500; expenses are $33,000 and
dividends paid are $3,500. How much is the amount in ending retained earnings?
1. A. $58,000
2. B. $61,500
3. C. $68,500
4. D. $65,000
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the amount in ending retained earnings?
1. A. $34,400
2. B. $28,200
3. C. $34,300
4. D. $31,500
Which of the following is a FALSE statement?
1. A. Revenues provide inward flows of assets.
2. B. Revenue is categorized as an asset.
3. C. Revenue is categorized as part of retained earnings.
4. D. Revenues are generated from the sale of goods and services.
Which of the following is a TRUE statement?
1. A. Purchasing office equipment for cash is a shift of assets.
2. B. Buying something on account decreases total liabilities.
3. C. Retained earnings do not include payments of dividends.
4. D. Paying off an account increases the total of assets.
Dividends are part of:
1. A. sales.
2. B. expenses.
3. C. retained earnings.
4. D. assets.
Payables are categorized as:
1. A. liabilities.
2. B. assets.
3. C. retained earnings.
4. D. common stock.
Celia buys a new machine for her shop on credit. The effect on the accounting equation
is:
1. A. increase liabilities, increase assets.
2. B. decrease liabilities, increase assets.
3. C. increase assets, increase stockholders’ equity.
4. D. increase liabilities, decrease stockholders’ equity.
The first financial statement that is prepared is the:
1. A. Statement of Cash Flows.
2. B. Income Statement.
3. C. Statement of Retained Earnings.
4. D. Balance Sheet.
The net income figure is needed to prepare:
1. A. a balance sheet.
2. B. a statement of retained earnings.
3. C. a statement of liabilities.
4. D. some other report.
A statement of cash flows is usually prepared:
1. A. first.
2. B. second.
3. C. third.
4. D. last.
A net income or loss is originally shown on the:
1. A. statement of cash flows.
2. B. balance sheet.
3. C. statement of retained earnings.
4. D. income statement.
Which of the following financial statements illustrates the accounting equation?
1. A. Statement of retained earnings
2. B. Income statement
3. C. Balance sheet
4. D. Statement of cash flows
Beginning retained earnings for the period would be shown on the:
1. A. Statement of retained earnings.
2. B. Income statement.
3. C. Balance sheets.
4. D. Statement of cash flows.
Of the financial statements, which is dated as of a specific date?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
Which of the financial statements includes a listing of assets owned by the
company?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
The correct order for the preparation of financial statements is: 1. Statement of cash
flows 2. Income statement 3. Balance sheet 4. Statement of retained earnings
1. A. 4, 3, 2, 1
2. B. 1, 2, 3, 4
3. C. 2, 3, 4, 1
4. D. 2, 4, 3, 1
Dividends are shown on the:
1. A. income statement.
2. B. statement of retained earnings.
3. C. balance sheet.
4. D. statement of cash flows.
The balance sheet is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
The income statement is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
The __________ issues pronouncements that are guidelines for accounting
practice.
1. A. GAAP
2. B. SEC
3. C. FASB
4. D. IRS
The guidelines that describe the rules of accounting are called:
1. A. GAAS.
2. B. GAAP.
3. C. FASB.
4. D. SEC.
When a person combines separate business accounts, what concept or principle of
accounting is being violated?
1. A. Going concern
2. B. Objectivity
3. C. Entity
4. D. Cost
To take an inventory of goods to be sold would be representative of what accounting
concept or principle?
1. A. Going concern
2. B. Objectivity
3. C. Entity
4. D. Cost
Which accounting concept or principle specifically states that we should record
transactions that can be verified?
1. A. Going-concern concept
2. B. Cost principle
3. C. Reliability principle
4. D. Entity concept
Financial statements are prepared based on which of the following?
1. A. Generally accepted accounting principles
2. B. State and local laws
3. C. Internal revenue service rules
4. D. Generally accepted auditing standards
What is the purpose of financial accounting information?
1. A. To provide biased information to the markets for trading
2. B. To help investors, creditors, and others to make decisions
3. C. To help managers plan and to control business operations
4. D. To comply with SEC and IRS rules
Which of the following is considered an asset?
1. A. Accounts payable
2. B. Sales
3. C. Accounts receivable
4. D. Common stock
Liabilities represent:
1. A. items owned by the company.
2. B. future economic benefits of the company.
3. C. earnings kept in the business
4. D. monies owed to third parties.
A business pays off a note payable. What effect does this have on the accounting
equation?
1. A. Assets go up, liabilities go down, and stockholders’ equity remains the same.
2. B. Assets go down, liabilities remain the same, and stockholders’ equity goes up.
3. C. Assets go down, liabilities go down, and stockholders’ equity remains the same.
4. D. Assets go up, liabilities remain the same, and stockholders’ equity goes up.
A business purchases a computer for cash. What effect does this have on the accounting
equation?
1. A. Stockholders’ equity and assets go up.
2. B. There is no change in total assets.
3. C. Assets go up and liabilities go down.
4. D. Stockholders’ equity and liabilities go up.
Revenues, expenses and dividends are all a part of:
1. A. assets.
2. B. retained earnings.
3. C. liabilities.
4. D. common stock.
Cash and Accounts receivable are both a part of:
1. A. assets.
2. B. retained earnings.
3. C. liabilities.
4. D. common stock.
Miranda opens her business by investing $12,000. How does this affect the accounting
equation?
1. A. Increase in assets; increase in stockholders’ equity.
2. B. Increase in liabilities; increase in stockholders’ equity.
3. C. Decrease in assets; increase in stockholders’ equity.
4. D. Increase in assets; decrease in stockholders’ equity.
Brandon borrowed money for his business from a local bank. What accounts will be
affected?
1. A. Cash and accounts payable
2. B. Cash and notes payable
3. C. Accounts payable and revenue
4. D. Accounts receivable and revenue
Revenues would have which of the following effects on the accounting equation?
1. A. Decrease stockholders’ equity
2. B. Increase common stock
3. C. Increase liabilities
4. D. Increase stockholders’ equity
Which of the following is a written promise to pay?
1. A. Accounts receivable
2. B. Accounts payable
3. C. Notes payable
4. D. Dividends payable
A company has liabilities of $23,500 and stockholders’ equity of $56,500. How much
does the company have in assets?
1. A. $56,500
2. B. $33,000
3. C. $80,000
4. D. $23,500
A company has $123,000 in assets and $65,000 in liabilities. How much does the
company have in stockholders’ equity?
1. A. $188,000
2. B. $123,000
3. C. $ 65,000
4. D. $ 58,000
If total assets remain the same and total stockholders’ equity increases, liabilities
will:
1. A. increase by the same amount.
2. B. decrease by the same amount.
3. C. remain the same.
4. D. increase by a different amount.
A company purchases merchandise (inventory) for cash. What is the net result on the
accounting equation?
1. A. Total assets will go up and total liabilities will go down.
2. B. Total assets will go up and stockholders’ equity will go up.
3. C. Total assets will not change.
4. D. Total liabilities will go up.
ABC Company sold $34,000 worth of merchandise for cash. Which of the following best
describes the effect on the expanded accounting equation?
1. A. Total assets and total liabilities will increase.
2. B. Total assets and total revenue will increase.
3. C. Total liabilities will increase and total revenue will decrease.
4. D. Total assets will decrease and total liabilities will increase.
In the expanded accounting equation, revenues minus expenses are part of:
1. A. assets.
2. B. retained earnings.
3. C. liabilities.
4. D. dividends.
Having a net loss will:
1. A. decrease retained earnings.
2. B. increase retained earnings.
3. C. force the company into bankruptcy.
4. D. force the company to pay dividends.
Casey invested $5,000 into his business. He would:
1. A. increase cash and increase stockholders’ equity.
2. B. decrease cash and increase stockholders’ equity.
3. C. increase liabilities and increase stockholders’ equity.
4. D. increase cash only.
Liabilities are defined as:
1. A. earnings retained in the business.
2. B. amounts owed to third parties.
3. C. stockholders’ claims to assets.
4. D. future economic benefits of a company.
Assets are defined as:
1. A. earnings retained in the business.
2. B. amounts owed to others.
3. C. stockholders’ claims to assets.
4. D. future economic benefits of a company.
Payables are classified as:
1. A. stockholders’ equity.
2. B. retained earnings.
3. C. liabilities.
4. D. assets.
Words such as sales, expenses, financial statements, etc. are all part of the:
1. A. rule of ethics.
2. B. rules of accounting.
3. C. language of business
4. D. language of profitability
Which of the following is NOT a reason to study accounting?
1. A. A student will become aware of ethics in business.
2. B. A student will learn the language of business.
3. C. A student will better their math skills.
4. D. A student will learn to analyze financial information.
Which statement is FALSE about ethics?
1. A. Ethics are rules.
2. B. Ethics are guidelines of how we perceive right and wrong.
3. C. Ethics are a vital part of the accounting profession.
4. D. Things may be unethical but still be legal.
To ensure that the guidelines for right behavior are followed, a corporation should
follow:
1. A. ethical principles.
2. B. accounting law.
3. C. the corporate culture.
4. D. the leaders in their category of business.
The main goal of understanding the process of accounting is to help ensure that the
business is:
1. A. profitable.
2. B. ethical.
3. C. competitive.
4. D. admired by the customer.
Ethical dilemmas may be created by all of the following EXCEPT:
1. A. individual actions contradicting the goals of the business.
2. B. the culture of the organization clashing with ethical principles.
3. C. personal beliefs being different than organizational beliefs.
4. D. all of the employees having the same belief systems.
Which of the following may create an ethical dilemma?
1. A. A company takes an order in November for delivery in December.
2. B. A person sees another employee stealing and reports it.
3. C. A company underestimates its expenses.
4. D. All employee evaluations follow identical procedures.
Ethical behavior is encouraged because:
1. A. our society expects ethical behavior.
2. B. ethics and legality are the same things.
3. C. laws are the same as ethics.
4. D. it makes the world a better place.
A tax service is primarily a:
1. A. merchandising operation.
2. B. service operation.
3. C. not-for-profit operation.
4. D. manufacturing operation.
Which of the following types of organization would probably sell goods?
1. A. Merchandising operation
2. B. Service operation
3. C. Not-for-profit operation
4. D. Manufacturing operation
Which of the following types of organizations would produce goods?
1. A. Merchandising operation
2. B. Service operation
3. C. Not-for-profit operation
4. D. Manufacturing operation
Which of the following is a disadvantage of the corporate form of business?
1. A. Ease of raising capital
2. B. Double taxation
3. C. Limited resources
4. D. Limited liability
By definition, which type of organization has stockholders?
1. A. Partnerships
2. B. Sole proprietorships
3. C. Corporations
4. D. Limited liability companies
Which of the following business forms is similar to a corporation in regard to owner
liability?
1. A. Limited liability corporation
2. B. Limited liability company
3. C. Sole proprietorship
4. D. Partnership
Which of the following do NOT pay taxes through their individual owners?
1. A. S-corporation
2. B. Sole proprietorship
3. C. Partnership
4. D. Corporation
One of the newer forms of business discussed in the text is a:
1. A. corporation.
2. B. sole proprietorship.
3. C. partnership.
4. D. limited liability company.
Home Depot would primarily be considered a:
1. A. manufacturing business.
2. B. merchandising business.
3. C. service business.
4. D. not-for-profit business.
Which type of business organization is owned by its stockholders?
1. A. Corporation
2. B. Partnership
3. C. Limited liability company
4. D. Sole proprietorship
Which type of company is best described as having ownership by stock and double
taxation of earnings?
1. A. Limited liability company
2. B. Proprietorship
3. C. Corporation
4. D. Partnership
Which of the following concepts would NOT be considered if you were to compare the
price of a Camaro in 1979 to the price of a Camaro in 2009?
1. A. Reliability of the price in 1979
2. B. Objectivity of the price in 1979
3. C. Market price in 1979
4. D. Current cost in 2009
Rick owns a sporting goods store. In his initial accounting records, he included his
personal computer and all of his personal sporting gear. Rick is violating what principle
of accounting?
1. A. Going concern
2. B. Cost
3. C. Reliability
4. D. Entity
Rick lists his building at current replacement value, rather than the price he paid for the
building. What principle is Rick violating?
1. A. Going concern
2. B. Cost
3. C. Reliability
4. D. Entity
Rick is negotiating with friends who may buy some camping equipment in the near
future. He records this information as possible sales. What principle is Rick
violating?
1. A. Going concern
2. B. Cost
3. C. Reliability
4. D. Entity
FASB is made up of ___________ members.
1. A. 3
2. B. 5
3. C. 7
4. D. 9
GAAP is the acronym for generally accepted _______________ principles.
1. A. auditing
2. B. accounting
3. C. averaging
4. D. associated
Accountants who ignore the effect of inflation on prices may be violating which
accounting principle?
1. A. Going concern
2. B. Entity
3. C. Reliability
4. D. Something other than what is listed
Most assets should be listed at:
1. A. current replacement cost.
2. B. current market value.
3. C. historical cost.
4. D. inflation-adjusted cost.
The accounting principle that best defines a business is:
1. A. entity.
2. B. cost.
3. C. reliability.
4. D. going concern.
By taking accounting classes, the student is learning the “language of business.”
1. True
2. False
Ethics refers to the principles of right behavior in making decisions.
1. True
2. False
To manage a business effectively, an owner or manager would benefit greatly from
having some knowledge of accounting.
1. True
2. False
Being unethical is the same thing as being unlawful.
1. True
2. False
The knowledge gained from studying accounting will aid you in making decisions about
a business to enhance its profitability.
1. True
2. False
Accounting is important because the process “keeps score” of the financial aspects of a
business.
1. True
2. False
Financial statements are historical reports of what has taken place financially in a
business.
1. True
2. False
The main role of accounting is to compile reports to determine the profit made by a
company over a period of time.
1. True
2. False
Financial statements can help the managers of a business in making decisions regarding
the business.
1. True
2. False
Generally Accepted Accounting Principles (GAAP) are the rules and guidelines governing
accounting.
1. True
2. False
The Financial Accounting Standards Board (FASB) established the standards for
managerial accounting.
1. True
2. False
The definition of the business entity concept includes the requirement that personal
assets must be separated from business assets.
1. True
2. False
Financial information that is verifiable violates the principle of objectivity.
1. True
2. False
Market value and historical cost (value) are the same concept.
1. True
2. False
The fundamental accounting equation is Assets plus Liabilities equals Stockholders’
Equity.
1. True
2. False
Liabilities are those obligations that are owed to third parties.
1. True
2. False
Stockholders’ equity consists of Retained earnings and Common stock.
1. True
2. False
The income statement details how cash changed over an accounting period or
cycle.
1. True
2. False
The balance sheet is dated as of a period of time.
1. True
2. False
The Statement of Retained Earnings is prepared to determine the final amount of
retained earnings to show on the balance sheet.
1. True
2. False
The Income Statement is the first financial statement prepared.
1. True
2. False
Financial statements are prepared primarily for internal company use.
1. True
2. False
A business with one owner is called a sole proprietorship and it must be a service
business.
1. True
2. False
Wal-Mart and Target would be examples of corporate merchandising businesses.
1. True
2. False
Many law and accounting firms are set up as partnerships.
1. True
2. False
In a corporation, taxes are paid on the dividends earned by the shareholders.
1. True
2. False
A limited liability company (LLC) is a legal entity like a corporation, but the income is
taxed like a sole proprietorship or partnership.
1. True
2. False
Assets consist of revenues, expenses, and dividends.
1. True
2. False
A transaction is a business event that does NOT have an impact on the finances of a
company.
1. True
2. False
Items such as revenue, expenses and dividends are classified as:
1. A. stockholders’ equity.
2. B. retained earnings.
3. C. liabilities.
4. D. assets.
The payment of cash dividends would have which of the following effects on the
accounting equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Payment of expenses would have which of the following effects on the accounting
equation?
1. A. Increase liabilities
2. B. Decrease stockholders’ equity
3. C. Increase assets
4. D. Increase stockholders’ equity
Monies owed to a company by customers are classified as:
1. A. payables.
2. B. dividends.
3. C. cash.
4. D. receivables.
Casey’s is famous for their submarine sandwiches. At the end of 2009, Casey’s total
assets were $345,000, and total liabilities were $129,500. How much was Casey’s
stockholders’ equity?
1. A. $474,500
2. B. $345,000
3. C. $215,500
4. D. Some other number
ABC purchased office supplies on account for $50,000. How would this transaction
affect ABC’s accounting equation?
1. A. Increase assets and stockholders’ equity by $50,000.
2. B. Increase liabilities and stockholders’ equity by $50,000.
3. C. Increase assets by $50,000 and decrease liabilities by $50,000.
4. D. Increase assets by $50,000 and increase liabilities by $50,000.
Lauren purchased a computer on account for her business. How will this transaction
affect the accounting equation?
1. A. Assets increase; liabilities decrease.
2. B. Assets increase; stockholder equity increases.
3. C. Assets increase; liabilities increase.
4. D. Assets decrease; liabilities increase.
Beginning retained earnings are $65,000; sales are $29,500; expenses were $33,000
and dividends paid are $3,500. How much is the net income or loss for the
company?
1. A. $26,000
2. B. ($3,500)
3. C. ($7,000)
4. D. $0
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the net income or loss for the company?
1. A. $3,300
2. B. $ 500
3. C. $34,300
4. D. ($3,300)
Beginning retained earnings are $65,000; sales are $29,500; expenses are $33,000 and
dividends paid are $3,500. How much is the amount in ending retained earnings?
1. A. $58,000
2. B. $61,500
3. C. $68,500
4. D. $65,000
Beginning retained earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the amount in ending retained earnings?
1. A. $34,400
2. B. $28,200
3. C. $34,300
4. D. $31,500
Which of the following is a FALSE statement?
1. A. Revenues provide inward flows of assets.
2. B. Revenue is categorized as an asset.
3. C. Revenue is categorized as part of retained earnings.
4. D. Revenues are generated from the sale of goods and services.
Which of the following is a TRUE statement?
1. A. Purchasing office equipment for cash is a shift of assets.
2. B. Buying something on account decreases total liabilities.
3. C. Retained earnings do not include payments of dividends.
4. D. Paying off an account increases the total of assets.
Dividends are part of:
1. A. sales.
2. B. expenses.
3. C. retained earnings.
4. D. assets.
Payables are categorized as:
1. A. liabilities.
2. B. assets.
3. C. retained earnings.
4. D. common stock.
Celia buys a new machine for her shop on credit. The effect on the accounting equation
is:
1. A. increase liabilities, increase assets.
2. B. decrease liabilities, increase assets.
3. C. increase assets, increase stockholders’ equity.
4. D. increase liabilities, decrease stockholders’ equity.
The first financial statement that is prepared is the:
1. A. Statement of Cash Flows.
2. B. Income Statement.
3. C. Statement of Retained Earnings.
4. D. Balance Sheet.
The net income figure is needed to prepare:
1. A. a balance sheet.
2. B. a statement of retained earnings.
3. C. a statement of liabilities.
4. D. some other report.
A statement of cash flows is usually prepared:
1. A. first.
2. B. second.
3. C. third.
4. D. last.
A net income or loss is originally shown on the:
1. A. statement of cash flows.
2. B. balance sheet.
3. C. statement of retained earnings.
4. D. income statement.
Which of the following financial statements illustrates the accounting equation?
1. A. Statement of retained earnings
2. B. Income statement
3. C. Balance sheet
4. D. Statement of cash flows
Beginning retained earnings for the period would be shown on the:
1. A. Statement of retained earnings.
2. B. Income statement.
3. C. Balance sheets.
4. D. Statement of cash flows.
Of the financial statements, which is dated as of a specific date?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
Which of the financial statements includes a listing of assets owned by the
company?
1. A. Statement of cash flows
2. B. Income statement
3. C. Balance sheet
4. D. Statement of retained earnings
The correct order for the preparation of financial statements is: 1. Statement of cash
flows 2. Income statement 3. Balance sheet 4. Statement of retained earnings
1. A. 4, 3, 2, 1
2. B. 1, 2, 3, 4
3. C. 2, 3, 4, 1
4. D. 2, 4, 3, 1
Dividends are shown on the:
1. A. income statement.
2. B. statement of retained earnings.
3. C. balance sheet.
4. D. statement of cash flows.
The balance sheet is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.
The income statement is used to report:
1. A. results of operations for a specific date.
2. B. the financial position on a specific date.
3. C. results of operations for a specific period.
4. D. the financial position for a specific period.