REVISION MATERIAL FOR ACCOUNTING, Exams of Accounting

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REVISION MATERIAL FOR

ACCOUNTING

Chapter 01 - Introduction to Accounting and Business

True / False

1. A merchandising business buys products from other businesses to sell to customers. a. True b. False ANSWER: True
2. The role of accounting is to provide many different users with financial information to make economic decisions. a. True b. False ANSWER: True
3. Accounting information users need reports about the economic activities and condition of businesses. a. True b. False ANSWER: True
4. Managerial accounting information is used by external and internal users equally. a. True b. False ANSWER: False
5. Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the companies where they work. a. True b. False ANSWER: False
6. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management. a. True b. False ANSWER: True
7. Proper ethical conduct implies that you only consider what's in your best interest. a. True b. False ANSWER: False
8. Some of the major fraudulent acts committed by senior executives started as what they considered to be small ethical lapses that grew out of control. a. True b. False ANSWER: True

Chapter 01 - Introduction to Accounting and Business

ANSWER: False

18. About 90% of the businesses in the United States are organized as corporations. a. True b. False ANSWER: False
19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles. a. True b. False ANSWER: True
20. The cost concept is the basis for entering the purchase price into the accounting records. a. True b. False ANSWER: True
21. The unit of measurement concept requires that economic data be recorded in dollars. a. True b. False ANSWER: True
22. If a building is appraised for $85,000, it is offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000. a. True b. False ANSWER: False
23. The financial statements of a proprietorship should include the owner's personal assets and liabilities. a. True b. False ANSWER: False
24. No significant differences exist between the accounting standards issued by the FASB and the IASB. a. True b. False ANSWER: False
25. Generally accepted accounting principles regulate how and what financial information is reported by businesses. a. True b. False ANSWER: True
26. The IASB maintains an electronic database, called the Accounting Standards Codification, which contains all of the accounting standards that make up GAAP. a. True

Chapter 01 - Introduction to Accounting and Business

b. False ANSWER: False

27. The accounting equation can be expressed as Assets – Liabilities = Owner's Equity. a. True b. False ANSWER: True
28. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners. a. True b. False ANSWER: True
29. The owner’s rights to the assets rank ahead of the creditors' rights to the assets. a. True b. False ANSWER: False
30. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total $300,000. a. True b. False ANSWER: False
31. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same period, the period's change in total liabilities was a $65,000 increase. a. True b. False ANSWER: False
32. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner's equity was a $200,000 increase. a. True b. False ANSWER: True
33. If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash, and the owner invested $10,000 in cash, the capital of the owner increased by $40,000. a. True b. False ANSWER: True
34. An account receivable is typically classified as a revenue. a. True b. False ANSWER: False

Chapter 01 - Introduction to Accounting and Business

the balance sheet, and the statement of cash flows. a. True b. False ANSWER: True

45. An income statement is a summary of the revenues and expenses of a business as of a specific date. a. True b. False ANSWER: False
46. A statement of owner's equity reports the changes in the owner's equity for a period of time. a. True b. False ANSWER: True
47. The statement of cash flows consists of three sections: Cash Flows from (Used for) Operating Activities, Cash Flows from (Used for) Income Activities, and Cash Flows from (Used for) Equity Activities. a. True b. False ANSWER: False
48. The balance sheet represents the accounting equation. a. True b. False ANSWER: True
49. Net income and net profit do not mean the same thing. a. True b. False ANSWER: False
50. The higher the ratio of liabilities to owner’s equity, the better able a company is to withstand poor business conditions and to pay its obligations to creditors. a. True b. False ANSWER: False Multiple Choice
51. Profit is the difference between a. assets and liabilities b. the incoming cash and outgoing cash c. the assets purchased with cash contributed by the owner and the cash spent to operate the business d. the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services ANSWER: d

Chapter 01 - Introduction to Accounting and Business

52. Two common areas of accounting that respectively provide information to internal and external users are a. forensic accounting and financial accounting b. managerial accounting and financial accounting c. managerial accounting and environmental accounting d. financial accounting and tax accounting systems ANSWER: b
53. Which of the following best describes accounting? a. records economic data but does not communicate the data to users according to any specific rules b. is an information system that provides reports to users regarding economic activities and condition of a business c. is of no use by individuals outside of the business d. is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements ANSWER: b
54. Which type of accountant typically practices as an individual or as a member of a public accounting firm? a. Certified Public Accountant b. Certified Payroll Professional c. Certified Internal Auditor d. Certified Management Accountant ANSWER: a
55. Financial reports are used by a. management b. creditors c. investors d. All of these choices ANSWER: d
56. Which of the following is a manufacturing business? a. General Motors b. Facebook c. American Airlines d. Target ANSWER: a
57. Which of the following is a service business? a. Dell Inc. b. Wal-Mart Stores, Inc. c. Microsoft Corporation d. Facebook, Inc. ANSWER: d
58. Which of the following groups of companies includes examples of merchandising businesses?

Chapter 01 - Introduction to Accounting and Business

b. to personally guarantee loans of the business c. to provide information to external users to determine the economic performance and condition of the business d. to assess the various informational needs of users and design an accounting system to meet those needs ANSWER: b

65. Which of the following is a guideline for behaving ethically? I. Identify the consequences of a decision and its effect on others. II. Consider your obligations and responsibilities to those affected by the decision. III. Identify your decision based on personal standards of honesty and fairness. a. I and II b. II and III c. I and III d. I, II, and III ANSWER: d
66. Which of the following would not normally operate as a service business? a. pet groomer b. grocer c. lawn care company d. styling salon ANSWER: b
67. Most businesses in the United States are a. proprietorships b. partnerships c. corporations d. cooperatives ANSWER: a
68. Which of the following is not a business entity? a. entrepreneurship b. proprietorship c. partnership d. corporation ANSWER: a
69. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a a. proprietorship b. corporation c. partnership d. governmental unit ANSWER: b
70. Which of the following is true regarding a limited liability company? a. makes up 10% of business organizations in the United States

Chapter 01 - Introduction to Accounting and Business

b. combines the attributes of a partnership and a corporation c. provides tax and liability advantages to the owners d. All of these choices ANSWER: d

71. On May 20, White Repair Service extended an offer of $108,000 for land that had been priced for sale at $140,000. On May 30, White Repair Service accepted the seller’s counteroffer of $115,000. On June 20, the land was assessed at a value of $95,000 for property tax purposes. On July 4, White Repair Service was offered $150,000 for the land by a national retail chain. At what value should the land be recorded in White Repair Service’s records? a. $108, b. $95, c. $140, d. $115, ANSWER: d
72. Which of the following is most likely to obtain large amounts of resources by issuing stock? a. partnership b. corporation c. proprietorship d. government entity ANSWER: b
73. Which of the following is not a characteristic of a corporation? a. Corporations are organized as a separate legal taxable entity. b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. ANSWER: d
74. The initials GAAP stand for a. general accounting procedures b. generally accepted plans c. generally accepted accounting principles d. generally accepted accounting practices ANSWER: c
75. Within the United States, the dominant body in the primary development of accounting principles is the a. American Institute of Certified Public Accountants (AICPA) b. American Accounting Association (AAA) c. Financial Accounting Standards Board (FASB) d. Institute of Management Accountants (IMA) ANSWER: c
76. The business entity concept means that a. the owner is part of the business entity

Chapter 01 - Introduction to Accounting and Business

82. Which of the following concepts relates to separating the reporting of business and personal economic transactions? a. cost concept b. unit of measure concept c. business entity concept d. objectivity concept ANSWER: c
83. Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost concept, at what amount should the land be recorded in the accounting records of Focus Company? a. $177, b. $212, c. $220, d. $232, ANSWER: b
84. Many countries outside the United States use financial accounting standards issued by the a. AICPA b. SEC c. IASB d. FASB ANSWER: c
85. The unit of measure concept a. is only used in the financial statements of manufacturing companies b. is not important when applying the cost concept c. requires that different units be used for assets and liabilities d. requires that economic data be reported in yen in Japan or dollars in the United States ANSWER: d
86. Which of the following is not true of accounting principles? a. Financial accountants follow generally accepted accounting principles (GAAP). b. Following GAAP allows accounting information users to compare one company to another. c. A new accounting principle can be adopted with stockholders' approval. d. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles. ANSWER: c
87. The concept requires a company to report its economic activities on a regular basis for a specific period. a. cost b. matching c. objectivity d. time period ANSWER: d

Chapter 01 - Introduction to Accounting and Business

88. The annual accounting period adopted by a company is called its a. calendar year b. fiscal year c. natural business year d. natural calendar year ANSWER: b
89. The natural business year for most retail businesses ends on a. January 31 b. March 31 c. August 31 d. December 31 ANSWER: a
90. Which of the following is not a characteristic of a corporation? a. Corporations are organized as a separate legal taxable entity. b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. ANSWER: d
91. On May 7, Carpet Barn Company offered to pay $83,000 for land that had a selling price of $105,000. On May 15, Carpet Barn accepted a counteroffer of $95,000. On June 5, the land was assessed at a value of $115,000 for property tax purposes. On December 10, Carpet Barn Company was offered $135,000 for the land by another company. At what value should the land be recorded in Carpet Barn Company’s records? a. $95, b. $105, c. $115, d. $135, ANSWER: a
92. Donner Company is selling a piece of land adjacent to its business. An appraisal reported the market value of the land to be $120,000. Focus Company initially offered to buy the land for $107,000. The companies settled on a purchase price of $115,000. On the same day, another piece of land on the same block sold for $122,000. Under the cost concept, what amount will be used to record this transaction in Focus Company’s accounting records? a. $107, b. $115, c. $120, d. $122, ANSWER: b
93. Assets are a. always lower than liabilities b. equal to liabilities less owner’s equity c. the same as expenses because they are acquired with cash d. financed by the owner and/or creditors

Chapter 01 - Introduction to Accounting and Business

100. A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to a. increase an asset, decrease another asset b. decrease an asset, decrease a liability c. increase an asset, increase a liability d. increase an asset, increase owner's equity ANSWER: b
101. Earning revenue a. increases assets, increases owner’s equity b. increases assets, decreases owner's equity c. increases one asset, decreases another asset d. decreases assets, increases liabilities ANSWER: a
102. The monetary value charged to customers for the performance of services sold is called a(n) a. asset b. net income c. capital d. revenue ANSWER: d
103. Revenues are reported when a. a contract is signed b. cash is received from the customer c. work is begun on the job d. work is completed on the job ANSWER: d
104. Expenses are recorded when a. cash is paid for services rendered b. a bill is received in advance of services rendered c. assets are used in the process of earning revenue d. assets are purchased ANSWER: c
105. Goods purchased on account for future use in the business, such as supplies, are called a. prepaid liabilities b. revenues c. prepaid expenses d. liabilities ANSWER: c
106. The asset created by a business when it makes a sale on account is termed a. accounts payable

Chapter 01 - Introduction to Accounting and Business

b. prepaid expense c. unearned revenue d. accounts receivable ANSWER: d

107. The debt created by a business when it makes a purchase on account is referred to as an a. account payable b. account receivable c. asset d. expense payable ANSWER: a
108. If total assets decreased by $88,000 during a period of time and owner's equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities would be a(n) a. $17,000 increase b. $88,000 decrease c. $159,000 increase d. $159,000 decrease ANSWER: d
109. Owner's withdrawals a. increase expenses b. decrease expenses c. increase cash d. decrease owner's equity ANSWER: d
110. How does paying a liability in cash affect the accounting equation? a. assets increase; liabilities decrease b. assets increase; liabilities increase c. assets decrease; liabilities decrease d. liabilities decrease; owner's equity increases ANSWER: c
111. How does receiving a bill to be paid next month for services received affect the accounting equation? a. assets decrease; owner's equity decreases b. assets increase; liabilities increase c. liabilities increase; owner's equity increases d. liabilities increase; owner's equity decreases ANSWER: d
112. How does the purchase of equipment by signing a note affect the accounting equation? a. assets increase; assets decrease b. assets increase; liabilities decrease c. assets increase; liabilities increase

Chapter 01 - Introduction to Accounting and Business

c. increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and increase in assets (Accounts Receivable) ANSWER: b

119. Gomez Service Company paid its first installment on a note payable of $2,000. How will this transaction affect the accounting equation? a. increase in liabilities (Notes Payable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner’s equity (Note Payable Expense) c. decrease in assets (Cash) and decrease in assets (Notes Receivable) d. decrease in assets (Cash) and decrease in liabilities (Notes Payable) ANSWER: d
120. Ramon Ramos has withdrawn $750 from Ramos Repair Company’s cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company’s accounting equation? a. increase in assets (Accounts Receivable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) c. decrease in assets (Cash) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) ANSWER: b
121. Which of the following is not a business transaction? a. Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service. b. Erin provided services to customers earning fees of $600. c. Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month. d. Erin pays her monthly personal credit card bill. ANSWER: d
122. Which of the following is a business transaction? a. purchase inventory on account b. plan advertising for upcoming sale c. give employees a raise beginning next month d. submit estimate for construction project ANSWER: a
123. The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) a. statement of cash flows b. statement of owner's equity c. income statement d. balance sheet ANSWER: c
124. Which of the following financial statements reports information as of a specific date? a. income statement b. statement of owner's equity

Chapter 01 - Introduction to Accounting and Business

c. statement of cash flows d. balance sheet ANSWER: d

125. Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of owner's equity (OE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared? a. I,OE, B b. B, I, OE c. OE, I, B d. B,OE, I ANSWER: a
126. Liabilities are reported on the a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet ANSWER: d
127. Cash investments made by the owner to the business are reported on the statement of cash flows in the a. financing activities section b. investing activities section c. operating activities section d. supplemental statement ANSWER: a
128. The year-end balance of the owner's capital account appears on a. both the statement of owner's equity and the income statement b. only the statement of owner's equity c. both the statement of owner's equity and the balance sheet d. both the statement of owner's equity and the statement of cash flows ANSWER: c
129. A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the a. income statement b. balance sheet c. statement of cash flows d. statement of retained earnings ANSWER: a
130. If an owner wanted to know how money flowed into and out of the company, which financial statement would the owner use? a. income statement b. statement of cash flows