Accounting in Action

As of December 31, Stoneland Company has assets of $3,500 and stockholders' equity of $2,000. What are the liabilities for Stoneland Company as of December 31? A. $1,500. B. $1,000. C. $2,500. D. $2,000.

A. $1,500.

Milo has the following year-end account balances: Accounts Receivable, $5,000; Supplies, $12,000; Equipment, $18,000; Accounts Payable, $17,000; Stockholders' Equity, $43,000. The Cash account balance was not available at year-end. Given the account balances listed, the balance in the Cash account should be A. $25,000. B. $95,000. C. $43,000. D. None of these answer choices are correct.

A. $25,000.

Patterson Company reported stockholders' equity of $75,000 at the beginning of the year. During the year, the company recognized net income of $15,000. Stockholders made an additional investment of $10,000 at midyear and received a $5,000 dividend at year-end. The stockholders' equity at the end of the year is A. $95,000. B. $75,000. C. $55,000. D. $85,000.

A. $95,000.

Which of the following financial statements is prepared as of a specific date? A. Balance Sheet. B. Income Statement. C. Retained Earnings Statement. D. Statement of Cash Flows.

A. Balance Sheet.

The primary accounting standard-setting body in the United States is the A. Financial Accounting Standards Board. B. International Accounting Standards Board. C. Internal Revenue Service. D. Securities and Exchange Commission.

A. Financial Accounting Standards Board.

A balance sheet is prepared as of a specific date. A. True B. False

A. True

Expenses that result from operating the business are decreases in stockholders' equity. A. True B. False

A. True

Financial accounting provides internal reports to help users make decisions about their companies. A. True B. False

A. True

The first step in analyzing ethics cases is to recognize an ethical situation and the ethical issues involved. A. True B. False

A. True

The historical cost principle dictates that companies record assets at their cost. A. True B. False

A. True

The statement of cash flows provides information on the cash receipts and payments for a specific period of time. A. True B. False

A. True

The three most common forms of business organization, proprietorship, partnership, and corporation, are used in countries that use IFRS. A. True B. False

A. True

Services provided by a public accountant include A. auditing, taxation, and management consulting. B. auditing, budgeting, and management consulting. C. auditing, budgeting, and cost accounting. D. internal auditing, budgeting, and management consulting.

A. auditing, taxation, and management consulting.

During 2015, Gibson Company's assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity therefore A. increased $40,000. B. decreased $140,000. C. decreased $40,000. D. increased $140,000.

A. increased $40,000.

At the beginning of the year, Kimball Company had total assets of $700,000 and total liabilities of $400,000. If the total assets increased $100,000 and the total liabilities decreased $80,000, what is the amount of stockholders' equity at the end of the year? A. $300,000. B. $480,000. C. $20,000. D. None of these answer choices are correct.

B. $480,000.

Which of the following events is not recorded in the accounting records? A. Equipment is purchased on account. B. An employee is terminated. C. A cash investment is made into the business. D. The declaration of cash dividends.

B. An employee is terminated.

Communication consists of keeping a systematic, chronological diary of events, measured in dollars and cents. A. True B. False

B. False

Cost accounting is an activity in public accounting. A. True B. False

B. False

Large international public companies are required to comply with Sarbanes-Oxley. A. True B. False

B. False

The economic entity assumption applies to corporations but not proprietorships or partnerships. A. True B. False

B. False

The receipt of cash on account will increase total assets. A. True B. False

B. False

The standards developed by the International Accounting Standards Board are referred to as International Financial Recording Standards. A. True B. False

B. False

Which of the following is not one of the reasons that a single set of international accounting standards is needed? A. Multinational corporations. B. Government regulations. C. Information technology. D. Financial markets.

B. Government regulations.

Which of the following statements about basic assumptions is correct? A. Basic assumptions are the same as accounting principles. B. The economic entity assumption states that there should be a particular unit of accountability. C. The monetary unit assumption enables accounting to measure employee morale. D. Partnerships are not economic entities.

B. The economic entity assumption states that there should be a particular unit of accountability.

On the last day of the period, Jim Otto Company buys a $900 machine on credit. This transaction will affect the A. income statement only. B. balance sheet only. C. income statement and statement of stockholders' equity only. D. income statement, stockholders' equity statement, and balance sheet.

B. balance sheet only.

Combining the activities of Kellogg and General Mills would violate the A. cost principle. B. economic entity assumption. C. monetary unit assumption. D. ethics principle.

B. economic entity assumption.

The first activity of the accounting process is A. communication. B. identification. C. processing. D. recording.

B. identification.

Revenues and expenses are reported on the A. balance sheet. B. income statement. C. statement of stockholders' equity. D. statement of cash flows.

B. income statement.

Performing services on account will have the following effects on the components of the basic accounting equation: A. increase assets and decrease stockholders' equity. B. increase assets and increase stockholders' equity. C. increase assets and increase liabilities. D. increase liabilities and increase stockholders' equity.

B. increase assets and increase stockholders' equity.

The investment of cash by the stockholder A. increases revenues. B. increases stockholders' equity. C. decreases expenses. D. decreases assets.

B. increases stockholders' equity.

Internal users of accounting information include all of the following except A. company officers. B. investors. C. marketing managers. D. production supervisors.

B. investors.

Which of the following is not one of the career opportunities in accounting? A. public accounting B. personal accounting C. governmental accounting D. private accounting

B. personal accounting

The three types of business entities are A. proprietorships, small businesses, and partnerships. B. proprietorships, partnerships, and corporations. C. proprietorships, partnerships, and large businesses. D. financial, manufacturing, and service companies.

B. proprietorships, partnerships, and corporations.

Bookkeeping, as opposed to accounting, usually involves only A. identifying. B. recording. C. communicating. D. reporting.

B. recording.

Which of the following is not a step in the accounting process? A. identification. B. verification. C. recording. D. communication.

B. verification.

Which of the following statements is false? A. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. B. A balance sheet reports the assets, liabilities, and stockholders' equity at a specific date. C. An income statement represents the revenues, expenses, changes in stockholders' equity, and resulting net income or net loss for a specific period of time. D. A statement of stockholders' equity summarizes the changes in stockholders' equity for a specific period of time.

C. An income statement represents the revenues, expenses, changes in stockholders' equity, and resulting net income or net loss for a specific period of time.

The historical cost principle states that A. assets should be initially recorded at cost and adjusted when the fair value changes. B. activities of an entity are to be kept separate and distinct from its owner. C. assets should be recorded at their cost. D. only transaction data capable of being expressed in terms of money be included in the accounting records.

C. assets should be recorded at their cost.

The financial statement that reports assets, liabilities, and stockholders' equity is the A. income statement. B. statement of stockholders' equity. C. balance sheet. D. statement of cash flow.

C. balance sheet.

A business organized as a separate legal entity under state corporation law having ownership divided into transferable shares of stock is a A. proprietorship. B. partnership. C. corporation. D. sole proprietorship.

C. corporation.

Simon Company had the following summarized operations for the month of May: Revenues earned: for cash, $32,000; and on account, $18,000; and Expenses incurred: for cash, $5,000; and on account, $10,000. In addition, the company purchased Equipment for $8,000 on account and Supplies for $5,000 for cash. The net income for the month of May is A. $14,000. B. $45,000. C. $27,000. D. $35,000.

D. $35,000.

Which of the following statements about users of accounting information is incorrect? A. Management is an internal user. B. Taxing authorities are external users. C. Present creditors are external users. D. Regulatory authorities are internal users.

D. Regulatory authorities are internal users.

The intent of the Sarbanes Oxley Act of 2002 is to A. reduce unethical corporate behavior B. decrease likelihood of future corporate scandals C. increase severity of penalties for fraudulent financial activity D. all of these answer choices are correct .

D. all of these answer choices are correct .

The resources a business owns are called A. revenues. B. stockholders' equity. C. liabilities. D. assets.

D. assets.

The ending retained earnings amount is shown on the A. balance sheet only. B. retained earnings statement only. C. statement of cash flows. D. both the balance sheet and the retained earnings statement.

D. both the balance sheet and the retained earnings statement.

Payment of accounts payable affects the components of the accounting equation in the following way: A. decreases stockholders' equity and decreases liabilities. B. increases assets and decreases liabilities. C. decreases assets and increases stockholders' equity. D. decreases assets and decreases liabilities.

D. decreases assets and decreases liabilities.

International Financial Reporting Standards are said to be: A. rules-based. B. standards-based. C. assumptions-based. D. principles-based.

D. principles-based.

Keeping a systematic, chronological diary of events, measured in dollars and cents is called A. communicating. B. identifying. C. processing. D. recording.

D. recording.

Net income will result during a time period when A. assets exceed liabilities. B. assets exceed revenues. C. expenses exceed revenues. D. revenues exceed expenses.

D. revenues exceed expenses.

An example of an internal transaction is the A. purchase of an asset. B. payment of a liability. C. performance of services. D. use of office supplies.

D. use of office supplies.