Ch 1 review

In a business decision where there are ethical concerns, the preferred course of action should be one that:

Avoids casting doubt on the decision maker and upholds trust.

The International Accounting Standards Board (IASB):

Hopes to create harmony among accounting practices of different countries to improve comparability.

The independent group that is attempting to harmonize accounting practices of different countries is the:

IASB.

The area of accounting aimed at serving the decision making needs of internal users is:

Managerial accounting.

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

Measurement (Cost) principle.

The assets of a company total $700,000; the liabilities, $200,000. What are the net assets?

$500,000.

The primary objective of financial accounting is to:

) Provide accounting information that serves external users.

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

Business entity assumption.

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

Business entity assumption.

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

Business entity assumption.

Resources that stockholders receive from the company is called a(n):

Dividend.

All of the following regarding a Certified Public Accountant are true except: A) Must meet education and experience requirements. B) Must pass an examination. C) Must exhibit ethical character. D) May also be a Certified Management Accountant. E) Cannot hold any certificate other than a CPA.

E Cannot hold any certificate other than a CPA.

The difference between a company's assets and its liabilities, or net assets is:

Equity.

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Going-concern assumption.

Another name for equity is:

Net assets.

Technology:

Reduces the time, effort and cost of recordkeeping.

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Revenue recognition principle.

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

Revenues.

Accounting is an information and measurement system that does NOT:

eliminates the need for interpreting financial data.

If assets are $99,000 and liabilities are $32,000, then equity equals:

$67,000. Explanation: Assets = Liabilities + Equity $99,000 = $32,000 + Equity; Equity = $67,000

A corporation is:

A business legally separate from its owners.

The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the:

Accounting equation.

Ethical behavior requires that:

Auditors' pay not depend on the success of the client's business.

All of the following are true regarding ethics except: A) Ethics are beliefs that distinguish right from wrong. B) Ethics rules are often set for CPAs. C) Ethics do not affect the operations or outcome of a company. D) Are critical in accounting. E) Ethics can be difficult to apply.

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

Distributions of cash or other resources by a business to its stockholders are called:

Dividends.

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

Expense recognition (Matching) principle.

Operating activities:

Involve using resources to research, develop, purchase, produce, distribute and market products and services

Revenues are:

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

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

Assets.

A partnership:

Has unlimited liability for its partners.

A limited partnership:

Includes a general partner with unlimited liability.

An example of a financing activity is:

Obtaining a long-term loan.

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

Purchasing managers.

If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

$137,000

If a company receives $12,000 from its sole stockholder to establish a corporation, the effect on the accounting equation would be:

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

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

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

Decreases in equity that represent costs of providing products or services to customers, used to earn revenues are called:

Expenses.

Net Income:

Is the excess of revenues over expenses.

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

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

An example of an operating activity is:

Paying wages.

Revenue is properly recognized:

Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.

When expenses exceed revenues, the resulting change in equity is called:

Net loss.

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

$31,100.Explanation: Assets = Liabilities + Equity Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Equity $20,500 + $7,250 + $650 + $12,000 = $9,300 + Equity $40,400 = $9,300 + Equity; Equity = $31,100

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

$32,100. Explanation: Assets - Liabilities = Equity Cash + Supplies + Equipment - Accounts Payable = Equity $30,000 + $600 + $10,000 - $8,500 = $32,100

Assets created by selling goods and services on credit are:

Accounts receivable.

The conceptual framework that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are attempting to converge and enhance includes the following broad areas to guide standard setting except: A) Objectives B) Qualitative characteristics C) Uniformity D) Elements E) Recognition and measurement

C) Uniformity

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

Liabilities.

An example of an investing activity is:

Purchase of land.

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

Revenue recognition principle.

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

Revenue recognition principle.

Which of the following purposes would financial statements serve for external users?

To fulfill regulatory requirements for companies whose stock is sold to the public.

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

An external transaction.

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

FASB

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

Measurement (Cost) principle.

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the

Measurement (Cost) principle.

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Objectivity principle.