Acct final definition

34) Lorna Smith decided to start her own CPA practice as a professional corporation, Smith CPA PC. Her corporation purchased an office building for $35,000 that her real estate agent said was worth $50,000 in the current market. The corporation recorded the building as a $50,000 asset because Lorna believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated? A) cost principle B) economic entity assumption C) monetary unit assumption D) going concern assumption

A) cost principle

17) Which of the following is a characteristic of a corporation? A) A corporation is owned by stockholders. B) Lenders of a corporation do not have the right to claim the corporation's assets to satisfy their obligations. C) All shares of a corporation must be held by a single individual. D) Each stockholder has the authority to commit the corporation to a binding contract through his/her

A) A corporation is owned by stockholders.

24) ________ are professional accountants who serve the general public, not one particular company. A) Certified public accountants B) Certified financial accountants C) Audit accountants D) Controllers

A) Certified public accountants

2) Which of the following organizations is responsible for the creation and governance of accounting standards in the United States? A) Financial Accounting Standards Board B) Institute of Management Accountants C) American Institute of Certified Public Accountants D) Securities and Exchange Commission

A) Financial Accounting Standards Board

16) Wallace Repair Corporation incurred $1,500 as a labor expense and promised to pay the labor agency within 30 days. Which of the following will decrease as a result of this transaction? A) Assets B) Stockholders' equity C) Liabilities D) Revenues

B) Stockholders' equity

3) Which of the following is the correct order of preparation of financial statements? A) Income statement → statement of retained earnings → balance sheet → statement of cash flows B) Statement of retained earnings → balance sheet → income statement → statement of cash flows C) Balance sheet → statement of retained earnings → income statement → statement of cash flows D) Balance sheet → income statement → statement of retained earnings → statement of cash flows

A) Income statement → statement of retained earnings → balance sheet → statement of cash flows

29) Which of the following is true of retained earnings? A) Retained earnings decrease with payment of dividends. B) Retained earnings increase with purchase of assets. C) Retained earnings decrease with collection of revenue. D) Retained earnings increase with payment on account.

A) Retained earnings decrease with payment of dividends.

51) Which of the following organizations requires publicly owned companies to be audited by independent accountants (CPAs)? A) Securities and Exchange Commission (SEC) B) Public Company Accounting Oversight Board (PCAOB) C) Financial Accounting Standards Board (FASB) D) American Institute of Certified Public Accountants (AICPA)

A) Securities and Exchange Commission (SEC)

16) Which of the following is a major reason why corporate ownership is popular in the United States? A) Stockholders have limited liability for the debts of the corporation. B) Most corporations are small- or medium-sized. C) The life of a corporation is limited by the death of the owner. D) A corporation is usually managed by the owners.

A) Stockholders have limited liability for the debts of the corporation.

21) Which of the following statements is true of the corporate form of business? A) The board of directors sets policy for the corporation and appoints the officers. B) Changes in the ownership of stock has a negative effect on the continuity of the corporation. C) Any stockholder may commit the corporation to a contract. D) It is easy for stockholders to lodge an effective protest against management.

A) The board of directors sets policy for the corporation and appoints the officers.

52) The Public Company Accounting Oversight Board (PCAOB) was created ________. A) by the Sarbanes-Oxley Act (SOX) B) to perform audits of public companies C) to make restitution to investors who were defrauded by the issuance of fraudulent financial reports D) to require auditors to take responsibility for the accuracy and completeness of financial reports

A) by the Sarbanes-Oxley Act (SOX)

27) The taxable income of a sole proprietorship is ________. A) combined with the personal income of the proprietor B) not combined with the proprietor's personal income C) not taxable D) handled similarly to that of a corporation

A) combined with the personal income of the proprietor

20) Which of the following is an external user of a business's financial information? A) customers B) cost accountant C) company manager D) the board of directors

A) customers

14) Hamilton Lawn Services incurred $800 as a repair expense and paid for it in cash. This transaction will ________. A) decrease the stockholders' equity B) increase the assets of the business C) increase the liabilities of the business D) decrease the liabilities of the business

A) decrease the stockholders' equity

20) Corporations pay their own income tax on corporate income. Stockholders pay personal income tax on the dividends received from corporations. This is an example of ________. A) double taxation B) continuous life C) no mutual agency D) a limited liability company

A) double taxation

16) Managerial accounting provides information to ________. A) internal decision makers B) outside investors and lenders C) creditors D) taxing authorities

A) internal decision makers

22) Jackson Plumbing Services earned $500 by completing a job for Smith Company. The $500 earned by Jackson Plumbing Services is its ________. A) revenue B) equity C) gain D) debt

A) revenue

18) The amount of net income is transferred from ________ to ________. A) the income statement; the statement of retained earnings B) the balance sheet; the statement of cash flows C) the balance sheet; the income statement D) the income statement; the statement of expenditures

A) the income statement; the statement of retained earnings

17) Marsh Supply Services paid $350 cash to a materials supplier, the amount owed from the previous month. Which of the following accounts decreases? A) Accounts Receivable B) Accounts Payable C) Retained Earnings D) Office Supplies

B) Accounts Payable

11) Which of the following is true of assets? A) Assets include cash, merchandise inventory, and accounts payable. B) Assets are something of value the business owns or controls. C) Assets do not need to provide future benefit to the business. D) Assets can be recorded at the expected cost if acquired at a bargain.

B) Assets are something of value the business owns or controls.

11) Bubble Wraps Company receives cash from a stockholder, John Trent, and issues common stock to him. The two accounts involved in this transaction are ________. A) Accounts Payable and Cash B) Cash and Common Stock C) Common Stock and Accounts Payable D) Common Stock and Accounts Receivable

B) Cash and Common Stock

18) Fitch Supply Services received $1,000 cash from a customer; the amount was owed to the business from the previous month. What is the effect of this transaction on the accounting equation? A) Accounts Receivable increases and Service Revenue increases B) Cash increases and Accounts Receivable decreases C) Cash increases and Service Revenue increases D) Cash increases and Accounts Payable decreases

B) Cash increases and Accounts Receivable decreases

23) Which of the following is a characteristic of a limited-liability company (LLC)? A) An LLC's life is terminated at any member's choice or death. B) Each member of an LLC is liable only for his or her own actions. C) An LLC must have more than five members. D) The income of members from an LLC is not taxed.

B) Each member of an LLC is liable only for his or her own actions.

8) Which of the following financial statements reports expenses in decreasing order of their amounts, by stating the largest expense first? A) Statement of cash flows B) Income statement C) Statement of retained earnings D) Balance sheet

B) Income statement

13) Aventis Company distributes cash dividends. How does this transaction affect the accounting equation? A) The assets, liabilities, and equity remain the same. B) The assets decrease and equity decreases. C) The assets increase and liabilities decrease. D) The assets decrease and equity increases.

B) The assets decrease and equity decreases.

22) Which of the following statements is true of a sole proprietorship? A) A sole proprietorship joins two or more individuals as co-owners. B) The sole proprietor is personally liable for the liabilities of the business. C) A sole proprietorship is taxed separately from the owner. D) A sole proprietorship has to pay business income taxes.

B) The sole proprietor is personally liable for the liabilities of the business.

45) International Financial Reporting Standards ________ U.S. Generally Accepted Accounting Principles. A) are the same as B) are generally less specific than C) are based less on principle than D) leave less room for professional judgment than

B) are generally less specific than

28) Joshua Thomas Corporation manufactures and retails computer hardware. The president of the corporation bought a new car as a gift for his daughter and paid for it using cash from the business. Since the corporation paid for the car, it was recorded in its books as an asset. Which of the following concepts or principles of accounting did the corporation violate? A) monetary unit assumption B) economic entity assumption C) cost principle D) going concern assumption

B) economic entity assumption

17) The field of accounting that focuses on providing information for external decision makers is ________. A) managerial accounting B) financial accounting C) cost accounting D) nonmonetary accounting

B) financial accounting

24) Caleb Brown has been the sole owner of a bicycle sales and repair shop for several years. Which of the following business types would limit Caleb's personal liability exposure to the entity's debts? A) partnership B) limited-liability company C) sole proprietorship D) limited-liability partnership

B) limited-liability company

16) Which of the following transactions will affect the balance of Retained Earnings? A) issued common stock for cash B) paid rent expense for the month C) purchased land for cash D) collection on account

B) paid rent expense for the month

30) The ultimate control of the corporation rests with the ________. A) board of directors B) stockholders C) chairperson D) chief operating officer

B) stockholders

15) Harris Landscaping Services incurred $500 as a labor expense and promised to pay the labor agency within 30 days. Which of the following accounts will increase as a result of this transaction? A) Accounts Receivable B) Cash C) Accounts Payable D) Retained Earnings

C) Accounts Payable

2) Which of the following statements best defines financial statements? A) Financial statements are the information systems that record monetary and nonmonetary business transactions. B) Financial statements are the verbal statements made to business news organizations by chief financial officers. C) Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions. D) Financial statements are plans and forecasts for future time periods based on information from past financial periods.

C) Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions.

19) Which of the following appears on both the income statement and statement of retained earnings? A) Ending stockholders' equity B) Total revenues C) Net income D) Dividends

C) Net income

28) ________ is the equity earned by profitable operations that is not distributed to stockholders. A) Assets B) Dividend C) Retained earnings D) Common stock

C) Retained earnings

18) Which of the following actions determines when a corporation comes into existence? A) The charter is obtained from the state. B) The incorporators pay fees, sign the charter, and file required documents with the state. C) The first share of stock is issued. D) The corporate bylaws are written.

C) The first share of stock is issued.

2) Accountants record ________. A) economic recessions B) estimated future transactions C) a transaction or any event that affects the financial position of the business and can be measured with faithful representation D) the $20,000 increase in value of a building that actually cost $50,000 but could be sold for $70,000

C) a transaction or any event that affects the financial position of the business and can be measured with faithful representation

33) According to the ________, acquired assets should be recorded at the amount actually paid rather than at the estimated market value. A) going concern assumption B) economic entity concept C) cost principle D) monetary unit assumption

C) cost principle

23) The owners' claims to the assets of the business are called ________. A) return on assets B) expenses C) equity D) debt

C) equity

39) As per the ________, the entity will remain in operation for the foreseeable future. A) economic entity concept B) monetary unit assumption C) going concern assumption D) cost principle

C) going concern assumption

25) David has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organization, which type of business organization, in effect, has he chosen? A) A limited-liability company B) A partnership C) A corporation D) A sole proprietorship

D) A sole proprietorship

12) Lush Lawns Corporation earned $1,000 for lawn mowing services rendered. The customer promised to pay at a later time. Which of the following accounts increased as a result of this transaction? A) Accounts Payable B) Supplies C) Cash D) Accounts Receivable

D) Accounts Receivable

46) Which of the following statements, regarding International Financial Reporting Standards (IFRS), is correct? A) International Financial Reporting Standards are issued by the Financial Accounting Standards Board. B) The Securities and Exchange Commission is the private organization that oversees the creation and governance of International Financial Reporting Standards. C) International Financial Reporting Standards represent a set of global accounting standards that are generally more specific and based less on principle than U.S. Generally Accepted Accounting Principles. D) Companies who are incorporated in or do significant business in another country might be required to publish financial statements using International Financial Reporting Standards.

D) Companies who are incorporated in or do significant business in another country might be required to publish financial statements using International Financial Reporting Standards.

4) GAAP refer to guidelines for accounting information in the United States. The acronym GAAP in this statement refers to ________. A) Globally Accepted and Accurate Policies B) Global Accommodation Accounting Principles C) Generally Accredited Accounting Policies D) Generally Accepted Accounting Principles

D) Generally Accepted Accounting Principles

19) Regarding the separation of corporate ownership and management, which of the following is a true statement? A) The corporate officers elect the board of directors. B) The corporation runs better with day-to-day input from stockholders. C) None of the stockholders have the ability to manage the business of the corporation. D) Stockholders own the business, but a board of directors appoints corporate officers to manage the business.

D) Stockholders own the business, but a board of directors appoints corporate officers to manage the business.

29) Which of the following statements is true of a corporation? A) Corporations pay the same variety of taxes as other forms of business. B) Although a corporation is a separate legal entity, it cannot be sued. C) Any stockholder of a corporation can commit the corporation to a binding contract. D) The owners of a corporation are called stockholders.

D) The owners of a corporation are called stockholders.

7) The income statement presents a summary of an entity's revenues and expenses for a period of time. Which of the following statements is true of an income statement? A) There is net income when total expenses are greater than total revenues. B) There is a net loss when total expenses are less than total revenue. C) There is a net loss when total expenses are greater than total liabilities. D) There is net income when total revenues are greater than total expenses.

D) There is net income when total revenues are greater than total expenses.

19) Which of the following users would rely on managerial accounting information for decision-making purposes? A) potential investors B) creditors C) customers D) company managers

D) company managers

30) Equity of a corporation is broken out into two components. Which of the following are the two components of the equity of a corporation? A) current assets and fixed assets B) common stock and liabilities C) revenues and expenses D) contributed capital and retained earnings

D) contributed capital and retained earnings

35) Thirty years ago, Star Grocer Corporation purchased a building for its grocery store for $30,000. Based on inflation estimates, the amount of the building has been adjusted in the accounting records. The building is now reported at $75,000 in Star Grocer's financial statements. Which of the following concepts or principles of accounting is being violated? A) going concern assumption B) revenue realization concept C) economic entity assumption D) cost principle

D) cost principle

26) In a limited-liability company, the ________. A) members are personally liable to pay the entity's debts B) business pays income tax on earnings C) members are liable for each other's actions D) members pay income tax on their share of earnings

D) members pay income tax on their share of earnings

41) Genity Corporation records business transactions in dollars and disregards changes in the value of a dollar over time. Which of the following accounting assumptions does this represent? A) economic entity assumption B) going concern assumption C) accounting period assumption D) monetary unit assumption

D) monetary unit assumption

50) The Sarbanes-Oxley Act (SOX) ________. A) requires independent accountants to take responsibility for the accuracy and completeness of the financial reports B) created the SEC C) ensures that financial scandals will no longer occur D) requires companies to take responsibility for the accuracy and completeness of their financial reports

D) requires companies to take responsibility for the accuracy and completeness of their financial reports