Chapter 1

At the end of the current accounting period, account balances were as follows: Cash, $180,000; Accounts Receivable, $75,000; Common Stock, $20,000; Retained Earnings, $65,000. Liabilities for the period were: A) $ 70,000. B) $170,000. C) $190,000. D) $210,000

B - $170000

An office building is appraised for $250,000 and offered for sale at $260,000. The buyer pays $245,000 for the building. The building should be recorded on the books of the buyer at: A) $250,000. B) $260,000. C) $245,000. D) some other amount

C - $245000

A retail store sells t-shirts for $85 and purchases them for $60. The store's cost of goods sold would be: A) $25. B) $85. C) $60. D) none of the above

C - $60

The income statement: A) is not dated. B) may cover a period of time or only one day in time, like a snapshot photograph. C) covers a defined period of time. D) reports the results of operations since the inception of the business

C - covers a defined period of time

Assets are generally classified as: A) producing assets and consumable assets. B) current assets and producing assets. C) current assets and long-term assets. D) long-term assets and consumable assets

C - current assets and long term assets

Which of the following best describes a liability? Liabilities are: A) a form of paid-in capital. B) future economic benefits to which a company is entitled. C) debts payable to outsiders called creditors. D) economic obligations to owners to be paid at some future date by the corporation

C - debts payable to outsiders called creditors

The balance sheet contains the: A) amount of net income or net loss. B) beginning balance in retained earnings. C) ending balance in retained earnings. D) amount of cash dividends paid to stockholders

C - ending balance in retained earnings

The Financial Accounting Standards Board is responsible for establishing: A) the code of professional conduct for accountants. B) the Securities and Exchange Commission. C) generally accepted accounting principles. D) the American Institute of Certified Public Accountants

C - generally accepted accounting principles

Accounting information is subject to the constraints of: A) comparability and consistency. B) comparability and verifiability. C) materiality and cost. D) relevance and faithful representation

C - materiality and cost

Owners of an LLC are called: A) partners. B) sole proprietors. C) members. D) stockholders

C - members

Receivables are classified as: A) increases in earnings. B) decreases in earnings. C) liabilities. D) assets

D - assets

The amount that stockholders have invested in a corporation is called: A) retained earnings. B) investment. C) revenue. D) paid-in capital

D - paid in capital

Accumulated depreciation is normally associated with which asset on the Balance Sheet? A) Inventory B) Accounts receivable C) Land D) Property, plant and equipment

D - property, plant, and equipment

Which of the following financial statements shows the net increase or decrease in cash during the period? A) Balance Sheet only B) Statement of Operations C) Statement of Retained Earnings and Balance Sheet D) Statement of Cash Flows

D - statement of cash flows

The balance sheet is also known as the: A) statement of profit and loss. B) operating statement. C) assets statement. D) statement of financial position

D - statement of financial position

Current assets are assets expected to be converted to cash, sold, or consumed within the next: A) 12 months or within the business's normal operating cycle if longer than a year. B) 12 months or within the business's normal operating cycle if less than a year. C) 6 months. D) 24 months

A - 12 months or within the business's normal operating cycle if longer than a year

International financial reporting standards are set by the: A) IASB. B) GAAP. C) FASB. D) SEC

A - IASB

Common stock appears on: A) the Balance Sheet. B) the Income Statement. C) the Statement of Cash Flows and the Statement of Retained Earnings. D) none of the above

A - balance sheet

Which financial statement provides a "snapshot photo" of one moment in time for the whole entity? A) Balance Sheet only B) Income Statement only C) Statement of Retained Earnings and Income Statement D) Statement of Cash Flows only

A - balance sheet only

Equipment would appear on the: A) Balance Sheet with the long-term assets. B) Income Statement with the revenues. C) Income Statement with the operating expenses. D) Balance Sheet with the current assets

A - balance sheet with the long term assets

For which form of business ownership are the owners of a business legally distinct from the business? A) Corporation B) Partnership C) Proprietorship D) All of the above

A - corporation

The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is the: A) cost principle. B) objectivity principle. C) reliability principle. D) stable dollar principle

A - cost principle

Notes payable (due in 60 days) would appear as a: A) current liability on the Balance Sheet. B) current asset on the Balance Sheet. C) long-term asset on the Balance Sheet. D) long-term liability on the Balance Sheet

A - current liability on the balance sheet

The accounting assumption that states that the business, rather than its owners, is the reporting unit is the: A) entity assumption. B) going concern assumption. C) stable-monetary-unit assumption. D) historical cost assumption

A - entity assumption

An Oklahoma City business paid $15,000 cash for equipment used in the business. At the time of purchase, the equipment had a list price of $20,000. When the balance sheet was prepared, the value of the equipment was $22,000. What is the relevant measure of the value of the equipment? A) Historical cost, $15,000 B) Fair market cost, $20,000 C) Current market cost, $22,000 D) $15,000 on the day of purchase, $22,000 on balance sheet date

A - historic cost, $15000

If assets increase $210,000 during a given period and liabilities increase $65,000 during the same period, stockholders' equity must: A) increase $145,000. B) decrease $275,000. C) decrease $145,000. D) increase $275,000

A - increase $145000

In relation to the cash flow statement, purchases and sales of long-term assets are examples of: A) investing activities. B) accrual activities. C) financing activities. D) operating activities

A - investing activities

The FASB: A) is working towards a convergence of standards with the IASB. B) will not accept IASB rules. C) does not want US companies to adopt IFRS standards. D) feels that the global use of IFRS will significantly increase costs of doing global business.

A - is working towards a convergence of standards with the IASB

Retained earnings is increased by: A) net income. B) net loss. C) dividends. D) expenses

A - net income

Which of the following must be added to beginning Retained Earnings to compute ending Retained Earnings? A) Net income B) Expenses C) Dividends D) All of the above

A - net income

The heading John Smith, Capital, indicates the owners' equity of a: A) proprietorship. B) corporation. C) not-for-profit. D) regulatory body

A - proprietorship

The two main components of stockholders' equity are: A) retained earnings and paid-in capital. B) assets and liabilities. C) paid-in capital and assets. D) net income and retained earnings

A - retained earning and paid in capital

Which of the following is a component of stockholders' equity? A) Retained earnings B) Notes payable C) Cash D) Fixed assets

A - retained earnings

Assets appear on: A) the Balance Sheet. B) the Income Statement. C) the Statement of Retained Earnings. D) both the Balance Sheet and the Statement of Retained Earnings

A - the balance sheet

Dividends appear on: A) the Statement of Retained Earnings. B) both the Statement of Retained Earnings and the Income Statement. C) the Income Statement. D) the Balance Sheet

A - the statement of retained earnings

At the beginning of the period, assets were $490,000 and stockholders' equity was $240,000. During the year, assets increased by $60,000, liabilities increased by $40,000, and stockholders' equity increased by $20,000. Beginning liabilities must have been: A) $230,000. B) $250,000. C) $280,000. D) $300,000

B - $250000

What is the Retained earnings shown on the Balance Sheet for 2010? A) $15,000 B) $45,000 C) $75,000 D) $77,000

B - $45000

A company sells its product for $100. The cost of the product to the company is $60. Selling expenses are $15. Cost of goods sold is: A) $100. B) $60. C) $40. D) $75

B - $60

The accounting equation can be stated as: A) Assets + Stockholders' Equity = Liabilities. B) Assets -Liabilities = Stockholders' Equity. C) Assets = Liabilities - Stockholders' Equity. D) Assets - Stockholders' Equity + Liabilities = Zero

B - Assets - Liabilities = Stockholders equity

Accountants follow guidelines for professional measurement and disclosure of financial information called: A) IASB. B) GAAP. C) FASB. D) SEC

B - GAAP

Revenues were $170,000, expenses were $90,000, and cash dividends were $30,000. What was the net income and the change in retained earnings for the period? A) Net income was $50,000; the change in retained earnings was $50,000. B) Net income was $80,000; the change in retained earnings was $50,000. C) Net income was $80,000; the change in retained earnings was $80,000. D) Net income was $250,000; the change in retained earnings was $250,000

B - Net income was $80000; the change in retained earnings was $50000

Stockholders' equity decreases as a result of: A) owner investments. B) a net loss during the period. C) a net income during the period. D) both A and C.

B - a net loss during the period

Which of the following is NOT an asset? A) Inventory B) Accounts payable C) Accounts receivable D) Cash

B - accounts payable

The economic resources of a business that are expected to produce a benefit in the future are: A) liabilities. B) assets. C) owners' equity. D) expenses

B - assets

The owners' equity of any business is its: A) revenues minus expenses. B) assets minus liabilities. C) assets plus liabilities. D) paid-in capital plus assets

B - assets minus liabilities

The ending balance in Retained Earnings appears on the: A) Balance Sheet only. B) Balance Sheet and Statement of Retained Earnings. C) Statement of Retained Earnings only. D) Income Statement and Statement of Cash Flows

B - balance sheet and statement of retained earnings

Accounts receivable would appear on the: A) Balance Sheet with the current liabilities. B) Balance Sheet with the current assets. C) Income Statement with the revenues. D) Statement of Retained Earnings with the net income

B - balance sheet with the current assets

An entity that is organized according to state law and in which ownership units are called stock is a: A) proprietorship. B) corporation. C) partnership. D) limited liability company

B - corporation

Notes receivable due in 60 days would be classified as a: A) current liability on the Balance Sheet. B) current asset on the Balance Sheet. C) long-term asset on the Balance Sheet. D) long-term liability on the Balance Sheet

B - current asset on the balance sheet

The relevant measure of the value of the assets of a company that is going out of business is the: A) book value. B) current market value. C) historical cost. D) recorded value

B - current market value

Cash dividends: A) decrease revenue on the income statement. B) decrease retained earnings on the statement of retained earnings. C) increase expenses on the income statement. D) decrease operating activities on the statement of cash flows

B - decrease retained earnings on the statement of retained earnings

The two types of accounting are: A) profit and nonprofit. B) financial and managerial. C) internal and external. D) bookkeeping and decision-oriented.

B - financial and managerial

The continuity (going-concern) assumption of accounting: A) enables accountants to ignore the effect of inflation in the accounting records. B) holds that the entity will remain in operation long enough to use its existing assets. C) maintains that each organization, or section of an organization, stands apart from other organizations and individuals. D) ensures that accounting records and statements are based on the most reliable data available.

B - holds that the entity will remain in operation long enough to use its existing assets

A company's gross profit for the period is reported on the: A) Balance Sheet. B) Income Statement. C) Statement of Cash Flows. D) Statement of Retained Earnings

B - income statement

Gains and losses appear on which of the financial statements listed below? A) Balance Sheet B) Income Statement C) Statement of Cash Flows D) Statement of Retained Earnings

B - income statement

Which financial statement must be prepared before the others? A) Statement of Cash Flows B) Income Statement C) Balance Sheet D) Statement of Retained Earnings

B - income statement

Cost of goods sold appears on the: A) Statement of Retained Earnings as an addition to beginning retained earnings. B) Income Statement as a deduction from sales. C) Balance Sheet as a deduction from sales. D) Income Statement as a deduction from gross profit

B - income statement as a deduction from sales

A potential investor interested in evaluating a company's financial earning performance for the current period would probably examine which of the following financial statements? A) Balance Sheet only B) Income Statement only C) Statement of Cash Flows and Income Statement D) Statement of Retained Earnings and Balance Sheet

B - income statement only

On January 1, 2010, total assets for Liftoff Technologies were $125,000; on December 31, 2010, total assets were $145,000. On January 1, 2010, total liabilities were $110,000; on December 31, 2010, total liabilities were $115,000. What is the amount of the change and the direction of the change in Liftoff Technologies' stockholders' equity for 2010? A) Decrease of $15,000 B) Increase of $15,000 C) Increase of $30,000 D) Decrease of $30,000

B - increase of $15000

When information is important enough to the informed user, so that, if it was omitted or erroneous, it would make a difference in the user's decision, it is: A) comparable. B) material C) timely. D) understandable

B - material

When total expenses exceed total revenues, the result is a: A) net profit. B) net loss. C) dividend. D) net earnings

B - net loss

To be useful, accounting information must have the fundamental qualitative characteristics of: A) comparability and relevance. B) relevance and faithful representation. C) materiality and understandability. D) faithful representation and timeliness

B - relevance and faithful representation

The portion of net income that the company has kept over a period of years is called: A) common stock. B) retained earnings. C) revenue. D) gross profit

B - retained earnings

The owners' interest in the assets of a corporation is known as: A) common stock. B) stockholders' equity. C) long-term assets. D) operating expenses

B - stockholders equity

Financial statements are: A) standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms. B) the business documents that companies use to report the results of their financial activities to various user groups. C) reports created by management that states it is responsible for the acts of the corporation. D) the mechanical part of accounting.

B - the business documents that companies use to report the results of their financial activities to various user groups

The CEO of a business owns a residence in Flagstaff. The company the CEO works for owns a factory in Chandler. Which of these properties is considered an asset(s) of the business? A) The Flagstaff residence only B) The Chandler factory only C) Both the Flagstaff and Chandler properties D) Neither the Flagstaff nor Chandler properties

B - the chandler factory only

The income statement is prepared to determine: A) the change in cash due to results of operations. B) the change in retained earnings due to the results of operations. C) the change in assets and liabilities due to the results of operations. D) all of the above

B - the change in retained earnings due to the results of operations

Stockholders' equity for Commerce Corporation on January 1, 2010 and December 31, 2010 were $60,000 and $75,000, respectively. Assets on January 1, 2010 and December 31, 2010 were $115,000 and $105,000, respectively. Liabilities on January 1, 2010 were $55,000. What is the amount of liabilities on December 31, 2010? A) $40,000 B) $15,000 C) $30,000 D) The amount is indeterminable from the given information

C - $30000

Characteristics of a sole proprietor include: A) multiple owners. B) limited personal liability for all business debts. C) a distinct entity, separate from its owner for accounting purposes. D) formation under state law

C - a district entity, separate from its owner for accounting purposes

Net income is: A) added to assets on the balance sheet. B) deducted from beginning retained earnings on the retained earnings statement. C) added to beginning retained earnings on the retained earnings statement. D) deducted from ending retained earnings on the retained earnings statement

C - added to beginning retained earnings on the retained earnings statement

An investor wishing to assess a company's overall financial position at the end of the period would probably examine the: A) Statement of Cash Flows and the Income Statement. B) Income Statement only C) Balance Sheet. D) Statement of Retained Earnings

C - balance sheet

A corporation's paid-in capital includes: A) revenues and expenses. B) assets and liabilities. C) common stock. D) net income

C - common stock

The acronym GAAP stands for: A) generally acceptable authorized pronouncements. B) government authorized accountant principles. C) generally accepted accounting principles. D) government audited accounting pronouncements

C - generally accepted accounting principles

A partnership: A) is a taxpaying entity. B) is not a distinct entity, separate from its owners for accounting purposes. C) has mutual agency. D) has limited liability for the partners

C - has mutual agency

Revenues are: A) decreases in assets resulting from delivering goods or services to customers. B) increases in liabilities resulting from delivering goods or services to customers. C) increases in retained earnings resulting from delivering goods or services to customers. D) decreases in retained earnings resulting from delivering goods or services to customers

C - increases in retained earnings resulting from delivering goods or services to customers

All of the following are characteristics of useful accounting information EXCEPT: A) comparability. B) timeliness C) informative. D) verifiability

C - informative

Payables are classified as: A) increases in earnings. B) decreases in earnings. C) liabilities. D) assets

C - liabilities

Advantages of a corporation include: A) a single owner. B) the double taxation of distributed profits. C) limited liability of the stockholders. D) mutual agency

C - limited liability of the stockholders

All of the following are forms of business organizations EXCEPT for the: A) proprietorship. B) limited liability partnership. C) limited proprietorship. D) limited liability company

C - limited proprietorship

Net income is computed as: A) revenues - expenses - dividends. B) revenues + expenses. C) revenues - expenses. D) revenues - expenses + dividends

C - revenues - expenses

The income statement presents a summary of the: A) cash inflows and outflows of an entity. B) assets and liabilities of an entity. C) revenues and expenses of an entity for a specific time period. D) changes that occurred in the stockholders' equity of an entity

C - revenues and expenses of an entity for a specific time

The major types of transactions that affect retained earnings are: A) paid-in capital and common stock. B) assets and liabilities. C) revenues, expenses, and dividends. D) revenues and liabilities

C - revenues, expenses, and dividends

An example of a selling, general, and administrative expense is: A) cost of goods sold. B) sales. C) sales commissions paid to employees. D) interest expense

C - sales commissions paid to employees

Who ultimately controls a corporation? A) Board of Directors B) The Chief Executive Officer (CEO) C) The stockholders D) The President

C - the stockholders

The sum of "outsider claims" plus "insider claims" equals: A) net income. B) total liabilities. C) total assets. D) total stockholders' equity

C - total assets

A net loss occurs when: A) not enough cash exists. B) total revenues exceed total expenses. C) total expenses exceed total revenues. D) total revenues and dividends exceed total expenses

C - total expenses exceed total revenues

The statement that reports revenues and expenses for the period is the: A) Statement of Retained Earnings. B) Balance Sheet. C) Statement of Cash Flows. D) Income Statement

D - Income Statement

Examples of liabilities include: A) accounts payable and accounts receivable. B) accounts payable and land. C) investments and owners' equity. D) accounts payable and long-term debt

D - accounts payable and long-term debt

Accounting: A) measures business activities. B) processes data into reports and communicates the data to decision makers. C) is often called the language of business. D) is all of the above.

D - all of the above

Management accounting: A) includes information such as budgets and forecasts. B) is used to make strategic decisions for the entity. C) must be relevant to decision makers within the entity. D) is all of the above.

D - all of the above

For accounting purposes, the business entity should be considered separate from its owners if the business is organized as a: A) proprietorship. B) corporation. C) partnership. D) any of the above

D - any of the above

The balance sheet reports information about: A) revenues, expenses, and equity. B) liabilities, equity, and expenses. C) assets, revenues, and liabilities. D) assets, liabilities, and owners' equity

D - assets, liabilities, and owners' equity

Liabilities are divided into two categories— A) current and payable. B) current and future. C) accounts payable and long-term. D) current and long- term

D - current and long term

Income taxes owed to the federal government would be classified as a(n): A) expense on the Income Statement. B) financing activity on the Statement of Cash Flows. C) current asset on the Balance Sheet. D) current liability on the Balance Sheet

D - current liability on the balance sheet

Expenses are: A) increases in liabilities resulting from purchasing assets. B) increases in assets resulting from operations. C) increases in retained earnings resulting from operations. D) decreases in retained earnings resulting from operations

D - decreases in retained earnings resulting from operations

Dividends: A) are expenses. B) always affect net income. C) are distributions to stockholders of assets (usually cash) generated by net income. D) are distributions to stockholders of assets (usually cash) generated by a favorable balance in retained earnings

D - distributions to stockholders of assets generally by a favorable balance in retained earnings

The stable-monetary-unit assumption of accounting: A) ensures that accounting records and statements are based on the most reliable data available. B) holds that the entity will remain in operation for the foreseeable future. C) maintains that each organization or section of an organization stands apart from other organizations and individuals. D) enables accountants to ignore the effect of inflation in the accounting records

D - enables accountants to ignore the effect of inflation in the accounting records

What type of accounting provides information for decision makers outside the entity? A) Bookkeeping B) Managerial accounting. C) Internal auditing. D) Financial accounting.

D - financial accounting

Which statement(s) summarizes the revenues and expenses of an entity? A) Balance Sheet only B) Statement of Cash Flows and Income Statement C) Statement of Retained Earnings and Statement of Operations D) Income Statement

D - income statement

The amount of net income shown on the income statement also appears on the: A) balance sheet and operations statement. B) statement of assets. C) statement of financial position. D) statement of retained earnings

D - statement of retained earnings