Chapter 1 ACCOUNTING

Generally accepted accounting principles are intended to assist accountants in preparing financial statements that:

Are relevant, verifiable, comparable, and understandable.

The dividends account should be: A. Closed to income summary. B. Closed to retained earnings. C. Closed only if there is a profit. D. Not closed at all.

B. Closed to retained earnings.

Publicly owned companies are those whose ownership shares are:

Bought and sold through stock exchanges or over-the-counter markets.

The SEC requires corporate officers to sign the Form 10-K, which is filed annually with the SEC. Which of the following officers is not among those required to sign?

COO (Chief Operating Officer).

Generally accepted accounting principles are the "ground rules" used in the preparation of:

Financial statements.

The accounting standards and concepts used in the preparation of financial statements are called:

Generally accepted accounting principles (GAAP).

Establishing international accounting standards is the responsibility of

IASB.

The general-purpose financial statements prepared annually by a corporation would not include the:

Income tax return. INCLUDES: Income statement., Balance sheet., Statement of cash flows.

Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind is called

Internal control

Characteristics of internal accounting information include all of the following except:

It is audited by a CPA.

The basic purpose of audited financial statements is to:

Provide users of the financial statements with assurance that the statements are verifiable and are presented in conformity with generally accepted accounting principles.

The body created by the Sarbanes Oxley Act and charged with oversight of the accounting profession is the:

Public Company Accounting Oversight Board.

Which of the following statements is considered a "snapshot" of the business in financial or dollar terms?

Statement of financial position.

The Accounting Standards Codification was developed by

The Financial Accounting Standards Board (FASB)

The American Institute of Certified Public Accountants has a Code of Professional Conduct that expresses the accounting profession's recognition of its responsibilities to all of the following except:

The IRS. INCLUDES: Colleagues, The public, The client.

Which financial statement is prepared as of a specific date?

The balance sheet

Which financial statement is primarily concerned with reporting the financial position of a business at a particular time?

The balance sheet

Which financial statement is primarily concerned with reporting the financial position of a business at a particular time?

The balance sheet.

Which of the following is an example of an accrued expense? a. Salary owed but not yet paid b. Fees received but not yet earned c. Supplies on hand d. A two-year premium paid on a fire insurance policy

a. Salary owed but not yet paid

The revenue recognition principle indicates that revenue usually should be recognized and recorded in the accounting records: a. When goods are sold or services are rendered to customers. b. When cash is collected from customers. c. At the end of the accounting period. d. Only when the revenue can be matched by an equal dollar amount of expenses.

a. When goods are sold or services are rendered to customers.

Waldorf, Co. had the following transactions during the month of August, 2006: * Cash received from bank loans was $15,000. * Dividends of $7,500 were paid to stockholders in cash. * Revenues earned and received in cash amounted to $28,500 * Expenses incurred and paid were $21,000 Refer to the above data. What amount of net income will be reported on an income statement for the month of August, 2006? a. $15,000. b. $7,500. c. $0. d. $28,500.

b. $7500

Which of the following transactions does not affect the total assets of Alapocas Corp.? a. Dividends are paid by Alapocas. b. A bill is received for telephone service used by Alapocas during the past month. c. Customers are billed for sales made on credit by Alapocas. d. A new computer is purchased on credit by Alapocas.

b. A bill is received for telephone service used by Alapocas during the past month.

The nature of an asset is best described as: a. Something with physical form that is valued at cost in the accounting records. b. An economic resource owned by a business and expected to benefit future operations. c. An economic resource representing cash or the right to receive cash in the near future. d. Something owned by a business that has a ready market value.

b. An economic resource owned by a business and expected to benefit future operations.

The owner of Maine Lobster Restaurant purchased a new car for his daughter who is away at college at a cost of $39,000 and reported this amount as Delivery Vehicle in the restaurant's balance sheet. The reporting of this item in this manner violated the: a. Cost principle. b. Business entity concept c. Objectivity principle. d. Going-concern assumption.

b. Business entity concept

Dividends will have what effect upon retained earnings? a. Increase. b. Decrease. c. No effect .d. Depends upon if there is income or loss.

b. Decrease.

In a ledger, debit entries cause: a. Increases in owners' equity, decreases in liabilities, and increases in assets. b. Decreases in liabilities, increases in assets, and decreases in owners' equity. c. Decreases in assets, decreases in liabilities, and increases in owners' equity. d. Decreases in assets, increases in liabilities, and increases in owners' equity.

b. Decreases in liabilities, increases in assets, and decreases in owners' equity.

The normal order in which the financial statements are prepared is: a. Balance sheet, income statement, statement of retained earnings. b. Income statement, statement of retained earnings, balance sheet. c. Income tax return, income statement, balance sheet. d. Income statement, statement of cash flows, balance sheet.

b. Income statement, statement of retained earnings, balance sheet.

The return on equity measures: a. Solvency. b. Profitability. c. Leverage. d. All three of the above.

b. Profitability.

The statement that summarizes the income earned and the dividends paid over the life of a business is the a. Statement of cash flows. b. Statement of retained earnings. c. Balance sheet. d. Income statement.

b. Statement of retained earnings.

The procedure of transferring journal entries to the ledger accounts is called a. analyzing b. posting c. journalizing d. reporting

b. posting

Presently, the dominant body in the 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)

c. Financial Accounting Standards Board (FASB)

During the current year, the assets of Chadwick's increased by $382,000, and the liabilities increased by $240,000. The owners' equity in the business must have: a. Decreased by $142,000. b. Decreased by $622,000. c. Increased by $142,000. d. Increased by $622,000.

c. Increased by $142,000.

How is the balance sheet linked to the other financial statements? a. The beginning retained earnings balance on the statement of retained earnings becomes the amount of retained earnings reported on the balance sheet. b. Retained earnings is added to total assets and reported on the balance sheet. c. Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained earnings on the balance sheet. d. There is no link between the balance sheet and the other statements.

c. Net income increases retained earnings on the statement of retained earnings, which ultimately increases retained earnings on the balance sheet.

If a company purchases equipment for $70,000 cash: a Total assets will increase by $70,000. b. Total assets will decrease by $70,000. c. Total assets will remain the same. d. The company's total owners' equity will decrease.

c. Total assets will remain the same.

Expired costs are a. revenues. b. retained earnings. c. expenses. d. assets.

c. expenses

Which of the following is not a user of internal accounting information?

creditor

Use the following to answer questions 8-9: Waldorf, Co. had the following transactions during the month of August, 2006: * Cash received from bank loans was $15,000. * Dividends of $7,500 were paid to stockholders in cash. * Revenues earned and received in cash amounted to $28,500 * Expenses incurred and paid were $21,000 Refer to the above data. At the beginning of August, 2006, owners' equity in Waldorf. was $180,000. Given the transactions of August, 2006, what will owners' equity be at the end of the month? a. $186,000. b. $193,500. c. $208,500. d. $180,000.

d. $180,000

If a company pays $17,000 for an expense with cash: a. Total assets will decrease. b. Retained earnings will decrease. c. Owners' equity will decrease. d. All three of the above statements are true.

d. All three of the above statements are true

The balance of an unearned revenue account: a. Appears in the balance sheet as a component of owners' equity .b. Appears in the income statement along with other revenue accounts. c. Appears in a separate section of the income statement for revenue not yet earned. d. Appears in the liability section of the balance sheet.

d. Appears in the liability section of the balance sheet

Which of the following transactions affects the liabilities for Mears, Inc.? a. Supplies are purchased for cash by Mears. b. Mears places an order for merchandise with a supplier; the merchandise will be shipped to Mears in 60 days. c. The owners of Mears invest $100,000 in the company. d. Payment is made for a bank loan which Mears had obtained 6 months ago.

d. Payment is made for a bank loan which Mears had obtained 6 months ago.

The balance sheet item that represents the portion of owners' equity resulting from profitable operation of the business is: a. Accounts receivable. b. Cash. c. Capital stock. d. Retained earnings.

d. Retained earnings

Which of the following is considered a return "on" investment?

dividends