Deck 1: The Financial Statements

Question 1

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.

Answer 1

B

Question 2

Bookkeeping is a type of accounting used primarily by proprietorships.

Answer 2

False

Question 3

An example of a regulatory body that uses accounting information is the Internal Revenue Service.

Answer 3

True

Question 4

What type of accounting provides information for decision makers outside the entity?

A)Bookkeeping
B)Managerial accounting.
C)Internal auditing.
D)Financial accounting.

Question 5

In an LLP, each partner is liable for partnership debts only to the extent of their investment in the partnership plus their share of the liabilities.

Question 6

Who ultimately controls a corporation?

A)Board of Directors
B)The Chief Executive Officer (CEO)
C)The stockholders
D)The President

Question 7

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

Question 8

Financial accounting provides budgeting information to a company's managers.

Question 9

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.

Question 10

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.

Question 11

The business records of a proprietorship should include the proprietor's personal finances.

Question 12

Limited Liability Companies (LLCs)have members instead of stockholders.

Question 13

Managerial accounting information is used mainly by external users.

Question 14

All business owners are personally liable for the debts of their businesses.

Question 15

The major forms of business organizations are proprietorships, partnerships, and for-profit organizations.

Question 16

Mutual agency of a partnership means that each partner may conduct business in the name of the partnership and can legally bind all the partners without limit for the partnership's debts.

Question 17

Users of accounting information include investors, creditors, and regulatory bodies.

Question 18

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.

Question 19

Bookkeeping is the mechanical part of accounting.

Question 20

The two types of accounting are:

A)profit and nonprofit.
B)financial and managerial.
C)internal and external.
D)bookkeeping and decision-oriented.

Question 21

To be relevant, accounting information must be capable of making a difference to the decision maker.

Question 22

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.

Question 23

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.

Question 24

Generally accepted accounting principles, or GAAP, are the rules and procedures established by the Financial Accounting Standards Board, or the FASB.

Question 25

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.

Question 26

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.

Question 27

International financial reporting standards are set by the:

A)IASB.
B)GAAP.
C)FASB.
D)SEC.

Question 28

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.

Question 29

All of the following are characteristics of useful accounting information EXCEPT:

A)comparability.
B)timeliness
C)informative.
D)verifiability.

Question 30

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.

Question 31

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.

Question 32

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.

Question 33

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.

Question 34

One overall objective of accounting is to provide financial information that is useful to potential capital providers who are making investment and lending decisions.

Question 35

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.

Question 36

Accountants follow guidelines for professional measurement and disclosure of financial information called:

A)IASB.
B)GAAP.
C)FASB.
D)SEC.

Question 37

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.

Question 38

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.

Question 39

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.

Question 40

Owners of an LLC are called:

A)partners.
B)sole proprietors.
C)members.
D)stockholders.

Question 41

Common stock and retained earnings are the main components of paid-in capital.

Question 42

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

Question 43

Use the following Balance Sheet and Income Statement to answer the question. What is the Retained earnings shown on the Balance Sheet for 2010?

A)$15,000
B)$45,000
C)$75,000
D)$77,000

Question 44

The word "payable" always signifies a liability.

Question 45

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.

Question 46

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

Question 47

"Net assets", as stockholders' equity is often referred to, represents the residual amount of business assets which can be claimed by the owners.

Question 48

Stockholders' equity is the stockholders' interest in the assets of the corporation.

Question 49

Expenses are increases in retained earnings that result from operations.

Question 50

The accounting equation expresses the idea that Resources - Insider claims = Outsider claims.

Question 51

Dividends never affect net income.

Question 52

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.

Question 53

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.

Question 54

The calculation of ending retained earnings considers beginning retained earnings, current net income or net loss and dividends.

Question 55

The owners' equity of proprietorships and corporations are the same.

Question 56

Dividend payments are NOT classified as expenses.

Question 57

Liabilities are divided into "outsider claims" and "insider claims."

Question 58

The financial statements are based on the accounting equation.

Question 59

The accounting equation must always be in balance.

Question 60

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.

Question 61

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.

Question 62

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.

Question 63

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.

Question 64

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.

Question 65

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.

Question 66

Ramos, Inc. has monthly revenues of $30,000 and monthly expenses of $18,000, and the company paid $4,000 in dividends. Therefore, net income for the month is $8,000.

Question 67

Yummy Inc. has beginning retained earnings of $10,000, net income of $50,000, and dividends paid of $5,000. Therefore, the ending retained Earnings is $65,000.

Question 68

Receivables are classified as:

A)increases in earnings.
B)decreases in earnings.
C)liabilities.
D)assets.

Question 69

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.

Question 70

The sum of "outsider claims" plus "insider claims" equals:

A)net income.
B)total liabilities.
C)total assets.
D)total stockholders' equity.

Question 71

Able Co. has $500,000 in assets and $400,000 in liabilities. Therefore, the equity is $900,000.

Question 72

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.

Question 73

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.

Question 74

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.

Question 75

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.

Question 76

A corporation's paid-in capital includes:

A)revenues and expenses.
B)assets and liabilities.
C)common stock.
D)net income.

Question 77

Payables are classified as:

A)increases in earnings.
B)decreases in earnings.
C)liabilities.
D)assets.

Question 78

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.

Question 79

Which of the following is NOT an asset?

A)Inventory
B)Accounts payable
C)Accounts receivable
D)Cash

Question 80

The amount that stockholders have invested in a corporation is called:

A)retained earnings.
B)investment.
C)revenue.
D)paid-in capital.