Deck 1: The Financial Statements

Question 1

Accounting is an information system that measures business activities.

Answer 1

True

Question 2

Which of the following statements is TRUE for a limited liability partnership?

A)The partners all have limited liability for the debts of the partnership.
B)The partners all have limited liability for the acts of the other partners.
C)The general partner has unlimited liability for the debts of the partnership.
D)The limited partners have unlimited liability for the debts of the partnership.

Answer 2

C

Question 3

The accounting process begins and ends with people making decisions.

Answer 3

True

Question 4

Which statement is TRUE about partnerships?

A)Legally,a partnership is separate from the partners.
B)A partnership has one capital account.
C)For accounting purposes,a partnership is separate from the partners.
D)For accounting purposes,a partnership is not separate from the partners.

Question 5

Accounting produces financial statements,which report information about a business entity.

Question 6

Which of the following have unlimited liability for a company's debts?

A)owners of a corporation
B)members of a limited liability company
C)limited partners in a limited liability partnership
D)general partner in a limited liability partnership

Question 7

Which of the following statements is TRUE for a limited liability partnership?

A)The partnership pays no federal income taxes.
B)Only the limited partners pay federal income taxes on their shares of the partnership's profits.
C)Only the general partner pays federal income taxes on his or her share of the partnership's profits.
D)Only the members pay federal income taxes on their shares of the partnership's profits.

Question 8

Habitat for Humanity does not use accounting information since they are not concerned about making a profit.

Question 9

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 10

Which of the following statements is TRUE for a limited liability company?

A)Members have unlimited liability for the debts of the business.
B)Members have limited liability for the debts of the business.
C)Only the limited partners have limited liability for the debts of the business.
D)The general partner has unlimited liability for the debts of the business.

Question 11

Accounting information is used by investors and lenders,but not by regulatory bodies.

Question 12

Which of the following entities pays federal income taxes?

A)limited liability partnership
B)general partnership
C)limited liability company
D)corporation

Question 13

Bookkeeping is the mechanical part of accounting.

Question 14

Federal income taxes are paid by ________ in a limited liability company.

A)the company
B)limited partners only
C)general partners only
D)members

Question 15

Accounting is often called the language of business.

Question 16

The two types of accounting are:

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

Question 17

Decision makers who use accounting information include:

A)creditors.
B)the Internal Revenue Service.
C)the Securities and Exchange Commission.
D)all of the above.

Question 18

The business records of a sole proprietorship should include the proprietor's personal assets such as a house.

Question 19

Which of the following statements is TRUE for a proprietorship?

A)Legally,a proprietorship is separate from the proprietor.
B)For accounting purposes,a proprietorship is separate from the proprietor.
C)For accounting purposes,a proprietorship is not separate from the proprietor.
D)A and B

Question 20

A disadvantage of general partnerships is:

A)double taxation of distributed profits.
B)the partnership's assets are commingled with each partner's personal assets.
C)state rules and regulations must be followed.
D)each partner may conduct business in the name of the entity and make agreements that legally bind all partners.

Question 21

Advantages of a corporation include:

A)each stockholder can enter into agreements that legally bind all the stockholders.
B)the double taxation of distributed profits.
C)limited liability of the stockholders for the corporation's debts.
D)each stockholder can conduct business in the name of the corporation.

Question 22

Generally accepted accounting principles,or GAAP,are the rules and procedures established by the Securities and Exchange Commission.

Question 23

The SEC establishes international financial reporting standards.

Question 24

Characteristics of faithfully representative information do NOT include:

A)complete.
B)neutral.
C)accurate.
D)relevant.

Question 25

Accounting is moving in the direction of reporting more and more assets and liabilities at their fair values.

Question 26

Which type of business organization transacts the most business and is the largest in terms of assets,income,and number of employees?

A)Proprietorship
B)Partnership
C)Limited-liability company
D)Corporation

Question 27

Which of the following is a TRUE statement about the characteristics of partnerships?

A)Limited partners have mutual agency and unlimited liability for the partnership's debts.
B)General partners have mutual agency and limited liability for the partnership's debts.
C)Net income and loss of the partnership "flows through" to the partners.
D)The partnership agreement must be in writing.

Question 28

The process of verifying accounting information in financial statements is undertaken by:

A)the Securities and Exchange Commission.
B)internal auditors only.
C)external auditors only.
D)internal and external auditors.

Question 29

A company uses LIFO to determine the cost of goods sold each year.This inventory method always results in the lowest possible net income.This is an example of:

A)cost benefit constraint.
B)materiality.
C)verifiability.
D)consistency.

Question 30

Owners of an LLC are called:

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

Question 31

The fundamental qualitative characteristics of accounting information are relevance and reliability.

Question 32

Another name for the continuity assumption is the going-concern assumption.

Question 33

Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements,such as creditors.This qualitative characteristic of information is called:

A)verifiability.
B)faithful representative.
C)relevant.
D)understandability.

Question 34

Since we live in a global economy,all countries have adopted the same accounting standards for business transactions.

Question 35

Enhancing qualitative characteristics of accounting information do NOT include:

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

Question 36

The entity assumption does NOT apply to a:

A)proprietorship.
B)limited liability partnership.
C)limited-liability company.
D)The entity assumption applies to all the above.

Question 37

The ________ is elected by the stockholders and is responsible for setting policy and appointing officers.

A)board of directors
B)chief executive officer (CEO)
C)chief financial officer (CFO)
D)advisory council

Question 38

Following U.S.GAAP,the carrying value of a building can be increased to its fair value.

Question 39

An important fact to consider when determining how to organize a business is that:

A)members of an LLC have unlimited liability and are taxed like members of a partnership.
B)for accounting purposes,a proprietorship is a distinct entity from the proprietor.
C)the records of a partnership can include each partner's personal assets and debts.
D)the proprietor and the proprietorship are separate legal entities.

Question 40

Shareholders of a corporation:

A)have limited liability for the corporation's debts.
B)have unlimited liability for the corporation's debts.
C)have unlimited liability for the actions of other stockholders.
D)receive dividends from the corporation without having to pay tax on the distribution.

Question 41

The CEO of Clarkson Company owns a vacation home in Hawaii.Clarkson Company owns a factory in Detroit where they are headquartered.Which of these properties is considered an asset(s)of the business?

A)Only the vacation home in Hawaii
B)Only the factory in Detroit
C)Both the vacation home in Hawaii and the factory in Detroit
D)Neither the vacation home in Hawaii nor the factory in Detroit

Question 42

The relevant measure of the value of the assets of a company that is going out of business is the:

A)liquidating value.
B)inflation-adjusted book value.
C)historical cost.
D)book value.

Question 43

A construction company paid $80,000 cash for equipment used in the business.At the time of purchase,the equipment had a list price of $90,000.When the balance sheet was prepared,the fair value of the equipment was $83,000.At what amount should the equipment be reported on the balance sheet of the company?

A)$80,000
B)$83,000
C)$85,000
D)$90,000

Question 44

In order to compare the financial statements of Toyota Corporation to the financial statements of General Motors,it would be preferable to use _________.

A)U.S.Generally Accepted Accounting Principles for General Motors and International Financial Reporting Standards for Toyota.
B)U.S.Generally Accepted Accounting Principles for both companies.
C)International Financial Reporting Standards for both companies.
D)U.S.Generally Accepted Accounting Principles for Toyota Corporation and International Financial Reporting Standards for General Motors.

Question 45

The International 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 used in the United States.
D)International Financial Reporting Standards.

Question 46

Below is a list of qualitative characteristics of accounting.Following the list is a series of descriptive phrases.

C)relevance
D)comparability
E)verifiability
F)understandability

Required: Match each characteristic with the appropriate phrase.

Question 47

Verifiability means that the information:

A)is timely and understandable.
B)is understandable.
C)must be capable of being checked for accuracy,completeness and reliability.
D)is material and relevant.

Question 48

Which of the following statements is FALSE?

A)The Securities and Exchange Commission is investigating whether all U.S.public companies should adopt International Financial Reporting Standards.
B)The advantage of a uniform set of global accounting standards is that financial statements from a U.S.company will be comparable to those of a foreign company.
C)In the long run,a uniform set of global accounting standards will reduce the costs of doing business globally.
D)With a uniform set of global accounting standards,companies will have to produce multiple versions of their financial statements.

Question 49

Which statement is FALSE?

A)International Financial Reporting Standards are used by many countries in the world.
B)U.S.Generally Accepted Accounting Principles are used by many countries in the world.
C)The Financial Accounting Standards Board is working with the International Accounting Standards Board to develop similar accounting standards.
D)For many years,U.S.Generally Accepted Accounting Principles were considered to be the superior set of accounting standards in the world.

Question 50

The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is the:

A)historical cost principle.
B)objectivity principle.
C)reliability principle.
D)stable dollar principle.

Question 51

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 52

If a company prepares its financial statements three years after the end of their accounting period,they have violated the qualitative characteristic of:

A)understandability.
B)timeliness.
C)verifiability.
D)materiality.

Question 53

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 54

Which of the following is a CORRECT statement about GAAP and IFRS?

A)IFRS prefers valuing assets at historical cost while GAAP prefers using fair value.
B)IFRS is more "rules-based" than GAAP.
C)The FASB and the IASB are working towards convergence of standards.
D)The SEC will require all companies to use IFRS beginning in 2013.

Question 55

The fair value of a plant asset is equal to:

A)the amount the business could sell the asset for.
B)the amount of cash paid plus the dollar value of noncash consideration given in exchange for the plant asset at acquisition.
C)the amount of cash paid plus the loan taken out to finance the purchase of the plant asset.
D)the amount a company can receive for the asset when sold in order to go out of business.

Question 56

Historical cost:

A)is determined for each asset on a yearly basis.
B)is equal to the amount of cash paid less the dollar value of all non-cash consideration given in the exchange.
C)is a verifiable measure that is relatively free from bias.
D)is the amount that the business could sell the asset for.

Question 57

The stable monetary unit assumption:

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 on the accounting records.

Question 58

The word "payable" always signifies a liability.

Question 59

In 1960,Johnson Company purchased a building for $100,000.In 2013,a real estate professional says the building has a fair value of $1,000,000.In 2013,a similar building down the street recently sold for $900,000.What value is reported for the building on the balance sheet at December 31,2013?

A)$100,000
B)$550,000
C)$900,000
D)$1,000,000

Question 60

All of the following are true statements about the entity assumption EXCEPT for:

A)the entity assumption draws a sharp boundary around each entity.
B)the transactions of the business cannot be combined with the transactions of the owner.
C)the entity assumption ensures that the business will continue indefinitely.
D)under the entity assumption,the entity is any organization that stands apart as a separate economic unit.

Question 61

The calculation of ending retained earnings considers beginning retained earnings,current year net income or net loss,and stockholders' equity.

Question 62

The basic component of paid-in capital is common stock.

Question 63

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

Question 64

Expenses are decreases in retained earnings that result from operations.

Question 65

The two main components of stockholders' equity are paid-in capital and dividends.

Question 66

The Clarke Company had beginning retained earnings of $20,000,net income of $5,000,and declared and paid dividends of $1,000.Therefore,the ending retained earnings is $25,000.

Question 67

The owners' equity of any business is equal to:

A)revenues minus expenses.
B)assets minus liabilities.
C)assets plus liabilities.
D)paid-in capital plus assets.

Question 68

Which of the following statements is TRUE?

A)Dividends are expenses of a business.
B)Dividends reduce retained earnings.
C)Dividends increase retained earnings.
D)Dividends reduce net income.

Question 69

The accounting equation must always be in balance.

Question 70

Revenues are cash distributions to the stockholders.

Question 71

The assets of a company:

A)must equal the liabilities of the company.
B)include property,plant,and equipment and accounts payable.
C)represent economic resources that are expected to produce a future benefit.
D)include short-term investments and notes payable.

Question 72

Owners' equity is called stockholders' equity for a corporation.

Question 73

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)the outflow of resources that decrease common stock.

Question 74

All of the following are expenses EXCEPT for:

A)Cost of Goods Sold.
B)Depreciation Expense.
C)Salary Expense.
D)Dividends.

Question 75

Another way to state the accounting equation is:

A)Assets = Liabilities + Paid-in Capital - Common Stock.
B)Assets + Liabilities = Stockholders' Equity.
C)Assets = Liabilities + Paid-in Capital + Retained Earnings.
D)Assets = Liabilities - Paid-in Capital - Dividends.

Question 76

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 77

David Company has total assets of $500,000 and total liabilities of $180,000.David Company's stockholders' equity must therefore be $680,000.

Question 78

The accounting equation shows the relationship among assets,liabilities and net income.

Question 79

Long-term debt is a liability that is payable beyond one year from the date of the financial statements.

Question 80

Examples of liabilities include:

A)accounts payable and dividends.
B)accounts payable and common stock.
C)investments and note payable.
D)accounts payable and note payable.