Deck 1: Accounting and the Business Environment

Question 1

Local,state,and federal governments use accounting information to calculate income tax.

Answer 1

True

Question 2

Outside investors would ordinarily use managerial accounting information to decide whether or not to invest in a business.

Answer 2

False

Question 3

Business owners use accounting information to set goals,evaluate progress toward those goals,and make adjustments when needed.

Answer 3

True

Question 4

________ 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

Question 5

Accounting is referred to as the language of business because it is the method of communicating business information to stakeholders.

Question 6

As per the economic entity assumption,an organization and its owner should be seen as the same entity.

Question 7

Which of the following users would rely on management accounting information for decision-making purposes?

A)potential investors
B)creditors
C)customers
D)company managers

Question 8

Financial accounting focuses on information for decision makers outside of the business,such as creditors and taxing authorities.

Question 9

Different users of financial statements focus on the different parts of the financial statements for the information they need.

Question 10

The field of accounting that focuses on providing information for internal decision makers is ________.

A)managerial accounting
B)financial accounting
C)nonmonetary accounting
D)governmental accounting

Question 11

A creditor is a person who owes money to the business.

Question 12

Managerial accounting focuses on information for external decision makers.

Question 13

Any person or business to whom a business owes money is called the business's creditor.

Question 14

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

Question 15

Accounting is the information system that measures business activities,processes the information into reports,and communicates the results to decision makers.

Question 16

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.

Question 17

A creditor is any person who has an ownership interest in a business.

Question 18

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

Question 19

Managerial accounting provides information to ________.

A)internal decision makers
B)outside investors and lenders
C)auditors
D)taxing authorities

Question 20

Stockholders primarily use managerial accounting information for decision-making purposes.

Question 21

A business can be organized as a sole proprietorship,partnership,corporation,or limited-liability company (LLC).

Question 22

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

Question 23

The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies.

Question 24

An examination of a company's financial statements and records is called an audit.

Question 25

A publicly traded company in the United States does not come under SEC regulations as long as it follows the rules of GAAP.

Question 26

In a limited-liability company (LLC),the members are personally liable for the debts of the business.

Question 27

In a sole proprietorship,the owner is personally liable for the debts of the business.

Question 28

The guidelines for accounting information are called Generally Accepted Accounting Principles (GAAP).

Question 29

IFRS is the main U.S.accounting rule book and is currently created and governed by the FASB.

Question 30

The Sarbanes-Oxley Act (SOX)made it a criminal offense to ________.

A)transfer shares of stock
B)issue debentures
C)declare bankruptcy
D)falsify financial information

Question 31

The most that the owner of a sole proprietorship can lose,as a result of business debts or lawsuits,is the amount he/she has invested in the business.

Question 32

Members of a limited-liability company (LLC)are not personally liable for the debts of the business.

Question 33

Mutual agency of the owners is not present in a corporation as it is in a partnership.

Question 34

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)

Question 35

IFRS are comparatively more specific and more rule based than U.S.GAAP.

Question 36

In a corporation,the board of directors is elected by the chairperson of the company.

Question 37

International Financial Reporting Standards (IFRS)are the international accounting rules that U.S.companies must follow for their international operations.

Question 38

The Sarbanes-Oxley Act (SOX)requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Question 39

The creation of a corporation begins when its incorporators obtain a charter from the state.

Question 40

GAAP are the rules that govern accounting 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

Question 41

The Public Company Accounting Oversight Board (PCAOB)was created by the ________.

A)Sarbanes-Oxley Act (SOX)
B)International Accounting Standards Board (IASB)
C)Institute of Management Accountants (IMA)
D)American Institute of Certified Public Accountants (AICPA)

Question 42

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

Question 43

Liabilities represent creditors' claims on the business's assets.

Question 44

According to the ________,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

Question 45

In a limited-liability company,the ________.

A)members are personally liable to pay the entity's debts
B)business pays the tax on earnings
C)members are liable for each other's actions
D)members pay tax on their share of earnings

Question 46

From a legal perspective,a sole proprietorship is ________.

A)an entity separate from its proprietor
B)not favored by small businesses
C)not a distinct entity from its proprietor
D)subject to strict regulation of the SEC

Question 47

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.

Question 48

Thirty years ago,Star Grocer Corporation had purchased a building for its grocery store by paying $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

Question 49

Which of the following statements is true of a corporation?

A)Corporations pay the same variety of taxes as the other two forms of business.
B)Although a corporation is a separate legal entity,it cannot be sued.
C)Any stockholder of a corporate can commit the corporation to his or her act.
D)The owners of a corporation are called stockholders.

Question 50

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

Question 51

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 records 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

Question 52

The ultimate control of the corporation rests with the ________.

A)board of directors
B)stockholders
C)chairperson
D)chief operating officer

Question 53

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

Question 54

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.

Question 55

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

Question 56

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

Question 57

Genity Inc.,located in Texas,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

Question 58

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 actions.

Question 59

The formation of a partnership firm requires a minimum of ________.

A)four partners
B)three partners
C)one partner
D)two partners

Question 60

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.

Question 61

Viva Inc.produces and sells coffee beans.This month it earned $500 by selling coffee beans to Morning Cuppa Inc.The $500 received by Viva is its ________.

A)revenue
B)equity
C)gain
D)debt

Question 62

Dividends are the expenses of a business.

Question 63

Glendale Corporation had the following transactions in August: Earned $2,000 as revenues on account; collected $4,000 from a customer for goods sold last month; incurred $600 of repair expense and paid cash; paid $200 to a supplier that it owed from the previous month.
What is the net income in August?

A)$500
B)$5,700
C)$2,700
D)$1,400

Question 64

Vista Camera Services started the year with total assets of $100,000 and total liabilities of $50,000.The revenues and the expenses for the year amounted to $200,000 and $60,000,respectively.During the year,the company did not issue any common stock,but it distributed dividends of $75,000.Calculate the amount of increase or decrease in stockholders' equity for the year.

A)a $65,000 increase
B)a $115,000 increase
C)a $50,000 decrease
D)a $75,000 increase

Question 65

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

Question 66

The total of the amount of assets that a business possesses may or may not be equal to the total of liabilities and equity of the business.

Question 67

________ is the capital earned by profitable operations that is not distributed to stockholders.

A)Assets
B)Dividend
C)Retained earnings
D)Common Stock

Question 68

Common stock represents the basic ownership of every corporation.

Question 69

Distribution of dividends represents increases in retained earnings.

Question 70

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders.

Question 71

A debt that a business owes to an outside party is called ________.

A)an asset
B)a liability
C)stockholders' equity
D)revenue

Question 72

The three types of events that affect retained earnings are-dividends,revenues,and expenses.

Question 73

The economic resources of a business such as furniture,building,and land are its ________.

A)liabilities
B)revenues
C)assets
D)dividends.

Question 74

Which of the following is the correct accounting equation?

A)Assets + Liabilities = Equity
B)Assets = Liabilities + Equity
C)Assets + Revenues = Equity
D)Assets + Revenues = Liabilities + Expenses

Question 75

The owners' claim to the assets of the business is called ________.

A)return on assets
B)expenses
C)equity
D)debt

Question 76

The net income of Vista Camera Services is $29,000.The beginning and ending stockholders' equity balances were $34,000 and $55,000,respectively.The company issued no common stock.Calculate the amount of dividends.

A)$18,000
B)$8,000
C)$5,000
D)$60,000

Question 77

Vista Camera Services started the year with total assets of $80,000 and total liabilities of $40,000.The revenues and the expenses for the year amounted to $120,000 and $70,000,respectively.During the year,the company did not issue any common stock,but it distributed dividends of $60,000.

-Calculate Vista's net income for the year.

A)$50,000
B)$120,000
C)$70,000
D)$80,000

Question 78

Vista Camera Services started the year with total assets of $80,000 and total liabilities of $40,000.The revenues and the expenses for the year amounted to $120,000 and $70,000,respectively.During the year,the company did not issue any common stock,but it distributed dividends of $60,000.

-What is the amount of stockholders' equity at the end of the year?

A)$70,000
B)$120,000
C)$30,000
D)$60,000

Question 79

Equity decreases with expenses and revenues.

Question 80

Equity increases when revenues are earned.