Question 1

The owners of a partnership:
A) Have created an entity that can also be called a sole proprietorship.
B) Have unlimited liability.
C) Have to have a written agreement in order to be legal.
D) Have created a legal organization separate from its owners.
E) Are called shareholders.

Accepted Answer

Partnerships have unlimited liability, meaning that the owners are personally responsible for the debts and obligations of the business.

Question 2

An example of a financing activity is:
A) Buying office supplies.
B) Obtaining a long-term loan.
C) Buying office equipment.
D) Selling inventory.
E) Buying land.

Accepted Answer

Obtaining a long-term loan is an example of a financing activity because it involves raising capital from external sources to fund the operations or expansion of a business.

Question 3

If equity is $300,000 and liabilities are $192,000, then assets equal:
A) $108,000
B) $192,000
C) $300,000
D) $492,000
E) $792,000

Accepted Answer

Assets = Liabilities + Equity 
Assets = $192,000 + $300,000 
Assets = $492,000

Question 4

Operating activities:
A) Are the means organizations must use to pay for resources like land, buildings, and equipment.
B) Involve using resources to research, develop, purchase, produce, distribute, and market products and services.
C) Involve acquiring and disposing of resources that a business uses to acquire and sell its products or services.
D) Are also called asset management.
E) Are also called strategic management.

Accepted Answer

Operating activities involve using resources to research, develop, purchase, produce, distribute, and market products and services. A, C, D, and E are not accurate definitions of operating activities.

Question 5

Marian Mosely is the owner of Mosely Accounting Services. Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?
A) Monetary unit assumption
B) Going-concern assumption
C) Cost assumption
D) Business entity assumption
E) Full disclosure assumption

Accepted Answer

The business entity assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services. This assumption states that the financial affairs of a business should be kept separate from the personal financial affairs of its owners.

Question 6

Increases in retained earnings from a company's earnings activities are:
A) Assets
B) Revenues
C) Liabilities
D) Stockholder's equity
E) Expenses

Accepted Answer

The answer of Increases in retained earnings from a company's...

Question 7

A limited partnership:
A) Includes a general partner with unlimited liability.
B) Is subject to double taxation.
C) Has owners called stockholders.
D) Is the same as a corporation.
E) Must only have two partners.

Accepted Answer

A limited partnership includes a general partner with unlimited liability, while the limited partners have limited liability.

Question 8

Which of the following accounting principles would prescribe that all goods and services purchased are recorded at cost?
A) Going-concern principle
B) Continuing-concern principle
C) Cost principle
D) Business entity principle
E) Consideration principle

Accepted Answer

The cost principle states that all goods and services should be recorded at cost, which means the amount paid or the value given up at the time of acquisition. This principle ensures that the financial statements represent the true and fair view of the company's financial position, as it prohibits any overvaluation of assets or understatement of liabilities.

Question 9

Planning activities:
A) Are the means organizations must use to pay for resources.
B) Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.
C) Involve defining the ideas, goals, and actions of an organization.
D) Are the carrying out of an organization's plans.
E) Involve using resources to research, develop, purchase, produce, and market products and services.

Accepted Answer

Planning activities involve defining the ideas, goals, and actions of an organization. Choices A, B, D, and E describe different aspects of the implementation stage of the management process.

Question 10

The major activities of a business include:
A) Operating, investing, making a profit
B) Investing, making a profit, operating
C) Making a profit, operating, borrowing
D) Operating, investing, financing
E) Investing, making a profit, financing

Accepted Answer

The major activities of a business include operating (which involves day-to-day activities such as production, sales, and marketing), investing (which involves the acquisition of assets to generate revenue), and financing (which involves obtaining the necessary funds to operate the business). These three activities are often referred to as the operating, investing, and financing activities of a business. Option A includes making a profit, which is a result of these activities, rather than an activity in itself. Option B includes making a profit as one of the activities, which is not correct. Option C includes borrowing, which is a financing activity, but not one of the major activities. Option E includes investing and financing activities, but not operating, which is a major activity. Therefore, the best choice is D.

Question 11

According to generally accepted accounting principles, a company's balance sheet should show the company's assets at:
A) The cash equivalent value of what was given up.
B) The current market value of the assets at the balance sheet date.
C) The cash paid to acquire them, even if something other than cash was given in the exchange.
D) The best estimate from a certified internal auditor.
E) The objective value to external users.

Accepted Answer

The answer of According to generally accepted accounting principles, a...

Question 12

The difference between a company's assets and its liabilities is:
A) Net income
B) Expense
C) Equity
D) Revenue
E) Net loss

Accepted Answer

The difference between a company's assets and its liabilities is called equity, which represents the company's net worth or the amount of money that shareholders have invested in the company.

Question 13

Revenue is properly recognized:
A) When the customer's order is received.
B) Only if the transaction creates an account receivable.
C) At the end of the accounting period.
D) Upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price.
E) When cash from a sale is received.

Accepted Answer

Revenue should be recognized upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price. This is in accordance with the revenue recognition principle, which states that revenue should be recognized when earned, regardless of when cash is received.

Question 14

Resources owned or controlled by a company that are expected to yield benefits are:
A) Assets
B) Revenues
C) Liabilities
D) Stockholder's equity
E) Expenses

Accepted Answer

Resources owned or controlled by a company that are expected to yield benefits are referred to as assets. Revenues are the inflows resulting from the sale of goods or services, while liabilities represent obligations or debts owed by a company to a third party. Stockholder's equity represents the residual interest in the assets of a company after liabilities are deducted, and expenses are the costs incurred by a company in the process of generating revenues.

Question 15

Congress passed the Sarbanes-Oxley Act to
A) Provide jobs to U.S. accountants and limit the number of jobs sent outside the country.
B) Impose penalties on CEO's and CFO's who knowingly sign off on bogus accounting reports, although at this time the penalties are token amounts.
C) Help curb financial abuses at companies that issue their stock to the public.
D) Force auditors to attest to the absolute accuracy of the financial statements.
E) Require that all companies publicly disclose their internal control plans.

Accepted Answer

The Sarbanes-Oxley Act was passed to help curb financial abuses at companies that issue their stock to the public. It aimed to increase the accountability of companies and prevent fraudulent activities, such as the Enron scandal. It established new requirements for financial reporting, corporate governance, and internal controls to improve transparency and maintain investor confidence.

Question 16

On December 15, 2013, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2014. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2014 and not 2013?
A) Monetary unit principle
B) Going-concern principle
C) Cost principle
D) Business entity principle
E) Revenue recognition principle

Accepted Answer

The revenue recognition principle requires that revenues should be recognized in the period in which they are earned, regardless of when cash is received. In this case, the legal services are to be provided in 2014, so the revenue should be recognized in 2014 when the services are provided.

Question 17

Net income is:
A) Assets minus liabilities.
B) The excess of revenues over expenses.
C) An asset.
D) The same as revenue.
E) The excess of expenses over retained earnings.

Accepted Answer

Net income is the amount by which total revenues exceed total expenses for a specific period of time. It is also known as the bottom line or profit. It is calculated by subtracting all expenses from all revenues. Therefore, the correct choice is B, which states that net income is the excess of revenues over expenses.

Question 18

An example of an operating activity is:
A) Paying wages.
B) Purchasing office equipment.
C) Borrowing money from a bank.
D) Selling stock.
E) Paying off a loan.

Accepted Answer

Operating activities are those activities that are directly related to the primary business operations of a company. Paying wages is a common operating activity because it involves paying employees who are directly involved in producing or delivering goods and services. Purchasing office equipment, borrowing money from a bank, selling stock, and paying off a loan are not operating activities. Purchasing office equipment is a investing activity, borrowing money from a bank is a financing activity, selling stock is also a financing activity while paying off a loan is a combination of an operating and financing activity.

Question 19

An example of an investing activity is:
A) Paying wages of employees.
B) Paying dividends.
C) Purchasing land.
D) Selling inventory.
E) Contribution from owner.

Accepted Answer

Purchasing land is an investing activity because it is a long-term asset that is expected to generate future benefits for the company, such as rental income or the potential for future development. Paying wages, paying dividends, and selling inventory are operating activities, while contributions from owners are financing activities.

Question 20

Net income:
A) Decreases equity.
B) Represents the amount of assets owners put into a business.
C) Equals assets minus liabilities.
D) Is the excess of revenues over expenses.
E) Represents the owners' claims against assets.

Accepted Answer

Net income is the excess of revenues over expenses, also known as profit. It increases equity as it increases the owners' claims against assets. Option A is incorrect because net income actually increases equity, not decreases it. Option B is incorrect because the amount of assets owners put into a business is referred to as owner's equity or contributed capital. Option C is incorrect because assets minus liabilities is the formula for calculating owner's equity, not net income. Option E is also incorrect because it confuses net income with owner's equity, which represents the owners' claims against assets.

Quiz 1: Introducing Financial Accounting

The owners of a partnership:

An example of a financing activity is:

If equity is $300,000 and liabilities are $192,000, then assets equal:

Operating activities:

Marian Mosely is the owner of Mosely Accounting Services. Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?

Increases in retained earnings from a company's earnings activities are:

A limited partnership:

Which of the following accounting principles would prescribe that all goods and services purchased are recorded at cost?

Planning activities:

The major activities of a business include:

According to generally accepted accounting principles, a company's balance sheet should show the company's assets at:

The difference between a company's assets and its liabilities is:

Revenue is properly recognized:

Resources owned or controlled by a company that are expected to yield benefits are:

Congress passed the Sarbanes-Oxley Act to

On December 15, 2013, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2014. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2014 and not 2013?

Net income is:

An example of an operating activity is:

An example of an investing activity is:

Net income: