Principles of Financial Accounting 12th Edition Test Bank

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Chapter 1: Accounting Principles and the Financial StatementsStudent: ___________________________________________________________________________1.The processing stage of accounting is accomplished by the recording of data.TrueFalse2.The terms“bookkeeping”and“accounting”arenotsynonymous.TrueFalse3.A company's management information system is a subsystem of its accounting information system.TrueFalse4.Accountants focus on the needs for financial information by both internal and external decision makers.TrueFalse5.Accountants consider money the common unit of measure for all business transactions.TrueFalse6.Payment to a creditor is an example of a nonexchange business transaction.TrueFalse7.For accounting purposes, a business and its owner are considered the same entity.TrueFalse8.Knowledge of the exchange rate is necessary to apply the money measure concept in case of internationaltransactions.TrueFalse

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9.For reporting purposes, the personal assets and debts of a business owner should be combined with the assetsand debts of the business.TrueFalse10.Exchange rates for currency change daily according to the supply and demand for each currency.TrueFalse11.The day-by-day accumulation of interest is considered a transaction involving an exchange of value.TrueFalse12.Sole proprietorships in the United States generate more business (in terms of receipts) than partnerships andcorporations put together.TrueFalse13.A corporation is an economic unit that is legally separate from its owners.TrueFalse14.Corporations represent the largest number of businesses in the United States.TrueFalse15.The liability of corporate stockholders is limited to their percentage share of ownership.TrueFalse16.The stockholders of a corporation elect the board of directors.TrueFalse17.In general, one partner acting alone cannot obligate the partnership to another party.TrueFalse18.A partnership is dissolved when any partner leaves the business or dies.TrueFalse

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19.The personal resources of any partner can be called upon to pay the obligations of the partnership.TrueFalse20.When a corporate stockholder sells his or her shares of stock, the corporation is technically dissolved.TrueFalse21.Creditors' equitiesis another term forliabilities.TrueFalse22.One way of stating the accounting equation is: Assets-Liabilities = Owner's Equity.TrueFalse23.The economic resources invested in a business by the owner are represented by owner's equity.TrueFalse24.Accounts Receivable is an asset that is considered nonmonetary in nature.TrueFalse25.Net incomeis another term forrevenues.TrueFalse26.Cashis another term forowner's equity.TrueFalse27.Equity is reduced when owner's withdrawals exceed net income.TrueFalse28.Revenues have the effect of increasing owner's capital.TrueFalse

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29.Owner withdrawals are an example of an expense.TrueFalse30.The obligation to provide services to another entity is a type of liability.TrueFalse31.If a company has suffered only net losses since its inception, the owner's equity account will always have anegative balance.TrueFalse32.Net assets equal owner’s equity.TrueFalse33.Owner's equity equals assets minus liabilities.TrueFalse34.Inventory is an example of a nonmonetary asset.TrueFalse35.Owner's equity equals cumulative net income or loss plus owner investments minus cumulativewithdrawals.TrueFalse36.Financial position may be assessed by referring to a balance sheet.TrueFalse37.The purchase of land with cash would be disclosed on the statement of cash flows.TrueFalse38.The expenses incurred by an accounting firm would appear on its balance sheet.TrueFalse

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39.A proper heading for the income statement could include“For the Year Ended December 31, 20--.”TrueFalse40.The account‘Wages Payable’would appear on the income statement.TrueFalse41.An increase in expenses will have the effect of reducing owner's equity.TrueFalse42.The account‘Supplies’will appear as an expense on the income statement.TrueFalse43.The statement of owner's equity discloses the owner's withdrawals made during the period.TrueFalse44.The heading for a balance sheet might include the line“For the Month Ended December 31, 20--.”TrueFalse45.The balance sheet is also known as the statement of financial position.TrueFalse46.The statement of cash flows discloses significant events related to the operating, investing, and financingactivities of a business.TrueFalse47.The statement of owner's equity relates the income statement to the balance sheet by showing how theowner's capital account changed during the accounting period.TrueFalse

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48.The International Accounting Standards Board is the primary and most important determinant of generallyaccepted accounting principles.TrueFalse49.Companies whose securities are sold to the general public must adhere to standards established by theSecurities and Exchange Commission.TrueFalse50.The Internal Revenue Service is responsible for issuing accounting standards for state and localgovernments.TrueFalse51.Objectivity is the avoidance of all relationships that impair or appear to impair the objectivity of theaccountant.TrueFalse52.Both public accountants and management accountants are required to adhere to a code of professionalconduct.TrueFalse53.Due care means carrying out one's professional responsibilities with competence and diligence.TrueFalse54.Independence means subordinating personal gain to service and the public trust.TrueFalse55.The Public Company Accounting Oversight Board (PCAOB) was created to determine the standards thatauditors must follow.TrueFalse56.The board of directors appoints the audit committee, which in turn performs an independent audit of thecompany's records.TrueFalse

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57.Generally accepted accounting principles encompass the conventions, rules, and procedures necessary todefine accepted accounting practice at a particular time.TrueFalse58.Financial accounting information is used primarily by management.TrueFalse59.Accounting ratios are useful as management performance measures.TrueFalse60.The purchase of equipment is an example of an investing activity.TrueFalse61.Buying and selling goods and services are examples of operating activities.TrueFalse62.A major function of financial accounting is to provide the investor with relevant and useful information.TrueFalse63.The evaluation and interpretation of financial statements and related performance measures is calledtechnical analysis.TrueFalse64.The Federal Reserve Board is an example of a consumer group.TrueFalse65.The primary external users of accounting information are investors and management.TrueFalse

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66.The Securities and Exchange Commission is an accounting information user with an indirect financialinterest.TrueFalse67.Taxing authorities are considered accounting information users with a direct financial interest.TrueFalse68.Creditors are those who lend money to others or deliver goods and services before being paid.TrueFalse69.Net income is a measure of profitability.TrueFalse70.Financing a business means obtaining funds so the business can begin and continue operating.TrueFalse71.Using cash to expand by purchasing land and a building is an example of an operating activity.TrueFalse72.Less than 20 percent of the U.S. economy is generated by governmental and not-for-profit organizations.TrueFalse73.Paying taxes to the government is an example of an operating activity.TrueFalse74.Managerial accounting focuses on internal decision making.TrueFalse75.Regulatory agencies are considered information users with an indirect financial interest.TrueFalse

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76.Not-for-profit organizations have no obligation to report their financial performance to outside parties.TrueFalse77.Two major goals of business are to achieve profitability and to achieve liquidity.TrueFalse78.Liquidity meansnothaving enough funds on hand to pay debts when they fall due.TrueFalse79.The intentional preparation of misleading financial statements is referred to asfraudulent financialreporting.TrueFalse80.Misleading financial reports are not considered fraudulent if they are the result of the misapplication ofaccounting principles.TrueFalse81.Criminal penalties can be imposed on those who prepare fraudulent financial statements.TrueFalse82.Staff accountants express their duty to ensure financial reports are not false or misleading in themanagement report that appears as part of the company’s annual report.TrueFalse83.The Sarbanes-Oxley Act orders the SEC to hold chief executives and CFOs responsible for the accuracy oftheir company's financial statements.TrueFalse84.Responsibility for ethical financial reporting rests solely with the accountant.TrueFalse

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85.The correct order of the three stages of accounting isA.communication, processing, and measurement.B.measurement, communication, and processing.C.processing, measurement, and communication.D.measurement, processing, and communication.86.The communication stage of accounting is accomplished byA.storing data.B.reporting to decision makers.C.processing data.D.recording data.87.Which of the following is the most appropriate definition ofaccounting?A.Electronic collection, organization, and communication of vast amounts of informationB.The interconnected network of subsystems necessary to operate a businessC.A means of recording transactions and keeping recordsD.The measurement, processing, and communication of financial information about an identifiable economicentity88.The recording of data falls under which stage of accounting?A.measurementB.processingC.communicationD.decision making89.Which of the following transactions doesnotinvolve an exchange of value?A.Payment of a debtB.Purchase of a building on creditC.Borrowing moneyD.Loss from theft90.An accounting measurement is concerned with allexceptwhich of the following?A.Money measureB.Financial positionC.Separate entityD.Business transaction

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91.The personal assets and liabilities of an owner are not shown on the business’s financial statements becauseof theA.separate entity concept.B.sole proprietorship concept.C.financial position concept.D.objectivity concept.92.The topic of foreign exchange rates relates most closely to the concept ofA.separate entity.B.money measure.C.nonexchange transactions.D.business transactions.93.All of the following are considered nonexchange transactionsexceptA.the day-by-day accumulation of interest.B.the wear and tear on machinery.C.the sale of goods and services.D.losses from fire, flood, and theft.94.Which of the following transactions involves an exchange of value?A.Accumulation of interestB.Sale of servicesC.Fire damageD.Wear and tear on machinery95.Which of the following islegallya separate entity from its owner(s)?A.Sole proprietorship onlyB.Sole proprietorship and partnership onlyC.Corporation onlyD.Partnership only96.Most business enterprises in the United States areA.government units.B.partnerships.C.sole proprietorships.D.corporations.

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97.Transfer of ownership will affect the continuity of aA.corporation.B.sole proprietorship.C.partnership.D.sole proprietorship or partnership.98.All of the following statements about partnerships are trueexceptA.partners must share profits and losses equally.B.a change in ownership will dissolve the partnership.C.any partner can enter into a binding agreement with a third party.D.all partners have unlimited liability.99.All of the following statements about corporations are trueexceptA.they are chartered by the state.B.ownership is represented by shares of stock.C.the sale of stock does not dissolve the business.D.the stockholders have direct control of the business.100.Which of the following forms of organization are considered to be separate entities byaccountants?A.Partnerships onlyB.Sole proprietorships onlyC.Corporations onlyD.Sole proprietorships, partnerships, and corporations101.Which of the following is the correct accounting equation?A.Assets = Liabilities + Owner's EquityB.Assets + Owner's Equity = LiabilitiesC.Assets = Liabilities–Owner's EquityD.Assets + Liabilities = Owner's Equity102.The best definition ofassetsis the:A.cash owned by the company.B.resources belonging to a company having future benefit to the company.C.collection of resources belonging to the company and the claims on these resources.D.owner's investment in the business.

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103.Which of the following items hasnoeffect on owner's equity?A.Receipt of cash owed to the business (accounts receivable)B.Sale of a serviceC.Payment of an expenseD.Withdrawal by the owner104.Which of the following accounts isnotconsidered an asset?A.Accounts ReceivableB.InventoryC.Accounts PayableD.Trademark105.An example of a monetary asset isA.Accounts Receivable.B.Copyright.C.Retained Earnings.D.Land.106.A liability wouldnotinclude an obligation toA.transfer assets.B.hire an employee.C.pay cash.D.provide services.107.Which of the following assets could be described as nonphysical?A.InventoryB.CashC.TrademarksD.Supplies108.Sinoyianis Realty Company had the following balance sheet accounts and balances:Accounts Payable$12,000Flora Sinoyianis, Capital$?Accounts Receivable2,000Equipment14,000Building16,000Land14,000Cash6,000

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What is the balance of the Flora Sinoyianis, Capital account?A.$8,000B.$12,000C.$28,000D.$40,000109.Sinoyianis Realty Company had the following balance sheet accounts and balances:Accounts Payable$12,000Flora Sinoyianis, Capital$?Accounts Receivable2,000Equipment14,000Building16,000Land14,000Cash6,000What is the total of liabilities and owner's equity?A.$26,000B.$32,000C.$36,000D.$52,000110.Sinoyianis Realty Company had the following balance sheet accounts and balances:Accounts Payable$12,000Flora Sinoyianis, Capital$?Accounts Receivable2,000Equipment14,000Building16,000Land14,000Cash6,000If the equipment were sold for $14,000, what would be the total of owner's equity?A.$8,000B.$22,000C.$36,000D.$40,000111.Sinoyianis Realty Company had the following balance sheet accounts and balances:Accounts Payable$12,000Flora Sinoyianis, Capital$?Accounts Receivable2,000Equipment14,000Building16,000Land14,000Cash6,000If, $6,000 of Accounts Payable were paid in cash, what would be the balance of the Flora Sinoyianis, Capital account?A.$8,000B.$28,000C.$36,000D.$40,000

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112.Sinoyianis Realty Company had the following balance sheet accounts and balances:Accounts Payable$12,000Flora Sinoyianis, Capital$?Accounts Receivable2,000Equipment14,000Building16,000Land14,000Cash6,000If, $6,000 of Accounts Payable were paid in cash, what would be the total of liabilities and owner's equity?A.$28,000B.$34,000C.$46,000D.$52,000113.Use this information to answer the following question.Here is the balance sheet for Costello Container Company:Costello Container CompanyBalance SheetDecember 31, 2014AssetsLiabilitiesCash$ 8,000Accountspayable$16,000Accounts receivable3,000Land14,000Owner'sEquityBuilding44,000JoseCostello,capital66,000Equipment13,000TotalliabilitiesandTotal assets$82,000owner's equity$82,000If the equipment were sold for $13,000, then the Jose Costello, Capital account wouldA.increase by $37,000.B.increase by $13,000.C.decrease by $13,000.D.stay the same.

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