Download FREE Sample Here

Download the full file instantly at http://testbankinstant.com
Chapter 1—The Role of Accounting in Business
True/False
No.
Obj.
1-1
1
1-1
2
1-1
3
1-1
4
1-1
5
1-1
6
1-1
7
Difficulty
Easy
Easy
Easy
Easy
Easy
Easy
Easy
8
9
10
11
12
13
14
Obj.
1-1
1-1
1-1
1-1
1-1
1-1
1-1
Difficulty
Easy
Easy
Easy
Easy
Easy
Easy
Easy
No.
15
16
17
18
19
20
21
Obj.
1-1
1-2
1-2
1-2
1-2
1-4
1-5
Difficulty
Easy
Easy
Easy
Easy
Easy
Easy
Easy
No.
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Obj.
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-2
1-3
1-3
1-3
1-4
1-4
1-4
Difficulty
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Moderate
No.
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
Obj.
1-4
1-4
1-4
1-4
1-4
1-4
1-4
1-4
1-4
1-4
1-4
1-4
1-5
1-5
1-5
1-5
1-5
1-5
1-5
Difficulty
Moderate
Easy
Difficult
Easy
Moderate
Easy
Difficult
Easy
Easy
Easy
Difficult
Difficult
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Difficulty
Easy
Moderate
Moderate
Easy
Easy
Easy
Easy
Difficult
Difficult
No.
10
11
12
13
14
15
16
17
Obj.
1-4
1-4
1-4
1-4
1-4
1-5
1-5
1-5
Multiple Choice
No.
Obj. Difficulty
1-1
Easy
1
1-1
Easy
2
1-1
Easy
3
1-1
Easy
4
1-1
Easy
5
1-1
Easy
6
1-1
Moderate
7
1-1
Easy
8
1-1
Easy
9
1-1
Easy
10
1-1
Easy
11
1-1
Easy
12
1-1
Easy
13
1-1
Easy
14
1-1
Easy
15
1-1
Moderate
16
1-1
Easy
17
1-1
Easy
18
1-1
Easy
19
Problems
No.
Obj.
1-1
1
1-1
2
1-1
3
1-1
4
1-1
5
1-3
6
1-4
7
1-4
8
1-4
9
No.
Difficulty
Difficult
Moderate
Difficult
Difficult
Difficult
Moderate
Difficult
Difficult
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
TRUE/FALSE
1. The objective of most businesses is to maximize profits.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
2. A limited liability corporation combines attributes of a partnership and a corporation.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Business
OBJ: 1-1
3. A partnership is owned by two or more individuals.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
4. Manufacturing businesses change basic inputs into products that are sold to individual
customers.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
5. Merchandising businesses produce products rather than provide services to customers.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
6. A corporation is a business that is legally separate and distinct from its owners.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
7. The popularity of the sole proprietorship is due to the ease and low cost of organizing.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
8. Large corporations such as ExxonMobil and Walmart are organized as limited liability
corporations.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
9. Over 90% of the total dollars of business receipts are received by proprietorships.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
10. Merchandising businesses must be corporations.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
11. Accounting is thought to be the "language of business" because business information is
communicated to stakeholders.
ANS: T
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 1-1
12. Stockholders in a corporation are internal stakeholders.
ANS: F
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Resource Management
OBJ: 1-1
13. Porsche is an example of a business that uses a premium-price emphasis to attract customers.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
14. Companies using a low-cost emphasis provide products and services that compete on features
other than price.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
15. A business stakeholder has an interest in the economic performance of a business.
ANS: T
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
16. Creditors have preference to assets behind stockholders if a business fails.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-2
17. A liability is a legal obligation to repay the amount borrowed according to the terms of the
borrowing agreement.
ANS: T
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
18. The basic type of stock issued to owners is called common stock.
ANS: T
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
19. Assets are acquired through investing activities when resources are purchased.
ANS: T
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
20. The Stockholders’ Equity of a company should equal the total of its Total Assets and Total
Liabilities.
ANS: F
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 1-4
21. The Balance Sheet represents the accounting equation.
ANS: T
PTS: 1
DIF: Easy
OBJ: 1-5
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
NAT: AACSB Analytic | AICPA FN-Measurement
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
MULTIPLE CHOICE
1. What is the primary objective of most businesses?
a. To maximize profits
b. To pay dividends to stockholders
c. To provide a benefit to society
d. To manufacture a quality product
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
2. Which of the following would NOT be an example of a merchandising business?
a. Ford Motor Company
b. Safeway
c. Barnes & Noble
d. Starbucks
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
3. Which of the items below is NOT a business organization form?
a. Venture entrepreneurship
b. Proprietorship
c. Partnership
d. Corporation
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
4. More that 70% of businesses are organized as what type of business?
a. Not-for-profit
b. Corporation
c. Partnership
d. Sole proprietorship
ANS: D
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
5. Which of the following is TRUE in regards to a limited liability company?
a. It is organized as a corporation.
b. It can elect to be taxed as a partnership.
c. It provides tax and liability advantages to the owners.
d. All are correct.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
6. Under a premium-price emphasis, a business designs products that possess __________ for
which customers are willing to pay a premium price.
a. unique attributes
b. high costs
c. competitive efficiencies
d. longer warranties
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
7. Which of the following is NOT a characteristic of a cdorporation?
a. Corporations are organized as a separate legal taxable entity.
b. Ownership is divided into shares of stock.
c. Corporations experience an ease in obtaining large amounts of resources by issuing stock.
d. A corporation’s resources are limited to its individual owners’ resources.
e. Corporations make up 20% of all businesses.
ANS: D
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
8. An entity that is organized according to state or federal statutes and in which ownership is
divided into shares of stock is a
a. proprietorship.
b. corporation.
c. partnership.
d. governmental unit.
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
9. A low-cost emphasis strives to provide
a. no-frills, standardized products and services.
b. products and services that provide unique market needs.
c. products and services that provide prestige and image for customers.
d. products and services that compete on features other than price.
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
10. Which of the following businesses use a premium-price emphasis?
a. Value City Furniture
b. Abercrombie & Fitch
c. Wal-Mart Supercenters
d. Southwest Airlines
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
11. Motel 6 is an example of a business using which of the following?
a. Low-cost emphasis
b. Combination emphasis
c. Differentiation strategy
d. Premium-price emphasis
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
12. Which of the following are business stakeholders?
a. Stockholders
b. Suppliers
c. Customers
d. All of these
ANS: D
PTS: 0
DIF: Easy
OBJ: 1-1
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
NAT: AACSB Reflective Thinking | AICPA BB-Industry
13. The following are examples of internal stakeholders EXCEPT:
a. managers.
b. creditors.
c. employees.
d. All of these are internal stakeholders.
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
14. Which of the following is NOT an example of a capital market stakeholder?
a. Banks
b. Owners
c. Suppliers
d. Stockholders
ANS: C
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
15. Due to various fraudulent business practices and accounting coverups in the early 2000s,
Congress enacted the Sarbanes-Oxley Act of 2002. The act was responsible for establishing a
new oversight board for public accountants called the
a. Generally Accepted Accounting Practices for Public Accountants Board.
b. Public Company Accounting Oversight Board.
c. Congressional Accounting Oversight Board.
d. None are correct.
ANS: B
PTS: 1
DIF: Easy
NAT: AACSB Ethics | AICPA BB-Legal
OBJ: 1-1
16. Capital market stakeholders have an interest in the company because
a. they provide incentives for the company to market their products.
b. they are part of the Marketing Department that is responsible for promoting the products
or services to increase the business profits.
c. they help market their products to customers or find vendors to supply needed inputs.
d. they provide major financing for the business.
ANS: D
PTS: 1
DIF: Moderate
NAT: AACSB Analytic | AICPA BB-Industry
OBJ: 1-1
17. Who has first preference to assets in case a business fails?
a. Stockholders
b. Long-term creditors
c. Customers
d. Employees
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
18. Governments have an interest in the economic performance of business because of
a. tax collections.
b. community involvement from the business.
c. business incentives.
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
d. all of these.
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
19. Managers are evaluated primarily on the business's
a. tax collections.
b. growth.
c. economic performance.
d. all of these.
ANS: C
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-1
20. Financing activities involve obtaining __________ to operate a business.
a. products
b. customers
c. business incentives
d. funds
ANS: D
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
21. When a business borrows money, it incurs a(n)
a. tax.
b. liability.
c. receivable.
d. addtional equity.
ANS: B
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
22. When a product is sold, this cost is often called
a. cost of goods sold.
b. revenue.
c. products.
d. retained earnings.
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 1-2
23. A note payable requires payment of the amount borrowed plus
a. interest.
b. cash.
c. accounts payable.
d. investments.
ANS: A
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
24. Shares of ownership are evidenced by issuing
a. bonds payable.
b. commercial paper.
c. shares of stock.
d. notes payable.
ANS: C
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
25. The resources a business owns are called
a. assets.
b. liabilities.
c. earnings.
d. stockholders' equity.
ANS: A
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
26. The purchase of factory equipment would be an example of which type of business activity?
a. Financing
b. Investing
c. Operating
d. All of these
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 1-2
27. Which of the following is an example of an intangible asset?
a. Patent
b. Cash
c. Land
d. Equipment
ANS: A
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
28. Rights to payments from customers are
a. liabilities.
b. prepaid expenses.
c. accounts receivable.
d. accounts payable.
ANS: C
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
29. Which of the following is considered an asset until consumed?
a. Accounts payable
b. Prepaid expense
c. Accounts receivable
d. Stockholders' equity
ANS: B
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
30. __________ is the increase in assets from selling products and services.
a. Revenue
b. Liabilities
c. Products
d. Stockholders’ Equity
ANS: A
PTS: 0
DIF: Easy
OBJ: 1-2
NAT: AACSB Reflective Thinking | AICPA BB-Resource Management
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
31. Cash collected from sales during the normal course of business would be an example of which
type of business activity?
a. Operating
b. Investing
c. Financing
d. None of these
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-2
32. Costs incurred in operating a business are also known as
a. revenues.
b. expenses.
c. liabilities.
d. dividends.
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 1-2
33. The role of accounting in business is best defined as
a. an information system that provides reports to stakeholders about the economic activities
and condition of a business.
b. a method of forecasting the future profitability of a company.
c. the policies, procedures, and strategies used in a business.
d. transaction analysis.
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Industry
OBJ: 1-3
34. Debts owed by a business are referred to as
a. accounts receivable.
b. equities.
c. stockholders’ equity.
d. liabilities.
ANS: D
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 1-3
35. Reporting the financial condition of a business at a point in time and the changes in the
financial condition of a business over a period of time are the two major objectives of
a. tax accounting.
b. union contracts.
c. managerial accounting.
d. financial accounting.
ANS: D
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-3
36. Which statement is normally prepared first?
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Retained earnings statement
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
37. A summary of revenue and expenses for a specific period of time is a(n)
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings statement.
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
38. Gilbert, Inc. had the following account balances at September 30, 2010. What is Gilbert’s net
income for the month of September?
Accounts Payable
Capital Stock
Cash
Equipment
Fees Earned
Miscellaneous Expense
Rent Expense
Retained Earnings
Wages Expense
a.
b.
c.
d.
$ 5,000
10,000
14,300
15,400
54,400
18,200
4,150
6,550
13,900
$32,450
$27,450
$6,550
$18,150
ANS: D
PTS: 0
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
39. Browning, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $30,000
during 2010. Which of the following statements is correct?
a. Net income for 2010 totaled $29,000.
b. Net income for 2010 totaled $59,000.
c. Total retained earnings increased by $59,000 during 2010.
d. Total retained earnings decreased by $30,000 during 2010.
ANS: B
PTS: 0
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
40. A summary of changes in the earnings retained in the corporation for a specific period of time
is a(n)
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings statement.
ANS: D
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
41. Heedy Company had the following account balances in 2010 and 2011, respectively.
Assuming dividends of $20,000 were paid in 2011, how much was net income?
Capital Stock
2011
$ 42,000
2010
$ 40,000
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
a.
b.
c.
d.
Retained Earnings
Total Stockholders’ Equity
$62,000
$82,000
$272,000
$252,000
x
$ 314,000
ANS: B
PTS: 0
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
210,000
$ 250,000
OBJ: 1-4
42. A list of assets, liabilities, and owners' equity as of a specific date is a(n)
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings statement.
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
43. Given the following list of accounts, calculate Total Assets:
Accounts Receivable
Capital Stock
Cash
Equipment
Fees Earned
Miscellaneous Expense
Rent Expense
Retained Earnings
Wages Expense
a.
b.
c.
d.
$ 5,000
20,000
19,300
15,400
44,400
18,200
4,150
6,550
13,900
$84,100
$59,700
$46,250
$39,700
ANS: D
PTS: 0
DIF: Moderate
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
44. Which of the following is an appropriate representation of the accounting equation?
a. Assets + liabilities = stockholders’ equity
b. Assets = liabilities + stockholders’ equity
c. Assets = liabilities
d. Assets = liabilities + retained earnings
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 1-4
45. Use the following information to determine Total Stockholders’ Equity:
Total Assets
Total Liabilities
Total Stockholders’ Equity
$ 50,000
$ 15,000
x
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
Total Retained Earnings
a.
b.
c.
d.
$ 13,000
$52,000
$50,000
$35,000
$22,000
ANS: C
PTS: 0
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
46. A summary of the cash receipts and cash payments for a specific period of time is a(n)
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings statement.
ANS: C
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
47. The portion of a corporation's net income retained in the business is called
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings.
ANS: D
PTS: 0
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
48. The debt created by a business when it makes a purchase on account is referred to as an
a. account payable.
b. account receivable.
c. asset.
d. expense payable.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 1-4
49. If there was no beginning retained earnings, net income of $20,000, and ending retained
earnings of $6,000, how much were dividends?
a. $10,000
b. $4,000
c. $6,000
d. $14,000
ANS: D
PTS: 0
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
50. During 2010, Smith Corporation had an increase in total assets of $70,000 and an increase in
total liabilities of $90,000. Assuming that capital stock increased by $5,000 and no dividends
were paid, calculate Smith’s net income or net loss for 2010.
a. Net loss of $15,000
b. Net loss of $20,000
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
c. Net loss of $25,000
d. Net income of $15,000
ANS: C
PTS: 0
DIF: Difficult
NAT: AACSB Analytic | AICPA FN-Reporting
OBJ: 1-4
51. The "rules" of accounting are called
a. income tax regulations.
b. SEC regulations.
c. Internet rules.
d. Generally Accepted Accounting Principles.
ANS: D
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA BB-Legal
OBJ: 1-5
52. Which principle determines the amount initially entered into the records for purchases?
a. Cost principle
b. Going concern concept
c. Business entity concept
d. Objectivity concept
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Measurement
OBJ: 1-5
53. Recording revenue when a sale is made most directly relates to which concept?
a. Going concern concept
b. Periodicity concept
c. Matching concept
d. Adequate disclosure concept
ANS: C
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 1-5
54. Expressing financial data as if a business will continue operating for an indefinite period time
refers to which concept?
a. Business entity concept
b. Going concern concept
c. Objectivity concept
d. Adequate disclosure concept
ANS: B
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 1-5
55. The financial statement that presents a summary of the revenues and expenses of a business for
a specific period of time, such as a month or year, is called a(n)
a. prior period statement.
b. statement of retained earnings.
c. income statement.
d. balance sheet.
ANS: C
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 1-5
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
56. Including all relevant data a reader needs to understand the financial condition and
performance of a business refers to which concept?
a. Adequate disclosure concept
b. Going concern concept
c. Objectivity concept
d. Business entity concept
ANS: A
PTS: 0
DIF: Easy
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
OBJ: 1-5
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
57. Cash investments made by the stockholders of the business are reported on the statement of
cash flows in the
a. financing activities section.
b. investing activities section.
c. operating activities section.
d. supplemental statement.
ANS: A
PTS: 1
DIF: Easy
NAT: AACSB Analytic | AICPA FN-Measurement
OBJ: 1-5
PROBLEM
1. Name the three different types of businesses that operate for profit and their respective
characteristics.
ANS:
(1) Manufacturing: These businesses change basic inputs into products to sell to
individual customers.
(2) Merchandising: These businesses sell products to individual customers, but do not make
the products. The products are purchased from other businesses and resold to customers.
(3) Service: These businesses do not make or sell products. They provide services for fees.
PTS: 0
DIF: Easy
OBJ: 1-1
NAT: AACSB Reflective Thinking | AICPA BB-Industry
2. Name and describe the three forms of businesses and their advantages and disadvantages (if any).
ANS:
(1) Proprietorship: owned by one individual
Advantages: ease and low cost of organizing
Disadvantages: The financial resources available to this type of business are limited to
the owners' resources and to borrowing.
(2) Corporation: organized under state or federal statutes as a separate legal entity.
Ownership is divided into shares of stock.
Advantages: ability to obtain large amounts of resources by issuing stock
(3) Partnership: owned by two or more individuals
Disadvantages: may outgrow its ability to finance operations
PTS: 0
DIF: Moderate
OBJ: 1-1
NAT: AACSB Reflective Thinking | AICPA BB-Industry
3. For each of the following companies, identify whether it is a service, merchandising, or
manufacturing business.
A.
Dillards
B.
Time Warner Cable
C.
Kohl’s
D.
Ford Motor Co.
E.
Applebee’s
F.
Sylvania
G.
Best Buy
H.
GAP
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
I.
H & R Block
A.
B.
C.
D.
E.
F.
G.
H.
I.
Merchandising
Service
Merchandising
Manufacturing
Service
Manufacturing
Merchandising
Merchandising
Service
ANS:
PTS: 1
DIF: Moderate
OBJ: 1-1
NAT: AACSB Analytic | AICPA FN-Measurement
4. How do businesses make money? What strategies can they use to gain competitive advantage?
ANS:
Businesses have the objective of making money by generating more revenues than costs.
Businesses can seek competitive advantage by using a premium-price strategy or by using a
low-cost strategy. A premium-price strategy tries to meet a unique market need based on quality,
reliability, image, or design, allowing it to charge a higher price. A low-cost strategy focuses on
efficiency in product design and production to offer a lower price due to lower costs.
PTS: 0
DIF: Easy
OBJ: 1-1
NAT: AACSB Reflective Thinking | AICPA BB-Industry
5. Describe business stakeholders and the four categories in which they can be classified.
ANS:
Business stakeholders are persons or entities that have an interest in the economic performance
of a company.
(1) Capital market stakeholder
(2) Product/service stakeholder
(3) Government stakeholder
(4) Internal stakeholder
PTS: 0
DIF: Easy
OBJ: 1-1
NAT: AACSB Reflective Thinking | AICPA BB-Industry
6. Define accounting and its role in business.
ANS:
Accounting provides information for managers to use in operating the business. Accounting
provides information to external stakeholders to use in assessing the economic performance
and condition of the business.
PTS: 0
DIF: Easy
OBJ: 1-3
NAT: AACSB Reflective Thinking | AICPA BB-Industry
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
7. What is the basic accounting equation, and which financial statement is prepared from this
equation?
ANS:
Assets = Liabilities + Stockholders' Equity
The Balance Sheet
PTS: 0
DIF: Easy
OBJ: 1-4
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
8. Following are the financial statement data for Yevin Temporary Services at December 31,
2011. Prepare Yevin’s income statement.
Accounts Payable
Accounts Receivable
Cash
Common Stock
Dividends
Insurance Expense
Office Equipment
Retained Earnings, January 1, 2011
Salaries Expense
Notes Payable
Service Revenue
Inventory
Supplies Expense
$ 610
600
300
625
100
60
1,000
300
550
35
1,500
20
40
Yevin Temporary Services
Income Statement
For the Year Ended December 31, 2011
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
ANS:
Yevin Temporary Services
Income Statement
For the Year Ended December 31, 2011
Revenues:
Service Revenue
Expenses:
Salaries Expense
Insurance Expense
Supplies Expense
Total Expenses
Net income
$1,500
$550
60
40
650
$ 850
PTS: 0
DIF: Difficult
OBJ: 1-4
NAT: AACSB Analytic | AICPA FN-Reporting
9. Fill in the missing amounts of the following balance sheet:
Bruce Company
Balance Sheet
December 31, 2010
Assets
Cash
Accounts Receivable
Supplies
Inventory
Equipment
Land
Total Assets
$ 3,600
2,700
a
5,000
7,500
9,300
$30,100
Liabilities
Accounts Payable
Notes Payable
Total Liabilities
Stockholders' Equity
Common Stock
Retained Earnings
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$
700
b
$c
$19,500
3,300
ANS:
a) $2,000
b) $6,600
c) $7,300
d) $30,100
PTS: 0
DIF: Difficult
OBJ: 1-4
NAT: AACSB Analytic | AICPA FN-Reporting
Download the full file instantly at http://testbankinstant.com
$22,800
$d
Download the full file instantly at http://testbankinstant.com
10. Three different companies--A, B, and C--have the same balance sheet at the beginning and end
of a year. These are summarized below:
Total Assets
$ 500,000
$1,200,000
Beginning of the year
End of the year
Total Liabilities
$250,000
$350,000
Given the data above and the additional information for each company below, determine the
net income (loss) for each company.
Company A
Company B
Company C
No additional investment was made by stockholders, and no dividends
were paid.
Stockholders invested an additional $200,000, and no dividends were paid.
Stockholders invested $450,000, and dividends of $50,000 were paid.
ANS:
Company A
Company B
Company C
Net income $600,000
Net income $400,000
Net income $200,000
PTS: 0
DIF: Difficult
OBJ: 1-4
NAT: AACSB Analytic | AICPA FN-Reporting
11. Classify the following as:
a.
Asset
b.
Liability
c.
Revenue
d.
Expense
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Unearned revenue
Office equipment
Wages payable
Salary expense
Dividends payable
Art fees earned
Prepaid rent
Accounts receivable
Income tax expense
Office supplies
ANS:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
b
a
b
d
b
c
a
a
d
a
PTS: 0
DIF: Moderate
OBJ: 1-4
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
12. Match the following items with the appropriate financial statement:
a.
Income statement
b.
Balance sheet
c.
Retained earnings statement
d.
Statement of cash flows
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Cash
Salary expense
Unearned revenue
Depreciation expense
Capital stock
Cash flows from operating activities
Accounts receivable
Beginning balance of retained earnings
Notes payable
Accounts payable
Changes in current assets and current liabilities
Total expenses
ANS:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
b
a
b
a
b
d
b
c
b
b
d
a
PTS: 0
DIF: Difficult
OBJ: 1-4
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
13. Review Coke-Cola’s financial statements and answer the following questions:
(1) How are Coke’s numbers reported (in what denomination)?
(2) What is Coke’s net operating revenue for 2008?
(3) What is Coke’s cost of goods sold for 2008?
(4) What is Coke’s net income 2008?
(5) What is Coke’s percent of interest expense to net operating revenue on its 2008
income statement?
(6) What is Coke’s percent of increase in net operating revenue from 2007 to 2008?
ANS:
(1)
(2)
(3)
(4)
(5)
(6)
In millions of dollars
$31,944,000,000
$11,374,000,000
$5,807,000,000
438/31,944 = 1.37%
(31,944 - 28,857)/28,857 = 10.7%
PTS: 0
DIF: Difficult
OBJ: 1-4
NAT: AACSB Analytic | AICPA FN-Reporting
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
14. Review Coke-Cola’s financial statements and answer the following questions:
(1) What is Coke’s percent of current assets to total assets on its December 31, 2008 balance
sheet?
(2) What is Coke’s percentage of current liabilities to total stockholders’ equity on its
December 31, 2008 balance sheet?
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
(3)
(4)
ANS:
(1)
(2)
(3)
(4)
What is the percentage increase in cash and cash equivalents from 2007 to 2008?
What percentage did total assets decrease from 2007 to 2008?
12,176/40,519 = 30.05%
12,988/20,472 = 63.44%
(4,701 - 4,093)/4,093 = 14.85%
(40,519 - 43,269)/43,269 = (6.36%)
PTS: 0
DIF: Difficult
OBJ: 1-4
NAT: AACSB Analytic | AICPA FN-Reporting
15. Match each statement with the appropriate accounting concept. (Some items may not be used.
Others may be used more than once.)
a. Accounting period
b. Adequate disclosure
c. Business entity
d. Cost concept
e. Going concern
f.
Matching
g. Objectivity
h. Unit of measure
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
ANS:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Owners’ transactions are separate from business transactions.
Financial statements are prepared at the end of each year.
Land purchased for $50,000 10 years ago is reported on the Balance Sheet at $50,000.
December rent expense paid in January is reported with the December revenues.
All transactions are recorded and reported in dollars.
Providing a summary of significant accounting policies
Assumes that IBM will continue as a corporation forever
The length of time left on debt obligations is shown.
c
a
d
f
h
b
e
b
PTS: 0
DIF: Moderate
OBJ: 1-5
NAT: AACSB Reflective Thinking | AICPA FN-Reporting
16. Indicate whether each of the following activities would be reported on the Statement of Cash
Flows as an Operating Activity, an Investing Activity, a Financing Activity, or does not appear
on the Cash Flow Statement.
(a) Cash paid for building
(b) Cash paid to suppliers
(c) Cash paid for dividends
(d) Cash received from customers
(e) Cash received from the sale of capital stock.
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
(f)
(g)
Cash received from the sale of a building
Borrowed cash from a bank
Download the full file instantly at http://testbankinstant.com
Download the full file instantly at http://testbankinstant.com
ANS:
(a) Investing
(b) Operating
(c) Financing
(d) Operating
(e) Financing
(f) Investing
(g) Financing
PTS: 1
DIF: Difficult
OBJ: 1-5
NAT: AACSB Analytic | AICPA FN-Measurement
17. On May 31, 2010, Deana’s Services Company had account balances as follows:
Accounts payable
Accounts receivable
Cash
Fees earned
Insurance expense
Land
Miscellaneous expense
Prepaid insurance
Rent expense
Salary expense
Dividends
Supplies
Supplies expense
Utilities expense
Capital stock
Retained earnings (beginning balance on May 1, 2010)
$ 9,900
26,950
11,390
70,800
1,475
74,400
1,510
2,000
8,000
35,300
15,100
950
825
3,800
81,000
20,000
Present, in good form, (a) an income statement for May, (b) a statement of retained earnings
for May, and (c) a balance sheet as of May 31.
ANS:
(a)
Deana’s Services Company
Income Statement
For the Month Ended May 31, 2010
Fees earned
Operating expenses:
Salary expense
Rent expense
Utilities expense
Supplies expense
Insurance expense
Miscellaneous expense
Total operating expenses
Net income
Download the full file instantly at http://testbankinstant.com
$70,800
$35,300
8,000
3,800
825
1,475
1,510
50,910
$19,890
Download the full file instantly at http://testbankinstant.com
(b)
Deana’s Services Company
Statement of Retained Earnings
For the Month Ended May 31, 2010
Retained earnings, May 1, 2010
Net income for the month
Subtotal
Less dividends
Retained earnings, May 31, 2010
$20,000
19,890
39,890
15,100
$24,790
(c)
Assets
Cash
Accounts receivable
Prepaid insurance
Supplies
Land
Total assets
Deana’s Services Company
Balance Sheet
May 31, 2010
Liabilities
$ 11,390
Accounts payable
26,950
2,000
Stockholders' Equity
950
Capital stock
81,000
74,400
Retained earnings
24,790
Total stockholders’ equity
Total liabilities and
$115,690
stockholders' equity
PTS: 1
DIF: Difficult
OBJ: 1-5
NAT: AACSB Analytic | AICPA FN-Measurement
Download the full file instantly at http://testbankinstant.com
$
9,900
105,790
$115,690