Chapter 1

1. The accounting process involves all of the following except
A) identifying economic transactions that are relevant to the business.
B) communicating financial information to users by preparing financial reports.
C) recording non-quantifiable economic events.
D) analyzing and interpreting financial reports
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1. The accounting process involves all of the following except
A) identifying economic transactions that are relevant to the business.
B) communicating financial information to users by preparing financial reports.
C) recording non-quantifiable economic events.
D) analyzing and interpreting financial reports
C
2. Interpretation of reported information involves each of the following except
A) limitations of reported data.
B) meaning of reported data.
C) uses of reported data.
D) All of these choices are correct
D
3. The starting point of the accounting process is
A) communicating information to users.
B) identifying economic events.
C) recording economic events.
D) None of these answers are correct
B
4. Accounting consists of three basic activities which are related to the economic events of an
organization. These include
A) identifying, recording, and communicating
B) identifying, calculating, and responding
C) classifying, numbering, and reporting
D) issuing, reporting, and classifying
A
5. All of the following statements are correct except
A) Good decision-making depends on good information.
B) A vital element in communicating economic events is the accountant's ability to analyze
and interpret reported information.
C) The origins of accounting are generally attributed to Socrates, a classical Greek
philosopher, who promoted accounting as a social contract.
D) The information that a user of financial information needs depends upon the kinds of
decisions the user makes.
C
6. Which one of the following is not an external user of accounting information?
A) Regulatory agencies.
B) Customers.
C) Investors.
D) All of these are external users.
D
7. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of
the accounting process?
A) Identification.
B) Communication.
C) Recording.
D) Analysis.
C
8. All of the following are steps in analyzing ethics cases in financial reporting except
A) identify and analyze the principle elements in the situation.
B) contact law enforcement regarding any violations of corporate ethics codes
C) identify the alternatives and weigh the impact of each alternative on various
stakeholders.
D) recognize an ethical situation and the ethical issues involved.
B
9. Andre Dickinson, owner of Andre's Fine Wines, also owns a personal residence that costs
$475,000. The market value of his residence is $625,000. During preparation of the financial
statements for Andre's Fine Wines, the accounting concept most relevant to the
presentation of Andre's home is
A) the economic entity assumption.
B) the fair value principle.
C) the monetary unit assumption.
D) convergence.
A
10. The cost of an asset and its fair value are
A) never the same.
B) the same when the asset is sold.
C) irrelevant when the asset is used by the business in its operations.
D) the same on the date of acquisition.
D
11. The economic entity assumption requires that the activities A) different entities can be combined if all the entities are corporations. B) must be reported to the Securities and Exchange Commission. C) of a sole proprietorship cannot be distinguished from the personal economic events of its owners. D) of an entity be kept separate from the activities of its owner.D12. Which of the following is not an advantage of the corporate form of business organization? A) Limited liability of stockholders B) Transferability of ownership C) Unlimited personal liability for stockholders D) Unlimited lifeB13. Ted Leo is the proprietor (owner) of Ted's, a retailer of golf apparel. When recording the financial transactions of Ted's, Ted does not record an entry for a car he purchased for personal use. Ted took out a personal loan to pay for the car. What accounting concept guides Ted's behavior in this situation? A) Pay back concept B) Economic entity assumption C) Cash basis concept D) Monetary unit assumptionB14. The assumption that the unit of measure remains sufficiently constant over time is part of the A) economic entity assumption. B) cost principle. C) historical cost principle. D) monetary unit assumption.D15. Owner's equity is best depicted by the following: A) Assets = Liabilities. B) Liabilities + Assets. C) Residual equity + Assets. D) Assets - Liabilities.D16. Liabilities of a company would not include A) notes payable. B) accounts payable. C) salaries and wages payable. D) cash.D17. Stockholders' equity is often referred to as A) residual equity. B) leftovers. C) spoils. D) second equity.A18. A dividend is A) a distribution of the company's earnings to its stockholders. B) equal to liabilities minus stockholders' equity. C) equal to assets minus stockholders' equity. D) equal to revenues less expensesa19. The basic accounting equation cannot be restated as A) Assets - Liabilities = Stockholders' Equity. B) Assets - Stockholders' Equity = Liabilities. C) Stockholders' Equity + Liabilities = Assets. D) Assets + Liabilities = Stockholders' Equity.C) the monetary unit assumption.d20. If total liabilities decreased by $30,000 and stockholders' equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $50,000 decrease B) $10,000 decrease C) $10,000 increase D) $50,000 increaseb21. Which of the following will not cause a change in the stockholders' equity of a business? A) An increase in prepaid expenses. B) An increase in retained earnings. C) The sale of common stock. D) The declaration and payment of dividends.a22. If the transaction causes an asset account to decrease, which of the following related effects may occur? A) An increase of equal amount in the common stock account. B) An increase in a liability account. C) An increase of equal amount in another asset account. D) An increase in the combined total of liabilities and stockholders' equity.C23. The accounting equation for Quattro Enterprises is as follows: Assets Liabilities Stockholders' Equity $120,000 = $60,000 + $60,000 If Quattro purchases office equipment on account for $25,000, the accounting equation will change to Assets Liabilities Stockholders' Equity A) $120,000 = $60,000 + $60,000 B) $145,000 = $60,000 + $85,000 C) $145,000 = $72,500 + $72,500 D) $145,000 = $85,000 + $60,000D24. Stockholders' equity is decreased by A) assets. B) revenues. C) expenses. D) liabilities.C25. If a corporation distributes cash to its stockholders, then A) there has been a violation of accounting principles. B) stockholders' equity will increase. C) stockholders' equity will decrease. D) there will be a new liability showing the stockholders owe money to the business.C26. Which of the following events is not a business transaction? A) Issuance of stock in exchange for cash. B) Hired employees. C) Incurred utility expenses for the month. D) Earned revenue for services provided.B27. Retained earnings at the end of the period is equal to A) retained earnings at the beginning of the period plus net income minus liabilities. B) retained earnings at the beginning of the period plus net income minus dividends. C) net income. D) assets plus liabilities.B28. If the retained earnings account increases from the beginning of the year to the end of the year, then A) net income is less than dividends. B) a net loss is less than dividends. C) the company must have sold stock. D) net income is greater than dividends.d29. Mofro's Computer Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $500,000 in computer repair revenues, $300,000 in expenses, and Mofro paid dividends of $50,000. Stockholders' equity at the end of the year was A) $200,000. B) $100,000. C) $250,000. D) $300,000.c30. All of the financial statements are for a period of time except the A) income statement. B) retained the earnings statement. C) balance sheet. D) statement of cash flows.c31. Black Keys Company began the year with stockholders' equity of $280,000. During the year, the company recorded revenues of $375,000, expenses of $285,000, and paid dividends of $30,000. What was Black Keys' stockholders' equity at the end of the year? A) $280,000. B) $340,000. C) $370,000. D) $400,000.b32. Barsuk Company began the year with stockholders' equity of $108,000. During the year, Barsuk issued stock for $147,000, recorded expenses of $420,000, and paid dividends of $28,000. If Barsuk's ending stockholders' equity was $290,000, what was the company's revenue for the year? A) $455,000. B) $483,000. C) $602,000. D) $630,000.B33. Misra Company compiled the following financial information as of December 31, 2018: Revenues $340,000 Retained earnings (1/1/18) 60,000 Equipment 80,000 Expenses 250,000 Cash 90,000 Dividends 20,000 Supplies 10,000 Accounts payable 40,000 Accounts receivable 70,000 Common stock 80,000 Misra's stockholders' equity on December 31, 2018 is A) $90,000. B) $140,000. C) $210,000. D) $250,000.c34. Teamboo Company's stockholders' equity at the beginning of August 2018 was $750,000. During the month, the company earned net income of $175,000 and paid dividends of $75,000. At the end of August 2018, what is the amount of stockholders' equity? A) $675,000 B) $750,000 C) $825,000 D) $850,000d35. On January 1, 2018, Cat Power Company reported stockholders' equity of $705,000. During the year, the company paid dividends of $30,000. At December 31, 2018, the The amount of stockholders' equity was $825,000. What amount of net income or net loss Would the company report for 2015? A) Net loss of $30,000 B) Net income of $90,000 C) Net income of $120,000 D) Net income of $150,000D36. Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000. During the year, the business recorded $48,000 in catering revenues and $30,000 in expenses. Stahl issued stock of $9,000 and paid dividends of $15,000 during the year. The net income reported by Stahl Consulting for the year was: A) $3,000. B) $12,000. C) $18,000. D) $27,000.c37. Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000. During the year, the business recorded $48,000 in catering revenues and $30,000 in expenses. Stahl issued stock of $9,000 and paid dividends of $15,000 during the year. Stockholders' equity changed by what amount from the beginning of the year to the end of the year? A) $3,000. B) $9,000. C) $12,000. D) $45,000.c38. On October 1, Arcade Fire Enterprises reported stockholders' equity of $72,000. During In October, no stock was issued and the company posted a net loss of $8,000. If stockholders' equity at October 31 totals $64,000, what amount of dividends were paid during the month? A) $0 B) $4,000 C) $8,000 D) $16,000a39. Keeping a systematic, chronological diary of events that are measured in dollars and cents is called A) communicating. B) identifying. C) processing. D) recordingd40. Auditing is A) the examination of financial statements by a CPA in order to express an opinion on their fairness. B) a part of accounting that involves only the recording of economic events. C) an area of accounting that involves such activities as cost accounting, budgeting, and accounting information systems. D) conducted by the Securities and Exchange Commission to ensure that registered financial statements are presented fairly.a41. Proprietorships, partnerships, and corporations A) are the three most common forms of business organizations in the U.S. B) are the three most common forms of business organizations internationally. C) are used in different proportions in different countries. D) all of these answers are correct.d42. Match the following terms and definitions Accounts receivable c. Accounts payable b. Creditor d. Note payable _______ (1) Amounts due from customers _______ (2) Amounts owed to suppliers for goods and services purchased _______ (3) Amounts owed to bank _______ (4) Party to whom money is oweda - 1 c - 2 d - 3 b - 4Classify each of these items as an asset (A), liability (L), or stockholders' equity (SE). _____ 1. Accounts receivable _____ 2. Accounts payable _____ 3. Common stock _____ 4. Supplies _____ 5. Utilities expense _____ 6. Cash _____ 7. Notes payable _____ 8. Equipmenta -1 l - 2 se - 3 a - 4 se - 5 a- 6 l - 7 a - 845. For each of the following, indicate whether the transaction affects revenue (R), expense (E), dividends (D), common stock (CS), or no effect on stockholders' equity (NOE). 1. Made an investment to start the business. 2. Billed customers for services performed. 3. Purchased equipment on account. 4. Paid monthly rent. 5. Paid dividendCM - 1 R - 2 NOE - 3 E - 4 D - 5