Problem 1. Financial accounting information:
A. Is primarily historical in nature.
B. Is intended primarily for internal management use.
C. Need not conform to GAAP.
D. Is not concerned with the solvency of a business.
Problem 2. The accounting authority widely accepted as the major source of new accounting principles or standards is the:
A. AICPA.
B. SEC.
C. FASB.
D. FEI.
Problem 3. According to the text, an accountant's most valuable asset is his or her:
A. Home.
B. Business.
C. Reputation.
D. Money.
Problem 4. Which of the following is true of a single transaction that results in an increase in an asset account and an increase in a stockholders' equity account?
A. The asset account is credited, and the stockholders' equity account is debited.
B. Since both accounts increased, both accounts are debited.
C. The asset account is debited, and the stockholders' equity account is credited.
D. The transaction is not a possible one.
Problem 5. Which of the following accounts would be most likely to have a credit balance?
A. Accounts Payable, Sales Revenue, Capital Stock
B. Accounts Payable, Notes Payable, Administrative Expenses
C. Accounts Payable, Sales Revenue, Dividends
D. Accounts Receivable, Administrative Expenses, Dividends
Problem 6. In a single transaction, if the Notes Payable account is credited, which of the following would not be a possible corresponding debit?
A. Increase the Office Equipment account.
B. Decrease the Accounts Payable account.
C. Increase the Cash account.
D. Decrease the Office Equipment account.
Problem 7. Adjusting entries:
A. Are always required monthly.
B. Are identified before the financial statements are prepared.
C. Usually require adjustment of the Land account.
D. Only affect the income statement.
Problem 8. The need to prepare financial statements and the requirements of the federal income tax laws result in businesses preparing financial statements at least:
A. Monthly.
B. Quarterly.
C. Yearly.
D. Weekly.
Problem 9. Which of the following items is (are) important in the matching of expenses and revenues under the accrual basis of accounting?
A. Earning of delivery fees for which payment has already been received
B. Depreciation of a building
C. Accrual of rent expense
D. All of the other answers are correct.
Problem 10. Which account would probably have a smaller balance in the Adjusted Trial Balance columns than in the Trial Balance columns?
A. Unearned Delivery Fees
B. Supplies Expense
C. Accumulated Depreciation
D. Salaries expense
Problem 11. The work sheet is:
A. Used to summarize the information needed for adjusting and closing entries and preparing financial statements.
B. A tool used throughout the year as an aid in making correct journal entries.
C. Included along with the financial statements when they are distributed to users.
D. A substitute for the journal for recording adjusting entries.
Problem 12. Which of the following would always appear in a statement of retained earnings?
A. Net income
B. Dividends account balance
C. Retained earning account balance at the beginning of year
D. Cash balance at end of year
Problem 13. Materiality is:
A. Unimportant in determining whether or not there is adequate disclosure.
B. Measured strictly by the dollar amounts of the individual items; for example, a $50,000 amount is always material.
C. Measured by whether or not the manner in which the item is treated might influence decisions or evaluations.
D. Always an aggregate consideration.
Problem 14. The principle of conservatism would:
A. Not overstate net income or net assets.
B. Consistently understate expenses and revenues.
C. Consistently understate assets and liabilities.
D. Not be appropriate for a service industry company.
Problem 15. The reliability of information depends on all of the following except:
A. Verifiability.
B. Neutrality,
C. Feedback value.
D. Representational faithfulness
Problem 16. Which of the following is a violation of internal control?
A. Only one employee us responsible for authorizing payment of a bill and writing the check paying the bill.
B. Only one employee is responsible for custodianship of the petty cash fund.
C. An employee switches from being responsible for accounts payable to being responsible for account receivable
D. All checks are prenumbered.
Problem 17. Failure to record a transaction that created a liability:
A. Could cause net income and retained earnings to be understated.
B. Could cause assets to be understated.
C. Could cause the total of liabilities and retained earnings to be overstated.
D. Could never have an effect on either assets or net income.
Problem 18. Finish Co. exchanged $20,000 cash and a machine that costs $40,000 on which $10,000 of depreciation had been recorded for a tract of land. The land has a fair market value of $44,000. The land should be recorded on Finish's books at:
A. $60,000
B. $50,000
C. $44,000
D. $64,000
Problem 19. The chief purpose of depreciation accounting is to:
A. Provide a fund for financing the replacement of depreciable assets.
B. Provide a deduction for income tax purposes.
C. Revalue assets that have declined in value.
D. Systematically allocate the service potential of depreciable assets, usually measured in terms of cost, against the revenue produced over the estimated useful lives of those assets.
Problem 20. Which of the following would be debited to an expense account?
A. $4,000 spent in overhauling an engine, which increased its estimated useful life by four years
B. Purchase of a new automobile to be used by the owner of a business
C. Installation of automatic controls on a factory machine
D. $3,200 spent to repair the motor on a machine. The expenditure did not increase the life of the machine beyond the original estimate.
Problem 21. Unissued shares of stock are:
A. Authorized but not outstanding.
B. Equal to issued shares in basic rights.
C. A liability to the corporation.
D. Outstanding shares.
Problem 22. Which of the following would be least useful in recording the issuance of stock?
A. Par value or stated value
B. Number or shares issued
C. Sales price per share
D. Number of shares authorized
Problem 23. The book value of the common stock of a corporation that has both common and preferred stock outstanding is which of the following?
A. A constant value over many years
B. Total stockholders' equity divided by the number of common shares outstanding
C. The same as the par value of the common stock
D. The other answers are all incorrect.
Problem 24. The ratio of
(1) net income available to common stockholders to
(2) average common stockholders' equity measures:
A. The dividends available to common stockholders.
B. The return on common stockholders' equity.
C. The return on investment for all stockholders.
D. The other answers are all incorrect.
Problem 25. Paid-in capital may come from many sources including:
A. The sale of inventory.
B. The issuance of bonds or notes.
C. Donations to the corporation.
D. Interest paid to the corporation for the use of funds.
Problem 26. A complete stockholders' equity section of the balance sheet:
A. Typically contains paid-in capital, retained earnings, and treasury stock sections.
B. Lists different classes of stock separately.
C. Is usually supported by information in the statement of stockholders' equity.
D. Does all of the other answers.
Problem 27. A stock split increasing the number of shares of stock also:
A. Reduces retained earnings and increases the paid-in capital.
B. Usually creates a credit to a Paid-in in Excess of Par account.
C. Decreases the par value per share of the stock in direct proportion to the stock split.
D. Does all the above.
Problem 28. Treasury stock is stock that:
A. Has never been issued.
B. Must be offered to existing stockholders first in amounts proportional to their shareholdings of the issuer's stock.
C. Is apportioned to cover special projects such as the construction of a new building.
D. Has been issued but was reacquired by the corporation.
Problem 29. All short-term investments are initially recorded at cost because:
A. The rule-making body (ies) have specified its use.
B. Cost is the simplest and most efficient method.
C. The cost can be objectively determined.
D. All of the other answers are correct.
Problem 30. If a loss on an individual stock being held as an available-for-sale security is deemed to be permanent rather than temporary, the loss is recorded as:
A. Realized and deducted from stockholder's equity.
B. Realized and deducted in determining net income.
C. Realized but not recognized.
D. Unrealized and deducted from stockholders' equity.
Problem 31. Which of the following statements is true?
A. The statement of changes in financial position replaced the statement of cash flows.
B. The statement of cash flows has two parts-sources of cash and uses of cash.
C. The old statement of changes in financial position (emphasizing working capital) always showed cash flows from operating activities.
D. All of the other statements are false.
Problem 32. Which of the following is not a purpose of the statements of cash flows?
A. To report the flow of cash into and out of the business
B. To show the cash flow effects of significant operating, financing, and investing activities of the business.
C. To provide additional information showing the activities causing increases or decreases in cash during the period.
D. To explain all changes in the retained earnings account during the period.
Problem 33. Cash paid for financing activities would include cash paid for:
A. The stock of another company.
B. Merchandise inventory.
C. The purchase of treasury stock.
D. Taxes.