Accounting Principles, 12th Edition Test Bank by TBtutors

Type:

Test Bank

Resource:

Accounting Principles

Edition:

12th Edition

Author(s):

Jerry J. Weygandt Paul D. Kimmel Donald E. Kieso

CHAPTER 1 ACCOUNTING IN ACTION SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Item

Item

1. 2. 3. 4. 5. 6. 7. 8.

1 1 1 1 1 1 1 1

K K C K K C K C

9. 10. 11. 12. 13. 14. 15. 16.

1 1 1 2 2 2 2 2

K K K K K K K K

41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. a 55. a 56. a 57. a 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 6 6 6 6 1 1 2 2 2 2 2 2 2 2

K K K C K K K K C C C C C C K K K C K K C K C K K C K K

69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96.

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3

Item

4 4 4 5 5 6 6 6

K K K C C C K K

33. 34. 35. 36. 37. 38. 39. 40.

1 1 2 2 2 3 4 5

K K K C K K K K

5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 1

K K AP AP AP K C K K AP AP AP AP AP AP AP AP AP AP AP AP AP AN AN AN AN AN K

153. 154. 155. st 156. 157. st 158. 159. 160. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171. 172. 173. 174. 175. 176. 177.

1 1 2 2 2 2 3 4 4 5 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7

K K K K K K K K C C K K K K K K K K K K K K K K K

True-False Statements 17. 18. 19. 20. 21. 22. 23. 24.

2 2 2 2 3 3 3 4

K K K C K K K K

25. 26. 27. 28. 29. 30. 31. 32.

Multiple Choice Questions

st a

C K K C K K K K K K C C K K C K K K K K K K C K K C K K

97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124.

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 3 4 4 4 4 4 4 4 5 5 5

K K K C K C AP AP AP AP AP C AP C C C C C C K C C C AN C C C K

125. 126. 127. 129. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152.

This question also appears in a self-test at the student companion website. This question covers a topic in an appendix to the chapter.

st st

1-2

Test Bank for Accounting Principles, Twelfth Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Brief Exercises 178. 179. 180.

1 3 3

C K K

181. 182. 183.

3 3 3

AP AP C

184. 185. 186.

189. 190. 191. 192. 193. 194. 195. 196.

1,4 3 3 3 3 3 3 3

K C C AP C AP AN AN

197. 198. 199. 200. 201. 202. 203. 204.

3 3,4 3,4 3,4 4 4 4 4

C C C AP AP AP C AN

205. 206. 207. 208. 209. 210. 211. 212.

4 5 5

C AP C

187. 188.

5 5

AP AP

213. 214. 215. 216. 217. 218. 219. 220.

5 5 5 5 5 5 5 5

AP AP AP AN AP AP C AP

221. 222. 223. 224. 225.

5 5 5 5 5

AN C AP AP AP

2 3

K K

234. 235.

3 5

K K

Exercises 4 4 4 4 4 4 4 4

C C AP C C C C C

Completion Statements 226. 227.

1 1

K K

228. 229.

1 1

K K

230. 231.

2 2

K K

232. 233.

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item

Type

Item

Type

Item

1. 2. 3. 4. 5. 6.

TF TF TF TF TF TF

7. 8. 9. 10. 11. 33.

TF TF TF TF TF TF

34. 41. 42. 43. 44. 45.

12. 13. 14. 15. 16. 17. 18.

TF TF TF TF TF TF TF

19. 20. 35. 36. 37. 61. 62.

TF TF TF TF TF MC MC

63. 64. 65. 66. 67. 68. 69.

Type

Item

Type

Item

Learning Objective 1 TF 46. MC 52. MC 47. MC 53. MC 48. MC 54. MC 49. MC 59. MC 50. MC 60. MC 51. MC 152. Learning Objective 2 MC 70. MC 77. MC 71. MC 78. MC 72. MC 79. MC 73. MC 80. MC 74. MC 81. MC 75. MC 82. MC 76. MC 83.

Type

Item

Type

Item

Type

MC MC MC MC MC MC

153. 154. 178. 189. 226. 227.

MC MC BE Ex C C

228. 229.

C C

MC MC MC MC MC MC MC

84. 85. 86. 87. 155. 156. 157.

MC MC MC MC MC MC MC

158. 230. 231. 232.

MC C C C

FOR INSTRUCTOR USE ONLY

Accounting in Action

1-3

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE 21. 22. 23. 38. 88. 89. 90.

TF TF TF TF MC MC MC

91. 92. 93. 94. 95. 96. 97.

MC MC MC MC MC MC MC

98. 99. 100. 101. 102. 103. 104.

24. 25. 26. 27. 39.

TF TF TF TF TF

112. 113. 115. 116. 117.

MC MC MC MC MC

118. 119. 120. 121. 160.

28. 29. 40. 122. 123. 124. 125. 126.

TF TF TF MC MC MC MC MC

127. 128. 129. 130. 131. 132. 133. 134.

MC MC MC MC MC MC MC MC

135. 136. 137. 138. 139. 140. 141. 142.

30. 31.

TF TF

32. 55.

TF MC

164. 165.

MC MC

166. 167.

MC MC

168. 169.

56. 57.

Note: TF = True-False MC = Multiple Choice

Learning Objective 3 MC 105. MC 114. MC 106. MC 159. MC 107. MC 179. MC 108. MC 180. MC 109. MC 181. MC 110. MC 182. MC 111. MC 183. Learning Objective 4 MC 161. MC 200. MC 184. BE 201. MC 189. Ex 202. MC 198. Ex 203. MC 199. Ex 204. Learning Objective 5 MC 143. MC 151. MC 144. MC 162. MC 145. MC 185. MC 146. MC 186. MC 147. MC 187. MC 148. MC 188. MC 149. MC 213. MC 150. MC 214. Learning Objective 6 a MC 58. MC a MC 163. MC Learning Objective 7 MC 170. MC 172. MC 171. MC 173.

MC MC BE BE BE BE BE

190. 191. 192. 193. 194. 195. 196.

Ex Ex Ex Ex Ex Ex Ex

197. 198. 199. 200. 233. 234.

Ex Ex Ex Ex C C

Ex Ex Ex Ex Ex

205. 206. 207. 208. 209.

Ex Ex Ex Ex Ex

210. 211. 212.

Ex Ex Ex

MC MC BE BE BE BE Ex Ex

215. 216. 217. 218. 219. 220. 221. 222.

Ex Ex Ex Ex Ex Ex Ex Ex

223. 224. 225. 235.

Ex Ex Ex C

MC MC

174. 175.

MC MC

176. 177.

MC MC

BE = Brief Exercise Ex = Exercise

C = Completion

This chapter also contains one set of ten Matching questions and Short-Answer Essay questions. A summary table of all learning outcomes, including AACSB, AICPA, and IMA professional standards, is available on the Weygandt Accounting Principles 12e instructor web site.

FOR INSTRUCTOR USE ONLY

1-4

Test Bank for Accounting Principles, Twelfth Edition

CHAPTER LEARNING OBJECTIVES 1. Identify the activities and users associated with accounting. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. The major users and uses of accounting are as follows (a) Management uses accounting information to plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their financial interests on the basis of accounting data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on the basis of accounting information. Other groups that use accounting information are taxing authorities, regulatory agencies, customers, and labor unions. 2. Explain the building blocks of accounting: ethics, principles, and assumptions. Ethics are the standards of conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound ethical behavior. Generally accepted accounting principles are a common set of standards used by accountants. The monetary unit assumption requires that companies include in the accounting records only transaction data that can be expressed in terms of money. The economic entity assumption requires that the activities of each economic entity be kept separate from the activities of its owner(s) and other economic entities. 3. State the accounting equation, and define its components. The basic accounting equation is: Assets = Liabilities + Owner's Equity Assets are resources owned by a business. Liabilities are creditorship claims on total assets. Owner's equity is the ownership claim on total assets. The expanded accounting equation is: Assets = Liabilities + Owner's Capital − Owner's Drawings + Revenues − Expenses Owner's Capital is assets the owner puts into the business. Owner's drawings are the Assets the owner withdraws for personal use. Revenues are increases in assets resulting from income-earning activities. Expenses are the costs of assets consumed of services used in the process of earning revenue. 4. Analyze the effects of business transactions on the accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase in a specific liability, or (3) increase in owner's equity. 5. Describe the four financial statements and how they are prepared. An income statement presents the revenues and expenses, and resulting net income or net loss for a specific period of time. An owner's equity statement summarizes the changes in owner's equity for a specific period of time. A balance sheet reports the assets, liabilities, and owner's equity at a specific date. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time. a

6. Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and private accounting, governmental, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement.

FOR INSTRUCTOR USE ONLY

Accounting in Action

1-5

TRUE-FALSE STATEMENTS 1.

Owners of business firms are the only people who need accounting information. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Transactions that can be measured in dollars and cents are recorded in the financial information system. Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

The hiring of a new company president is an economic event recorded by the financial information system. Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Management of a business enterprise is the major external user of information. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reportin g

Accounting communicates financial information about a business enterprise to both internal and external users. Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting information is used only by external users with a financial interest in a business enterprise. Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Financial statements are the major means of communicating accounting information to interested parties. Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process. Ans: F LO1 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

The origins of accounting are attributed to Luca Pacioli, a famous mathematician. Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

10.

The study of accounting is not useful for a business career unless your career objective is to become an accountant. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

11.

A working knowledge of accounting is not relevant to a lawyer or an architect. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

12.

A partnership must have more than one owner. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

13.

The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

14.

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1-6 15.

Test Bank for Accounting Principles, Twelfth Edition Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

16.

The primary accounting standard-setting body in the United States is the International Accounting Standards Board. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

17.

The Financial Accounting Standards Board is a part of the Securities and Exchange Commission. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

18.

The Securities and Exchange Commission oversees U.S. financial markets and accounting standard-setting bodies. Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

19.

The cost and fair market value of an asset are the same at the time of acquisition and in all subsequent periods. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

20.

Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners. Ans: T LO2 BT: C Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

21.

In order to possess future service potential, an asset must have physical substance. Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

22.

Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses. Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

23.

The basic accounting equation states that Assets = Liabilities. Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

24.

Accountants record both internal and external transactions. Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

25.

Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company. Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

26.

The purchase of store equipment for cash reduces assets and owner's equity by an equal amount. Ans: F LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

27.

The purchase of office equipment on credit increases total assets and total liabilities. Ans: T LO4 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

28.

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period. Ans: T LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 29.

Net income for the period is determined by subtracting total expenses and drawings from total revenues. Ans: F LO5

30.

1-7

BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

The study of accounting will be useful only if a student is interested in working for a profitoriented business firm. Ans: F LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

31.

Private accountants are accountants who are not employees of business enterprises. Ans: F LO6 BT:K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

32.

Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs. Ans: T LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

33.

Identifying is the process of keeping a chronological diary of events measured in dollars and cents. Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

34.

Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation. Ans: F LO1 BT: K Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

35.

Accountants do not have to worry about issues of ethics. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting

36.

At the time an asset is acquired, cost and fair value should be the same. Ans: T LO2 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

37.

The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar. Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

38.

The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets. Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

39.

External transactions involve economic events between the company and some other enterprise or party. Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

40.

In the owner's equity statement, revenues are listed first, followed by expenses, and net income (or net loss). Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Answers to True-False Statements Item

1. 2. 3. 4. 5. 6.

Ans.

F T F F T F

Item

7. 8. 9. 10. 11. 12.

Ans.

T F T F F T

Item

13. 14. 15. 16. 17. 18.

Ans.

T T T F F T

Item

19. 20. 21. 22. 23. 24.

Ans.

F T F F F T

Item

Ans.

25. 26. 27. 28. 29. a 30.

FOR INSTRUCTOR USE ONLY

F F T T F F

Item a

31. 32. 33. 34. 35. 36.

Ans.

Item

Ans.

F T F F F T

37. 38. 39. 40.

F T T F

1-8

Test Bank for Accounting Principles, Twelfth Edition

MULTIPLE CHOICE QUESTIONS 41.

Accountants refer to an economic event as a a. purchase. b. sale. c. transaction. d. change in ownership. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reportin g

42.

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. Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

43.

Communication of economic events is the part of the accounting process that involves a. identifying economic events. b. quantifying transactions into dollars and cents. c. preparing accounting reports. d. recording and classifying information. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

44.

Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction? a. The appointment of a new CPA firm to perform an audit. b. The purchase of a new computer. c. The sale of store equipment. d. Payment of income taxes. Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

45.

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. Ans: d LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

46.

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 nonquantifiable economic events. d. analyzing and interpreting financial reports. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

47.

The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c. identification, recording, communication. d. communication, recording, identification. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 48.

1-9

Which of the following techniques are not used by accountants to interpret and report financial information? a. Graphs. b. Special memos for each class of external users. c. Charts. d. Ratios. Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

49.

Which of the following would not be considered an internal user of accounting data for the LMN Company? a. President of the company. b. Production manager. c. Merchandise inventory clerk. d. President of the employees' labor union. Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

50.

Which of the following would not be considered an external user of accounting data for the LMN Company? a. Internal Revenue Service Agent. b. Management. c. Creditors. d. Customers. Ans: b LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

51.

Which of the following would not be considered internal users of accounting data for a company? a. The president of a company. b. The controller of a company. c. Creditors of a company. d. Salesmen of the company. Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

52.

Which of the following is an external user of accounting information? a. Labor unions. b. Finance directors. c. Company officers. d. Managers. Ans: a LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

53.

Which one of the following is not an external user of accounting information? a. Regulatory agencies. b. Customers. c. Investors. d. All of these answers choices are external users. Ans: d LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

54.

Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process? a. Identification. b. Communication. c. Recording. d. Analysis. Ans: c LO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 10 a

55.

Test Bank for Accounting Principles, Twelfth Edition All of the following are services offered by public accountants except a. budgeting. b. auditing. c. tax planning. d. consulting. Ans: a LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

56.

Which list below best describes the major services performed by public accountants? a. Bookkeeping, mergers, budgets. b. Employee training, auditing, bookkeeping. c. Auditing, taxation, management consulting. d. Cost accounting, production scheduling, recruiting. Ans: c LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

57.

Preparing tax returns and engaging in tax planning is performed by a. public accountants only. b. private accountants only. c. both public and private accountants. d. IRS accountants only. Ans: c LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

58.

A private accountant can perform many activities in a business organization but would not work in a. budgeting. b. accounting information systems. c. external auditing. d. tax accounting. Ans: c LO6 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

59.

The origins of accounting are generally attributed to the work of a. Christopher Columbus. b. Abner Doubleday. c. Luca Pacioli. d. Leonardo da Vinci. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

60.

Financial accounting provides economic and financial information for all of the following except a. creditors. b. investors. c. managers. d. other external users. Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

61.

The final step in solving an ethical dilemma is to a. identify and analyze the principal elements in the situation. b. recognize an ethical situation. c. identify the alternatives and weigh the impact of each alternative on stakeholders. d. recognize the ethical issues involved. Ans: c LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 62.

1 - 11

The first step in solving an ethical dilemma is to a. identify and analyze the principal elements in the situation. b. identify the alternatives. c. recognize an ethical situation and the ethical issues involved. d. weigh the impact of each alternative on various stakeholders. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting

63.

Ethics are the standards of conduct by which one's actions are judged as a. right or wrong. b. honest or dishonest. c. fair or unfair. d. All of these answer choices are correct. Ans: d LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Ethics AICPA BB: Critical Thinking AICPA FN: Reporting

64.

Generally accepted accounting principles are a. income tax regulations of the Internal Revenue Service. b. standards that indicate how to report economic events. c. theories that are based on physical laws of the universe. d. principles that have been proven correct by academic researchers. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

65.

The historical cost principle requires that when assets are acquired, they be recorded at a. appraisal value. b. cost. c. market price. d. book value. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

66.

The historical 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. Ans: d LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

67.

The body of theory underlying accounting is not based on a. physical laws of nature. b. concepts. c. principles. d. definitions. Ans: a LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

68.

The private sector organization involved in developing accounting principles is the a. Feasible Accounting Standards Body. b. Financial Accounting Studies Board. c. Financial Accounting Standards Board. d. Financial Auditors' Standards Body. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 12 69.

Test Bank for Accounting Principles, Twelfth Edition The SEC and FASB are two organizations that are primarily responsible for establishing generally accepted accounting principles. It is true that a. they are both governmental agencies. b. the SEC is a private organization of accountants. c. the SEC often mandates guidelines when no accounting principles exist. d. the SEC and FASB rarely cooperate in developing accounting standards. Ans: c LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

70.

GAAP stands for a. Generally Accepted Auditing Procedures. b. Generally Accepted Accounting Principles. c. Generally Accepted Auditing Principles. d. Generally Accepted Accounting Procedures. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

71.

Financial information that is capable of making a difference in a decision is a. faithfully representative. b. relevant. c. convergent. d. generally accepted. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

72.

The Dulce Company has five plants nationwide that cost a total of $200 million. The current fair value of the plants is $600 million. The plants will be recorded and reported as assets at a. $200 million. b. $600 million. c. $400 million. d. $800 million. Ans: a LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

73.

The fair value principle is applied for a. all assets. b. current assets. c. buildings. d. investment securities. Ans: d LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

74.

The proprietorship form of business organization a. must have at least three owners in most states. b. represents the largest number of businesses in the United States. c. combines the records of the business with the personal records of the owner. d. is characterized by a legal distinction between the business as an economic unit and the owner. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

75.

The economic entity assumption requires that the activities a. of 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. Ans: d LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 76.

1 - 13

A business organized as a corporation a. is not a separate legal entity in most states. b. requires that stockholders be personally liable for the debts of the business. c. is owned by its stockholders. d. terminates when one of its original stockholders dies. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

77.

The partnership form of business organization a. is a separate legal entity. b. is a common form of organization for service-type businesses. c. enjoys an unlimited life. d. has limited liability. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

78.

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 life Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

79.

A small neighborhood barber shop that is operated by its owner would likely be organized as a a. joint venture. b. partnership. c. corporation. d. proprietorship. Ans: d LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

80.

George and Ringo met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a a. joint venture. b. partnership. c. corporation. d. proprietorship. Ans: b LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

81.

Which of the following is true regarding the corporate form of business organization? a. Corporations are the most prevalent form of business organization. b. Corporate businesses are generally smaller in size than partnerships and proprietorships. c. The revenues of corporations are greater than the combined revenues of partnerships and proprietorships. d. Corporations are separate legal entities organized exclusively under federal law. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 14 82.

Test Bank for Accounting Principles, Twelfth Edition A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the a. stand alone concept. b. monetary unit assumption. c. corporate form of ownership. d. economic entity assumption. Ans: d LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

83.

Sam Ryo is the proprietor (owner) of Sam's, a retailer of golf apparel. When recording the financial transactions of Sam's, Sam does not record an entry for a car he purchased for personal use. Sam took out a personal loan to pay for the car. What accounting concept guides Sam's behavior in this situation? a. Pay back concept b. Economic entity assumption c. Cash basis concept d. Monetary unit assumption Ans: b LO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

84.

A basic assumption of accounting assumes that the dollar is a. unrelated to business transactions. b. a poor measure of economic activities. c. the common unit of measure for all business transactions. d. useless in measuring an economic event. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

85.

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. Ans: d LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

86.

A business whose owners enjoy limited liability is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

87.

A problem with the monetary unit assumption is that a. the dollar has not been stable over time. b. the dollar has been stable over time. c. the dollar is a common medium of exchange. d. it is impossible to account for international transactions. Ans: a LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

88.

The common characteristic possessed by all assets is a. long life. b. great monetary value. c. tangible nature. d. future economic benefit. Ans: d LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 89.

1 - 15

Owner's equity is best depicted by the following: a. Assets = Liabilities. b. Liabilities + Assets. c. Residual equity + Assets. d. Assets – Liabilities. Ans: d LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

90.

The basic accounting equation may be expressed as a. Assets = Equities. b. Assets – Liabilities = Owner's Equity. c. Assets = Liabilities + Owner's Equity. d. All of these answer choices are correct.. Ans: d LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

91.

Liabilities a. are future economic benefits. b. are existing debts and obligations. c. possess service potential. d. are things of value used by the business in its operation. Ans: b LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

92.

Liabilities of a company would not include a. notes payable. b. accounts payable. c. salaries and wages payable. d. cash. Ans: d LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

93.

Liabilities of a company are owed to a. debtors. b. benefactors. c. creditors. d. underwriters. Ans: c LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

94.

Owner's equity can be described as a. creditorship claim on total assets. b. ownership claim on total assets. c. benefactor's claim on total assets. d. debtor claim on total assets. Ans: b LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

95.

Owner's equity is often referred to as a. residual equity. b. leftovers. c. spoils. d. second equity. Ans: a LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 16 96.

Test Bank for Accounting Principles, Twelfth Edition When an owner withdraws cash or other assets from a business for personal use, these withdrawals are termed a. depletions. b. consumptions. c. drawings. d. a credit line. Ans: c LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

97.

Capital is a. an owner's permanent investment in the business. b. equal to liabilities minus owner's equity. c. equal to assets minus owner's equity. d. equal to liabilities plus drawings. Ans: a LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

98.

Revenues would not result from a. sale of merchandise. b. initial investment of cash by owner. c. performance of services. d. rental of property. Ans: b LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

99.

Sources of increases to owner's equity are a. additional investments by owners. b. purchases of merchandise. c. withdrawals by the owner. d. expenses. Ans: a LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

100.

The basic accounting equation cannot be restated as a. Assets – Liabilities = Owner's Equity. b. Assets – Owner's Equity = Liabilities. c. Owner's Equity + Liabilities = Assets. d. Assets + Liabilities = Owner's Equity. Ans: d LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

101.

Owner's equity is decreased by all of the following except a. owner's investments. b. owner's withdrawals. c. expenses. d. owner's drawings. Ans: a LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

102.

A net loss will result during a time period when a. liabilities exceed assets. b. drawings exceed investments. c. expenses exceed revenues. d. revenues exceed expenses. Ans: c LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 103.

1 - 17

If total liabilities decreased by $40,000 and owner’s equity increased by $30,000 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 increase Ans: b LO3 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $30,000 − $40,000 = $10,000 decrease

104.

If total liabilities decreased by $40,000 and owner’s equity decreased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $70,000 decrease b. $10,000 decrease c. $10,000 increase d. $70,000 increase Ans: a LO3 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: ($40,000) + ($30,000) = ($70,000) decrease

105.

If total liabilities decreased by $60,000 and owner’s equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $90,000 decrease b. $30,000 decrease c. $30,000 increase d. $90,000 increase Ans: b LO3 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $30,000 − $60,000 = ($30,000) decrease

106.

If total liabilities decreased by $30,000 and owner’s equity decreased by $15,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $45,000 decrease b. $15,000 decrease c. $15,000 increase d. $45,000 increase Ans: a LO3 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: ($30,000) + ($15,000) = ($45,000) decrease

107.

If total liabilities increased by $9,000 during a period of time and owner’s equity decreased by $25,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n) a. $34,000 decrease. b. $16,000 decrease. c. $16,000 increase. d. $34,000 increase. Ans: b LO3 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $9,000 − $25,000 = ($16,000) decrease

FOR INSTRUCTOR USE ONLY

1 - 18

Test Bank for Accounting Principles, Twelfth Edition

108.

The accounting equation for Cineo Enterprises is as follows: Assets Liabilities Owner’s Equity $120,000 = $60,000 + $60,000 If Cineo purchases office equipment on account for $15,000, the accounting equation will change to Assets Liabilities Owner’s Equity a. $120,000 = $60,000 + $60,000 b. $135,000 = $60,000 + $75,000 c. $135,000 = $67,500 + $67,500 d. $135,000 = $75,000 + $60,000 Ans: d LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $120,000 + $15,000 = $135,000; $60,000 + $15,000 = $75,000

109.

As of June 30, 2016, Little Giantz Company has assets of $100,000 and owner’s equity of $60,000. What are the liabilities for Little Giantz Company as of June 30, 2016? a. $40,000 b. $60,000 c. $100,000 d. $160,000 Ans: a LO3 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $100,000 − $60,000 = $40,000

110.

Owner's equity is increased by a. drawings. b. revenues. c. expenses. d. liabilities. Ans: b LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

111.

Owner's equity is decreased by a. assets. b. revenues. c. expenses. d. liabilities. Ans: c LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

112.

If total liabilities increased by $6,000, then a. assets must have decreased by $6,000. b. owner's equity must have increased by $6,000. c. assets must have increased by $6,000, or owner's equity must have decreased by $6,000. d. assets and owner's equity each increased by $3,000. Ans: c LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

113.

Collection of a $1,500 Accounts Receivable a. increases an asset $1,500; decreases an asset $1,500. b. increases an asset $1,500; decreases a liability $1,500. c. decreases a liability $1,500; increases owner's equity $1,500. d. decreases an asset $1,500; decreases a liability $1,500. Ans: a LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 114.

1 - 19

Revenues are a. the cost of assets consumed during the period. b. gross increases in owner's equity resulting from business activities. c. the cost of services used during the period. d. actual or expected cash outflows. Ans: b LO3 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

115.

If an individual asset is increased, then a. there must be an equal decrease in a specific liability. b. there must be an equal decrease in owner's equity. c. there must be an equal decrease in another asset. d. All of these answer choices are possible. Ans: c LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

116.

If services are rendered for credit, then a. assets will decrease. b. liabilities will increase. c. owner's equity will increase. d. liabilities will decrease. Ans: c LO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

117.

If expenses are paid in cash, then a. assets will increase. b. liabilities will decrease. c. owner's equity will increase. d. assets will decrease. Ans: d LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

118.

If an owner makes a withdrawal of cash from a proprietorship, then a. there has been a violation of accounting principles. b. owner's equity will increase. c. owner's equity will decrease. d. there will be a new liability showing the owner owes money to the business. Ans: c LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

119.

If supplies that have been purchased are used in the course of business, then a. a liability will increase. b. an asset will increase. c. owner's equity will decrease. d. owner's equity will increase. Ans: c LO4 BT: C Difficulty: Medium TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

120.

As of December 31, 2016, Cancon Company has assets of $42,000 and owner's equity of $22,000. What are the liabilities for Cancon Company as of December 31, 2016? a. $22,000. b. $20,000. c. $42,000. d. $64,000. Ans: b LO4 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $42,000 − $22,000 = $20,000

FOR INSTRUCTOR USE ONLY

1 - 20

Test Bank for Accounting Principles, Twelfth Edition

121.

Which of the following events is not a business transaction? a. Investment of cash by the owner. b. Hired employees. c. Incurred utility expenses for the month. d. Earned revenue for services provided. Ans: b LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

122.

Net income results when a. Assets > Liabilities. b. Revenues = Expenses. c. Revenues > Expenses. d. Revenues < Expenses. Ans: c LO5 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

123.

Owner's capital at the end of the period is equal to a. owner's capital at the beginning of the period plus net income minus liabilities. b. owner's capital at the beginning of the period plus net income minus drawings. c. net income. d. assets plus liabilities. Ans: b LO5 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

124.

A balance sheet shows a. revenues, liabilities, and owner's equity. b. expenses, drawings, and owner's equity. c. revenues, expenses, and drawings. d. assets, liabilities, and owner's equity. Ans: d LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

125.

An income statement a. summarizes the changes in owner's equity for a specific period of time. b. reports the changes in assets, liabilities, and owner's equity over a period of time. c. reports the assets, liabilities, and owner's equity at a specific date. d. presents the revenues and expenses for a specific period of time. Ans: d LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

126.

If owner's equity increases from the beginning of the year to the end of the year, then a. net income is less than owner drawings. b. a net loss is less than owner drawings. c. additional owner investments are less than net losses. d. net income plus investments is greater than owner drawings. Ans: d LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

127.

Eli’s Electronic Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $400,000 in electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. Eli's Owner’s Capital balance at the end of the year was a. $200,000. b. $100,000. c. $150,000. d. $350,000. Ans: c LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: ($300,000 − $200,000) + ($400,000 − $300,000) − $50,000 = $150,000

FOR INSTRUCTOR USE ONLY

Accounting in Action 128.

1 - 21

Eli’s Electronic Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $400,000 in electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. The net income reported by Eli's Electronic Repair Shop for the year was a. $100,000. b. $150,000. c. $250,000. d. $300,000. Ans: a LO5 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $400,000 − $300,000 = $100,000

129.

Eli’s Electronic Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $400,000 in electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. Eli's Owner’s Capital balance changed by what amount from the beginning of the year to the end of the year? a. $100,000. b. $ 50,000. c. $200,000. d. $250,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: ($400,000 − $300,000) − $50,000 = $50,000

130.

The balance sheet is frequently referred to as a. an operating statement. b. the statement of financial position. c. the statement of cash flows. d. the statement of owner's equity. Ans: b LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

131.

The primary purpose of the statement of cash flows is to report a. a company's investing transactions. b. a company's financing transactions. c. information about cash receipts and cash payments of a company. d. the net increase or decrease in cash. Ans: c LO5 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

132.

All of the financial statements are for a period of time except the a. income statement. b. owner's equity statement. c. balance sheet. d. statement of cash flows. Ans: c LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

133.

The ending owner's equity amount is shown on a. the balance sheet only. b. the owner's equity statement only. c. both the income statement and the owner's equity statement. d. both the balance sheet and the owner's equity statement. Ans: d LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 22 134.

Test Bank for Accounting Principles, Twelfth Edition Alicia Keyes Company began the year with owner’s equity of $280,000. During the year, the company recorded revenues of $375,000, expenses of $265,000, and had owner drawings of $30,000. What was Alicia Keyes’ owner’s equity at the end of the year? a. $280,000. b. $360,000. c. $390,000. d. $420,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $280,000 + ($375,000 − $265,000) − $30,000 = $360,000

135.

Martha Innocenzi Ito began the Innocenzi Company by investing $75,000 of cash in the business. The company recorded revenues of $555,000, expenses of $410,000, and had owner drawings of $30,000. What was Innocenzi’s net income for the year? a. $115,000. b. $145,000. c. $175,000. d. $190,000. Ans: b LO5 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $555,000 − $410,000 = $145,000

136.

El Centro Company began the year with owner’s equity of $30,000. During the year, El Centro received additional owner investments of $42,000, recorded expenses of $120,000, and had owner drawings of $12,000. If El Centro’s ending owner’s equity was $112,000, what was the company’s revenue for the year? a. $164,000. b. $172,000. c. $202,000. d. $214,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 2.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $30,000 + $42,000 + (X − $120,000) − $12,000 = $112,000; X = $172,000

137.

Letty Company began the year with owner’s equity of $105,000. During the year, Letty received additional owner investments of $147,000, recorded expenses of $420,000, and had owner drawings of $28,000. If Letty’s ending owner’s equity was $290,000, what was the company’s revenue for the year? a. $458,000. b. $486,000. c. $605,000. d. $633,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 2.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $105,000 + $147,000 + (X − $420,000) − $28,000 = $290,000; X = $486,000

138.

Foxes Service Shop started the year with total assets of $320,000 and total liabilities of $240,000. During the year, the business recorded $630,000 in revenues, $450,000 in expenses, and owner drawings of $60,000. Owner’s equity at the end of the year was a. $80,000. b. $200,000. c. $310,000. d. $370,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action

1 - 23

Solution: ($320,000 − $240,000) + ($630,000 − $450,000) − $60,000 = $200,000

139.

Foxes Service Shop started the year with total assets of $320,000 and total liabilities of $240,000. During the year, the business recorded $630,000 in revenues, $450,000 in expenses, and owner drawings of $60,000. The net income reported by Foxes Service Shop for the year was a. $140,000. b. $180,000. c. $200,000. d. $270,000. Ans: b LO5 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $630,000 − $450,000 = $180,000

140.

Mirah Company compiled the following financial information as of December 31, 2016: Revenues $340,000 Owner’s Capital (1/1/16) 140,000 Equipment 80,000 Expenses 240,000 Cash 90,000 Owner’s Drawings 20,000 Supplies 20,000 Accounts payable 40,000 Accounts receivable 70,000 Mirah’s assets on December 31, 2016 are a. $190,000. b. $260,000. c. $360,000. d $480,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $80,000 + $90,000 + $20,000 + $70,000 = $260,000

141.

Mirah Company compiled the following financial information as of December 31, 2016: Revenues Owner’s Capital (1/1/16) Equipment Expenses Cash Owner’s Drawings Supplies Accounts payable Accounts receivable

$340,000 140,000 80,000 240,000 90,000 20,000 20,000 40,000 70,000

Mirah’s owner’s equity on December 31, 2016 is a. $100,000. b. $140,000. c. $220,000. d. $260,000. Ans: c LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $140,000 + ($340,000 − $240,000) − $20,000 = $220,000

FOR INSTRUCTOR USE ONLY

1 - 24 142.

Test Bank for Accounting Principles, Twelfth Edition Teamboo Company’s owner’s equity at the beginning of August 2016 was $740,000. During the month, the company earned net income of $175,000 and owner’s drawings were $80,000. At the end of August 2016, what is the balance in owner’s equity? a. $660,000 b. $740,000 c. $820,000 d. $835,000 Ans: d LO5 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $740,000 + $175,000 − $80,000 = $835,000

143.

On January 1, 2016, Utah Utility Company reported owner’s equity of $705,000. During the year, the owner withdrew cash of $30,000. At December 31, 2016, the balance in owner’s equity was $795,000. What amount of net income or net loss would the company report for 2016? a. Net loss of $60,000 b. Net income of $90,000 c. Net income of $120,000 d. Net income of $150,000 Ans: c LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $705,000 + X − $30,000 = $795,000; X = $120,000

144.

Luis Consulting started the year with total assets of $60,000 and total liabilities of $17,000. During the year, the business recorded $48,000 in consulting revenues and $36,000 in expenses. Luis made an additional investment of $8,000 and withdrew cash of $9,000 during the year. The owner’s equity at the end of the year was a. $33,000. b. $54,000. c. $57,000. d. $63,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: ($60,000 − $17,000) + ($48,000 − $36,000) + $8,000 − $9,000 = $54,000

145.

Luis Consulting started the year with total assets of $60,000 and total liabilities of $17,000. During the year, the business recorded $48,000 in consulting revenues and $36,000 in expenses. Luis made an additional investment of $8,000 and withdrew cash of $9,000 during the year. The net income reported by Luis Consulting for the year was: a. $3,000. b. $12,000. c. $18,000. d. $27,000. Ans: b LO5 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $48,000 − $36,000 = $12,000

FOR INSTRUCTOR USE ONLY

Accounting in Action 146.

1 - 25

Luis Consulting started the year with total assets of $60,000 and total liabilities of $17,000. During the year, the business recorded $48,000 in consulting revenues and $36,000 in expenses. Luis made an additional investment of $8,000 and withdrew cash of $9,000 during the year. Owner’s equity changed by what amount from the beginning of the year to the end of the year? a. $3,000. b. $11,000. c. $12,000. d. $45,000. Ans: b LO5 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: ($60,000 − $17,000) + ($48,000 − $36,000) + $8,000 − $9,000 = $54,000; $54,000 − $43,000 = $11,000

147.

During the year 2016, Dallas Company earned revenues of $90,000, had expenses of $62,000, purchased assets with a cost of $10,000 and had owner drawings of $6,000. Net income for the year is a. $18,000. b. $22,000. c. $28,000. d. $32,000. Ans: c LO5 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $90,000 − $62,000 = $28,000

148.

At October 1, Flambo Company reported owner’s equity of $70,000. During October, no additional investments were made and the company earned net income of $18,000. If owner’s equity at October 31 totals $80,000, what amount of owner drawings were made during the month? a. $0 b. $8,000 c. $10,000 d. $26,000 Ans: b LO5 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $70,000 + $18,000 − X = $80,000; X = $8,000

149.

At October 1, Flambo Company reported owner’s equity of $76,000. During October, no additional investments were made and the company posted a net loss of $8,000. If owner’s equity at October 31 totals $64,000, what amount of owner drawings were made during the month? a. $0 b. $4,000 c. $8,000 d. $16,000 Ans: b LO5 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $76,000 − $8,000 − X = $64,000; X = $4,000

FOR INSTRUCTOR USE ONLY

1 - 26 150.

Test Bank for Accounting Principles, Twelfth Edition At October 1, Flambo Company reported owner’s equity of $70,000. During October, the owner made additional investments of $4,000 and the company earned net income of $14,000. If owner’s equity at October 31 totals $78,000, what amount of owner drawings were made during the month? a. $0 b. $4,000 c. $8,000 d. $10,000 Ans: d LO5 BT: AN Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $70,000 + $4,000 + $14,000 − X = $78,000; X = $10,000

151.

At October 1, Flambo Company reported owner’s equity of $68,000. During October, the owner made additional investments of $10,000 and the company posted a net loss of $4,000. If owner’s equity at October 31 totals $70,000, what amount of owner drawings were made during the month? a. $0 b. $4,000 c. $6,000 d. $10,000 Ans: b LO5 BT: AN Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Solution: $68,000 + $10,000 − $4,000 − X = $70,000; X = $4,000

152.

Which of the following is not part of the accounting process? a. Recording b. Identifying c. Financial decision making d. Communicating Ans: c LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

153.

The first part of the accounting process is a. communicating. b. identifying. c. processing. d. recording. Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

154.

Keeping a systematic, chronological diary of events that are measured in dollars and cents is called a. communicating. b. identifying. c. processing. d. recording. Ans: d LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

155.

A proprietorship is a business a. owned by one person. b. owned by two or more persons. c. organized as a separate legal entity under state corporation law. d. owned by a governmental agency. Ans: a LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 156.

1 - 27

Internal users of accounting information include all of the following except a. company officers. b. investors. c. marketing managers. d. production supervisors. Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

157.

The organization(s) primarily responsible for establishing generally accepted accounting principles is(are) the a. b. c. d.

FASB no yes no yes

SEC no no yes yes

Ans: d L02 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

158.

The primary accounting standard-setting body in the United States is the a. Financial Accounting Standards Board. b. International Accounting Standards Board. c. Internal Revenue Service. d. Securities and Exchange Commission. Ans: a LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

159.

A net loss will result during a time period when a. assets exceed liabilities. b. assets exceed owner's equity. c. expenses exceed revenues. d. revenues exceed expenses. Ans: c LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

160.

Big Bite Diner received a bill of $800 from the Blackstone Wine Advertising Agency. The owner, K. T. Lang, is postponing payment of the bill until a later date. The effect on specific items in the basic accounting equation is a. a decrease in Cash and an increase in Accounts Payable. b. a decrease in Cash and an increase in Owner’s Capital. c. an increase in Accounts Payable and a decrease in Owner’s Capital. d. a decrease in Accounts Payable and an increase in Owner’s Capital. Ans: c LO4 BT: C Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

161.

Mellon Company purchases $1,500 of equipment from Office Equipment Inc. for cash. The effect on the components of the basic accounting equation of Mellon Company is a. an increase in assets and liabilities. b. a decrease in assets and liabilities. c. no change in total assets. d. an increase in assets and a decrease in liabilities. Ans: c LO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 28 162.

Test Bank for Accounting Principles, Twelfth Edition Juggernaut Company buys a $29,000 van on credit. The transaction will affect the a. income statement only. b. balance sheet only. c. income statement and owner's equity statement only. d. income statement, owner's equity statement, and balance sheet. Ans: b LO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

163.

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 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. Ans: a LO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

164.

Which of the following is not a reason one set of international accounting standards are needed? a. Multinational corporations. b. Mergers and acquisitions. c. Information technology. d. All of these answer choices are reasons one set of international accounting standards are needed.

IFRS: Ans: d LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

165.

Which of the following is not a reason one set of international accounting standards are needed? a. Multinational corporations. b. Financial markets. c. Information technology. d. All of these answer choices are correct.

IFRS Ans: d LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

166.

International standards are referred to as a. IFRS. b. GAAP. c. IASB. d. FASB.

IFRS Ans: a LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

167.

U.S. standards are referred to as a. IFRS. b. GAAP. c. IASB. d. FASB.

IFRS Ans: b LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action 168.

1 - 29

International standards are developed by the a. IFRS. b. GAAP. c. IASB. d. FASB.

IFRS Ans: c LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

169.

U.S. standards are developed by the a. IFRS. b. GAAP. c. IASB. d. FASB.

IFRS Ans: d LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

170.

The United States and the international standard-setting environment are primarily driven by meeting the needs of a. investors and creditors. b. tax authorities. c. central government planners. d. academic researchers.

IFRS Ans: a LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

171.

The internal control standards applicable to Sarbanes-Oxley apply to a. all U.S. and international companies. b. U.S. and international companies listed on U.S. exchanges. c. International companies listed on U.S. exchanges. d. U.S. companies listed on U.S. exchanges.

IFRS Ans: d LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

172.

The concern about international companies adopting SOX-type standards centers on a. cost-benefit analysis. b. ethics issues. c. the governing authorities. d. comparability.

IFRS Ans: a LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

173.

Financial accounting ethics violations are a. not a problem in the U.S. or internationally. b. much more common in the U.S. than internationally. c. much more common internationally than in the U.S. d. a major problem both in the U.S. and internationally.

IFRS Ans: d LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

174.

IFRS, compared to GAAP, tends to be more a. detailed. b. rules-based. c. principles-based. d. full of disclosure requirements.

IFRS Ans: c LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 30 175.

Test Bank for Accounting Principles, Twelfth Edition GAAP, compared to IFRS, tends to be more a. simple in accounting requirements. b. rules-based. c. principles-based. d. simple in disclosure requirements.

IFRS Ans: b LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

176.

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 answer choices are correct.

IFRS Ans: d LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

177.

The conceptual framework that underlies IFRS a. is very similar to that used to develop GAAP. b. does not define assets or liabilities. c. does not define equity. d. does not define income or expenses.

IFRS Ans: a LO7 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Answers to Multiple Choice Questions Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. a 55. a 56. a 57. a 58. 59. 60.

c b c a d c c b d b c a d c a c c c c c

61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80.

c c d b b d a c c b b a d b d c b c d b

81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100.

c d b c d c a d d d b d c b a c a b a d

101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120.

a c b a b a b d a b c c a b c c d c c b

121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140.

b c b d d d c a b b c c d b b b b b b b

141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160.

c d c b b b c b b d b c b d a b d a c c

161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171. 172. 173. 174. 175. 176. 177.

c b a d d a b c d a d a d c b d a

FOR INSTRUCTOR USE ONLY

Accounting in Action

1 - 31

BRIEF EXERCISES BE 178 Match the following external users of financial accounting information with the type of decision that user will make with the information. a. b. c. d

Creditor Investor Regulatory Agency Internal Revenue Service

_______

(1) Is the company operating within prescribed guidelines?

_______

(2) Is the company complying with tax laws?

_______

(3) Is the company able to pay its debts?

_______

(4) Is the company a good investment?

Solution 178 1. 2. 3. 4.

c d a b

LO1 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 179 Match the following terms and definitions. a. Accounts receivable b. Creditor

c. Accounts payable 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 owed Solution 179 1. 2. 3. 4.

a c d b

LO3 BT: K Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 32

Test Bank for Accounting Principles, Twelfth Edition

BE 180 Indicate which of these items is an asset (A), liability (L) or owner’s equity (OE) account. _______

(1) Supplies

_______

(2) Owner’s Drawings

_______

(3) Buildings

_______

(4) Notes Payable

_______

(5) Salaries and Wages Payable

Solution 180 1. 2. 3. 4. 5.

Asset (A) Owner’s equity (OE) Asset (A) Liability (L) Liability (L)

LO3 BT: K Reporting

Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN:

BE 181 Use the accounting equation to answer the following questions. 1. Penny Sales Co. has total assets of $140,000 and total liabilities of $54,000. What is owner’s equity? 2. The Virtual Sun Center has total assets of $252,000 and owner’s equity of $100,000. What are total liabilities? 3. Columbia River Restaurant has total liabilities of $50,000 and owner’s equity of $80,000. What are total assets?

Solution 181 1. $140,000 – $54,000 = $86,000 owner’s equity 2. $252,000 – $100,000 = $152,000 total liabilities 3. $50,000 + $80,000 = $130,000 total assets LO3 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 182 Determine the missing items. Assets = Liabilities + Owner’s Equity $85,000

$52,000

(a)

(b)

$28,000

$34,000

$84,000

(c)

$50,000

FOR INSTRUCTOR USE ONLY

Accounting in Action

1 - 33

Solution 182 a. $33,000 b. $62,000 c. $34,000 LO3 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 183 Classify each of these items as an asset (A), liability (L), or owner’s equity (OE). _____ 1. Accounts receivable _____ 2. Accounts payable _____ 3. Owner’s Capital _____ 4. Supplies _____ 5. Utilities expense _____ 6. Cash _____ 7. Notes payable _____ 8. Equipment Solution 183 1. 2. 3. 4.

(5 min.)

A L OE A

5. 6. 7. 8.

OE A L A

LO3 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 184 Identify the impact on the accounting equation of each of the following transactions. 1. Purchase office supplies on account. 2. Paid secretary weekly salary. 3. Purchased office furniture for cash. 4. Received monthly utility bill to be paid at later time.

Solution 184 1. 2. 3. 4.

(5 min.)

Increase assets and increase liabilities. Decrease assets and decrease owner’s equity. Increase assets and decrease assets. Increase liabilities and decrease owner’s equity.

FOR INSTRUCTOR USE ONLY

1 - 34

Test Bank for Accounting Principles, Twelfth Edition

LO4 BT: C Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 185 Balance sheet amounts as of December 31, 2016 for K-12 Tutoring Service are listed below. Prepare a balance sheet in good form. Accounts Payable Accounts Receivable Cash Owner’s Capital Solution 185

300 1,000 500 ?

(5 min.) K-12 TUTORING SERVICE Balance Sheet December 31, 2016

Assets Cash Accounts Receivable Total assets

$ 500 1,000 $1,500

Liabilities and Owner’s Equity Accounts Payable Owner’s, Capital Total liabilities and owner’s equity

$ 300 1,200 $1,500

LO5 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 186 Identify whether the following items would be reported on the income statement (IS) or balance sheet (BS). 1. 2. 3. 4. 5.

Cash Service Revenue Notes Payable Interest Expense Accounts Receivable

Solution 186 1. 2. 3. 4. 5.

Balance Sheet (BS) Income Statement (IS) Balance Sheet (BS) Income Statement (IS) Balance Sheet (BS)

LO5 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action

1 - 35

BE 187 Use the following information to calculate for the year ended December 31, 2016 (a) net income, (b) ending owner’s equity, and (c) total assets. Supplies Operating expenses Accounts payable Accounts receivable Beginning Capital

$ 3,000 11,000 9,000 3,000 5,000

Revenues Cash Drawings Notes payable Equipment

$25,000 15,000 1,000 2,000 8,000

Solution 187 (a)

$14,000

(b)

$18,000

(c)

$29,000

LO5 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 188 Listed below in alphabetical order are the balance sheet items of Middleton Company at December 31, 2016. Prepare a balance sheet and include a complete heading. Accounts payable Accounts receivable Buildings Cash Equipment Owner’s Capital

21,000 15,000 91,000 6,000 17,000 108,000

Solution 188 MIDDLETON COMPANY Balance Sheet December 31, 2016 ASSETS Cash Accounts receivable Equipment Buildings Total assets

$ 6,000 15,000 17,000 91,000 $129,000 LIABILITIES AND OWNER’S EQUITY

Liabilities Accounts payable

Owner’s equity Owner’s capital Total liabilities and owner’s equity

108,000 $129,000

21,000

LO5 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 36

Test Bank for Accounting Principles, Twelfth Edition

EXERCISES Ex. 189 Below is a list of important abbreviations widely used in business. For each abbreviation give the full designation. 1.

CPA

_____________________________________________

IRS

_____________________________________________

FBI

_____________________________________________

FASB

_____________________________________________

GAAP

_____________________________________________

SEC

_____________________________________________

Solution 189 1. 2. 3. 4. 5. 6.

Certified Public Accountant Internal Revenue Service Federal Bureau of Investigation Financial Accounting Standards Board Generally Accepted Accounting Principles Securities and Exchange Commission

LO1, 4 BT: K Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 190 Determine the missing amount for each of the following. Assets = Liabilities + Owner's Equity 1. (a) $55,000 $95,000 2. $125,000 (b) $85,000 3. $160,000 $65,000 (c)

Solution 190 1. (a) = $150,000 ($55,000 + $95,000) 2. (b) = $40,000 ($125,000 - $85,000) 3. (c) = $95,000 ($160,000 - $65,000) LO3 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

Accounting in Action

1 - 37

Ex. 191 For the items listed below, fill in the appropriate code letter to indicate whether the item is an asset, liability, or owner's equity item. Code Asset A Liability L Owner's Equity OE _____

1. Rent Expense

____

6. Cash

_____

2. Equipment

____

7. Accounts Receivable

_____

3. Accounts Payable

____

8. Owner’s Drawings

_____

4. Owner’s Capital

____

9. Service Revenue

_____

5. Insurance Expense

____ 10. Notes Payable

Solution 191 1. 2. 3. 4. 5.

OE A L OE OE

6. 7. 8. 9. 10.

A A OE OE L

LO3 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 192 At the beginning of the year, Shaolin Company had total assets of $520,000 and total liabilities of $210,000. Answer the following questions viewing each situation as being independent of the others. (1) If total assets increased $200,000 during the year, and total liabilities decreased $75,000, what is the amount of owner's equity at the end of the year? (2) During the year, total liabilities increased $230,000 and owner's equity decreased $90,000. What is the amount of total assets at the end of the year? (3) If total assets decreased $40,000 and owner's equity increased $130,000 during the year, what is the amount of total liabilities at the end of the year?

FOR INSTRUCTOR USE ONLY

1 - 38

Test Bank for Accounting Principles, Twelfth Edition

Solution 192 Beginning Change Ending

Beginning Change Ending

Total Assets $520,000 200,000 $720,000

–

Total Liabilities $210,000 (75,000) $135,000

Total Liabilities $210,000 230,000 $440,000

Total Assets $520,000 $660,000 (2) Total Assets $520,000 (40,000) $480,000

Owner's Equity

$585,000 (1)

Owner's Equity $310,000 (90,000) $220,000

Owner's Equity $310,000 130,000 $440,000

Total Liabilities $210,000 =

$ 40,000 (3)

LO3 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 193 Tesla Car Cleaning has the following accounts: Accounts Receivable Accounts Payable Cash Supplies

Notes Payable Owner’s Capital Owner’s Drawing Equipment

Identify which items are (1) Assets (2) Liabilities (3) Owner's Equity

Solution 193 (1) Assets—Equipment, Cash, Supplies, Accounts Receivable (2) Liabilities—Accounts Payable, Notes Payable (3) Owner's Equity— Owner’s Capital, Owner’s Drawing LO3 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 194 On June 1, 2016, Secretly Canadian Company prepared a balance sheet that shows the following: Assets (no cash) .............................................................. $100,000 Liabilities .......................................................................... 45,000 Owner's Equity ................................................................. 55,000 FOR INSTRUCTOR USE ONLY

Accounting in Action

Ex. 194

1 - 39

(cont.)

Shortly thereafter, all of the assets were sold for cash. How would the balance sheet appear immediately after the sale of the assets for cash for each of the following cases? Cash Received for the Assets

Assets

Balances Immediately After Sale – Liabilities = Owner's Equity

Cash A

$110,000

$________

Cash B

100,000

________

Cash C

90,000

________

Solution 194

Cash A Cash B Cash C

Cash Received for the Assets $110,000 100,000 90,000

Balances Immediately After Sale Assets – Liabilities = Owner's Equity $110,000 $45,000 $65,000 100,000 45,000 55,000 90,000 45,000 45,000

LO3 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 195 At the beginning of 2016, Stand First Company had total assets of $520,000 and total liabilities of $270,000. Answer each of the following questions. 1. If total assets increased $60,000 and owner's equity decreased $90,000 during the year, determine the amount of total liabilities at the end of the year. 2. During the year, total liabilities decreased $73,000 and owner's equity increased $50,000. Compute the amount of total assets at the end of the year. 3. If total assets decreased $105,000 and total liabilities increased $55,000 during the year, determine the amount of owner's equity at the end of the year. Solution 195 1. Ending Total Liabilities = ($520,000 + $60,000) – ($520,000 – $270,000 - $90,000) = $580,000 – $160,000 = $420,000 2. Ending Total Assets = ($270,000 – $73,000) + ($520,000 – $270,000 + $50,000) = $197,000 + $300,000 = $497,000 3. Ending Owner's Equity = ($520,000 – $105,000) – ($270,000 + $55,000) = $415,000 – $325,000 = $90,000 LO3 BT: AN Difficulty: Medium TOT: 5 min. AACSB: Analysis AICPA BB: Critical Thinking AICPA FN: Reporting

FOR INSTRUCTOR USE ONLY

1 - 40

Test Bank for Accounting Principles, Twelfth Edition

Ex. 196 Compute the missing amount in each category of the accounting equation. Assets $319,000 $223,000 $ ?

(a) (b) (c)

Liabilities $ ? $ 79,000 $233,000

Owner's Equity $143,000 $ ? $325,000

Solution 196 (a) $176,000 ($319,000 – $143,000 = $176,000). (b) $144,000 ($223,000 – $79,000 = $144,000). (c) $558,000 ($233,000 + $325,000 = $558,000). LO3 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 197 From the following list of selected accounts taken from the records of Lori’s Landscaping Center, identify those that would appear on the balance sheet. a. b. c. d. e.

Owner’s Capital Service Revenue Land Salaries and Wages Expense Notes Payable

f. g. h. i. j.

Accounts Payable Cash Rent Expense Supplies Utilities Expense

Solution 197 a, c, e, f, g, i LO3 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 198 Selected transactions for Mountain Goats Tree Service are listed below. 1. Made cash investment to start business. 2. Paid for monthly advertising. 3. Purchased supplies on account. 4. Billed customers for services performed. 5. Withdrew cash for owner’s personal use. 6. Received cash from customers billed in (4). 7. Incurred utilities expense on account. 8. Purchased additional supplies for cash. 9. Received cash from customers when service was performed. Instructions List the numbers of the above transactions and describe the effect of each transaction on assets,

FOR INSTRUCTOR USE ONLY