Type:
Test Bank
Resource:
Accounting Principles
Edition:
8th Edition
Author(s):
Jerry J. Weygandt Donald E. Kieso Paul D. Kimmel
CHAPTER 1 ACCOUNTING IN ACTION SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item
SO
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1. 2. 3. 4. 5. 6. 7. 8.
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9. 10. 11. 12. 13. 14. 15. 16.
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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.
1 1 1 1 1 1 1 1 2 2 2 2 2 2 9 9 9 9 2 2 2 3 3 4 4
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
66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90.
4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6
C K K C K K C K K K K K K C C K K C K K K K K K K
91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115.
164. 165. 166.
2 6 6
C K K
167. 168. 169.
6 6 6
AP AP C
170. 171. 172.
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Item
SO
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Item
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6 6 7 7 7 7 8 8
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sg
33. 34. sg 35. sg 36. sg 37. sg 38. sg 39. sg 40.
1 2 3 4 5 6 7 8
K K K C K K K K
116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 129. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140.
7 7 7 7 7 7 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8
K C C C AN C C C K K K K C AP AP AP K K AP AP AP AP AP AP AP
141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. sg 152. st 153. st 154. sg 155. st 156. sg 157. st 158. sg 159. sg 160. sg 161. sg 162. sg 163.
8 8 8 8 8 8 8 8 8 8 8 1 1 1 2 2 4 4 5 6 7 7 8
AP AP AP AP AP AP AN AN AN AN AN K K K K K K K K K C C K
173. 174.
8 8
AP AP
True-False Statements 17. 18. 19. 20. 21. 22. 23. 24.
4 4 4 5 5 5 5 6
K K K C K K K K
25. 26. 27. 28. 29. 30. 31. 32.
sg
Multiple Choice Questions 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7
C K K C K K K K K C K C AP AP AP AP AP C AP C C C C C C
Brief Exercises
sg st a
7 8 8
C AP C
This question also appears in the Study Guide. This question also appears in a self-test at the student companion website. This question covers a topic in an appendix to the chapter.
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Test Bank for Accounting Principles, Eighth Edition
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises 175. 176. 177. 178. 179. 180.
2,4 6 6 6 6 6
K C C AP C AP
181. 182. 183. 184. 185. 186.
6 6 6 7 7 7
C AN C C AN C
202. 203.
1 2
K K
204. 205.
2 2
K K
187. 188. 189. 190. 191. 192.
7 7 7 7 7 7
C AP C C C C
193. 194. 195. 196. 197. 198.
7 8 8 8 8 8
C AP C AP AN C
199. 200. 201.
8 8 8
AP AP AP
5 6
K K
210. 211.
6 8
K K
Item
Type
Completion Statements 206. 207.
4 4
K K
208. 209.
SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item
Type
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Type
Item
1. 2. 3.
TF TF TF
33. 41. 42.
TF MC MC
43. 44. 45.
4. 5. 6. 7.
TF TF TF TF
8. 9. 10. 11.
TF TF TF TF
12. 13. 14. 34.
15.
TF
35.
TF
62.
16. 17. 18.
TF TF TF
19. 36. 64.
TF TF MC
65. 66. 67.
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TF TF TF
23. 37. 74.
TF TF MC
75. 76. 77.
24. 25. 26. 38. 88. 89.
TF TF TF TF MC MC
90. 91. 92. 93. 94. 95.
MC MC MC MC MC MC
96. 97. 98. 99. 100. 101.
Type
Item
Type
Item
Study Objective 1 MC 46. MC 152. MC 47. MC 153. MC 48. MC 154. Study Objective 2 TF 49. MC 53. TF 50. MC 54. TF 51. MC 59. TF 52. MC 60. Study Objective 3 MC 63. MC Study Objective 4 MC 68. MC 71. MC 69. MC 72. MC 70. MC 73. Study Objective 5 MC 78. MC 81. MC 79. MC 82. MC 80. MC 83. Study Objective 6 MC 102. MC 160. MC 103. MC 165. MC 104. MC 166. MC 105. MC 167. MC 106. MC 168. MC 107. MC 169.
Type
Item
Type
MC MC MC
202.
C
MC MC MC MC
61. 155. 156. 164.
MC MC MC BE
175. 203. 204. 205.
Ex C C C
MC MC MC
157. 158. 175.
MC MC Ex
206. 207.
C C
MC MC MC
84. 85. 86.
MC MC MC
87. 159. 208.
MC MC C
MC BE BE BE BE BE
176. 177. 178. 179. 180. 181.
Ex Ex Ex Ex Ex Ex
182. 183. 209. 210.
Ex Ex C C
Accounting in Action
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SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE 27. 28. 29. 30. 39.
TF TF TF TF TF
108. 109. 110. 111. 112.
MC MC MC MC MC
113. 114. 115. 116. 117.
31. 32. 40. 122. 123. 124. 125.
TF TF TF MC MC MC MC
126. 127. 128. 129. 130. 131. 132.
MC MC MC MC MC MC MC
133. 134. 135. 136. 137. 138. 139.
a
MC
a
MC
a
55.
56.
57.
Note: TF = True-False MC = Multiple Choice
Study Objective 7 MC 118. MC 162. MC 119. MC 170. MC 120. MC 184. MC 121. MC 185. MC 161. MC 186. Study Objective 8 MC 140. MC 147. MC 141. MC 148. MC 142. MC 149. MC 143. MC 150. MC 144. MC 151. MC 145. MC 163. MC 146. MC 171. Study Objective 9 a MC 58. MC
MC BE Ex Ex Ex
187. 188. 189. 190. 191.
Ex Ex Ex Ex Ex
192. 193.
Ex Ex
MC MC MC MC MC MC BE
172. 173. 174. 194. 195. 196. 197.
BE BE BE Ex Ex Ex Ex
198. 199. 200. 201. 211.
Ex Ex Ex Ex C
BE = Brief Exercise Ex = Exercise
C = Completion
The chapter also contains one set of ten Matching questions and six Short-Answer Essay questions.
CHAPTER STUDY OBJECTIVES 1. Explain what accounting is. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. 2. Identify the users and uses of accounting. The major users and uses of accounting are: (a) Management uses accounting information in planning, controlling, and evaluating business operations. (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, labor unions, and economic planners. 3. Understand why ethics is a fundamental business concept. Ethics are the standards of conduct by which actions are judged as right or wrong. If you cannot depend on the honesty of the individuals you deal with, effective communication and economic activity would be impossible, and information would have no credibility. 4. Explain generally accepted accounting principles and the cost principle. Generally accepted accounting principles are a common set of standards used by accountants. The cost principle states that companies should record assets at their cost. 5. Explain the monetary unit assumption and the economic entity assumption. 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
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Test Bank for Accounting Principles, Eighth Edition
requires that the activities of each economic entity be kept separate from the activities of its owner and other economic entities. 6. State the accounting equation, and define assets, liabilities, and owner's equity. 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. 7. 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. 8. Understand the four financial statements and how they are prepared. An income statement presents the revenues and expenses of a company for a specified period of time. An owner's equity statement summarizes the changes in owner's equity that have occurred for a specific period of time. A balance sheet reports the assets, liabilities, and owner's equity of a business 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
9. Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and private accounting, government, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement.
TRUE-FALSE STATEMENTS 1.
Owners of business firms are the only people who need accounting information.
2.
Transactions that can be measured in dollars and cents are recorded in the financial information system.
3.
The hiring of a new company president is an economic event recorded by the financial information system.
4.
Management of a business enterprise is the major external user of information.
5.
Accounting communicates financial information about a business enterprise to both internal and external users.
6.
Accounting information is used only by external users with a financial interest in a business enterprise.
7.
Financial statements are the major means of communicating accounting information to interested parties.
8.
Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.
Accounting in Action
1-5
9.
The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
10.
The study of accounting will be useful only if a student is interested in working for a profitoriented business firm.
11.
Private accountants are accountants who are not employees of business enterprises.
12.
The study of accounting is not useful for a business career unless your career objective is to become an accountant.
13.
A working knowledge of accounting is not relevant to a lawyer or an architect.
14.
Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs.
15.
Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information.
16.
The primary accounting standard-setting body in the United States is the International Accounting Standards Board.
17.
The Financial Accounting Standards Board is a part of the Securities and Exchange Commission.
18.
The Securities and Exchange Commission overseas U.S. financial markets and accounting standard-setting bodies.
19.
The cost and fair market value of an asset are the same at the time of acquisition and in all subsequent periods.
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.
21.
A partnership must have more than one owner.
22.
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.
23.
The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.
24.
In order to possess future service potential, an asset must have physical substance.
25.
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.
26.
The basic accounting equation states that Assets = Liabilities.
27.
Accountants record both internal and external transactions.
28.
Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.
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Test Bank for Accounting Principles, Eighth Edition
29.
The purchase of store equipment for cash reduces the owner's equity by an equal amount.
30.
The purchase of office equipment on credit increases total assets and total liabilities.
31.
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.
32.
Net income for the period is determined by subtracting total expenses and drawings from total revenues.
Additional True-False Questions 33.
Identifying is the process of keeping a chronological diary of events measured in dollars and cents.
34.
Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.
35.
Accountants do not have to worry about issues of ethics.
36.
At the time an asset is acquired, cost and value should be the same.
37.
The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.
38.
39.
External transactions involve economic events between the company and some other enterprise or party.
40.
In the owner's equity statement, revenues are listed first, followed by expenses, and net income (or net loss).
Answers to True-False Statements Item
1. 2. 3. 4. 5. 6.
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
F T F F T F
7. 8. 9. 10. 11. 12.
T F T F F F
13. 14. 15. 16. 17. 18.
F T T F F T
19. 20. 21. 22. 23. 24.
F T T T T F
25. 26. 27. 28. 29. 30.
F F T F F T
31. 32. 33. 34. 35. 36.
T F F F F T
37. 38. 39. 40.
F T T F
Accounting in Action
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MULTIPLE CHOICE QUESTIONS 41.
Accountants refer to an economic event as a a. purchase. b. sale. c. transaction. d. change in ownership.
42.
The process of recording transactions has become more efficient because a. fewer events can be quantified in financial terms. b. computers are used in processing business events. c. more people have been hired to record business transactions. d. business events are recorded only at the end of the year.
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.
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.
45.
The use of computers in recording business events a. has made the recording process more efficient. b. does not use the same principles as manual accounting systems. c. has greatly impacted the identification stage of the accounting process. d. is economical only for large businesses.
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.
47.
The accounting process is correctly sequenced as a. identification, communication, recording. b. recording, communication, identification. c. identification, recording, communication. d. communication, recording, identification.
48.
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
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Test Bank for Accounting Principles, Eighth Edition
49.
Which of the following would not be considered an internal user of accounting data for the XYZ Company? a. President of the company b. Production manager c. Merchandise inventory clerk d. President of the employees' labor union
50.
Which of the following would not be considered an external user of accounting data for the XYZ Company? a. Internal Revenue Service Agent b. Management c. Creditors d. Customers
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
52.
Which of the following is an external user of accounting information? a. Labor unions b. Finance directors c. Company officers d. Managers
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 are external users
54.
Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process? a. Identification b. Communication c. Recording d. Analysis
a
55.
All of the following are services offered by public accountants except a. budgeting. b. auditing. c. tax planning. d. consulting.
a
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
56.
Accounting in Action
1 - 11
73.
All of the following are advantages cost has over other valuations except that it a. is reliable. b. can be objectively measured. c. can be verified. d. is relevant.
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.
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.
76.
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.
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.
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
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.
80.
Joan and Sara 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.
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Test Bank for Accounting Principles, Eighth Edition
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.
82.
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.
83.
Deb Smith is the proprietor (owner) of Smitty's, a retailer of athletic apparel. When recording the financial transactions of Smitty's, Deb does not record an entry for a car she purchased for personal use. Deb took out a personal loan to pay for the car. What accounting concept guides Deb's behavior in this situation? a. Pay back concept b. Economic entity assumption c. Cash basis concept d. Monetary unit assumption
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.
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.
86.
A business that enjoys limited liability is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship.
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.
Accounting in Action 88.
The common characteristic possessed by all assets is a. long life. b. great monetary value. c. tangible nature. d. future economic benefit.
89.
Owner's equity is best depicted by the following: a. Assets = Liabilities. b. Liabilities + Assets. c. Residual equity + Assets. d. Assets – Liabilities.
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.
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.
92.
Liabilities of a company would not include a. notes payable. b. accounts payable. c. wages payable. d. cash.
93.
Liabilities of a company are owed to a. debtors. b. benefactors. c. creditors. d. underwriters.
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.
95.
Owner's equity is often referred to as a. residual equity. b. leftovers. c. spoils. d. second equity.
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Test Bank for Accounting Principles, Eighth Edition
96.
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.
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.
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.
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.
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.
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.
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.
103.
If total liabilities increased by $15,000 and owner’s equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $20,000 decrease b. $20,000 increase c. $25,000 increase d. $30,000 increase
Accounting in Action
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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.
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.
120.
As of December 31, 2008, Anders Company has assets of $35,000 and owner's equity of $20,000. What are the liabilities for Anders Company as of December 31, 2008? a. $15,000 b. $10,000 c. $25,000 d. $20,000
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
122.
Net income results when a. Assets > Liabilities. b. Revenues = Expenses. c. Revenues > Expenses. d. Revenues < Expenses.
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.
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.
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.
1 - 18 126.
Test Bank for Accounting Principles, Eighth Edition If the owner's equity account 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 is greater than owner drawings.
Use the following information for questions 127–129. Jimmy's Car Repair Shop started the year with total assets of $270,000 and total liabilities of $180,000. During the year, the business recorded $450,000 in car repair revenues, $255,000 in expenses, and Jimmy withdrew $45,000. 127.
Jimmy's Capital balance at the end of the year was a. $240,000. b. $225,000. c. $285,000. d. $195,000.
128.
The net income reported by Jimmy's Car Repair Shop for the year was a. $150,000. b. $195,000. c. $90,000. d. $405,000.
129.
Jimmy's Capital balance changed by what amount from the beginning of the year to the end of the year? a. $45,000 b. $195,000 c. $90,000 d. $150,000
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.
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.
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.
Accounting in Action
1 - 19
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.
134.
Benson Company began the year with owner’s equity of $175,000. During the year, the company recorded revenues of $250,000, expenses of $190,000, and had owner drawings of $20,000. What was Benson’s owner’s equity at the end of the year? a. $255,000 b. $215,000 c. $405,000 d. $235,000
135.
Ed Dexter began the Dexter Company by investing $20,000 of cash in the business. The company recorded revenues of $185,000, expenses of $160,000, and had owner drawings of $10,000. What was Dexter’s net income for the year? a. $15,000 b. $35,000 c. $25,000 d. $45,000
136.
Jenner Company began the year with owner’s equity of $15,000. During the year, Jenner received additional owner investments of $21,000, recorded expenses of $60,000, and had owner drawings of $4,000. If Jenner’s ending owner’s equity was $46,000, what was the company’s revenue for the year? a. $70,000 b. $74,000 c. $91,000 d. $95,000
137.
Janzen Company began the year with owner’s equity of $217,000. During the year, Janzen received additional owner investments of $294,000, recorded expenses of $840,000, and had owner drawings of $56,000. If Janzen’s ending owner’s equity was $531,000, what was the company’s revenue for the year? a. $860,000 b. $916,000 c. $1,154,000 d. $1,210,000
Use the following information for questions 138-139. Benny’s Repair Shop started the year with total assets of $100,000 and total liabilities of $80,000. During the year, the business recorded $210,000 in revenues, $110,000 in expenses, and owner drawings of $20,000. 138.
Owner’s equity at the end of the year was a. $120,000. b. $100,000. c. $80,000. d. $90,000.
1 - 20 139.
Test Bank for Accounting Principles, Eighth Edition The net income reported by Benny’s Repair Shop for the year was a. $80,000. b. $100,000. c. $60,000. d. $190,000.
Use the following information for questions 140–141. Berwick Company compiled the following financial information as of December 31, 2008: Revenues Berwick, Capital (1/1/08) Equipment Expenses Cash Berwick, Drawings Supplies Accounts payable Accounts receivable
$140,000 105,000 40,000 125,000 35,000 10,000 5,000 20,000 15,000
140.
Berwick’s assets on December 31, 2008 are a. $235,000. b. $170,000. c. $80,000. d $95,000.
141.
Berwick’s owner’s equity on December 31, 2008 is a. $105,000. b. $110,000. c. $80,000. d. $120,000.
142.
Ironton Company’s owner’s equity at the beginning of August 2008 was $300,000. During the month, the company earned net income of $60,000 and owner’s drawings were $20,000. At the end of August 2008, what is the balance in owner’s equity? a. $260,000 b. $300,000 c. $340,000 d. $380,000
143.
On January 1, 2008, Jackson Company reported owner’s equity of $470,000. During the year, the owner withdrew cash of $20,000. At December 31, 2008, the balance in owner’s equity was $500,000. What amount of net income or net loss would the company report for 2008? a. Net income of $30,000 b. Net loss of $50,000 c. Net income of $10,000 d. Net income of $50,000
Accounting in Action
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Use the following information for questions 144–146. Jenkins Catering started the year with total assets of $20,000 and total liabilities of $5,000. During the year, the business recorded $16,000 in catering revenues and $8,000 in expenses. Jenkins made an additional investment of $3,000 and withdrew cash of $5,000 during the year. 144.
The owner’s equity at the end of the year was a. $21,000. b. $18,000. c. $8,000. d. $2,000.
145.
The net income reported by Jenkins Catering for the year was a. $16,000. b. $11,000. c. $8,000. d. $3,000.
146.
Owner’s equity changed by what amount from the beginning of the year to the end of the year? a. $15,000 b. $14,000 c. $6,000 d. $3,000
147.
During the year 2008, Toronto Enterprises earned revenues of $45,000, had expenses of $25,000, purchased assets with a cost of $5,000 and had owner drawings of $3,000. Net income for the year is a. $45,000. b. $20,000. c. $17,000. d. $15,000.
148.
At October 1, Bennington Enterprises reported owner’s equity of $35,000. During October, no additional investments were made and the company earned net income of $4,000. If owner’s equity at October 31 totals $32,000, what amount of owner drawings were made during the month? a. $0 b. $1,000 c. $3,000 d. $7,000
149.
At October 1, Bennington Enterprises reported owner’s equity of $35,000. During October, no additional investments were made and the company posted a net loss of $3,000. If owner’s equity at October 31 totals $32,000, what amount of owner drawings were made during the month? a. $0 b. $1,000 c. $3,000 d. $7,000
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Test Bank for Accounting Principles, Eighth Edition
150.
At October 1, Bennington Enterprises reported owner’s equity of $35,000. During October, the owner made additional investments of $2,000 and the company earned net income of $6,000. If owner’s equity at October 31 totals $40,000, what amount of owner drawings were made during the month? a. $0 b. $3,000 c. $4,000 d. $5,000
151.
At October 1, Bennington Enterprises reported owner’s equity of $35,000. During October, the owner made additional investments of $5,000 and the company posted a net loss of $3,000. If owner’s equity at October 31 totals $35,000, what amount of owner drawings were made during the month? a. $0 b. $2,000 c. $3,000 d. $5,000
Additional Multiple Choice Questions 152.
Which of the following is not part of the accounting process? a. Recording b. Identifying c. Financial decision making d. Communicating
153.
The first part of the accounting process is a. communicating. b. identifying. c. processing. d. recording.
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.
155.
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.
Accounting in Action
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156.
Internal users of accounting information include all of the following except a. company officers. b. investors. c. marketing managers. d. production supervisors.
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
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.
159.
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.
160.
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.
161.
The Ryder’s Uptown Grill received a bill of $400 from the Erml Advertising Agency. The owner, John Ryder, 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 J. Ryder, Capital. c. an increase in Accounts Payable and a decrease in J. Ryder, Capital. d. a decrease in Accounts Payable and an increase in J. Ryder, Capital.
162.
James Company purchases $600 of equipment from Mundelein Inc. for cash. The effect on the components of the basic accounting equation of James 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.
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Test Bank for Accounting Principles, Eighth Edition Morreale Beaver Company buys a $12,000 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.
Answers to Multiple Choice Questions Item
Ans.
Item
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Item
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Item
Ans.
Item
Ans.
Item
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Item
Ans.
41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. a 55. a 56. a 57. a 58.
c b c a a c c b d b c a d c a c c c
59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76.
c c c c d b b d a c c b b a d b d c
77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94.
b c d b c d b c d c a d d d b d c b
95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112.
a c a b a d a c b b a c d d c b c c
113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130.
a b c c d c c a b c b d d d a b d b
131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148.
c c d b c b b b b d b c d a c c b d
149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162. 163.
a b b c b d a b d a a c c c b
BRIEF EXERCISES BE 164 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?
Accounting in Action Solution 164 1. 2. 3. 4.
(3 min.)
c d a b
BE 165 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 165 1. 2. 3. 4.
(3 min.)
a c d b
BE 166 Indicate which of these items is an asset (A), liability (L) or owner’s equity (OE) account. _______
(1) Supplies
_______
(2) Klein, Drawing
_______
(3) Building
_______
(4) Note Payable
_______
(5) Taxes Payable
Solution 166 1. 2. 3. 4. 5.
(3 min.)
Assets (A) Owner’s equity (OE) Asset (A) Liability (L) Liability (L)
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Test Bank for Accounting Principles, Eighth Edition
BE 167 Use the accounting equation to answer the following questions. 1. West Wind Sails Co. has total assets of $120,000 and total liabilities of $35,000. What is owner’s equity? 2. Mercy Family Center has total assets of $225,000 and owner’s equity of $105,000. What are total liabilities? 3. Cucina Med Restaurant has total liabilities of $40,000 and owner’s equity of $95,000. What are total assets?
Solution 167
(5 min.)
1. $120,000 – $35,000 = $85,000 owner’s equity 2. $225,000 – $105,000 = $120,000 total liabilities 3. $40,000 + $95,000 = $135,000 total assets
BE 168 Determine the missing items. Assets = Liabilities + Owner’s Equity $75,000
$52,000
(a)
(b)
$28,000
$34,000
$84,000
(c)
$55,000
Solution 168
(5 min.)
a. $23,000 b. $62,000 c. $29,000
BE 169 Classify each of these items as an asset (A), liability (L), or owner’s equity (OE). _____ 1. Accounts receivable _____ 2. Accounts payable _____ 3. Bonds, Capital _____ 4. Office supplies _____ 5. Utilities expense _____ 6. Cash _____ 7. Note payable _____ 8. Equipment