Accounting Principles 9th Edition , Jerry J Weygandt , Paul D Kimmel, Donald E Kieso Test Bank by TBtutors

Type:

Test Bank

Resource:

Accounting Principles

Edition:

9th Edition

Author(s):

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

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

Item

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

1 1 1 2 2 2 2 2

K K C K K C K C

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

2 2 2 2 2 2 3 4

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.

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.

Item

6 6 7 7 7 7 8 8

K K K C C C K K

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 AP AP AP K C 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 5 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.

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.

1-2

Test Bank for Accounting Principles, Ninth Edition

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises 175. 176. 177. 178. 179. 180. 181. 182.

2,4 6 6 6 6 6 6 6

K C C AP C AP AN AN

183. 184. 185. 186. 187. 188. 189. 190.

6 6,7 6,7 6,7 7 7 7 7

C C C AP AP AP C AN

191. 192. 193. 194. 195. 196. 197. 198.

7 7 7 7 7 7 7 7

C C AP C C C C C

199. 200. 201. 202. 203. 204. 205. 206.

8 8 8 8 8 8 8 8

AP AP AP AN AP AP C AP

207. 208. 209. 210. 211.

8 8 8 8 8

AN C AP AP AP

5 6

K K

220. 221.

6 8

K K

Item

Type

Completion Statements 212. 213.

1 2

K K

214. 215.

2 2

K K

216. 217.

4 4

K K

218. 219.

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item

Type

Item

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.

35.

62.

16. 17. 18.

TF TF TF

19. 36. 64.

TF TF MC

65. 66. 67.

20. 21. 22. 23.

TF TF TF TF

37. 74. 75. 76.

TF MC MC MC

77. 78. 79. 80.

24. 25. 26. 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.

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 81. MC 85. MC 82. MC 86. MC 83. MC 87. MC 84. MC 158. Study Objective 6 MC 105. MC 168. MC 106. MC 169. MC 107. MC 176. MC 160. MC 177. MC 165. BE 178. MC 166. BE 179. MC 167. BE 180.

Type

Item

Type

MC MC MC

212.

MC MC MC MC

61. 155. 156. 164.

MC MC MC BE

175. 213. 214. 215.

Ex C C C

MC MC MC

157. 175. 216.

MC Ex C

217.

MC MC MC MC

159. 218.

MC C

BE BE Ex Ex Ex Ex Ex

181. 182. 183. 184. 185. 186. 219.

Ex Ex Ex Ex Ex Ex C

220.

Accounting in Action

1-3

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE 27. 28. 29. 30. 39. 108.

TF TF TF TF TF MC

109. 110. 111. 112. 113. 114.

MC MC MC MC MC MC

115. 116. 117. 118. 119. 120.

31. 32. 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.

55.

56.

Note: TF = True-False MC = Multiple Choice

57.

Study Objective 7 MC 121. MC 186. MC 161. MC 187. MC 162. MC 188. MC 170. BE 189. MC 184. Ex 190. MC 185. Ex 191. Study Objective 8 MC 143. MC 151. MC 144. MC 163. MC 145. MC 171. MC 146. MC 172. MC 147. MC 173. MC 148. MC 174. MC 149. MC 199. MC 150. MC 200. Study Objective 9 a MC 58. MC

BE = Brief Exercise Ex = Exercise

Ex Ex Ex Ex Ex Ex

192. 193. 194. 195. 196. 197.

Ex Ex Ex Ex Ex Ex

198. 199. 200. 201. 202. 203.

Ex Ex Ex Ex Ex Ex

MC MC BE BE BE BE Ex Ex

201. 202. 203. 204. 205. 206. 207. 208.

Ex Ex Ex Ex Ex Ex Ex Ex

209. 210. 211. 221.

Ex Ex Ex C

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 9e instructor web site.

1-4

Test Bank for Accounting Principles, Ninth Edition

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 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.

Accounting in Action

1-5

TRUE-FALSE STATEMENTS 1.

Owners of business firms are the only people who need accounting information. Ans: F SO1 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 SO1 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 SO1 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 SO2 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 SO2 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 SO2 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 SO2 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 SO2 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 SO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

10.

The study of accounting will be useful only if a student is interested in working for a profitoriented business firm. Ans: F SO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

11.

Private accountants are accountants who are not employees of business enterprises. Ans: F SO2 BT:K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

12.

The study of accounting is not useful for a business career unless your career objective is to become an accountant. Ans: F SO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

13.

A working knowledge of accounting is not relevant to a lawyer or an architect. Ans: F SO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

14.

Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs. Ans: T SO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1-6 15.

Test Bank for Accounting Principles, Ninth Edition Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information. Ans: T SO3 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 SO4 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 SO4 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 SO4 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 SO4 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 SO5 BT: C Difficulty; Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

21.

A partnership must have more than one owner. Ans: T SO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: T SO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

23.

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records. Ans: T SO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

24.

In order to possess future service potential, an asset must have physical substance. Ans: F SO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: F SO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

26.

The basic accounting equation states that Assets = Liabilities. Ans: F SO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

27.

Accountants record both internal and external transactions. Ans: T SO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

28.

Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company. Ans: F SO7 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action 29.

1-7

The purchase of store equipment for cash reduces the owner's equity by an equal amount. Ans: F SO7 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

30.

The purchase of office equipment on credit increases total assets and total liabilities. Ans: T SO7 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: T SO8 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

32.

Net income for the period is determined by subtracting total expenses and drawings from total revenues. Ans: F SO8

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

Additional True-False Questions 33.

Identifying is the process of keeping a chronological diary of events measured in dollars and cents. Ans: F SO1 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 SO2 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 SO3 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 value should be the same. Ans: T SO4 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 SO5 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 SO6 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 SO7 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 SO8 BT: K Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1-8

Test Bank for Accounting Principles, Ninth Edition

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

1-9

MULTIPLE CHOICE QUESTIONS 41.

Accountants refer to an economic event as a a. purchase. b. sale. c. transaction. d. change in ownership. Ans: c SO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reportin g

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. Ans: b SO1 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 SO1 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 SO1 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: a SO1 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 SO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 10 47.

Test Bank for Accounting Principles, Ninth Edition 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 SO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 Ans: b SO1 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 GHI Company? a. President of the company b. Production manager c. Merchandise inventory clerk d. President of the employees' labor union Ans: d SO2 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 GHI Company? a. Internal Revenue Service Agent b. Management c. Creditors d. Customers Ans: b SO2 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 SO2 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 SO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

53.

1 - 11

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 Ans: d SO2 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 SO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

55.

All of the following are services offered by public accountants except a. budgeting. b. auditing. c. tax planning. d. consulting. Ans: a SO9 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 SO9 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 SO9 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 12 a

58.

Test Bank for Accounting Principles, Ninth Edition 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 SO9 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 SO2 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 SO2 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 SO2 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

62.

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 SO3 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. Ans: d SO3 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 SO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action 65.

1 - 13

The cost principle requires that when assets are acquired, they be recorded at a. appraisal value. b. historical cost. c. market price. d. exchange price paid. Ans: b SO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

66.

The cost of an asset and its fair market 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 SO4 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 SO4 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 SO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

69.

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 SO4 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 SO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 14 71.

Test Bank for Accounting Principles, Ninth Edition Which of the following is not a characteristic of the cost principle? a. Reliability b. Subjectivity c. Objectivity d. Verifiability Ans: b SO4 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

72.

The Duce Company has five plants nationwide that cost $100 million. The current market value of the plants is $500 million. The plants will be recorded and reported as assets at a. $100 million. b. $600 million. c. $400 million. d. $500 million. Ans: a SO4 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: d SO4 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 SO5 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 SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: c SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

77.

1 - 15

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 SO5 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 SO5 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 SO5 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

80.

John and Sam 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 SO5 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 SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 16 82.

Test Bank for Accounting Principles, Ninth 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 SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

83.

Don Jones is the proprietor (owner) of Donny's, a retailer of golf apparel. When recording the financial transactions of Donny's, Don does not record an entry for a car he purchased for personal use. Don took out a personal loan to pay for the car. What accounting concept guides Don's behavior in this situation? a. Pay back concept b. Economic entity assumption c. Cash basis concept d. Monetary unit assumption Ans: b SO5 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 SO5 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 SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

86.

A business that enjoys limited liability is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. Ans: c SO5 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 SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

88.

1 - 17

The common characteristic possessed by all assets is a. long life. b. great monetary value. c. tangible nature. d. future economic benefit. Ans: d SO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

89.

Owner's equity is best depicted by the following: a. Assets = Liabilities. b. Liabilities + Assets. c. Residual equity + Assets. d. Assets – Liabilities. Ans: d SO6 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. Ans: d SO6 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 SO6 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. wages payable. d. cash. Ans: d SO6 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 SO6 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 SO6 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 18

95.

Test Bank for Accounting Principles, Ninth Edition

Owner's equity is often referred to as a. residual equity. b. leftovers. c. spoils. d. second equity. Ans: a SO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: c SO6 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 SO6 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 SO6 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 SO6 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 SO6 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

101.

1 - 19

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 SO6 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 SO6 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 Ans: b SO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

104.

If total liabilities decreased 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 increase b. $10,000 decrease c. $10,000 increase d. $15,000 decrease Ans: b SO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

105.

If total liabilities decreased by $25,000 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 Ans: a SO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

106.

If total liabilities decreased by $15,000 and owner’s equity decreased 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 increase b. $10,000 increase c. $20,000 decrease d. $10,000 decrease Ans: c SO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 20

107.

Test Bank for Accounting Principles, Ninth Edition If total liabilities increased by $14,000 during a period of time and owner’s equity decreased by $6,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n) a. $14,000 increase. b. $20,000 increase. c. $8,000 decrease. d. $8,000 increase. Ans: d SO6 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

108.

The accounting equation for Gudgeyes Enterprises is as follows: Assets Liabilities Owner’s Equity $120,000 = $60,000 + $60,000 If Gudgeyes purchases office equipment on account for $12,000, the accounting equation will change to Assets Liabilties Owner’s Equity a. $120,000 = $60,000 + $60,000 b. $132,000 = $60,000 + $72,000 c. $132,000 = $66,000 + $66,000 d. $132,000 = $72,000 + $60,000 Ans: d SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

109.

As of June 30, 2009, Dallas Company has assets of $100,000 and owner’s equity of $5,000. What are the liabilities for Dallas Company as of June 30, 2009? a. $85,000 b. $90,000 c. $95,000 d. $100,000 Ans: c SO7 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

110.

Owner's equity is increased by a. drawings. b. revenues. c. expenses. d. liabilities. Ans: b SO7 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 SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action 112.

1 - 21

If total liabilities increased by $4,000, then a. assets must have decreased by $4,000. b. owner's equity must have increased by $4,000. c. assets must have increased by $4,000, or owner's equity must have decreased by $4,000. d. assets and owner's equity each increased by $2,000. Ans: c SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

113.

Collection of a $500 Accounts Receivable a. increases an asset $500; decreases an asset $500. b. increases an asset $500; decreases a liability $500. c. decreases a liability $500; increases owner's equity $500. d. decreases an asset $500; decreases a liability $500. Ans: a SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

114.

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 SO7 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. none of these is possible. Ans: c SO7 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 SO7 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 SO7 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 SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 22 119.

Test Bank for Accounting Principles, Ninth Edition 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 SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

120.

As of December 31, 2009, Sievers Company has assets of $35,000 and owner's equity of $20,000. What are the liabilities for Sievers Company as of December 31, 2009? a. $15,000 b. $10,000 c. $25,000 d. $20,000 Ans: a SO7 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 SO7 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 SO8 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 SO8 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 SO8 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 SO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action 126.

1 - 23

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. Ans: d SO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Use the following information for questions 127–129. Carla’s Computer 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 computer repair revenues, $255,000 in expenses, and Carla withdrew $45,000. 127.

Carla's Capital balance at the end of the year was a. $240,000. b. $225,000. c. $285,000. d. $195,000. Ans: a SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

128.

The net income reported by Carla's Computer Repair Shop for the year was a. $150,000. b. $195,000. c. $90,000. d. $405,000. Ans: b SO8 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

129.

Carla'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 Ans: d SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 SO8 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 SO8 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 24 132.

Test Bank for Accounting Principles, Ninth Edition 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 SO8 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 SO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

134.

Benito 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 Benito’s owner’s equity at the end of the year? a. $255,000 b. $215,000 c. $405,000 d. $235,000 Ans: b SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

135.

Frank Ito began the Ito 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 Ito’s net income for the year? a. $15,000 b. $35,000 c. $25,000 d. $45,000 Ans: c SO8 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

136.

Marilu Company began the year with owner’s equity of $15,000. During the year, Marilu received additional owner investments of $21,000, recorded expenses of $60,000, and had owner drawings of $4,000. If Marilu’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 Ans: b SO8 BT: AP Difficulty: Medium TOT: 2.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

137.

Nguyen Company began the year with owner’s equity of $217,000. During the year, Nguyen received additional owner investments of $294,000, recorded expenses of $840,000, and had owner drawings of $56,000. If Nguyen’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 Ans: b SO8 BT: AP Difficulty: Medium TOT: 2.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

1 - 25

Use the following information for questions 138-139. Saira’s Service 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. Ans: b SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

139.

The net income reported by Saira’s Service Shop for the year was a. $80,000. b. $100,000. c. $60,000. d. $190,000. Ans: b SO8 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Use the following information for questions 140–141. Metzger Company compiled the following financial information as of December 31, 2008: Revenues Metzger, Capital (1/1/09) Equipment Expenses Cash Metzger, Drawings Supplies Accounts payable Accounts receivable

$140,000 70,000 40,000 125,000 35,000 10,000 5,000 20,000 15,000

1 - 26 140.

Test Bank for Accounting Principles, Ninth Edition Metzger’s assets on December 31, 2009 are a. $235,000. b. $170,000. c. $80,000. d $95,000. Ans: d SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

141.

Metzger’s owner’s equity on December 31, 2009 is a. $70,000. b. $60,000. c. $75,000. d. $85,000. Ans: c SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

142.

Copper Company’s owner’s equity at the beginning of August 2009 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 2009, what is the balance in owner’s equity? a. $260,000 b. $300,000 c. $340,000 d. $380,000 Ans: c SO8 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

143.

On January 1, 2009, Affleck Company reported owner’s equity of $470,000. During the year, the owner withdrew cash of $20,000. At December 31, 2009, the balance in owner’s equity was $500,000. What amount of net income or net loss would the company report for 2009? a. Net income of $30,000 b. Net loss of $50,000 c. Net income of $10,000 d. Net income of $50,000 Ans: d SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Use the following information for questions 144–146. Stahl Consulting 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. Stahl 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. Ans: a SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action 145.

1 - 27

The net income reported by Stahl Consulting for the year was a. $16,000. b. $11,000. c. $8,000. d. $3,000. Ans: c SO8 BT: AP Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 Ans: c SO8 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

147.

During the year 2009, Diego Company 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. Ans: b SO8 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

148.

At October 1, Smithson 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 Ans: d SO8 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

149.

At October 1, Smithson 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 Ans: a SO8 BT: AN Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 28 150.

Test Bank for Accounting Principles, Ninth Edition At October 1, Smithson 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 Ans: b SO8 BT: AN Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

151.

At October 1, Smithson 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 Ans: b SO8 BT: AN Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 Ans: c SO1 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 SO1 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 SO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action 155.

1 - 29

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 SO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

156.

Internal users of accounting information include all of the following except a. company officers. b. investors. c. marketing managers. d. production supervisors. Ans: b SO2 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 S04 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 SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Ans: a SO5 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 30 160.

Test Bank for Accounting Principles, Ninth Edition 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 SO6 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

161.

The Roy’s Downtown Diner received a bill of $400 from the Emeril Advertising Agency. The owner, Roy James, 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 R. James, Capital. c. an increase in Accounts Payable and a decrease in R. James, Capital. d. a decrease in Accounts Payable and an increase in R. James, Capital. Ans: c SO7 BT: C Difficulty: Medium TOT: 1.5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

162.

Ryder Company purchases $600 of equipment from Montez Inc. for cash. The effect on the components of the basic accounting equation of Ryder 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 SO7 BT: C Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

163.

Fontaine Fox 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. Ans: b SO8 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

1 - 31

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.

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?

Solution 164 1. 2. 3. 4.

c d a b

SO2 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 32

Test Bank for Accounting Principles, Ninth Edition

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.

a c d b

SO6 BT: K Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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.

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

SO6 BT: K Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

1 - 33

BE 167 Use the accounting equation to answer the following questions. 1. Force 10 Sails Co. has total assets of $120,000 and total liabilities of $35,000. What is owner’s equity? 2. Marcy Fun Center has total assets of $225,000 and owner’s equity of $105,000. What are total liabilities? 3. Franco’s Restaurant has total liabilities of $40,000 and owner’s equity of $95,000. What are total assets?

Solution 167 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 SO6 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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 a. $23,000 b. $62,000 c. $29,000 SO6 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

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. Mantle’s, Capital _____ 4. Office supplies

1 - 34

Test Bank for Accounting Principles, Ninth Edition

BE 169

(cont.)

_____ 5. Utilities expense _____ 6. Cash _____ 7. Note payable _____ 8. Equipment

Solution 169 1. 2. 3. 4.

(5 min.)

A L OE A

5. 6. 7. 8.

OE A L A

SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 170 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 170 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.

SO7 BT: C Difficulty: Medium FN: Reporting

TOT: 5 min.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA

BE 171 Balance sheet amounts as of December 31, 2009 for Lori’s Learning Service are listed below. Prepare a balance sheet in good form. Accounts Payable Accounts Receivable Cash Lori’s, Capital

200 1,000 500 ?

Accounting in Action Solution 171

1 - 35

(5 min.) LORI’s TUTORING SERVICE Balance Sheet December 31, 2009

Assets Cash Accounts Receivable Total assets

$ 500 1,000 $1,500

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

$ 200 1,300 $1,500

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 172 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 172 1. 2. 3. 4. 5.

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

SO8 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 173 Use the following information to calculate for the year ended December 31, 2009 (a) net income (net loss), (b) ending owner’s equity, and (c) total assets. Supplies Operating expenses Accounts payable Accounts receivable Beginning Capital

$ 1,000 12,000 9,000 3,000 5,000

Revenues Cash Drawings Notes payable Equipment

$23,000 15,000 1,000 1,000 6,000

1 - 36

Test Bank for Accounting Principles, Ninth Edition

Solution 173 (a)

$11,000

(b)

$15,000

(c)

$25,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

BE 174 Listed below in alphabetical order are the balance sheet items of Rowan Company at December 31, 2009. Prepare a balance sheet and include a complete heading. Accounts payable Accounts receivable Building Cash Rowan, Capital Office equipment

6,000 15,000 96,000 11,000 121,000 5,000

Solution 174 ROWAN COMPANY Balance Sheet December 31, 2009 ASSETS Cash Accounts receivable Office equipment Building Total assets

$ 11,000 15,000 5,000 96,000 $127,000 LIABILITIES AND OWNER’S EQUITY

Liabilities Accounts payable

Owner’s equity Rowan, Capital Total liabilities and owner’s equity

121,000 $127,000

6,000

SO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

1 - 37

EXERCISES Ex. 175 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 175 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

SO2, 4 BT: K Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 176 Determine the missing amount for each of the following. Assets = Liabilities + Owner's Equity 1. (a) $50,000 $95,000 2. $125,000 (b) $85,000 3. $140,000 $65,000 (c)

Solution 176 1. (a) = $145,000 ($50,000 + $95,000) 2. (b) = $40,000 ($125,000 - $85,000) 3. (c) = $75,000 ($140,000 - $65,000) SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 38

Test Bank for Accounting Principles, Ninth Edition

Ex. 177 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. Office Equipment

_____

7. Accounts Receivable

_____ 3. Accounts Payable

_____

8. Dan Pine, Drawing

_____ 4. Dan Pine, Capital

_____

9. Service Revenue

_____ 5. Insurance Expense

_____ 10. Notes Payable

Solution 177 1. 2. 3. 4. 5.

OE A L OE OE

6. 7. 8. 9. 10.

A A OE OE L

SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 178 At the beginning of the year, Keats Company had total assets of $550,000 and total liabilities of $200,000. 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?

Accounting in Action

1 - 39

Solution 178 Beginning Change Ending

Beginning Change Ending

Total Assets $550,000 200,000 $750,000

–

Total Liabilities $200,000 (75,000) $125,000

Total Liabilities $200,000 230,000 $430,000

Total Assets $550,000 $690,000 (2) Total Assets $550,000 (40,000) $510,000

Owner's Equity

$625,000 (1)

Owner's Equity $350,000 (90,000) $260,000

Owner's Equity $350,000 130,000 $480,000

Total Liabilities $200,000 =

$ 30,000 (3)

SO6 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 179 Jill's Car Cleaning has the following balance sheet items: Van Accounts Payable Cash Cleaning Supplies Accounts Receivable

Notes Payable J. Hill, Capital J. Hill, Drawing Equipment

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

Solution 179 (1) Assets—Van, Cash, Cleaning Supplies, Accounts Receivable, Equipment (2) Liabilities—Accounts Payable, Notes Payable (3) Owner's Equity— J. Hill, Capital, J. Hill, Drawing SO6 BT: C Difficulty: Easy TOT: .5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 180 On June 1, 2009, Bush Company prepared a balance sheet that shows the following: Assets (no cash) .............................................................. Liabilities.......................................................................... Owner's Equity ................................................................

$100,000 70,000 30,000

1 - 40 Ex. 180

Test Bank for Accounting Principles, Ninth Edition (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 180

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 $70,000 $40,000 100,000 70,000 30,000 90,000 70,000 20,000

SO6 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 181 At the beginning of 2008, Bonds Company had total assets of $550,000 and total liabilities of $330,000. 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 $75,000 and owner's equity increased $50,000. Compute the amount of total assets at the end of the year. 3. If total assets decreased $100,000 and total liabilities increased $55,000 during the year, determine the amount of owner's equity at the end of the year.

Solution 181 1. Ending Total Liabilities = ($550,000 + $60,000) – ($550,000 – $330,000 - $90,000) = $610,000 – $130,000 = $480,000 2. Ending Total Assets = ($330,000 – $75,000) + ($550,000 – $330,000 + $50,000) = $255,000 + $270,000 = $525,000 3. Ending Owner's Equity = ($550,000 – $100,000) – ($330,000 + $55,000) = $450,000 – $385,000 = $65,000 SO6 BT: AN Difficulty: Medium TOT: 5 min. AACSB: Analysis AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

1 - 41

Ex. 182 Compute the missing amount in each category of the accounting equation. Assets $349,000 $223,000 $ ?

(a) (b) (c)

Liabilities $ ? $ 79,000 $253,000

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

Solution 182 (a) $206,000 ($349,000 – $143,000 = $206,000). (b) $144,000 ($223,000 – $79,000 = $144,000). (c) $578,000 ($253,000 + $325,000 = $578,000). SO6 BT: AN Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 183 From the following list of selected accounts taken from the records of McDreamy Homeopathic Center, identify those that would appear on the balance sheet. a. b. c. d. e.

D. McDreamy, Capital Patient Revenue Land Wages Expense Notes Payable

f. g. h. i. j.

Accounts Payable Cash Rent Expense Medical Supplies Utilities Expense

Solution 183 a, c, e, f, g, i SO6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 184 Selected transactions for Tall Timber 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.

1 - 42

Test Bank for Accounting Principles, Ninth Edition

Instructions List the numbers of the above transactions and describe the effect of each transaction on assets, liabilities, and owner’s equity. For example, the first answer is: (1) Increase in assets and increase in owner’s equity.

Solution 184 1. 2. 3. 4. 5. 6. 7. 8. 9.

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

SO6, 7 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 185 Lawrence Legal Eagles Company entered into the following transactions during March 2010. 1. Purchased office equipment for $21,500 from Business Equipment, Inc. on account. 2. Paid $4,000 cash for March rent on office furniture. 3. Received $15,000 cash from customers for legal work billed in February. 4. Provided legal services to Amy Construction Company for $3,000 cash. 5. Paid Northern States Power Co. $11,000 cash for electric usage in March. 6. Lawrence invested an additional $32,000 in the business. 7. Paid Business Equipment, Inc. for the office equipment purchased in (1) above. 8. Incurred advertising expense for March of $1,200 on account. Instructions Indicate with the appropriate letter whether each of the transactions above results in: (a) an increase in assets and a decrease in assets. (b) an increase in assets and an increase in owner’s equity. (c) an increase in assets and an increase in liabilities. (d) a decrease in assets and a decrease in owner’s equity. (e) a decrease in assets and a decrease in liabilities. (f) an increase in liabilities and a decrease in owner’s equity. (g) an increase in owner’s equity and a decrease in liabilities. Solution 185 1. 2. 3. 4.

5. 6. 7. 8.

(d) (b) (e) (f)

SO6, 7 BT: C Difficulty: Easy TOT: 3 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Accounting in Action

1 - 43

Ex. 186 Two items are omitted from each of the following summaries of balance sheet and income statement data for two proprietorships for the year 2010, Holly Enterprises and Craig Stevens. Holly Enterprises Beginning of year: Total assets $ 98,000 Total liabilities 85,000 Total owner’s equity (a) End of year: Total assets 160,000 Total liabilities 120,000 Total owner’s equity 40,000 Changes during year in owner’s equity: Additional investment (b) Drawings 25,000 Total revenues 215,000 Total expenses 185,000 Instructions Determine the missing amounts.

Solution 186 (a)

Total assets (beginning of year) Total liabilities (beginning of year) Total owner’s equity (beginning of year)

$98,000 (85,000) $13,000

(b)

Total owner’s equity (end of year) Total owner’s equity (beginning of year) Increase in owner’s equity

$40,000 (13,000) $27,000

Total revenues Total expenses Net income

$215,000 185,000 $ 30,000

Increase in owner’s equity Less: Net income Add: Drawings Additional investment (c)

$27,000 $(30,000) 25,000)

Total assets (beginning of year) Total owner’s equity (beginning of year) Total liabilities (beginning of year)

(5,000) $22,000 $129,000 (85,000) $ 44,000

Craig Stevens $129,000 (c) 85,000 180,000 50,000 130,000 25,000 (d) 100,000 65,000

1 - 44

Test Bank for Accounting Principles, Ninth Edition

Solution 186 (d)

(cont.)

Total owner’s equity (end of year) Total owner’s equity (beginning of year) Increase in owner’s equity

$130,000 (85,000) $ 45,000

Total revenues Total expenses Net income

$100,000 (65,000) $ 35,000

Increase in owner’s equity Less: Net income $ 35,000 Additional investment 25,000 Drawings

$45,000 (60,000) $(15,000)

SO6, 7 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 187 An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below. Each increase and decrease in owner’s equity is explained.

Cash + 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Accounts Office Accounts Owner’s Equity Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital

+$15,000 - 2,000 750 + 2,500 +$3,600 - 1,500 - 2,500 650 + 550 550 - 3,500

+$15,000 Investment +$5,000

+$3,000

+$750

500

Instructions (a) Determine how much owner’s equity increased for the month. (b) Compute the amount of net income for the month.

Solution 187 (a)

Investment Service revenue Drawings Rent expense Salaries expense Utilities expense Increase in capital

6,100 Service Revenue

2,500 Drawings 650 Rent Expense

3,500 Salaries Expense 500 Utilities Expense

- 1,500

$15,000 6,100 (2,500) (650) (3,500) (500) $13,950

Accounting in Action Solution 187 (b)

1 - 45

(cont.)

Service revenue Rent expense Salaries expense Utilities expense Net income

$6,100 (650) (3,500) (500) $1,450

SO7 BT: AP Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 188 The Lim Company had the following assets and liabilities on the dates indicated. December 31 Total Assets Total Liabilities 2008 $480,000 $250,000 2009 $460,000 $210,000 2010 $590,000 $300,000 Lim began business on January 1, 2008, with an investment of $100,000. Instructions From an analysis of the change in owner’s equity during the year, compute the net income (or loss) for: (a) 2008, assuming Lim’s drawings were $25,000 for the year. (b) 2009, assuming Lim made an additional investment of $60,000 and had no drawings in 2009. (c) 2010, assuming Lim made an additional investment of $15,000 and had drawings of $40,000 in 2010. Solution 188 (a)

Owner’s equity—12/31/08 ($480,000 – $250,000) Owner’s equity—1/1/08 Increase in owner’s equity Add: Drawings Net income for 2005

$230,000 (100,000) 130,000 25,000 $155,000

(b)

Owner’s equity—12/31/09 ($460,000 – $210,000) Owner’s equity—1/1/09—see (a) Increase in owner’s equity Less: Additional investment Net loss for 2009

$250,000 (230,000) 20,000 60,000 $ (40,000)

(c)

Owner’s equity—12/31/10 ($590,000 – $300,000) Owner’s equity—1/1/10—see (b) Increase in owner’s equity Less: Additional investment

$290,000 250,000 40,000 (15,000) 25,000 40,000 $ 65,000

Add: Drawings Net income for 2010

SO7 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

1 - 46

Test Bank for Accounting Principles, Ninth Edition

Ex. 189 For each of the following, indicate whether the transaction affects revenue (R), expense (E), owner's drawing (D), owner's investment (I), or no effect on owner's equity (NOE). 1. 2. 3. 4. 5.

Made an investment to start the business. Billed customers for services performed. Purchased equipment on account. Paid monthly rent. Withdrew cash for personal use.

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

Investment (I) Revenue (R) No effect (NOE) Expense (E) Drawing (D)

SO7 BT: C Difficulty: Easy TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 190 Presented below is a balance sheet for Jim Henson Yard Service at December 31, 2008. JIM HENSON YARD SERVICE Balance Sheet December 31, 2009 Assets Cash Accounts receivable Supplies Equipment

$13,000 6,000 9,000 11,000

Total assets

$39,000

Liabilities and Owner's Equity Liabilities Accounts payable Notes payable Owner's equity Jim Henson, Capital Total liabilities & owner’s equity

$ 8,000 15,000 16,000 $39,000

The following additional data are available for the year which began on January 1: All expenses (excluding supplies expense) total $6,000. Supplies on January 1, were $11,000 and $5,000 of supplies were purchased during the year. Net income for the year was $8,000 and drawings were $6,000. Instructions Determine the following: (Show all computations.) 1. Supplies used during the year. 2. Total expenses for the year. 3. Service revenues for the year. 4. Jim Henson's capital balance on January 1.