Question 1

Which of the following organizations is responsible for the creation and governance of accounting standards in the United States?

Accepted Answer

A)  Financial Accounting Standards Board 
B)  Institute of Management Accountants 
C)  American Institute of Certified Public Accountants 
D)  Securities and Exchange Commission 
A)  Financial Accounting Standards Board 
B)  Institute of Management Accountants 
C)  American Institute of Certified Public Accountants 
D)  Securities and Exchange Commission

Question 2

Accounting starts with economic activities that accountants review and evaluate using critical thinking and judgment to create useful information that helps individuals make good decisions.

Accepted Answer

A) True 
 B)False

Question 3

Johnson Waterworks Corporation provides plumbing services. Transactions during the first year of operations are provided below. 
A. Received $11,000 cash and issued common stock to Mitchell Johnson.
B. Paid $1,200 for equipment to be used for plumbing repairs.
C.Borrowed $15,000 from a local bank and deposited the money in the checking account.
D. Paid $400 in rent for the year.
E. Paid $400 for plumbing supplies to be used on various jobs next year.
F. Completed a plumbing repair for a law firm and received $3,500.
Calculate the amount of total assets at the end of the first year. Assume the plumbing supplies of $400 are left at the end of the year.

Accepted Answer

A)  $1,600 
B)  $1,200 
C)  $26,000 
D)  $29,100 
A)  $1,600 
B)  $1,200 
C)  $26,000 
D)  $29,100

Question 4

The balance sheet is prepared after the statement of retained earnings.

Accepted Answer

A) True 
 B)False

Question 5

Many liabilities have the word receivable in their titles.

Accepted Answer

A) True 
 B)False

Question 6

The owners' claims to the assets of the business are called ________.

Accepted Answer

A)  return on assets 
B)  expenses 
C)  equity 
D)  debt 
A)  return on assets 
B)  expenses 
C)  equity 
D)  debt

Question 7

For each of the following events:
(1) State whether the event increases (INC) or decreases (DEC) retained earnings. If the event does not affect retained earnings, state NE for no effect.
(2) State which equity account is affected.
 $$\begin{array} { | l | l | } 
\hline \text { Event } & \text { 1. Retained earnings:INC, DEC, NE } \
& \text { 2. Which equity account is affected? } \
\hline \text { Owner contributions to a corporation } & \
\hline \text { Amounts earned from delivering goods } & \
\text { or services to customers } & \
\hline \begin{array} { l } 
\text { Cash paid to acquire land for use in the } \
\text { business }
\end{array} & \
\hline
\end{array}$$

Accepted Answer

None

Question 8

Assets are economic resources that have no future benefits for the business.

Accepted Answer

A) True 
 B)False

Question 9

For each of the following characteristics of a business organization, state whether it applies to a sole proprietorship (SP), partnership (P) or a corporation (C). There may be more than one correct answer for a characteristic.
 $$\begin{array} { | l | l | } 
\hline\begin{array} { l } 
\text { Business organization } \
\text { characteristic }
\end{array} & \begin{array} { l } 
\text { Entity(ies) to which the } \
\text { characteristic applies - } \
\text { SP,P,C }
\end{array} \
\hline \text { Separate legal entity } & \
\hline \begin{array} { l } 
\text { Owner(s) are personally liable } \
\text { or the business's debts }
\end{array} & \
\hline \text { Separate taxable entity } & \
\hline \text { One owner } & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | l | } 
\begin{ar

Question 10

Mason Company purchased land for $30,000. The president of Mason Company believes that the land is actually worth $35,000. The land can be recorded at $35,000.

Accepted Answer

A) True 
 B)False

Question 11

Dividends are the expenses of a business.

Accepted Answer

A) True 
 B)False

Question 12

Financial statements are business documents used to communicate information needed to make business decisions.

Accepted Answer

A) True 
 B)False

Question 13

The net income (or net loss) must be calculated after the statement of retained earnings is prepared.

Accepted Answer

A) True 
 B)False

Question 14

Regarding liabilities, which of the following statements is incorrect?

Accepted Answer

A)  Liabilities represent one of the two claims to assets. 
B)  A creditor who has loaned money to a business has a claim to some of the business's assets until the business pays the debt. 
C)  Liabilities are economic resources that are expected to benefit the business in the future. 
D)  Many, but not all, liabilities have the word payable in their titles. 
A)  Liabilities represent one of the two claims to assets. 
B)  A creditor who has loaned money to a business has a claim to some of the business's assets until the business pays the debt. 
C)  Liabilities are economic resources that are expected to benefit the business in the future. 
D)  Many, but not all, liabilities have the word payable in their titles.

Question 15

Accounting is the information system that measures business activities, processes the information into reports, and communicates the results to decision makers.

Accepted Answer

A) True 
 B)False

Question 16

An economic entity is an organization that stands apart as a separate economic entity.

Accepted Answer

A) True 
 B)False

Question 17

The balance of stockholders' equity at the beginning of the year and the end of the year was $50,000 and $60,000, respectively. The company issued no common stock during the year. Dividends were $24,000. What was the net income or loss for the year?

Accepted Answer

A)  Net income of $84,000 
B)  Net loss of $84,000 
C)  Net loss of $34,000 
D)  Net income of $34,000 
A)  Net income of $84,000 
B)  Net loss of $84,000 
C)  Net loss of $34,000 
D)  Net income of $34,000

Question 18

The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies.

Accepted Answer

A) True 
 B)False

Question 19

Country Homes Corporation just recorded a transaction in its books. If this transaction increased the total liabilities by $10,000, then ________.

Accepted Answer

A)  assets must increase, or equity must decrease by $10,000 
B)  either assets or equity must decrease by $10,000 
C)  both assets and equity must each decrease by $5,000 
D)  assets must decrease by $10,000 
A)  assets must increase, or equity must decrease by $10,000 
B)  either assets or equity must decrease by $10,000 
C)  both assets and equity must each decrease by $5,000 
D)  assets must decrease by $10,000

Question 20

Which of the following users would rely on managerial accounting information for decision-making purposes?

Accepted Answer

A)  potential investors 
B)  creditors 
C)  customers 
D)  company managers 
A)  potential investors 
B)  creditors 
C)  customers 
D)  company managers

Exam 1: Accounting and the Business Environment

Which of the following organizations is responsible for the creation and governance of accounting standards in the United States?

Accounting starts with economic activities that accountants review and evaluate using critical thinking and judgment to create useful information that helps individuals make good decisions.

The balance sheet is prepared after the statement of retained earnings.

Many liabilities have the word receivable in their titles.

The owners' claims to the assets of the business are called ________.

Assets are economic resources that have no future benefits for the business.

Mason Company purchased land for $30,000. The president of Mason Company believes that the land is actually worth $35,000. The land can be recorded at $35,000.

Dividends are the expenses of a business.

Financial statements are business documents used to communicate information needed to make business decisions.

The net income (or net loss) must be calculated after the statement of retained earnings is prepared.

Regarding liabilities, which of the following statements is incorrect?

Accounting is the information system that measures business activities, processes the information into reports, and communicates the results to decision makers.

An economic entity is an organization that stands apart as a separate economic entity.

The balance of stockholders' equity at the beginning of the year and the end of the year was $50,000 and $60,000, respectively. The company issued no common stock during the year. Dividends were $24,000. What was the net income or loss for the year?

The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies.

Country Homes Corporation just recorded a transaction in its books. If this transaction increased the total liabilities by $10,000, then ________.

Which of the following users would rely on managerial accounting information for decision-making purposes?

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Investments

Current Liabilities and Payroll

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost Management Systems: Activity-Based Just-In-Time

Cost Volume Profit Analysis

Variable Costing

Master Budgets

Flexible Budgets and Standard Cost Systems

Responsibility Accounting and Performance Evaluation

Short-Term Business Decisions

Capital Investment Decisions

Understanding Accounting Information Systems and their Components

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