Deck 1: The Financial Statements

Question 1

The business records of a sole proprietorship should include the proprietor's personal finances.

Answer 1

False

Question 2

Stockholders have no personal obligation for the corporation's debts.

Answer 2

True

Question 3

Accounting information is used by investors and creditors,but not by regulatory bodies.

Answer 3

False

Question 4

Accounting produces financial statements,which report information about a business.

Question 5

Which of the following have unlimited liability for a company's debts?

A)owners of a corporation
B)members of a limited liability company
C)limited partners in a limited liability partnership
D)general partner in a limited liability partnership

Question 6

Federal income taxes are paid by ________ in a limited liability company.

A)the company
B)limited partners only
C)general partners only
D)members

Question 7

Which of the following statements is TRUE for a limited liability partnership?

A)The partnership pays no federal income taxes.
B)Only the limited partners pay federal income taxes on their shares of the partnership's profits.
C)Only the general partner pays federal income taxes on his or her share of the partnership's profits.
D)Only the members pay federal income taxes on their shares of the partnership's profits.

Question 8

A disadvantage of general partnerships is:

A)double taxation of distributed profits.
B)the partnership's assets are commingled with each partner's personal assets.
C)only individuals can be partners.
D)each partner may conduct business in the name of the entity and make agreements that legally bind all partners.

Question 9

Which of the following statements is TRUE for a limited liability company?

A)Members have unlimited liability for the debts of the business.
B)Members have limited liability for debts only up to the extent of their investment in the LLC.
C)Only the limited partners have limited liability for the debts of the business.
D)Members are not taxed like members of a partnership.

Question 10

Accounting:

A)measures business activities.
B)processes data into reports and communicates the data to decision makers.
C)is often called the language of business.
D)is all of the above.

Question 11

Accounting is often called the language of business.

Question 12

A partnership is a taxpaying entity.

Question 13

Bookkeeping is a mechanical part of accounting.

Question 14

Which statement is TRUE about partnerships?

A)A partnership is a taxpaying entity.
B)General partnerships have mutual agency and limited liability.
C)Individuals,corporations,partnerships,or other types of entities can be partners.
D)A written partnership contract must exist.

Question 15

Accounting is an information system that measures business activities.

Question 16

Which of the following entities pay federal income taxes?

A)limited liability partnership
B)general partnership
C)limited liability company
D)corporation

Question 17

Which of the following statements is TRUE for a limited liability partnership?

A)All partners have limited liability for the debts of the partnership.
B)All partners have limited liability for the acts of the other partners.
C)The general partner has unlimited liability for the debts of the partnership.
D)The limited partners have unlimited liability for the debts of the partnership.

Question 18

Which of the following statements is TRUE for a proprietorship?

A)Legally,a proprietorship is separate from the proprietor.
B)For accounting purposes,a proprietorship is separate from the proprietor.
C)The business records include the proprietor's personal finances.
D)All statements are correct.

Question 19

Since Habitat for Humanity is not concerned about making a profit,the entity does not need to use accounting information.

Question 20

The accounting process begins and ends with people making decisions.

Question 21

Shareholders of a corporation:

A)have limited liability for the corporation's debts.
B)can only be individuals.
C)have a personal obligation for the corporation's debts.
D)receive dividends from the corporation without having to pay tax on the distribution.

Question 22

Owners of an LLC are called:

A)partners.
B)proprietors.
C)members.
D)stockholders.

Question 23

The fundamental qualitative characteristics of accounting information are relevance and reliability.

Question 24

The owner of a ________ is personally liable for all the business's debts.

A)proprietorship
B)corporation
C)limited-liability company
D)All of the above are correct.

Question 25

Another name for the continuity assumption is the going-concern assumption.

Question 26

Enhancing qualitative characteristics of accounting information do NOT include:

A)comparability.
B)verifiability.
C)timeliness.
D)materiality.

Question 27

The SEC establishes International Financial Reporting Standards.

Question 28

The two types of accounting are:

A)profit and nonprofit.
B)financial and managerial.
C)internal and external.
D)bookkeeping and decision-oriented.

Question 29

Four ways a business can be organized include:

Question 30

Which type of business organization transacts much more business and is larger in terms of assets,income,and number of employees?

A)proprietorship
B)partnership
C)limited-liability company
D)corporation

Question 31

Accounting can be defined as:

Question 32

Accounting is moving in the direction of reporting more and more assets and liabilities at their fair values.

Question 33

Which of the following is a TRUE statement about the characteristics of partnerships?

A)In a limited liability partnership,all partners have limited liability for the partnership's debts.
B)General partners in a general partnership have mutual agency and limited liability for the partnership's debts.
C)Income and losses of the partnership "flow through" to the partners.
D)The partnership agreement must be in writing.

Question 34

Generally accepted accounting principles (GAAP)are the accounting guidelines formulated by the Securities and Exchange Commission.

Question 35

Relevance is one of the four enhancing qualitative characteristics.

Question 36

Decision makers who use accounting information include:

A)creditors.
B)the Internal Revenue Service.
C)the Securities and Exchange Commission.
D)all of the above.

Question 37

An important factor to consider when determining how to organize a business is that:

A)members of an LLC have unlimited liability and are taxed like members of a partnership.
B)for accounting purposes,a proprietorship is a distinct entity,separate from the proprietor.
C)partnerships are subject to double taxation.
D)a corporation is not legally distinct from its owners.

Question 38

Which of the following characteristics does NOT apply to verifiability?

A)completeness
B)reliability
C)accuracy
D)faithful representation

Question 39

The historical cost principle is not used widely in the United States to value assets.

Question 40

Advantages of a corporation include:

A)difficulty in raising large sums of capital.
B)double taxation of distributed profits.
C)limited liability of the stockholders for the corporation's debts.
D)each stockholder can conduct business in the name of the corporation.

Question 41

All of the following are true statements about the entity assumption EXCEPT for:

A)a sharp boundary is drawn around each entity.
B)the transactions of the business cannot be combined with the transactions of the owner.
C)business operations cannot be divided into segments.
D)the entity is any organization that stands apart as a separate economic unit.

Question 42

Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements,such as creditors.This qualitative characteristic of information is called:

A)verifiability.
B)faithful representative.
C)relevant.
D)understandability.

Question 43

Historical cost:

A)is used in the U.S.to value all business assets.
B)is equal to the amount of cash paid minus the dollar value of all noncash considerations also given in the exchange.
C)is a verifiable measure that is relatively free from bias.
D)is the amount that the business could sell an asset for.

Question 44

To be useful,accounting information must have the fundamental qualitative characteristics of:

A)comparability and relevance.
B)relevance and faithful representation.
C)materiality and understandability.
D)faithful representation and timeliness.

Question 45

A construction company paid $82,000 cash for land used in the business.At the time of purchase,the land had a list price of $90,000.When the balance sheet was prepared,the fair value of the land was $85,000.At what amount should the land be reported on the balance sheet of the company?

A)$82,000
B)$85,000
C)$86,000
D)$90,000

Question 46

The conceptual foundation of accounting does NOT include:

A)accounting objectives.
B)fundamental qualitative characteristics.
C)enhancing qualitative characteristics.
D)decision making.

Question 47

Which of the following statements is FALSE?

A)The application of U.S.GAAP for public companies in the Unites States has been overseen by SEC.
B)The advantage of a uniform set of global accounting standards is that financial statements from a U.S.company will be comparable to those of a foreign company.
C)In the long run,a uniform set of global accounting standards should significantly reduce the costs of doing business globally.
D)IFRS has been adapted in the United States.

Question 48

In order to compare the financial statements of Toyota Corporation to the financial statements of General Motors,it would be preferable to use:

A)U.S.Generally Accepted Accounting Principles for General Motors and International Financial Reporting Standards for Toyota.
B)U.S.Generally Accepted Accounting Principles for both companies.
C)International Financial Reporting Standards for both companies.
D)U.S.Generally Accepted Accounting Principles for Toyota Corporation and International Financial Reporting Standards for General Motors.

Question 49

If a company prepares its financial statements three years after the end of its accounting period,it has violated the qualitative characteristic of:

A)understandability.
B)timeliness.
C)verifiability.
D)materiality.

Question 50

The International Accounting Standards Board is responsible for establishing:

A)the code of professional conduct for accountants.
B)an international Securities and Exchange Commission.
C)U.S.Generally Accepted Accounting Principles.
D)International Financial Reporting Standards.

Question 51

Which statement is FALSE?

A)International Financial Reporting Standards are used by most countries around the world.
B)U.S.Generally Accepted Accounting Principles are used by many countries around the world.
C)The most commonly used accounting practices are essentially the same under both U.S.Generally Accepted Accounting Principles and International Financial Reporting Standards.
D)For many years,U.S.Generally Accepted Accounting Principles were considered to be the strongest single set of accounting standards in the world.

Question 52

The CEO of Clarkson Company owns a vacation home in Hawaii.Clarkson Company owns a factory in Detroit where it is headquartered.Which of these properties is considered to be asset(s)of the business?

A)only the vacation home in Hawaii
B)only the factory in Detroit
C)both the vacation home in Hawaii and the factory in Detroit
D)neither the vacation home in Hawaii nor the factory in Detroit

Question 53

The accounting assumption that states that the business,rather than its owners,is the reporting unit is the:

A)entity assumption.
B)going concern assumption.
C)stable-monetary-unit assumption.
D)historical cost assumption.

Question 54

The relevant measure of the value of the assets of a company that is going out of business is the:

A)liquidating value.
B)inflation-adjusted book value.
C)historical cost.
D)carrying value.

Question 55

Provide an explanation of each of the following:
Entity Assumption
Historical Cost Principle
Continuity Assumption
Stable-Monetary-Unit Assumption

Question 56

Verifiability means that the accounting information:

A)is timely and understandable.
B)is understandable.
C)must be capable of being checked for accuracy,completeness and reliability.
D)is material and relevant.

Question 57

The fair value of a plant asset is equal to:

A)the amount the business could sell the asset for.
B)the amount of cash paid plus the dollar value of noncash consideration given in exchange for the plant asset at acquisition.
C)the amount of cash paid plus the loan taken out to finance the purchase of the plant asset.
D)the amount a company can receive for the asset when sold in order to go out of business.

Question 58

The stable-monetary-unit assumption:

A)ensures that accounting records and statements are based on the most reliable data available.
B)requires all countries to record transactions in U.S.dollars.
C)maintains that each organization or section of an organization stands apart from other organizations and individuals.
D)enables accountants to ignore the effect of inflation on the accounting records.

Question 59

In 1990,Johnson Company purchased a building for $170,000.In 2020,a real estate professional says the building has a fair value of $1,000,000.In 2020,a similar building down the street recently sold for $900,000.What value,before consideration of accumulated depreciation,is reported for the building on the balance sheet at December 31,2020?

A)$170,000
B)$585,000
C)$900,000
D)$1,000,000

Question 60

The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is:

A)historical cost.
B)objectivity.
C)reliability.
D)stable-monetary-unit.

Question 61

The calculation of ending retained earnings considers the beginning retained earnings,current period net income or net loss,and stockholders' equity.

Question 62

Long-term debt is a liability that is payable beyond one year from the date of the financial statements.

Question 63

The word "payable" always signifies a liability.

Question 64

What is an account payable?

A)It is a liability for goods or services purchased on credit and supported by a written agreement.
B)It is a liability for goods or services purchased on credit and supported by the credit standing of the purchaser.
C)It is an amount of money to be received from a supplier.
D)It is an asset arising from the sale of goods or services on credit.

Question 65

Stockholders' equity is the stockholders' interest in the assets of the corporation.

Question 66

Examples of liabilities include:

A)accounts payable and dividends.
B)accounts payable and common stock.
C)investments and note payable.
D)accounts payable and long-term debt.

Question 67

Revenues are cash distributions to the stockholders.

Question 68

The accounting equation can be stated as:

A)Assets = Liabilities + Paid-in Capital - Common Stock.
B)Assets + Liabilities = Stockholders' Equity.
C)Assets = Liabilities + Paid-in Capital + Retained Earnings.
D)Assets = Liabilities - Paid-in Capital - Dividends.

Question 69

All of the following are expenses EXCEPT for:

A)Cost of products and services.
B)Depreciation Expense.
C)Salary Expense.
D)Dividends.

Question 70

The basic component of paid-in capital is common stock.

Question 71

The accounting equation must always be in balance.

Question 72

The accounting equation shows the relationship among assets,liabilities and net income.

Question 73

David Company has total assets of $500,000 and total liabilities of $180,000.David Company's stockholders' equity must therefore be $680,000.

Question 74

Owners' equity is called stockholders' equity for a corporation.

Question 75

The accounting equation can be stated as:

A)Assets + Stockholders' Equity = Liabilities.
B)Assets -Liabilities = Stockholders' Equity.
C)Assets = Liabilities - Stockholders' Equity.
D)Assets - Stockholders' Equity + Liabilities = Zero.

Question 76

Liabilities are:

A)a form of paid-in capital.
B)future economic benefits to which a company is entitled.
C)debts payable to outsiders called creditors.
D)the outflow of resources that decrease common stock.

Question 77

The Clarke Company had beginning retained earnings of $20,000 and net income of $5,000.Clarke declared and paid dividends of $1,000.Therefore,the ending retained earnings is $25,000.

Question 78

Expenses are decreases in retained earnings that result from operations.

Question 79

Which of the following statements is TRUE?

A)Dividends are expenses of a business.
B)Dividends reduce retained earnings.
C)Dividends increase retained earnings.
D)Dividends reduce net income.

Question 80

The two main components of stockholders' equity are paid-in capital and dividends.