Accounting Multiple Choice Questions and Answers | All Answers are Correct

Chapter 1 Accounting: The Language of Business True False 1. Accounting does not provide information that is useful in making decisions that have economic consequences. a. True b. False L.O.: 1 Type: Moderate Solution: b 2. Because officials in federal, state, and local governments are not in the business of making a profit, they do not need an understanding of accounting. a. True b. False L.O.: 1 Type: Moderate Solution: b 3. Financial accounting serves external decision makers, such as stockholders, suppliers, banks, and government agencies. a. True b. False L.O.: 1 Type: Easy Solution: a 4. Management accounting serves internal decision makers, such as top executives and department heads. a. True b. False L.O.: 1 Type: Easy Solution: a 5. Managerial accounting serves external users while financial accounting serves internal users. a. True b. False L.O.: 1 Type: Moderate Solution: b 6. The annual report is a document prepared by the Board of Directors and distributed to current and potential investors. a. True b. False L.O.: 1 Type: Easy Solution: b 7. Statement of financial position is another name for the balance sheet. a. True b. False L.O.: 2 Type: Easy Solution: a 1 8. Assets and owners' equity are presented on the right side of the balance sheet. a. True b. False L.O.: 2 Type: Easy Solution: b 9. The balance sheet equation is: Assets = Liabilities - Owner's equity. a. True b. False L.O.: 2 Type: Easy Solution: b 10. Liabilities are claims by outsiders to the resources of a firm expected to provide future cash inflows or reduce or prevent future cashoutflows. a. True b. False L.O.: 2 Type: Moderate Solution: a 11. Accountants use the terms notes payable or notes receivable to describe the existence of promissory notes. a. True b. False L.O.: 2 Type: Easy Solution: a 12. Examples of assets include cash, inventory, and capital stock issued to investors. a. True b. False L.O.: 2 Type: Easy Solution: b 13. Inventory is goods held by a company for the purpose of sale to customers, and is considered a liability on the balance sheet. a. True b. False L.O.: 2 Type: Moderate Solution: b 14. A balance sheet is dated for a period of time, such as "for the year ended December 31, 20X2". a. True b. False L.O.: 2 Type: Easy Solution: b 15. Owners' equity is the residual interest in the organization's assets after deducting liabilities. a. True b. False L.O.: 2 Type: Easy Solution: a 16. An owner’s investment into a business will increase assets and decrease liabilities. 2 a. True b. False L.O.: 3 Type: Moderate Solution: b 17. An account is a summary record of the changes in a particular asset, liability, or owners' equity. a. True b. False L.O.: 3 Type: Easy Solution: a 18. A transaction affects the financial position of an entity and can be reliably recorded in terms of money. a. True b. False L.O.: 3 Type: Moderate Solution: a 19. A transaction does not require counterbalancing entries so that the total assets are equal to the total liabilities plus owner's equity. a. True b. False L.O.: 3 Type: Moderate Solution: b 19. A loan from a financial institution will increase assets and increase liabilities. a. True b. False L.O.: 3 Type: Moderate Solution: a 20. The purchase of inventory on credit will increase liabilities and equity. a. True b. False L.O.: 3 Type: Moderate Solution: b 21. Buying or selling on credit creates an accounts payable or receivable. a. True b. False L.O.: 3 Type: Easy Solution: a 22. A creditor is one to whom money is owed. a. True b. False L.O.: 3 Type: Moderate Solution: a 23. A payment to a creditor will decrease assets and increase liabilities. 3 a. True b. False L.O.: 3 Type: Moderate Solution: b 24. If assets increase $50,000 during a period and liabilities decrease $20,000, then owners' equity must have decreased $30,000. a. True b. False L.O.: 3 Type: Moderate Solution: b 25. A sole proprietorship is an organization with a single owner. a. True b. False L.O.: 4 Type: Easy Solution: a 26. A sole proprietorship is an accounting entity, even though it has only a single owner. a. True b. False L.O.: 4 Type: Easy Solution: a 27. The owners of a corporation have limited liability. a. True b. False L.O.: 4 Type: Easy Solution: a 28. Corporations are the most important form of business ownership because they conduct the vast majority of business. a. True b. False L.O.: 4 Type: Moderate Solution: a 29. The effects of the form of ownership of a business entity on income taxes may vary significantly. a. True b. False L.O.: 4 Type: Moderate Solution: a 30. The board of directors’ duty is to manage a company. a. True b. False L.O.: 4 Type: Moderate Solution: b 31. Typically, a company sells its stock at par value. 4 a. True b. False L.O.: 5 Type: Moderate Solution: b 32. The auditor's opinion is also called an independent opinion. a. True b. False L.O.: 6 Type: Easy Solution: a 33. The auditor's opinion is included with the annual report issued by the corporation. a. True b. False L.O.: 6 Type: Easy Solution: a 34. An audit is an examination of transactions and financial statements. a. True b. False L.O.: 6 Type: Moderate Solution: a 35. Public accountants are those whose services are offered to the general public on a fee basis. a. True b. False L.O.: 6 Type: Easy Solution: a 36. The American Institute of Certified Public Accountants prepares and grades the Uniform CPA exam on a national basis. a. True b. False L.O.: 7 Type: Easy Solution: a 37. The American Institute of Certified Public Accountants is responsible for establishing GAAP in the U.S. a. True b. False L.O.: 7 Type: Easy Solution: b 38. The U.S. Congress has charged the Financial Accounting Standards Board with the ultimate responsibility for authorizing the generally accepted accounting principles. a. True b. False L.O.: 7 Type: Moderate Solution: b 39. The AICPA Code of Professional Ethics is especially concerned with integrity and independence. a. True 5 b. False L.O.: 8 Type: Moderate Solution: a 6 Multiple Choice 40. The primary purpose of financial accounting is to: a. supply information for external users’ decision making. b. provide data for internal users decision making. c. create data for income taxes. d. report the audit. L.O.: 1 Type: Easy Solution: a 41. Footnotes are: a. included in the audit report. b. an integral part of financial statement information. c. an appendix to the letter from corporate management. d. at the bottom of the report of the independent auditors. e. explanatory information in the statement of management’s responsibility for preparation of financial statements. L.O.: 1 Type: Moderate Solution: b 42. A liability that results from a purchase of goods or services on open account is referred to as a(n): a. accounts receivable b. notes payable c. accounts payable d. notes receivable e. capital stock L.O.: 2 Type: Easy Solution: c 43. Which of the following statements is true? a. Owners' equities are economic sacrifices after deducting liabilities. b. Assets are expected to benefit no one. c. Liabilities are future cash inflows. d. Assets are always the sum of liabilities and owners' equities. e. Owners’ equities have priority over liabilities for assets. L.O.: 2 Type: Easy Solution: d 44. The accounting equation can be stated as: a. assets - liabilities = owners' equity b. assets + liabilities = owners' equity c. liabilities + assets = owners' equity d. owners' equity + assets = liabilities e. liabilities - owners' equity = assets