MEDEXCELLENCE
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Answers Included
Chap 01 7e Edmonds
1) Which of the following groups has the primary responsibility for establishing generally
accepted accounting principles for business entities in the United States?
A) Securities and Exchange Commission
B) U.S. Congress
C) International Accounting Standards Board
D) Financial Accounting Standards Board
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2) The Heritage Company is a manufacturer of office furniture. Which term best describes
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Heritage's role in society?
A) Business
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B) Regulatory agency
C) Consumer
D) Resource owner
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3) Which resource providers lend financial resources to a business with the expectation of
repayment with interest?
AC
A) Consumers
B) Creditors
C) Investors
D) Owners
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EA
4) Which type of accounting information is intended to satisfy the needs of external users of
accounting information?
A) Cost accounting
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B) Managerial accounting
C) Tax accounting
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D) Financial accounting
5) Which of the following is false regarding managerial accounting information?
A) It is often used by investors.
B) It is more detailed than financial accounting information.
C) It can include nonfinancial information.
D) It focuses on divisional rather than overall profitability.
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,6) Financial accounting standards are known collectively as GAAP. What does that acronym
stand for?
A) Generally Accepted Accounting Principles
B) Generally Applied Accounting Procedures
C) Governmentally Approved Accounting Practices
D) Generally Authorized Auditing Principles
7) International accounting standards are formulated by the IASB. What does that acronym
stand for?
A) Internationally Accepted Standards Board
B) International Accounting Standards Board
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C) International Accountability Standards Bureau
D) International Accounting and Sustainability Board
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VE
8) Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden
Wheels. Jack transferred $650,000 of the cash that he borrowed to the store on the first day
of the year. How many reporting entities exist in this scenario?
A) One reporting entity
B) Two reporting entities
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C) Three reporting entities
D) Four reporting entities
AC
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EA
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D
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,9) Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden
Wheels. Jack transferred $650,000 of the cash he borrowed to Wooden Wheels on the first
day of the year. Which of the following appropriately reflects the cash transactions between
these reporting entities?
Option Jack Henry Wooden Wheels Walt Bank
A. $ 150,000 increase $ 650,000 $ 800,000
increase decrease
B. $ 800,000 increase $ 650,000 $ 150,000
increase decrease
C. $ 800,000 decrease $ 800,000 $ 650,000
increase decrease
D. $ 650,000 increase $ 150,000 $ 800,000
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increase decrease
A) Option A
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B) Option B
C) Option C
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D) Option D
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10) Ellen Gatsby and her siblings, Ben and Sarah, started Gatsby Company when they each
invested $100,000 in the company. After the investments there will be
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A) one reporting entity.
B) two reporting entities.
AC
C) three reporting entities.
D) four reporting entities.
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11) John Hamilton borrowed $528,000 from Stone Creek Bank to open a new restaurant called
Sauce-It-Up. John transferred $475,200 of the cash he borrowed to the restaurant on the first
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day of the year. How many reporting entities exist in this scenario?
A) Two reporting entities
B) Three reporting entities
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C) One reporting entity
D) Four reporting entities
D
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, 12) John Hamilton borrowed $540,000 from Stone Creek Bank to open a new restaurant called
Sauce-It-Up. John transferred $486,000 of the cash he borrowed to the Company on the first
day of the year. Which of the following appropriately reflects the cash transactions between
these reporting entities?
John Hamilton Sauce-It-Up Stone Creek Bank
A. $ 54,000 increase $ 486,000 increase $ 540,000 decrease
B. $ 540,000 increase $ 486,000 increase $ 540,000 decrease
C. $ 540,000 decrease $ 540,000 increase $ 540,000 decrease
D. $ 486,000 increase $ 54,000 increase $ 540,000 decrease
A) Option A
B) Option B
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C) Option C
D) Option D
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13) Which of the following is an accurate definition of the term “asset?”
A) An obligation to creditors
B) A resource that will be used to produce revenue
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C) A transfer of wealth from the business to its stockholders
D) A sacrifice incurred from operating the business
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AC
14) Which of the following is (are) source(s) of assets to a business?
A) Creditors
B) Investors
C) Operations
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D) All the answers represent sources of assets.
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15) If total assets decrease, then which of the following statements is true?
A) Liabilities must increase and retained earnings must decrease.
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B) Common stock must decrease and retained earnings must increase.
C) Liabilities, common stock, or retained earnings must decrease.
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D) Liabilities, common stock, or retained earnings must increase.
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