TEST BANK
Financial Accounting Fundamentals, 8th Edition
By John Wild, Chapter 1 - 13
,Chapter 1: Accounting in Business
Chapter 2: Accounting for Business Transactions
Chapter 3: Adjusting Accounts for Financial Statements
Chapter 4: Accounting for Merchandising Operations
Chapter 5: Inventories and Cost of Sales
Chapter 6: Cash, Fraud, and Internal Control
Chapter 7: Accounting for Receivables
Chapter 8: Accounting for Long-Term Assets
Chapter 9: Accounting for Current Liabilities
Chapter 10: Accounting for Long-Term Liabilities
Chapter 11: Corporate Reporting and Analysis
Chapter 12: Reporting Cash Flows
Chapter 13: Analysis of Financial Statements
, Answers are at the End of Each Chapter
Chapter 1: Accounting in Business
Student name:
TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Accounting is an information and measurement system that identifies, records,
andcommunicates an organization's business activities.
⊚ true
⊚ false
2) Accounting includes the analysis and interpretation of information.
⊚ true
⊚ false
3) Financial accounting focuses on the needs of external users, who get accounting
informationfrom general-purpose financial statements.
⊚ true
⊚ false
4) Internal users of accounting information do not directly manage the organization and
havelimited access to its accounting information.
⊚ true
⊚ false
5) Auditors verify the effectiveness of internal controls.
⊚ true
⊚ false
6) External auditors examine financial statements to verify that they are prepared according
togenerally accepted accounting principles.
⊚ true
⊚ false
7) External users include lenders, shareholders, customers, and regulators.
⊚ true
⊚ false
,8) Internal users include lenders, shareholders, brokers and nonexecutive employees.
⊚ true
⊚ false
9) Opportunities in accounting include auditing, consulting, market research, and tax planning.
⊚ true
⊚ false
10) The fraud triangle shows that three factors that push a person to commit fraud
areopportunity, pressure, and rationalization.
⊚ true
⊚ false
11) Internal controls are procedures to protect assets, ensure reliable accounting,
promoteefficiency, and uphold company policies.
⊚ true
⊚ false
12) A partnership is a business owned by two or more people.
⊚ true
⊚ false
13) Owners of a corporation are called shareholders or stockholders.
⊚ true
⊚ false
14) In a partnership, the owners are called stockholders.
⊚ true
⊚ false
15) The balance sheet shows a company's net income or loss over a period of time.
⊚ true
⊚ false
16) The Financial Accounting Standards Board (FASB) is given the task of setting generally
accepted accounting principles (GAAP) from the Securities and Exchange Commission.
⊚ true
⊚ false
,17) The business entity assumption means that accounting information presumes that
thebusiness will continue operating instead of being closed or sold.
⊚ true
⊚ false
18) GAAP wants information to have relevance and faithful representation.
⊚ true
⊚ false
19) The business entity assumption means that a business is accounted for separately from
otherbusiness entities and its owner(s).
⊚ true
⊚ false
20) Revenues should not be recognized in the accounting records when earned, but rather
whencash is received.
⊚ true
⊚ false
21) Specific accounting principles are basic assumptions, concepts, and guidelines for
preparingfinancial statements and arise out of long-used accounting practice.
⊚ true
⊚ false
22) A sole proprietorship is a business with multiple owners.
⊚ true
⊚ false
23) Unlimited liability and separate taxation of the business are advantages of a
soleproprietorship.
⊚ true
⊚ false
24) Objectives, qualitative characteristics, elements, and recognition and measurement
arecomponents of the FASB conceptual framework.
⊚ true
⊚ false
,25) Objectivity means that information is supported by independent, unbiased evidence.
⊚ true
⊚ false
26) The going-concern assumption presumes that a business will continue operating instead
ofbeing closed or sold.
⊚ true
⊚ false
27) The measurement principle prescribes that accounting information is based on
subjectiveopinion rather than cost.
⊚ true
⊚ false
28) The monetary unit assumption means that companies should express transactions and
eventsin terms such as “a lot” or “very little”.
⊚ true
⊚ false
29) The International Accounting Standards Board (IASB) issues International Financial
Reporting Standards (IFRS) that identify preferred accounting practices.
⊚ true
⊚ false
30) A limited liability company (LLC) offers the limited liability of a partnership or
proprietorship and the tax treatment of a corporation.
⊚ true
⊚ false
31) A limited liability company (LLC) offers the limited liability of a corporation and the tax
treatment of a partnership or proprietorship.
⊚ true
⊚ false
32) The Securities and Exchange Commission (SEC) is a U.S. government agency that oversees
proper use of GAAP by companies that sell stock and debt to the public.
⊚ true
⊚ false
,33) The four common forms of business ownership include sole proprietorship, partnership,
I-corporation, and non-profit.
⊚ true
⊚ false
34) The statement of cash flows reports cash flows from operating activities, investing
activities,and financing activities.
⊚ true
⊚ false
35) Materiality is the ability of information to influence decisions.
⊚ true
⊚ false
36) Financing activities on the statement of cash flows include long-term borrowing and
repayingof cash from lenders.
⊚ true
⊚ false
37) Investing activities on the statement of cash flows include long-term borrowing and
repayingof cash from lenders.
⊚ true
⊚ false
38) Investing activities on the statement of cash flows include buying equipment that is held
forlong-term use.
⊚ true
⊚ false
39) Return on assets equals total revenues divided by average total assets.
⊚ true
⊚ false
40) Revenues are increases in equity (via net income) from sales of products and services
tocustomers.
⊚ true
⊚ false
,41) A net loss occurs when revenues exceed expenses.
⊚ true
⊚ false
42) Net income occurs when revenues exceed expenses.
⊚ true
⊚ false
43) Liabilities are the owner's claim on assets.
⊚ true
⊚ false
44) Assets are the resources a company owns or controls and are expected to yield
futurebenefits.
⊚ true
⊚ false
45) Maintenance expenses incurred increase equity.
⊚ true
⊚ false
46) The accounting equation can be restated as: Assets − Equity = Liabilities.
⊚ true
⊚ false
47) The accounting equation can be restated as: Assets + Liabilities = Equity.
⊚ true
⊚ false
48) Total assets of Morris Company equal $7,000,000 and its equity is $4,200,000.
MorrisCompany has total liabilities of $11,200,000.
⊚ true
⊚ false
49) After each transaction and event, assets always equal liabilities plus equity.
⊚ true
⊚ false
,50) From an accounting perspective, an event is a happening that affects the accounting
equationbut cannot be measured.
⊚ true
⊚ false
51) A company paid $15,000 cash for rent of office space for the month. This
transactionincreases both assets and equity by $15,000.
⊚ true
⊚ false
52) At the beginning of the year, Shepard Company’s assets are $3,000,000 and its equity is
$1,000,000. If during the year, assets increase by $800,000 and liabilities increase by
$500,000, then equity at year-end equals $700,000.
⊚ true
⊚ false
53) Return on assets is often stated in ratio form as the amount of average total assets divided
byrevenue.
⊚ true
⊚ false
54) Return on assets is often stated in ratio form as the amount of net income divided by
averagetotal assets.
⊚ true
⊚ false
55) The four basic financial statements include the balance sheet, income statement,
statement ofrevenue recognition, and statement of cash flows.
⊚ true
⊚ false
56) An income statement reports on investing and financing activities.
⊚ true
⊚ false
57) The income statement reports revenues and expenses and computes net income or loss
over a period of time.
⊚ true
⊚ false
, 58) The statement of cash flows shows the net effect of revenues and expenses for a
reportingperiod.
⊚ true
⊚ false
59) The left side of the balance sheet lists a company’s assets.
⊚ true
⊚ false
60) On the statement of cash flows, investing activities involve selling assets such as
equipmentthat is held for long-term use.
⊚ true
⊚ false
61) The purchase of supplies appears on the statement of cash flows as an investing
activitybecause it involves the purchase of assets.
⊚ true
⊚ false
62) The income statement reports on operating activities at a point in time.
⊚ true
⊚ false
63) The statement of cash flows identifies cash flows from operating, investing, and
financingactivities over a period of time.
⊚ true
⊚ false
64) Butler company records show the following items and amounts on December 31:
Consulting revenue $ 70,000
Rent expense 17,750
Salaries expense 35,000
Telephone expense 3,800
Miscellaneous expenses 2,900
Butler’s net income for the month of December is $10,550.
⊚ true
⊚ false
