109 Test Bank for Financial Accounting 8th Edition
Multiple Choice Questions-Page 1
Accountants follow guidelines for professional measurement and
disclosure of financial information called:
1.

A. IASB.

2.

B. GAAP.

3.

C. FASB.

4.

D. SEC.

For which form of business ownership are the owners of a business
legally distinct from the business?
1.

A. Corporation

2.

B. Partnership

3.

2.

B. objectivity principle.

3.

C. reliability principle.


4.

D. stable dollar principle.

What type of accounting provides information for decision makers
outside the entity?
1.

A. Bookkeeping

2.

B. Managerial accounting.

3.

C. Internal auditing.

4.

D. Financial accounting.


C. generally accepted accounting principles.

4.

D. the American Institute of Certified Public Accountants.

The accounting assumption that states that the business, rather
than its owners, is the reporting unit is the:
1.

A. entity assumption.

2.

B. going concern assumption.

3.

C. stable-monetary-unit assumption.

4.

D. historical cost assumption.


Which of the following best describes a liability? Liabilities are:
1.

A. a form of paid-in capital.


An Oklahoma City business paid $15,000 cash for equipment used
in the business. At the time of purchase, the equipment had a list
price of $20,000. When the balance sheet was prepared, the value
of the equipment was $22,000. What is the relevant measure of the
value of the equipment?
1.

A. Historical cost, $15,000

2.

B. Fair market cost, $20,000

3.

C. Current market cost, $22,000

4.

D. $15,000 on the day of purchase, $22,000 on balance sheet date

Accounting information is subject to the constraints of:
1.

A. comparability and consistency.

2.

B. comparability and verifiability.


A. retained earnings.

2.

B. investment.

3.

C. revenue.

4.

D. paid-in capital.

International financial reporting standards are set by the:
1.

A. IASB.

2.

B. GAAP.

3.

C. FASB.

4.



3.

C. timely.

4.

D. understandable.

The accounting equation can be stated as:
1.

A. Assets + Stockholders’ Equity = Liabilities.

2.

B. Assets –Liabilities = Stockholders’ Equity.

3.

C. Assets = Liabilities - Stockholders’ Equity.

4.

D. Assets – Stockholders’ Equity + Liabilities = Zero.

Characteristics of a sole proprietor include:
1.

A. multiple owners.


D. the mechanical part of accounting.

Who ultimately controls a corporation?
1.

A. Board of Directors

2.

B. The Chief Executive Officer (CEO.

3.

C. The stockholders


4.

D. The President

The relevant measure of the value of the assets of a company that
is going out of business is the:
1.

A. book value.

2.

B. current market value.

A. measures business activities.
B. processes data into reports and communicates the data to decision
makers.

3.

C. is often called the language of business.

4.

D. is all of the above.

All of the following are characteristics of useful accounting
information EXCEPT:
1.

A. comparability.

2.

B. timeliness

3.

C. informative.

4.

D. verifiability.


C. members.

4.

D. stockholders.

The two types of accounting are:
1.

A. profit and nonprofit.

2.

B. financial and managerial.

3.

C. internal and external.

4.

D. bookkeeping and decision-oriented.

Which of the following is NOT an asset?
1.

A. Inventory

2.


The economic resources of a business that are expected to
produce a benefit in the future are:
1.

A. liabilities.

2.

B. assets.

3.

C. owners’ equity.

4.

D. expenses.

The FASB:
1.

A. is working towards a convergence of standards with the IASB.

2.

B. will not accept IASB rules.

3.

C. does not want US companies to adopt IFRS standards.


B. stockholders’ equity.

3.

C. long-term assets.

4.

D. operating expenses.


The stable-monetary-unit assumption of accounting:
1.

A. ensures that accounting records and statements are based on the most
reliable data available.

2.

B. holds that the entity will remain in operation for the foreseeable future.

3.

C. maintains that each organization or section of an organization stands apart
from other organizations and individuals.

4.

D. enables accountants to ignore the effect of inflation in the accounting

3.

C. $245,000.

4.

D. some other amount.

For accounting purposes, the business entity should be considered
separate from its owners if the business is organized as a:
1.

A. proprietorship.

2.

B. corporation.

3.

C. partnership.

4.

D. any of the above.


The continuity (going-concern. assumption of accounting:
1.


C. materiality and understandability.

4.

D. faithful representation and timeliness.

109 Free Test Bank for Financial Accounting 8th Edition
by Harrison Multiple Choice Questions-Page 2
The balance sheet is also known as the:
1.

A. statement of profit and loss.

2.

B. operating statement.

3.

C. assets statement.

4.

D. statement of financial position.

Which of the following must be added to beginning Retained
Earnings to compute ending Retained Earnings?
1.

A. Net income


A potential investor interested in evaluating a company’s financial
earning performance for the current period would probably examine
which of the following financial statements?
1.

A. Balance Sheet only

2.

B. Income Statement only

3.

C. Statement of Cash Flows and Income Statement

4.

D. Statement of Retained Earnings and Balance Sheet

Which of the following financial statements shows the net increase
or decrease in cash during the period?
1.

A. Balance Sheet only

2.

B. Statement of Operations


Retained earnings is increased by:
1.

A. net income.

2.

B. net loss.

3.

C. dividends.

4.

D. expenses.

The major types of transactions that affect retained earnings are:
1.

A. paid-in capital and common stock.

2.

B. assets and liabilities.

3.

C. revenues, expenses, and dividends.



3.

C. revenue.

4.

D. gross profit.


A corporation’s paid-in capital includes:
1.

A. revenues and expenses.

2.

B. assets and liabilities.

3.

C. common stock.

4.

D. net income.

Gains and losses appear on which of the financial statements listed
below?
1.

D. none of the above.

At the beginning of the period, assets were $490,000 and
stockholders’ equity was $240,000. During the year, assets
increased by $60,000, liabilities increased by $40,000, and
stockholders’ equity increased by $20,000. Beginning liabilities
must have been:
1.

A. $230,000.

2.

B. $250,000.

3.

C. $280,000.

4.

D. $300,000.


Stockholders’ equity for Commerce Corporation on January 1, 2010
and December 31, 2010 were $60,000 and $75,000, respectively.
Assets on January 1, 2010 and December 31, 2010 were $115,000
and $105,000, respectively. Liabilities on January 1, 2010 were
$55,000. What is the amount of liabilities on December 31, 2010?
1.

D. net earnings.

An investor wishing to assess a company’s overall financial position
at the end of the period would probably examine the:
1.

A. Statement of Cash Flows and the Income Statement.

2.

B. Income Statement only

3.

C. Balance Sheet.

4.

D. Statement of Retained Earnings.

An example of a selling, general, and administrative expense is:
1.

A. cost of goods sold.

2.

B. sales.

3.


2.

B. $85.

3.

C. $60.

4.

D. none of the above.

Assets appear on:
1.

A. the Balance Sheet.

2.

B. the Income Statement.

3.

C. the Statement of Retained Earnings.

4.

D. both the Balance Sheet and the Statement of Retained Earnings.



3.

C. decrease $145,000.

4.

D. increase $275,000.

Net income is:
1.
2.

3.
4.

A. added to assets on the balance sheet.
B. deducted from beginning retained earnings on the retained earnings
statement.
C. added to beginning retained earnings on the retained earnings statement.
D. deducted from ending retained earnings on the retained earnings
statement.

Which statement(s. summarizes the revenues and expenses of an
entity?
1.

A. Balance Sheet only

2.

1.

A. $100.


2.

B. $60.

3.

C. $40.

4.

D. $75.

The income statement:
1.
2.

A. is not dated.
B. may cover a period of time or only one day in time, like a snapshot
photograph.

3.

C. covers a defined period of time.

4.


C. not-for-profit.

4.

D. regulatory body.

Receivables are classified as:
1.

A. increases in earnings.

2.

B. decreases in earnings.

3.

C. liabilities.

4.

D. assets.


A net loss occurs when:
1.

A. not enough cash exists.


1.

A. Statement of Retained Earnings as an addition to beginning retained
earnings.

2.

B. Income Statement as a deduction from sales.

3.

C. Balance Sheet as a deduction from sales.

4.

D. Income Statement as a deduction from gross profit.

Expenses are:
1.

A. increases in liabilities resulting from purchasing assets.

2.

B. increases in assets resulting from operations.

3.

C. increases in retained earnings resulting from operations.



2.

B. total liabilities.

3.

C. total assets.

4.

D. total stockholders’ equity.

The income statement presents a summary of the:
1.

A. cash inflows and outflows of an entity.

2.

B. assets and liabilities of an entity.

3.

C. revenues and expenses of an entity for a specific time period.

4.

D. changes that occurred in the stockholders’ equity of an entity.


C. are distributions to stockholders of assets (usually cash. generated by net
income.

4.

D. are distributions to stockholders of assets (usually cash. generated by a
favorable balance in retained earnings.

109 Free Test Bank for Financial Accounting 8th Edition
by Harrison Multiple Choice Questions-Page 3
The main source of cash from its main business comes from:
1.

A. current assets on the balance sheet.

2.

B. operating activities on the statement of cash flows.

3.

C. financing activities on the statement of cash flows.

4.

D. investing activities on the statement of cash flows.

Retained earnings appears on which of the following financial
statements?
1.


C. In the investing activity section

4.

D. In the financing activity section


Income taxes owed to the federal government would be classified
as a(n.:
1.

A. expense on the Income Statement.

2.

B. financing activity on the Statement of Cash Flows.

3.

C. current asset on the Balance Sheet.

4.

D. current liability on the Balance Sheet.

Accumulated depreciation is normally associated with which asset
on the Balance Sheet?
1.


D. statement of retained earnings.

What is the proper order for the categories of the statement of cash
flows?
1.

A. Financing activities, investing activities, and operating activities

2.

B. Operating activities, investing activities, and financing activities

3.

C. Operating activities, financing activities, and investing activities

4.

D. Investing activities, financing activities, and operating activities

Which of the following is a component of stockholders’ equity?


1.

A. Retained earnings

2.

B. Notes payable


2.

B. accrual activities.

3.

C. financing activities.

4.

D. operating activities.

Assets are generally classified as:
1.

A. producing assets and consumable assets.

2.

B. current assets and producing assets.

3.

C. current assets and long-term assets.

4.

D. long-term assets and consumable assets.



4.

D. long-term liability on the Balance Sheet.

Which of the following questions should be asked in making an
ethical analysis?
1.

A. Which option results in treating others as I would want to be treated?

2.

B. Which options are the most honest, open, and truthful?

3.

4.

C. Which options create the greatest good for the greatest number of
stakeholders?
D. All of the above questions should be considered.

The decision framework for making ethical judgments does NOT
consider the following question?
1.

A. What is the issue?

2.

D. 24 months.

How would the issuance of stock for cash be classified on the
Statement of Cash Flows?
1.

A. As an investing activity

2.

B. As a financing activity

3.

C. As an operating activity

4.

D. As a current asset on the balance sheet

An investor who wished to answer the question, "Can the company
sell its products?" should investigate the:
1.

A. operating activities section of the cash flow statement.

2.

B. current and projected inventory levels.


A. Operating, investing, and financing activities

2.

B. Planning, executing, and evaluating activities

3.

C. Increasing, decreasing, and non-cash activities

4.

D. Developing, producing, and marketing activities


Equipment would appear on the:
1.

A. Balance Sheet with the long-term assets.

2.

B. Income Statement with the revenues.

3.

C. Income Statement with the operating expenses.

4.


C. a net income during the period.

4.

D. both A and C.

Accounts receivable would appear on the:
1.

A. Balance Sheet with the current liabilities.

2.

B. Balance Sheet with the current assets.

3.

C. Income Statement with the revenues.

4.

D. Statement of Retained Earnings with the net income.

An investor who wished to answer the question, "Can the company
pay its current liabilities?" should investigate:
1.

A. the financing activities section of the cash flow statement.

2.