Multiple Choice Questions

MULTIPLE CHOICE QUESTIONS Select the appropriate response: 1. The accounting profession can be divided into three major categories; specifically, the practice of public accounting, private accounting, and governmental accounting. A somewhat unique and important service of public accountants is: a. Financial accounting. b. Managerial accounting. c. Auditing. d. Cost accounting. C 2. The primary private sector agency that oversees external financial reporting standards is the: a. Financial Accounting Standards Board. b. Federal Bureau of Investigation. c. General Accounting Office. d. Internal Revenue Service. A 3. Which of the following equations properly represents a derivation of the fundamental accounting equation? a. Assets + liabilities = owner's equity. b. Assets = owner's equity. c. Cash = assets. d. Assets - liabilities = owner's equity. D! 4. Wilson Company owns land which cost $100,000. If a "quick sale" of the land was necessary to generate cash, the company feels it would receive only $80,000. The company continues to report the asset on the balance sheet at $100,000. This is justified under which of the following concepts? a. The historical-cost principle. b. The objectivity principle. c. Neither of the above. d. Both "a" and "b". D 5. Retained earnings will change over time because of several factors. Which of the following factors would explain an increase in retained earnings? a. Net loss. b. Net income. c. Dividends. d. Investments by stockholders.

B 6. Which of these items would be accounted for as an expense? a. Repayment of a bank loan. b. Dividends to stockholders. c. The purchase of land. d. Payment of the current period's rent. D! 7. Which of the following transactions would have no impact on stockholders' equity? a. Purchase of land from the proceeds of a bank loan. b. Dividends to stockholders. c. Net loss. d. Investments of cash by stockholders. A 8. Which of the following would not be included on a balance sheet? a. Accounts receivable. b. Accounts payable. c. Sales. d. Cash. C 9. Remington provided the following information about its balance sheet: Cash Accounts receivable Stockholders' equity Accounts payable Bank loans

$ 100 500 700 200 1,000

Based on the information provided, how much are Remington's liabilities? a. $200. b. $900. c. $1,200. d. $1,700. C 10. Gerald had beginning total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Gerald's net income was $180,000. No additional investments were made; however, dividends did occur during the year. How much were the dividends?

a. $20,000. b. $60,000. c. $140,000. d. $220,000. B ---------------------------------------------------------------------------------------------------------------------------------

Your Results: The correct answer for each question is indicated by a

1 INCORRECT

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Financial statements are prepared: A)Only for publicly owned business organizations. B)For corporations, but not for sole proprietorships or partnerships. C)Primarily for the benefit of persons outside of the business organization. D)In either monetary or nonmonetary terms, depending upon the need of the decision maker. Feedback: Incorrect, c is the correct answer.

2 CORRECT

The basic purpose of an accounting system is to: A)Develop financial statements in conformity with generally accepted accounting principles. B)Provide as much useful information to decision makers as possible, regardless of cost. C)Record changes in the financial position of an organization by applying the concepts of double-entry accounting. D)Meet an organization's need for accounting information as efficiently as possible. Feedback: Correct.

3 INCORRECT

Information is cost effective when: A)The information aids management in controlling costs. B)The information is based upon historical costs, rather than upon estimated market values. C)The value of the information exceeds the cost of producing it. D)The information is generated by a computer-based accounting system.

Feedback: Incorrect, c is the correct answer.

4

CORRECT

Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of: A)Investors and creditors.. B)Government agencies such as the Internal Revenue Service. C)Customers . D)Trade associations and labor unions. Feedback: Correct.

5 CORRECT

A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, except: A)Balance sheet as of December 31, 1999. B)Income statement for the year ended December 31, 1999. C)Statement of projected cash flows for 2000. D)Notes containing additional information that is useful in interpreting the financial statements. Feedback: Correct.

6 INCORRECT

All of the following are characteristics of managerial accounting, except: A)Reports are used primarily by insiders rather than by persons outside of the business entity. B)Its purpose is to assist managers in planning and controlling business operations. C)Information must be developed in conformity with generally accepted accounting principles or with income tax regulations. D)Information may be tailored to assist in specific managerial decisions. Feedback: Incorrect, c is the correct answer.

7 INCORRECT

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to: A)Be used by decision makers outside of the business organization. B)Focus upon the operation results of the most recently completed accounting period.

C)View the entire organization as the reporting entity. D)Be tailored to the specific needs of an individual decision maker. Feedback: Incorrect, d is the correct answer.