Problem 1. A business organized as a corporation
A) is not a separate legal entity in most states.
B) requires that stockholders be personally liable for the debts of the business.
C) is owned by its stockholders.
D) has tax advantages over a proprietorship or partnership.
Problem 2. A business organized as a separate legal entity is a
A) corporation.
B) proprietor.
C) government unit.
D) partnership.
Problem 3. The right to receive money in the future is called a(n)
A) account payable.
B) account receivable.
C) liability.
D) revenue.
Problem 4. Which of the following is not a principal type of business activity?
A) Operating
B) Investing
C) Financing
D) Delivering
Problem 5. The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)
A) account payable.
B) account receivable.
C) revenue.
D) expense.
Problem 6. The cost of assets consumed or services used is also known as
A) a revenue.
B) an expense.
C) a liability.
D) an asset.
7. The convention of consistency refers to consistent use of accounting principles
A) among firms.
B) among accounting periods.
C) throughout the accounting periods.
D) within industries.
Problem 8. In order for accounting information to be relevant, it must
A) have very little cost.
B) help predict future events or confirm prior expectations.
C) not be reported to the public.
D) be used by a lot of different firms.
Problem 9. Accounting information should be verifiable in order to enhance
A) comparability.
B) reliability.
C) consistency.
D) relevance.
Problem 10. A company can change to a new method of accounting if management can justify that the new method results in
A) more meaningful financial information.
B) a higher net income.
C) a lower net income for tax purposes.
D) less likelihood of clerical errors.
Problem 11. The practice of large corporations reporting all financial statement amounts to the nearest thousand dollars is an example of the application of
A) consistency.
B) conservatism.
C) full disclosure.
D) materiality.
Problem 12. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
A) Monetary unit assumption
B) Economic entity assumption
C) Time period assumption
D) Going concern assumption
Problem 13. The revenue recognition principle dictates that revenue should be recognized in the accounting records
A) when cash is received.
B) when it is earned.
C) at the end of the month.
D) in the period that income taxes are paid.
Problem 14. The matching principle matches
A) customers with businesses.
B) expenses with revenues.
C) assets with liabilities.
D) creditors with businesses.
Problem 15. A company spends $20 million dollars for an office building. Over what period should the cost be written off?
A) When the $20 million is expended in cash
B) All in the first year
C) Over the useful life of the building
D) After $20 million in revenue is earned
Problem 16. A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned?
A) 05-Dec
B) 10-Dec
C) 30-Nov
D) 01-Dec
Problem 17. The primary difference between prepaid and accrued expenses is that prepaid expenses have
A) been incurred and accrued expenses have not.
B) not been paid and accrued expenses have.
C) been recorded and accrued expenses have not.
D) not been recorded and accrued expenses have.
Problem 18. The primary difference between accrued revenues and unearned revenues is that accrued revenues have
A) not been earned and accrued revenues have been.
B) been paid and unearned revenues have not.
C) been recorded and unearned revenues have not.
D) not been recorded and unearned revenues have.
Problem 19. An income statement would not include
A) other revenue and gains.
B) extraordinary items.
C) discontinued operations.
D) dividends paid.
Problem 20. If an item meets one (but not both) of the criteria for an extraordinary item, it
A) only needs to be disclosed in the footnotes of the financial statements.
B) may be treated as sales revenue (if it is a gain) and as an operating expense (if it is a loss).
C) is reported as an "other revenue or gain" or "other expense and loss," net of tax.
D) is reported at its gross amount as an "other revenue or gain" or "other expense or loss."
Problem 21. The disposal of a significant segment of a business is called
A) a change in accounting principle.
B) an extraordinary item.
C) an other expense.
D) discontinued operations.
Problem 22. In horizontal analysis, each item is expressed as a percentage of the
A) net income amount.
B) stockholders' equity amount.
C) total assets amount.
D) base-year amount.
Problem 23. Vertical analysis is a technique that expresses each item in a financial statement
A) in dollars and cents.
B) as a percent of the item in the previous year.
C) as a percent of a base amount.
D) starting with the highest value down to the lowest value.
Problem 24. Short-term creditors are usually most interested in assessing
A) solvency.
B) liquidity.
C) marketability.
D) profitability.
Problem 25. Long-term creditors are usually most interested in evaluating
A) liquidity.
B) marketability.
C) profitability.
D) solvency.
Problem 26. Stockholders are most interested in evaluating
A) liquidity.
B) solvency.
C) profitability.
D) marketability.
Problem 27. A very small company would have the most difficulty in implementing which of the following internal control activities?
A) Separation of duties
B) Limited access to assets
C) Periodic independent verification
D) Sound personnel procedures
Problem 28. The reconciliation of the cash register tape with the cash in the register is an example of
A) other controls.
B) independent internal verification.
C) establishment of responsibility.
D) segregation of duties.
Problem 29. Allowing only the treasurer to sign checks is an example of
A) documentation procedures.
B) separation of duties.
C) other controls.
D) establishment of responsibility.
Problem 30. If employees are bonded
A) it means that they are not allowed to handle cash.
B) they have worked for the company for at least 10 years.
C) they have been insured against misappropriation of assets.
D) it is impossible for them to steal from the company.