Quiz 6 Midterm
Quiz 6 Midterm
TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
2. Transactions that can be measured in dollars and cents are recorded in the financial information
system.
3. The hiring of a new company president is an economic event recorded by the financial
information system.
5. Accounting communicates financial information about a business enterprise to both internal and
external users.
6. Accounting information is used only by external users with a financial interest in a business
enterprise.
8. Bookkeeping and accounting are one and the same because the bookkeeping function includes
the accounting process.
10. The study of accounting will be useful only if a student is interested in working for a profit-
oriented business firm.
11. Private accountants are accountants who are not employees of business enterprises.
12. The study of accounting is not useful for a business career unless your career objective is to
become an accountant.
14. Expressing an opinion as to the fairness of the information presented in financial statements is a
service performed by CPAs.
16. The primary accounting standard-setting body in the United States is the International
Accounting Standards Board.
17. The Financial Accounting Standards Board is a part of the Securities and Exchange Commission.
18. The Securities and Exchange Commission overseas U.S. financial markets and accounting
standard-setting bodies.
19. The cost and fair market value of an asset are the same at the time of acquisition and in all
subsequent periods.
20. Even though a partnership is not a separate legal entity, for accounting purposes the partnership
affairs should be kept separate from the personal activities of the owners.
22. The economic entity assumption requires that the activities of an entity be kept separate and
distinct from the activities of its owner and all other economic entities.
23. The monetary unit assumption states that transactions that can be measured in terms of money
should be recorded in the accounting records.
24. In order to possess future service potential, an asset must have physical substance.
25. Owners' claims to total business assets take precedence over the claims of creditors because
owners invest assets in the business and are liable for losses.
28. Internal transactions do not affect the basic accounting equation because they are economic
events that occur entirely within one company.
29. The purchase of store equipment for cash reduces the owner's equity by an equal amount.
30. The purchase of office equipment on credit increases total assets and total liabilities.
31. The primary purpose of the statement of cash flows is to provide information about the cash
receipts and cash payments of a company during a period.
32. Net income for the period is determined by subtracting total expenses and drawings from total
revenues.
33. Identifying is the process of keeping a chronological diary of events measured in dollars and
cents.
34. Management consulting includes examining the financial statements of companies and
expressing an opinion as to the fairness of their presentation.
37. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar.
38. The basic accounting equation is in balance when the creditor and ownership claims against the
business equal the assets.
39. External transactions involve economic events between the company and some other enterprise
or party.
40. In the owner's equity statement, revenues are listed first, followed by expenses, and net income
(or net loss).
42. The process of recording transactions has become more efficient because
a. fewer events can be quantified in financial terms.
b. computers are used in processing business events.
c. more people have been hired to record business transactions.
d. business events are recorded only at the end of the year.
43. Communication of economic events is the part of the accounting process that involves
a. identifying economic events. b. quantifying transactions into dollars and cents.
c. preparing accounting reports. d. recording and classifying information.
44. Which of the following events cannot be quantified into dollars and cents and recorded as an
accounting transaction?
a. The appointment of a new CPA firm to perform an audit. b. The purchase of a new computer.
c. The sale of store equipment. d. Payment of income taxes.
48. Which of the following techniques are not used by accountants to interpret and report financial
information?
a. Graphs b. Special memos for each class of external users
c. Charts d. Ratios
49. Which of the following would not be considered an internal user of accounting data for the XYZ
Company?
a. President of the company b. Production manager
c. Merchandise inventory clerk d. President of the employees' labor union
50. Which of the following would not be considered an external user of accounting data for the XYZ
Company?
a. Internal Revenue Service Agent b. Management
c. Creditors d. Customers
51. Which of the following would not be considered internal users of accounting data for a
company?
a. The president of a company b. The controller of a company
c. Creditors of a company d. Salesmen of the company
53. Which one of the following is not an external user of accounting information?
a. Regulatory agencies b. Customers
c. Investors d. All of these are external users
54. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the
accounting process?
a. Identification b. Communication
c. Recording d. Analysis
55. All of the following are services offered by public accountants except
a. budgeting. b. auditing.
c. tax planning. d. consulting.
56. Which list below best describes the major services performed by public accountants?
a. Bookkeeping, mergers, budgets b. Employee training, auditing, bookkeeping
c. Auditing, taxation, management consulting d. Cost accounting, production scheduling, recruiting
60. Financial accounting provides economic and financial information for all of the following
except
a. creditors. b. investors.
c. managers. d. other external users.
63. Ethics are the standards of conduct by which one's actions are judged as
a. right or wrong. b. honest or dishonest.
c. fair or unfair. d. all of these.
65. The cost principle requires that when assets are acquired, they be recorded at
a. appraisal value. b. exchange price paid.
c. selling price. d. list price.
66. The cost of an asset and its fair market value are
a. never the same.
b. the same when the asset is sold.
c. irrelevant when the asset is used by the business in its operations.
d. the same on the date of acquisition.
69. The SEC and FASB are two organizations that are primarily responsible for establishing generally
accepted accounting principles. It is true that
a. they are both governmental agencies.
b. the SEC is a private organization of accountants.
c. the SEC often mandates guidelines when no accounting principles exist.
d. the SEC and FASB rarely cooperate in developing accounting standards.
72. The ACE Company has five plants nationwide that cost $100 million. The current market value
of the plants is $500 million. The plants will be recorded and reported as assets at
a. $100 million. b. $600 million.
c. $400 million. d. $500 million.
73. All of the following are advantages cost has over other valuations except that it
a. is reliable. b. can be objectively measured.
c. can be verified. d. is relevant.
78. Which of the following is not an advantage of the corporate form of business organization?
a. Limited liability of stockholders b. Transferability of ownership
c. Unlimited personal liability for stockholders d. Unlimited life
79. A small neighborhood barber shop that is operated by its owner would likely be organized as a
a. joint venture. b. partnership.
c. corporation. d. proprietorship.
80. Joan and Sara met at law school and decide to start a small law practice after graduation. They
agree to split revenues and expenses evenly. The most common form of business organization
for a business such as this would be a
a. joint venture. b. partnership.
c. corporation. d. proprietorship.
81. Which of the following is true regarding the corporate form of business organization?
a. Corporations are the most prevalent form of business organization.
b. Corporate businesses are generally smaller in size than partnerships and proprietor-ships.
c. The revenues of corporations are greater than the combined revenues of partnerships and
proprietorships.
d. Corporations are separate legal entities organized exclusively under federal law.
82. A basic assumption of accounting that requires activities of an entity be kept separate from the
activities of its owner is referred to as the
a. stand alone concept. b. monetary unit assumption.
c. corporate form of ownership. d. economic entity assumption.
83. Deb Smith is the proprietor (owner) of Smitty's, a retailer of athletic apparel. When recording
the financial transactions of Smitty's, Deb does not record an entry for a car she purchased for
personal use. Deb took out a personal loan to pay for the car. What accounting concept guides
Deb's behavior in this situation?
a. Pay back concept b. Economic entity assumption
c. Cash basis concept d. Monetary unit assumption
85. The assumption that the unit of measure remains sufficiently constant over time is part of the
a. economic entity assumption. b. cost principle.
c. historical cost principle. d. monetary unit assumption.
86. A business that enjoys limited liability is a
a. proprietorship. b. partnership.
c. corporation. d. sole proprietorship.
91. Liabilities
a. are future economic benefits. b. are existing debts and obligations.
c. possess service potential. d. are things of value used by the business in its operation.
96. When an owner withdraws cash or other assets from a business for personal use, these
withdrawals are termed
a. depletions. b. consumptions.
c. drawings. d. a credit line.
97. Capital is
a. an owner's permanent investment in the business. b. equal to liabilities minus owner's equity.
c. equal to assets minus owner's equity. d. equal to liabilities plus drawings.