Multiple-Choice Questions

For each of the following questions, indicate the single best answer by circling the appropriate letter.

1. Which of the following activities is not a part of the accounting function?

a. Measurement of economic activity in monetary terms

b. Classification of recorded events into meaningful groups

c. Creation of economic activity for recognition by the business

d. Interpretation of financial statements and reports

2. Accounting is concerned with each of the following activities except:

a. Cost studies of managerial effectiveness.

b. long-range financial planning.

c. design of management information systems.

d. executive recruitment.

3. Which of the following is generally performed only by certified public accountants?

a. Preparing budgets and financial forecasts of future results of operations

b. Rendering an opinion on the fairness of published financial information

c. Preparing income tax returns for SEC-regulated corporations

d. Providing management advisory consulting services about the installation of a computer system

4. Implementing a decision causes:

a. a change in the preferred outcome of the decision.

b. new events and problems to occur.

c. a decision maker to justify his decision.

d. the correction of the perceived alternatives.

5. Managerial accounting information:

a. is historical in nature.

b. must be prepared using generally accepted accounting principles.

c. describes the results of operations or profitability of a firm.

d. is not required and should only be prepared when it is useful.

6. Which of the following organizations has had the least influence on the development of

generally accepted accounting principles?

a. The American Institute of CPAs

b. The Securities and Exchange Commission

c. The Internal Revenue Service

d. The Financial Accounting Standards Board

7. Which of the following would not generally be included in a partnership agreement?

a. Initial investment of each partner

b. Method of dividing income and losses

c. Settlement procedures upon death or withdrawal of a partner

d. Amount of dividends to be granted to each partner each year

8. The corporate form of business is generally used when:

a. small amounts of money are needed to start the business organization.

b. the owners wish to manage and control the organization.

c. the owners wish to limit their personal liability for debts of the organization.

d. ownership is to be restricted to a very limited group of individuals.

9. The financial statement that presents the assets and equities of a business at a particular

moment in time is the:

a. statement of changes in financial position.

b. statement of retained earnings.

c. balance sheet.

d. income statement.

10. Resources of a firm are referred to as:

a. liabilities.

b. entities.

c. assets.

d. revenues.

11. If a company has stockholders' equity of $20,000:

a. a total of $20,000 was invested by stockholders.

b. revenues less expenses equals $20,000

c. the business has total assets of $20,000

d. total business assets less total liabilities equals $20,000

12. Company K has assets of $30,000 and liabilities of $5,000. The company buys delivery equipment on credit for $4,000. What immediate effect would this transaction have on the balance sheet?

a. Assets increase $4,000 and expenses increase $4,000.

b. Assets increase $4,000 and liabilities increase $4,000.

c. Expenses increase $4,000 and liabilities increase $4,000.

d. Expenses increase $4,000 and stockholders' equity increases $4,000.

13. Revenue is:

a. the inflow of assets from products or services provided to customers.

b. the difference between the selling price of a product or service and the cost of pro- viding such product or service.

c. the same as net income.

d. a decrease in stockholders' equity.

14. Little Corporation collected $500 of its $2,000 of accounts receivable. How is the balance
sheet affected?

a. Assets increase by $500 and stockholders' equity increases by $500.

b. Accounts receivable is decreased by $500 and liabilities are increased by $500.

c. Total assets are increased, but liabilities and stockholders' equity remain the same.

d. There is no change in total assets, liabilities, or stockholders' equity.

15. Which of the following statements is incorrect?

a. An income statement shows how much net income or net loss was generated for a
period of time.

b. An income statement summarizes revenue and expense transactions for a period of
operations between two balance sheet dates.

c. The income statement shows the changes in assets and liabilities that occurred
during the period of operations covered by the statement.

d. The income statement heading should disclose the name of the company and the
period of time that the statement covers.

16. Which of the following is usually not recorded by the accountant?

a. The purchase of a machine by giving a note payable for its full selling price

b. The collection of an account receivable

c. The issuance of a purchase order by a business for supplies

d. The payment of $2,000 of rent for the following year

17. Most assets are reported in the balance sheet at:

a. what it would cost to replace the asset.

b. the amount that the asset is worth to the managers of the business.

c. the historical cost incurred to acquire the asset.

d. the amount that would be received upon the sale of the asset.

18. Which of the following is an appropriate format for the balance sheet equation?

a. Assets + Liabilities = Stockholders' Equity

b. Assets + Liabilities = Revenues - Expenses

c. Assets + Liabilities = Liabilities + Expenses

d. Assets - Liabilities = Stockholders' Equity

19. Which of the following would increase assets and liabilities?

a. Received payment from a customer for services rendered

b. Borrowed money to purchase a piece of equipment

c. Received cash as additional investment by stockholders

d. Received a utility bill for the month but have not paid it

20. A payment to the owners of a business as a return on the investment they provided is
called a(n):

a. expense.

b. revenue.

c. account receivable.

d. dividend.

21. If total assets of Q Corporation are $100,000, total liabilities are $34,000, and capital stock is $40,000,
how much are the retained earnings of Q Corporation?

a. $26,000

b. $94,000

c. $106,000

d. Cannot be determined from the above information

22. The _________________ assumption means that a business is deemed to have an exist- ence separate and distinct from its owners.

a. equity

b. going concern

c. cost

d. entity

23. The payment of an account payable:

a. increases an expense and decreases a liability.

b. increases a liability and decreases an asset.

c. decreases an asset and increases a liability.

d. decreases an asset and decreases a liability.

24. If a service is provided, but cash is not received, a business would:

a. increase an asset and increase a revenue.

b. increase an asset and increase a liability.

c. decrease a liability and increase capital stock.

d. increase an asset and increase an expense.

25. An increase in an expense:

a. increases an asset.

b. increases stockholders' equity.

c. decreases a liability.

d. decreases retained earnings.

26. Palmer Company has assets of $50,000, liabilities of $24,000, and capital stock of $8,000

at the end of a month. During the month, Palmer had $30,000 of revenues, $10,000 of

expenses, and paid dividends of $6,000. Net income for the month was:

a. $14,000

b. $18,000

c. $20,000

d. $26,000

27. Using the above information for Palmer Company, retained earnings at the end of the

month would be:

a. $12,000

b. $18,000

c. $26,000

d. $32,000

28. Connie Corporation showed the following information at the beginning of June 1993:

Assets............................ $16,000

Liabilities....................... 2,000

Capital Stock.................. 3,000

During the month of June, Connie Corporation generated $10,000 of revenues, incurred

$4,000 of expenses, and paid dividends of $1,000. Retained earnings at the end of June

would be:

a. $5,000.

b. $6,000.

c. $16,000.

d. $17,000.

Copyright 1998
Steven L. Jager, CPA, An Accountancy Corporation