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.

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.

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".

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.

8. Which of the following would not be included on a balance sheet?

a. Accounts receivable.
b. Accounts payable.
c. Sales.
d. Cash.

9. Remington provided the following information about its balance sheet:

Cash $ 100
Accounts receivable 500
Stockholders' equity 700
Accounts payable 200
Bank loans 1,000

Based on the information provided, how much are Remington's liabilities?

a. $200.
b. $900.
c. $1,200.
d. $1,700.

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.

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

Financial statements are prepared:

1 INCORRECT
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.

Information is cost effective when:

3 INCORRECT
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.

Although accounting information is used by a wide variety of

4 CORRECT 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.

A complete set of financial statements for Hartman Company,

5 CORRECT 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.

All of the following are characteristics of managerial

6 INCORRECT 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.

In comparison with a financial statement prepared in

7 INCORRECT 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.