Question 1

Which of the following will be categorized as an investing activity on the statement of cash flows?

Accepted Answer

A) depreciation expense on production equipment for the year 
B) cash paid for purchase of new machinery 
C) cash paid for purchase of raw materials 
D) cash received from issue of shares 
A) depreciation expense on production equipment for the year 
B) cash paid for purchase of new machinery 
C) cash paid for purchase of raw materials 
D) cash received from issue of shares

Question 2

The return on assets is calculated by:

Accepted Answer

A) subtracting net income from average total assets. 
B) adding net income and average total assets. 
C) dividing net income by average total assets. 
D) multiplying net income and average total assets. 
A) subtracting net income from average total assets. 
B) adding net income and average total assets. 
C) dividing net income by average total assets. 
D) multiplying net income and average total assets.

Question 3

As per the economic entity assumption, an organization and its owner should be seen as the same entity.

Accepted Answer

A) True 
 B)False

Question 4

Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities.

Accepted Answer

A) True 
 B)False

Question 5

The balance of owner's capital at the beginning of the year and the end of the year was $50,000 and $67,000, respectively. No additional capital was introduced during the year. Withdrawals were $23,000. What was the net income or loss for the year?

Accepted Answer

A) Net income of $90,000 
B) Net loss of $90,000 
C) Net loss of $40,000 
D) Net income of $40,000 
A) Net income of $90,000 
B) Net loss of $90,000 
C) Net loss of $40,000 
D) Net income of $40,000

Question 6

The income statement shows whether or not a business can generate enough cash to pay its liabilities.

Accepted Answer

A) True 
 B)False

Question 7

From a legal perspective, a sole proprietorship:

Accepted Answer

A) is an entity separate from its proprietor. 
B) must have at least two owners. 
C) is not a distinct entity from its proprietor. 
D) is subject to strict regulation of the SEC. 
A) is an entity separate from its proprietor. 
B) must have at least two owners. 
C) is not a distinct entity from its proprietor. 
D) is subject to strict regulation of the SEC.

Question 8

The equity of Autumn Company is $150,000 and the total liabilities are $90,000. Its total assets would be:

Accepted Answer

A) $300,000. 
B) $180,000. 
C) $60,000. 
D) $240,000. 
A) $300,000. 
B) $180,000. 
C) $60,000. 
D) $240,000.

Question 9

Owner's withdrawals are the expenses of a business.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements would be most useful if an analyst wants to know the profitability of a company?

Accepted Answer

A) income statement 
B) balance sheet 
C) statement of owner's equity 
D) statement of cash flows 
A) income statement 
B) balance sheet 
C) statement of owner's equity 
D) statement of cash flows

Question 11

Outside investors would ordinarily use managerial accounting information to decide whether or not to invest in a business.

Accepted Answer

A) True 
 B)False

Question 12

Corporate ownership is a very popular type of ownership in the United States. Which of the following is a major reason that corporate ownership is popular?

Accepted Answer

A) Stockholders have limited liability for the debts of the corporation. 
B) Most corporations are small or medium-sized. 
C) The life of a corporation is limited by the death of the owner. 
D) A corporation is usually managed by the owners. 
A) Stockholders have limited liability for the debts of the corporation. 
B) Most corporations are small or medium-sized. 
C) The life of a corporation is limited by the death of the owner. 
D) A corporation is usually managed by the owners.

Question 13

Which of the following financial statements reports expenses in decreasing order of their amounts, by stating the largest expense first?

Accepted Answer

A) statement of cash flows 
B) income statement 
C) statement of owner's equity 
D) balance sheet 
A) statement of cash flows 
B) income statement 
C) statement of owner's equity 
D) balance sheet

Question 14

The balance sheet of a business summarizes an entity's revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 15

Lorna Smith decided to start her own CPA practice as a professional corporation, Smith CPA PC. Her corporation purchased an office building for $35,000 that her real estate agent said was worth $50,000 in the current market. The corporation records the building as a $50,000 asset because Lorna believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?

Accepted Answer

A) cost principle 
B) economic entity assumption 
C) monetary unit assumption 
D) going concern assumption 
A) cost principle 
B) economic entity assumption 
C) monetary unit assumption 
D) going concern assumption

Question 16

In a sole proprietorship, the owner is personally liable for the debts of the business.

Accepted Answer

A) True 
 B)False

Question 17

Managerial accounting provides information to:

Accepted Answer

A) internal decision makers. 
B) outside investors and lenders. 
C) auditors. 
D) taxing authorities. 
A) internal decision makers. 
B) outside investors and lenders. 
C) auditors. 
D) taxing authorities.

Question 18

The income statement presents a summary of an entity's revenues and expenses for a period of time. Which of the following statements is true of an income statement?

Accepted Answer

A) There is net income when total revenues are lesser than total expenses. 
B) There is a net loss when total expenses are lesser than total revenue. 
C) There is a net loss when total expenses are greater than total liabilities. 
D) There is net income when total revenues are greater than total expenses. 
A) There is net income when total revenues are lesser than total expenses. 
B) There is a net loss when total expenses are lesser than total revenue. 
C) There is a net loss when total expenses are greater than total liabilities. 
D) There is net income when total revenues are greater than total expenses.

Question 19

Which of the following financial statements reports that total assets are equal to total liabilities plus total owner's equity?

Accepted Answer

A) statement of owner's equity 
B) statement of cash flows 
C) income statement 
D) balance sheet 
A) statement of owner's equity 
B) statement of cash flows 
C) income statement 
D) balance sheet

Question 20

A publicly traded company in the United States does not come under SEC regulations as long as it follows the rules of GAAP.

Accepted Answer

A) True 
 B)False

Exam 1: Accounting and the Business Environment

Which of the following will be categorized as an investing activity on the statement of cash flows?

The return on assets is calculated by:

As per the economic entity assumption, an organization and its owner should be seen as the same entity.

Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities.

The balance of owner's capital at the beginning of the year and the end of the year was $50,000 and $67,000, respectively. No additional capital was introduced during the year. Withdrawals were $23,000. What was the net income or loss for the year?

The income statement shows whether or not a business can generate enough cash to pay its liabilities.

From a legal perspective, a sole proprietorship:

The equity of Autumn Company is $150,000 and the total liabilities are $90,000. Its total assets would be:

Owner's withdrawals are the expenses of a business.

Which of the following statements would be most useful if an analyst wants to know the profitability of a company?

Outside investors would ordinarily use managerial accounting information to decide whether or not to invest in a business.

Corporate ownership is a very popular type of ownership in the United States. Which of the following is a major reason that corporate ownership is popular?

Which of the following financial statements reports expenses in decreasing order of their amounts, by stating the largest expense first?

The balance sheet of a business summarizes an entity's revenues and expenses.

In a sole proprietorship, the owner is personally liable for the debts of the business.

Managerial accounting provides information to:

The income statement presents a summary of an entity's revenues and expenses for a period of time. Which of the following statements is true of an income statement?

Which of the following financial statements reports that total assets are equal to total liabilities plus total owner's equity?

A publicly traded company in the United States does not come under SEC regulations as long as it follows the rules of GAAP.

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

Filters