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Needles/Powers, Financial Accounting, Ninth Edition

CHAPTER 1

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Question 1

A management information system deals not only with

accounting, but with other activities of a business as well.

1. T

2. F

Question 1

A management information system deals not only with

accounting, but with other activities of a business as well.

1. T *Correct Answer

2. F

Question 2

Responsibility for ethical financial reporting rests solely

with the accountant.

1. T

2. F

Question 2

Responsibility for ethical financial reporting rests solely

with the accountant.

1. T

2. F *Correct Answer

Question 3

The intentional preparation of fraudulent financial

statements can result from all of the following except

1. fictitious sales or order.

2. the manipulation of inventory records.

3. recording an expense that has been incurred but not

yet paid.

4. the misapplication of accounting principles.

Question 3

The intentional preparation of fraudulent financial

statements can result from all of the following except

1. fictitious sales or order.

2. the manipulation of inventory records.

3. recording an expense that has been incurred but not

yet paid. *Correct Answer

4. the misapplication of accounting principles.

Question 4

The Sarbanes-Oxley Act orders the FASB to hold chief

executives and CFO’s responsible for the accuracy of

their company’s financial statements.

1. T

2. F

Question 4

The Sarbanes-Oxley Act orders the FASB to hold chief

executives and CFO’s responsible for the accuracy of

their company’s financial statements.

1. T

2. F *Correct Answer

Question 5

Earned income is a measure of profitability.

1. T

2. F

Question 5

Earned income is a measure of profitability.

1. T *Correct Answer

2. F

Question 6

The purchase of land is an example of a(n)

1. investing activity.

2. operating activity.

3. capital activity

4. financing activity

Question 6

The purchase of land is an example of a(n)

1. investing activity. *Correct Answer

2. operating activity.

3. capital activity

4. financing activity

Question 7

Cash flow is a measure of profitability.

1. T

2. F

Question 7

Cash flow is a measure of profitability.

1. T

2. F *Correct Answer

Hint: Cash flow is a measure of liquidity.

Question 8

Violation of the Sarbanes-Oxley Act can result in

criminal penalties.

1. T

2. F

Question 8

Violation of the Sarbanes-Oxley Act can result in

criminal penalties.

1. T *Correct Answer

2. F

Question 9

Which of the following groups uses accounting

information for planning a company’s profitability

and liquidity?

1. Management

2. Investors

3. Creditors

4. Economic Planners

Question 9

Which of the following groups uses accounting

information for planning a company’s profitability

and liquidity?

1. Management *Correct Answer

2. Investors

3. Creditors

4. Economic Planners

Question 10

Which of the following groups uses accounting

information primarily to help protect the public?

1. Management

2. Regulatory Agencies

3. Taxing Authorities

4. Economic Planners

Question 10

Which of the following groups uses accounting

information primarily to help protect the public?

1. Management

2. Regulatory Agencies *Correct Answer

3. Taxing Authorities

4. Economic Planners

Question 11

Economic planners are accounting information users

with a direct financial interest.

1. T

2. F

Question 11

Economic planners are accounting information users

with a direct financial interest.

1. T

2. F *Correct Answer

Hint: Economic planners have an indirect financial

interest in accounting information.

Question 12

All of the following are considered basic management

functions except

1. Producing goods and services

2. Financing the business

3. Managing employees

4. Electing the board of directors

Question 12

All of the following are considered basic management

functions except

1. Producing goods and services

2. Financing the business

3. Managing employees

4. Electing the board of directors *Correct Answer

Question 13

Which of the following transactions does not involve an

exchange of value?

1. Payment of a debt

2. Purchase of a building on credit

3. Borrowing money

4. Loss from theft

Question 13

Which of the following transactions does not involve an

exchange of value?

1. Payment of a debt

2. Purchase of a building on credit

3. Borrowing money

4. Loss from theft *Correct Answer

Question 14

Which of the following is an example of an exchange of

value?

1. Collection from a customer

2. Loss from fire

3. Accumulation of interest

4. Loss from theft

Question 14

Which of the following is an example of an exchange of

value?

1. Collection from a customer * Correct Answer

2. Loss from fire

3. Accumulation of interest

4. Loss from theft

Question 15

The number of outstanding shares of stock cannot

exceed the number of authorized shares.

1. True

2. False

Question 15

The number of outstanding shares of stock cannot

exceed the number of authorized shares.

1. True *Correct Answer

2. False

Question 16For legal purposes, which of the following forms of

business organization is (are) treated as a separate

economic unit from its owner(s)?

1. Sole proprietorship

2. Corporation

3. Partnership

4. All of the above

Question 16For legal purposes, which of the following forms of

business organization is (are) treated as a separate

economic unit from its owner(s)?

1. Sole proprietorship

2. Corporation *Correct Answer

3. Partnership

4. All of the above

Question 17

Corporations represent the largest number of businesses

in the United States.

1. True

2. False

Question 17

Corporations represent the largest number of businesses

in the United States.

1. True

2. False *Correct Answer

Question 18

Which of the following is considered by accountants to

be a separate entity from its owner(s)?

1. Partnership only

2. Sole Proprietorship only

3. Corporation only

4. Sole proprietorship, partnership, and corporation

Question 18

Which of the following is considered by accountants to

be a separate entity from its owner(s)?

1. Partnership only

2. Sole Proprietorship only

3. Corporation only

4. Sole proprietorship, partnership, and corporation

*Correct Answer

Question 19

Dividends of a corporation are declared by its

1. board of directors.

2. officers.

3. stockholders.

4. creditors.

Question 19

Dividends of a corporation are declared by its

1. board of directors. *Correct Answer

2. officers.

3. stockholders.

4. creditors.

Question 20

Which of the following is not a satisfactory statement of the

accounting equation?

1. Assets = Liabilities + Stockholders’ Equity

2. Assets - Stockholders’ Equity = Liabilities

3. Assets = Liabilities - Stockholders’ Equity

4. Assets - Liabilities = Stockholders’ Equity

Question 20

Which of the following is not a satisfactory statement of the

accounting equation?

1. Assets = Liabilities + Stockholders’ Equity

2. Assets - Stockholders’ Equity = Liabilities

3. Assets = Liabilities - Stockholders’ Equity * Correct

Answer

4. Assets - Liabilities = Stockholders’ Equity

Question 21If a company has liabilities of $20,000 and

stockholders’ equity of $37,000, its assets are

1. $38,000

2. $76,000

3. $57,000

4. $19,000

Question 21If a company has liabilities of $20,000 and

stockholders’ equity of $37,000, its assets are

1. $38,000

2. $76,000

3. $57,000 *Correct Answer

4. $19,000

Question 22The best definition of assets is the

1. cash owned by the company.

2. resources belonging to a company having future

benefit to the company.

3. collection of resources belonging to the

company and the claims on these resources.

4. owners’ investment in the business.

Question 22The best definition of assets is the

1. cash owned by the company.

2. resources belonging to a company having future

benefit to the company. *Correct Answer

3. collection of resources belonging to the

company and the claims on these resources.

4. owners’ investment in the business.

Question 23

Revenues and dividends appear, respectively, on the

1. balance sheet and income statement.

2. income statement and balance sheet.

3. statement of retained earnings and balance sheet.

4. income statement and statement of retained

earnings.

Question 23

Revenues and dividends appear, respectively, on the

1. balance sheet and income statement.

2. income statement and balance sheet.

3. statement of retained earnings and balance sheet.

4. income statement and statement of retained

earnings. *Correct Answer

Question 24Generally accepted accounting principles

1. define accounting practice at a point in time.

2. are similar in nature to the principles of chemistry or

physics.

3. rarely change.

4. are not affected by changes in the ways businesses

operate.

Question 24Generally accepted accounting principles

1. define accounting practice at a point in time. *Correct

Answer

2. are similar in nature to the principles of chemistry or

physics.

3. rarely change.

4. are not affected by changes in the ways businesses operate.

Question 25

Companies whose securities are sold to the general

public must adhere to standards established by the

Securities and Exchange Commission.

1. T

2. F

Question 25

Companies whose securities are sold to the general

public must adhere to standards established by the

Securities and Exchange Commission.

1. T *Correct Answer

2. F