Chapter 1 Self Test

Question 0

Which of the following statements about users of accounting information is incorrect?

1. Management is an internal user
2. Taxing authorities are external users
3. Present creditors are external users
4. Regulatory authorities are internal users

Answer 0

Regulatory authorities are internal users

Question 1

Which of the following is not a step in the accounting process?

1. Identification
2. Verification
3. Recording
4. Communication

Answer 1

Verification

Question 2

The cost principle states that:

1. Assets should be initially recorded at cost and adjusted when the fair value changes
2. activities of an entity are to be kept separate and distinct from its owners
3. assets should be recorded at their cost
4. only transaction data capable of being expressed in terms of money be included in the accounting recoreds

Answer 2

assets should be recorded at their cost

Question 3

Which of the following statements about basic assumptions is correct?

1. Basic assumptions are the same as accounting principles
2. The economic entity assumption states that there should be a particular unit of accountability
3. the monetary unit assumption enables accounting to measure employee morale
4. partnerships are not economic entities

Answer 3

economic entity assumption states that there should be a particular unit of accountability

Question 4

three types of business entities are

1. proprietorship, small businesses, and partnerships
2. proprietorships, partnerships, and corporations
3. proprietorships, partnerships, and large businesses
4. financial, manufacturing and service companies

Answer 4

proprietorships, partnerships, and corporations

Question 5

net income will result during a time period when

1. assets exceeds liabilities
2. assets exceed revenues
3. expenses exceed revenues
4. revenues exceed expenses

Answer 5

revenues exceed expenses

Question 6

performing services on account will have the following effects on the components of the basic accounting equation

1. increase assets and decrease owner’s equity
2. increase assets and increase owner’s equity
3. increase assets and increase liabilities
4. increase liabilities and increase owner’s equity

Answer 6

increase assets and increase owner’s equity

Question 7

Which of the following events is not recorded in the accounting records

1. equipment is purchased on account
2. an employee is terminated
3. a cash investment is made into the business
4. the owner withdraws cash for personal use

Answer 7

an employee is terminated

Question 8

During 2012, Gibson Company’s assets decreased $50k and its liabilities decreased $90k. its owner’s equity therefore

1. increased $40k
2. decreased $140k
3. decreased $40k
4. increased $140k

Answer 8

increased $40k

Question 9

payment of an account payable affects the components of the accounting equation in the following way

1. decreases owner’s equity and decreases liabilities
2. Increases assets and decreases liabilities
3. decreases assets and increase owner’s equity
4. decreases assets and decreases liabilites

Answer 9

decreases assets and decreases liabilities

Question 10

which of the following statements is false

1. a statement of cash flows summarizes information about eh cash inflows (receipts) and outflow (payments) for a specific period of time
2. a balance sheet reports the assets, liabilities, and owner’s equity at a specific date
3. an income statement presents the revenues, expenses, changes in owner’s equity and resulting net income or net loss for a specific period of time
4. an owners equity statement summarizes the changes in owner’s equity for a specific period of time

Answer 10

an income statement presents the revenues, expenses, changes in owner’s equity and resulting net income or net loss for a specific period of time

Question 11

on the last day of the period, jim otto company buys a $900 machine on credit. this transaction will affect the

1. income statement only
2. balance sheet only
3. income statement and owner’s equity statement only
4. income statement, owner’s equity statement, and balance sheet

Answer 11

balance sheet only

Question 12

the financial statement that reports assets, liabilities, and owner’s equity is the

1. income statement
2. owner’s equity statement
3. balance sheet
4. statement of cash flows

Answer 12

balance sheet