Fap Chapter 01

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1 INCORRECT| |
Which one of the following users of accounting information is considered to be an external user of accounting information rather than an internal user of accounting information?| | | A)| Internal auditors.|

| | B)| Company managers.|
| | C)| Company customers.|
| | D)| Officers and directors.|
| | E)| Budget officers.|
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Feedback: Internal auditors are considered to be internal users. C2| |
2 INCORRECT| |
A CPA owns a large home and she has divided the second floor into two separate units: one used as her personal residence and the other rented out to local college students as an apartment. On the first floor, she has her own CPA firm where she meets with and provides accounting services to clients. If she wishes to keep separate records for each of these three activities, the accounting principle to which she is adhering is?| | | A)| Going-concern principle.|

| | B)| Monetary unit principle.|
| | C)| Cost principle.|
| | D)| Business entity principle.|
| | E)| Conservatism principle.|
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Feedback: The going concern principle means that accounting information reflects an assumption that the business will continue operating instead of being closed or sold. C4| |
3 INCORRECT| |
The three basic business entities discussed in this chapter include sole proprietorship, partnership, and corporation. Which of these entities is considered a legal entity and is also subject to federal income taxation at the entity level?| | | A)| Sole proprietorship.|

| | B)| Partnership.|
| | C)| Corporation.|
| | D)| All three entities satisfy both requirements.|
| | E)| None of these entities satisfy both requirements.| | | | | |
Feedback: A sole proprietorship is not subject to federal income taxation at the entity level. C4| |
4 INCORRECT| |
The basic accounting equation is Assets = Liabilities + Equity. The Equity term of the equation can be further broken down into several other terms. Assume that the entity is a sole proprietorship. Which of the following statements is correct?| | | A)| Additional investments by the business owner will increase equity; and revenues will decrease equity.| | | B)| Additional investments by the business owner will decrease equity; and revenues will increase equity.| | | C)| Increases in expenses will decrease equity; and owner withdrawals will decrease equity.| | | D)| Revenues will increase equity; and owner withdrawals will increase equity.| | | E)| Revenues will decrease equity; and owner withdrawals will increase equity.| | | | | |

Feedback: The Equity term of the basic accounting equation is expanded to read: Beginning Owner's Equity + Additional Investments by the Owner – Owner Withdrawals + Revenues – Expenses = Ending Owner's Equity. Using this expanded formula, it can be seen that revenues will increase (rather than decrease) equity. A1| |

5 INCORRECT| |
If at the end of the accounting period, the company's liabilities total $19,000 and its equity totals $40,000, then what must be the total of assets?| | | A)| $14,000.|
| | B)| $40,000.|
| | C)| $21,000.|
| | D)| $59,000.|
| | E)| None of the above.|
| | | | |
Feedback: The accounting equation is Assets = Liabilities + Equity. A1| |
6 CORRECT| |
Company assets total $150,000 and its liabilities total $30,000. What is the equity of this company?| | | A)| $120,000.|
| | B)| $100,000.|
| | C)| $150,000.|
| | D)| $180,000.|
| | E)| None of the above.|
| | | | |
Feedback: The accounting equation is Assets = Liabilities + Equity. $150,000 = $30,000 + $120,000. A1| |
7 INCORRECT| |
If during the current...
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