Chapter 1 - Multiple Choice

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1. 1. Question
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:

o Financial accounting.
o Managerial accounting.
o Auditing.
o Cost accounting.
CORRECT
2. 2. Question
The primary private sector agency that oversees external financial reporting standards is the:

o Financial Accounting Standards Board.

o Federal Bureau of Investigation.
o General Accounting Office.
o Internal Revenue Service.
INCORRECT
The Financial Accounting Standards Board is the private sector oversight group for accounting
standards. The Federal Bureau of Investigation is a government organization that employs many
accountants, but has little to do with accounting rule development. The General Accounting Office
and Internal Revenue Service are also government agencies. The GAO serves Congress and the IRS
administers tax law.
3. 3. Question
Which of the following equations properly represents a derivation of the fundamental accounting
equation?

o Assets + liabilities = owner's equity.

o Assets = owner's equity.
o Cash = assets.
o Assets – liabilities = owner's equity.
CORRECT
4. 4. Question
Wilson Company owns land that 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. Which of the following concepts justifies this?
 o The historical-cost principle.
o The value is tied to objective and verifiable past transactions.
o Neither of the above.
o Both "a" and "b".
CORRECT
5. 5. Question
Retained earnings will change over time because of several factors. Which of the following factors
would explain an increase in retained earnings?

o Net loss.
o Net income.
o Dividends.
o Investments by stockholders.
CORRECT
6. 6. Question
Which of these items would be accounted for as an expense?

o Repayment of a bank loan.

o Dividends to stockholders.
o The purchase of land.
o Payment of the current period's rent.
CORRECT
7. 7. Question
Which of the following transactions would have no impact on stockholders’ equity?

o Purchase of land from the proceeds of a bank loan.

o Dividends to stockholders.
o Net loss.
o Investments of cash by stockholders.
CORRECT
8. 8. Question
Which of the following would not be included on a balance sheet?

o Accounts receivable.
o Accounts payable.
o Sales.
o Cash.
CORRECT