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Aster Company sells merchandise to customers

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1. Which the following organizations is primarily responsible for establishing GAAP today?
a) Financial Accounting Standards Board (FASB)
b) Securities and Exchange Commission (SEC)
c) Internal Revenue Service (IRS)
d) Federal Government

2. To which of the following entities must a company report if it sells its stock on the organized stock market?
a) American Institute of Certified Public Accountants (AICPA)
b)American Accounting Association (AAA)
c)International Accounting Standards Board (IASB)
d) Securities and Exchange Commission (SEC)

3. Which of the following concepts is important to accrual accounting?
a) Time period, because accrual accounting divides earnings into time periods.
b) Monetary unit, because inflation is a big factor in the environment.
c) Cash basis, because if cash is not received, revenue is not accrued.

d) Entity concept, because personal transactions must be separated from business transactions.
4. Which one of the following steps in the accounting cycle is optional rather than required?
A. Business transactions are recorded
B. Adjustments are recorded
C. The accounts are closed
D. Work sheets are prepared

5. Aster Company sells merchandise to customers. Aster should normally recognize
A. Revenue and the related expenses in the same accounting period as earned whether payment is received or not
B. Revenue when the cash is collected and the expenses when Aster pays its creditor for the merchandise
C. Revenue and expenses after all payments are collected
D. Expenses in the period the merchandise is sold and defer revenue until the customer pays for the

6. Failure to record the supplies used during the year would result in which of the following?
A. Net income being understated
B. An overstatement of liabilities
C. Owners' equity being overstated
D. Total assets being understated

7. What effect does “recognizing revenue at the end of the accounting period for rent previously received in advance” have on the accounting equation for the insurance company?
A. Owners' equity increases and liabilities increase
B. Assets increase and owners' equity increases
C. Assets decrease and liabilities decrease
D. Liabilities decrease and owners' equity increases

8. What happens to the accounting equation when the adjustment for depreciation expense for the accounting period is recorded?
A. Assets decrease and owners' equity decreases
B. Assets increase and owners' equity increases
C. Assets decrease and liabilities decrease
D. Liabilities increase and owners' equity decreases

9. What effect does “recognizing accrued utilities expense at the end of the accounting period” have on the accounting equation?
A. Assets decrease and owners' equity decreases
B. Liabilities increase and owners' equity increases
C. Assets decrease and liabilities decrease
D. Liabilities increase and owners' equity decreases

10. The costs of doing business through the sale of goods and services are called
a)net income.
b) expenses.
c) revenues.
d) dividends.

11. Which one of the following business decisions will least likely require financial information?
a) The Local Bank is reviewing the loan application from Marla Boutique Corp.
b) Marla Boutique Corp. is attempting to sell its stock to the public.
c) The labor union representing Lawn Doctor's employees is negotiating a pay raise as part of a new labor agreement.
d) Marla Boutique's management is deciding whether to wash its vans today or tomorrow.

12. Which of the following invests funds into a business and is considered an owner?
a) stockholders
b) creditors
c) bankers
d) lenders

13. Which of the following best describes the term “retained earnings”?
a) The amount of total profits earned by a business since it began operations.
b) The amount of interest or claim that the owners have on the assets of the business.
c) The future economic resources of a business entity.
d) The cumulative profits earned by the business less any dividends distributed.

14. Which one of the following is an economic obligation for a business entity?
a) Salaries paid to employees for services rendered.
b) Amounts owed to creditors.
c)Materials used in manufacturing products.
d)Payment of rent for the next year.

15. An accountant is uncertain about the best estimate of an amount for a
business transaction. If two amounts are about equally likely, the
amount least likely to overstate the assets and income is selected.
This is an example of applying the quality of
a) comparability.
b) neutrality.
c) conservatism.
d) materiality.

16. Which of the following accounts are normally NOT reported as current assets on a classified balance sheet? Answer
a)accounts receivable and current portion of notes receivable
b) interest receivable and inventory
c) income taxes payable and salaries payable
d) short term investments and accounts receivable

17. The payment of employee salaries has what effect on the accounting equation?
a)Assets decrease and stockholders' equity decreases.
b)Liabilities decrease and stockholders' equity decreases.
c)Assets decrease and liabilities increase.
d)Assets increase and liabilities decrease.

18. Which of the following transactions affects the liabilities for Benton, Inc.?
a) Supplies are purchased for cash by Benton.
b) Benton places an order for merchandise with a supplier; the merchandise will be shipped to Benton in 60 days. (does not)
c)The owners of Benton invest $100,000 in the company.
d)Payment is made on a bank loan which Benton had obtained 6 months ago.

19. Services are provided for customers who are sent bills for the amount
they owe.
a. Assets increase and liabilities increase.
b) Assets increase and owners' equity increases.
c) Liabilities increase and owners' equity decreases.
d) Liabilities decrease and assets decrease.
e) Assets increase and assets decrease.

20. One effect on the accounting equation when a firm lends money is
a) stockholders' equity decreases.
b) liabilities decrease.
c) liabilities increase.
d) total assets remain the same.

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