Chater 1 FA

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

• a. Identification.

• b. Economic entity.

• c. Recording

• d. Communication.

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

• a. Management is an internal user.

• b. Taxing authorities are external users.

• c. Present creditors are external users.

• d. Regulatory authorities are internal users.

The historical cost principle states that:

• a. assets should be initially recorded at cost and adjusted when the fair value changes.

• b. activities of an entity are to be kept separate and distinct from its owner.

• c. assets should be recorded at their cost.

• d. only transaction data capable of being expressed in terms of money be included in the accounting records

Which of the following statements about basic assumptions is correct?

• a. Basic assumptions are the same as accounting principles.

• b. The economic entity assumption states that there should be a particular unit of accountability.

• c. The monetary unit assumption enables accounting to measure employee morale.

• d. Partnerships are not economic entities.

The three types of business entities are:

• a. proprietorships, small businesses, and partnerships.

• b. proprietorships, partnerships, and corporations.

• c. proprietorships, partnerships, and large businesses.

• d. financial, manufacturing, and service companies.

Net income will result during a time period when:

• a. assets exceed liabilities.

• b. assets exceed revenues.

• c. expenses exceed revenues.

• d. revenues exceed expenses.

As of December 31, 2020, Stoneland AG has assets of €3,500 and equity of €2,000. What are the liabilities for Stoneland AG as of December 31, 2020?

• a. €1,500.

• b. €1,000.

• c. €2,500.

• d. €2,000.

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

• a. increase assets and decrease equity.

• b. increase assets and increase equity.

• c. increase assets and increase liabilities.

• d. increase liabilities and increase equity.

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

• a. Equipment is purchased on account

• b. An employee is terminated.

• c. A cash investment is made into the business.

• d. The company pays a cash dividend.

During 2020, Xia Lin Company’s assets decreased ¥500,000 and its liabilities decreased ¥900,000. Its equity therefore:

• a. increased ¥400,000.

• b. decreased ¥1,400,000.

• c. decreased ¥400,000.

• d. increased ¥1,400,000.