Financial Accounting, 7eHarrison/HorngrenTest Item FileChapter 1: The Financial Statements1.1-1Bookkeeping is a type of accounting used primarily by proprietorships.Answer: False LO: 1-1 Diff: 2 EOC: QC 11.1- 2 The three forms of business organizations are proprietorships, partnerships, and for- profit organizations.company, relevant andAnswer: False LO: 1-1 Diff: 1 EOC: E1-131.1-3 To convince reliable accountingan investor to invest money in a particularinformation is required.Answer: TrueLO: 1-1Diff: 1EOC: E1-141.1- 4 Limited Liability Companies (LLCs) have members instead of stockholders.Answer: TrueLO: 1-1Diff: 1EOC: E1-131.1- 5 All business owners are personally liable for the debts of their businesses.Answer: FalseLO: 1-1Diff: 1EOC: E1-131.1- 6 A proprietorship is a distinct and separate entity from the proprietor, from both an accounting and a legal viewpoint.Answer: FalseLO: 1-1Diff: 2EOC: E1-131.1- 7 The two types of accounting are:A. profit and nonprofit.B. financial and managerial.C. internal and external.D. bookkeeping and decision-oriented.Answer: BLO: 1-1Diff: 2EOC: E1-131.1- 8 According to the author, potential investors need information that is:A. relevant and reliable.B. fair and future-oriented.C. accurate and truthful.D. audited and complete.Answer: A LO: 1-1 Diff: 2 EOC: E1-141.1- 9 Who ultimately controls a corporation?A. Board of DirectorsB. The Chief Executive Officer (CEO)C. The stockholdersD. The PresidentAnswer: C LO: 1-1 Diff: 2 EOC: E1-131.1- 10 Financial statements are:A. standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms.B. standard documents that tell us how well a business is performing and where it stands in financial terms.C. reports created by management that states it is responsible for the acts of the corporation.D. reports issued by outside consultants who are hired to analyze key operations of the business.Answer: B LO: 1-1 Diff: 1 EOC: E1-261.1- 11 For which form of business ownership are the owners of a business legally distinct from the business?A. CorporationB. PartnershipC. ProprietorshipD. All of the aboveAnswer: ALO: 1-1Diff: 1EOC: E1-131.1- 12 All of the following are forms of business organizations EXCEPT:A. proprietorship.B. limited partnership.C. limited proprietorship.D. limited liability company.Answer: CLO: 1-1 Diff: 1 EOC: E1-131.1- 13 The largest organization of professional accountants in the United States is the:A. Financial Accounting Standards Board.B. Securities and Exchange Commission.C. American Institute of Certified Public Accountants.D. Auditing Standards Board.Answer: CLO: 1-1Diff: 2EOC: P1-53BAnswer: TrueLO: 1-2Diff: 1EOC: QC 1and procedures1.2- 1 Generally accepted accounting principles, or GAAP, are the rules established by theFinancial Accounting Standards Board, or the FASB.1.2- 2 The entity concept is the most basic accounting concept.1.2-3Answer: TrueLO: 1-2Diff: 1EOC: S1-3The stable monetary unit concept means that the financial statements is NOT expected to change.type of currencyused for theAnswer: FalseLO: 1-2Diff: 2EOC: E1-14the objectivity1.2- 4 Since cost is a reliable measure to use in financial accounting, principle states that assets and services should be recorded at their actual cost.Answer: FalseLO: 1-2Diff: 2EOC: E1-141.2- 5 The Financial Accounting Standards Board is responsible for establishing:A. the code of professional conduct for accountants.B. the Securities and Exchange Commission.C. generally accepted accounting principles.D. the American Institute of Certified Public Accountants.Answer: C LO: 1-2 Diff: 2 EOC: QC 11.2- 6 The acronym GAAP stands for:A. generally acceptable authorized pronouncements.B. government authorized accountant principles.C. generally accepted accounting principles.D. government audited accounting pronouncements.Answer: C LO: 1-2 Diff: 2 EOC: E1-271.2- 7 All of the following are characteristics of useful accounting information EXCEPT:A. informative.B. relevant.C. consistent.D. reliable.Answer: A LO: 1-2 Diff: 2 EOC: E1-141.2- 8 The objectivity principle of accounting:A. holds that the entity will remain in operation for the foreseeable future.B. enables accountants to ignore the effect of inflation in the accounting records.C. maintains that each organization or section of an organization stands apart from other organizations and individuals.D. ensures that accounting records and statements are based on the most reliable data available.Answer: DLO: 1-2Diff: 2EOC: E1-141.2- 9 The stable-monetary-unit concept of accounting:reliableA. ensures that accounting records and statements