Chapter 15 Understanding Accounting And Financial Exam Prep - Contemporary Business 18e | Test Bank by Louis E. Boone by Louis E. Boone. DOCX document preview.
Package Title: Chapter 15, Testbank
Course Title: Boone, 18e
Chapter Number: 15
Question type: Multiple Choice
1) The claims of a company’s creditors are a(n) _____.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f)accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
2) The _____ is a statement of a company’s financial position on a particular date.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
3) The accounting method that records revenues and expenses when they occur is called _____.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
4) _____ represents the proprietors’ claims (those of stockholders, in the case of a corporation) against the firm’s assets.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
5) The basic relationship that states assets equal liabilities plus owners’ equity is called the _____.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
6) The _____ created the Public Accounting Oversight Board to handle well-known cases of accounting fraud and respond to questions about the independence of auditors.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
7) A financial record of a company's revenues, expenses, and profits over a specific period of time is called the _____.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
8) A(n) _____ requires a minimum of a bachelor’s degree; 150 hours of education and experience; and the completion of a number of rigorous tests in accounting theory and practice, auditing, law, and taxes.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
9) The _____ are regulations and interpretations adopted by the International Accounting Standards Board.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
10) A(n) _____ is anything of value owned or leased by a business.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
11) Proponents of _____ allow employees to view sensitive financial information so that they better understand how their work contributes to the company's success.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
12) An organization’s overall financial performance is measured by its _____, which evaluates the ability to generate revenues in excess of operating costs and other expenses.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
13) In the United States, the Financial Accounting Standards Board (FASB) is primarily responsible for evaluating, setting, or modifying _____.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
14) The _____ is primarily responsible for evaluating, setting, or modifying the generally accepted accounting principles.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
15) _____ measure the extent to which a company relies on debt financing.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
16) A(n) _____ is employed by a business other than a public accounting firm.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
17) The _____ was established to promote worldwide consistency in financial reporting practices.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
18) A(n) _____ is a planning and controlling tool that reflects a company’s expected sales revenues, operating expenses, and cash receipts and outlays.
a) certified public accountant
b) International Financial Reporting Standards
c) asset
d) liability
e) Owners’ equity
f) accounting equation
g) balance sheet
h) income statement
i) Sarbanes-Oxley Act (SOX)
j) accrual accounting
k) open book management
l) budget
m) generally accepted accounting principles (GAAP)
n) Financial Accounting Standards Board (FASB)
o) profitability ratios
p) International Accounting Standards Committee (IASC)
q) Leverage ratios
r) management accountant
Difficulty: Medium
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
Question type: Essay
19) Define accounting. Provide examples of tasks that accountants perform.
Solution: Accounting is the process of measuring, interpreting, and communicating financial information to enable people inside and outside an organization to make informed decisions. Accountants gather, record, report, and interpret financial information that describes the status and operation of an organization and aids in decision making.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
20) Differentiate between public accountants and management accountants.
Solution: A public accountant provides accounting services to individuals or companies for a fee. Most public accounting firms provide three basic services to clients: (1) auditing, or examining, financial records; (2) tax preparation, planning, and related services; and (3) management consulting. Because public accountants are not employees of a client firm, they can provide unbiased advice about the firm’s financial condition. An accountant employed by a business other than a public accounting firm is called a management accountant, who typically collects and records financial transactions and prepares financial statements used by the company’s managers in decision making. Management accountants provide timely, relevant, accurate, and concise information that executives can use to operate their firms more effectively and more profitably than they could without this input. A management accountant plays a major role in both preparing and interpreting financial statements.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
21) List and describe the three basic business activities performed by all organizations.
Solution: All businesses perform, in natural progression, financing, investing, and operating activities. Financing activities involve providing necessary funds from investors to start and expand the business. Investing activities provide valuable assets required to run a business. Operating activities focus on the sale of goods and services, but they also consider expense control as an important element of sound financial management.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
22) What is GAAP? Explain its purpose.
Solution: GAAP stands for generally accepted accounting principles. The purpose of GAAP is to ensure reliable, consistent, and unbiased information to decision makers. GAAP encompasses the conventions, rules, and procedures for determining acceptable accounting practices at a particular time.
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
23) Describe the accounting equation.
Solution: The accounting equation states that assets equal liabilities plus owners’ equity. Assets are anything of value owned by a firm, and they include tangible as well intangible assets. Liabilities and owners’ equity are claims against the company’s assets. A liability is anything owed to creditors, while owners’ equity represents the owners' initial investment in the business plus retained earnings that were not paid over time in dividends. The accounting equation states that an increase in assets must be accompanied by an increase in either liabilities or owners’ equity. Likewise, a decrease in assets must be accompanied by a decrease in either liabilities or owners’ equity.
Difficulty: Hard
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
24) Discuss the responsibilities of accountants and auditors.
Solution: Accountants and auditors typically organize and maintain financial records and examine financial statements to ensure that they are accurate and comply with laws and regulations. They compute taxes owed, prepare tax returns, and ensure that taxes are paid on schedule. Books and systems are inspected for efficiency and accuracy of accounting principles. Best practice recommendations are made to management so that financial operations can run smoothly, and recommendations made to reduce costs, enhance revenues, and improve company profits. Findings must be articulated and explained to clients and managers, which often times involves written reports and face-to-face meetings.
Difficulty: Hard
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
25) List and briefly describe the four categories of financial ratios.
Solution: The four categories of ratios are liquidity ratios, profitability ratios, leverage ratios, and activity ratios. Liquidity ratios measure a company’s abilities to meet its short-term obligations when they must be paid. Profitability ratios measure the overall performance of a company by evaluating its ability to generate revenues in excess of operating costs and other expenses. Leverage ratios give an indication of the extent to which a company is relying on debt financing. Finally, activity ratios measure how effectively a company uses its inventory and other assets.
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
26) Explain the purpose of budgets in a business.
Solution: A budget is a planning and controlling tool that reflects a company’s expected sales revenues, operating expenses, and cash receipts and outlays. It quantifies the company’s plans for a specified future period. Because it reflects management estimates of expected sales, cash inflows and outflows, and costs, the budget is a financial blueprint and can be thought of as a short-term financial plan. It becomes the standard for comparison against actual performance.
Difficulty: Medium
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
27) Describe the utility of the balance sheet. Explain how it is organized.
Solution: The balance sheet shows a company’s financial position on a particular date. It is similar to a photograph of what the company owns (its assets), what it owes (its liabilities), and its owners’ equity. The balance sheet follows the accounting equation. Assets are reported on the left side, while liabilities and owners’ equity are reported on the right side. Assets are listed in descending order of liquidity, or their convertibility into cash. Liabilities and owners’ equity indicate the sources of the firm's assets and are listed in the order in which they are due.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
28) Define accrual accounting. How does depreciation affect net income and cash flow?
Solution: Accrual accounting recognizes revenues and costs when they occur, not when actual cash changes hands. As a result, there can be differences between what is reported as sales, expenses, and profits, and the amount of cash that actually flows into and out of the business during a period of time. An example is depreciation. Companies depreciate fixed assets—such as machinery and buildings—over a specified period of time, which means that they systematically reduce the value of the asset. Depreciation is reported as an expense on the company’s income statement but does not involve any actual cash. The fact that depreciation is a noncash expense means that what a company reports as net income (profits after tax) for a particular period actually understates the amount of cash the company took in, less expenses, during that period of time. Consequently, depreciation is added back to net income when calculating cash flow.
Difficulty: Hard
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
29) Describe how exchange rates influence international accounting practices. Why was the International Accounting Standards Committee established?
Solution: An exchange rate is the ratio at which a country’s currency can be exchanged for other currencies. Daily changes in exchange rates affect the accounting entries for sales and purchases of companies involved in international markets. These fluctuations create either losses or gains for particular companies. The International Accounting Standards Committee was established to provide worldwide consistency in financial reporting practices and comparability and uniformity of international accounting standards.
Difficulty: Hard
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
30) Discuss how forensic accounting helps fight crime in today’s business world and illustrate using examples.
Solution: The rapidly growing field of forensic accounting involves investigating white-collar crimes such as business fraud, improper financial reporting, and illegal investment schemes. Forensic accounting is performed in preparation for legal review. Forensic accountants investigate an organization’s accounting system to reconstruct suspicious transactions and to find evidence about what actually happened. They also testify as expert witnesses if a case goes to trial. When energy giant Enron Corporation collapsed, forensic accounting investigations revealed that for several years the company had issued false financial statements, which exaggerated company earnings thereby increasing the company’s stock prices. In a federal trial, two former executives were convicted of conspiracy, wire fraud, and securities fraud.
Difficulty: Hard
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Analysis
Question type: Multiple Choice
31) Which of these describes the process of measuring, interpreting, and communicating financial information to enable people inside and outside the company to make informed decisions?
a) Selling
b) Accounting
c) Operating
d) Investing
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
32) Professionals who are responsible for gathering, recording, reporting, and interpreting the financial information of an organization are known as
a) statisticians.
b) accountants.
c) IRS agents.
d) IRS agents’ managers.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
33) Astrid works for a travel agency. Her job involves preparing financial reports and interpreting those reports to provide information for decision making. Which title is appropriate for Astrid’s job?
a) Market researcher
b) Systems analyst
c) Investor
d) Accountant
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Application
34) The natural progression of a business begins with
a) operating.
b) investing.
c) financing.
d) selling.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
35) Elsa owns a business and is reviewing her company's current financial statements. As a user of accounting information, Elsa is most interested in using this information to
a) evaluate credit risk.
b) approve new issues of stocks and bonds.
c) plan and control activities.
d) evaluate tax liabilities.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Application
36) Benicio is a loan officer for a bank and is reviewing the financial statements of a prospective borrower. As a user of accounting information, Benicio is most interested in using this information
a) to plan and control daily operations.
b) in contract negotiations.
c) to make an investment decision and estimate its future returns.
d) to evaluate financial soundness of potential clients.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Application
37) Which activities provide the necessary funds to start a business and to expand it after it begins operations?
a) Selling
b) Financing
c) Operating
d) Investing
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
38) Lambert manages the sales force for his company. He is engaged in the _____ activity.
a) operating
b) accounting
c) financing
d) investing
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Application
39) Which of these activities focus on providing valuable assets to a business?
a) Marketing
b) Investing
c) Selling
d) Operating
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
40) _____ activities focus on selling goods and services.
a) Marketing
b) Operating
c) Financing
d) Investing
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
41) A ______ provides accounting services to individuals or companies for a fee.
a) management consultant
b) public accountant
c) management accountant
d) government accountant
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
42) An accountant employed by a business other than a public accounting firm is called a ______, who typically collects and records financial transactions and prepares financial statements used by the company’s managers in decision making.
a) management consultant
b) public accountant
c) management accountant
d) government accountant
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
43) _______ at the federal level manage public funds, investigate white-collar crime, perform audits for government agencies, and stay up-to-date on emerging accounting and regulatory issues.
a) Management consultant
b) Public accountant
c) Management accountant
d) Government accountant
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
44) Carmen works as a tax accountant at a mid-sized manufacturing company. Carmen would be considered a
a) management consultant.
b) public accountant.
c) management accountant.
d) government accountant.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
45) Public accountants typically perform all of the following tasks for a business client EXCEPT
a) tax planning.
b) reviewing a firm's financial statements.
c) developing the firm's marketing strategy.
d) management consulting.
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
46) Fernando is not an employee of the Edith Corporation, but he was hired as a management consultant to provide unbiased advice about Edith Corporation's financial condition. Fernando is a(n)
a) public accountant.
b) government accountant.
c) internal auditor.
d) management accountant.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
47) Ramon has been hired to collect and record financial transactions and prepare financial statements for a Christian organization affiliated to a church, which makes him a
a) not-for-profit accountant.
b) government accountant.
c) public accountant.
d) management accountant.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
48) Salman performs professional services similar to those of a management accountant while working for the city of Portland. Salman can best be described as a
a) public accountant.
b) cost accountant.
c) tax accountant.
d) government accountant.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
49) Angelina works for a mid-sized manufacturing company. Her responsibility is to examine the company’s financial practices to ensure that records include accurate data and that the company’s operations are in compliance with federal, state, and local laws and regulations. Angelina is a(n)
a) government accountant.
b) cost accountant.
c) tax accountant.
d) internal auditor.
Difficulty: Hard
Learning Objective 1: 15.2
Section Reference 1: Discuss accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
50) All of the following are assets EXCEPT
a) inventory.
b) cash.
c) patents.
d) bank loans.
Difficulty: Easy
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
51) Which principles encompass the conventions, rules, and procedures for determining acceptable accounting and financial reporting practices at a particular time?
a) SOX
b) IASB
c) GAAP
d) FASB
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
52) To provide reliable, consistent, and unbiased information to decision makers, accountants follow guidelines, or standards, known as
a) the accounting process.
b) the accounting system.
c) generally accepted accounting principles (GAAP).
d) Financial Accounting Standards Board (FASB).
Difficulty: Easy
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
53) In the United States, ______ is primarily responsible for evaluating, setting, or modifying GAAP?
a) SOX
b) IASB
c) IFRS
d) FASB
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
54) All of the following are tangible assets EXCEPT
a) cash.
b) patents.
c) building.
d) inventory.
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
55) Who appoints the members of the Public Company Accounting Oversight Board?
a) FASB
b) American Association of CPAs
c) Federal Trade Commission
d) Securities and Exchange Commission
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
56) The procedure used by accountants to convert data about individual transactions to financial statements is called
a) the cash flow method.
b) the statement of owners’ equity.
c) the accounting cycle.
d) the balance sheet.
Difficulty: Easy
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
57) The _____ was created by the Sarbanes-Oxley Act of 2002.
a) Securities & Exchange Commission
b) Public Accounting Oversight Board
c) GAAP
d) FASB
Difficulty: Medium
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
58) A(n) _______ is anything of value owned or leased by a business.
a) owners’ equity
b) asset
c) liability
d) accounts payable
Difficulty: Easy
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
59) A(n) ________ of a business is anything owed to creditors—that is, the claims of a company’s creditors.
a) owners’ equity
b) asset
c) liability
d) accumulated profits not paid in dividends
Difficulty: Easy
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
60) ________ is the owner’s initial investment in the business plus profits that were not paid out to owners over time in the form of cash dividends.
a) Owners’ equity
b) Asset
c) Liability
d) Cash
Difficulty: Easy
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
61) Which of the following represents the accounting equation?
a) Assets + Liabilities = Owners’ Equity
b) Assets = Liabilities + Owners’ Equity
c) Liabilities = Assets + Owners’ Equity
d) Owners’ Equity - Liabilities = Assets
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
62) All of the following are liabilities EXCEPT
a) accumulated profits not paid in dividends.
b) accounts payable.
c) bank loans.
d) wages payable.
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
63) Cumberland Fabrication has $80 million in assets and $50 million in owners’ equity. How much does the firm have in liabilities?
a) $80 million
b) $50 million
c) $30 million
d) $20 million
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Application
64) A(n) _____ is a financial statement that is directly based on the accounting equation.
a) balance sheet
b) income statement
c) statement of cash flows
d) statement of changes in retained earnings
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
65) Altoona Products buys a $500,000 machine by taking out a bank loan. The company's assets will _____ by $500,000 while its liabilities will _____ by $500,000.
a) rise; rise
b) fall; fall
c) rise; fall
d) fall; rise
Difficulty: Hard
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Application
66) Which of the following financial statements shows a company’s financial position on a particular date?
a) Statement of changes in retained earnings
b) Income statement
c) Statement of cash flows
d) Balance sheet
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
67) Whereas the ______ reflects a company’s financial situation at a specific point in time, the ____ indicates the flow of resources that reveals the performance of the organization over a specific time period.
a) statement of changes in retained earnings; balance sheet
b) income statement; balance sheet
c) statement of cash flows; income statement
d) balance sheet; income statement
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
68) Which of the following financial statements is also called a profit and loss statement?
a) Statement of changes in retained earnings
b) Income statement
c) Statement of cash flows
d) Balance sheet
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
69) Meryl is a corporate certified public accountant (CPA) working on a new budget. When she lists the company’s liabilities, which of the following will she include?
a) Computer software
b) Owners’ equity
c) Marketable securities
d) Employees’ wages and salaries
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Application
70) Leonardo, chief financial officer for a company, wants to take a look at the summary of expenses, revenues, and profits of the firm for the most recent quarter. He can best find this information by consulting the
a) balance sheet.
b) cash flow statement.
c) statement of owners’ equity.
d) income statement.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Application
71) Nicole is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization. Nicole uses a(n) _____ to determine whether revenues from contributions and other sources will cover operating costs.
a) statement of cash flows
b) income statement
c) balance sheet
d) accrual accounting
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Application
72) Excel Corporation sells $1,000 worth of goods on July 25 on credit. The customer sends the company a check on August 15. The customer receives the goods on September 1. Assuming the company uses accrual accounting, the sale will be recorded in
a) August.
b) July.
c) September.
d) October.
Difficulty: Hard
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Application
73) Expenses that have been incurred (such as wages) but have yet to be paid are reported on the balance sheet as
a) accruals.
b) accounts receivable.
c) accounts payable.
d) notes payable.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
74) Amelia asked her accountant to prepare a summary of the company’s “bottom line.” What specific information is Amelia interested in?
a) Comparison of assets and liabilities
b) The company’s financial position for that week
c) Net income after taxes
d) Statement of owners’ equity
Difficulty: Hard
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Application
75) Which of the following is a noncash expense?
a) Depreciation
b) Operating costs
c) Income taxes
d) Cost of goods sold
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
76) Which of the following current assets is NOT included when calculating the acid-test ratio?
a) Inventory
b) Marketable securities
c) Cash
d) Accounts receivable
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
77) Ricardo wants to assess his firm's ability to meet its short-term obligations. Which of the following ratios are the most relevant?
a) Activity ratios
b) Debt ratios
c) Liquidity ratios
d) Profitability ratios
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
78) If a firm has a current ratio of 2.5, it means that for every $2.50 in _____ it has $1.00 in
a) current assets; current liabilities
b) total assets; total liabilities
c) current assets; total liabilities
d) total assets; current liabilities
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
79) Last year, ABC Tools had a current ratio of 2.0 and an acid-test ratio of 1.0. This year the firm's current ratio is 2.5 and its acid-test ratio is 1.5. ABC’s _____ has _____.
a) profitability; improved
b) profitability; deteriorated
c) liquidity; improved
d) liquidity; deteriorated
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
80) If a company has an acid test ratio of 1.00, $5 million in inventory, and $10 million in current liabilities, what are its total current assets?
a) $5 million
b) $10 million
c) $15 million
d) $20 million
Difficulty: Hard
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
81) Using the following balance sheet information, find the firm's acid-test ratio.
Cash and marketable securities | $20 million |
Accounts receivable | $10 million |
Inventory | $30 million |
Current liabilities | $30 million |
a) 0.60
b) 1.00
c) 1.40
d) 2.00
Difficulty: Hard
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
82) An asset turnover ratio of 2.5 means that for every $1 in assets, the firm generates _____ in sales.
a) $0.50
b) $2.00
c) $2.50
d) $3.00
Difficulty: Hard
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
83) A firm has total assets of $50 million and owner's equity of $40 million. What is the firm's debt ratio?
a) 70%
b) 50%
c) 30%
d) 20%
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
84) Which ratios are designed to evaluate a firm’s ability to generate revenues in excess of operating costs and other expenses?
a) Activity
b) Liquidity
c) Profitability
d) Debt
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
85) All of the following are profitability ratios EXCEPT
a) inventory turnover.
b) return on equity.
c) net profit margin.
d) gross profit margin.
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
86) If Simone Enterprises has a debt ratio of 40%, it means that for every $1 in _____, the firm has 40 cents in _____.
a) owners’ equity; liabilities
b) assets; liabilities
c) owners’ equity; assets
d) assets; owners’ equity
Difficulty: Hard
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
87) Bianca wishes to create a financial blueprint for a future period that reflects such items as expected sales revenues, operating expenses, and cash receipts and disbursements. Bianca wants to create a(n)
a) sales forecast.
b) statement of cash flows.
c) income statement.
d) budget.
Difficulty: Easy
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Application
88) Which of the following do companies prepare on a monthly basis?
a) Shareholders’ equity
b) Credit statement
c) Cash budget
d) Statement of cash flows
Difficulty: Easy
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
89) Which of the following statements is correct?
a) Budgets are limited to projecting cash inflows and outflows.
b) Budgets serve as a planning and control tool.
c) GAAP standards are used in budget development.
d) Budgets serve as a standard by which estimated performance is compared.
Difficulty: Easy
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
90) Which of the following is true of Mint.com?
a) It is an online tool for managing personal finances.
b) It tracks a company’s cash inflows and outflows.
c) It is a complex and sophisticated budgeting system.
d) It promotes worldwide consistency in financial reporting practices.
Difficulty: Medium
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
91) What happens when the value of dollar drops?
a) The earnings of a U.S. company with national operations increase.
b) The earnings of a U.S. company with national operations decrease.
c) The earnings of a U.S. company with international operations increase.
d) The earnings of a U.S. company with international operations decrease.
Difficulty: Hard
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
92) Which of the following was established in 1973 to promote worldwide consistency in financial reporting practices?
a) FASB
b) IASC
c) The World Bank
d) GAAP
Difficulty: Medium
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
93) The CEO of an online retail store plans to share all financial information with the company’s employees. The CEO believes that in doing so, employees will understand how they contribute to the success of the company. The CEO, in this scenario, is implementing
a) knowledge management.
b) double-entry bookkeeping.
c) open book management.
d) on-demand computing.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Application
94) Jones Corp) an apparel company, has total assets worth $8,500. The owners’ initial investment in Jones Corp. stood at $4,000, and profits that were not paid out to owners over time was at $2,000. Calculate the total liabilities.
a) $10,500
b) $6,500
c) $4,500
d) $2,500
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Application
95) Rodrigues Inc. a construction company, recorded a gross profit of $12,000. Its operating expenses stood at $2,000. The amount of depreciation was calculated to be $3,000. Rodrigues paid out $2,500 in income taxes. Which of the following figures captures Rodrigues’ bottom line?
a) $10,000
b) $4,500
c) $3,500
d) $7,000
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Application
96) Marks Inc. an online retail store, recorded an inventory of $3,000 as of December 31, 2012. Its inventory stood at $3,500 on December 31, 2013. The cost of goods sold for the corresponding year was $15,000. Which of the following indicates the inventory turnover ratio of Marks Inc.?
a) 5
b) 4.28
c) 4.61
d) 5.22
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
97) The assets seen in a balance sheet are in descending order of
a) liabilities.
b) leverage ratio.
c) liquidity.
d) acid-test ratio.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
98) Which of the following is an accounting software?
a) Linux
b) Windows Vista
c) Microsoft Azure
d) NetSuite
Difficulty: Easy
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
Question type: True/False
99) The language of business is accounting.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
100) Accounting information can be as important to those outside the organization as it is to those inside the organization.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
101) Daily business decisions are generally unaffected by accounting information; long-term decisions, however, are affected by accounting information and the interpretation of financial reports.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
102) Even today, most companies refuse to share any financial information with employees.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
103) The natural progression of a business begins with operating the business.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
104) Accountants play fundamental roles in not only business but also other aspects of society.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
105) Accountants play a role in all three business activities: financing, investing, and operating.
Difficulty: Easy
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
106) Financing activities focus on providing valuable assets required to run a business.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
107) Yashmi is involved in obtaining new funds to run and expand the business. She is engaged in an investing activity.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Application
108) Lorna is an accountant who works for a firm providing auditing services to other businesses. Lorna is a public accountant.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
109) Investing activities focus on selling goods and services, but they also consider cost control as an important element of sound financial management.
Difficulty: Medium
Learning Objective 1: 15.1
Section Reference 1: Discuss the users of accounting information.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
110) Public accountants are typically employees of the firm for which they are providing services.
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
111) Gus is an accountant and works for a firm that provides tax planning and preparation services to other businesses. Gus is a management accountant.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Application
112) Not-for-profit organizations use only public accountants.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
113) An accountant employed by a business other than an accounting firm is called a management accountant.
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
114) The primary role of government accountants is to determine how efficiently their organizations have accomplished their objectives.
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
115) Few not-for-profit organizations publish financial information since they are not required by law to do so.
Difficulty: Medium
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
116) One of the fastest growing segments of accounting practice is the not-for-profit sector.
Difficulty: Easy
Learning Objective 1: 15.2
Section Reference 1: Describe accounting professionals.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
117) Assets can include intangible possessions such as patents and trademarks.
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
118) The GAAP standard of relevance ensures that one firm's financial statements can be compared with those of similar businesses.
Difficulty: Easy
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
119) The Securities and Exchange Commission is the chief federal regulator of financial markets and the accounting industry.
Difficulty: Easy
Learning Objective 1: 15.3
Section Reference 1: Identify the foundation of the accounting system.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
120) Assume a company buys a machine worth $1 million and pays for it by borrowing the funds from a bank. The firm's assets will rise by $1 million and its liabilities will decrease by $1 million.
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Application
121) A firm has $15 million in assets and $5 million in owner's equity. Therefore, the firm must also have $15 million in liabilities.
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Application
122) Double-entry bookkeeping refers to the process by which accounting transactions are recorded.
Difficulty: Medium
Learning Objective 1: 15.4
Section Reference 1: Outline the steps in the accounting cycle.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
123) The balance sheet is based on the accounting equation.
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
124) A firm's balance sheet shows its financial position over a period of time.
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
125) On a balance sheet, total assets must always equal the sum of liabilities and owners’ equity.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
126) The right side of the balance sheet lists claims against assets.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
127) The three principal financial statements are the balance sheet, income statement, and the statement of retained earnings.
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
128) When examining a statement of cash flows, investors obtain relevant information about a firm’s cash receipts and payments for its operations, investments, and financing during an accounting period.
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
129) Depreciation is reported as an expense on the firm’s income statement, but it does not involve any actual cash.
Difficulty: Medium
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
130) Accrual accounting recognizes revenues and expenses when cash changes hands.
Difficulty: Easy
Learning Objective 1: 15.5
Section Reference 1: Explain financial statements.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
131) The current ratio is a type of leverage ratio.
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
132) Ratios assist managers by interpreting actual performance and making comparisons with what should have happened.
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
133) A firm's acid-test ratio can never be higher than its current ratio.
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
134) Two commonly used liquidity ratios are the inventory turnover ratio and the leverage ratio.
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
135) A firm has $12 million in current assets, of which $8 million is inventory. If the company has $4 million in current liabilities, then its current ratio equals 1.0.
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Application
136) Return on equity is a profitability ratio.
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
137) Profitability ratios measure a firm's ability to meet its short-term obligations.
Difficulty: Easy
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
138) If a firm has an asset turnover ratio of 2.00, it means that it needs $2 in assets to generate a $1 in sales.
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
139) A debt ratio of 20% means that the firm is relying more on borrowed money than owners’ equity.
Difficulty: Medium
Learning Objective 1: 15.6
Section Reference 1: Discuss financial ratio analysis.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
140) A budget is essentially a long-term financial plan.
Difficulty: Easy
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
141) The budget establishes the standards with which actual performance may be compared.
Difficulty: Easy
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
142) A company’s overall operating budget is a composite of many individual budgets for separate units of the firm.
Difficulty: Medium
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
143) Cash budgets are typically prepared on a weekly basis.
Difficulty: Easy
Learning Objective 1: 15.7
Section Reference 1: Describe the role of budgeting.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
144) An international firm’s consolidated financial statements must reflect any gains or losses due to changes in exchange rates during specific periods of time.
Difficulty: Medium
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Knowledge
145) If a U.S. company has substantial operations in Europe and the value of the euro falls relative to the U.S. dollar, the company's profits, stated in U.S. dollars, will also fall.
Difficulty: Medium
Learning Objective 1: 15.8
Section Reference 1: Outline international accounting practices.
Standard 1: AACSB || Analytic
Bloomcode: Comprehension
Document Information
Connected Book
Contemporary Business 18e | Test Bank by Louis E. Boone
By Louis E. Boone