Deck 15: The Role of Accountants and Accounting Information

Question 1

The primary goal for the standard practices and principles in accountant reporting is to ensure external users that the information is accurate and has meaning.

Answer 1

True
Explanation:Reporting of accounts must convey information that outsiders will be able to use to determine the financial state of the company.

Question 2

Current assets are all assets that are able to be liquidated in a short amount of time.

Answer 2

True
Explanation:Current assets includes cash on hand and all assets that can be quickly converted into cash.

Question 3

In order to increase the quality of current accountants,the CPA Vision Project has re-asserted the ability to use and calculate large amounts of numerical data as a primary competency for accountants.

Answer 3

False
Explanation:The core competencies in accounting identified in the CPA Vision Project go beyond the ability to crunch numbers; they include certain communications skills, along with skills in critical thinking and leadership.

Question 4

Due to current concerns over accounting fraud,certified public accountants are now licensed by the Securities and Exchange Commission.

Question 5

Assets are categorized by the capacity in which they benefit the company.

Question 6

The purpose of ethics in accounting is to maintain public confidence in business institutions,financial markets,and the products and services of the accounting profession.

Question 7

If a company's assets exceed its liabilities,owners' equity is negative.

Question 8

Bookkeeping is a comprehensive system for collecting,analyzing,and communicating financial information.

Question 9

An audit examines whether a firm's financial statement conforms to generally accepted accounting principles.

Question 10

The controller is a company's chief accounting officer.

Question 11

The accountant to a local bakery would classify the buying of a new oven as "Cash flows from investing" on her statement of cash flows.

Question 12

An asset is defined as any economic resource expected to benefit a firm or an individual who owns it.

Question 13

Owners' equity is net worth minus liabilities.

Question 14

The most liquid asset for a firm is marketable securities that can be sold very quickly.

Question 15

The most commonly used liquidity ratio is found by calculating current assets to current liabilities.

Question 16

Joe has good reason to suspect that his investments in XYZ Manufacturing are being fraudulently recorded and used by the accountants of that company.In order to start a legal investigation,he needs to go to the American Institute of Certified Public Accountants.

Question 17

Activity ratios allow investors to compare the relative efficiencies of similar companies.

Question 18

The International Accounting Standards Board is the prominent international organization for global accounting standards.

Question 19

Revenue from the earnings of a particular transaction is able to be reported as soon as the product or service is delivered.

Question 20

Retained earnings are net profits minus dividend payments to stockholders.

Question 21

A long-term ratio of 2: 3 indicates that the company has more equity than debt by a half.

Question 22

Which of the following terms refers to any economic resource that is expected to benefit a firm or individual who owns it?

A) asset
B) liability
C) equity
D) account
E) deposit

Question 23

Which of the following terms refers to the examination of a company's accounting system to determine whether its financial reports fairly represent its operations?

A) company-wide analysis
B) forensic accounting
C) portfolio analysis
D) audit
E) preliminary investigation

Question 24

Which of the following terms refers to the amount of money that owners would receive if they sold all of a company's assets and paid all of its liabilities?

A) asset
B) owners' equity
C) inventory
D) liability
E) credit

Question 25

Which of the following terms refers to the recording of financial transactions?

A) bookkeeping
B) accounting
C) controlling
D) budgeting
E) auditing

Question 26

Which of the following describes assets such as patents and trademarks?

A) liquid assets
B) fixed assets
C) intangible assets
D) current assets
E) limited assets

Question 27

Which of the following terms refers to the amount paid for an existing business beyond the value of its other assets?

A) goodwill
B) excess compensation
C) licensing
D) asset promotion
E) liability deduction

Question 28

Major projects,such as corporate mergers or buyouts,can adversely affect the long-term solvency ratio of a company.

Question 29

Ethical behavior requires that a CPA give precedence to public trust in the profession over the directions of her or his employer.

Question 30

Which of the following refers to the financial statement detailing a firm's assets,liabilities,and owners' equity?

A) income statement
B) statement of cash flows
C) balance sheet
D) expense report
E) annual budget

Question 31

The percentage of liabilities in a company's assets plus the percentage of owners' equity in its assets is always equal to 100.

Question 32

Which of the following terms refers to the difference calculated by subtracting income taxes paid from the operating income of an organization?

A) gross revenue
B) net income
C) gross profit
D) cash flow
E) leverage

Question 33

Which of the following BEST describes depreciation?

A) the process of increasing the value of fixed assets over time
B) the process of deducting operating expenses from the value of fixed assets
C) the process of reducing the value of fixed assets over time
D) the process of distributing the cost of liabilities over time
E) the process of distributing the cost of intangible assets over time

Question 34

Which of the following terms refers to the comprehensive system for collecting,analyzing,and communicating financial information?

A) bookkeeping
B) accounting
C) controlling
D) auditing
E) budgeting

Question 35

It is currently very common that a CPA who is hired to audit a firm's finances will also be hired to help design a more efficient financial information system.

Question 36

Which of the following describes assets such as land,building,and equipment?

A) liquid assets
B) fixed assets
C) intangible assets
D) current assets
E) limited assets

Question 37

Unethical accounting methods fortunately have only affected public confidence in the company found to have committed accounting violations.

Question 38

In general,the accounting standards from the IASB and from the U.S.GAAP align nearly perfectly.

Question 39

A company with a very high amount of liabilities will always find it more difficult to secure loans than a company with a very low amount of liabilities.

Question 40

A key component of the Sarbanes-Oxley Act of 2002 was increased government oversight over the certification examinations given by the accounting professional organizations such as the Institute of Management Accountants.

Question 41

Which of the following statements is TRUE?

A) As common practice, a sales representative for a firm receives information from the firm's financial accounting system.
B) As common practice, a sales representative for a firm receives information from the firm's managerial accounting system.
C) As common practice, a sales representative for a firm receives information from both the firm's managerial accounting system and its financial accounting system.
D) As common practice, a sales representative for a firm receives information from the firm's revenue accounting system.
E) As common practice, a sales representative for a firm does not receive any information from the firm's accounting system.

Question 42

A company has an assets-to-liabilities ratio of 3: 2 and total assets worth $6 million.What is its owners' equity?

A) $1 million
B) $2 million
C) $3 million
D) $9 million
E) $12 million

Question 43

Which are the two major fields of accounting?

A) managerial and forensic
B) financial and managerial
C) bookkeeping and advisory
D) corporate and individual
E) public and private

Question 44

Which of the following is the difference between revenues and the cost of revenues?

A) net income
B) gross profit
C) accounts payable
D) interest expense
E) cash flow

Question 45

How much profit does a company which has a total of $5 million invested by its owners and $4 million in liabilities need to make in order to have an assets-to-liabilities ratio of 2: 1?

A) $2 million
B) $3 million
C) $5 million
D) $7 million
E) $8 million

Question 46

What distinguishes the two most commonly used categories of owners' equity?

A) the amount of equity within each type of asset-current versus fixed and intangible
B) the financial form of the equity-cash investments versus stock and bond investments
C) the source of the equity-investments versus earnings
D) the use of the equity-invested versus saved
E) the age of the equity-older investments and earnings versus newer investments and earnings

Question 47

Which of the following describes a liability?

A) the potential profit from selling a firm's assets and settling all of its debts
B) a debt owed by a firm to an outside organization or individual
C) any economic resource expected to benefit a firm or an individual who owns it
D) any economic deficit expected to cost a firm or an individual who owns it
E) the amount of money originally invested in a business by its owners

Question 48

Which of the following ratios measures a firm's ability to meet its current debt obligations?

A) short-term solvency ratio
B) long-term solvency ratio
C) profitability ratio
D) activity ratio
E) equity ratio

Question 49

Which of the following refers to the rules and procedures governing the content and form of financial reports?

A) national bookkeeping standards
B) core competencies for accounting
C) accounting and financial rules
D) national guidelines of accounting principles
E) generally accepted accounting principles

Question 50

What are the major categories within an income statement?

A) operating costs and profits, investing costs and profits, and financing costs and profits
B) current revenue, long-term revenue, and net revenue
C) revenue, sales, and income
D) assets, liabilities, and owners' equity
E) revenues, cost of revenues, operating expenses, and net income

Question 51

Bennequin Accounting has been hired by XYZ Manufacturing to help plan its merger with ABC Distribution.Which of the following terms BEST describes the capacity for which Bennequin has been hired?

A) regulatory accounting
B) corporate bookkeeping
C) company auditing
D) fraud investigation
E) management advisory

Question 52

Which of the following ratios evaluates management's use of resources?

A) short-term solvency ratio
B) long-term solvency ratio
C) activity ratio
D) profitability ratio
E) equity ratio

Question 53

Which of the following ratios measures a firm's potential earnings?

A) short-term solvency ratio
B) long-term solvency ratio
C) profitability ratio
D) activity ratio
E) equity ratio

Question 54

Which of the following statements is TRUE?

A) As common practice, a union representative for the workers at a firm receives information from the firm's financial accounting system.
B) As common practice, a union representative for the workers at a firm receives information from the firm's managerial accounting system.
C) As common practice, a union representative for the workers at a firm receives information from both the firm's managerial accounting system and its financial accounting system.
D) As common practice, a union representative for the workers at a firm receives information from the firm's forensic accounting system.
E) As common practice, a union representative for the workers at a firm does not receive any information from the firm's accounting system.

Question 55

Due to investor disgruntlement,Howard Industries needs to provide a complete review of its financial records in order to confirm that they have been conforming with generally accepted accounting principles.Which of the following processes does Howard Industries need to start?

A) company-wide analysis
B) company-wide audit
C) portfolio analysis
D) preliminary investigation
E) fraud investigation

Question 56

A company's owners invested $10,000 total into the company,which made a profit of $3,500 last year.Its total liabilities are currently at $7,000.What is the value of the total assets of this company?

A) $3,000
B) $3,500
C) $6,500
D) $13,500
E) $27,500

Question 57

Which of the following BEST illustrates cash flow from operations?

A) the revenue from selling bread at a local bakery
B) the revenue from selling stocks by an insurance company
C) the revenue from new investors in a software start-up
D) the revenue from selling obsolescent trucks by a delivery company
E) the revenue from issuing stock by a financial management firm

Question 58

ABC Company has a net income of $5 million.ABC's number of outstanding shares of stock is 3,870,000 shares.What is the company's earnings per share?

A) $1.29
B) $.77
C) $1.25
D) $.80
E) $18.75

Question 59

Jose is a recent college graduate who has been hired for an entry-level professional position in the accounting department of a large corporation.Which of the following terms BEST describes Jose's capacity as an accountant?

A) public accountant
B) private accountant
C) forensic accountant
D) advisory accountant
E) management accountant

Question 60

Which of the following statements BEST describes the difference between current and long-term liabilities?

A) Current liabilities are debts that need to be paid immediately, whereas long-term liabilities do not.
B) Current liabilities are those which will cost less in debt interest than long-term liabilities.
C) Current liabilities are debts that are settled sooner than long-term debts.
D) Current liabilities are debts on tangible assets, whereas long-term liabilities are debts on intangible assets.
E) Current liabilities are debts on current assets, whereas long-term liabilities are debts on fixed and intangible assets.

Question 61

A company ends the year with a banker's ratio of 5.3.What would be the value of its current liabilities if its current assets total $16.43 million?

A) $3.1 million
B) $5.3 million
C) $0.32 million
D) $3.2 million
E) $31.0 million

Question 62

Which of the following bodies enforces accounting and auditing rules and procedures?

A) Accounting Disclosure Board
B) Financial Accounting Standards Board
C) Association of Certified Fraud Examiners
D) Securities and Exchange Commission
E) American Institute of Certified Public Accountants

Question 63

A company ends the year with a net income of $7.5 million and earnings per share of $1.50.What is the number of common shares outstanding for this company?

A) 3 million
B) 4.5 million
C) 5 million
D) 6.5 million
E) 11.25 million

Question 64

A local bakery is suddenly inundated with many more orders for wedding cakes than it has the physical capacity to make.Rather than turn away customers,the owner decides to rent another kitchen across town to fulfill all of the orders.But she needs to borrow money to pay for the rent and additional workers,the additional cost of which will be paid by the profits from the additional cakes.Which of the following ratios will be MOST affected by this decision?

A) the bakery's short-term solvency ratio
B) the bakery's long-term solvency ratio
C) the bakery's profitability ratio
D) the bakery's activity ratio
E) the bakery's equity ratio

Question 65

Bennequin Manufacturing was a highly profitable firm five years ago,but its net revenue has since been severely declining,even though the amount of business has held steady.Marlena has been hired as the new Chief Executive Officer to help turn things around for the company.She would like to understand what happened financially to the company in the past five years in order to start coming up with possible solutions.Which of the following documents would be MOST useful for her?

A) income statements from the past five years
B) debt statements from the past five years
C) statements of cash flows from the past five years
D) budgets from the past five years
E) balance sheets from the past five years

Question 66

Which of the following documents would MOST likely come from a planning strategy meeting?

A) income statement
B) flow of cash statement
C) balance sheet
D) budget
E) statement of projected earnings

Question 67

A company brings in $3.25 million in revenue and has a revenue cost of $1 million.Which of the following statements is TRUE?

A) In order to have a net income of more than $1.5 million, the operating expenses and income taxes need to be less than $0.25 million.
B) In order to have a net income of more than $1.5 million, the operating expenses and income taxes need to be less than $0.75 million.
C) In order to have a net income of more than $1.5 million, the operating expenses and income taxes need to be less than $1.75 million.
D) In order to have a net income of more than $1.5 million, the operating expenses and income taxes need to be less than $2.25 million.
E) In order to have a net income of more than $1.5 million, the operating expenses and income taxes need to be less than $2.75.

Question 68

Which of the following statements is TRUE?

A) Forensic accounting is mostly used as a tool for government regulation and investigation.
B) Forensic accounting is mostly used as a tool for intracompany investigations.
C) Forensic accounting is rarely used to investigate the misuse of government funds.
D) Forensic accounting is often used to investigate the misuse of government funds.
E) Forensic accounting is mostly used as a tool for local police enforcement.

Question 69

A large company specializing in bread baking has made its annual balance sheet available to its investors.Profits were slightly lower than expected this year.Which of the following items does NOT need to be included in this statement in order to fulfill the principle of full disclosure?

A) The current rise of local micro-bakeries has not affected and probably will not affect the revenue of the company.
B) The company is contemplating a merger with another major baking company.
C) Much of the loss of profits can be explained by the sudden rise in the price of wheat during the past year.
D) A baking start-up company founded by some former executives of the company looks like it will be a major competitor in the upcoming years.
E) The company and the union for its workers were able to halt a labor strike by negotiating increased health benefits for its workers, causing a slight increase in operating costs.

Question 70

With fixed assets of $4 billion and current assets of $1.7 billion,Realm Company has long-term liabilities of $2 billion and current liabilities of $0.34 billion.What is Realm's current ratio?

A) 0.85
B) 2
C) 2 .44
D) 5
E) 11.76

Question 71

Which of the following areas of the Certified Fraud Examiner (CFE)exam includes theories of fraud prevention?

A) criminology and ethics
B) financial transactions
C) fraud investigation
D) fraud litigation
E) legal elements of fraud

Question 72

Which of the following terms refers to the formal recording and reporting of revenues in financial statements?

A) full disclosure
B) revenue recognition
C) compliance
D) ethical practice
E) materiality

Question 73

Financial statements that do not include interpretation and explanation by management are in violation of which GAAP principle?

A) principle of sincerity
B) principle of continuity
C) principle of full disclosure
D) principle of regularity
E) principle of prudence

Question 74

Which of the following inequalities is always TRUE?

A) liabilities + assets < assets + owners' equity
B) liabilities < assets - owners' equity
C) assets < owners' equity + liabilities
D) owners' equity < assets - liabilities
E) assets < owners' equity - liabilities

Question 75

Which of the following are the three categories on a company's cash flow statement?

A) operating activities, purchase activities, taxes
B) profit inflow, debt outflow, taxes
C) profitable activities, deficit activities, taxes
D) operating activities, investing activities, taxes
E) operating activities, investing activities, financing activities

Question 76

Which of the following BEST describes a certified fraud examiner?

A) a specialized managerial accountant concerned with issues of fraud
B) a specialized certified public accountant concerned with issues of fraud
C) a specialized forensic accountant concerned with issues of fraud
D) an accounting agent for the Securities and Exchange Commission concerned with issues of fraud
E) an accounting agent provided by the Sarbanes-Oxley Act of 2002 concerned with issues of fraud

Question 77

Which of the following scenarios would MOST likely occur with a company that has reported disappointing earnings recently but still looks to be financially stable for quite some time?

A) high long-term solvency ratio but low profitability ratio
B) high short-term solvency ratio but low profitability ratio
C) high long-term solvency ratio but low activity ratio
D) high short-term solvency ratio but low activity ratio
E) high long-term solvency ratio but low short-term solvency ratio

Question 78

Which organization provides guidelines for ethical conduct for the accounting profession?

A) AICPA
B) SEC
C) GAAP
D) FASB
E) CMA

Question 79

A company ended the year with $4.5 million in cash.During this year,it had earned $2.4 million in operating and financing activities.Which of the following statements is necessarily TRUE?

A) The company started the year with less than $2.1 million.
B) The company started the year with more than $2.1 million.
C) The company started the year with $2.1 million minus the amount of investing activities during the year.
D) The company started the year with $2.1 million plus the amount of investing activities during the year.
E) The company started the year with $4.5 million in cash.

Question 80

Which of the following bodies formulates the generally accepted accounting principles?

A) Accounting Disclosure Board
B) Financial Accounting Standards Board
C) Association of Certified Fraud Examiners
D) Securities and Exchange Commission
E) American Institute of Certified Public Accountants