Deck 1: Accounting in Action

Question 1

The study of accounting is not useful for a business career unless your career objective is to become an accountant.

Answer 1

False

Question 2

The cost and fair market value of an asset are the same at the time of acquisition and in all subsequent periods.

Answer 2

False

Question 3

Accountants rely on a fundamental business concept-ethical behavior-in reporting financial information.

Answer 3

True

Question 4

Financial statements are the major means of communicating accounting information to interested parties.

Question 5

The Securities and Exchange Commission oversees U.S. financial markets and accounting standard-setting bodies.

Question 6

The primary accounting standard-setting body in the United States is the International Accounting Standards Board.

Question 7

The Financial Accounting Standards Board is a part of the Securities and Exchange Commission.

Question 8

Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.

Question 9

Private accountants are accountants who are not employees of business enterprises.

Question 10

Owners of business firms are the only people who need accounting information.

Question 11

Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs.

Question 12

Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners.

Question 13

Transactions that can be measured in dollars and cents are recorded in the financial information system.

Question 14

Accounting information is used only by external users with a financial interest in a business enterprise.

Question 15

The hiring of a new company president is an economic event recorded by the financial information system.

Question 16

A working knowledge of accounting is not relevant to a lawyer or an architect.

Question 17

The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.

Question 18

The origins of accounting are attributed to Luca Pacioli, a famous mathematician.

Question 19

Management of a business enterprise is the major external user of information.

Question 20

Accounting communicates financial information about a business enterprise to both internal and external users.

Question 21

A partnership must have more than one owner.

Question 22

The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.

Question 23

Net income for the period is determined by subtracting total expenses and drawings from total revenues.

Question 24

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

Question 25

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

Question 26

The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar.

Question 27

In order to possess future service potential, an asset must have physical substance.

Question 28

Accountants do not have to worry about issues of ethics.

Question 29

The purchase of office equipment on credit increases total assets and total liabilities.

Question 30

Owners' claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

Question 31

The basic accounting equation states that Assets = Liabilities.

Question 32

In the owner's equity statement, revenues are listed first, followed by expenses, and net income (or net loss).

Question 33

Accountants record both internal and external transactions.

Question 34

Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.

Question 35

At the time an asset is acquired, cost and value should be the same.

Question 36

Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.

Question 37

Identifying is the process of keeping a chronological diary of events measured in dollars and cents.

Question 38

The purchase of store equipment for cash reduces the owner's equity by an equal amount.

Question 39

External transactions involve economic events between the company and some other enterprise or party.

Question 40

The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.

Question 41

Which of the following is an external user of accounting information?

A) Labor unions
B) Finance directors
C) Company officers
D) Managers

Question 42

Which of the following would not be considered an internal user of accounting data for the GHI Company?

A) President of the company
B) Production manager
C) Merchandise inventory clerk
D) President of the employees' labor union

Question 43

A private accountant can perform many activities in a business organization but would not work in

A) budgeting.
B) accounting information systems.
C) external auditing.
D) tax accounting.

Question 44

The process of recording transactions has become more efficient because

A) fewer events can be quantified in financial terms.
B) computers are used in processing business events.
C) more people have been hired to record business transactions.
D) business events are recorded only at the end of the year.

Question 45

Which of the following would not be considered an external user of accounting data for the GHI Company?

A) Internal Revenue Service Agent
B) Management
C) Creditors
D) Customers

Question 46

Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?

A) The appointment of a new CPA firm to perform an audit.
B) The purchase of a new computer.
C) The sale of store equipment.
D) Payment of income taxes.

Question 47

The accounting process is correctly sequenced as

A) identification, communication, recording.
B) recording, communication, identification.
C) identification, recording, communication.
D) communication, recording, identification.

Question 48

Which list below best describes the major services performed by public accountants?

A) Bookkeeping, mergers, budgets
B) Employee training, auditing, bookkeeping
C) Auditing, taxation, management consulting
D) Cost accounting, production scheduling, recruiting

Question 49

The origins of accounting are generally attributed to the work of

A) Christopher Columbus.
B) Abner Doubleday.
C) Luca Pacioli.
D) Leonardo da Vinci.

Question 50

The accounting process involves all of the following except

A) identifying economic transactions that are relevant to the business.
B) communicating financial information to users by preparing financial reports.
C) recording nonquantifiable economic events.
D) analyzing and interpreting financial reports.

Question 51

Which of the following techniques are not used by accountants to interpret and report financial information?

A) Graphs
B) Special memos for each class of external users
C) Charts
D) Ratios

Question 52

Which one of the following is not an external user of accounting information?

A) Regulatory agencies
B) Customers
C) Investors
D) All of these are external users

Question 53

Communication of economic events is the part of the accounting process that involves

A) identifying economic events.
B) quantifying transactions into dollars and cents.
C) preparing accounting reports.
D) recording and classifying information.

Question 54

All of the following are services offered by public accountants except

A) budgeting.
B) auditing.
C) tax planning.
D) consulting.

Question 55

Preparing tax returns and engaging in tax planning is performed by

A) public accountants only.
B) private accountants only.
C) both public and private accountants.
D) IRS accountants only.

Question 56

Accountants refer to an economic event as a

A) purchase.
B) sale.
C) transaction.
D) change in ownership.

Question 57

Financial accounting provides economic and financial information for all of the following except

A) creditors.
B) investors.
C) managers.
D) other external users.

Question 58

Which of the following would not be considered internal users of accounting data for a company?

A) The president of a company
B) The controller of a company
C) Creditors of a company
D) Salesmen of the company

Question 59

The use of computers in recording business events

A) has made the recording process more efficient.
B) does not use the same principles as manual accounting systems.
C) has greatly impacted the identification stage of the accounting process.
D) is economical only for large businesses.

Question 60

Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process?

A) Identification
B) Communication
C) Recording
D) Analysis

Question 61

The private sector organization involved in developing accounting principles is the

A) Feasible Accounting Standards Body.
B) Financial Accounting Studies Board.
C) Financial Accounting Standards Board.
D) Financial Auditors' Standards Body.

Question 62

The SEC and FASB are two organizations that are primarily responsible for establishing generally accepted accounting principles. It is true that

A) they are both governmental agencies.
B) the SEC is a private organization of accountants.
C) the SEC often mandates guidelines when no accounting principles exist.
D) the SEC and FASB rarely cooperate in developing accounting standards.

Question 63

The cost principle requires that when assets are acquired, they be recorded at

A) appraisal value.
B) historical cost.
C) market price.
D) exchange price paid.

Question 64

GAAP stands for

A) Generally Accepted Auditing Procedures.
B) Generally Accepted Accounting Principles.
C) Generally Accepted Auditing Principles.
D) Generally Accepted Accounting Procedures.

Question 65

Which of the following is not a characteristic of the cost principle?

A) Reliability
B) Subjectivity
C) Objectivity
D) Verifiability

Question 66

The final step in solving an ethical dilemma is to

A) identify and analyze the principal elements in the situation.
B) recognize an ethical situation.
C) identify the alternatives and weigh the impact of each alternative on stakeholders.
D) recognize the ethical issues involved.

Question 67

A small neighborhood barber shop that is operated by its owner would likely be organized as a

A) joint venture.
B) partnership.
C) corporation.
D) proprietorship.

Question 68

All of the following are advantages cost has over other valuations except that it

A) is reliable.
B) can be objectively measured.
C) can be verified.
D) is relevant.

Question 69

The cost of an asset and its fair market value are

A) never the same.
B) the same when the asset is sold.
C) irrelevant when the asset is used by the business in its operations.
D) the same on the date of acquisition.

Question 70

The first step in solving an ethical dilemma is to

A) identify and analyze the principal elements in the situation.
B) identify the alternatives.
C) recognize an ethical situation and the ethical issues involved.
D) weigh the impact of each alternative on various stakeholders.

Question 71

Generally accepted accounting principles are

A) income tax regulations of the Internal Revenue Service.
B) standards that indicate how to report economic events.
C) theories that are based on physical laws of the universe.
D) principles that have been proven correct by academic researchers.

Question 72

John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a

A) joint venture.
B) partnership.
C) corporation.
D) proprietorship.

Question 73

The partnership form of business organization

A) is a separate legal entity.
B) is a common form of organization for service-type businesses.
C) enjoys an unlimited life.
D) has limited liability.

Question 74

The economic entity assumption requires that the activities

A) of different entities can be combined if all the entities are corporations.
B) must be reported to the Securities and Exchange Commission.
C) of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
D) of an entity be kept separate from the activities of its owner.

Question 75

The proprietorship form of business organization

A) must have at least three owners in most states.
B) represents the largest number of businesses in the United States.
C) combines the records of the business with the personal records of the owner.
D) is characterized by a legal distinction between the business as an economic unit and the owner.

Question 76

The Duce Company has five plants nationwide that cost $100 million. The current market value of the plants is $500 million. The plants will be recorded and reported as assets at

A) $100 million.
B) $600 million.
C) $400 million.
D) $500 million.

Question 77

Ethics are the standards of conduct by which one's actions are judged as

A) right or wrong.
B) honest or dishonest.
C) fair or unfair.
D) all of these.

Question 78

The body of theory underlying accounting is not based on

A) physical laws of nature.
B) concepts.
C) principles.
D) definitions.

Question 79

A business organized as a corporation

A) is not a separate legal entity in most states.
B) requires that stockholders be personally liable for the debts of the business.
C) is owned by its stockholders.
D) terminates when one of its original stockholders dies.

Question 80

Which of the following is not an advantage of the corporate form of business organization?

A) Limited liability of stockholders
B) Transferability of ownership
C) Unlimited personal liability for stockholders
D) Unlimited life