Deck 8: Accounting: Decision Making by the Numbers

Question 1

In the context of franchises, the term accounts receivable refers to money owed to a parent company by franchisees who bought its goods on credit.

Answer 1

True

Question 2

In the accounting equation, assets are equal to liabilities minus the owners' equity.

Answer 2

False

Question 3

The income statement is also known as the statement of financial position.

Answer 3

False

Question 4

Inventory is an example of a current asset.

Question 5

Contingent expenses are costs that a firm incurs in the regular functioning of its business.

Question 6

Alexis decides to check with his accountant as to how much money his company owes to the raw materials supplier. To determine this, Alexis should ask the accountant to provide him with the company's balance sheet.

Question 7

The difference between a firm's revenue and its cost of goods sold is its accounts receivable.

Question 8

The Financial Accounting Standards Board (FASB) comprises of thirteen members elected by the Financial Accounting Foundation.

Question 9

Intangible assets are assets that have no physical existence-you can't see or touch them-but they still have value.

Question 10

In order for CPA firms to perform audits with integrity, they must be tied to the firms they audit.

Question 11

Common stock is a key owners' equity account for corporations.

Question 12

The deduction of a firm's expenses from its revenue is shown in the income statement of the firm.

Question 13

The net income of a company is calculated by subtracting expenses from revenue.

Question 14

Expenses such as insurance and advertising that have been cleared before they are due are known as prepaid expenses.

Question 15

Balance sheets usually classify assets into at least two major categories: current assets and property, plant, and equipment assets.

Question 16

The Securities and Exchange Commission (SEC) bans publicly traded corporations from making comparative financial statements.

Question 17

The members of the Financial Accounting Standards Board (FASB) can be reappointed to serve two additional terms after the completion of their first term.

Question 18

The members of the Financial Accounting Standards Board (FASB) are appointed by the Securities and Exchange Commission.

Question 19

Public accountants provide services such as tax preparation, external auditing, or management consulting to clients on a fee basis.

Question 20

John and Elizabeth evaluate three telecommunication companies to determine the best company to invest in. A horizontal analysis will enable them to make comparisons of financial statements of the three companies over the past several years and help in the determination of the increase in their profits.

Question 21

Betty's job entails detecting problems such as embezzlement, waste, mismanagement, and employee theft at her organization. In this case, Betty is a(n) _____.

A) forensic auditor
B) government accountant
C) internal auditor
D) certified public accountant

Question 22

A static budget is based on a single assumed level of sales and is an excellent tool for planning.

Question 23

The direct labor method of costing is a technique to assign product costs based on links between the daily tasks of a company that drive costs and the production of specific products.

Question 24

The employees of an information technology company complain that the company has been spending a lot of funds in wasteful activities, such as office renovation, instead of revising the employees' salaries. In this case, the company should hire a(n) _____ to keep a check on the company's expenses and prevent the problem from aggravating.

A) public prosecutor
B) government accountant
C) internal auditor
D) public accountant

Question 25

The management of Lovelo, a candy manufacturing company, comes across a case of employee theft in their inventory. In this case, the company should seek the help of a(n) _____ to look into the matter.

A) public prosecutor
B) gazetted officer
C) internal auditor
D) district attorney

Question 26

Which of the following is true of government accountants in the United States?

A) They provide services such as tax preparation, external auditing, or management consulting to clients on a fee basis.
B) They help ensure that a nation's banks and other financial institutions comply with the rules and regulations controlling their behavior.
C) They perform a narrow set of accounting functions solely for federal government agencies.
D) They do not need to adhere to the generally accepted accounting principles.

Question 27

A firm's operating budget represents the firm's overall plan of action for a specified time period.

Question 28

Daryl is an accountant in Vansert Inc., a multinational healthcare company. He is responsible for providing analysis, preparing financial statements, and reporting the financial transactions of the company to the deputy chairman of the company. In this scenario, Daryl is most likely a _____.

A) forensic accountant
B) government accountant
C) public accountant
D) management accountant

Question 29

The chief financial officer of NoveauNoir Production Company requests his accountant, Felipe, to prepare a customized report of the cost overruns at the company's production facility in Los Angeles. In this scenario, Felipe is a managerial accountant.

Question 30

Sebastian is an employee at Plowell Inc. His duties include preparing reports and analyzing company data. He also appraises financial performances and verifies the accuracy and validity of the company's internal records. In this scenario, Sebastian's role is that of a _____ in the organization.

A) forensic accountant
B) social audit examiner
C) certified fraud examiner
D) management accountant

Question 31

Luke works in an accounting firm that offers services such as tax preparation and external auditing to corporate companies. Luke is currently providing consultation to a client that deals in automobile parts. In this scenario, Luke is most likely a:

A) public accountant.
B) managerial accountant.
C) government accountant.
D) forensic accountant.

Question 32

Lorraine works for an accounting firm that performs external audits, provides consulting services, and does the tax preparation for other businesses and individuals. Given this information, Lorraine is most likely a _____.

A) forensic accountant
B) public accountant
C) government accountant
D) management accountant

Question 33

In top-down budgeting, top management prepares the budget with the involvement of the middle and supervisory managers.

Question 34

_____ perform a variety of accounting functions for local, state, or federal agencies, such as the Internal Revenue Service (IRS) and the Federal Deposit Insurance Corporation (FDIC).

A) Public prosecutors
B) Government accountants
C) Public accountants
D) Social accountants

Question 35

_____ provide analysis and prepare reports and financial statements for their organization.

A) Public accountants
B) Management accountants
C) Government accountants
D) Forensic accountants

Question 36

Which of the following is a criterion that needs to be fulfilled by an individual to be recognized as a certified public accountant?

A) He or she must serve the Securities and Exchange Commission for at least two years after passing the certified public accountancy examination.
B) He or she must complete the equivalent of 150 semester hours of college education with a heavy emphasis in accounting and other business-related courses.
C) He or she must complete at least three years of direct work experience in the field of accounting.
D) He or she must pass a rigorous five-day, six-part examination.

Question 37

While performing a financial analysis for his organization, Morris discovers that there has been mismanagement of employee funds over the past three months. He immediately reports this to his supervisors. In this scenario, Morris is most likely a(n) _____.

A) public prosecutor
B) government accountant
C) internal auditor
D) public accountant

Question 38

In which of the following ways do public accountants differ from management accountants?

A) Public accountants rely on data provided by top managers, whereas management accounts rely on data provided by middle and supervisory managers.
B) Management accountants are answerable to the Securities and Exchange Commission, whereas public accountants are answerable to their own organization.
C) Management accountants are associated with CPA firms, whereas public accountants can only be internal auditors.
D) Public accountants conduct external audits, whereas management accountants analyze the financial statements of their own organization.

Question 39

Which of the following would most likely be a question asked by the stockholders of a firm?

A) Is performance feedback being given to the employees in a constructive manner?
B) Has the management generated a strong-enough return on their investment?
C) Is the management looking into issues related to harassment at the workplace?
D) Are there suppliers in the market who can provide resources at a lower cost?

Question 40

The Securities and Exchange Commission hires Tim to procure and analyze data on the state's tax revenues and expenditures to ensure that they are recorded and reported in accordance with regulations and requirements. In this case, Tim is most likely a(n) _____.

A) external auditor
B) government accountant
C) public prosecutor
D) public accountant

Question 41

Which of the following is true of balance sheets?

A) The balance sheets of different firms vary in specifics.
B) They identify the sources and uses of cash for firms in a given accounting period.
C) All balance sheets are organized to reflect the profitability index of firms.
D) They do not include the value of the intangible assets of firms.

Question 42

The three kinds of basic financial statements that are prepared in financial accounting are:

A) statement of debts, letter of credit, and articles of incorporation.
B) comfort letter, master budget, and credit statement.
C) balance sheet, income statement, and statement of cash flows.
D) pro forma report, request for proposal, and articles of incorporation.

Question 43

Machvile Corporation, a robotics company, decides to acquire Chancera Inc., a start-up company that operates within the same industry. To better assess its decision, the management of Machvile Corporation needs to find out the value of Chancera Inc.'s total assets. The management has information regarding Chancera Inc.'s liabilities and stockholders' equity. In this scenario, the management should most likely use the _____ to get the required information.

A) accounting equation
B) profitability index
C) quartic equation
D) liquidity index

Question 44

Through the establishment of a set of generally accepted accounting principles (GAAP), the Financial Accounting Standards Board (FASB) aims to ensure that financial statements are:

A) flexible.
B) inexplicit.
C) comparable.
D) incongruent.

Question 45

In the context of financial accounting, the external stakeholders of a firm:

A) are seldom interested in analyzing detailed accounting information about the individual departments within the firm.
B) are least interested in looking at the firm at a macro level.
C) are not affected by the financial performance of the firm.
D) seldom want to know how the firm's financial condition has changed over a period of several years by looking at its account statements.

Question 46

Rolette Clemens is a financial institution that provides loans to businesses. It rejects a textile company's request for a loan after it reviews the value of the company's assets, liabilities, and owners' equity and finds them to be unsatisfactory. In this scenario, Rolette Clemens most likely analyzed the company's _____ to assess its financial condition.

A) statement of cash flows
B) balance sheet
C) income statement
D) operating budget

Question 47

The assets of Prosian Italia, a marble and granite company, amount to $400 million, and its liabilities add up to $180 million. Based on the accounting equation, Prosian Italia's owners' equity is equal to _____.

A) $580 million
B) $72,000 million
C) $2 million
D) $220 million

Question 48

To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's overall performance, Rowensport Corporation, a multinational company, releases statements that contain details of the company's profits and losses over the past five years. In this scenario, the company is most likely involved in _____.

A) financial accounting
B) cost accounting
C) follow-up auditing
D) social auditing

Question 49

To preserve independence and impartiality, the Financial Accounting Standards Board (FASB) members are required to:

A) serve the board until their retirement.
B) sever all ties with any firms or institutions they served prior to joining the board.
C) sign a non-disclosure agreement and hand over all information of their previous companies to the board.
D) pass a rigorous two-day, four-part examination on major accounting concepts.

Question 50

In the accounting equation, assets are equal to:

A) liabilities plus owners' equity.
B) liabilities divided by gross profit.
C) stockholders' equity subtracted from liabilities.
D) owners' equity multiplied by net income.

Question 51

In the context of financial accounting, if a firm wants to introduce any significant changes in how it prepares its financial statements, _____.

A) it must first pay a fee to the CPA firm conducting its audit
B) it must get the changes preapproved from a district magistrate
C) it must get approval for these changes from at least ten other firms working in the same sector
D) it must first clearly identify and describe these changes as per the generally accepted accounting principles (GAAP)

Question 52

Leemo, a soft drink manufacturing company, sells approximately 400 batches of its soft drinks worth $80,000 every week. In this context, the 400 batches of soft drinks that Leemo produces weekly represent the company's _____.

A) intangible assets
B) current assets
C) defensive assets
D) fixed assets

Question 53

In the context of balance sheets, accounts receivable is an example of _____.

A) current liabilities
B) immovable assets
C) current assets
D) depreciated liabilities

Question 54

In the context of balance sheets, resources owned by a firm are known as _____.

A) holdings
B) assets
C) capitals
D) liabilities

Question 55

Sidney is a member of the Financial Accounting Standards Board (FASB) and is entrusted with the responsibility of establishing accounting principles in the United States. As a member of the board, Sidney:

A) is to serve a seven-year term and cannot be reappointed to serve another term.
B) must sever all ties with any firms or institutions that she served prior to joining the board.
C) is responsible for directing the Securities and Exchange Commission to enforce the accounting standards.
D) must pass a rigorous two-day, four-part examination to be promoted as a certified fraud examiner.

Question 56

Identify a true statement about current assets.

A) They include the long-term assets of a firm.
B) They are resources that a firm expects to convert into cash within a year.
C) They are resources that a firm decides to set aside to pay its long-term liabilities.
D) They include a firm's tangible assets, such as machinery and equipment.

Question 57

Marcus is a venture capitalist who invests in start-ups and small businesses. He is interested in investing in an online start-up company that has been in business for a year. Before making a decision, Marcus does some research on the value of the company's assets and liabilities. In this scenario, Marcus is most likely analyzing the company's:

A) income statement.
B) balance sheet.
C) articles of incorporation.
D) operating budget.

Question 58

In the context of financial statements, which of the following statements is true of large corporations?

A) Large corporations with publicly traded stock must provide an annual report containing financial statements to all stockholders.
B) They must file reports with the Securities and Exchange Commission every five years.
C) Large corporations with privately traded stock must provide an annual report containing details of incoming and outgoing cash.
D) They must file quarterly and annual reports with the Financial Accounting Standards Board.

Question 59

The owners' equity of Senesta Corp., an event management company, adds up to $23 million, and its liabilities add up to $17 million. Based on the accounting equation, the assets of Senesta Corp. are worth _____.

A) $1.35 million
B) $391 million
C) $7 million
D) $40 million

Question 60

Which of the following is true of current assets?

A) They include the long-term assets of a firm.
B) They are resources that a firm expects to use up within a year.
C) They include a firm's tangible assets, such as machinery and equipment.
D) They are resources that a firm decides to set aside to pay its long-term liabilities.

Question 61

Pastello, a bakery in New Jersey, needs to sell all the goods in its inventory before they perish. The bakery owners, Mark and Julia, plan to use the cash received from selling the goods to open a new outlet of Pastello in a different locality. In this scenario, the goods stored in Pastello's inventory represent its _____.

A) long-term liabilities
B) current liabilities
C) current assets
D) defensive assets

Question 62

The current liabilities of a company are reflected in the:

A) wages owed to the workers for work that they have already completed.
B) value of the additional shares floated by the company for more revenue.
C) money that is lent by the company to a borrower.
D) long-term loans that are taken by the company.

Question 63

Which of the following is an example of an intangible asset?

A) The cash received by a company from the sale of its inventory stock
B) The new machinery bought by a clothing company
C) The land leased out by a farmer to a private company for commercial use
D) The goodwill showed by a food manufacturing company by helping its competitor at a time of crisis

Question 64

In the context of owners' equity, which of the following is true of retained earnings?

A) They refer to a firm's additional profits that are used for paying executive salary.
B) They are accumulated earnings reinvested in a company rather than being paid to the owners.
C) They are a firm's earnings that are kept aside for crisis management situations.
D) They refer to salaries that are withheld in case an employee is involved in fraudulent activities.

Question 65

Miller is the owner of a restaurant that has several franchises. One of the franchisees owes Miller a sum of $18,000 for the goods that he had bought from Miller on credit. In this scenario, the money owed to Miller is known as _____.

A) checkoff
B) the freight expense
C) accounts receivable
D) the laid-down cost

Question 66

In the context of balance sheets, retained earnings are a major component of the _____ section.

A) owners' equity
B) statement of cash flows
C) company's liabilities
D) articles of incorporation

Question 67

Hopins, a medium-sized firm, has total assets whose value is equivalent to the sum of the funds provided by its owners and the loans taken by the firm from several financial institutions to purchase those assets. In this context, it can be said that:

A) the stockholders' equity of Hopins always equals the dollar value of its assets.
B) the balance sheet of Hopins satisfies the accounting equation.
C) the value for accounts receivable of Hopins is equal to the value of its current liabilities.
D) the statement of cash flows of Hopins satisfies the quartic equation.

Question 68

In the context of balance sheets, the accounting equation tells us that the value of a firm's assets must be:

A) greater than the amount of financing provided by owners plus the amount provided by creditors to purchase those assets.
B) equal to the amount of financing provided by owners plus the amount provided by creditors to purchase those assets.
C) negligible when compared to the amount of financing provided by owners plus the amount provided by creditors to purchase those assets.
D) less than the amount of financing provided by owners plus the amount provided by creditors to purchase those assets.

Question 69

The _____ summarizes the financial results of a firm's operations over a given period of time.

A) balance sheet
B) income statement
C) statement of cash flows
D) statement of stockholders' equity

Question 70

Milora, a clothing company, purchases 50 sewing machines from a company called Quick Sew on credit. Milora is supposed to pay an amount of $76,000 to Quick Sew. This amount is due within a year of the date on the balance sheet. In this scenario, the amount of credit that Milora owes Quick Sew is referred to as Milora's _____.

A) current liability
B) borrowing base
C) charge-off
D) intangible asset

Question 71

A famous musician sells the copyright of one of his songs to a record company for $2 million. In this scenario, the sale of the copyright of the song exemplifies the sale of a(n) _____.

A) current liability
B) operating liability
C) tangible asset
D) intangible asset

Question 72

Balance sheets usually organize liabilities into two broad categories, which are:

A) long-term liabilities and fixed liabilities.
B) contingent liabilities and long-term liabilities.
C) contingent liabilities and current liabilities.
D) current liabilities and long-term liabilities.

Question 73

In the context of balance sheets, patents, trademarks, and copyrights are examples of _____.

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

Question 74

The total assets of a dairy products manufacturing company are calculated. However, a sum of $5 million from the value of the company's property, plant, and equipment assets is not taken into account as the machinery is bound to become unusable after a certain period of time. In the context of balance sheets, the amount of $5 million that is subtracted from the original value of the total assets is called _____.

A) deferred income
B) bequest value
C) accumulated depreciation
D) laid-down cost

Question 75

Daniel, the owner of a bookstore, decides to reinvest his personal profits from the current fiscal year toward renovating the store and expanding its inventory. In the context of owners' equity, the profits that Daniel reinvests in the bookstore are called:

A) bonus shares.
B) retained earnings.
C) current liabilities.
D) equity releases.

Question 76

Which of the following is true of accumulated depreciation?

A) It is added to the value of the total assets of a company.
B) It is added to the long-term liabilities of a company.
C) It represents the total value of the damaged goods present in a batch of supplies.
D) It is the decrease in the value of assets such as machinery, equipment, and property over time.

Question 77

In the context of balance sheets, assets such as machinery, building, and equipment have a limited useful life, so accountants subtract _____ from the original value of these assets, to reflect the fact that these assets are being used up over time.

A) deferred income
B) bequest value
C) accumulated depreciation
D) laid-down cost

Question 78

Chestelle Corporation, a sports equipment manufacturing company, borrows a considerable sum of money as loan from GRJ Bank, a private bank, at a time of financial crisis. The corporation has four years to repay the principal amount along with the interest to the bank. In this scenario, the money that Chestelle Corporation owes the bank represents its _____.

A) long-term liability
B) accumulated depreciation
C) owners' equity
D) bequest value

Question 79

Jonathan, a grocery store owner, is due to pay suppliers for delivering goods for a specific month. To ascertain how much money he owes the suppliers, Jonathan should check the:

A) rate card.
B) balance sheet.
C) pro forma statement.
D) operating budget.

Question 80

In the context of balance sheets, which of the following is a difference between liabilities and owners' equity?

A) Liabilities refer to the claims internal stakeholders have against the external stakeholders, whereas owners' equity refers to claims external stakeholders have against the internal stakeholders.
B) Liabilities indicate the claims outsiders have against the firm's assets, whereas owners' equity refers to the claims the owners have against their firm's assets.
C) Owners' equity indicates the claims internal stakeholders have against the firm's assets, whereas liabilities refer to the claims external stakeholders have against the firm's assets.
D) Owners' equity indicates the claims outsiders have against the firm's assets, whereas liabilities refer to the claims the owners have against their firm's assets.