Deck 1: Accounting in Action

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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 23

Accountants do not have to worry about issues of ethics.

Question 24

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

Question 25

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

Question 26

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

Question 27

The income statement is sometimes referred to as the statement of operations.

Question 28

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

Question 29

The basic accounting equation states that Assets = Liabilities.

Question 30

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 31

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

Question 32

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

Question 33

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

Question 34

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 35

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

Question 36

A partnership must have more than one owner.

Question 37

Accountants record both internal and external transactions.

Question 38

A balance sheet reports the assets and liabilities of a company for a specific period of time.

Question 39

The purchase of store equipment for cash reduces stockholders' equity by an equal amount.

Question 40

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

Question 41

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

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

Question 42

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 43

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 44

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 45

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 46

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 47

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 48

The accounting process is correctly sequenced as

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

Question 49

In the retained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss).

Question 50

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 51

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

Question 52

Accounting consists of three basic activities which are related to economic events of an organization. These include

A)identifying, recording, and communicating
B)identifying, calculating, and responding
C)classifying, numbering, and reporting
D)issuing, reporting, and classifying

Question 53

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 54

All of the following statements are correct except

A)Good decision-making depends on good information.
B)A vital element in communicating economic events is the accountant's ability to analyze and interpret reported information.
C)The origins of accounting are generally attributed to Socrates, a classical Greek philosopher, who promoted accounting as a social contract.
D)The information that a user of financial information needs depends upon the kinds of decisions the user makes.

Question 55

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

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

Question 56

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

Question 57

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 58

Accountants refer to an economic event as a

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

Question 59

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 60

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 61

In order to increase comparability, in recent years, the FASB and IASB have made efforts to reduce the differences between U.S.GAAP and IFRS through a process known as

A)convergence
B)monetary unit assumption
C)the cost principle
D)the fair value principle

Question 62

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 63

Andre Dickinson, owner of Andre's Fine Wines, also owns a personal residence that costs $475,000. The market value of his residence is $625,000. During preparation of the financial statements for Andre's Fine Wines, the accounting concept most relevant to the presentation of Andre's home is

A)the economic entity assumption.
B)the fair value principle.
C)the monetary unit assumption.
D)convergence.

Question 64

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 65

GAAP stands for

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

Question 66

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

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

Question 67

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 answers are correct.

Question 68

Martin Corporation purchased land in 2007 for $290,000. In 2015, it purchased a nearly identical parcel of land for $460,000. In its 2015 balance sheet, Martin valued these two parcels of land at a combined value of $920,000. By reporting the land in this manner, Martin Corp. has violated the

A)historical cost principle
B)convergence
C)economic entity assumption
D)monetary unit assumption

Question 69

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 70

The fair value principle is applied for

A)all assets.
B)current assets.
C)buildings.
D)investment securities.

Question 71

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

A)appraisal value.
B)cost.
C)market price.
D)book value.

Question 72

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 73

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 74

The cost of an asset and its fair 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 75

All of the following are steps in analyzing ethics cases in financial reporting except

A)identify and analyze the principle elements in the situation.
B)contact law enforcement regarding any violations of corporate ethics codes
C)identify the alternatives and weigh the impact of each alternative on various stakeholders.
D)recognize an ethical situation and the ethical issues involved.

Question 76

Financial information that is capable of making a difference in a decision is

A)faithfully representative.
B)relevant.
C)convergent.
D)generally accepted.

Question 77

The Duce Company has five plants nationwide that cost a total of $100 million. The current fair 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 78

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 79

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 80

The body of theory underlying accounting is not based on

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