Deck 1: Accounting in Action

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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 12

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

Question 13

A partnership must have more than one owner.

Question 14

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

Question 15

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

Question 16

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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

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

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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 30

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

Question 31

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

Question 32

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

Question 33

Accountants do not have to worry about issues of ethics.

Question 34

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

Question 35

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

Question 36

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

Question 37

The basic accounting equation states that Assets = Liabilities.

Question 38

Accountants record both internal and external transactions.

Question 39

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

Question 40

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

Question 41

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 42

All of the following are services offered by public accountants except

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

Question 43

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 44

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 45

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

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

Question 46

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 47

Interpretation of reported information involves each of the following except

A) limitations of reported data.
B) meaning of reported data.
C) uses of reported data.
D) All of these choices are correct.

Question 48

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

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

Question 49

The starting point of the accounting process is

A) communicating information to users.
B) identifying economic events.
C) recording economic events.
D) None of these answers are correct.

Question 50

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 51

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

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

Question 52

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 53

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 54

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 55

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

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

Question 56

Accountants refer to an economic event as a

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

Question 57

The accounting process is correctly sequenced as

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

Question 58

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 59

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

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

Question 60

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

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

Question 61

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

Question 62

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

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

Question 63

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 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

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 66

The historical 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 67

The fair value principle is applied for

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

Question 68

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 69

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 70

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 71

The body of theory underlying accounting is not based on

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

Question 72

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 73

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 74

The Dulce Company has five plants nationwide that cost a total of $200 million. The current fair value of the plants is $600 million. The plants will be recorded and reported as assets at

A) $200 million.
B) $600 million.
C) $400 million.
D) $800 million.

Question 75

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 76

GAAP stands for

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

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 answer choices are correct.

Question 78

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 79

George and Ringo 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 80

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.