Deck 1: Accounting and the Business Environment

Question 1

Managerial accounting focuses on information needed by lenders, customers, and the federal government.

Answer 1

False

Question 2

A creditor is any person who has an ownership interest in a business.

Answer 2

False

Question 3

The field of accounting that focuses on providing information for internal decision makers is ________.

A) managerial accounting
B) financial accounting
C) nonmonetary accounting
D) governmental accounting

Answer 3

A

Question 4

Managerial accounting focuses on providing information for external decision makers.

Question 5

Which of the following users would rely on managerial accounting information for decision-making purposes?

A) potential investors
B) creditors
C) customers
D) company managers

Question 6

Outside investors ordinarily use financial accounting information to decide whether or not to invest in a business.

Question 7

Business owners use accounting information to set goals, evaluate progress toward those goals, and make adjustments when needed.

Question 8

Income tax is calculated using accounting information.

Question 9

Critical thinking and judgment skills are not necessary for accountants because technology has made the activities routine.

Question 10

Accounting is the information system that measures business activities, processes the information into reports, and communicates the results to decision makers.

Question 11

The field of accounting that focuses on providing information for external decision makers is ________.

A) managerial accounting
B) financial accounting
C) cost accounting
D) nonmonetary accounting

Question 12

Decision makers are looking for an international accounting language because the most significant change in the business world in the last decade has been the huge increase in international commerce.

Question 13

Managerial accounting provides information to ________.

A) internal decision makers
B) outside investors and lenders
C) creditors
D) taxing authorities

Question 14

Accounting is referred to as the language of business because it is the method of communicating business information to decision makers.

Question 15

Any person or business to whom a business owes money is called the business's creditor.

Question 16

Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities.

Question 17

A creditor is a person who owes money to the business.

Question 18

Accounting starts with economic activities that accountants review and evaluate using critical thinking and judgment to create useful information that helps individuals make good decisions.

Question 19

Investors primarily use managerial accounting information for decision-making purposes.

Question 20

Which of the following is a decision made by an internal user?

A) Should we lend money to the business?
B) How much money should the business budget for production?
C) Should I invest in the business?
D) All of the above are correct.

Question 21

Match the accounting position to the job description.


-Auditor

A)Performs reviews of companies to ensure compliance to rules and regulations
B)Compiles financial statements, interacts with auditors, oversees regulatory reporting
C)Specializes in accounting and financial management knowledge
D)Serves the general public

Question 22

Match the accounting position to the job description.


-Certified Management Accountant

A)Performs reviews of companies to ensure compliance to rules and regulations
B)Compiles financial statements, interacts with auditors, oversees regulatory reporting
C)Specializes in accounting and financial management knowledge
D)Serves the general public

Question 23

Match the accounting position to the job description.


-________ are professional accountants who serve the general public, not one particular company.

A) Certified public accountants
B) Financial managers
C) Internal auditors
D) Controllers

Question 24

Financial analysts perform reviews of companies to ensure compliance to rules and regulations.

Question 25

The Financial Accounting Standards Board (FASB) works with the following groups. Which of these groups was congressionally created?

A) Institute of Management Accountants
B) Public Company Accounting Oversight Board
C) International Accounting Standards Board
D) American Institute of CPAs

Question 26

Certified Management Accountants (CMAs) specialize only in financial management knowledge and always work for a single company.

Question 27

Which of the following organizations is responsible for the creation and governance of accounting standards in the United States?

A) Financial Accounting Standards Board
B) Institute of Management Accountants
C) American Institute of Certified Public Accountants
D) Securities and Exchange Commission

Question 28

Certified Public Accountants are licensed professional accountants who serve the general public.

Question 29

For each of the following decisions, identify if it applies to a financial accounting (FA) or a managerial accounting (MA) decision maker. Your answer should be either FA or MA. Include only one choice for each accounting decision.
$$\begin{array} { | l | l | } \hline \text { Accounting Decision } & \text { Decision Maker (FA or MA) } \\\hline\text { Should the business expand to a } & \\\text { new location? } & \\\hline \text { Is the business profitable? } & \\\hline \text { How do actual costs compare to } & \\\text { budgeted costs? } & \\\hline \text { Should I invest in the business? } & \\\hline\end{array}$$

Question 30

The primary objective of financial reporting is to ensure that all investment decisions are risk free.

Question 31

To be useful, accounting must be relevant and have faithful representation.

Question 32

The SEC is a governmental agency that oversees world-wide financial markets and organizations that set accounting standards.

Question 33

The guidelines for accounting information are called Generally Accepted Accounting Principles (GAAP).

Question 34

The Financial Accounting Standards Board is a U.S. governmental agency that oversees the creation and governance of accounting standards.

Question 35

Match the accounting position to the job description.


-Controller

A)Performs reviews of companies to ensure compliance to rules and regulations
B)Compiles financial statements, interacts with auditors, oversees regulatory reporting
C)Specializes in accounting and financial management knowledge
D)Serves the general public

Question 36

List three private groups that work with the Financial Accounting Standards Board (FASB).

Question 37

The primary objective of financial reporting is to provide information useful for making investment and lending decisions.

Question 38

GAAP refers to guidelines for accounting information in the United States. The acronym GAAP in this statement refers to ________.

A) Globally Accepted Accounting Policies
B) Government Approved Accounting Principles
C) Generally Accredited Accounting Policies
D) Generally Accepted Accounting Principles

Question 39

Match the accounting position to the job description.


-Certified Public Accountant

A)Performs reviews of companies to ensure compliance to rules and regulations
B)Compiles financial statements, interacts with auditors, oversees regulatory reporting
C)Specializes in accounting and financial management knowledge
D)Serves the general public

Question 40

For each user of accounting information, identify if the user would use financial accounting (FA) or managerial accounting (MA).
$\begin{array}{|l|l|}\hline\text { Accounting Information User } & \text { FA or MA } \\\hline \text { Business manager } & \\\hline \text { Creditor } & \\\hline \text { Stockholder } & \\\hline \text { Human resources director } & \\\hline \text { Internal Revenue Service } &\\\hline\end{array}$

Question 41

What is the primary objective of financial reporting?

Question 42

In a sole proprietorship, the owner is personally liable for the debts of the business.

Question 43

The creation of a corporation begins when its incorporators obtain a charter from the state.

Question 44

Which of the following is a major reason why corporate ownership is popular in the United States?

A) Stockholders have limited liability for the debts of the corporation.
B) Most corporations are small- or medium-sized.
C) The life of a corporation is limited by the death of the owner.
D) A corporation is usually managed by the owners.

Question 45

An economic entity is an organization that stands apart as a separate economic entity.

Question 46

A corporation's chief executive officer appoints the members of the board of directors.

Question 47

Regarding generally accepted accounting principles (GAAP), which of the following statements is incorrect?

A) GAAP rests on a conceptual framework that identifies the objectives, characteristics, elements, and implementation of financial statements.
B) The primary objective of financial reporting is to provide information useful for making investment and lending decisions.
C) Relevant information is complete, neutral, and free from error.
D) GAAP is currently formulated by the Financial Accounting Standards Board.

Question 48

Which of the following actions determines when a corporation comes into existence?

A) The charter is obtained from the federal government.
B) The incorporators pay fees, sign the charter, and file required documents with the state.
C) The first share of stock is issued.
D) The corporate bylaws are written.

Question 49

Which of the follow statements regarding the primary objective of financial reporting is correct?

A) The primary objective of financial reporting is to provide information useful for the acquisition of long-term assets.
B) Information that is faithfully represented is complete, neutral, and free from error.
C) Relevant information ensures that users of the information will make the correct decisions.
D) To be useful, information must follow the Generally Accepted Accounting Principles which are created and governed by the Securities and Exchange Commission.

Question 50

A corporation's board of directors is elected by the chairperson of the company.

Question 51

Mutual agency of the owners is not present in a corporation as it is in a partnership.

Question 52

Regarding a business organized as a partnership, which of the following is an incorrect statement?

A) Partners pay tax on their share of the partnership earnings.
B) Partners are personally liable for the debts of the business.
C) A partnership's life is not dependent on a specific individual's ownership.
D) Mutual agency is present in a partnership.

Question 53

The most that the owner of a sole proprietorship can lose, as a result of business debts or lawsuits, is the amount he/she has invested in the business.

Question 54

Members of a limited-liability company (LLC) are not personally liable for the debts of the business.

Question 55

An entity refers to one business which includes its owners.

Question 56

A business can be organized as a sole proprietorship, partnership, corporation, or limited-liability company (LLC).

Question 57

What are Generally Accepted Accounting Principles (GAAP)? Which entity is currently responsible for determining GAAP?

Question 58

As per the economic entity assumption, an organization and its owners should be seen as the same entity.

Question 59

Which of the following is a characteristic of a corporation?

A) Corporations are separate taxable entities.
B) Lenders of a corporation do not have the right to claim the corporation's assets to satisfy their obligations.
C) Corporations are subjected to less governmental regulation than other forms of businesses.
D) Each stockholder has the authority to commit the corporation to a binding contract through his/her actions.

Question 60

In a limited-liability company (LLC), the members are personally liable for the debts of the business.

Question 61

Mason Company purchased land for $30,000. The president of Mason Company believes that the land is actually worth $35,000. The land can be recorded at $35,000.

Question 62

Marcus has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organization, which type of business organization, in effect, has he chosen?

A) A limited-liability company
B) A partnership
C) A corporation
D) A sole proprietorship

Question 63

Briefly discuss each of the following corporate characteristics.
A. Corporate taxation
B. Separate legal entity
C. No mutual agency

Question 64

Which of the following statements is true of a corporation?

A) Corporations pay the same variety of taxes as partnerships.
B) Although a corporation is a separate legal entity, it cannot be sued.
C) Any stockholder of a corporation can commit the corporation to a binding contract.
D) The owners of a corporation are called stockholders.

Question 65

Jason Ford has been the sole owner of a bicycle sales and repair shop for several years. Which of the following business types would limit Jason's personal liability exposure to the entity's debts?

A) partnership
B) limited-liability company
C) sole proprietorship
D) Any of the above.

Question 66

List and briefly discuss four features that distinguish a corporation from other types of business organizations.

Question 67

Briefly discuss each of the following corporate characteristics.
A. No mutual agency
B. Separate legal entity
C. Separation of ownership and management

Question 68

The ultimate control of the corporation rests with the ________.

A) board of directors
B) stockholders
C) chairperson of Board of Directors
D) chief operating officer

Question 69

Lisa Smith decided to start her CPA practice as a professional corporation, Smith CPA, PC. The corporation purchased an office building for $35,000. The real estate agent said the building was worth $50,000 in the current market. The corporation recorded the building as a $50,000 asset because Lisa believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?

A) cost principle
B) economic entity assumption
C) monetary unit assumption
D) going concern assumption

Question 70

Which of the following statements is true of a sole proprietorship?

A) A sole proprietorship joins two or more individuals as co-owners.
B) The sole proprietor is personally liable for the liabilities of the business.
C) A sole proprietorship is taxed separately from the owner.
D) A sole proprietorship has to pay business income taxes.

Question 71

Regarding the separation of corporate ownership and management, which of the following is a true statement?

A) The corporate officers elect the board of directors.
B) The corporation runs better with day-to-day input from stockholders.
C) Stockholders are required to manage the business.
D) Stockholders own the business, but a board of directors appoints corporate officers to manage the business.

Question 72

In a limited-liability company, the ________.

A) members are personally liable to pay the company's debts
B) business terminates at the death of a member
C) members are liable for each other's actions
D) members pay income tax on their share of earnings

Question 73

The earnings of a sole proprietorship are ________.

A) combined with the personal income of the proprietor
B) not combined with the proprietor's personal income
C) subject to double taxation
D) handled similarly to that of a corporation

Question 74

Since cost is a reliable measure, the cost principle holds that the accounting records should continue reporting an asset at its historical cost over its useful life.

Question 75

Which of the following statements is true of the corporate form of business?

A) The board of directors sets policy for the corporation and appoints the officers.
B) Changes in the ownership of stock have a negative effect on the continuity of the corporation.
C) Any stockholder may commit the corporation to a contract.
D) It is easy for stockholders to lodge an effective protest against management.

Question 76

Which of the following is a characteristic of a limited-liability company (LLC)?

A) An LLC's life is terminated at any member's choice or death.
B) Each member of an LLC is liable only for his or her own actions.
C) An LLC must have more than five members.
D) The earnings of an LLC are subject to double taxation.

Question 77

Briefly discuss each of the following corporate characteristics.
A. Government regulation
B. Limited liability of stockholders
C. Continuous life and transferability of ownership

Question 78

According to the ________, acquired assets should be recorded at the amount actually paid rather than at the estimated market value.

A) going concern assumption
B) economic entity concept
C) cost principle
D) monetary unit assumption

Question 79

For each of the following characteristics of a business organization, state whether it applies to a sole proprietorship (SP), partnership (P) or a corporation (C). There may be more than one correct answer for a characteristic.
$$\begin{array} { | l | l | } \hline\begin{array} { l } \text { Business organization } \\\text { characteristic }\end{array} & \begin{array} { l } \text { Entity(ies) to which the } \\\text { characteristic applies - } \\\text { SP,P,C }\end{array} \\\hline \text { Separate legal entity } & \\\hline \begin{array} { l } \text { Owner(s) are personally liable } \\\text { or the business's debts }\end{array} & \\\hline \text { Separate taxable entity } & \\\hline \text { One owner } & \\\hline\end{array}$$

Question 80

Corporations pay their own income tax on corporate income. Stockholders pay personal income tax on the dividends received from corporations. This is an example of ________.

A) double taxation
B) continuous life
C) mutual agency
D) a limited liability company