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

Income tax is calculated using accounting information.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

Managerial accounting focuses on providing information for external decision makers.

Question 7

Managerial accounting provides information to ________.

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

Question 8

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

Question 9

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

Question 10

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 11

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

Question 12

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 13

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 14

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 15

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

Question 16

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

Question 17

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

Question 18

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 19

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

Question 20

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

Question 21

Match the accounting position to the job description.

-Certified Management Accountant

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

Question 22

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

Question 23

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 24

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

Question 25

________ 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 26

Match the accounting position to the job description.

-Auditor

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

Question 27

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

Question 28

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 29

Match the accounting position to the job description.

-Controller

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

Question 30

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

Question 31

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

Question 32

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 33

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

Question 34

Match the accounting position to the job description.

-Certified Public Accountant

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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.

Question 39

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

Question 40

For each user of accounting information,identify if the user would use financial accounting (FA)or managerial accounting (MA).

Question 41

What is the primary objective of financial reporting?

Question 42

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 43

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

Question 44

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 45

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 46

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 47

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

Question 48

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

Question 49

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 50

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 51

An entity refers to one business which includes its owners.

Question 52

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

Question 53

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 54

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

Question 55

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 56

Mason Company purchased land for $80,000.The president of Mason Company believes that the land is actually worth $85,000.The land can be recorded at $85,000.

Question 57

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 58

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

Question 59

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

Question 60

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.

Question 61

Beverly Dalton started her business as a sole proprietorship.At that time,the business purchased land for $51,000.The December 31,2019 market value of the land is $92,000.On the December 31,2019 balance sheet,this asset should be reported at ________ under U.S.GAAP and at ________ under international reporting standards.

A)$51,000;$51,000
B)$92,000;$92,000
C)$51,000;$92,000
D)$92,000;$51,000

Question 62

As per the ________,the entity will remain in operation for the foreseeable future.

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

Question 63

Ten years ago,a company purchased a building for $190,000.At that time,the company felt that the building was worth $215,000.The current market value of the building is $450,000.The building has been assessed at $425,000 for property tax purposes.At which amount should the company record the building in its accounting records?

A)$190,000
B)$215,000
C)$425,000
D)$450,000

Question 64

Provide the definition of each of the following accounting assumptions.

Question 65

Regarding the monetary unit assumption,which of the following statements is correct?

A)This assumption requires that the items on the financial statements be measured at their current market value.
B)Accountants assume that the dollar's purchasing power is stable.
C)The value of a dollar does not change over time.
D)During periods of inflation,a dollar will purchase more.

Question 66

Lawton Company records business transactions in dollars and disregards changes in the value of a dollar over time.Which of the following accounting assumptions does this represent?

A)economic entity assumption
B)going concern assumption
C)accounting period assumption
D)monetary unit assumption

Question 67

In the United States,transactions are recorded in dollars because the dollar's purchasing power does not change over time.

Question 68

Provide the definition of each of the following accounting assumptions or principles.

Question 69

Accountants assume that the dollar's purchasing power is stable.

Question 70

The Securities and Exchange Commission allows U.S.businesses to choose whether they follow U.S.GAAP or International Financial Reporting Standards.

Question 71

Stuart Allen Company manufactures computer hardware.The president of the company bought a new car as a gift for his daughter and paid for it using cash from the business.Since the company paid for the car,it was recorded in its books as an asset.Which of the following concepts or principles of accounting did the company violate?

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

Question 72

International Financial Reporting Standards (IFRS)is the main U.S.accounting rule book and is currently created and governed by the Financial Accounting Standards Board.

Question 73

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 74

Under the going concern principle,accountants assume that the business will remain in operations long enough to use existing resources for their intended purpose.

Question 75

Thirty years ago,Citywide Grocery Company purchased a building for its grocery store for $30,000.Based on inflation estimates,the amount of the building has been adjusted in the accounting records.The building is now reported at $75,000 in Citywide's financial statements.Which of the following concepts or principles of accounting is being violated?

A)going concern assumption
B)revenue realization concept
C)economic entity assumption
D)cost principle

Question 76

A business purchases a building for $250,000.The current market value is $375,000.The tax assessment value is $325,000.At what value should the building be recorded,and which accounting principle supports your answer?

Question 77

Under the going concern principle,accountants must provide proof that the business will remain in operations long enough to use existing resources for their intended purpose.

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

Lisa Smith decided to start her CPA practice as a sole proprietorship.The business purchased an office building for $35,000.The real estate agent said the building was worth $50,000 in the current market.The business 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 80

Under U.S.GAAP,the monetary unit assumption states that transactions are recorded in dollars.What is the basis for this assumption?