Question 1

All of the following are tangible assets EXCEPT _____.
A) cash
B) patents
C) building
D) inventory

Accepted Answer

Patents are considered intangible assets because they are intellectual property rights and not physical objects. The other options listed (cash, building, inventory) are all tangible assets as they have a physical form.

Question 2

The procedure used by accountants to convert data about transactions to financial statements is called _____.
A) the cash flow method
B) the statement of owners' equity
C) the accounting cycle
D) the balance sheet

Accepted Answer

The accounting cycle is the procedure used by accountants to convert data about transactions to financial statements. This involves a series of steps including recording transactions, posting to the general ledger, preparing an unadjusted trial balance, making adjusting entries, preparing an adjusted trial balance, preparing financial statements, and closing the books. The cash flow method, statement of owners' equity, and balance sheet are all financial statements that are prepared as part of the accounting cycle, but they are not the procedure itself.

Question 3

Which of the following financial statements shows a firm's financial position on a particular date?
A) Statement of changes in retained earnings
B) Income statement
C) Statement of cash flows
D) Balance sheet

Accepted Answer

The balance sheet shows the financial position of a firm on a specific date by presenting information about assets, liabilities, and equity.

Question 4

Milwaukee Fabrication has $80 million in assets and $50 million in owners' equity. How much does the firm have in liabilities?
A) $80 million
B) $50 million
C) $30 million
D) $20 million

Accepted Answer

Total assets = owners' equity + liabilities
$80 million = $50 million + liabilities
Liabilities = $80 million - $50 million = $30 million. Therefore, the correct choice is C.

Question 5

The _____ was created by the Sarbanes-Oxley Act of 2002.
A) Securities & Exchange Commission
B) Public Accounting Oversight Board
C) GAAP
D) FASB

Accepted Answer

The Public Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act of 2002 to oversee the auditing and accounting practices of public companies and protect the interest of investors. The Securities & Exchange Commission (SEC) already existed prior to the Act, and GAAP and FASB are accounting standards and organizations, respectively, that were not directly created by the Sarbanes-Oxley Act.

Question 6

Jayce Products buys a $500,000 machine by taking out a bank loan. The company's assets will _____ by $500,000 while its liabilities will _?____?? by $500,000.
A) rise; rise
B) fall; fall
C) rise; fall
D) fall; rise

Accepted Answer

The answer of Jayce Products buys a $500,000 machine by...

Question 7

Preston performs professional services similar to those of a management accountant while working for the city of Portland. Preston can best be described as a _____.
A) public accountant
B) cost accountant
C) tax accountant
D) government accountant

Accepted Answer

Since Preston works for the city of Portland, he is a government accountant.

Question 8

All of the following are assets EXCEPT _____.
A) inventory
B) cash
C) patents
D) bank loans

Accepted Answer

Bank loans are liabilities, not assets.

Question 9

All of the following are liabilities EXCEPT _____.
A) accumulated profits not paid in dividends
B) accounts payable
C) bank loans
D) wages payable

Accepted Answer

Accumulated profits not paid in dividends are not considered liabilities because they are a part of the company's equity. Liabilities are obligations the company owes to others, such as accounts payable, bank loans, and wages payable.

Question 10

To provide reliable, consistent, and unbiased information to decision makers, accountants follow guidelines, or standards, known as _____.
A) the accounting process
B) the accounting system
C) generally accepted accounting principles (GAAP)
D) Financial Accounting Standards Board (FASB)

Accepted Answer

Generally accepted accounting principles (GAAP) are a set of accounting standards and guidelines that provide a framework for financial reporting. These principles are established by accounting organizations and regulatory bodies to ensure that financial statements are informative, accurate, and consistent over time. Adhering to GAAP helps ensure that financial information is reliable, consistent, and unbiased for decision makers. The Financial Accounting Standards Board (FASB) is responsible for setting and updating GAAP in the United States.

Question 11

Melissa is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization. Melissa uses a(n) _____ to determine whether revenues from contributions and other sources will cover operating costs.
A) statement of cash flows
B) income statement
C) balance sheet
D) accrual accounting

Accepted Answer

Melissa would use an income statement to determine whether revenues from contributions and other sources will cover operating costs. The income statement provides a summary of revenues, expenses, and net income (or loss) for a specific period of time. It is one of the primary financial statements used to assess the financial performance of an organization. The statement of cash flows provides information about the cash inflows and outflows of an organization, but it does not provide information about revenues and expenses. The balance sheet provides information about an organization's assets, liabilities, and net worth at a specific point in time, but it does not provide information about revenues and expenses. Accrual accounting is a method of recording transactions that recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid out. While accrual accounting is important for financial reporting, it is not a specific tool that Melissa would use to assess the financial situation of her food bank.

Question 12

Which of the following represents the accounting equation?
A) Assets + Liabilities = Owners' Equity
B) Assets = Liabilities + Owners' Equity
C) Liabilities = Assets + Owners' Equity
D) Owners' Equity - Liabilities = Assets

Accepted Answer

The accounting equation is Assets = Liabilities + Owners' Equity. This means that the total assets of a company must equal the sum of its liabilities and owners' equity, as every transaction affects both sides of the equation.

Question 13

A(n) _____ is a financial statement that is directly based on the accounting equation.
A) balance sheet
B) income statement
C) statement of cash flows
D) statement of changes in retained earnings

Accepted Answer

The balance sheet is directly based on the accounting equation, Assets = Liabilities + Equity. The other financial statements may use information from the balance sheet, but they are not directly based on the accounting equation.

Question 14

Elena works for a mid-sized manufacturing company. Her responsibility is to examine the firm's financial practices to ensure that records include accurate data and that the firm's operations are in compliance with federal, state, and local laws and regulations. Elena is a(n) _____.
A) government accountant
B) cost accountant
C) tax accountant
D) internal auditor

Accepted Answer

Elena's role as an internal auditor involves examining the company's financial practices for accuracy and compliance with laws and regulations. Government accountants work for government agencies, cost accountants focus on analyzing costs within a company, and tax accountants specialize in tax laws and regulations.

Question 15

Zane Corporation sells $1,000 worth of goods on July 25 on credit. The customer sends the company a check on August 15. The customer receives the goods on September 1. Assuming the company uses accrual accounting, the sale will be recorded in _____.
A) August
B) July
C) September
D) either July, August, or September

Accepted Answer

According to the revenue recognition principle of accrual accounting, revenue should be recorded when earned, regardless of when cash is actually received or goods are delivered. In this case, the sale was made on credit in July, so it should be recorded as revenue in July. The fact that the customer sent a check in August and received the goods in September is irrelevant to the timing of revenue recognition.

Question 16

Maxwell is not an employee of the Edith Corporation, but he was hired as a management consultant to provide unbiased advice about Edith Corporation's financial condition. Maxwell is a(n) _____.
A) public accountant
B) government accountant
C) internal auditor
D) management accountant

Accepted Answer

The answer of Maxwell is not an employee of the...

Question 17

What is the primary role of a government accountant?
A) Preparing the organization's tax return statement
B) Determining how much money the organization is taking in
C) Determining the cost of goods and services provided by the organization
D) Determining how efficiently the organization accomplishes its objectives

Accepted Answer

The primary role of a government accountant is to determine how efficiently the organization accomplishes its objectives. This involves ensuring that financial resources are allocated effectively and that taxpayer dollars are being used responsibly. While preparing tax return statements, determining income and expenses, and determining the cost of goods and services may be important tasks for a government accountant, they are not the primary roles of the position.

Question 18

Frank, chief financial officer for a company, wants to take a look at the summary of expenses, revenues, and profits of the firm for the most recent quarter. He can best find this information by consulting the _____.
A) balance sheet
B) cash flow statement
C) statement of owners' equity
D) income statement

Accepted Answer

The income statement summarizes the revenues, expenses, and profits of a company for a given period, usually a quarter or a year. This statement is also known as a profit and loss statement. The balance sheet shows the financial position of the company at a given point in time, the cash flow statement shows inflows and outflows of cash, and the statement of owners' equity shows changes in equity over time. None of these statements provide a summary of expenses, revenues, and profits for a specific period like the income statement does.

Question 19

Haley is a corporate certified public accountant (CPA) working on a new budget. When she lists the company's liabilities, which of the following will she include?
A) Computer software
B) Owners' equity
C) Marketable securities
D) Employees' wages and salaries

Accepted Answer

Liabilities are debts or obligations of the company. Employees' wages and salaries are a type of liability because the company owes this money to its employees. Computer software, owners' equity, and marketable securities are not liabilities but instead assets or components of the equity section of the balance sheet.

Question 20

Who appoints the members of the Public Company Accounting Oversight Board?
A) FASB
B) American Association of CPAs
C) Federal Trade Commission
D) Securities and Exchange Commission

Accepted Answer

The Securities and Exchange Commission (SEC) appoints the members of the Public Company Accounting Oversight Board (PCAOB).

Quiz 15: Understanding Accounting and Financial Statements

All of the following are tangible assets EXCEPT _____.

The procedure used by accountants to convert data about transactions to financial statements is called _____.

Which of the following financial statements shows a firm's financial position on a particular date?

Milwaukee Fabrication has $80 million in assets and $50 million in owners' equity. How much does the firm have in liabilities?

The _____ was created by the Sarbanes-Oxley Act of 2002.

Jayce Products buys a $500,000 machine by taking out a bank loan. The company's assets will _____ by $500,000 while its liabilities will _?____?? by $500,000.

Preston performs professional services similar to those of a management accountant while working for the city of Portland. Preston can best be described as a _____.

All of the following are assets EXCEPT _____.

All of the following are liabilities EXCEPT _____.

To provide reliable, consistent, and unbiased information to decision makers, accountants follow guidelines, or standards, known as _____.

Melissa is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization. Melissa uses a(n) _____ to determine whether revenues from contributions and other sources will cover operating costs.

Which of the following represents the accounting equation?

A(n) _____ is a financial statement that is directly based on the accounting equation.

Elena works for a mid-sized manufacturing company. Her responsibility is to examine the firm's financial practices to ensure that records include accurate data and that the firm's operations are in compliance with federal, state, and local laws and regulations. Elena is a(n) _____.

Zane Corporation sells $1,000 worth of goods on July 25 on credit. The customer sends the company a check on August 15. The customer receives the goods on September 1. Assuming the company uses accrual accounting, the sale will be recorded in _____.

Maxwell is not an employee of the Edith Corporation, but he was hired as a management consultant to provide unbiased advice about Edith Corporation's financial condition. Maxwell is a(n) _____.

What is the primary role of a government accountant?

Frank, chief financial officer for a company, wants to take a look at the summary of expenses, revenues, and profits of the firm for the most recent quarter. He can best find this information by consulting the _____.

Haley is a corporate certified public accountant (CPA) working on a new budget. When she lists the company's liabilities, which of the following will she include?

Who appoints the members of the Public Company Accounting Oversight Board?