Question 1

High standards of ethics are not required for preparers of financial information.

Accepted Answer

High standards of ethics are required for preparers of financial information as they play a critical role in ensuring the accuracy and integrity of financial statements. They have a responsibility to follow accounting standards and ethical guidelines set by professional bodies such as the AICPA and SEC. Failure to maintain high ethical standards can result in legal and reputational repercussions.

Question 2

Economic resources that are owned by a business are called shareholders' equity.

Accepted Answer

Economic resources that are owned by a business are called assets. Shareholders' equity refers to the portion of a company's assets that are owned by its shareholders after all liabilities have been paid off.

Question 3

Generally accepted accounting principles are essentially identical in most developed countries.

Accepted Answer

Generally accepted accounting principles (GAAP) vary significantly among different countries, reflecting differences in legal systems, business practices, and culture. For example, the United States follows its own set of GAAP, while many other countries have adopted or are converging towards the International Financial Reporting Standards (IFRS).

Question 4

International Financial Accounting Standards are produced by the International Accounting Standards Board (IASB), which is an independent standard-setting board consisting of 15 members from twelve countries.

Accepted Answer

The statement is correct.

Question 5

Accountants generally must meet educational requirements, pass a rigorous exam, and meet experience requirements before becoming licensed CAs, CGAs, or CMAs.

Accepted Answer

To become a licensed CA, CGA, or CMA, accountants typically need to meet educational requirements, pass exams, and have relevant work experience.

Question 6

The amount of cash paid by a business for office rent would be reported on the statement of cash flows as a financing activity.

Accepted Answer

The amount of cash paid by a business for office rent would be reported on the statement of cash flows as an operating activity, not a financing activity.

Question 7

The reasons for a decrease in cash can be determined by examining the statement of earnings.

Accepted Answer

The statement of earnings shows the organization's expenses, revenues, and net income. It does not show the cash inflows and outflows, which are shown in the statement of cash flows. Therefore, the statement of cash flows is the primary source of information for determining the reasons for a decrease in cash.

Question 8

Assets are resources owned by a business that provide current services or benefits to the business.

Accepted Answer

The answer of Assets are resources owned by a business...

Question 9

A banker who is considering making a loan to a corporation would be one of the corporation's internal decision makers.

Accepted Answer

A banker considering making a loan is an external decision maker, not an internal decision maker for the corporation. Internal decision makers are those who are part of the corporation, such as executives, managers, and board members.

Question 10

Accounting is based on man-made rules that sometimes undergo change.

Accepted Answer

Accounting principles and rules are created by humans and are subject to change over time due to changes in business environment, technological advancements, and changes in regulations and standards.

Question 11

Assets are economic resources controlled by the entity as a result of past transactions or events and from which future economic benefits can be obtained.

Accepted Answer

This statement correctly defines assets as economic resources that an entity controls and from which future economic benefits can be obtained.

Question 12

The financial statements prepared by a corporation include a statement of financial position, statement of earnings, statement of cash flows, and statement of money.

Accepted Answer

The correct statement is that the financial statements prepared by a corporation include a statement of financial position, statement of earnings, statement of cash flows, and statement of shareholders' equity. There is no statement of money included in the financial statements.

Question 13

Failure to comply with professional rules of conduct can result in serious penalties for professional accountants, but not the rescinding of the professional designation of an offending member.

Accepted Answer

The rescinding of the professional designation of an offending member is a possible penalty for serious breaches of professional rules of conduct by accountants.

Question 14

Repayment of a bank loan is classified on the statement of cash flows as an operating activity.

Accepted Answer

Repayment of a bank loan is classified as a financing activity on the statement of cash flows, not an operating activity.

Question 15

The accounting model for the statement of financial position is: Assets + Liabilities - Shareholders' Equity.

Accepted Answer

The correct accounting equation for the statement of financial position is: Assets = Liabilities + Shareholders' Equity.

Question 16

Primary responsibility for the information in the financial statements lies with management.

Accepted Answer

The management of an organization is responsible for preparing and presenting the financial statements to provide information about the financial performance and position of the organization. This responsibility includes selecting appropriate accounting policies, making estimates, and ensuring that the financial statements comply with relevant accounting standards and regulations. However, it is important to note that the financial statements are subject to external audit and review by independent auditors or regulators to provide assurance on their accuracy and reliability.

Question 17

If a corporation does not pay its obligations when they are due, its creditors may be able to force the sale of the business's assets to pay their claims.

Accepted Answer

This is known as insolvency or bankruptcy and allows creditors to recover their debts by selling off the company's assets.

Question 18

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

Accepted Answer

Accounting is concerned with the communication of financial information about a business to its various stakeholders, including internal users such as managers and external users such as investors and creditors. This information is critical for making informed decisions about the financial health and performance of the business.

Question 19

Profit is the excess of total revenues over total expenses incurred to generate revenue during a specific period.

Accepted Answer

Profit is defined as the amount by which total revenue exceeds total expenses.

Question 20

An audit involves the examination of the financial reports (prepared by the management of the company) to ensure that they represent what they claim and conform with IFRS.

Accepted Answer

An audit is conducted to provide assurance to the users of financial statements that the information provided is accurate, complete, and in compliance with the relevant reporting standards, such as IFRS. The audit process involves examining the company's financial reports, such as the balance sheet, income statement, and cash flow statement, as well as other relevant documentation and data, to identify any material misstatements, errors, or omissions. The auditor then provides an opinion on the fairness and reliability of the financial information presented in the reports based on the audit evidence obtained.

Quiz 1: Financial Statements and Business Decisions