Question 1

The fundamental accounting equation shows the relationship between profit, revenue, and market share.

Accepted Answer

The relationship among assets, liabilities, and owners' equity is a fundamental concept in accounting and is known as the accounting equation: Assets = Liabilities + Owners' equity.

Question 2

Each type of stock sold by a corporation represents a claim on the organization and must be represented by a separate owners' equity account.

Accepted Answer

Corporations sell stock to investors, who then become the owners of the firm. Many corporations issue two, three, or even more different classes of common and preferred stock, each with different dividend payments and/or voting rights. Because each type of stock issued represents a different claim on the organization, each must be represented by a separate owners' equity account, called contributed capital.

Question 3

Ratio analysis calculations measure an organization's financial health.

Accepted Answer

Ratio analysis, calculations that measure an organization's financial health, brings the complex information from the income statement and balance sheet into sharper focus so that managers, lenders, owners, and other interested parties can measure and compare the organization's productivity, profitability, and financing mix with other similar entities.

Question 4

Nadine is a self-employed, state-certified accountant who files tax returns, prepares financial records, and audits corporate financial records. She is known as a ________ accountant.
A) private
B) certified management
C) certified public
D) noncertified
E) forensic

Accepted Answer

Nadine is a certified public accountant (CPA), an individual who has been certified by the state in which she practices to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records. Certification gives a public accountant the right to express, officially, an unbiased opinion regarding the accuracy of the client's financial statements.

Question 5

John is an electrician who runs his own small shop. When tax season comes, he hires an accountant from one of "the Big Four" accounting firms to help him file his business's tax return. In this scenario, John has most likely hired a ________ accountant.
A) certified private
B) forensic
C) certified public
D) private
E) noncertified

Accepted Answer

In this scenario, John has hired a certified public accountant who has been certified by the state to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records. Most public accountants are either self-employed or members of large public accounting firms such as Ernst & Young, KPMG, Deloitte, and PricewaterhouseCoopers, together referred to as "the Big Four."

Question 6

Randall wants to become a certified public accountant. To accomplish this, he must be certified by the ________ in which he plans to provide accounting services.
A) country
B) state
C) town
D) company
E) municipality

Accepted Answer

To become a certified public accountant, Randall must be certified by the state in which he practices to provide accounting services.

Question 7

Claire is a certified public accountant who provides accounting services to individuals and businesses. Certification gives Claire the right to
A) express, officially, an unbiased opinion regarding the accuracy of a client's financial statements.
B) publicly express a biased opinion about the accuracy of a firm's financial statements.
C) express her personal opinion in all financial matters.
D) handle every firm's reports by different rules.
E) limit the types of assets commercial banks can buy.

Accepted Answer

As a certified public accountant, Claire has the right to express, officially, an unbiased opinion regarding the accuracy of a client's financial statements.

Question 8

The purpose of the Sarbanes-Oxley Act was to
A) require firms to be more rigorous in their accounting and reporting practices.
B) define generally accepted accounting principles.
C) eliminate accounting firms from having to hire accountants that are certified.
D) force accounting firms to combine their consulting and auditing businesses.
E) establish standards and testing procedures for becoming a CPA.

Accepted Answer

After the accounting scandals of Enron and Worldcom in the early 2000s, Congress passed the Sarbanes-Oxley Act, which required firms to be more rigorous in their accounting and reporting practices. Sarbanes-Oxley made accounting firms separate their consulting and auditing businesses and punished corporate executives with potential jail sentences for inaccurate, misleading, or illegal accounting statements.

Question 9

Brad is an executive of Music Masters, a wedding and special events DJ music service. For years, he successfully hid illegal and misleading accounting practices, but eventually, he was exposed and punished with a jail sentence under the ________ Act.
A) Gramm-Leach-Bliley
B) Glass-Steagall
C) Dodd-Frank
D) Sarbanes-Oxley
E) Celler-Kefauver

Accepted Answer

Brad would be punished under the Sarbanes-Oxley Act, which made accounting firms separate their consulting and auditing businesses and punished corporate executives with potential jail sentences for inaccurate, misleading, or illegal accounting statements.

Question 10

All of the following contributed to the financial crisis in 2008 EXCEPT
A) government bailouts.
B) questionable lending practices.
C) excessive risk taking.
D) investments based on subprime mortgages.
E) declining housing prices.

Accepted Answer

The world experienced a financial crisis in 2008, partially due to excessive risk taking and inappropriate accounting practices. Many banks failed to understand the true state of their financial health. Banks also developed questionable lending practices and investments based on subprime mortgages made to individuals who had poor credit. When housing prices declined and people suddenly found that they owed more on their mortgages than their homes were worth, they began to default.

Question 11

Accounting scandals at ________ led to the passage of the Sarbanes-Oxley Act.
A) Fannie Mae and Freddie Mac
B) Worldcom and Enron
C) Ernst & Young and KPMG
D) Deloitte and PricewaterhouseCoopers
E) Merrill Lynch and Lehman Brothers

Accepted Answer

After the accounting scandals of Enron and Worldcom in the early 2000s, Congress passed the Sarbanes-Oxley Act, which required firms to be more rigorous in their accounting and reporting practices.

Question 12

Jack works for the Internal Revenue Service. His main responsibility is rooting out evidence of "cooked books" at major companies. Jack is a ________ accountant.
A) criminal
B) private
C) forensic
D) certified public
E) noncertified

Accepted Answer

Jack is a forensic accountant. Many forensic accountants root out evidence of "cooked books"
for federal agencies like the Federal Bureau of Investigation or the Internal Revenue Service.

Question 13

Marybeth has been an accountant for many years. Since the accounting scandals in 2000, her firm added fraud-detection services, and Marybeth decided to focus on these services. Which organization could certify Marybeth, so she can focus on detecting fraud?
A) the Internal Revenue Service
B) the Federal Bureau of Investigation
C) the Association of Certified Fraud Examiners
D) the Federal Reserve Board
E) the Association of Fighting Fraud

Accepted Answer

The Association of Certified Fraud Examiners could certify Marybeth, an accounting professional, as a certified fraud examiner.

Question 14

Viktor is an accountant employed by a large corporation. He works for the billing and taxation department, preparing and analyzing the company's financial statements. He is most likely a(n) ________ accountant.
A) forensic
B) private
C) legal
D) internal
E) external

Accepted Answer

Viktor is most likely to be a private accountant. Private accountants are accountants employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements.

Question 15

Which accountant has titles such as controller, tax accountant, and internal auditor?
A) private accountants
B) certified public accountants
C) forensic accountants
D) certified fraud examiners
E) noncertified accountants

Accepted Answer

With titles such as controller, tax accountant, or internal auditor, private accountants are deeply involved in many of the most important financial decisions of the organizations for which they work.

Question 16

Avantika is a private accountant who passed a rigorous examination by the Institute of Management Accountants. After passing this examination, Avantika is a
A) forensic accountant.
B) certified private accountant.
C) certified public accountant.
D) noncertified management accountant.
E) certified management accountant.

Accepted Answer

After passing a rigorous examination by the Institute of Management Accountants, Avantika is a certified management accountant.

Question 17

Kaden works for a publishing company, recording its routine, day-to-day business transactions. His main responsibility is obtaining and recording the information his company needs to analyze its financial position. Based on this description, Kaden is most likely a(n)
A) accountant.
B) financial manager.
C) certified fraud examiner.
D) bookkeeper.
E) federal agent.

Accepted Answer

Based on this description, Kaden is most likely a bookkeeper. Much narrower and far more mechanical than accounting, bookkeeping is typically limited to the routine, day-to-day recording of business transactions. Bookkeepers are responsible for obtaining and recording the information that accountants require to analyze a firm's financial position.

Question 18

Which statement best describes bookkeeping?
A) Bookkeeping involves understanding and interpreting sophisticated accounting systems to classify financial information.
B) Bookkeeping involves developing sophisticated accounting systems.
C) Bookkeeping is a process that requires extensive training.
D) Bookkeeping is a broader term than accounting.
E) Bookkeeping is much more mechanical than accounting.

Accepted Answer

Much narrower and far more mechanical than accounting, bookkeeping is typically limited to the routine, day-to-day recording of business transactions. Bookkeepers are responsible for obtaining and recording the information that accountants require to analyze a firm's financial position.

Question 19

Lucia is an accountant who completed coursework beyond a basic four- or five-year college accounting degree. What does Lucia's additional training allow her to do?
A) complete the complex mechanical tasks associated with recording a company's day-to-day business transactions
B) understand, interpret, and even develop the sophisticated accounting systems necessary to classify and analyze complex financial information
C) simply to obtain and record financial information
D) become a certified management accountant
E) specialize in forensic accounting

Accepted Answer

Lucia's additional training allows her not only to record financial information, but to understand, interpret, and even develop the sophisticated accounting systems necessary to classify and analyze complex financial information.

Question 20

Pierre owns a chain of coffee shops. He hires accountants to summarize the information from his company's business transactions into a financial statement. Why would Pierre use a financial statement?
A) to pinpoint areas of employee weakness
B) to pinpoint individual employee successes
C) to determine who to promote
D) to aid in internal planning and control
E) to determine the types of customers the company has

Accepted Answer

Managers and owners use financial statements to aid in internal planning and control and for external purposes such as reporting to the Internal Revenue Service, stockholders, creditors, customers, employees, and other interested parties.

Quiz 14: Accounting and Financial Statements

The fundamental accounting equation shows the relationship between profit, revenue, and market share.

Each type of stock sold by a corporation represents a claim on the organization and must be represented by a separate owners' equity account.

Ratio analysis calculations measure an organization's financial health.

Nadine is a self-employed, state-certified accountant who files tax returns, prepares financial records, and audits corporate financial records. She is known as a ________ accountant.

John is an electrician who runs his own small shop. When tax season comes, he hires an accountant from one of "the Big Four" accounting firms to help him file his business's tax return. In this scenario, John has most likely hired a ________ accountant.

Randall wants to become a certified public accountant. To accomplish this, he must be certified by the ________ in which he plans to provide accounting services.

Claire is a certified public accountant who provides accounting services to individuals and businesses. Certification gives Claire the right to

The purpose of the Sarbanes-Oxley Act was to

Brad is an executive of Music Masters, a wedding and special events DJ music service. For years, he successfully hid illegal and misleading accounting practices, but eventually, he was exposed and punished with a jail sentence under the ________ Act.

All of the following contributed to the financial crisis in 2008 EXCEPT

Accounting scandals at ________ led to the passage of the Sarbanes-Oxley Act.

Jack works for the Internal Revenue Service. His main responsibility is rooting out evidence of "cooked books" at major companies. Jack is a ________ accountant.

Marybeth has been an accountant for many years. Since the accounting scandals in 2000, her firm added fraud-detection services, and Marybeth decided to focus on these services. Which organization could certify Marybeth, so she can focus on detecting fraud?

Viktor is an accountant employed by a large corporation. He works for the billing and taxation department, preparing and analyzing the company's financial statements. He is most likely a(n) ________ accountant.

Which accountant has titles such as controller, tax accountant, and internal auditor?

Avantika is a private accountant who passed a rigorous examination by the Institute of Management Accountants. After passing this examination, Avantika is a

Kaden works for a publishing company, recording its routine, day-to-day business transactions. His main responsibility is obtaining and recording the information his company needs to analyze its financial position. Based on this description, Kaden is most likely a(n)

Which statement best describes bookkeeping?

Lucia is an accountant who completed coursework beyond a basic four- or five-year college accounting degree. What does Lucia's additional training allow her to do?

Pierre owns a chain of coffee shops. He hires accountants to summarize the information from his company's business transactions into a financial statement. Why would Pierre use a financial statement?