Chapter 1

Question 1

Which of the following is NOT part of the process of accounting for financial information?

A) recording
B) identifying
C) communicating
D) classifying

Answer 1

identifying

Question 2

Which of the following is NOT a goal of an accounting system?

a) to accumulate data about a firm’s financial affairs

b) to classify data about a firm’s financial affairs in a meaningful way

c) to interpret the relative success of a business through the examination of data about its financial affairs

d) to summarize data about a firm’s financial affairs in periodic reports called financial statements

Answer 2

c) to interpret the relative success of a business through the examination of data about its financial affairs

Question 3

Management advisory services are designed to help:

Answer 3

clients

Question 4

Managerial accounting is:

Answer 4

private accounting

Question 5

Which of the following is NOT an activity performed by managerial accountants:

a) preparing financial statements
b) conducting independent audits of financial statements
c) preparing tax forms
d) interpreting financial information

Answer 5

b) conducting independent audits of financial statements

Question 6

Identifying which of the following parties would not be involved in maintaining internal controls

a) employees
b) managers
c) owners
d) banks

Answer 6

BANKS

Question 7

The Securities and Exchange Commission (SEC) regulates the accounting methods and financial reporting of which types of corporations?

Answer 7

publicly owned

Question 8

The Sarbanes-Oxley Act includes rules on:

Answer 8

auditor rotation

Question 9

Identify the form of business that is considered a separate legal entity

Answer 9

a corporation

Question 10

The separate entity assumption applies to which of the following corporate forms

a) sole proprietorship
b) partnership
c) corporation
d) all of these are correct

Answer 10

d) all of these are correct

Question 11

What is the correct order in which the FASB develops statements of financial accounting standards

Answer 11

discussion memorandum, public hearings, exposure draft, vote

Question 12

All financial statements submitted to the SEC by publicly owned corporations must include an auditors report prepared by:

Answer 12

an independent CPA

Question 13

The FASB has the authority to develop generally accepted accounting principles. Choose the option below that contains the steps used by the FASB in developing GAAP steps include:

Answer 13

issuing a discussion memorandum, issuing an exposure draft, and issuing a statement of principle

Question 14

The Financial Accounting Standards Board is responsible for:

Answer 14

developing generally accepted accounting principles

Question 15

Which of the following is not a service typically provided by a public accounting firm?

Answer 15

managing the accounting system

Question 16

Which of the following is not an activity typically associated with managerial accounting?

Answer 16

auditing tax returns

Question 17

Which of the following does not accurately describe a partnership?

a) a business entity owned by two or more people

b) stock represents the ownership of a partnership

c) a partnership pays no income tax

d) a partnership ends upon the death or withdrawal of a partner

Answer 17

b) stock represents the ownership of a partnership

Question 18

Financial statements are:

Answer 18

accumulated financial data summarized in periodic reports

Question 19

True or false:

Generally accepted accounting principles are accounting standards that are changed and refined in response to changes in the environment in which businesses operate.

Answer 19

True

Question 20

True or false:

Generally accepted accounting principles are not needed to ensure that financial information is fairly presented in the operating results and financial positions of firms.

Answer 20

False

Question 21

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties is called:

Answer 21

Accounting

Question 22

Which of the following is NOT a task undertaken by the accountant within an organization?

a) establish the records and procedures that make up the accounting system

b) supervise the operations of the accounting system

c) interpret the financial information that results from the accounting system

d) create generally accepted accounting principles upon which the accounting system is based

Answer 22

d) create generally accepted accounting principles upon which the accounting system is based

Question 23

Which of the following is the purpose of financial statements?

Answer 23

to periodically summarize data about a firm’s financial affairs

Question 24

Which of the following is NOT an occupation with similar job duties to accountants and auditors?

a) budget analyst
b) cost estimator
c) actuary
d) personal financial advisor

Answer 24

c) actuary

Question 25

Tax planning includes:

Answer 25

suggesting actions to reduce tax liability.

Question 26

The review of financial statements to assess their fairness and adherence to GAAP is:

Answer 26

auditing

Question 27

Which of the following is not a goal of the internal controls implemented by owners and managers?

a) to safeguard assets

b) to ensure reliability of accounting data

c) to promote compliance with management policies and applicable laws

d) to reduce expenses through the use of efficient processes

Answer 27

d) to reduce expenses through the use of efficient processes

Question 28

Which of the following did NOT result from the Sarbanes-Oxley Act?

a) the creation of a five-member Public Company Accounting Oversight Board

b) the reduction of the “Big Five” accounting firms to the “Big Four”

c) the requirement that chief executives and chief financial officers of publicly-traded corporations certify their financial statements

d) the requirement that accounting firms maintain the same lead auditor for a company for at least ten years

Answer 28

d) the requirement that accounting firms maintain the same lead auditor for a company for at least ten years

Question 29

Identify the advantages of forming a business as an S Corporation.

Answer 29

owners avoid double taxation and owners have limited liability

Question 30

A nonprofit organization such as a public school is a(n):

Answer 30

social entity