(Test Bank) Financial Accounting, Asia Global Edition

Williams,Haka,Carcello, 2

Business

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2nd Edition

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Author(s): Williams, Haka, Carcello

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Chapter 01 - Accounting: Information for Decision Making 1-1 Chapter 01 Accounting: Information for Decision Making True / False Questions 1. Managerial accounting information is designed primarily to assist investors and creditors in deciding how to allocate scarce resources. True False 2. Return on inv estment is the same as return of investment. True False 3. The tax return is one of the primary financial statements. True False 4. Management accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers outside the business organization. True False 5. The content of management accounting reports needs to be presented in conformity with generally accepted accounting principles. True False 6. The tailoring of an accounting repor t to meet the needs of a specific decision maker is more characteristic of financial accounting reports than of management accounting reports. True False 7. The annual financial statements of large corporations such as Wilmar International or Cathay Pacific need not be audited by independent certified public accountants, since these firms maintain large accounting departments as part of their organizations. True False Chapter 01 - Accounting: Information for Decision Making 1-2 8. Generally accepted accounting principles were established by the American Accounting Association in 1934 and are updated annually by Congress. True False 9. One purpose of generally accepted accounting principles is to make accounting information prepared by different companies more comparable. True False 10. Today the most authoritative source of generally accepted accounting principles is the American Accounting Association. True False 11. The American Institute of Certified Public Accountants has the legal authority over publicly held corporations to enforce compliance with generally accepted accounting principles. True False 12. An accounting practice can become a "generally accepted accounting principle" through widespread use, even if the practice is not mentioned in the official pronouncements of th e accounting standard -setting organizations. True False 13. The statement of financial position and the income statement are one and the same. True False 14. The Securities & Exchange Commission is instrumental in the development of financial accounting standards. True False Chapter 01 - Accounting: Information for Decision Making 1-3 15. Financial accounting standards issued by the FASB are considered generally accepted accounting principles. True False 16. External users of accounting information have a financial interest in an entity but a re not involved with the day -to-day operations of the enterprise. True False 17. Investors are individuals and other enterprises that have provided equity to the reporting enterprise. True False 18. A statement of cash flows depicts the way pro fits have changed during a designated period. True False 19. Public accounting is the segment of the profession where professionals offer audit, tax and consulting services to clients. True False 20. The CPA examination is administered by the G eneral Accounting Office of The U. S. Government. True False 21. Career opportunities in accounting exist in public accounting, management accounting, governmental accounting and accounting education. True False Chapter 01 - Accounting: Information for Decision Making 1-4 22. The Sarbanes -Oxley Act plac es responsibility on CEOs and CFOs of companies to certify the fairness of company's financial statements. The Act also created the Public Company Accounting Oversight Board which oversees the public accounting profession. True False 23. The internal control structure of an organization has no relationship to the reliability of accounting information. True False 24. Management accounting information is oriented toward the future while financial accounting information is historical in nature. True False 25. The Code of Ethics of the AICPA calls for a commitment to ethical behavior but not at the sacrifice of personal advantage. True False 26. The Code of Ethics of the AICPA calls for a member in public practice to be independent in fact and appearance when providing auditing services. True False 27. The Public Company Accounting Oversight Board is responsible for creating and promoting International Financial Reporting Standards. True False Chapter 01 - Accounting: Information for Decision Making 1-5 Multiple Choice Questions 28. Financial accounting information is A. Designed to assist investors and creditors B. Used by managers and in income tax returns C. Called "general -purpose" accounting information D. All of the above 29. Financial statements may be prepared for A. One year B. Less than one year C. Either A or B D. Neither A or B. Financial statements can only be prepared on a monthly basis. 30. Generally accepted accounting principles A. Originate from a combination of tradition, experience and official decree B. May change over time C. Both A & B D. Neither A nor B 31. The Sarbanes -Oxley Act of 2002 created: A. The Security and Exchange Commission B. The Financial Accounting Standards Board C. The Public Company Accounting Oversight Board D. The Income Tax Retur n Overview Board 32. Which of the following would not be considered a user of financial information? A. A large pension fund B. A real estate investor C. Company management D. All the above are considered interested in financial information. Chapter 01 - Accounting: Information for Decision Making 1-6 33. The field of accounting may best be described as: A. Recording the financial transactions of an economic entity. B. Developing information in conformity with generally accepted accounting principles. C. The art of interpreting, measuring, and describing econo mic activity. D. Developing the information required for the preparation of income tax returns. 34. The basic purpose of bookkeeping is to: A. Provide financial information about an economic entity. B. Develop the types of information best -suited to spe cific managerial decisions. C. Record the financial transactions of an economic entity. D. Determine the taxable income of individuals and business entities. 35. Which of the following is not characteristic of financial accounting? A. Information used i n financial statements is prepared in conformity with generally accepted accounting principles. B. The information is confidential and is intended for use only by company management. C. The information is used in a wide variety of business decisions. D. The information is developed primarily by "private accountants" that is, accountants employed by business organizations. 36. Financial statements are prepared: A. Only for publicly owned business organizations. B. For corporations, but not for sole propri etorships or partnerships. C. Primarily for the benefit of persons outside of the business organization. D. In either monetary or nonmonetary terms, depending upon the need of the decision maker. 37. It is the function of management accounting to perform the following activities, except: A. Financial forecasts B. Cost accounting C. Internal audits D. Audited financial statements Chapter 01 - Accounting: Information for Decision Making 1-7 38. The basic purpose of an audit is to: A. Assure financial statements are in conformity with GAAP. B. Provide as much use ful information to decision makers as possible, regardless of cost. C. Record changes in the financial position of an organization by applying the concepts of double entry accounting. D. Meet an organization's need for accounting information as efficiently as possible. 39. The accounting systems of most business organizations: A. Are tailored to meet the organization's needs for accounting information and the resources available for operating the system. B. Are similar in design to the journals, ledgers, and worksheets illustrated in this text. C. Utilize data bases, rather than ledger accounts. D. Are designed by the CPA firm that performs the annual financial audit. 40. Which of the following is not a basic function of an accounting system? A. To int erpret and record the effects of business transactions. B. To classify the effects of similar transactions in a manner that permits determination of various totals and subtotals useful to management. C. To ensure that a business organization will be manage d profitably. D. To summarize and communicate information to decision makers. 41. Information is cost effective when: A. The information aids management in controlling costs. B. The information is based upon historical costs, rather than upon estimated market values. C. The value of the information exceeds the cost of producing it. D. The information is generated by a computer based accounting system. 42. The objectives of financial reporting are to provide information A. that is useful in assessing c ash flow prospects B. about claims to enterprise resources C. that is useful in investment and credit decisions D. all of the above Chapter 01 - Accounting: Information for Decision Making 1-8 43. Which of the following is generally not considered an external user of accounting information? A. Shareholders of a corporation. B. Bank lending officers. C. Financial analysts. D. Factory managers. 44. Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of: A. Investors and creditors. B. Government agencies such as the tax authorities . C. Customers. D. Trade associations and labor unions. 45. Investors may be described as: A. Individuals and enterprises that have provided credit to a reporting entity. B. Individuals a nd enterprises that own a reporting entity business. C. Anyone that has an interest in the results of the operations of the reporting entity. D. Those whose primary economic activity consists of buying and selling stocks and bonds. 46. Investors and cred itors are interested in the probability that their original investment or loan will eventually be returned, and that they will receive a reasonable return while their funds are invested or borrowed. These expectations are collectively referred to as: A. Expected profitability. B. The objectives of financial reporting. C. Cash flow prospects. D. Financial position. 47. The FASB takes on a responsibility to do the following, except: A. Set the objectives of financial reporting. B. Describe the elements of financial statements. C. Judge disputes between management and the CPA. D. Determine the criteria for deciding what information to include in financial statements. Chapter 01 - Accounting: Information for Decision Making 1-9 48. Which organization best serves the professional needs of a CPA? A. FASB. B. AICPA. C. SEC. D. AAA. 49. A complete set of financial statements for Citywide Company, at December 31, 2009, would include each of the following, except : A. Balance sheet as of December 31, 2009. B. Income statement for the year ended December 31, 2009. C. Statement of projected cash flows for 2009. D. Notes containing additional information that is useful in interpreting the financial statements. 50. The general purpose financial statements prepared annually by a corporation would not include the: A. Balan ce sheet. B. Income tax return. C. Income statement. D. Statement of cash flows. 51. The designation of CPA is given by: A. Universities. B. States. C. The AICPA. D. The SEC. 52. Which of the following is a characteristic of financial accounting infor mation? A. Its preparation requires judgment. B. It is more about the future than it is about the past. C. None of it is based on estimates, assumptions, and judgments. D. Notes and explanations from management are not included. Chapter 01 - Accounting: Information for Decision Making 1-10 53. The financial state ments of a business entity: A. Include the balance sheet, income statement, and income tax return. B. Provide information about the cash flow prospects of the company. C. Are the first step in the accounting process. D. Are prepared for a fee by the Finan cial Accounting Standards Board. 54. Which of the following events is not a transaction that would be recorded in a company's accounting records? A. The purchase of equipment for cash. B. The purchase of equipment on account. C. The investment of additi onal cash in the business by the owner. D. The death of a key executive. 55. Financial statements are designed primarily to: A. Provide managers with detailed information tailored to the managers' specific information needs. B. Provide people outside th e business organization with information about the company's financial position and operating results. C. Report to the relevant tax authorities the company's taxable income. D. Indicate to investors in a particular company the current market values of the ir investments. 56. The principal difference between management accounting and financial accounting is that financial accounting information is: A. Prepared by managers. B. Intended primarily for use by decision makers outside the business organization. C. Prepared in accordance with a set of accounting principles developed by the Institute of Certified Management Accountants. D. Oriented toward measuring solvency rather than profitability. 57. Which financial statement is prepared as of a specific dat e? A. The balance sheet. B. The income statement. C. The statement of cash flows. D. All three of the above are for a period of time rather than at a specific date. Chapter 01 - Accounting: Information for Decision Making 1-11 58. In comparison with a financial statement prepared in conformity with generally acce pted accounting principles, a management accounting report is more likely to: A. Be used by decision makers outside of the business organization. B. Focus upon the operation results of the most recently completed accounting period. C. View the entire orga nization as the reporting entity. D. Be tailored to the specific needs of an individual decision maker. 59. Which of the following decision makers is least likely to be among the users of management accounting reports developed by Toyota Motor Corporatio n? A. The chief executive officer of Toyota . B. The manager of the factory in Toyota . C. The manager of a mutual fund considering investing in Toyota ’s' ordinary shares . D. Internal auditors within the Toyota organization. 60. Which financial statement is primarily concerned with reporting the financial position of a business at a particular time? A. The balance sheet. B. The income statement. C. The statement of cash flows. D. All three statements are concerned with the financial position of a business at a particular time. 61. The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effe ctive manner are collectively referred to as: A. Generally accepted accounting principles. B. Financial accounting standards. C. Securities and exchange regulations. D. The internal control structure. Chapter 01 - Accounting: Information for Decision Making 1-12 62. A strong internal control structure: A. Contri butes to the accuracy and reliability of the accounting records. B. Will prevent a business from operating at a loss. C. Assures that a business will remain solvent. D. Will prevent fraud, theft, and embezzlement. 63. Which of the following is considered a return "on" investment? A. Dividends. B. Repayment of a loan. C. Both of the above. D. None of the above. 64. The basic purpose of audited financial statements is to: A. Provide the reporting company with assurance that all assets are protected from theft or embezzlement. B. Prepare financial statements for companies that do not have their own accounting departments. C. Provide users of the financial statements with assurance that the statements are reliable and are presented in conformity with gener ally accepted accounting principles. D. Provide both the reporting company and the users of the statements with a written guarantee that the statements are error -free. 65. Audits of financial statements are performed by: A. The controller of the reporti ng company. B. The Financial Accounting Standards Board (FASB). C. The management of the reporting company. D. Independent certified public accountants (CPAs). Chapter 01 - Accounting: Information for Decision Making 1-13 66. The auditor's report on the published financial statements of a large corporation should be viewed as: A. The opinion of independent experts as to the overall fairness of the statements. B. The opinion of the corporation's chief accountant as to the overall fairness of the statements. C. A guarantee by a firm of certified public accountants t hat the statements are accurate. D. A guarantee by the Financial Statements Insurance Board that the statements do not overstate assets or net income. 67. The set of standards, assumptions, and concepts that form the "ground rules" for financial reportin g in the United States is termed: A. The conceptual framework. B. Generally accepted accounting principles. C. Statements of Financial Accounting Concepts. D. American standards for certified public accountants. 68. The basic purpose of generally accept ed accounting principles is to: A. Minimize the possibility of a business becoming insolvent. B. Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements. C. Ensure that financial statement s include the type of information that is best suited to every type of business decision. D. Eliminate the need for professional judgment in preparing financial statements. 69. Generally accepted accounting principles are intended to assist accountants i n preparing financial statements that: A. Are relevant, reliable, comparable, and understandable. B. Show the business to be both solvent and profitable. C. Comply with all income tax rules and regulations. D. Are ideally suited to the specific needs of e ach user of the financial statements. Chapter 01 - Accounting: Information for Decision Making 1-14 70. Which of the following is not an objective of generally accepted accounting principles? A. To minimize the amount of income taxes owed. B. To ensure that both preparers and users of financial statements underst and the concepts and assumptions used in presenting information within these statements. C. To enhance the relevance and reliability of information contained in financial statements. D. To increase the comparability of financial statements prepared by diff erent companies. 71. In the phrase "generally accepted accounting principles," the words accounting principles refers to: A. The standards, assumptions, and concepts that serve as "ground rules" for financial reporting. B. Ethical standards that prohibi t fraudulent or misleading financial reporting. C. The steps in the accounting cycle. D. The accounting practices authorized by the Financial Accounting Standards Board (FASB). 72. Which of the following is not considered a return "of" investment? A. Dividends. B. Repayment of a loan. C. Both of the above. D. None of the above. 73. The accounting standards and concepts used in the preparation of financial statements are called: A. Certified principles of accounting (CPA). B. Generally accepted account ing principles (GAAP). C. Federal accounting standards and bylaws (FASB). D. Standards enforcing consistency (SEC). 74. Generally accepted accounting principles are the "ground rules" used in the preparation of: A. Income tax returns. B. All accounting reports. C. Reports to federal and state regulatory agencies. D. Financial statements. Chapter 01 - Accounting: Information for Decision Making 1-15 75. The Financial Accounting Standards Board is: A. Responsible for the review and audit of federal income tax returns. B. Primarily concerned with the preparation o f the annual federal budget. C. A private group that conducts research and issues Statements that represent authoritative expressions of generally accepted accounting principles. D. A government agency with legal authority to approve or disapprove the fina ncial statements of corporations that sell their securities to the public. 76. Statements of Financial Accounting Standards are developed by: A. The Financial Accounting Standards Board. B. Certified public accountants. C. The Securities and Exchange Co mmission. D. Tax authorities . 77. Which of the following are considered "external" users of financial statements? A. Owners. B. Creditors. C. Labor unions. D. All three are external users. 78. Which of the following is not recognized as a source of ge nerally accepted accounting principles? A. Widespread and long -term use of a particular practice. B. The Financial Accounting Standards Board (FASB). C. The American Institute of Certified Public Accountants (AICPA). D. None of the above. Generally accept ed accounting principles may arise from each of these sources. 79. In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles: A. Have been adopted by Congress or approved by the voters in a general e lection. B. Are acceptable to the tax authority . C. Are understood and observed by all the participants in the financial reporting process. D. Have been approved by a majority of the members of the Financial Accounting Standards Board.