(Test Bank) Financial Accounting In An Economic Context

Pratt,Peters, 10

Business

Test Bank

10th Edition

• $15.00 $50.00

---

Description

Test Bank for Financial Accounting In An Economic Context, The downloadable file consists of 567 pages, and the total size of the file is 3.83 MB. Purchase now only for highly discounted price.

Author(s): Pratt, Peters

---

---

Study Note Preview

Test Bank for Financial Accounting in an Economic Context, 10e Jamie Pratt Michael Peters (All Chapters) 1-1 Chapter 1 Financial Accounting and Its Economic Context MULTIPLE CHOICE QUESTIONS 1. A bank that loans money to a company is called a. a supplier. b. a creditor. c. an equity investor. d. a shareholder. Ans: B LO 1 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 2. The auditors are charged with responsibility a. to detect financial fraud committed by employees during the course of their audit b. to conduct a thorough and independent audit c. to correct all errors in the financial statements d. for the accuracy and completeness of the financial statements Ans: B LO 1 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA F N: Reporting 3. Which of the following best describes the two perspectives of the financial reporting process that managers need to understand in investing decisions? a. Economic consequences and user orientation. b. Corporate governance and user orientation. c. User orientation and debt covenants. d. Economic consequences and corporate governance. Ans: A LO 1 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 4. Considering and understanding how business decisions affect the financial statements is a. the sole responsibility of the Securities and Exchange Commission. b. provided in the auditor’s report. c. referred to as an economic consequence perspective. d. interpreted st rictly by the company’s suppliers. Ans: C LO 1,2,5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 1-2 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 5. A statement that “the financial statements were prepared in accordance with generally accepted accounting principles” is found in the a. collateral. b. stock market. c. footnotes to the balance sheet. d. auditor’s report. Ans: D LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 6. A statement that financial statement information “is the responsibility of the company” issuing the statements is found in the a. footnotes to the financial statements. b. loan contract. c. management letter. d. board of directors’ report. Ans: C LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 7. CPA is an abbreviation for a. Certified Public Accountant. b. Certified Production Accountant. c. Consumer Protection Agency. d. Certified Permissible Accounting. Ans: A LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 8. An explanation about the assumptions, estimates, and choices of alternati ve accounting methods used in the financial statements is found in the a. footnotes to the balance sheet. b. auditor’s report. c. statement of shareholders’ equity. d. president’s letter to the shareholders. Ans: A LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 9. Which of the following best describes assets paid to owners of a company as a return for their initial investment? a. payables b. compensation contracts c. dividends d. interest Ans: C LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-3 10. All of the following would likely be part of a loan contract except: a. maturi ty date b. earning power c. collateral d. annual interest Ans: B LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 11. A Certified Public Accountant a. reviews every transaction that a company conducts during any given year. b. performs a company’s audit. c. is one of the investors of a company. d. is responsible for the preparation and integrity of a company’s financial statements. Ans: B LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 12. An internal control system a. is maintained to ensure that transactions of a company are properly recorded and reported and the assets are safeguarded. b. is included in the set of footnotes to the financial statements. c. is an estimate of the profits a company expects to earn in the future. d. measures how much control management has over its staff. Ans: A LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 13. Footnotes to financial statements a. more fully explain certain items in the financial statements. b. reflect financial notes personalized by t he company’s executive team. c. show the detail of salaries of every employee. d. justify fraudulent business practices. Ans: A LO 2,3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 14. The balance sheet communicates a. proof to the investor that the company is profitable. b. assets, liabilities, and shareholders’ equity with all transactions reflected through the year. c. assets, liabilities, and shareholders’ equity as of a certain date. d. operating, investing, and financing activities. Ans: C LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 1-4 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 15. The income statement communicates a. assets, liabilities, and shareholders’ equity a s of a certain date . b. how much cash the owner received during the period. c. information about dividends the company paid to its owners. d. revenues less expenses during a period of time. Ans: D LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 16. Where would you find information on the amount of net income for the year? a. Factory production reports on units produced b. Auditor’s report c. Income statement d. Internal Revenue Service Ans: C LO 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 17. The statement of cash flows communicates a. assets, liabilities, and owners’ e quity at a point of time. b. operating, investing, and financing activities. c. beginning balance plus income less dividends. d. how much cash the company owes its employees. Ans: B LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 18. The retained earnings section of the statement of shareholders’ equity communicates a. beginning balance plus income less dividends. b. revenues less expenses during a period of time. c. how much cash that management has paid for bonuses. d. operating, investing, and financing activities. Ans: A LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Rep orting 19. An investor wants to find the amount of cash and land that a company has. Where will the investor look? a. Statement of shareholders’ equity b. Income statement c. Balance sheet d. Statement of cash flows Ans: C LO 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-5 20. Dividends declared and paid to the owners are found in the a. management letter. b. income statement. c. dividends statement. d. statement of shareholders’ equity. Ans: D LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 21. Cash received by a company from its regular operations during the year is found in its a. balance sheet. b. statement of cash flows. c. statement of shareholders’ equity. d. auditor’s report. Ans: B LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 22. A company’s profits during its most rece nt year are found in its a. balance sheet and income statement. b. statement of cash flows only. c. statement of shareholders’ equity only. d. income statement and statement of shareholders’ equity. Ans: D LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 23. The cash paid during the year to satisfy a company’s debt is found in its a. statement of cash flows. b. income statement. c. statement of shareholders’ equity. d. auditor’s report. Ans: A LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 24. The amount which a company’s customers owe the company for products delivered or services rendered is found in the a. footnotes only. b. income statement. c. balance sheet. d. statement of cash flows. Ans: C LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reportin g 1-6 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 25. Solvency may be described as a. an amount owed that must be paid in the future. b. amounts that can be distributed to owners only. c. the amount invested in the firm by its owners. d. the ability to generate enough cash to pay its debt as the amounts become due. Ans: D LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 26. Retained earnings may be described as a. the total past profits retained in the business. b. a company’s fu ture growth. c. the amount invested in the firm by its owners. d. amounts retained for payments to vendors. Ans: A LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 27. All of the following might be found in the auditor's report except: a. A statement about conformity with GAAP. b. A statement about the fair presentation of the financial conditions and operations of the audited company. c. A statement about the effectiveness of the company's internal control system. d. A statement about the function of the company's board of directors. Ans: D LO 3 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 28. Where would you most likely find a detailed explanation about estimates used in the financial statements of a company? a. management letter b. financial footnotes c. debt restrictions d. debt contracts Ans: B LO 3 BT: C Difficulty: Easy TOT: 1 min. AACSB: A nalytic AICPA BB: Critical Thinking AICPA FN: Reporting 29. To run a company effectively, which one of the following might be a source from which management might acquire capital? a. Customers b. FASB c. Debt and equity investors d. Auditors Ans: C LO 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-7 30. Liabilities may be described as a. amounts that will be used for future growth. b. the amounts owed that must be paid in the fut ure. c. the total measured past growth of a firm less the amount distributed to the owners. d. amounts the company paid during the past year. Ans: B LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 31. Public stock exchanges a. are operated by managers of a company. b. are markets that sell annual reports. c. provide a forum for buying an d selling of equity interests in other companies. d. are used to evaluate debt and equity investments. Ans: C LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 32. An equity investor is a. a person who provides money to a company with the expectation that it will be paid back with interest. b. a creditor that has a regular trade relationship. c. a person who provides money to a company as a gift with a stipulation that it w ill be used as agreed. d. a person who provides money to a company, though the original money never has to be repaid, and who may be entitled to receive periodic cash payments. Ans: D LO 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 33. A debt investor is a. a person who provides money to a company with the expectation that it will be paid back with interest. b. a person who provides money to a compan y and expects periodic cash payments in return, though the original money never has to be repaid. c. a person who provides money to a company as a gift with a stipulation that it will be used as agreed. d. often referred to as a stockholder. Ans: A LO 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 1-8 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 34. The board of directors a. provides money to a company with the expectation that it will be paid back with interest. b. makes corporat e decisions such as hiring and firing management and setting company policy. c. is responsible for the future profits of a company. d. is in charge of accounting and human resources on a daily basis. Ans: B LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 35. As a potential creditor, you are interested in a company’s ability to pay loan interest and principal as they come due. Which of the followin g would be of the greatest interest to you in your analysis? a. statement of shareholders’ equity. b. income statement. c. statement of cash flows. d. Statement of Financial Accounting Standards. Ans: C LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 36. Which one of the following is an equity investor? a. A supplier of inventory waiting for payment b. A person who purchases common stock of a cor poration c. A bank that loans money to a firm d. A person who has a savings account in a bank Ans: B LO 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 37. Debt investments a. require payments to the shareholders for periodic dividends. b. are found on a company’s income statement. c. may be secured with collateral. d. return payments at the discretion of the board of directors. Ans: C LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 38. Annual reports of public companies a. are published once per year. b. include financial statements adjusted for inflation. c. are also known as Form 10 -K. d. are published by companies 4 times per year. Ans: A LO 6 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-9 39. Equity investments are bought and sold a. only on the first d ay of each year. b. in stock exchanges such as the NASDAQ. c. by a company’s independent auditors. d. from and to the SEC. Ans: B LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 40. Shareholders a. and employees are the owners of a company. b. receive repayment of the cash they have invested in a business. c. receive payment from a company regardless if the company is profitable or not. d. may benefit from increases in the value of their investm ent of a company. Ans: D LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 41. Which of the following statements is true? a. Dividend payments are determined by management. b. Dividend payments are specified by a contract. c. Dividend payments are based on company collateral. d. Dividend payments are paid at the board of director's discretion. Ans: D LO 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 42. Which of the following is a measure of past profits that have been retained in a business? a liabilities b. common stock. c. retained earnings. d. assets Ans: C LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 43. Ownership of an equity security entitles the holder to which basic right? a. The right to manage outstanding loans. b. The right to pay dividends. c. The right to vote for company directors at the annual shareholders' meeting. d. The right to certify financial report reviews. Ans: C LO 4 BT: K Difficulty : Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 1-10 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 44. Which of the following is a public exchange for equity and debt securities? a. The Federal Trade Commission. b. The New York Stock Exchange. c. The Secu rities and Exchange Commission. d. The Financial Accounting Standards Board. Ans: B LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 45. Who prepares financial reports for a particular compa ny? a. The Securities and Exchange Commission b. The Board of Directors c. The company’s management d. The company’s auditors Ans: C LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 46. As used in accounting, SEC is an abbreviation for a. Securities and Exchange Commission. b. South Eccentric Commissioners. c. Shareholder s’ Equity Commission. d. Southeastern Conference. Ans: A LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 47. The independence of the auditor is subject to question when the a. auditor is paid by the management of the company being audited. b. auditor is independent. c. audit firm is also responsible for preparing the tax return. d. auditor is paid 1% of the company’s profits for the audit services provided. Ans: D LO 5 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 48. Which of the following statements is true? a. Shopping for favorable audit opinions is permitted by the SEC . b. No formal reporting of auditor switches is required by the SEC . c. The SEC has enacted rules to help ensure financial literacy among audit committee members . d. Since management constructs the financial statements, auditors have no legal liability to those who rely upon these re ports. Ans: C LO 5 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-11 49. The advantage to the user of financial accounting statements that are audited by independent certified public accountants is assurance that the a. statements are produced in accordance with generally accepted accounting principles. b. company will be so lvent for at least one more year. c. company cannot remain profitable for more than 2 to 3 years. d. company pays its fair share of income taxes. Ans: A LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 50. GAAP is an acronym for a. General Asset Accounting Procedures. b. Government Agency Accounting Procedures. c. Generally Accepted Accounting Principles. d. Global Accounting Activity Principles. Ans: C LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 51. Generally accepted accounting principles are determined by a. annual voting by all certified public accountants. b. a privately financed body known as the FASB . c. the SEC. d. a congressional committee that passes laws governing accounting practice. Ans: B LO 5 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 52. When management goes beyond ethical boundaries in its attempt to make financial statements appear attractive, management a. should be commended for its creativity. b. will not need an annual audit. c. should pay its employees larger bonuses. d. is perpetrating fraud or possible criminal activity. Ans: D LO 5 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 53. Select the name that doesn’t fit with the others on the list. a. Pricewaterhou seCoopers b. Sarbanes -Oxley c. Deloitte & Touche d. KPMG Peat Marwick Ans: B LO 5 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 1-12 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 1-13 54. What encourages management to refrain from pressuring auditors too strongly? a. Possible legal liability b. Outside investors and creditors c. Prospects of higher net income d. Economic incentives from outsiders Ans: A LO 5 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 55. All of the following are functions of the board of directors except: a. Attending quarterly meetings. b. Conducting performance review for management. c. Declaring dividends. d. Firing staff personnel. Ans: D LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 56. Which of the following is least likely to be a by -product of ethical business practices? a. fewer lawsuits. b. higher profits. c. higher audit fees. d. public trust. Ans: C LO 5 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 57. Which of the following factors is least likely to encourage managers and auditors to act professionally? a. professional reputation. b. tax structure c. legal liability d. ethics Ans: B LO 5 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 58. Which of the following groups make up a company’s audit committee? a. Auditors. b. Outside directors from the Board. c. Company officers. d. All of the individuals in (a), (b), and (c) are included in the audit committee. Ans: B LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 1-14 Test Bank – Chapter 1 – Financial Accounting and Its Economic Context 59. Which of the following groups enacted the Sarbanes Oxley Act? a. FASB b. AICPA c. U.S. Congress d. PCAOB Ans: C LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 60. Generally accepted accounting principles a. are laws created and enacted by Congress. b. define the standards for internal management reporting. c. increase the level of credibility in financial statements. d. are created by the Securities and Exchange Commission. Ans: C LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 61. Financial accounting practices and standards used in other countries a. are the same as practices used by United States companies. b. have different systems of financial accounting. c. are more progressive than those used by United States companies. d. will often have common practices similar to U.S. GAAP. Ans: D LO 6 BT: K Difficulty: Eas y TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 62. International Financial Reporting Standards (IFRS) are recognized as acceptable by major stock exchanges throughout the world except in a. England . b. Japan . c. The United States . d. France. Ans: C LO 6 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting 63. International Financial Reporting Standards (IFRS) are promulgated by a. the United Nations. b. the World Bank. c. the Big Four accounting firms . d. the IASB. Ans: D LO 6 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting