Test Bank for College Accounting A Contemporary Approach 2nd Edition

Test Bank for College Accounting A Contemporary
Approach 2nd Edition
True False Questions - Free Text Questions -

Multiple Choice Questions
The
form ofora death
business
organization
not affected
by isthe
withdrawal
of an
owner and that
can is
continue
forever
1.

A.the sole proprietorship.


2.

B.the partnership.

3.

C.the corporation.

4.

D.the nonprofit organization.

The
financial
owners
shouldaffairs
be of a business and the financial affairs of the
1.

A.combined in the firm's accounting records.


2.

B.reported in different parts of the firm's accounting records.

3.

C.combined only if the owner wants them to be.

4.

D.kept totally separate.

Which
of information?
the following is NOT part of the process of accounting for
financial
1.

A.Recording


2.

B.Identifying

3.

C.Communicating

4.

D.Classifying

Owners and managers need financial information in order to
1.

A.grant loans.

2.


B.issue credit.

3.

C.collect taxes.

4.

D.make decisions.

The Sarbanes-Oxley Act includes rules on
1.

A.auditor retention.

2.

B.auditor reliability.

3.


C.auditor rotation.

4.

D.auditor reporting.

The
develops
in theFASB
following
orderStatements of Financial Accounting Standards
1.

A.issues an exposure draft, obtains responses to the exposure draft, issues a
statement of principle, issues a discussion memorandum, obtains responses to the
discussion memorandum

2.


B.issues a discussion memorandum, obtains responses to the discussion
memorandum, issues an exposure draft, obtains responses to the exposure draft, issues
a statement of principle

3.

C.issues a discussion memorandum, obtains responses to the discussion
memorandum, issues a statement of principle, issues an exposure draft, obtains
responses to the exposure draft

4.

D.issues a statement of principle, issues a discussion memorandum, obtains
responses to the discussion memorandum, issues an exposure draft, obtains responses
to the exposure draft

The
corporations
stock
can be

boughtare
and
sold ontostock
exchanges
and inwhose
over-the
counter
markets
referred
as
1.

A.privately owned corporations.

2.

B.closely held corporations.

3.


C.publicly owned corporations.

4.

D.sole proprietorships.

Managerial accounting is
1.

A.public accounting.

2.

B.government accounting.

3.

C.private accounting.

4.


D.tax accounting.

Management advisory services are designed to help
1.

A.government agencies.

2.

B.clients.

3.

C.employers.

4.

D.creditors.


A firm issues periodic reports called
1.

A.financial statements.

2.

B.summaries.

3.

C.tax returns.

4.

D.audits.

Which of the following is NOT a service of public accounting firms?
1.


A.Auditing

2.

B.Tax accounting

3.

C.Management advisory services

4.

D.Investment services

Which
of the statements?
following is NOT a type of information communicated by
the financial
1.

A.Whether or not the business is profitable

2.

B.What types of assets business owns

3.

C.How long the business has been in operation

4.

D.How much the business owes others

The
government
agency
that
has final authority
over the financial
reporting
of publicly
owned
corporations
is
1.

A.the Securities and Exchange Commission.

2.

B.the Federal Trade Commission.

3.

C.the Internal Revenue Service.

4.

D.the Financial Accounting Standards Board.

The
review to
of GAAP
financial
adherence
is statements to assess their fairness and
1.

A.accounting.

2.

B.preparation.

3.

C.compliance.

4.

D.auditing.

Which
of the following is NOT an area in which accountants usually
practice?
1.

A.Public Accounting

2.

B.Industrial Accounting

3.

C.Governmental Accounting

4.

D.Managerial (Private) Accounting

An
independent
who provides accounting services to the
public
for a fee isaccountant
a
1.

A.CIA.

2.

B.CFE.

3.

C.CMA.

4.

D.CPA.

An
act passed
scandals
is thein response to the wave of corporate accounting
1.

A.Saxon-Ordanly Act.

2.

B.Sarbanes-Oxley Act.

3.

C.Sardonic-Oxone Act.

4.

D.Sorbine-Oxide Act.

A form of the partnerships business entity is
1.

A.LLP.

2.

B.LLC.

3.

C.INC.

4.

D.DBA.

Tax accounting involves tax compliance and
1.

A.tax evaluation.

2.

B.tax planning.

3.

C.tax configuration.

4.

D.tax obfuscation.

The
groupFASB
of accounting
educators
who offer
their
opinions
about
proposed
statements,
after
research
has
been
done
to
determine
the possible effects on financial reporting and the
economy, is
1.

A.the FCC.

2.

B.the AICPA.

3.

C.the SEC.

4.

D.the AAA.

Tax planning includes
1.

A.preparing tax returns.

2.

B.auditing tax returns.

3.

C.correcting tax returns.

4.

D.suggesting actions to reduce tax liability.

Which
of the statements?
following is NOT a type of information communicated by
the financial
1.

A.The equity, or value, of the business

2.

B.The amount spent on costs (expenses) of the business

3.

C.The types of products and services the business provides

4.

D.The amount of revenue earned by the business

The
area
ofaaccounting
that involves
the
preparation
of
internal
reports
for
firm's
executives
and
the
analysis
of
the
data
in these
reports to aid in decision making is known as
1.

A.financial accounting.

2.

B.managerial accounting.

3.

C.auditing.

4.

D.cost accounting.

The following are all government agencies except
1.

A.SEC.

2.

B.AICPA.

3.

C.IRS.

4.

D.FBI.

An example of an economic entity is
1.

A.a town.

2.

B.a business.

3.

C.a nonprofit hospital.

4.

D.a church.

Owners
areofnot
personally
responsible
if the form
business
organization
is for the debts of the business
1.

A.the sole proprietorship.

2.

B.the partnership.

3.

C.the corporation.

4.

D.the nonprofit organization.

The Financial Accounting Standards Board is responsible for
1.

A.auditing financial statements.

2.

B.developing generally accepted accounting principles.

3.

C.establishing accounting systems for businesses.

4.

D.making recommendations to the Securities and Exchange Commission.

All
financial statements
submitted
to the
SECprepared
by publicly
corporations
must include
an auditor's
report
byowned
1.

A.an internal auditor.

2.

B.the firm's managerial accountant.

3.

C.an independent certified public accountant.

4.

D.anyone in the accounting department.

True False Questions
Tax
planning
is audit
any activity
associated
returns
and the
of those
returns. with the preparation of tax
1.

True

2.

False

As
the first the
stepFASB
in thewrites
development
of generally
accepted
accounting
principles,
an
exposure
draft,
which
explains
the
topic under consideration.
1.

True

2.

False

In
a sole proprietorship,
the owner
business
if the firm is unable
to pay.is responsible for the debts of the
1.

True

2.

False

Public
accountants
governmental
units.work on the staff of federal, state, or local
1.

True

2.

False

Accounting
is defined
as the process
by which
financialinterpreted,
information
about
a
business
is
recorded,
classified,
summarized,
and
communicated to owners, managers, and other interested
parties.
1.

True

2.

False

The death or withdrawal of onepartner ends the partnership.
1.

True

2.

False

Most
owners
managers
relymaking
heavilyfinancial
on the accountant's
judgment
andand
knowledge
when
decisions.
1.

True

2.

False

When
a business
is organized
as a soleinformation
proprietorship,
the
owner
may
combine
his/her
personal
financial
with
the
business
financial information.
1.

True

2.

False

The
purpose of
an economic
or accounting
social entity.is to provide financial information about
1.

True

2.

False

Currently,
generally
accepted
accounting
principles are(AICPA)
developed by
the American
Institute
of Certified
Public Accountants
1.

True

2.

False

The
owners
and managers of a business are the only users of the
Financial
Information.
1.

True

2.

False

Accountants
providedecisions.
financial information to various parties so they
can make business
1.

True

2.

False

An
accounting
system is
designed
to accumulate
and
classify data
about
a
firm's
financial
affairs
and
summarize
it
in
the
general
journal.
1.

True

2.

False

A business partnership can have only two partners.
1.

True

2.

False

The
Securities and Exchange Commission (SEC) requires that
publicly
year. owned corporations submit financial statements to it each
1.

True

2.

False

Anyone can invest in a closely held corporation.
1.

True

2.

False

Public
accounting
firms provide
three majoradvisory
types ofservices.
services:
auditing,tax
accounting,
and management
1.

True

2.

False

Laws
passed
by Congress
in 1933
1934
gave of
thefinancial
Securities and
Exchange
Commission
(SEC)
final and
say on
matters
reporting by
publicly owned
corporations.
1.

True

2.

False

The
base.SEC uses financial information to determine a company's tax
1.

True

2.

False

The
separate entity assumption applies only to the corporate form of
business.
1.

True

2.

False

The
financial
statements and
the auditor's
must be made
available
to stockholders
of publicly
ownedreport
corporations.
1.

True

2.

False

Free Text Questions
Generally
accepted accounting
____________________
arein
financial
accounting
standards
that
are
changed
and
refined
response to changes in the environment in which
Answer Given

businesses operate. principles

The owners of a corporation are called ____________________.
Answer Given

stockholders; shareholders

Accountants
normally choose
to practice
in one of three areas: public
accounting,
managerial
accounting,
or
____________________
accounting.
Answer Given

governmental

What
is the
"language of business?" List three groups who use this
financial
information.
Answer Given

Accounting is the language of business. The groups who use this information are
owners and managers, suppliers, banks, tax authorities, regulatory agencies and
investors, customers, and employees and unions.

The
or government agencies to whom a firm
owespeople,
moneycompanies,
are called ____________________.
Answer Given

creditors

The
Securities
and Exchange
Commission
(SEC)
regulates the
accounting
methods
and
financial
reporting
of
____________________ owned corporations
Answer Given

publicly

List
three individuals
or For
groups
who
usegive
financial
information
to make
decisions
about
a
firm.
each
listed,
an
example
of
why
they
would need the information.
Answer Given

Owners and managers-to evaluate results of operations or to make decisions about
the future. Suppliers-to assess the ability of the firm to pay its bills and to set credit
limits. Banks-to determine whether the firm can repay the loan in a timely manner. Tax
authorities-to determine the tax base of the firm. Regulatory agencies and investors-to
fulfill the requirements of the law. Customers-to determine whether service on
purchases will continue into the future. Employees and unions-to negotiate wages and
benefits.

Accounting
is often referred to as the language of
____________________.
Answer Given

business

A partnership has ____________________ or more owners
Answer Given

two

List at least five activities performed by managerial accountants.
Answer Given

Establishing accounting policies, managing the accounting system, preparing financial
statements, interpreting financial information, providing financial advice to
management, preparing tax forms, performing tax planning services, and preparing
internal reports for

Explain
the process
the Financial
Accounting
Standards
Board
(FASB)
employs
to
develop
and
issue
Statements
of
Financial
Accounting Standards.
Answer Given

The FASB writes a discussion memorandum explaining the topic under consideration.
Then it holds public hearings so interested parties can express their opinions orally or
in writing. After these hearings, the FASB releases an exposure draft describing the
proposed statement. FASB then receives and evaluates public comment about the
draft, and finally FASB members vote on the statement, which, if approved by four of
the seven members, is then issued.

Discuss
entity. the differences among: entity, economic entity, and social
Answer Given

Entity-recognized as having its own separate identity. Social entity-nonprofit
organizations. Economic entity-business or organization whose major purpose is to
produce a profit.

The
financial statements submitted
to the SEC by
a corporation
must
be
____________________
by
an
independent
accountant
to
ensure
their
fairness and adherence to generally accepted accounting
principles.
Answer Given

audited

The
results
of financial
the accounting
process are summarized in periodic
reports
called
____________________.
Answer Given

statements

Nonprofit
as cities, public schools,entities.
and public
hospitals, organizations,
are referred tosuch
as ____________________
Answer Given

social

A
form of business entity owned by one person is called a(n)
____________________.
Answer Given

sole proprietorship

The
three majorthe
legal
forms of business
entity are the sole
proprietorship,
partnership,
and the ____________________
Answer Given

corporation

You
have just entered college and decide to pursue a career as an
accountant.
practice? What are the three areas in which an accountant can
Answer Given

Public accounting, managerial (private) accounting, and governmental accounting

Tax
accounting
is a service offered by and
public
involves
tax ____________________
taxaccounting
planning. firms that
Answer Given

compliance

List the "Big Four" public accounting firms in the United States.
Answer Given

Deloitte & Touche, Ernst & Young,KPMG, and PricewaterhouseCoopers

List at least three of the provisions of the Sarbanes-Oxley Act.
Answer Given

The act: tightens regulation of financial reporting by publicly held companies and their
accountants and auditors; creates a five-member Public Company Accounting
Oversight Board to oversee the accounting profession which in turn is overseen by the
SEC; includes rules on consulting services, auditor rotation, criminal penalties,
corporate governance, and securities regulation; requires auditors to maintain all audit
or review work papers for five years; requires chief executives and chief financial
officers of publicly traded corporations to certify their financial statements; requires
quicker disclosure of material changes in a firm's financial position; provides protection
for whistle blowers; and lengthens the time investors have to file lawsuits for securities
fraud.

Audited
financial
statements
this auditor's
report
contain? include an auditor's report. What does
Answer Given

It contains the auditor's opinion regarding the fairness of the firm's financial statements
and confirms the adherence to GAAPin those financial reports.

The
process
by whichsummarized,
financial information
about
acommunicated
business is
recorded,
classified,
interpreted,
and
to
owners,
managers,
and
other
interested
parties
is
called
____________________.
Answer Given

accounting

Ownership
in a corporation is evidenced by shares of
____________________
Answer Given

stock

What
determines the independence of Certified Public Accountants
(CPAs)?
Answer Given

They are not employees of the companies they audit and they do not have a financial
interest in those companies.

There
three each.
general services public accountants offer. List and
briefly are
describe
Answer Given

Auditing: the review of financial statements to assess their fairness and adherence to
GAAP. Tax accounting: tax compliance-dealing with the preparation of tax returns and
the audit of those returns, and tax planning-giving advice to clients on how to structure
their financial affairs in order to reduce their tax liability. Management advisory
services: helping clients improve their information systems or their business
performance.

How do sole proprietorships, partnerships, and corporations differ?
Answer Given

Sole proprietorships-business entities owned by one person who is responsible for the
business debts and taxes. The business ends when the owner dies. Partnershipsbusiness entities owned by two or more individuals who are individually, and as a
group, responsible for the partnership's debts and taxes. A partnership ends when one

or more partners withdraw or die. Corporations-business entities with one or more
owners which can continue indefinitely unless bankruptcy occurs or the stockholders
vote to liquidate. Stockholders (owners) are not personally responsible for the
corporation's debts and can only lose the amount they invested.