C213 WGU OA Prep Exam Questions and Verified Answers

The ability a company has to pay its debts in the short run is its Liquidity Which of the following is a measure of the liquid position of a corporation? Debt ratio Which of the following ratios is used to measure a firm's leverage? Debt Ratio Which of the following ratios is used to measure the profit earned on each dollar invested in a firm? Return on Equity The emphasis in financial accounting is on which of the following external user groups? Investors and creditors The primary internal group that uses accounting information is Management Internal reports are generally used by Management Which of the following is NOT an external user of financial information? Management Which of the following is NOT true of the Financial Accounting Standards Board (FASB)? It is a government agency Generally accepted accounting principles are Developed by accounting rule makers The initials GAAP stand for Generally Accepted Accounting Principles The current standard-setting board for accounting in the private sector is the Financial Accounting Standards Board (FASB) The organization that develops worldwide accounting standards is the International Accounting Standards Board (IASB) The initials CPA stand for Certified Public Accountant Which of the following is NOT a service typically provided by large public accounting firms? Making management decisions Standards established by the International Accounting Standards Board are referred to as International Financial Reporting Standards Which of the following is the government agency that stipulates the rules and regulations that govern the collection of taxes in the United States? Internal Revenue Service Which of the following is NOT a reason for the integration of worldwide accounting standards? the theoretical necessity of a common set of accounting standards The International Accounting Standards Board (IASB) is charged with developing worldwide accounting practices? True 1 multiple choice option With the current state of information technology, investors outside a company are now allowed access to a company's internal database of financial information and do their own customized analysis of a firm's performance. False 1 multiple choice option Increased federal oversight of the audit process resulted from the passage of the following act of Congress - Sarbanes-Oxley Act A borrower benefits from providing financial information regarding income and expenses in the form of a lower interest rate on the loan because of reduced uncertainty for the lender with regard to repayment. True 1 multiple choice option Which of the following is NOT one of the three primary financial statements? The Statement of Retained Earnings One reason for a company's preparing and providing financial statements is to reduce uncertainty for an investor regarding the firm's future financial performance. True 1 multiple choice option Which of the following accounts is considered to be the most liquid? Cash Which of the following types of accounts are NOT found on the balance sheet? Revenues The financial statement that reports resources owned, the obligations to transfer resources to other organizations, and the claims by the entity's owners is known as the Balance sheet The idea that the activities of the entity are to be separated from those of the individual owner is the Separate entity concept The basic accounting equation is Assets = Liabilities + Owners' Equity Which of the following would be included on an income statement? Rent expense Costs that are incurred during the normal operations of a business to generate revenues are called Expenses 1 multiple choice option Another name for the income statement is Statement of earnings Revenues cause An increase in net assets The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or a year, is called a(n) Income Statement Which of the following activities would NOT be classified as an investing activity? Purchase of inventory A major source of cash from operating activities is Receipts from sale of goods Which of the following classifications refers to those activities associated with buying and selling long-term assets? Investing Which of the following classifications does NOT appear on the Statement of Cash Flows? Borrowing Vital information that CANNOT be captured solely by dollar amounts is reported in a firm's Notes to financial statements Which of the following is NOT one of the four general types of financial statement notes? Supplementary information required by the Internal Revenue Service Which of the following is an example of a significant accounting policy that would be explained in the notes to the financial statements? The method used to estimate depreciation on a piece of equipment Which of the following is an example of a disclosure of information NOT recognized that would be explained in the notes to the financial statements? The disclosure of the uncertain, potential outcome of a lawsuit Which of the following is an example of additional information about summary totals that would be explained in the notes to the financial statements? The description of all the individual items that comprise notes payable An independent audit report is usually issued by A certified public accountant In completing an audit of a company's financial statements, auditors Provide some assurance that the financial statements are not misleading The accuracy of the information contained in the financial statements is the responsibility of the Management Which of the following are the two economic factors that enable us to trust an independent auditor despite the fact that the auditor was hired by the company being audited? Reputation of auditor and risk of lawsuits The idea that certain figures on an operating statement help to explain changes in figures on comparative balance sheets is referred to as Articulation The idea that information becomes more useful when it can be related to a benchmark or a standard is referred to as Comparability The notion that when doubt exists concerning two or more reporting alternatives, users should select the alternative with the least favorable impact on reported income, assets, and liabilities is referred to as Conservatism Whether an item is big enough that proper accounting will make a difference to users of accounting information is referred to as Materiality The notion that information will be more useful if it will impact a decision is referred to as Relevance If a corporation has total assets of $350,000, total liabilities of $150,000, and retained earnings of $100,000, what is the amount of capital stock? $100,000 Which of the following is generally considered to be an asset? Accounts receivable Which of the following generally is NOT considered to be a liability? Inventory Which of the following decreases owners' equity? Operations generate a loss The total amount invested to acquire an ownership interest in a corporation is called Common Stock and Preferred Stock Current assets usually are listed on a balance sheet in Decreasing order of liquidity Which of the following accounts would NOT be considered a current asset? Equipment In non-U.S. Balance sheets, you will often see each of the following EXCEPT: The stockholders’ equity section will be listed first on the balance sheet This is sometimes done in place of recognition when the effects of an event cannot be quantified with any degree of certainty. Disclosure The process of determining the dollar value to assign to an item that is to be recognized in the financial statements is called Valuation Historical cost has long been used in accounting because it is Reliable The process of formally recording an item in the accounting records so that it will be reflected in the financial statements is called Recognition Reporting the details of a transaction in the notes to the financial statements is called Disclosure When an investor pays cash into a business to become a part owner, the effect on the accounting equation for the business will be to Increase Cash and increase Paid-in Capital When a company buys a warehouse by using a mortgage with a local bank, the effect on the accounting equation for the company will be to Increase Buildings and increase Mortgage Payable When a company borrows money from a bank to be repaid in over time, the effect on the accounting equation for the company will be to Increase Cash and increase Bank Loan Payable When a company purchases equipment on credit, the effect on the accounting equation will be to increase Equipment and increase a liability When a company rents a warehouse by paying for the first six month's rent in advance, the effect on the accounting equation on the day of payment would be to Increase Prepaid Rent and decrease Cash A company's asset mix is determined by Dividing each asset item on the balance sheet by total assets A company's asset mix is strongly influence by The company’s industry Financing mix is a measure of The degree to which a company finances assets using liabilities or owners’ equity The number used to reflect an overall measure of the change in a company's wealth during the period is - Comprehensive Income A measure of a company's performance that is intended to summarize in one number the overall economic performance of a company in a given period is - Net Income A measure of a company's performance that includes all items that are expected to continue into the future is - Income from Continuing Operations Earnings per share is equal to Net income divided by total number of shares of stock outstanding With a single-step income statement all revenues are grouped together, all expenses are grouped together, and net income is computed as the difference between the two. True 1 multiple choice option When revenue and expense items are arranged to highlight important profit relationships, the resulting income statement format is called a - multiple-step income statement With a multiple-step income statement all revenues are grouped together, all expenses are grouped together, and net income is computed as the difference between the two. False 1 multiple choice option Under the general rule of revenue recognition, revenue is recognized when the earnings process is complete, and a valid promise of payment has been received. Which of the following is NOT an acceptable basis for the recognition of expenses? Cash disbursement 1 multiple choice option Which of the following principles best describes the rationale for matching administrative and selling expenses with revenues of the current period? Immediate recognition Costs that can be reasonably associated with specific revenues but NOT with specific products should be expensed in the period in which the related revenue is recognized. A wholesale bakery would normally recognize revenue when goods are delivered to the customer. Analysis of revenue and expense transactions requires the use of the: Expanded Accounting Equation Thus far, the only national government to adopt the accrual basis for its official accounting system is ______. New Zealand Which of the following statements is true regarding retained earnings? All of the statements are true