Financial Accounting Fundamentals Wild 7th Edition- Test Bank

Financial Accounting Fundamentals, 7e (Wild) Chapter 1 Accounting in Business 1) Accounting is an information and measurement system that identifies, records, and communicates an organization's business activities. Answer: TRUE Difficulty: 1 Easy Topic: Importance of Accounting Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 2) Recordkeeping, or bookkeeping, is the recording of transactions and events, either manually or electronically. This is just one part of accounting. Answer: TRUE Difficulty: 1 Easy Topic: Importance of Accounting Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 3) An accounting system captures relevant data about transactions and then classifies, records, and reports data. Answer: TRUE Difficulty: 1 Easy Topic: Importance of Accounting Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 4) Financial accounting is the area of accounting aimed at serving external users by providing them with general-purpose financial statements. Answer: TRUE Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 1 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5) Internal users of accounting information do not directly run the organization and have limited access to its accounting information. Answer: FALSE Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 6) Auditors verify the effectiveness of internal controls. Answer: TRUE Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 7) External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles. Answer: TRUE Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 8) External users include lenders, shareholders, customers, and regulators. Answer: TRUE Difficulty: 2 Medium Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 2 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 9) Regulators often have legal authority over certain activities of organizations. Answer: TRUE Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 10) Internal users include lenders, shareholders, brokers and nonexecutive employees. Answer: FALSE Difficulty: 2 Medium Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 11) Opportunities in accounting include auditing, consulting, market research, and tax planning. Answer: TRUE Difficulty: 2 Medium Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 12) Ethics is defined as maximizing personal wealth, regardless the cost. Answer: FALSE Difficulty: 2 Medium Topic: Ethics Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand AACSB/Accessibility: Ethics/Keyboard Navigation AICPA: BB Industry; FN Decision Making 3 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 13) The Sarbanes-Oxley Act (SOX) requires documentation and verification of internal controls. It also emphasizes effective internal controls. Answer: TRUE Difficulty: 1 Easy Topic: Ethics Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Remember AACSB/Accessibility: Ethics/Keyboard Navigation AICPA: BB Legal; FN Reporting 14) The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization. Answer: TRUE Difficulty: 2 Medium Topic: Ethics Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand AACSB/Accessibility: Ethics/Keyboard Navigation AICPA: BB Industry; BB Legal; FN Decision Making 15) Management is not responsible for implementing internal controls and does not need to issue a report on internal controls. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Ethics/Keyboard Navigation AICPA: BB Legal; FN Reporting 16) A partnership is a business owned by two or more people. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 4 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 17) Owners of a corporation are called shareholders or stockholders. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 18) In the partnership form of business, the owners are called stockholders. Answer: FALSE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 19) The balance sheet shows a company's net income or loss over a period of time. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Reporting 20) The Financial Accounting Standards Board (FASB) is a group tasked with setting generally accepted accounting principles (GAAP). Answer: TRUE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Reporting 5 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 21) The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 22) General principles are the basic assumptions, concepts, and guidelines for preparing financial statements. GAAP aims to make information relevant and representationally faithful. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 23) The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 24) As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 6 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 25) Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 26) Limited liability and indefinite business life are characteristics of a corporation. Answer: TRUE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 27) A sole proprietorship is a business with multiple owners. Answer: FALSE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 28) Unlimited liability and separate taxation of the business are advantages of a sole proprietorship. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 7 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 29) A partnership must pay an additional business income tax. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 30) Objectives, qualitative characteristics, elements, and recognition and measurement are components of the FASB conceptual framework. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 31) Objectivity means that financial information is supported by independent, unbiased evidence; it demands more than a person's opinion. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 32) The going-concern assumption presumes that a business will continue operating instead of being closed or sold. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 8 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 33) The measurement principle prescribes that accounting information is based on subjective opinion rather than cost. Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 34) The monetary unit assumption means that companies should express transactions in terms such as "a lot" or "very little." Answer: FALSE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 35) The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices. Answer: TRUE Difficulty: 2 Medium Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 36) A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation. Answer: FALSE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; BB Global; FN Measurement 9 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 37) A limited liability company offers the limited liability of a corporation and the tax treatment of a partnership or proprietorship. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; BB Global; FN Measurement 38) The Securities and Exchange Commission (SEC) is a U.S. government agency that oversees proper use of GAAP by companies that sell stock and debt to the public. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 39) The four common forms of business ownership include sole proprietorship, partnership, corporation, and non-profit. Answer: FALSE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 10 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 40) The four common forms of business ownership include sole proprietorship, partnership, limited liability company (LLC), and corporation. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Reporting 41) The three major types of business activities are operating, financing, and investing. Answer: TRUE Difficulty: 1 Easy Topic: Business Activities and the Accounting Equation Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 42) Planning is a part of each business activity (operating, investing, and financing), and gives each activity meaning and focus. Answer: TRUE Difficulty: 1 Easy Topic: Business Activities and the Accounting Equation Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Legal; FN Decision Making 43) Financing activities provide the resources organizations use to pay for resources such as land, buildings, and equipment. Answer: TRUE Difficulty: 1 Easy Topic: Business Activities and the Accounting Equation Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 11 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 44) Investing activities include long-term borrowing and repaying of cash from lenders. Answer: FALSE Difficulty: 1 Easy Topic: Business Activities and the Accounting Equation Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; BB Critical Thinking; FN Decision Making 45) Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services. Answer: TRUE Difficulty: 1 Easy Topic: Business Activities and the Accounting Equation Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; BB Critical Thinking; FN Decision Making 46) Owner financing refers to resources contributed by creditors or lenders. Answer: FALSE Difficulty: 1 Easy Topic: Business Activities and the Accounting Equation Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 47) Revenues are increases in equity (via net income) from a company's sales of products and services to customers. Answer: TRUE Difficulty: 1 Easy Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 12 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 48) A net loss occurs when revenues exceed expenses. Answer: FALSE Difficulty: 2 Medium Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Decision Making 49) Net income occurs when revenues exceed expenses. Answer: TRUE Difficulty: 2 Medium Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Measurement 50) Liabilities are owners' claims on assets. Answer: FALSE Difficulty: 1 Easy Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Critical Thinking; FN Measurement; FN Reporting 51) Assets are the resources a company owns or controls that are expected to yield future benefits. Answer: TRUE Difficulty: 1 Easy Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Critical Thinking; FN Measurement; FN Reporting 13 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 52) Dividends are subtracted as expenses in the calculation of net income. Answer: FALSE Difficulty: 2 Medium Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 53) The accounting equation can be restated as: Assets − Equity = Liabilities. Answer: TRUE Difficulty: 2 Medium Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Measurement 54) The accounting equation implies that: Assets + Liabilities = Equity. Answer: FALSE Difficulty: 2 Medium Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Measurement 55) Stock issuances are increases in equity from the sale of products or services. Answer: FALSE Difficulty: 1 Easy Topic: The Accounting Equation Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Measurement 14 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 56) Every business transaction leaves the accounting equation in balance. Answer: TRUE Difficulty: 1 Easy Topic: Transaction Analysis Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 57) An external transaction is an exchange within an entity that may or may not affect the accounting equation. Answer: FALSE Difficulty: 1 Easy Topic: Transaction Analysis Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Critical Thinking; FN Measurement 58) From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured. Answer: FALSE Difficulty: 2 Medium Topic: Transaction Analysis Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Measurement 59) Stockholders' equity is increased when cash is received from customers in payment of previously recorded accounts receivable. Answer: FALSE Difficulty: 2 Medium Topic: Transaction Analysis Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Decision Making: FN Measurement 15 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 60) Stockholder investments increase equity via net income. Answer: FALSE Difficulty: 2 Medium Topic: Transaction Analysis Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Decision Making: FN Measurement 61) Return on assets is often stated in ratio form as the amount of average total assets divided by revenue. Answer: FALSE Difficulty: 2 Medium Topic: Return on Assets Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Critical Thinking; FN Measurement 62) Return on assets is often stated in ratio form as the amount of income divided by assets invested. Answer: TRUE Difficulty: 2 Medium Topic: Return on Assets Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Critical Thinking; FN Measurement 63) Return on assets is useful in evaluating management, analyzing and forecasting profits, and planning activities. Answer: TRUE Difficulty: 2 Medium Topic: Return on Assets Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Resource Management; FN Measurement 16 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 64) Arrow's net income of $120 million and average total assets of $1,500 million results in a return on assets of 8%. Answer: TRUE Explanation: Return on Assets = Net Income/Average Total Assets Return on Assets = $120 million/$1,500 million = 8% Difficulty: 2 Medium Topic: Return on Assets Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Resource Management; FN Measurement 65) Risk is the uncertainty about the return we will earn. Answer: TRUE Difficulty: 1 Easy Topic: Return and Risk Analysis Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Remember AACSB/Accessibility: Reflective Thinking/Keyboard Navigation AICPA: BB Resource Management; FN Decision Making 66) Generally, the lower the risk, the higher the return that can be expected. Answer: FALSE Difficulty: 2 Medium Topic: Return and Risk Analysis Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Understand AACSB/Accessibility: Reflective Thinking/Keyboard Navigation AICPA: BB Resource Management; FN Measurement 67) U.S. Government Treasury bonds provide low return and low risk to investors. Answer: TRUE Difficulty: 2 Medium Topic: Return and Risk Analysis Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Understand AACSB/Accessibility: Reflective Thinking/Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 17 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 68) The four basic financial statements include the balance sheet, income statement, statement of retained earnings, and statement of cash flows. Answer: TRUE Difficulty: 1 Easy Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 69) An income statement reports on investing and financing activities. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis 70) A balance sheet covers activities over a period of time such as a month or year. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 71) The income statement describes revenues earned and expenses incurred along with the resulting net income or loss over a specified period of time. Answer: TRUE Difficulty: 1 Easy Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 18 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 72) The statement of cash flows shows the net effect of revenues and expenses for a reporting period. Answer: FALSE Difficulty: 1 Easy Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 73) The income statement shows the financial position of a business on a specific date. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 74) The first section of the income statement reports cash flows from operating activities. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 75) The balance sheet is based on the accounting equation. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 19 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 76) Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 77) Operating activities include long-term borrowing and repaying cash from lenders, stockholder investments and dividends paid to stockholders. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 78) The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 79) The income statement reports on operating activities at a point in time. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 20 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 80) The statement of cash flows identifies cash flows separated into operating, investing, and financing activities over a period of time. Answer: TRUE Difficulty: 1 Easy Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 81) Ending retained earnings reported on the statement of retained earnings is calculated by adding stockholder investments and net income and subtracting net losses and dividends. Answer: FALSE Difficulty: 3 Hard Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Reporting 82) The cost-benefit constraint prescribes that only information with benefits of disclosure less than the costs of providing it, need be disclosed. Answer: FALSE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Reporting 83) The cost-benefit constraint says that information disclosed must have benefits to the user that are greater than the costs of providing it. Answer: TRUE Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; BB Critical Thinking; FN Reporting 21 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 84) Net income is sometimes called earnings or profit. Answer: TRUE Difficulty: 1 Easy Topic: Financial Statements Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Legal; FN Measurement 85) Accounting is an information and measurement system that does all of the following except: A) Identifies business activities. B) Records business activities. C) Communicates business activities. D) Eliminates the need for interpreting financial data. E) Helps people make better decisions. Answer: D Difficulty: 2 Medium Topic: Importance of Accounting Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Understand AACSB/Accessibility: Analytical Thinking/Keyboard Navigation AICPA: BB Industry; FN Legal; FN Measurement 86) Technology: A) Has replaced accounting. B) Has not improved the clerical accuracy of accounting. C) Reduces the time, effort and cost of recordkeeping. D) In accounting has replaced the need for decision makers. E) In accounting is only available to large corporations. Answer: C Difficulty: 2 Medium Topic: Importance of Accounting Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Understand AACSB/Accessibility: Technology/Keyboard Navigation AICPA: BB Industry; FN Leveraging Technology 22 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 87) The primary objective of financial accounting is to: A) Serve the decision-making needs of internal users. B) Provide accounting information that serves external users. C) Monitor consumer needs, tastes, and price concerns. D) Provide information on both the costs and benefits of looking after products and services. E) Know what, when, and how much product to produce. Answer: B Difficulty: 2 Medium Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 88) The area of accounting aimed at serving the decision-making needs of internal users is: A) Financial accounting. B) Managerial accounting. C) External auditing. D) SEC reporting. E) Bookkeeping. Answer: B Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 89) External users of accounting information include all of the following except: A) Shareholders. B) Customers. C) Purchasing managers. D) Government regulators. E) Creditors. Answer: C Difficulty: 2 Medium Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 23 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 90) Which of the following is not true regarding a Certified Public Accountant? A) Must meet education and experience requirements. B) Must pass an examination. C) Must exhibit ethical character. D) May also be a Certified Management Accountant. E) Cannot hold any certificate other than a CPA. Answer: E Difficulty: 1 Easy Topic: Users of Accounting Information Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Decision Making 91) Which of the following factors is not a component of the fraud triangle? A) Opportunity B) Pressure C) Rationalization D) All of the above are components of the fraud triangle. Answer: D Difficulty: 2 Medium Topic: Ethics Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand AACSB/Accessibility: Ethics/Keyboard Navigation AICPA: BB Industry; FN Decision Making 92) Which of the following is not true regarding ethics: A) Ethics are beliefs that distinguish right from wrong. B) Good ethics are good business. C) Ethics do not affect the operations or outcome of a company. D) Are critical in accounting. E) Ethics are accepted standards of good and bad behavior. Answer: C Difficulty: 2 Medium Topic: Ethics Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand AACSB/Accessibility: Ethics/Keyboard Navigation AICPA: BB Industry; FN Decision Making 24 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 93) A corporation is: A) A business legally separate from its owners. B) Controlled by the FASB. C) Not responsible for its own acts and own debts. D) The same as a limited liability partnership. E) Not subject to double taxation. Answer: A Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Reporting 94) The group that sets international preferred accounting practices is called the: A) AICPA. B) IASB. C) CAP. D) SEC. E) FASB. Answer: B Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Reporting 95) The Securities and Exchange Commission (SEC) has given the task of setting GAAP to the: A) APB. B) FASB. C) AAA. D) AICPA. E) IASB. Answer: B Difficulty: 1 Easy Topic: Generally Accepted Accounting Principles Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember AACSB/Accessibility: Communication/Keyboard Navigation AICPA: BB Industry; FN Reporting 25 Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 96) The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A) Time-period assumption. B) Business entity assumption. C) Going-concern assumption. D) Revenue recognition principle. 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