Exam (elaborations) Financial Accounting Information For Decisions John Wild 5th Ed. Test Bank Chapter 1

Financial Accounting Information For Decisions John Wild 5th Ed. Test Bank Chapter 1 Chapter 01 - Introducing Accounting in Business 1-1 Chapter 01 Introducing Accounting in Business True / False Questions 1. Accounting is an information and measurement system that identifies records and communicates financial information to users. True False 2. Bookkeeping is the sole purpose of accounting. True False 3. Bookkeeping is the recording of transactions and events and is only part of accounting. True False 4. Accounting is one way important information about businesses is reported to decision makers. True False 5. Managerial accounting is an area of accounting that provides internal reports to assist the decision making needs of internal users. True False 6. The internal operating functions of businesses include research and development, distribution and human resources. True False 7. The primary objective of financial accounting is to provide general-purpose financial statements to help external users analyze and interpret an organization's activities. True False Chapter 01 - Introducing Accounting in Business 1-2 8. An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles. True False 9. External users of accounting information include lenders, shareholders, customers and regulators. True False 10. Internal users of accounting information include lenders, shareholders, brokers and managers. True False 11. Job-related opportunities in accounting include auditing, management consulting and tax planning. True False 12. Accounting information is communicated to various parties through financial statements. True False 13. Identifying the proper ethical path is always easy. True False 14. Ethics are not important to the primary functions of accounting. True False 15. Good ethics are good business. True False Chapter 01 - Introducing Accounting in Business 1-3 16. Auditors are banned from direct investment in their clients. True False 17. A partnership is a business owned by two or more people. True False 18. Ownership of a corporation is divided into units called shares or stock. True False 19. In the partnership form of business, owners are called stockholders. True False 20. A sole proprietorship is one or more owners selling products or services for profit. True False 21. The Financial Accounting Standards Board is the private group that sets both broad and specific accounting principles. True False 22. The business entity assumption means that a business will continue operating for an indefinite period of time. True False 23. Generally accepted accounting principles are the basic assumptions, concepts and guidelines for preparing financial statements. True False Chapter 01 - Introducing Accounting in Business 1-4 24. The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners. True False 25. As a rule, revenues must not be recognized in the accounting records until received in cash. True False 26. Specific accounting principles are basic assumptions, concepts and guidelines for preparing financial statements that arise out of long-used accounting practices. True False 27. Generally accepted accounting principles arise from long-used accounting practices. True False 28. A sole proprietorship is a business owned by one or more persons. True False 29. Unlimited liability is an advantage of all sole proprietorships. True False 30. Understanding generally accepted accounting principles is not necessary to use and interpret financial statements. True False 31. The International Accounting Standards Board (IASB) has the authority to impose its standards on companies around the world. True False Chapter 01 - Introducing Accounting in Business 1-5 32. The objectivity principle prescribes that financial accounting information is supported by independent unbiased evidence. True False 33. The assumption that a business will continue to operate only until it can sell its assets to pay its creditors is known as the going-concern principle. True False 34. According to the cost principle, it is preferable for managers to report the most current estimate of an asset's value. True False 35. The monetary unit principle prescribes that all international transactions must be expressed in dollars and euros. True False 36. The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public. True False 37. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices. True False 38. The Securities and Exchange Commission (SEC) is an agency of the federal government that establishes reporting requirements for companies that issue stock to the public. True False Chapter 01 - Introducing Accounting in Business 1-6 39. The Securities and Exchange Commission (SEC) is the private group that sets both broad and specific accounting standards. True False 40. The three forms of business ownership are sole proprietorship, partnership and non-profit. True False 41. The three major activities of a business are operating, investing and financing. True False 42. Planning refers to defining an organization's ideas, goals and actions. True False 43. Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans and its markets. True False 44. Planning activities are the means an organization uses to pay for resources like land, buildings and equipment to carry out its plans. True False 45. The three major activities of a business are recording, financing and investing. True False 46. Investing activities are the acquiring and selling of resources that an organization uses in its operations. True False Chapter 01 - Introducing Accounting in Business 1-7 47. Owner financing refers to resources contributed by creditors or lenders. True False 48. Revenues are increases in retained earnings from a company's earnings activities. True False 49. A net loss arises when revenues exceed expenses. True False 50. Net income occurs when revenues exceed expenses. True False 51. Expenses decrease retained earnings and are the costs of assets or services used to earn revenues. True False 52. Liabilities are the owner's claim on assets. True False 53. Assets are the resources owned or controlled by a business. True False 54. Dividends are expenses of a business. True False 55. The accounting equation can be restated as: Assets - Equity = Liabilities. True False Chapter 01 - Introducing Accounting in Business 1-8 56. Net income is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. True False 57. EDGAR is a database of documents that public companies file electronically with the SEC. True False 58. The accounting equation implies that: Assets + Liabilities = Equity. True False 59. Revenues occur when expenses exceed assets. True False 60. A company might provide a service or product on credit. "On credit" implies that the cash payment will occur on a later date. True False 61. Contributed capital is the gross increase in equity from a company's earnings activities. True False 62. The legitimate claims of a business's creditors take precedence over the claims of its stockholders. True False 63. Every business transaction leaves the accounting equation in balance. True False Chapter 01 - Introducing Accounting in Business 1-9 64. An external transaction is an exchange of value within an organization. True False 65. From an accounting perspective, an event is a happening that affects an entity's accounting equation, but cannot be measured. True False 66. Retained earnings are increased when cash is received from customers in payment of previously recorded accounts receivable. True False 67. An owner's investment in a business always creates an asset (cash), a liability (note payable) and equity (common stock). True False 68. Net assets always increase when revenue is recorded. True False 69. Return on assets is often stated in ratio form and is computed as the amount of average total assets divided by income. True False 70. Return on assets is also known as return on investment. True False 71. Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits and in planning activities. True False Chapter 01 - Introducing Accounting in Business 1-10 72. Reebok's net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%. True False 73. Return on assets measures the ability of an organization to earn a profit based on the amount of its assets. True False 74. Risk is the amount of uncertainty about the return we expect to earn. True False 75. Generally, the lower the risk, the lower the return that can be expected. True False 76. U.S. Government Treasury bonds all provide high return and low risk to investors. True False 77. The balance sheet shows whether or not the firm achieved its primary objective of earning a profit. True False 78. The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows. True False 79. An income statement reports only on investing and financing activities. True False Chapter 01 - Introducing Accounting in Business 1-11 80. A balance sheet covers a period of time such as a month or year. True False 81. The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time. True False 82. The statement of cash flows shows the net effect of revenues and expenses for a reporting period. True False 83. The income statement shows the financial position of a business on a specific date. True False 84. The first section of the income statement reports cash from operations. True False 85. The balance sheet is based on the accounting equation. True False 86. Owner's investments and dividends are reported on the income statement. True False 87. Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business. True False Chapter 01 - Introducing Accounting in Business 1-12 88. Operating activities include long-term borrowing and repaying cash from lenders and cash investments by owners or dividends to the owner. True False 89. The purchase of supplies must appear on the statement of cash flows as an investing activity because it involves the purchase of assets. True False 90. The income statement reports on operating activities at a point in time. True False 91. The statement of cash flows reports on cash flows separated into operating, investing and financing activities over a period of time. True False 92. Chuck Taylor invested $175,000 in cash in Fast-Forward. This amount would be reported in the statement of cash flows under financing activities. True False 93. Fast-Forward paid $6,000 in dividends. This amount should be included as an expense on the income statement. True False Chapter 01 - Introducing Accounting in Business 1-13 Multiple Choice Questions 94. Accounting is an information and measurement system that: A. Identifies business activities B. Records business activities C. Communicates business activities D. Helps people make better decisions E. All of the above 95. Technological advancement A. Has replaced accounting B. Has not changed the work that accountants do C. Has freed accounting professionals to concentrate more on the analysis and interpretation of information D. In accounting has replaced the need for decision makers E. In accounting is only available to large corporations 96. Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash? A. Acme washes 500 cars B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed C. Clean Company, a supplier, sells 50 pounds of soap to Acme D. A and B E. A and C 97. External users of accounting information include: A. Shareholders B. Customers C. Creditors D. Government regulators E. All of the above Chapter 01 - Introducing Accounting in Business 1-14 98. The primary objective of financial accounting is: A. To serve the decision-making needs of internal users B. To provide financial statements to help external users analyze and interpret an organization's activities C. To monitor and control company activities D. To provide information on both the costs and benefits of managing products and services E. To know what, when and how much to produce 99. Internal users of accounting information always include: A. Shareholders B. Managers C. Lenders D. Suppliers E. Customers 100. 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. Governmental accounting 101. The operating functions of a business include: A. Research and development B. Purchasing C. Marketing D. Distribution E. All of the above Chapter 01 - Introducing Accounting in Business 1-15 102. Which of the following statements is true of external information users? A. They are directly involved in managing the organization B. Their needs are met by the managerial area of accounting C. They have limited access to an organization's accounting information D. They use accounting information to help improve the efficiency and effectiveness of an organization E. They are the only users of accounting information who rely on internal controls to monitor company activities 103. Career opportunities in accounting include the fields of: A. Auditing B. Management consulting C. Tax accounting D. Cost accounting E. All of the above 104. Career opportunities in accounting include the fields of: A. Budgeting B. Auditing C. Cost accounting D. Internal Auditing E. All of the above 105. Accounting certifications include the: A. Certified Public Accountant B. Certified Management Accountant C. Certified Internal Auditor D. Chartered Financial Analyst E. All of the above Chapter 01 - Introducing Accounting in Business 1-16 106. A Certified Public Accountant: A. Must meet education and experience requirements B. Must pass an examination C. Must exhibit ethical character D. Can also be a Certified Management Accountant E. All of the above 107. Several career options are listed below. Which list contains a job NOT representative of the careers available to students who have earned an accounting degree? A. FBI investigations, market research and auditing B. Auditing, tax preparation and bookkeeping C. Systems design, auditing and estate planning D. Budgeting, litigation support and auditing E. Internal auditing, budgeting and tax preparation 108. Ethical behavior requires: A. That an auditors' pay not depend on the figures in the client's reports B. Auditors to invest in businesses they audit C. Analysts to report information favorable to their companies D. Managers to use accounting information to benefit themselves E. All of the above 109. Social responsibility: A. Is a concern for the impact of one's actions on society as a whole B. Is a code that helps in dealing with confidential information C. Is required by the SEC D. Requires that all businesses conduct social audits E. All of the above 110. Ethics: A. Are beliefs that separate right from wrong B. And laws often coincide C. Help to prevent conflicts of interest D. Are crucial in accounting E. All of the above Chapter 01 - Introducing