Chapter 1
Financial Accounting
and Business Decisions
Learning Objectives – Coverage by question
True / False Multiple Choice Exercises Problems
LO1 – Explain business
organization and its three 1-3 1
forms.
LO2 – Describe business
6-8 4-10 3
activities.
LO3 – Indicate who uses
1-5 11-17 1, 2
accounting information.
LO4 – Explain the accounting
process and generally
9-12 18-23
accepted accounting
principles.
LO5 – Describe the
accounting equation and 13-24 24-105 4-17 1-3
each financial statement.
LO6 – Explain additional
disclosures that accompany 106-110 18
financial statements.
LO7 – Describe careers in
accounting.
LO8 – Appendix 1A: Discuss
FASB’s conceptual 25-30 111-125 19, 20
framework.
Test Bank, Chapter 1 1-1
, Chapter 1: Financial Accounting and Business Decisions
True / False
Topic: Managerial Accounting
LO: 3
1. A major function of managerial accounting is to provide general purpose financial statements for
parties outside the organization.
Answer: False
Rationale: A major function of managerial accounting is to provide management with accounting data
for decisions related to a firm’s operations. Providing general purpose financial statements for parties
outside an organization is a function of financial accounting.
Topic: Ethics
LO: 3
2. It is unusual for U.S. businesses to develop written codes of ethics to guide their employees.
Answer: False
Rationale: It is now commonplace for businesses to develop written codes of ethics to help guide the
behavior of their employees.
Topic: Ethics
LO: 3
3. An emphasis on short-term profits may contribute to ethical breakdowns within a business.
Answer: True
Rationale: A criticism of U.S. business practices is that they are too “bottom-line” (that is, short-term
profit) oriented. This orientation can lead to unethical actions by management to increase reported
short-term profits.
Topic: Accounting Information Users
LO: 3
4. Financial accounting is designed primarily for decision makers within a company.
Answer: False
Rationale: Financial accounting is designed primarily to provide information to decision makers
outside of a company, while managerial accounting is designed primarily to provide accounting
information for decision makers within a company.
Topic: Ethics and Accounting
LO: 3
5. The goal of the Sarbanes-Oxley Act of 2002 was to increase the level of confidence that external
users have in a company’s financial statements.
Answer: True
Rationale: In the wake of various business scandals, like that involving Enron Corporation, the U.S.
Congress passed the Sarbanes-Oxley Act to improve external user confidence in financial statement
reporting.
1-2 Financial Accounting for Undergraduates, 4th Edition
Financial Accounting
and Business Decisions
Learning Objectives – Coverage by question
True / False Multiple Choice Exercises Problems
LO1 – Explain business
organization and its three 1-3 1
forms.
LO2 – Describe business
6-8 4-10 3
activities.
LO3 – Indicate who uses
1-5 11-17 1, 2
accounting information.
LO4 – Explain the accounting
process and generally
9-12 18-23
accepted accounting
principles.
LO5 – Describe the
accounting equation and 13-24 24-105 4-17 1-3
each financial statement.
LO6 – Explain additional
disclosures that accompany 106-110 18
financial statements.
LO7 – Describe careers in
accounting.
LO8 – Appendix 1A: Discuss
FASB’s conceptual 25-30 111-125 19, 20
framework.
Test Bank, Chapter 1 1-1
, Chapter 1: Financial Accounting and Business Decisions
True / False
Topic: Managerial Accounting
LO: 3
1. A major function of managerial accounting is to provide general purpose financial statements for
parties outside the organization.
Answer: False
Rationale: A major function of managerial accounting is to provide management with accounting data
for decisions related to a firm’s operations. Providing general purpose financial statements for parties
outside an organization is a function of financial accounting.
Topic: Ethics
LO: 3
2. It is unusual for U.S. businesses to develop written codes of ethics to guide their employees.
Answer: False
Rationale: It is now commonplace for businesses to develop written codes of ethics to help guide the
behavior of their employees.
Topic: Ethics
LO: 3
3. An emphasis on short-term profits may contribute to ethical breakdowns within a business.
Answer: True
Rationale: A criticism of U.S. business practices is that they are too “bottom-line” (that is, short-term
profit) oriented. This orientation can lead to unethical actions by management to increase reported
short-term profits.
Topic: Accounting Information Users
LO: 3
4. Financial accounting is designed primarily for decision makers within a company.
Answer: False
Rationale: Financial accounting is designed primarily to provide information to decision makers
outside of a company, while managerial accounting is designed primarily to provide accounting
information for decision makers within a company.
Topic: Ethics and Accounting
LO: 3
5. The goal of the Sarbanes-Oxley Act of 2002 was to increase the level of confidence that external
users have in a company’s financial statements.
Answer: True
Rationale: In the wake of various business scandals, like that involving Enron Corporation, the U.S.
Congress passed the Sarbanes-Oxley Act to improve external user confidence in financial statement
reporting.
1-2 Financial Accounting for Undergraduates, 4th Edition
