Test bank for college accounting a contemporary approach 2nd editio1

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Test Bank for College Accounting A Contemporary Approach 2nd Edition

True False Questions

Tax planning is any activity associated with the preparation of tax returns and the audit of those returns

1 True

2 False

A business partnership can have only two partners

1 True

2 False

Accounting is defined as the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated

to owners, managers, and other interested parties

1 True

2 False

The financial statements and the auditor's report must be made available to stockholders of publicly owned corporations

1 True

2 False

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

1 True

2 False

As the first step in the development of generally accepted accounting

principles, the FASB writes an exposure draft, which explains the topic under consideration

1 True

2 False

The purpose of accounting is to provide financial information about an

economic or social entity

1 True

2 False

Accountants provide financial information to various parties so they can make business decisions

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

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

1 True

2 False

In a sole proprietorship, the owner is responsible for the debts of the

business if the firm is unable to pay

1 True

2 False

Anyone can invest in a closely held corporation

1 True

2 False

Most owners and managers rely heavily on the accountant's judgment and knowledge when making financial decisions

1 True

2 False

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

1 True

2 False

When a business is organized as a sole proprietorship, the owner may

combine his/her personal financial information with the business financial information

1 True

2 False

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

1 True

2 False

The death or withdrawal of onepartner ends the partnership

1 True

2 False

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

1 True

2 False

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

1 True

2 False

The separate entity assumption applies only to the corporate form of

business

1 True

2 False

Public accounting firms provide three major types of services: auditing,tax accounting, and management advisory services

1 True

2 False

Multiple Choice Questions

Owners are not personally responsible for the debts of the business if the form of business organization is

1 A.the sole proprietorship.

2 B.the partnership.

3 C.the corporation.

4 D.the nonprofit organization.

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.

Tax accounting involves tax compliance and

1 A.tax evaluation.

2 B.tax planning.

3 C.tax configuration.

4 D.tax obfuscation.

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

1 A.Recording

2 B.Identifying

3 C.Communicating

4 D.Classifying

The area of accounting that involves the preparation of internal reports for a 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 Sarbanes-Oxley Act includes rules on

1 A.auditor retention.

2 B.auditor reliability.

3 C.auditor rotation.

4 D.auditor reporting.

The group of accounting educators who offer their opinions about proposed FASB 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.

An independent accountant who provides accounting services to the public for a fee is a

1 A.CIA.

2 B.CFE.

3 C.CMA.

4 D.CPA.

The FASB develops Statements of Financial Accounting Standards in the following order

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

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.

A firm issues periodic reports called

1 A.financial statements.

2 B.summaries.

3 C.tax returns.

4 D.audits.

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.

The form of a business organization that is not affected by the withdrawal or death of an owner and can continue forever is

1 A.the sole proprietorship.

2 B.the partnership.

3 C.the corporation.

4 D.the nonprofit organization.

A form of the partnerships business entity is

1 A.LLP.

2 B.LLC.

3 C.INC.

4 D.DBA.

All financial statements submitted to the SEC by publicly owned corporations must include an auditor's report prepared by

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.

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

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

An act passed in response to the wave of corporate accounting scandals is the

1 A.Saxon-Ordanly Act.

2 B.Sarbanes-Oxley Act.

3 C.Sardonic-Oxone Act.

4 D.Sorbine-Oxide Act.

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.

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

The corporations whose stock can be bought and sold on stock exchanges and in over-the counter markets are referred to as

1 A.privately owned corporations.

2 B.closely held corporations.

3 C.publicly owned corporations.

4 D.sole proprietorships.

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

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

Management advisory services are designed to help

1 A.government agencies.

2 B.clients.

3 C.employers.

4 D.creditors.

An example of an economic entity is

1 A.a town.

2 B.a business.

3 C.a nonprofit hospital.

4 D.a church.

The financial affairs of a business and the financial affairs of the owners should be

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.

The following are all government agencies except

1 A.SEC.

2 B.AICPA.

3 C.IRS.

4 D.FBI.

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

1 A.accounting.

2 B.preparation.

3 C.compliance.

4 D.auditing.

Managerial accounting is

1 A.public accounting.

2 B.government accounting.

3 C.private accounting.

4 D.tax accounting.

Free Text Questions

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

Answer Given

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

The people, companies, or government agencies to whom a firm owes money are called .

Answer Given

creditors

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.

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 Partnerships-business 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.

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

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.

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.

A form of business entity owned by one person is called a(n)

.

Answer Given

sole proprietorship

Accounting is often referred to as the language of .

Answer Given

business

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

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.

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

corporations

Answer Given

publicly

List three individuals or groups who use financial information to make

decisions about a firm For each listed, give 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.

Nonprofit organizations, such as cities, public schools, and public hospitals, are referred to as entities.

Answer Given

social

Ownership in a corporation is evidenced by shares of

Answer Given

stock

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties is called .

Answer Given

accounting

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

Answer Given

statements

Accountants normally choose to practice in one of three areas: public

accounting, managerial accounting, or accounting.

Answer Given

governmental

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

Answer Given

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

The owners of a corporation are called .

Answer Given

stockholders; shareholders

Audited financial statements include an auditor's report What does this

auditor's report contain?

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.

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

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.

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.

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

A partnership has or more owners

Answer Given

two