56) Which of the following terms refers to the difference calculated by subtracting income taxes
from the operating income of an organization?
A) Gross revenue
B) Net income
C) Gross profit
D) Cash flow
E) Leverage
57) What does a statement of cash flow describe?
A) Gross profit compared to operating expenses
B) Value of revenues compared to cost of revenues
C) Yearly cash receipts and cash payments
D) Cost of obtaining materials needed to produce products
E) Funds that flow into the business from the sale of the goods or services provided
58) Which of the following best describes the revenues of an organization?
A) Gross profit compared to operating expenses
B) Value of revenues compared to cost of revenues
C) Yearly receipts and cash payments
D) Cost of obtaining materials needed to produce products
E) Funds that flow into the business from the sale of the goods or services provided
59) Which of the following are the three categories on a company’s statement of cash flows
A) Operating activities, purchase activities, taxes
B) Profit inflow, debt outflow, taxes
C) Profitable activities, deficit activities, taxes
D) Operating activities, investing activities, taxes
E) Operating activities, investing activities, financing activities
60) Assets are categorized by the capacity in which they benefit the company.
61) The most liquid asset for a firm is marketable securities that can be sold very quickly.
62) Retained earnings are net profits minus dividend payments to stockholders.
63) Current assets are all assets that are able to be liquidated in a short amount of time.
64) Explain fixed assets and how accountants spread the cost of an asset over the years of its
useful life.
65) What is the statement of cash flow required by the SEC and why is it required?
66) Which of the following terms refers to the formal recording and reporting of revenues in
financial statements?
A) Full disclosure
B) Revenue recognition
C) Compliance
D) Ethical practice
E) Materiality
67) Financial statements that do not include interpretation and explanation by management are in
violation of which GAAP principle?
A) Principle of sincerity
B) Principle of continuity
C) Principle of full disclosure
D) Principle of regularity
E) Principle of prudence
68) Which of the following requires managers to share information about events inside the
company and explain certain transaction?
A) Earning cycle reports
B) Revenue recognition
C) Statement of cash flow
D) Solvency ratios
E) Full disclosure
69) Revenue from the earnings of a particular transaction is able to be reported as soon as the
product or service is delivered.
70) The primary goal for the standard practices and principles in accountant reporting is to
ensure external users that the information is accurate and has meaning.
71) Explain what is covered by GAAP and why it is important to use these standards.
72) Discuss the principle known as full disclosure.
73) Which of the following ratios measures a firm’s ability to meet its current debt obligations?
A) Short-term solvency ratio
B) Long-term solvency ratio
C) Profitability ratio
D) Activity ratio
E) Equity ratio
74) Which of the following ratios measures a firm’s potential earnings?
A) Short-term solvency ratio
B) Long-term solvency ratio
C) Profitability ratio
D) Activity ratio
E) Equity ratio
75) Which of the following ratios evaluates management’s use of resources?
A) Short-term solvency ratio
B) Long-term solvency ratio
C) Activity ratio
D) Profitability ratio
E) Equity ratio
76) What type of ratio measures a firm’s ability to generate cash to meet current obligations by
selling inventory and collecting revenue?
A) Earnings per share
B) Debt
C) Revenue recognition
D) Current
E) Activity
77) Which of the following indicates a firm will be able to pay its bills in a satisfactory manner?
A) A debt to equity ratio of 1:1 or higher
B) An activity ratio of 5:1 or less
C) A net income to common shares outstanding ratio of 1:1 or less
D) A current ratio of 2:1 or higher
E) A profitability ratio of 5:1 or higher
78) Why is the long-term solvency ratio important for stakeholders?
A) It may indicate excessive inventories that cannot be sold.
B) It indicates the earnings per share a stakeholder can expect to receive.
C) It indicates the efficiency with which a firm uses resources.
D) It indicates the firm’s ability to generate cash.
E) It may indicate collapse or takeover opportunities.
79) When might high debt levels be a benefit to an organization?
A) When trying to make otherwise unaffordable investments
B) When trying to prevent a leveraged buyout
C) When determining earnings per share on common stock
D) When calculating the current ratio to determine short-term solvency
E) When the firm’s short run credit risk is strong
80) What is the term for the amount a firm will pay shareholders based on the size of their
investment in the company?
A) Leverage per share
B) Earnings per share
C) Solvency return
D) Current ration return
E) Profitability ratio
81) Which of the following is an indication of how efficiently a firm is using its resources?
A) Earnings per share
B) Debt
C) Activity ratio
D) Leverage
E) Profitability
82) Activity ratios allow investors to compare the relative efficiencies of similar companies.
83) The most commonly used liquidity ratio is found by calculating current assets to current
liabilities.
84) A long-term ratio of 2:3 indicates that the company has more equity than debt by a half.
85) Major projects, such as corporate mergers or buyouts, can adversely affect the long-term
solvency ratio of a company.
86) What is a leveraged buyout?
87) Discuss earnings per share and how they are used.
88) Which organization provides guidelines for ethical conduct for public accountants?
A) AICPA
B) SEC
C) GAAP
D) FASB
E) CMA
89) Why is ethics in accounting practices important?
A) So stakeholders can seek a higher return on their investment
B) Accounting methods depend on the veracity of their application.
C) To ensure consistency between firms
D) To allow for uniformity in CPA standards and application
E) To allow multinational firms to understand international investment
90) What does the success of the AICPA code depend on?
A) Understanding of the code by its users
B) The exercising of moral judgement in all things
C) The acceptance and use by the professionals governed by the code
D) Lack of misleading statements that destroys public confidence in the accounting profession
E) Supporting the public interest in accounting practices
91) Demonstrating a commitment to the profession by respecting and maintaining the public
trust and serving the public honorably is an example of what type of obligation under the code of
Ethics for CPAs?
A) Responsibilities as a professional
B) Being objective and independent
C) Maintaining technical and ethical standards through due care
D) Serving the public interest
E) Increasing profitability
92) Under the Code of Ethics for CPAs, what should a CPA do in regards to their responsibilities
as a professional?
A) The CPA should demonstrate commitment to the profession by respecting and maintaining
the public trust.
B) The CPA should perform all professional activities with highest regards for profitability.
C) The CPA should exercise “due care,” through professional improvement.
D) The CPA should identify conflicts of interest and the appearance of conflicts of interest in
performing their professional responsibilities.
E) The CPA should use a high level of morality that is sensitive to bringing credit to their
profession.
93) What can a CPA do to maintain technical and ethical standards through due care?
A) Update competence through continuing accounting education and improving the quality of
services.
B) Abide by the meaning and intent of the Code when determining the type of services offered to
clients.
C) Be independent from clients when certifying that statements are true and genuine.
D) Promote the public’s confidence in the profession at every opportunity.
E) Serve the public honorably.
94) Unethical accounting methods have affected public confidence only in the company found to
have committed accounting violations.
95) Ethical behavior requires that a CPA give precedence to public trust in the profession over
the directions of her or his employer.
96) One of the purposes of ethics in accounting is to maintain public confidence in business
institutions, financial markets, and the products and services of the accounting profession.
97) What are the six ethics-related areas enforced by the American Institute of Certified Public
Accountants?
98) Why is it important to have ethical codes in the field of accounting?
99) Which of the following statements BEST describes the need for global accounting standards?
A) The complexity of the global market increases the risk of unethical accounting behavior by
allowing accountants to choose which national GAAP standards are best for their clients.
B) The rise of the global market increases the risk of money laundering and offshore accounting.
C) The rise of the global market increases the risk of fraudulent business transactions across
borders.
D) The rise of the global market increases the risk of international dumping and profit-skimming.
E) The rise of the global market increases the risk of the creation of dummy companies and
accounts for the purpose of dumping toxic assets.
100) Why should there be universal accounting procedures?
A) To allow for the international promotion of CPA
B) To allow stakeholders to interpret and compare financial statements accurately
C) To ensure conformity to U.S. standards of ethics
D) To ensure all multinational firms report information accurately
E) To prevent fraudulent business operations
101) Who is responsible for developing and gaining support for global accounting standards and
gaining support and cooperation to implement those standards?
A) Securities and Exchange Commission
B) Sarbanes-Oxley
C) International Accounting Standards Board
D) Financial Accounting Standards Board
E) Institute of Management Accountants
102) How does the lack of global accounting standards affect U.S.-based companies?
A) Unethical U.S. companies will use whichever standard creates the most benefit for them.
B) Using standards in countries where they do business allows for greater opportunity in the
international market.
C) Reporting performance in a variety of consolidated statements for global affiliates will
minimize understanding, thereby minimizing attempted leveraged buyouts.
D) There may be inconsistent and conflicting information that creates confusion for stakeholders.
E) Assets can be values according to one standard, revenue and debt according to other
standards, in an overall goal of presenting positive performance levels.
103) When valuing assets, the U.S. GAAP allows an asset to be decreased if its value decreases,
but cannot be increased if the value increases later. What is the IASB standard for this activity?
A) The value of the asset must remain as initially recorded.
B) The value of the asset must be increased annually.
C) The value of the asset can be averaged over time.
D) The value of the asset can be increased to reflect the increased market value.
E) The value of the asset must remain the same for four accounting cycles, then can be changed
to reflect current market value.
104) In which accounting standard did the FASB and the IASB jointly propose new standards
designed to improve the comparability of disclosures in financial statements?
A) In devaluing financial assets
B) In revenue recognition
C) In valuing assets
D) In expected loss modeling
E) In fair value discloser
105) In general, the accounting standards from the IASB and from the U.S. GAAP align nearly
perfectly.
106) The International Accounting Standards Board is the prominent international organization
for global accounting standards.
107) What is the International Accounting Standards Board?
108) Why are efforts to standardize global accounting practices important?
109) Discuss the fair value discloser standard that is being jointly developed by the FASB and
the IASB.