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Indicate whether the statement is true or false.
1. Internal auditors review all aspects of operations in search of improvement, as well as review the internal
control structure to determine if they are operating as expected.
a.
True
b.
False
2. Neither U.S. GAAP nor IFRS permit use of the LIFO method.
a.
True
b.
False
3. In the United States, an external auditor’s opinion on a publicly traded company’s financial statements is
included in the annual report that the company files with the SEC.
a.
True
b.
False
4. The highest corporate income taxes can be found in the United States and Japan.
a.
True
b.
False
5. Given the fact that lenders make money in both directions, both positive and negative trends in financial
performance are good news for lenders.
a.
True
b.
False
6. A main goal of the International Accounting Standards Board is to develop, in the public interest, a single set
of high quality, understandable, and enforceable global accounting standards that require transparent and
comparable information in general purpose financial statements.
a.
True
b.
False
7. Conducting business in a tax haven means that there are no taxes whatsoever.
a.
True
b.
False
8. Pressures for the IASB to harmonize its accounting standards is coming from cross-border mergers and
acquisitions and rapid growth in international capital markets.
a.
True
b.
False
9. Normally a lower current ratio indicates a better financial position, for it implies that that a company has
adequate liquidity to carry out business operations.
a.
True
b.
False
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10. The statement that shows the beginning balance for retained earnings, additions and reductions to retained
earnings, and the ending balance of retained earnings is called the income statement.
a.
True
b.
False
11. The primary external users of accounting information are governmental units, lenders, vendors, credit-rating
agencies, stockholders, customers, and employees.
a.
True
b.
False
12. A typical AIS has two principal objectives: (1) to provide all the financial information internally needed by
management for business decision-making, known as management accounting; and (2) to provide financial
information to various external users concerned with the financial activities of the organization, known as
financial accounting.
a.
True
b.
False
13. Because differences in culture and business environments leads to differences in the GAAP of countires, in
1970 an international GAAP was developed and is used by all countries today.
a.
True
b.
False
14. Financial ratios are helpful in equalizing companies of different sizes for comparison of financial
performance.
a.
True
b.
False
15. Transfer pricing is used by most multinational corporations.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
16. Complete the following equation: ______ = Current Assets /Current Liabilities.
a.
Debt Ratio
b.
Net Profit
c.
Total Liabilities
d.
Current Ratio
e.
Quick Ratio
17. Types of taxes include all of the following EXCEPT:
a.
payroll
b.
sales
c.
service
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d.
value-added
e.
labor
18. A(n) _____ answers the question: What is the firm’s financial position at a designated point in time?
a.
income statement
b.
balance sheet
c.
statement of retained earnings
d.
statement of cash flows
e.
statement of net value
19. Of the following, which is NOT true about international financial reporting standards?
a.
Board members of the IASB come from 25 countries.
b.
The IASB is committed to developing, in the public interest, a single set of high quality,
understandable, and enforceable global accounting standards.
c.
The IASB represents more than 100 worldwide accounting and financial organizations.
d.
Most projects require a minimum of three years from formation to standard issuance.
e.
Each IASB Member has one vote on technical and other matters.
20. An evaluation of a company’s financial statements in order to identify significant trends or relationships
among the items is called a(n) _____ analysis.
a.
relative
b.
financial statement
c.
domestic
d.
management accounting
e.
accounting
21. The first step of an audit typically is to _____.
a.
communicate audit results
b.
arrive at audit opinion
c.
plan the audit
d.
obtain and evaluate evidence
e.
brainstorm ideas for the audit
22. Of the following, which is the LOWEST level of authoritative accounting literature?
a.
Accounting textbooks
b.
AICPA Accounting Interpretations
c.
AICPA Issues Papers
d.
Industry accounting practices
e.
Interpretations issues by the FASB
23. Liabilities + Owners’ Equity = _______.
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a.
Net Income
b.
Assets
c.
Retained Earnings
d.
Operating Cash Flows
e.
Total Profit
24. _____ provide the procedures for dealing with specific accounting matters.
a.
GIIP
b.
ASEAN
c.
CPAP
d.
SFAS
e.
GAAP
25. Accountants who work in the _____ accounting field need to be licensed by the state or states in which they
work; the license is designated Certified Public Accountant (CPA).
a.
public
b.
non-profit
c.
government
d.
private
e.
certified
26. Internal audits are also called _____ audits.
a.
human resource
b.
management
c.
transactional
d.
competitive
e.
federal
27. Which of the following external users would require financial statement information, specifically
information concerning ability to meet financial obligations?
a.
Governmental units
b.
Lenders
c.
Vendors
d.
Employees
e.
Customers
28. When members of a corporate family are located in different countries, _________.
a.
taxes are avoided altogether
b.
taxes are handled under international law
c.
transfer pricing affects taxes owed and company profits
d.
transfer pricing does not affect taxes owed but does affect profits
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e.
transfer pricing does affect taxes owed but does not affect company profits
29. All of the following are the highest level of the primary sources of authoritative accounting literature,
EXCEPT:
a.
AICPA Accounting Interpretations
b.
Non-superseded sections of the Accounting Research Bullentins issued by the Committee on
Accounting Procedures
c.
Statements of Financial Accounting Standards issued by FASB
d.
Interpretations issued by the FASB
e.
Statements and Interpretations of the Governmental Accounting Standards Board
30. The relationship of a number on the financial statements to another number is called a _____.
a.
financial ratio
b.
financial statement
c.
domestic term
d.
management accounting marker
e.
financial deposit
31. Which of the following statements is NOT true of the IASB?
a.
The IASB’s purpose is to create a single set of high quality, understandable, and enforceable global
accounting standards.
b.
The publication of a Standard, Exposure Draft, or final SIC Interpretation requires approval by nine
of the Board Members.
c.
The IASB is a set of international accounting standards that require transparent and comparable
information in general purpose financial statements.
d.
The IASB represents accounting and financial organizations from more than 100 countries
e.
The IASB is independent and privately funded.
32. _____ pricing refers to the pricing of goods and services that are bought and sold internally between
members of a corporate family.
a.
Mark-up
b.
Subsidiary
c.
Value
d.
Arm’s length
e.
Transfer
33. Complete the following equation: Debt Ratio = __? __ / Total Assets.
a.
Losses
b.
Net Profit
c.
Total Liabilities
d.
Total Assets
e.
Cash Flows
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34. Which of the following statements is NOT true about corporate income tax rates and economic activity?
a.
The income tax is the primary sources of revenues for national governments around the world.
b.
Before the Great Depression, state and local government expenditures in the U.S. were much lower
than federal expenditures.
c.
When state corporate income tax rates are added to federal rates, Japan has the highest combined
corporate income tax rate among OECD countries.
d.
The great majority of U.S. government expenditures are on nondefense items such as health,
economic support, and education.
e.
From 2005-2008, the average gross savings rate of OECD countries increased.
35. There are two major categories of auditing: _____ auditing and _____ auditing.
a.
management; financial
b.
domestic; international
c.
transactional; transformational
d.
descriptive; evaluative
e.
external; internal
36. _____ refers to an independent, privately funded accounting standard-setter based in London, U.K., that
issues International Financial Reporting Standards.
a.
GAAP
b.
SFAS
c.
IASB
d.
IFRS
e.
PAWS
37. Which would NOT typically be an objective of a financial statement audit?
a.
Ensuring the existence of assets and liabilities and occurrence of income and expenses
b.
Evaluating the economy and efficiency with which scarce resources are used
c.
Verifying that all financial statement items are properly presented
d.
Ensuring that the auditee owns the assets and is obligated to the extent of liabilities shown
e.
Verifying the proper valuation of assets, liabilities, income, and expenses
38. Which financial statement answers the question: How much income did the firm earn or lose during the
period?
a.
income statement
b.
balance sheet
c.
statement of retained earnings
d.
statement of cash flows
e.
statement of net value
39. Differences between U.S. and International GAAP are influenced by all of the following EXCEPT:
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a.
political and legal systems
b.
language
c.
taxation
d.
sources of capital
e.
inflation
40. In the United States, an external audit must be conducted by a(n) _______.
a.
certified government accountant
b.
independent CPA
c.
forensic accountant
d.
financial advisor
e.
chartered accountant
41. Of the following statements about financial ratios, which is NOT true?
a.
Financial ratios are designed to assess different aspects of the firm’s financial situation.
b.
Financial ratios enable meaningful comparisons among companies of different sizes to assess which
companies are performing better and which are performing worse.
c.
A low current ratio implies that a company has adequate liquidity to carry out business operations.
d.
A rule of thumb is that companies should have a current ratio between 1 and 2.
e.
The current ratio is often important in debt covenants.
42. In this GAAP inventory costing method, a company keeps track of the cost of individual inventory items.
a.
Specific identification
b.
FIFO
c.
LIFO
d.
Weighted average
e.
MACRS
43. What are retained earnings?
a.
The part of earnings generated from operations that is paid to employees
b.
The sum total of all assets, liabilities, and owners’ equity accounts
c.
The sum total of all inflows and outflows of cash for an organization
d.
The part of stockholder equity generated from operations and kept for use in future operations
e.
The combined net worth of a company as of a certain date
44. Of the following statements about tax rates in selected countries, which is NOT true?
a.
Only developed nations impose a corporate income tax.
b.
Tax rates and other business-related information can be obtained from the OECD.
c.
Most OECD countries are high-income economies.
d.
Corporate income taxes range from high levels, for example, 35 percent in the U.S. to low levels, for
example, 12.5 percent in Ireland.
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e.
Countries that have little or no corporate income tax are known as tax havens.
45. A statement that lists the balances of the asset, liability, and owners’ equity accounts of a business on a
specific date is known as a(n)_____.
a.
income statement
b.
balance sheet
c.
statement of retained earnings
d.
statement of cash flows
e.
statement of net value
Enter the appropriate word(s) to complete the statement.
46. The _______ statement summarizes the revenues earned and the expenses incurred by a business over a
period of time.
47. The ______ is a financial statement that answers the question: What is the firm’s financial position at a
designated point in time.
48. ______ is the recording, summarizing, and reporting of the economic activities and events of an
organization.
49. On a balance sheet for a corporation, the term owners’ equity is replaced by the term ________ equity.
50. According to the ________ inventory costing method, the cost of the first inventory unit purchased is
assumed to be the first cost transferred out to cost of goods sold.
51. _______ is an evaluation of a company’s financial statements in order to identify significant trends or
relationships among the items.
52. Financial accounting is the component of the AIS that provides financial information needed by _______
users, such as investors and lenders.
53. _______ accounting refers to the component of the accounting information system that provides the
financial information needed internally by business managers for efficient and effective decision-making.
54. The _______ Accounting Standards Board is an independent, privately funded accounting standard-setter
based in London.
55. The current ratio is calculated as current assets divided by current ________.
Scenario – Brininger Enterprises
Rapid City, South Dakota has been home to Brininger Enterprises since 1984. This company is recognized
around the world for its superior cutlery and currently ranks as number three within the industry. In 2011,
Brininger Enterprises recorded gross sales of over sixteen million dollars. From its gross sales, the company
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claimed net profits of four million dollars. Brininger Enterprises is quite proud of its performance. It realizes
the company’s financial records truly show this organization is doing something right.
56. Brininger Enterprises maintains accurate and thorough accounting records. Which piece of the company’s
accounting records would be needed to identify what cash monies were received and what cash was paid out by
the company?
a.
Statement of cash flows
b.
Income statement
c.
Balance sheet
d.
Retained earnings statement
e.
Petty cash fund
57. Brininger Enterprises conducts international business. It realizes there are sometimes different accounting
guidelines that need to be followed when dealing on an international level. In essence, there are differences
between U.S. and international GAAP. Which one of the following is NOT a factor that would influence the
development of accounting and financial reporting?
a.
Numbering system
b.
Sources of capital
c.
Inflation
d.
Culture
e.
Legal systems
Scenario – The Williams Company
Based in South Dakota, USA, the Williams Company has been in operation since 1967. It has five branches
located in China, Europe, South America, Mexico, and Canada. Its exquisite product line of fine custom-made
jewelry is highly desired throughout the world. This company has maintained a very healthy balance sheet.
The Williams Company is known within the industry for integrity and fair business practices. This company
maintains an accounting system that is open for any stakeholder to view. It prides itself on being honest and
trustworthy. The company feels it is this honesty in business practice that has led it to be a billion dollar
organization.
58. If the company’s stakeholders requested to be shown a financial statement that summarized the revenues
earned and the expenses incurred by the Williams Company for a given period of time, which one of the
following statements would they most likely be requesting?
a.
Income statement
b.
Cash flow statement
c.
Retained earnings statement
d.
Balance sheet
e.
Trial balance sheet
Scenario – Brininger Enterprises
Rapid City, South Dakota has been home to Brininger Enterprises since 1984. This company is recognized
around the world for its superior cutlery and currently ranks as number three within the industry. In 2011,
Brininger Enterprises recorded gross sales of over sixteen million dollars. From its gross sales, the company
claimed net profits of four million dollars. Brininger Enterprises is quite proud of its performance. It realizes
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the company’s financial records truly show this organization is doing something right.
59. Brininger Enterprises conducts extensive internal audits to insure the reliability and accuracy of its
accounting records. Which one of the following is least likely a step in its internal auditing process?
a.
Communicate the results
b.
Obtain and evaluate evidence
c.
Arrive at an audit opinion
d.
Plan the audit
e.
Publicize its results in the financial news
Scenario – The Williams Company
Based in South Dakota, USA, the Williams Company has been in operation since 1967. It has five branches
located in China, Europe, South America, Mexico, and Canada. Its exquisite product line of fine custom-made
jewelry is highly desired throughout the world. This company has maintained a very healthy balance sheet.
The Williams Company is known within the industry for integrity and fair business practices. This company
maintains an accounting system that is open for any stakeholder to view. It prides itself on being honest and
trustworthy. The company feels it is this honesty in business practice that has led it to be a billion dollar
organization.
60. The Williams Company places a high value on maintaining integrity in its operations. Part of ensuring this
integrity is maintained involves having frequent audits of the company’s accounting records performed. Which
one of the following would not be considered an objective of a financial statement audit?
a.
Ensure dividends are allocated for stakeholders
b.
Ensure all items are properly presented on the financial statements
c.
Ensure there is proper valuation of assets
d.
Ensure expenses are not overstated
e.
Ensure financial statements are complete
61. Which one of the following would the Williams Company expect to establish a set of international
accounting standards stating how particular types of transactions and other events should be reported in
financial statements?
a.
GAAP
b.
AIS
c.
SFAS
d.
IFRS
e.
NAACP
62. Explain the different objectives of an external audit and an internal audit.
63. Briefly explain how financial statement analysis can be used to evaluate a company’s financial situation.
64. Describe and differentiate between the U.S. GAAP and the International GAAP.
65. Are International Financial Reporting Standards important to global business operations? Explain.
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66. Describe the two parts of the accounting information system.
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1. True
2. False
3. True
4. True
5. False
6. True
7. False
8. True
9. False
10. False
11. True
12. True
13. False
14. True
15. True
16. d
17. e
18. b
19. a
20. b
21. c
22. a
23. b
24. d
25. a
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26. b
27. b
28. c
29. a
30. a
31. d
32. e
33. c
34. b
35. e
36. c
37. b
38. a
39. b
40. b
41. c
42. a
43. d
44. a
45. b
46. income
47. balance sheet
48. Accounting
49. stockholders’
50. first-in, first-out
First-In, First-Out
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FIFO
51. Financial statement analysis
52. external
53. Management
54. International
55. liabilities
56. a
57. a
58. a
59. e
60. a
61. d
62. Student responses will vary.
63. Student responses will vary.
64. Student responses will vary.
65. Student responses will vary.
66. Student responses will vary.