162) Which of the following best describes the primary role of auditors in financial reporting?
A) Consultants that are hired by company management to advise on key matters related to
competition, product pricing, employee retention, and financial reporting strategies.
B) Key employees of the company that actively participate on the management team in strategic
planning, product development, and financial reporting.
C) Government employees assigned by local officials to ensure accurate financial reporting and
operational integrity by the company.
D) Independent party hired by management to express a professional opinion of the extent to
which the company’s financial reporting is in compliance with generally accepted accounting
principles.
163) The role of the Public Company Accounting Oversight Board is to:
A) Advise investors and creditors of companies’ future profit potential.
B) Ensure that auditors follow a strict set of guidelines when conducting their audits.
C) Assist company management in the case of financial default on debt.
D) Develop accounting and reporting standards in the United States.
164) A career in a public accounting firm traditionally involves working in the area of:
A) Auditing.
B) Tax preparation/planning.
C) Business consulting.
D) All of the other answer choices are correct statements.
165) A career in private accounting indicates:
A) Working undercover for an organization such as the Federal Bureau of Investigation (FBI).
B) Being employed by one of the “Big 4” accounting firms.
C) Providing accounting services to the company that employs you.
D) All of the other answer choices are correct statements.
166) The term “cooking the books” refers to:
A) Purposely providing misleading financial information to investors and creditors.
B) Hiring an auditor to provide independent verification of the fairness of financial statements.
C) Filing all tax-related statements by the required deadline.
D) Preparing internal budgets to plan for expenditures in the following year.
167) Fundamental qualitative characteristics of accounting information are:
A) Relevance and comparability.
B) Comparability and consistency.
C) Faithful representation and relevance.
D) Faithful representation and consistency.
168) The qualitative characteristic that says accounting information can influence users’
decisions by allowing them to assess past performance is:
A) Timeliness.
B) Neutrality.
C) Confirmatory value.
D) Predictive value.
169) Accounting information that does not provide measurement bias in favor of a particular set
of companies has the characteristic of:
A) Relevance.
B) Consistency.
C) Materiality.
D) Neutrality.
170) If accounting information is considered to have faithful representation, then which of the
following is true?
A) The information represents to users what it claims to represent.
B) The information follows conservatism principles and is also material.
C) The information is considered pertinent to or affects decisions.
D) The information will have predictive value, feedback value, and is timely.
171) For accounting information to be relevant, it should possess which of the following
characteristics?
A) Predictive value and confirmatory value.
B) Large in amount and timely.
C) Comparability and consistency.
D) Verifiability.
172) Materiality is based upon which factor(s)?
A) Timeliness of an item.
B) Amount and nature of an item.
C) Consistency of an item.
D) Relevance of an item.
173) The conceptual framework’s qualitative characteristic of relevance includes:
A) Predictive value.
B) Verifiability.
C) Completeness.
D) Neutrality.
174) According to the conceptual framework, verifiability implies:
A) Consensus.
B) Logic.
C) Legal evidence.
D) Legal verdict.
175) The conceptual framework’s qualitative characteristic of faithful representation includes:
A) Predictive value.
B) Neutrality.
C) Confirmatory value.
D) Comparability.
176) Constraints on qualitative characteristics of accounting information include:
A) Freedom from material error.
B) Going concern.
C) Neutrality.
D) Cost effectiveness.
177) Enhancing qualitative characteristics of accounting information include:
A) Relevance and comparability.
B) Comparability and consistency.
C) Faithful representation and relevance.
D) Cost effectiveness and materiality.
178) The major underlying assumptions of accounting include all of the following except:
A) Economic entity.
B) Monetary unit.
C) Legal liability.
D) Going concern.
179) If a company has gone bankrupt, its financial statements likely violate the:
A) Periodicity assumption.
B) Monetary unit assumption.
C) Going concern assumption.
D) Economic entity assumption.
180) The assumption that a business will continue to operate into the future is the:
A) Monetary unit assumption.
B) Periodicity assumption.
C) Economic entity assumption.
D) Going concern assumption.
181) The assumption that the assets and liabilities of the business are accounted for on the books
of the company but not included in the records of the owner is the:
A) Monetary unit assumption.
B) Economic entity assumption.
C) Going concern assumption.
D) Periodicity assumption.
182) The assumption that the life of the business can be divided into time intervals for reporting
purposes is the:
A) Monetary unit assumption.
B) Periodicity assumption.
C) Economic entity assumption.
D) Going concern assumption.
183) The assumption that amounts are reported using a common scale (such as the dollar in the
United States) is the:
A) Monetary unit assumption.
B) Periodicity assumption.
C) Economic entity assumption.
D) Going concern assumption.
69
Match each account classification with its example.
A) Payments made to stockholders.
B) Amounts owed to the bank.
C) Common stock issued to investors.
D) Workers’ salaries for the current period.
E) Cleaning services provided to customers.
F) Land owned by a company.
184) Liabilities
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
185) Revenues
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
186) Dividends
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
187) Stockholders’ equity
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
70
188) Assets
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
189) Expenses
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
71
Match each business activity with its example.
A) Purchase office building.
B) Pay utilities.
C) Receive investments from stockholders.
190) Operating
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
191) Financing
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
192) Investing
Difficulty: 2 Medium
Topic: Measuring Business Activities
Learning Objective: 01-02 Understand the business activities that financial accounting
measures.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
72
Match each financial statement with the accounts reported in it.
A) Dividends.
B) Assets and liabilities.
C) Revenues and expenses.
193) Income statement
Difficulty: 2 Medium
Topic: Financial Statements – Income Statement; Financial Statements – Statement of
Stockholders’ Equity; Financial Statements – Balance Sheet
Learning Objective: 01-03 Determine how financial accounting information is communicated
through financial statements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Reporting
194) Statement of stockholders’ equity
Difficulty: 2 Medium
Topic: Financial Statements – Income Statement; Financial Statements – Statement of
Stockholders’ Equity; Financial Statements – Balance Sheet
Learning Objective: 01-03 Determine how financial accounting information is communicated
through financial statements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Reporting
195) Balance sheet
Difficulty: 2 Medium
Topic: Financial Statements – Income Statement; Financial Statements – Statement of
Stockholders’ Equity; Financial Statements – Balance Sheet
Learning Objective: 01-03 Determine how financial accounting information is communicated
through financial statements.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: FN Reporting
73
Match each organization to its role.
A) Ensure that auditors follow strict guidelines when conducting their audits.
B) Independent, private-sector group that is primarily responsible for setting financial reporting
rules in the United States.
C) Develop a single set of high-quality, understandable global accounting standards.
D) Enforce proper application of financial reporting rules for companies whose securities are
publicly traded.
196) Financial Accounting Standards Board
Difficulty: 2 Medium
Topic: Financial Accounting Standards
Learning Objective: 01-05 Explain the term generally accepted accounting principles (GAAP)
and describe the role of GAAP in financial accounting.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
197) Public Company Accounting Oversight Board
Difficulty: 2 Medium
Topic: Financial Accounting Standards
Learning Objective: 01-05 Explain the term generally accepted accounting principles (GAAP)
and describe the role of GAAP in financial accounting.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
198) International Accounting Standards Board
Difficulty: 2 Medium
Topic: Financial Accounting Standards
Learning Objective: 01-05 Explain the term generally accepted accounting principles (GAAP)
and describe the role of GAAP in financial accounting.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
199) Securities and Exchange Commission
Difficulty: 2 Medium
Topic: Financial Accounting Standards
Learning Objective: 01-05 Explain the term generally accepted accounting principles (GAAP)
and describe the role of GAAP in financial accounting.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
74
Match each qualitative characteristic with its definition.
A) All information necessary to describe an item is reported.
B) Information provides feedback on past activities.
C) Information is presented in time to make useful decisions.
D) Information is useful in helping to forecast future outcomes.
E) Measurements that independent parties would agree upon.
F) Information that does not bias the decision maker.
200) Predictive value
Difficulty: 2 Medium
Topic: Conceptual Framework
Learning Objective: 01-07 Explain the nature of the conceptual framework used to develop
generally accepted accounting principles.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
201) Confirmatory value
Difficulty: 2 Medium
Topic: Conceptual Framework
Learning Objective: 01-07 Explain the nature of the conceptual framework used to develop
generally accepted accounting principles.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
202) Verifiability
Difficulty: 2 Medium
Topic: Conceptual Framework
Learning Objective: 01-07 Explain the nature of the conceptual framework used to develop
generally accepted accounting principles.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
203) Timeliness
Difficulty: 2 Medium
Topic: Conceptual Framework
Learning Objective: 01-07 Explain the nature of the conceptual framework used to develop
generally accepted accounting principles.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
204) Neutrality
Difficulty: 2 Medium
Topic: Conceptual Framework
Learning Objective: 01-07 Explain the nature of the conceptual framework used to develop
generally accepted accounting principles.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
205) Completeness
Difficulty: 2 Medium
Topic: Conceptual Framework
Learning Objective: 01-07 Explain the nature of the conceptual framework used to develop
generally accepted accounting principles.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
206) For each transaction, indicate whether a company would classify the related account as an
asset, liability, stockholders’ equity, dividend, revenue, or expense.
Transactions
Related Accounts
1.
Receive cash from investors.
Common Stock
2.
Pay rent for the current period.
Rent Expense
3.
Purchase office equipment.
Equipment
4.
Pay cash to stockholders.
Dividends
5.
Provide services to customers.
Service Revenue
207) Account classifications include assets, liabilities, stockholders’ equity, dividends, revenues,
and expenses. Indicate the account classification for each account name.
Account
Classifications
Accounts
Related Transactions
1.
________
Common Stock
Sell common stock to investors.
2.
________
Cash
Receive cash from customers.
3.
________
Salaries Payable
Incur amounts owed to employees.
4.
________
Service Revenue
Sell services to customers.
5.
________
Utilities Expense
Incur cost of utilities.
6.
________
Supplies
Purchase of office supplies.
7.
________
Advertising Expense
Pay for cost of advertising.
8.
________
Buildings
Purchase building for operations.
9.
________
Accounts Payable
Purchase supplies on credit.
10.
________
Dividends
Distribute cash to stockholders.
208) Indicate whether a company would classify the transaction as financing, investing, or
operating.
1.
2.
3.
4.
5.
209) Below are typical transactions for a company. Indicate whether each transaction is
classified as a financing, investing, or operating activity.
Type of Business Activity
Transactions
1.
________
Purchase office building.
2.
________
Pay building maintenance fees.
3.
________
Pay sales taxes to the local government.
4.
________
Provide services to customers.
5.
________
Borrow from the bank.
6.
________
Pay workers’ salaries.
7.
________
Sell equipment used in operations.
8.
________
Sell common stock to investors.
210) Below are typical transactions for a company. Indicate whether each transaction is
classified as a financing, investing, or operating activity.
Type of Business Activity
Related Transactions
1.
________
Sell common stock to investors.
2.
________
Receive cash from customers.
3.
________
Incur amounts owed to employees.
4.
________
Sell services to customers.
5.
________
Incur cost of utilities.
6.
________
Purchase rent one year in advance.
7.
________
Pay for cost of advertising.
8.
________
Purchase building for operations.
9.
________
Purchase supplies on credit.
10.
________
Distribute cash to stockholders.
211) Below are cash transactions of a company. Indicate whether the transaction will affect an
account reported in the income statement or the balance sheet. Ignore the impact of the
transaction on the Cash and Retained Earnings accounts. The first one is done as an example.
Financial Statement
Related Transactions
1.
Income Statement
Pay taxes for the current period.
2.
________
Borrow cash from the bank.
3.
________
Pay salaries to employees for the current
period.
4.
________
Receive from customers for services provided
in the current period.
5.
________
Pay one year of rent in advance.
6.
________
Pay for supplies.
7.
________
Pay for advertising for the current period.
8.
________
Pay for land.
9.
________
Pay utilities for the current period.
10.
________
Repay amount borrowed from the bank.
212) At the end of the current period, Maltese, Inc. reports the following amounts: Assets =
$50,000; Liabilities = $28,000; Dividends = $4,000; Revenues = $22,000; Expenses = $16,000.
Calculate net income and stockholders’ equity at the end of the period.
213) At the end of the current period, Rogers Company reports the following amounts: Assets =
$25,000; Liabilities = $15,000; Dividends = $3,000; Revenues = $20,000; Expenses = $13,000.
Calculate net income and stockholders’ equity at the end of the period.