Test Bank for College Accounting A Contemporary Approach 2nd Edition


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(1)Test Bank for College Accounting A Contemporary Approach 2nd Edition True False Questions - Free Text Questions - Multiple Choice Questions The form ofora death business organization not affected by isthe withdrawal of an owner and that can is continue forever 1. A.the sole proprietorship. 2. B.the partnership. 3. C.the corporation. 4. D.the nonprofit organization. The financial owners shouldaffairs be of a business and the financial affairs of the 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. Which of information? the following is NOT part of the process of accounting for financial 1. A.Recording 2. B.Identifying 3. C.Communicating 4. D.Classifying 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. The Sarbanes-Oxley Act includes rules on 1. A.auditor retention. 2. B.auditor reliability.

(2) 3. C.auditor rotation. 4. D.auditor reporting. The develops in theFASB following orderStatements of Financial Accounting Standards 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 The corporations stock can be boughtare and sold ontostock exchanges and inwhose over-the counter markets referred as 1. A.privately owned corporations. 2. B.closely held corporations. 3. C.publicly owned corporations. 4. D.sole proprietorships. Managerial accounting is 1. A.public accounting. 2. B.government accounting. 3. C.private accounting. 4. D.tax accounting. Management advisory services are designed to help 1. A.government agencies. 2. B.clients. 3. C.employers.

(3) 4. D.creditors. A firm issues periodic reports called 1. A.financial statements. 2. B.summaries. 3. C.tax returns. 4. D.audits. 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 statements? following is NOT a type of information communicated by the financial 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 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. The review to of GAAP financial adherence is statements to assess their fairness and 1. A.accounting. 2. B.preparation. 3. C.compliance. 4. D.auditing.

(4) 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 An independent who provides accounting services to the public for a fee isaccountant a 1. A.CIA. 2. B.CFE. 3. C.CMA. 4. D.CPA. An act passed scandals is thein response to the wave of corporate accounting 1. A.Saxon-Ordanly Act. 2. B.Sarbanes-Oxley Act. 3. C.Sardonic-Oxone Act. 4. D.Sorbine-Oxide Act. A form of the partnerships business entity is 1. A.LLP. 2. B.LLC. 3. C.INC. 4. D.DBA. Tax accounting involves tax compliance and 1. A.tax evaluation. 2. B.tax planning. 3. C.tax configuration. 4. D.tax obfuscation.

(5) The groupFASB of accounting educators who offer their opinions about proposed 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. 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. Which of the statements? following is NOT a type of information communicated by the financial 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 The area ofaaccounting that involves the preparation of internal reports for 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 following are all government agencies except 1. A.SEC. 2. B.AICPA. 3. C.IRS. 4. D.FBI.

(6) An example of an economic entity is 1. A.a town. 2. B.a business. 3. C.a nonprofit hospital. 4. D.a church. Owners areofnot personally responsible if the form business organization is for the debts of the business 1. A.the sole proprietorship. 2. B.the partnership. 3. C.the corporation. 4. D.the nonprofit organization. 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. All financial statements submitted to the SECprepared by publicly corporations must include an auditor's report byowned 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. True False Questions Tax planning is audit any activity associated returns and the of those returns. with the preparation of tax 1. True 2. False

(7) As the first the stepFASB in thewrites development of generally accepted accounting principles, an exposure draft, which explains the topic under consideration. 1. True 2. False In a sole proprietorship, the owner business if the firm is unable to pay.is responsible for the debts of the 1. True 2. False Public accountants governmental units.work on the staff of federal, state, or local 1. True 2. False Accounting is defined as the process by which financialinterpreted, information about a business is recorded, classified, summarized, and communicated to owners, managers, and other interested parties. 1. True 2. False The death or withdrawal of onepartner ends the partnership. 1. True 2. False Most owners managers relymaking heavilyfinancial on the accountant's judgment andand knowledge when decisions. 1. True 2. False When a business is organized as a soleinformation proprietorship, the owner may combine his/her personal financial with the business financial information. 1. True 2. False

(8) The purpose of an economic or accounting social entity.is to provide financial information about 1. True 2. False Currently, generally accepted accounting principles are(AICPA) developed by the American Institute of Certified Public Accountants 1. True 2. False The owners and managers of a business are the only users of the Financial Information. 1. True 2. False Accountants providedecisions. financial information to various parties so they can make business 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 A business partnership can have only two partners. 1. True 2. False The Securities and Exchange Commission (SEC) requires that publicly year. owned corporations submit financial statements to it each 1. True 2. False Anyone can invest in a closely held corporation. 1. True 2. False

(9) Public accounting firms provide three majoradvisory types ofservices. services: auditing,tax accounting, and management 1. True 2. False Laws passed by Congress in 1933 1934 gave of thefinancial Securities and Exchange Commission (SEC) final and say on matters reporting by publicly owned corporations. 1. True 2. False The base.SEC uses financial information to determine a company's tax 1. True 2. False The separate entity assumption applies only to the corporate form of business. 1. True 2. False The financial statements and the auditor's must be made available to stockholders of publicly ownedreport corporations. 1. True 2. False Free Text Questions Generally accepted accounting ____________________ arein financial accounting standards that are changed and refined response to changes in the environment in which Answer Given businesses operate. principles The owners of a corporation are called ____________________. Answer Given stockholders; shareholders Accountants normally choose to practice in one of three areas: public accounting, managerial accounting, or ____________________ accounting. Answer Given

(10) governmental 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. The or government agencies to whom a firm owespeople, moneycompanies, are called ____________________. Answer Given creditors The Securities and Exchange Commission (SEC) regulates the accounting methods and financial reporting of ____________________ owned corporations Answer Given publicly List three individuals or For groups who usegive financial information to make decisions about a firm. each listed, 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. Accounting is often referred to as the language of ____________________. Answer Given business A partnership has ____________________ or more owners Answer Given two

(11) 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 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. Discuss entity. the differences among: entity, economic entity, and social 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. 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 The results of financial the accounting process are summarized in periodic reports called ____________________. Answer Given statements Nonprofit as cities, public schools,entities. and public hospitals, organizations, are referred tosuch as ____________________ Answer Given social

(12) A form of business entity owned by one person is called a(n) ____________________. Answer Given sole proprietorship The three majorthe legal forms of business entity are the sole proprietorship, partnership, and the ____________________ Answer Given corporation You have just entered college and decide to pursue a career as an accountant. practice? What are the three areas in which an accountant can Answer Given Public accounting, managerial (private) accounting, and governmental accounting Tax accounting is a service offered by and public involves tax ____________________ taxaccounting planning. firms that Answer Given compliance List the "Big Four" public accounting firms in the United States. Answer Given Deloitte & Touche, Ernst & Young,KPMG, and PricewaterhouseCoopers 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.

(13) Audited financial statements this auditor's report contain? include an auditor's report. What does 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. The process by whichsummarized, financial information about acommunicated business is recorded, classified, interpreted, and to owners, managers, and other interested parties is called ____________________. Answer Given accounting Ownership in a corporation is evidenced by shares of ____________________ Answer Given stock 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. There three each. general services public accountants offer. List and briefly are describe 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. 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. Partnershipsbusiness 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

(14) 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.


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