101 test bank for financial accounting 15th edition

101 Test Bank for Financial Accounting 15th Edition
True-False Questions
The Sarbanes-Oxley Act places responsibility on CEOs and
CFOs of companies to certify the fairness of company's
financial statements. The Act also created the Public
Company Accounting Oversight Board which oversees
the public accounting profession.
1.

True

2.

False

Public accounting is the segment of the profession where
professionals offer audit, tax, and consulting services to
clients.
1.

True

2.

False

The IRS tax return is one of the primary financial statements.
1.

True

2.

False

The Code of Ethics of the AICPA calls for a member in public
practice to be independent in fact and appearance when
providing auditing services.
1.

True

2.

False

The Code of Ethics of the AICPA calls for a commitment to
ethical behavior but not at the sacrifice of personal
advantage.
1.

True

2.

False


The CPA examination is administered by the General
Accounting Office of the U. S. Government.
1.

True

2.

False

Generally accepted accounting principles were established by
the American Accounting Association in 1934 and are
updated annually by Congress.
1.

True

2.

False

Management accounting information is oriented toward the
future while financial accounting information is historical
in nature.
1.

True

2.

False

A statement of cash flows depicts the way profits have changed

during a designated period.
1.

True

2.

False

One purpose of generally accepted accounting principles is to
make accounting information prepared by different
companies more comparable.
1.

True

2.

False

Career opportunities in accounting exist in public accounting,
management accounting, governmental accounting and
accounting education.
1.

True

2.

False

The Public Company Accounting Oversight Board is
responsible for creating and promoting International
Financial Reporting Standards.
1.

True

2.

False

Managerial accounting information is designed primarily to
assist investors and creditors in deciding how to allocate
scarce resources.
1.

True

2.

False

The annual financial statements of large corporations such as
Microsoft or PepsiCo need not be audited by independent
certified public accountants, since these firms maintain
large accounting departments as part of their
organizations.
1.

True

2.

False

External users of accounting information have a financial
interest in an entity but are not involved with the day-today operations of the enterprise.
1.

True

2.

False

The Securities and Exchange Commission is instrumental in the
development of financial accounting standards.
1.

True

2.

False

The American Institute of Certified Public Accountants has the
legal authority over publicly held corporations to enforce
compliance with generally accepted accounting

principles.
1.

True


2.

False

The statement of financial position and the income statement
are one and the same.
1.

True

2.

False

The tailoring of an accounting report to meet the needs of a
specific decision maker is more characteristic of financial
accounting reports than of management accounting
reports.
1.

True

2.

False

Management accounting refers to the preparation and use of
accounting information designed to meet the needs of
decision makers outside the business organization.
1.

True

2.

False

Return on investment is the same as return of investment.
1.

True

2.

False

Financial accounting standards issued by the FASB are
considered generally accepted accounting principles.
1.

True

2.

False

An accounting practice can become a "generally accepted
accounting principle" through widespread use, even if the
practice is not mentioned in the official pronouncements
of the accounting standard-setting organizations.
1.

True

2.

False


The internal control structure of an organization has no
relationship to the reliability of accounting information.
1.

True

2.

False

The content of management accounting reports needs to be
presented in conformity with generally accepted
accounting principles.
1.

True

2.

False

Today, the most authoritative source of generally accepted
accounting principles is the American Accounting
Association.
1.

True

2.

False

Investors are individuals and other enterprises that have
provided equity to the reporting enterprise.
1.

True

2.

False


Multiple Choice Questions-Page 1
The financial statements of a business entity:

1.

A. Include the balance sheet, income statement, and income tax return.

2.

B. Provide information about the cash flow prospects of the company.

3.

C. Are the first step in the accounting process.

4.

D. Are prepared for a fee by the Financial Accounting Standards Board.

Which financial statement is prepared as of a specific date?
1.

A. The balance sheet.

2.

B. The income statement.

3.

C. The statement of cash flows.

4.

D. The balance sheet, income statement, and statement of cash flows are all for a
period of time rather than at a specific date.

The measures used by an organization to provide reasonable
assurance that the organization produces reliable
financial reports, complies with applicable laws and
regulations, and conducts its operations in an efficient
and effective manner are collectively referred to as:
1.

A. Generally accepted accounting principles.

2.

B. Financial accounting standards.

3.

C. Securities and exchange regulations.

4.

D. The internal control structure.

Generally accepted accounting principles:
1.

A. Are based on official decrees only.

2.

B. Are based on tradition only.

3.

C. Are based on an accountant's experience only.

4.

D. May change over time.


Investors and creditors are interested in the probability that
their original investment or loan will eventually be
returned, and that they will receive a reasonable return
while their funds are invested or borrowed. These
expectations are collectively referred to as:
1.

A. Expected profitability.

2.

B. The objectives of financial reporting.

3.

C. Cash flow prospects.

4.

D. Financial position.

Financial statements are designed primarily to:
1.

A. Provide managers with detailed information tailored to the managers' specific
information needs.

2.

B. Provide people outside the business organization with information about the
company's financial position and operating results.

3.

C. Report to the Internal Revenue Service the company's taxable income.

4.

D. Indicate to investors in a particular company the current market values of their
investments.

Overseeing a company's affairs to ensure that the company is
managed with the best interest of shareholders in mind is
called:
1.

A. Internal control.

2.

B. Financial integrity.

3.

C. Corporate governance.

4.

D. The audit function.

Which of the following is a characteristic of financial accounting
information?
1.

A. Its preparation requires judgment.

2.

B. It is more about the future than it is about the past.

3.

C. None of it is based on estimates, assumptions, and judgments.

4.

D. Notes and explanations from management are not included.

It is the function of management accounting to perform the
following activities, except:
1.

A. Financial forecasts.

2.

B. Cost accounting.

3.

C. Internal audits.

4.

D. Audited financial statements.

The body created by the Sarbanes Oxley Act and charged with
oversight of the accounting profession is the:
1.

A. Public Company Accounting Oversight Board.

2.

B. Auditing Standards Board.

3.

C. International Accounting Standards Board.

4.

D. Security and Exchange Commission.

A complete set of financial statements for Citywide Company, at
December 31, 2009, would include each of the following,
except:
1.

A. Balance sheet as of December 31, 2009.

2.

B. Income statement for the year ended December 31, 2009

3.

C. Statement of projected cash flows for 2009.

4.

D. Notes containing additional information that is useful in interpreting the financial
statements.

The Sarbanes-Oxley Act of 2002 created:
1.

A. The Security and Exchange Commission.

2.

B. The Financial Accounting Standards Board.

3.

C. The Public Company Accounting Oversight Board.

4.

D. The Income Tax Return Overview Board.

Although accounting information is used by a wide variety of
external parties, financial reporting is primarily directed
toward the informational needs of:
1.

A. Investors and creditors.

2.

B. Government agencies such as the Internal Revenue Service.


3.

C. Customers.

4.

D. Trade associations and labor unions.

A strong internal control structure:
1.

A. Contributes to the accuracy and reliability of the accounting records.

2.

B. Will prevent a business from operating at a loss.

3.

C. Assures that a business will remain solvent.

4.

D. Will prevent fraud, theft, and embezzlement.

Financial accounting information is:
1.

A. Designed to assist investors and creditors.

2.

B. Not used by managers and in income tax returns.

3.

C. Called "special-purpose" accounting information.

4.

D. Not applicable to individuals.

Which organization best serves the professional needs of a
CPA?
1.

A. FASB.

2.

B. AICPA.

3.

C. SEC.

4.

D. AAA.

The general purpose financial statements prepared annually by
a corporation would not include the:
1.

A. Balance sheet.

2.

B. Income tax return.

3.

C. Income statement.

4.

D. Statement of cash flows.

Which of the following is considered a return "on" investment?
1.

A. Dividends.

2.

B. Repayment of a loan.

3.

C. Purchase of an asset.

4.

D. Securing a loan.


The designation of CPA is given by:
1.

A. Universities.

2.

B. States.

3.

C. The AICPA.

4.

D. The SEC.

The basic purpose of bookkeeping is to:
1.

A. Provide financial information about an economic entity.

2.

B. Develop the types of information best-suited to specific managerial decisions.

3.

C. Record the financial transactions of an economic entity.

4.

D. Determine the taxable income of individuals and business entities.

Financial statements are prepared:
1.

A. Only for publicly owned business organizations.

2.

B. For corporations, but not for sole proprietorships or partnerships.

3.

C. Primarily for the benefit of persons outside of the business organization.

4.

D. In either monetary or nonmonetary terms, depending upon the need of the decision
maker.

Information is cost effective when:
1.

A. The information aids management in controlling costs.

2.

B. The information is based upon historical costs, rather than upon estimated market
values.

3.

C. The value of the information exceeds the cost of producing it.

4.

D. The information is generated by a computer based accounting system.

Which of the following is not a basic function of an accounting
system?
1.

A. To interpret and record the effects of business transactions.

2.

B. To classify the effects of similar transactions in a manner that permits determination
of various totals and subtotals useful to management.

3.

C. To ensure that a business organization will be managed profitably.

4.

D. To summarize and communicate information to decision makers.


The principal difference between management accounting and
financial accounting is that financial accounting
information is:
1.

A. Prepared by managers.

2.

B. Intended primarily for use by decision makers outside the business organization.

3.

C. Prepared in accordance with a set of accounting principles developed by the
Institute of

4.

Certified Management Accountants.

5.

D. Oriented toward measuring solvency rather than profitability.

Investors may be described as:
1.

A. Individuals and enterprises that have provided credit to a reporting entity.

2.

B. Individuals and enterprises that own a reporting entity business.

3.

C. Anyone that has an interest in the results of the operations of the reporting entity.

4.

D. Those whose primary economic activity consists of buying and selling stocks and
bonds.

Which of the following decision makers is least likely to be
among the users of management accounting reports
developed by Sears Roebuck and Co.?
1.

A. The chief executive officer of Sears.

2.

B. The manager of the Automotive Department in a Sears' store.

3.

C. The manager of a mutual fund considering investing in Sears' common stock.

4.

D. Internal auditors within the Sears organization.

Which of the following events is not a transaction that would be
recorded in a company's accounting records?
1.

A. The purchase of equipment for cash.

2.

B. The purchase of equipment on account.

3.

C. The investment of additional cash in the business by the owner.

4.

D. The death of a key executive.

The FASB takes on a responsibility to do the following, except:
1.

A. Set the objectives of financial reporting.


2.

B. Describe the elements of financial statements

3.

C. Judge disputes between management and the CPA.

4.

D. Determine the criteria for deciding what information to include in financial
statements.

Which financial statement is primarily concerned with reporting
the financial position of a business at a particular time?
1.

A. The balance sheet.

2.

B. The income statement.

3.

C. The statement of cash flows.

4.

D. All three statements are concerned with the financial position of a business at a
particular time.

The field of accounting may best be described as:
1.

A. Recording the financial transactions of an economic entity.

2.

B. Developing information in conformity with generally accepted accounting principles.

3.

C. The art of interpreting, measuring, and describing economic activity.

4.

D. Developing the information required for the preparation of income tax returns.

Financial statements must be prepared for which time period?
1.

A. One year.

2.

B. Less than one year.

3.

C. More than one year.

4.

D. Any time period.

Which of the following is generally not considered an external
user of accounting information?
1.

A. Stockholders of a corporation.

2.

B. Bank lending officers.

3.

C. Financial analysts.

4.

D. Factory managers.

The basic purpose of an audit is to:
1.

A. Assure financial statements are in conformity with GAAP.


2.

B. Provide as much useful information to decision makers as possible, regardless of
cost.

3.

C. Record changes in the financial position of an organization by applying the concepts
of double entry accounting.

4.

D. Meet an organization's need for accounting information as efficiently as possible.

69 Free Test Bank for Financial Accounting 15th Edition
by Williams Multiple Choice Questions-Page 2
The Financial Accounting Standards Board is:
1.

A. Responsible for the review and audit of federal income tax returns.

2.

B. Primarily concerned with the preparation of the annual federal budget.

3.

C. A private group that conducts research and issues Statements that represent
authoritative expressions of generally accepted accounting principles.

4.

D. A government agency with legal authority to approve or disapprove the financial
statements of corporations that sell their securities to the public.

Which of the following has the least impact upon the reliability
of financial statements issued by publicly owned
corporations?
1.

A. Federal securities laws.

2.

B. Professional judgment of the accountants who prepare the financial statements.

3.

C. Audits of the financial statements by the Internal Revenue Service.

4.

D. Competence and integrity of the CPAs who perform audits.

Characteristics of internal accounting information include all of
the following except:
1.

A. It is audited by a CPA.

2.

B. It must be timely.

3.

C. It is oriented toward the future.

4.

D. It measures efficiency and effectiveness.

The auditor's report on the published financial statements of a
large corporation should be viewed as:
1.

A. The opinion of independent experts as to the overall fairness of the statements.


2.

B. The opinion of the corporation's chief accountant as to the overall fairness of the
statements.

3.

C. A guarantee by a firm of certified public accountants that the statements are
accurate.

4.

D. A guarantee by the Financial Statements Insurance Board that the statements do

not overstate assets or net income.

Which of the following is generally not considered one of the
general purpose financial statements issued by a
corporation?
1.

A. Income statement forecast for the coming year.

2.

B. Balance sheet.

3.

C. Statement of financial position.

4.

D. Statement of cash flows.

The best definition of an accounting system is:
1.

A. Journals, ledgers, and worksheets.

2.

B. Manual or computer-based records used in developing information about an entity
for use by managers and also persons outside the organization

3.

C. The personnel, procedures, devices, and records used by an entity to develop
accounting information and communicate this information to decision makers.

4.

D. The concepts, principles, and standards specifying the information which should be
included in financial statements, and how that information should be presented.

In the phrase "generally accepted accounting principles," the
words generally accepted mean that the principles:
1.

A. Have been adopted by Congress or approved by the voters in a general election.

2.

B. Are acceptable to the Internal Revenue Service.

3.

C. Are understood and observed by all the participants in the financial reporting
process.

4.

D. Have been approved by a majority of the members of the Financial Accounting
Standards Board.

Which of the following is not an important factor in ensuring the
integrity of accounting information?
1.

A. Institutional factors, such as standards for preparing information.

2.

B. Professional organizations, such as the American Institute of CPAs.

3.

C. Competence, judgment, and ethical behavior of individual accountants.

4.

D. The cost of preparing the financial information.

Which of the following are not considered "external" users of
financial statements?
1.

A. Owners.

2.

B. Creditors.

3.

C. Labor unions.

4.

D. Managers.

Statements of Financial Accounting Standards are developed
by:
1.

A. The Financial Accounting Standards Board.

2.

B. Certified public accountants.

3.

C. The Securities and Exchange Commission.

4.

D. The Internal Revenue Service.

Generally accepted accounting principles are the "ground
rules" used in the preparation of:
1.

A. Income tax returns.

2.

B. All accounting reports.

3.

C. Reports to federal and state regulatory agencies.

4.

D. Financial statements.

The principal function of CPAs is to:
1.

A. Audit income tax returns to determine if taxpayers have underpaid their income
taxes.

2.

B. Conduct audits to determine whether the employees of a business are performing
their jobs honestly and efficiently.


3.

C. Advise individual investors on stock market investments.

4.

D. Perform audits to determine the fairness and reliability of a company's financial
statements.

Which of the following is true?
1.

A. The existence of generally accepted accounting principles (GAAP) virtually
eliminates the need for professional judgment except in very unusual circumstances.

2.

B. Federal securities laws regarding the issuance of misleading financial statements
apply not only to the independent auditors, but to management of the company as well.

3.

C. Attaining a passing score on the part of the Uniform CPA Examination that covers
professional ethics is evidence of integrity and commitment to ethical conduct.

4.

D. A professional accountant should resign his position rather than become involved in
the distribution of financial statements indicating insolvency.

The basic purpose of generally accepted accounting principles
is to:
1.

A. Minimize the possibility of a business becoming insolvent.

2.

B. Provide a framework for financial reporting that is understood by both the preparers
and the users of financial statements.

3.

C. Ensure that financial statements include the type of information that is best suited to
every type of business decision.

4.

D. Eliminate the need for professional judgment in preparing financial statements.

Of the following objectives of financial reporting, which is the
most specific?
1.

A. Provide information useful in assessing amount, timing, and uncertainty of future
cash flows.

2.

B. Provide information useful in making investment and credit decisions.

3.

C. Provide information about economic resources, claims to resources, and changes in

resources and claims.

4.

D. Provide information useful to help the enterprise achieve its goals, objectives, and
mission.


Generally accepted accounting principles are intended to assist
accountants in preparing financial statements that:
1.

A. Are relevant, reliable, comparable, and understandable.

2.

B. Show the business to be both solvent and profitable.

3.

C. Comply with all income tax rules and regulations.

4.

D. Are ideally suited to the specific needs of each user of the financial statements.

Which of the following does not describe accounting?
1.

A. It is commonly referred to as the language of business.

2.

B. It is an end rather than a means to an end.

3.

C. It is useful for decision-making.

4.

D. It is used by businesses, governments, non-profit organizations, and individuals.

The work of accountants practicing in public accounting may
best be described as:
1.

A. Providing various types of accounting services to a wide variety of clients.

2.

B. Preparing income tax returns for individuals and small businesses.

3.

C. Developing and interpreting information tailored to the needs of business managers.

4.

D. Helping governmental agencies carry out their various regulatory responsibilities.

The set of standards, assumptions, and concepts that form the
"ground rules" for financial reporting in the United States
is termed:
1.

A. The conceptual framework.

2.

B. Generally accepted accounting principles.

3.

C. Statements of Financial Accounting Concepts.

4.

D. American standards for certified public accountants.

All of the following are characteristics of management
accounting, except:
1.

A. Reports are used primarily by insiders rather than by persons outside of the
business entity.

2.

B. Its purpose is to assist managers in planning and controlling business operations.

3.

C. Information must be developed in conformity with generally accepted accounting
principles or with income tax regulations.

4.

D. Information may be tailored to assist in specific managerial decisions.

Which of the following is not recognized as a source of
generally accepted accounting principles?
1.

A. Widespread and long-term use of a particular practice.

2.

B. The Financial Accounting Standards Board (FASB).

3.

C. The American Institute of Certified Public Accountants (AICPA).

4.

D. Statements of the Committee of Sponsoring Organizations (COSO).

Management accountants primarily are concerned with

developing information:
1.

A. For use in income tax returns.

2.

B. Suited to the needs of stockholders, creditors, and other external decision makers.

3.

C. In conformity with generally accepted accounting principles.

4.

D. Suited to the needs of decision makers within the organization.

The accounting standards and concepts used in the preparation
of financial statements are called:
1.

A. Certified principles of accounting (CPA).

2.

B. Generally accepted accounting principles (GAAP).

3.

C. Federal accounting standards and bylaws (FASB).

4.

D. Standards enforcing consistency (SEC).

The basic purpose of audited financial statements is to:
1.

A. Provide the reporting company with assurance that all assets are protected from
theft or embezzlement.

2.

B. Prepare financial statements for companies that do not have their own accounting
departments

3.

C. Provide users of the financial statements with assurance that the statements are
reliable and represented in conformity with generally accepted accounting principles.

4.

D. Provide both the reporting company and the users of the statements with a written
guarantee that the statements are error-free.


Audits of financial statements are performed by:
1.

A. The controller of the reporting company.

2.

B. The Financial Accounting Standards Board (FASB).

3.

C. The management of the reporting company.

4.

D. Independent certified public accountants (CPAs).

The code of conduct of the American Institute of Certified Public
Accountants includes requirements in which of the
following areas?
1.

A. The Public Interest.

2.

B. Objectivity.

3.

C. Independence.

4.

D. All of the above.

Financial accounting information is characterized by all of the
following except:
1.

A. It is historical in nature.

2.

B. It results from inexact and approximate measures.

3.

C. It is factual, so it does not require judgment to prepare.

4.

D. It is enhanced by management's explanation.

Establishing international accounting standards is the
responsibility of:
1.

A. AICPA.

2.

B. IASB.

3.

C. SEC.

4.

D. AAA.

In the phrase "generally accepted accounting principles," the
words accounting principles refers to:
1.

A. The standards, assumptions, and concepts that serve as "ground rules" for financial
reporting.

2.

B. Ethical standards that prohibit fraudulent or misleading financial reporting.

3.

C. The steps in the accounting cycle.


4.

D. The accounting practices authorized by the Financial Accounting Standards Board
(FASB).

The objectives of an accounting system include all of the
following except:
1.

A. Interpret and record the effects of business transactions.

2.

B. Classify the effects of transactions to facilitate the preparation of reports.

3.

C. Summarize and communicate information to decision makers.

4.

D. Dictate the specific types of business transactions that the enterprise may engage
in.

Which of the following is not a user of internal accounting
information?
1.

A. Store manager.

2.

B. Chief executive officer.

3.

C. Creditor.

4.

D. Chief financial officer.

Objectives of financial reporting to external investors and
creditors include preparing information about all of the
following except:
1.

A. Information used to determine which products to produce.

2.

B. Information about economic resources, claims to those resources, and changes in
both resources and claims.

3.

C. Information that is useful in assessing the amount, timing, and uncertainty of future
cash flows.

4.

D. Information that is useful in making investment and credit decisions.

Internal users of financial accounting information include all of
the following except:

1.

A. Investors.

2.

B. Managers.

3.

C. Chief Financial Officer.

4.

D. Chief Executive Officer.


The primary function of external auditors is to:
1.

A. Express an opinion on the fairness and reliability of the company's financial
statements.

2.

B. Determine the accuracy of the management reports.

3.

C. Evaluate the efficiency of operations and the degree of compliance with

management's policies in all departments within a large organization.

4.

D. Determine that financial statements and all special reports to management are
prepared in conformity with generally accepted accounting principles.

An accounting principle must receive substantial authoritative
support to qualify as generally accepted. Among the
organizations and agencies that have been influential in
the development of generally accepted accounting
principles, which of the following has provided the most
influential leadership?
1.

A. Internal Revenue Service.

2.

B. Institute of Management Accountants.

3.

C. Financial Accounting Standards Board.

4.

D. New York Stock Exchange.

Which of the following is not considered a return "of"

investment?
1.

A. Dividends.

2.

B. Repayment of a loan.

3.

C. Purchase of an asset.

4.

D. Securing a loan.

Free Text Questions
The information is summarized in a set of statements
distributed to the public.
Answer Given


Financial

The information is historical in nature. It reports the results of
events and transactions that have already occurred.
Answer Given

Financial

To increase its usefulness to investors and creditors, the
information is usually accompanied by explanations from
management.
Answer Given

Financial

The timeliness of the information is more critical than its
completeness.
Answer Given

Management

The information is intended to be used for planning and control
decisions.
Answer Given

Management