Question 1

The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of
A) auditing.
B) financial accounting.
C) managerial accounting.
D) cost accounting.

Accepted Answer

Financial accounting is concerned with the preparation of financial statements of an organization to provide useful information to external users such as creditors, unions, suppliers, and others. These financial statements include the balance sheet, income statement, statement of cash flows, and statement of changes in equity. The goal of financial accounting is to provide reliable and relevant financial information to external users for making sound economic decisions about the organization.

Question 2

The area of accounting that provides managers inside the organization with information they need to make decisions is called
A) tax accounting.
B) managerial accounting.
C) informational accounting.
D) financial accounting.

Accepted Answer

Managerial accounting focuses on providing information that is used internally by managers to make decisions. Tax accounting deals with tax-related issues, financial accounting presents financial information to external parties, and informational accounting is not a recognized term in accounting.

Question 3

Which of the following agencies would have the greatest impact on the methods used to record, classify, summarize, and interpret accounting information for the State of Kentucky's Department of Transportation?
A) Commission on Accounting Practices for State Governments
B) Government Accounting Standards Board
C) Independent Not-For-Profit Accounting Standards Board
D) Institute for Public Sector Accounting Standards

Accepted Answer

The Government Accounting Standards Board (GASB) sets standards for generally accepted practices in governmental accounting.

Question 4

An accountant who works for a single business or government agency is referred to as a
A) public accountant.
B) private accountant.
C) certified accountant.
D) commission accountant.

Accepted Answer

A private accountant is employed by a single business or government agency to handle their financial reporting and accounting needs.

Question 5

As U.S. firms focus on cost cutting in order to stay competitive with producers in low-wage countries, they will rely on ________ to create strategies to help reduce costs.
A) managerial accountants
B) financial accountants
C) government accountants
D) auditors

Accepted Answer

Managerial accounting is concerned with measuring and reporting costs of production, marketing, and other functions; preparing budgets (planning); checking whether or not units are staying within their budgets (controlling); and designing strategies to minimize taxes.

Question 6

A(n) ________ is a yearly published statement of the financial condition, progress, and expectations of an organization.
A) balance sheet
B) independent audit
C) mission statement
D) annual report

Accepted Answer

An annual report is a document that provides detailed information about a company's financial performance during the previous year. It typically includes a balance sheet, income statement, and cash flow statement. Additionally, it may include information about the company's mission, goals, and other important details. An independent audit is a separate process that verifies the accuracy of the financial information in the annual report. A mission statement is a statement of the organization's purpose and values.

Question 7

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.
A) higher
B) more meaningful
C) lower
D) less helpful

Accepted Answer

The inventory turnover ratio measures the speed of inventory moving through a firm and into sales. Due to the nature of the products involved, a ski shop would more than likely have a lower turnover.

Question 8

________ involves the review and evaluation of the records that are used to prepare the organization's financial statements.
A) Auditing
B) Financial accounting
C) Managerial accounting
D) Certified bookkeeping

Accepted Answer

Auditing involves the review and evaluation of the records that are used to prepare the organization's financial statements. Financial accounting is the process of recording, classifying, and summarizing financial transactions to prepare financial statements. Managerial accounting provides information to internal stakeholders, such as managers, to assist with decision-making. Certified bookkeeping refers to a bookkeeper who has passed a certification exam.

Question 9

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young accountant, he knows he can afford to invest in a few riskier investments. Which of the following ratios will be an important measure of profitability for Bob?
A) return on sales
B) return on equity
C) inventory turnover
D) acid test ratio

Accepted Answer

Risk is a market variable that concerns investors. Investors are willing to take on more risk, if they can expect to get a higher return. As an investor, Bob should be calculating his return on equity. Return on equity measures how much was earned for each dollar invested by owners.

Question 10

A(n) ________ is an evaluation and unbiased opinion about the accuracy of a firm's financial statements.
A) internal audit
B) annual report
C) independent audit
D) certified audit

Accepted Answer

An independent audit is conducted by a third-party auditor who provides an evaluation and unbiased opinion about the accuracy of a firm's financial statements. Internal audits are conducted by employees of the company, while annual reports provide a summary of the company's financial performance and operations. Certified audits are not a commonly used term in auditing.

Question 11

A basic difference between managerial accounting and financial accounting is that managerial accounting
A) adheres to rules set by the GASB, while financial accounting uses a different group of rules set by the FASB.
B) involves the preparation of the balance sheet and income statement while financial accounting involves the preparation of the statement of cash flows.
C) handles recording and classifying information about transactions that have no direct financial impact on the firm, while financial accounting handles the recording and classifying of information about transactions that do have a financial impact.
D) provides information primarily intended for managers and others inside the company, while financial accounting provides information primarily intended for people outside the organization.

Accepted Answer

Managerial accounting provides information to managers inside the company to assist them in making better decisions. Financial accounting provides information to people outside the firm such as owners and potential owners, creditors, the government, and the general public.

Question 12

The accounting profession is divided into 5 key working areas, two of which are
A) auditing and managerial accounting.
B) forecasting and logistical accounting.
C) inventory control and budgeting.
D) income accounting and expenditure accounting.

Accepted Answer

The accounting profession is divided into the following key working areas: auditing, managerial accounting, financial accounting, tax accounting, and accounting information systems. Out of the given options, auditing and managerial accounting are two of the key working areas.

Question 13

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called
A) tax accountants.
B) certified public accountants.
C) certified management accountants.
D) certified internal auditors.

Accepted Answer

Tax accountants specialize in tax law and are responsible for developing strategies to minimize taxes for individuals and businesses. Certified public accountants, certified management accountants, and certified internal auditors may have some knowledge of tax law, but their primary responsibilities are in other areas of accounting and auditing.

Question 14

A(n) ________ provides accounting services to individuals or firms on a fee basis.
A) contract accountant
B) account agent
C) public accountant
D) independent accountant

Accepted Answer

A public accountant provides accounting services to individuals or firms on a fee basis. A contract accountant is typically an employee of a company who works on a contract basis. An account agent is not a commonly used term in accounting. An independent accountant is similar to a public accountant but may also refer to someone who works independently as a sole proprietor rather than as part of a larger accounting firm.

Question 15

The ________ sets accounting standards used in government accounting.
A) Federal Accounting Review Board
B) Governmental Accounting Standards Board
C) Academy of Public Sector Accountants
D) Federal Reserve Board

Accepted Answer

The U.S. government has its own agency that defines accounting standards for government accountants. It is known as the GASB (Governmental Accounting Standards Board).

Question 16

Calvin works in the accounting department for a textbook publishing firm preparing budgets and reporting production costs. What job does Calvin hold?
A) managerial accountant
B) financial accountant
C) tax accountant
D) auditor

Accepted Answer

Managerial accounting provides information to managers within an organization to assist them in decision making.

Question 17

Peak Performance Sporting Goods Company has reported net income after taxes = $3,750,000, with 18,250,000 shares outstanding. Basic Earning per Share for Peak Performance =
A) approximately $.21/share.
B) approximately $20.50/share.
C) approximately $4.87/share.
D) approximately - $2.00/share.

Accepted Answer

Basic EPS = Net income after taxes/Number of common stock shares outstanding. For this problem, EPS = $3,750,000/18,250,000 = $.2050/share or approximately $.21/share.

Question 18

Mayree is the owner of Spines Books, a small eclectic-style bookstore in a bustling college town. Mayree prides herself in selecting hard-to-find books and magazines that her clientele enjoy. Recently, Mayree is experiencing a cash flow shortage, and she is concerned that she may be purchasing too many copies of each title. Having recently completed a business class, you suggest to Mayree that she calculate the ________ ratio for her store, and then compare it to other stores in her industry.
A) current
B) debt to equity
C) return on equity
D) inventory turnover

Accepted Answer

A higher inventory turnover ratio indicates greater efficiency in the operation. The goal is to maximize the use of cash and minimize inventories.

Question 19

The accounting scandals of the early 2000s led many people to question the legitimacy of
A) ratio analysis as a means of evaluating the performance of a firm.
B) the five-member Public Company Accounting Oversight Board (PCAOB) under the Securities and Exchange Commission (SEC) that had been created to oversee the accounting industry.
C) publishing financial information about a firm on the Internet.
D) allowing an accounting firm to do both consulting and auditing work for the same company.

Accepted Answer

The accounting scandals of the early 2000s led to greater scrutiny of the relationship between accounting firms and their clients. Allowing an accounting firm to do both consulting and auditing work for the same company created a conflict of interest and undermined the independence and impartiality of the auditors. As a result, laws were passed to prohibit this practice and restore public trust in the accounting industry.

Question 20

Important provisions of the Sarbanes-Oxley Act
A) approve corporate loans to directors of the company.
B) encourage the destruction of financial documents.
C) require the CEO and CFO of corporations to certify the accuracy of financial reports.
D) encourage outside CPA firms to deliver several services to their clients, including auditing services and consulting services.

Accepted Answer

The Sarbanes-Oxley Act includes several key provisions. It disapproves of corporate loans to directors and executives, requires the CEO and CFO of corporations to certify the accuracy of financial reports, and considers the destruction of important financial documents as a crime that can result in felony charges.

Quiz 17: Understanding Accounting and Financial Information

The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of

The area of accounting that provides managers inside the organization with information they need to make decisions is called

Which of the following agencies would have the greatest impact on the methods used to record, classify, summarize, and interpret accounting information for the State of Kentucky's Department of Transportation?

An accountant who works for a single business or government agency is referred to as a

As U.S. firms focus on cost cutting in order to stay competitive with producers in low-wage countries, they will rely on ________ to create strategies to help reduce costs.

A(n) ________ is a yearly published statement of the financial condition, progress, and expectations of an organization.

We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.

________ involves the review and evaluation of the records that are used to prepare the organization's financial statements.

Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a young accountant, he knows he can afford to invest in a few riskier investments. Which of the following ratios will be an important measure of profitability for Bob?

A(n) ________ is an evaluation and unbiased opinion about the accuracy of a firm's financial statements.

A basic difference between managerial accounting and financial accounting is that managerial accounting

The accounting profession is divided into 5 key working areas, two of which are

Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called

A(n) ________ provides accounting services to individuals or firms on a fee basis.

The ________ sets accounting standards used in government accounting.

Calvin works in the accounting department for a textbook publishing firm preparing budgets and reporting production costs. What job does Calvin hold?

Peak Performance Sporting Goods Company has reported net income after taxes = $3,750,000, with 18,250,000 shares outstanding. Basic Earning per Share for Peak Performance =

The accounting scandals of the early 2000s led many people to question the legitimacy of

Important provisions of the Sarbanes-Oxley Act