Question 1

__________is the profit or loss a firm earns in the time period covered by the income statement.
A)Shared debt
B)Owners' equity
C)Net income
D)Cash flow

Accepted Answer

Net income is the profit or loss a firm earns during the period covered by the income statement. It is calculated by subtracting all expenses from total revenue. Shared debt and owners' equity are not measures of a firm's profit or loss. Cash flow measures the amount of cash that flows in and out of a business but does not necessarily reflect profitability.

Question 2

Fiona, the external auditor reviewing a telecommunications company's accounts, finds that the company's internal accountants have entered false data in the company records. Instead of stating the actual figures, which would reveal the poor performance of the company, the accountants have overstated the company's earnings. In this case, she will most likely offer a(n) _____ in the independent auditor's report.
A)qualified opinion
B)unqualified opinion
C)adverse opinion
D)concurring opinion

Accepted Answer

An adverse opinion is given when the auditor concludes that the financial statements are materially misstated and, in this case, the false data entered by the internal accountants constitutes a material misstatement. A qualified opinion would be given if the auditor found a limitation in scope or was unable to obtain sufficient evidence. An unqualified opinion would be given if the financial statements were presented fairly. A concurring opinion is not a type of independent auditor's report.

Question 3

A firm's operating budget represents the firm's overall plan of action for a specified time period.

Accepted Answer

False

Question 4

The members of the Financial Accounting Standards Board (FASB) are appointed by the Securities and Exchange Commission.

Accepted Answer

The answer of The members of the Financial Accounting Standards...

Question 5

A pharmaceutical company wanted to create a budget that was practical and that would enable its managers to make more accurate comparisons between actual costs and budgeted costs. Thus, the company created a budget that was developed over a range of possible sales levels and was designed to show the appropriate budgeted level of costs for each different level of sales. Given this information, which of the following budgets did the company create?
A)A rolling budget
B)A flexible budget
C)A black budget
D)A static budget

Accepted Answer

The description given fits a flexible budget, which is designed to adjust to changes in activity levels and provide more accurate comparisons between actual and budgeted costs. A rolling budget is continuously updated over a set time period, such as a year. A black budget is a secret or undisclosed budget. A static budget is prepared for a specific activity level and does not adjust for changes in sales or activity levels.

Question 6

Alexis decides to check with his accountant as to how much money his company owes to the raw materials supplier. To determine this, Alexis should ask the accountant to provide him with the company's balance sheet.

Accepted Answer

The answer of Alexis decides to check with his accountant...

Question 7

To preserve independence and impartiality, the Financial Accounting Standards Board (FASB) members are required to:
A)serve the board until their retirement.
B)sever all ties with any firms or institutions they served prior to joining the board.
C)sign a non-disclosure agreement and hand over all information of their previous companies to the board.
D)pass a rigorous two-day, four-part examination on major accounting concepts.

Accepted Answer

To preserve independence and impartiality, FASB members are required to sever all ties with any firms or institutions they served prior to joining the board. This ensures that they do not have any conflicts of interest and can make objective accounting standards decisions.

Question 8

A public accounting firm takes up a contract to perform an external audit for an oil manufacturing company. The firm, however, is already in a consulting contract with the oil company. Because of its prior association with the oil company and the hefty fee the oil company pays the firm, the firm manipulates the audit report. Which of the following laws is violated in this scenario?
A)The Sarbanes-Oxley Act
B)The Blaine Act
C)The Landrum-Griffin Act
D)The Dawes Act

Accepted Answer

The Sarbanes-Oxley Act (SOX) requires that external auditors maintain independence and prohibits auditors from providing consulting services to the same clients they are auditing. The public accounting firm violated the SOX by providing a consulting contract to the oil company and then manipulating the audit report.

Question 9

In the accounting equation, assets are equal to liabilities minus the owners' equity.

Accepted Answer

The accounting equation is Assets = Liabilities + Owners' Equity.

Question 10

A famous musician sells the copyright of one of his songs to a record company for $2 million. In this scenario, the sale of the copyright of the song exemplifies the sale of a(n) _____.
A)current liability
B)operating liability
C)tangible asset
D)intangible asset

Accepted Answer

The sale of the copyright of the song represents the sale of an intangible asset because the copyright is a legal right that does not have a physical form.

Question 11

John and Elizabeth evaluate three telecommunication companies to determine the best company to invest in. A horizontal analysis will enable them to make comparisons of financial statements of the three companies over the past several years and help in the determination of the increase in their profits.

Accepted Answer

A horizontal analysis compares financial statements of a company across multiple years, providing information on changes in revenue, expenses, and profits over time. This information can help investors like John and Elizabeth in determining the best company to invest in.

Question 12

The Securities and Exchange Commission (SEC) bans publicly traded corporations from making comparative financial statements.

Accepted Answer

The SEC allows publicly traded corporations to make comparative financial statements, which compare the corporation's financial performance over multiple periods. This is a common practice in financial reporting.

Question 13

To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's overall performance, Rowensport Corporation, a multinational company, releases statements that contain details of the company's profits and losses over the past five years. In this scenario, the company is most likely involved in _____.
A)financial accounting
B)cost accounting
C)follow-up auditing
D)social auditing

Accepted Answer

Financial accounting involves providing financial information to external stakeholders such as stockholders, creditors, and other interested parties. By releasing statements containing details of profits and losses over the past five years, Rowensport Corporation is engaged in financial accounting. Cost accounting involves internal decision-making and monitoring of costs, follow-up auditing is not a recognized term in accounting, and social auditing involves evaluating a company's impact on society and the environment.

Question 14

Sigborne Corp., a food and beverage company, commences its budgeting process by requesting the middle managers of the company to collect data from their respective departments and submit a consolidated report stating the needs of their departments. Harold, the manager of the packaging department, overstates the needs of his department. In this scenario, Harold is guilty of _____.
A)outwrestling
B)budgetary slack
C)extortion
D)budget maximization

Accepted Answer

Harold is guilty of budgetary slack, which refers to the intentional overstatement of budget needs in order to create a cushion or safety net. This practice can result in inefficient allocation of resources and may negatively affect the overall budgeting process.

Question 15

The chief financial officer of the NoveauNoir Production Company requests his accountant, Felipe, to prepare a customized report of the cost overruns at the company's production facility in Los Angeles. In this scenario, Felipe is a managerial accountant.

Accepted Answer

Managerial accountants are responsible for providing financial information to internal stakeholders in order to aid in decision-making, and they often prepare customized reports for managers and executives within an organization. In this scenario, Felipe is asked to prepare a report for the chief financial officer, who would be considered an internal stakeholder.

Question 16

Marcus is a venture capitalist who invests in start-ups and small businesses. He is interested in investing in an online start-up company that has been in business for a year. Before making a decision, Marcus does some research on the value of the company's assets and liabilities. In this scenario, Marcus is most likely analyzing the company's:
A)income statement.
B)balance sheet.
C)articles of incorporation.
D)operating budget.

Accepted Answer

Marcus is most likely analyzing the company's balance sheet, which provides information on the company's assets and liabilities. The income statement provides information on revenue and expenses over a period of time, the articles of incorporation outline the company's legal structure, and the operating budget provides information on projected expenses and revenue for a future period of time.

Question 17

The Financial Accounting Standards Board (FASB) is barred from modifying and expanding the generally accepted accounting principles (GAAP).

Accepted Answer

The FASB is authorized to modify and expand the GAAP.

Question 18

While performing a financial analysis for his organization, Morris discovers that there has been mismanagement of employee funds over the past three months. He immediately reports this to his supervisors. In this scenario, Morris is most likely a(n) _____.
A)public prosecutor
B)government accountant
C)internal auditor
D)public accountant

Accepted Answer

Morris is most likely an internal auditor as he is performing a financial analysis for his organization and discovers mismanagement of funds. Internal auditors are responsible for reviewing an organization's financial practices to identify any irregularities or errors and report them to their supervisors.

Question 19

In the context of budget preparation, which of the following is a disadvantage of participatory budgeting?
A)It can lead to budgetary slack.
B)It fails to motivate middle and first-line managers.
C)It results in an inadequate representation of the issues faced by individual departments.
D)It fails to identify the resources needed to achieve goals.

Accepted Answer

Participatory budgeting can lead to budgetary slack where departments request more budget than needed to avoid future budget cuts. This can result in inefficient use of resources and lower overall organizational performance.

Question 20

In order for CPA firms to perform audits with integrity, they must be tied to the firms they audit.

Accepted Answer

In order for CPA firms to perform audits with integrity, they must maintain independence from the firms they audit. Being tied to the firms they audit can compromise their objectivity and lead to conflicts of interest.

Quiz 8: Accounting: Decision Making by the Numbers

__________is the profit or loss a firm earns in the time period covered by the income statement.

A firm's operating budget represents the firm's overall plan of action for a specified time period.

The members of the Financial Accounting Standards Board (FASB) are appointed by the Securities and Exchange Commission.

Alexis decides to check with his accountant as to how much money his company owes to the raw materials supplier. To determine this, Alexis should ask the accountant to provide him with the company's balance sheet.

To preserve independence and impartiality, the Financial Accounting Standards Board (FASB) members are required to:

In the accounting equation, assets are equal to liabilities minus the owners' equity.

A famous musician sells the copyright of one of his songs to a record company for $2 million. In this scenario, the sale of the copyright of the song exemplifies the sale of a(n) _____.

The Securities and Exchange Commission (SEC) bans publicly traded corporations from making comparative financial statements.

The chief financial officer of the NoveauNoir Production Company requests his accountant, Felipe, to prepare a customized report of the cost overruns at the company's production facility in Los Angeles. In this scenario, Felipe is a managerial accountant.

The Financial Accounting Standards Board (FASB) is barred from modifying and expanding the generally accepted accounting principles (GAAP).

While performing a financial analysis for his organization, Morris discovers that there has been mismanagement of employee funds over the past three months. He immediately reports this to his supervisors. In this scenario, Morris is most likely a(n) _____.

In the context of budget preparation, which of the following is a disadvantage of participatory budgeting?

In order for CPA firms to perform audits with integrity, they must be tied to the firms they audit.