Question 1

Sidney is a member of the Financial Accounting Standards Board (FASB) and is entrusted with the responsibility of establishing accounting principles in the United States. As a member of the board, Sidney:
A)is to serve a seven-year term and cannot be reappointed to serve another term.
B)must sever all ties with any firms or institutions that she served prior to joining the board.
C)is responsible for directing the Securities and Exchange Commission to enforce the accounting standards.
D)must pass a rigorous two-day, four-part examination to be promoted as a certified fraud examiner.

Accepted Answer

As a member of FASB, Sidney must sever all ties with any firms or institutions that she served prior to joining the board to remain impartial and avoid any conflicts of interest. Option A is incorrect as a member of FASB can serve up to two five-year terms but is eligible for reappointment after a year. Option C is incorrect as FASB is an independent body that develops and establishes accounting principles in the US, and the SEC ensures compliance with those standards. Option D is incorrect as being a certified fraud examiner is not a requirement or relevant to being a member of FASB.

Question 2

Daniel, the owner of a bookstore, decides to reinvest his personal profits from the current fiscal year toward renovating the store and expanding its inventory. In the context of owners' equity, the profits that Daniel reinvests in the bookstore are called:
A)bonus shares.
B)retained earnings.
C)current liabilities.
D)equity releases.

Accepted Answer

The profits that Daniel reinvests in the bookstore are called retained earnings. This is a component of owners' equity and represents the portion of the company's net income that has not been distributed as dividends but has been kept for reinvestment in the business.

Question 3

David, a financial accountant at a multinational company, is asked to study the comparative financial statements of a prospective partner firm. He uses comparative income statements to determine the changes in the assets and liabilities of the firm and whether the net income of the firm has increased or decreased over the past five years. In this scenario, David is most likely using _____.
A)activity-based costing
B)horizontal analysis
C)a statistical syllogism
D)static analysis

Accepted Answer

David is using comparative income statements to perform a horizontal analysis. Horizontal analysis compares financial data over multiple periods to identify trends and changes in a company's financial position. This is commonly used to analyze changes in revenues, expenses, and net income over time. Activity-based costing is a method for allocating indirect costs to specific products or services, and a statistical syllogism is a logical argument based on statistical premises. Static analysis refers to the analysis of data at a fixed point in time, which is not applicable in this scenario as David is analyzing financial data over multiple periods.

Question 4

A steel manufacturing company is going through a financial crisis because of which it is unable to pay its employees and suppliers their dues. The management of the company sells some of the fixed assets of the company to cover these expenses. In the context of the statement of cash flows, the company gets the required capital by engaging in _____.
A)investing activities
B)financing activities
C)operating activities
D)budgeting activities

Accepted Answer

Selling fixed assets is a part of investing activities in the statement of cash flows as it involves the sale or purchase of long-term assets like property, plant, and equipment. Financing activities involve raising funds through debt or equity, while operating activities deal with cash flows from day-to-day business operations. Budgeting activities are not a part of the statement of cash flows.

Question 5

Milora, a clothing company, purchases 50 sewing machines from a company called Quick Sew on credit. Milora is supposed to pay an amount of $76,000 to Quick Sew. This amount is due within a year of the date on the balance sheet. In this scenario, the amount of credit that Milora owes Quick Sew is referred to as Milora's _____.
A)current liability
B)borrowing base
C)charge-off
D)intangible asset

Accepted Answer

The amount owed by Milora to Quick Sew is a current liability because it is due within a year of the date on the balance sheet. Current liabilities are financial obligations that a company is expected to pay within a year, and they are typically listed on the balance sheet in order of their due dates. Borrowing base refers to the amount of credit that a company can borrow based on the value of its assets, while charge-off refers to a debt that a company has deemed uncollectible and written off as a loss. Intangible assets are assets that do not have a physical form, such as trademarks or patents.

Question 6

Miller is the owner of a restaurant that has several franchises. One of the franchisees owes Miller a sum of $18,000 for the goods that he had bought from Miller on credit. In this scenario, the money owed to Miller is known as _____.
A)checkoff
B)the freight expense
C)accounts receivable
D)the laid-down cost

Accepted Answer

The money owed to Miller by the franchisee is known as accounts receivable, which is an asset on Miller's balance sheet until the franchisee pays the debt. Option A - checkoff refers to the system of deducting union dues or other fees directly from an employee's paycheck. Option B - freight expense refers to the cost of shipping goods to a buyer, which is not relevant in this scenario. Option D - laid-down cost refers to the cost of manufacturing or producing a product, which is also not relevant in this scenario.

Question 7

Luke works in an accounting firm that offers services such as tax preparation and external auditing to corporate companies. Luke is currently providing consultation to a client that deals in automobile parts. In this scenario, Luke is most likely a:
A)public accountant.
B)managerial accountant.
C)government accountant.
D)forensic accountant.

Accepted Answer

Public accountants typically work in firms that offer a range of accounting services to external clients, such as tax preparation and external auditing, which is what Luke is doing. Managerial accountants, on the other hand, work within companies to provide financial analysis and advice to internal stakeholders. Government accountants work in public sector organizations such as the IRS or the Department of Treasury. Forensic accountants specialize in investigating financial crimes and disputes.

Question 8

Harold, a financial accountant at an automobile company, is asked to calculate the net income of the company for a given period. He deducts the cost of goods sold from the revenue earned during that period. Before deducting the company's operating expenses from the gross profit, he deducts the rent and the insurance premium paid by the company during that period. In the given scenario, Harold deducted the company's _____ from the company's operating expenses.
A)testamentary expenses
B)selling expenses
C)administrative expenses
D)accrued expenses

Accepted Answer

The expenses deducted by Harold before deducting the company's operating expenses are rent and insurance premium, which fall under administrative expenses. Testamentary expenses are related to wills and estates, selling expenses are expenses incurred in the process of selling goods or services, and accrued expenses are expenses that have been incurred but not yet paid. None of these categories are relevant in this scenario.

Question 9

Jonathan, a grocery store owner, is due to pay suppliers for delivering goods for a specific month. To ascertain how much money he owes the suppliers, Jonathan should check the:
A)rate card.
B)balance sheet.
C)pro forma statement.
D)operating budget.

Accepted Answer

The answer of Jonathan, a grocery store owner, is due...

Question 10

Poline Foods, a food processing company, needs to increase its declining cash inflow through its operating activities. In this context, Poline Foods is most likely to:
A)sell its goods or services.
B)sell its fixed assets and financial assets bought as long-term investments.
C)form partnerships and mergers with companies operating in the same industry.
D)issue additional shares of its own stock.

Accepted Answer

Selling goods or services is the primary source of cash inflow for any operating company. By increasing sales, Poline Foods can generate more cash inflow, which can help to offset the decline in cash inflow from its operating activities. Selling fixed assets and financial assets, forming partnerships and mergers, and issuing additional shares of stock are not directly related to increasing cash inflow from operating activities.

Question 11

Janice is an accountant in a public relations firm. She prepares financial reports upon request by the management of the firm and does not stick to a predetermined schedule. The reports that she prepares mainly help the internal stakeholders of the firm. Given this information, it can be said that Janice performs _____.
A)financial accounting
B)managerial accounting
C)governmental accounting
D)forensic accounting

Accepted Answer

Janice performs managerial accounting, which involves preparing reports for internal stakeholders to help them make informed decisions. Financial accounting involves creating reports for external stakeholders like investors and regulators, while governmental accounting involves accounting for public funds. Forensic accounting involves investigating financial fraud and wrongdoing.

Question 12

In the context of budget preparation, the master budget of a firm organizes the _____ into a unified whole.
A)static budget and the cash flow budget
B)static budget and the financial budget
C)cash flow budget and the operating budget
D)financial budget and the operating budget

Accepted Answer

The master budget of a firm combines the financial budget (which includes the capital expenditures budget, cash budget, and budgeted balance sheet) with the operating budget (which includes the sales budget, production budget, direct materials budget, direct labor budget, and overhead budget). This integration creates a comprehensive and coordinated plan for the firm's financial and operational needs. Therefore, the correct answer is D, financial budget and the operating budget.

Question 13

Andrew is performing an audit of the financial statements of a cosmetics company. While analyzing the financial statements, he identifies some minor concerns. However, he believes that on balance the company's statements are accurate and its accounting methods are consistent with the generally accepted accounting principles. In this scenario, the independent auditor's report will most likely offer a(n) _____.
A)qualified opinion
B)unqualified opinion
C)adverse opinion
D)concurring opinion

Accepted Answer

The answer of Andrew is performing an audit of the...

Question 14

Rolette Clemens is a financial institution that provides loans to businesses. It rejects a textile company's request for a loan after it reviews the value of the company's assets, liabilities, and owners' equity and finds them to be unsatisfactory. In this scenario, Rolette Clemens most likely analyzed the company's _____ to assess its financial condition.
A)statement of cash flows
B)balance sheet
C)income statement
D)operating budget

Accepted Answer

The balance sheet provides information about a company's assets, liabilities, and owners' equity, which are important factors to consider when evaluating the financial condition of a business. The statement of cash flows, income statement, and operating budget also provide financial information, but they do not provide a comprehensive picture of a company's financial health in the same way that the balance sheet does.

Question 15

In the context of balance sheets, accounts receivable is an example of__________.
A)current liabilities
B)immovable assets
C)current assets
D)depreciated liabilities

Accepted Answer

Accounts receivable represents money owed to the company by customers for goods or services that have been delivered but not yet paid for. It is considered a current asset because it is expected to be converted into cash within one year.

Question 16

In the context of balance sheets, resources owned by a firm are known as__________.
A)holdings
B)assets
C)capitals
D)liabilities

Accepted Answer

Assets are resources owned by a firm that hold economic value and can be used to generate future profits or benefits. Holdings is a more general term and can refer to any type of property or possessions, including those that may not have a financial value. Capitals is a term that usually refers to the funds invested in a business or the financial resources available to a company. Liabilities are debts or obligations owed by a firm to other parties.

Question 17

In the context of accounting, which of the following best defines cost?
A)The value of equities a firm has at its disposal
B)The income from which public expenses are met
C)The income lost due to unaccountable decision-making
D)The value of what is given up in exchange for something else

Accepted Answer

In accounting, cost is defined as the value of what is given up in exchange for something else, such as money or resources spent on producing a product or service. Cost is important in determining profitability and making informed business decisions. Choice A refers to equity, Choice B refers to income for public expenses, and Choice C refers to income lost due to poor decision-making, none of which accurately define cost in accounting.

Question 18

Congress passed the__________that banned business relationships that might create conflicts of interest between certified public accounting (CPA) firms and the companies they audit.
A)Sarbanes-Oxley Act of 2002
B)Securities Exchange Act of 1934
C)Glass-Steagall Act of 1933
D)McCain-Feingold Act of 2002

Accepted Answer

The Sarbanes-Oxley Act of 2002 is a federal law that introduced new or expanded requirements for publicly traded companies and accounting firms. It contains provisions that ban certain business relationships between CPA firms and the companies they audit to prevent conflicts of interest, enhance audit quality, and increase transparency. The other answer choices are not directly related to this regulation.

Question 19

The employees of an information technology company complain that the company has been spending a lot of funds in wasteful activities, such as office renovation, instead of revising the employees' salaries. In this case, the company should hire a(n) _____ to keep a check on the company's expenses and prevent the problem from aggravating.
A)public prosecutor
B)government accountant
C)internal auditor
D)public accountant

Accepted Answer

An internal auditor is specifically hired by a company to monitor its financial activities, identify any discrepancies or wasteful spending, and suggest measures to prevent such occurrences in the future. In this case, an internal auditor can help the company identify the areas where it can cut costs and allocate more resources towards revising employee salaries. A public prosecutor or government accountant would not be appropriate in this situation, as they are not specifically hired to monitor a company's finances. A public accountant may be able to provide some financial guidance, but an internal auditor would have more specific knowledge of the company's financial situation.

Question 20

Lorraine works for an accounting firm that performs external audits, provides consulting services, and does the tax preparation for other businesses and individuals. Given this information, Lorraine is most likely a _____.
A)forensic accountant
B)public accountant
C)government accountant
D)management accountant

Accepted Answer

Lorraine works for an accounting firm that performs external audits, consulting services, and tax preparation services. These services are typically provided by public accountants who work for accounting firms that serve multiple clients. Forensic accountants typically investigate financial crimes, while government accountants work for government agencies, and management accountants work for a single company.

Quiz 8: Accounting: Decision Making by the Numbers

Sidney is a member of the Financial Accounting Standards Board (FASB) and is entrusted with the responsibility of establishing accounting principles in the United States. As a member of the board, Sidney:

Daniel, the owner of a bookstore, decides to reinvest his personal profits from the current fiscal year toward renovating the store and expanding its inventory. In the context of owners' equity, the profits that Daniel reinvests in the bookstore are called:

Miller is the owner of a restaurant that has several franchises. One of the franchisees owes Miller a sum of $18,000 for the goods that he had bought from Miller on credit. In this scenario, the money owed to Miller is known as _____.

Luke works in an accounting firm that offers services such as tax preparation and external auditing to corporate companies. Luke is currently providing consultation to a client that deals in automobile parts. In this scenario, Luke is most likely a:

Jonathan, a grocery store owner, is due to pay suppliers for delivering goods for a specific month. To ascertain how much money he owes the suppliers, Jonathan should check the:

Poline Foods, a food processing company, needs to increase its declining cash inflow through its operating activities. In this context, Poline Foods is most likely to:

In the context of budget preparation, the master budget of a firm organizes the _____ into a unified whole.

In the context of balance sheets, accounts receivable is an example of__________.

In the context of balance sheets, resources owned by a firm are known as__________.

In the context of accounting, which of the following best defines cost?

Congress passed the__________that banned business relationships that might create conflicts of interest between certified public accounting (CPA) firms and the companies they audit.

Lorraine works for an accounting firm that performs external audits, provides consulting services, and does the tax preparation for other businesses and individuals. Given this information, Lorraine is most likely a _____.