World of Business Chapter 8 practice

In the context of an independent auditor's report, _____ indicates that the auditor believes the financial statements are seriously flawed and that they may be misleading and unreliable. a. a checkoff b. an adverse opinion c. due diligence d. budgetary slack

b. an adverse opinion

In the context of managerial accounting, _____ are costs that change directly with the level of production. a. implicit costs b. variable costs c. breakeven costs d. marginal costs

b. variable costs

In the context of financial statements, _____ are debts that come due within a year of the date on the balance sheet. a. contingent liabilities b. alternative liabilities c. current liabilities d. decennial liabilities

c. current liabilities

If a firm's assets equal $18,000 and its liabilities equal $7,500, then the owners' equity is _____. a. $2.4 b. $25,500 c. $1,35,000000 d. $10,500

d. $10,500

In the context of an independent auditor's report, which of the following is a difference between an unqualified opinion and a qualified opinion? a. An unqualified opinion is given if the independent auditor does not find any problems with the way a firm's financial statements were prepared and presented, whereas a qualified opinion is given if the independent auditor identifies minor concerns but believes that on balance the firm's statements are a fair representation of the company's financial position. b. An unqualified opinion is given if the independent auditor identifies minor concerns but believes that on balance a firm's statements are a fair representation of the company's financial position, whereas a qualified opinion is given if the independent auditor discovers widespread and serious problems with the firm's statements. c. An unqualified opinion is given if the independent auditor discovers widespread and serious problems with a firm's statements, whereas a qualified opinion is given if the independent auditor does not find problems with the way the firm's financial statements were prepared and presented. d. An unqualified opinion is given if the independent auditor identifies minor concerns but believes that on balance a firm's statements are a fair representation of the company's financial position, whereas a qualified opinion is given if the independent auditor does not find any problems with the way the firm's financial statements were prepared and presented.

a. An unqualified opinion is given if the independent auditor does not find any problems with the way a firm's financial statements were prepared and presented, whereas a qualified opinion is given if the independent auditor identifies minor concerns but believes that on balance the firm's statements are a fair representation of the company's financial position.

In the United States, the Securities and Exchange Commission (SEC) has delegated the responsibility for developing accounting standards to a private organization called the _____. a. Financial Accounting Standards Board b. Federal Accounting Standards Advisory Board c. International Finance and Funding Board d. Association of Accounting Technicians Board

a. Financial Accounting Standards Board

_____ work within their organizations to detect problems such as waste, mismanagement, embezzlement, and employee theft. a. Internal auditors b. Internal referees c. Revenue officers d. Gazetted officers

a. Internal auditors

Which of the following statements is true of the Financial Accounting Standards Board (FASB)? a. It is a private organization responsible for developing accounting rules. b. It is a 12-member team that is appointed by the Internal Revenue Service. c. Its members are encouraged to form ties with private firms for the ease of communication. d. It led to the establishment of the Securities and Exchange Commission.

a. It is a private organization responsible for developing accounting rules.

In the context of the approaches to budget preparation, which of the following statements is true of participatory budgeting? a. It is more resource intensive than the top-down approach. b. It includes entry-level employees in the budgeting process. c. It demotivates the middle and first-line managers. d. It is less time consuming than the top-down approach.

a. It is more resource intensive than the top-down approach.

In the context of external audits of financial statements, which of the following statements is true of CPA firms? a. They must be independent of the companies they are auditing. b. They are not authorized to provide public accounting services. c. They can only audit companies that are solely owned by the government. d. They must have consulting contracts with the companies they are auditing.

a. They must be independent of the companies they are auditing.

The major responsibilities involved in financial accounting are the preparation of the: a. balance sheet, income statement, and statement of cash flows. b. journal ledger, cash budget, and company bylaws. c. articles of incorporation, auditor's report, and master budget. d. statutory license, social audit report, and journal ledger.

a. balance sheet, income statement, and statement of cash flows.

Frank is a loan officer who approves loans for small businesses. One factor he looks at carefully when making loan decisions is the amount of outstanding debt a firm already has—an information that he can find in the firm's: a. balance sheet. b. articles of incorporation. c. franchise agreement. d. operating budget.

a. balance sheet.

In the context of comparative financial statements, comparative balance sheets: a. can be used to check if the owners' equity had increased. b. are mandatory for companies that are not publicly traded. c. compare the financial performance of two or more companies. d. show the difference between the income of a firm's stakeholders and the top managers.

a. can be used to check if the owners' equity had increased.

The accountants at Gamone Phones, a cell phone manufacturing company, discover that the firm has performed poorly over the last two quarters, leading to negative financial implications. Instead of stating the actual figures, the managers decide to wrongly present the firm's debts and overstate its earnings. The aspect of financial accounting that should be emphasized to avoid such incidents of accounting fraud is: a. ethics in accounting. b. leniency in budgeting. c. classified fund rating. d. financial forecasting.

a. ethics in accounting.

The _____ of a firm organizes the operating and financial budgets into a unified whole, representing the firm's overall plan of action for a specified time period. a. master budget b. contingency budget c. capital budget d. static budget

a. master budget

In the context of managerial accounting, _____ are usually easy to measure because they involve actual expenditures of money or other resources. a. out-of-pocket costs b. opportunity costs c. implicit costs d. breakeven costs

a. out-of-pocket costs

In the context of budget preparation, the cash budget is a financial budget document that identifies: a. short-term fluctuations in cash flow. b. long-standing investments in fixed assets. c. sources of long-term cash reserves. d. long-term fluctuations in revenue.

a. short-term fluctuations in cash flow.

In the context of statement of cash flows, cash flows from investing activities: a. show the amount of cash received from the sale of fixed assets. b. show the amount of cash received from issuing additional shares of a company's stock. c. comprise cash returns from payment of dividends. d. comprise the amount of interest received from the ownership of financial securities.

a. show the amount of cash received from the sale of fixed assets.

In the context of the balance sheet, which of the following serves to be the rationale behind the accounting equation? a. A firm's assets should be bought through the contingency fund of the firm and partly through public funding. b. A firm must finance the purchase of their assets, and the owners and nonowners should contribute toward it. c. The value of a firm's assets must be equal to the owners' equity and the revenue earned by the firm's activities. d. The average amount spent on the salary of the employees of a firm should be equal to the value of the assets of the firm.

b. A firm must finance the purchase of their assets, and the owners and nonowners should contribute toward it.

_____ are budgets that identify projected sales and production goals and the various costs the firm will incur to meet these goals. a. Flexible budgets b. Operating budgets c. Financial budgets d. Marketing budgets

b. Operating budgets

The _____ is a financial budget and shows how a firm's operations, investing, and financing activities are expected to affect all of the asset, liability, and owners' equity accounts. a. capital expenditure budget b. budgeted balance sheet c. budgeted income statement d. static cash budget

b. budgeted balance sheet

In the context of budget preparation, the document created in the final stage of an operating budget is referred to as a _____. a. static cash budget b. budgeted income statement c. capital expenditure budget d. budgeted balance sheet

b. budgeted income statement

The Securities and Exchange Commission requires publicly traded corporations to provide _____. a. flexible budgets b. comparative financial statements c. a list of their intangible assets d. a statement of retained earnings

b. comparative financial statements

In the context of interpreting financial statements, using comparative statements to identify changes in key account values over time is called _____. a. statistical planning b. horizontal analysis c. activity-based costing d. business valuation

b. horizontal analysis

Nusreen, a financial manager in a company, compares the operating budgets from the past three years to identify trends in the cost of materials purchased and to learn whether the company's net expenses have increased or decreased over the time span. Nusreen is using _____ to compare the financial statements. a. liquidity indexing b. horizontal analysis c. activity-based costing d. static structuring

b. horizontal analysis

Lecona, a start-up company, failed to acquire any major funding from potential investors. Therefore, the owners of the company set up their office in an unoccupied apartment owned by one of them. In this scenario, the company most likely incurred a(n) _____. a. out-of-pocket cost b. implicit cost c. indirect cost d. fixed cost

b. implicit cost

Generally accepted accounting principles (GAAP) are a set of accounting standards that is used in the: a. conversion of currencies. b. preparation of financial statements. c. evaluation of employee payroll. d. assessment of export taxes.

b. preparation of financial statements.

Which of the following is a difference between a statement of retained earnings and a stockholders' equity statement? a. Preparing a statement of retained earnings is mandatory for a firm, whereas preparing a stockholders' equity statement is optional. b. A stockholders' equity statement only shows changes in stockholders' equity that arise from the issuance of additional shares of stock, whereas a statement of retained earnings also shows how net income and dividends affect retained earnings. c. A statement of retained earnings only shows how net income and dividends affect retained earnings, whereas a stockholders' equity statement also shows changes in stockholders' equity that arise from the issuance of additional shares of stock. d. Preparing a stockholders' equity statement is mandatory for a firm, whereas preparing a statement of retained earnings is optional.

c. A statement of retained earnings only shows how net income and dividends affect retained earnings, whereas a stockholders' equity statement also shows changes in stockholders' equity that arise from the issuance of additional shares of stock.

_____ are costs that are the result of a firm's general operations and are not tied to any specific cost object. a. Explicit costs b. Direct costs c. Indirect costs d. Implicit costs

c. Indirect costs

Which of the following statements is true of managerial accounting? a. It focuses exclusively on financial information. b. It is intended for external stakeholders. c. It involves presenting customized information on request. d. Its practices are subject to the generally accepted accounting principles.

c. It involves presenting customized information on request.

Which of the following is a difference between managerial accounting and financial accounting? a. Managerial accounting presents financial statements on a predetermined schedule, whereas financial accounting creates reports upon request by management. b. Managerial accounting summarizes the past performance of a company, whereas financial accounting provides reports on past performance and makes projections about the future. c. Managerial accounting is intended to provide information to internal stakeholders, whereas financial accounting is primarily intended to provide information to external stakeholders. d. Managerial accounting prepares a standard set of investment statements, whereas financial accounting prepares customized reports to deal with specific problems or issues.

c. Managerial accounting is intended to provide information to internal stakeholders, whereas financial accounting is primarily intended to provide information to external stakeholders.

In the context of financial statements, which of the following statements is true of long-term liabilities? a. They are debts that don't come due until more than a year after the date of the financial audit. b. They are debts that come due within a year of the date of the financial audit. c. They are debts that don't come due until more than a year after the date on the balance sheet. d. They are debts that come due within a year of the date on the balance sheet.

c. They are debts that don't come due until more than a year after the date on the balance sheet.

Which of the following statements is true of management accountants? a. They ensure that all government projects meet accounting regulations. b. They provide accounting information exclusively to the government. c. They assist their superiors in preparing financial statements. d. They work with multiple clients on a fee basis.

c. They assist their superiors in preparing financial statements.

Financial accounting: a. seldom adheres to the standardized and accepted accounting practices. b. records detailed information about a company's various divisions. c. addresses the needs of stockholders, creditors, and government regulators. d. provides information to internal stakeholders such as union heads.

c. addresses the needs of stockholders, creditors, and government regulators.

The top managers of Promedium Inc. are creating a master budget for the company. They require a statement of the budget goals from each of its departments to be able to make an appropriate master budget. Karren, the manager of the sales department, overstates her needs in the budget and presents the statement to the top managers. The outcome of Karren's actions is known as _____. a. a budgetary deficit b. a budgetary crisis c. budgetary slack d. budget maximization

c. budgetary slack

In the context of financial statements, the specific accounts listed in the stockholders' equity section of a balance sheet depend on the: a. liability of the top managers. b. government accountant conducting the audit. c. form of business ownership. d. contingency funds that a firm needs to retain.

c. form of business ownership.

Stockholders typically want to view a firm's accounting information to: a. check if the firm has enough funds to pay for the orders it has placed. b. understand the workloads of low-level laborers. c. know if management has generated a strong-enough return on investment. d. be aware of possible layoffs in the near future.

c. know if management has generated a strong-enough return on investment.

Companies that are not publicly traded: a. are mandated by the Securities and Exchange Commission to provide comparative financial statements. b. are required to perform horizontal analysis to identify changes in their key account values. c. obtain external audits at their own discretion. d. do not incur any out-of-pocket costs.

c. obtain external audits at their own discretion.

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income are referred to as _____. a. equity b. liability c. revenue d. debt

c. revenue

In the United States, the ultimate legal authority to set and enforce accounting standards lies with the _____. a. Internal Revenue Service b. Fund Standards Board c. Domestic Banking Association d. Securities and Exchange Commission

d. Securities and Exchange Commission

_____ refers to the claims owners have against their firm's assets. a. Minority interest b. Preferred stock c. Owners' liability d. Stockholders' equity

d. Stockholders' equity

The opportunity cost that arises when a firm uses owner-supplied resources is known as a(n) _____. a. fixed cost b. indirect cost c. out-of-pocket cost d. implicit cost

d. implicit cost

Mark, an accountant, is given the task to lead an external auditing project for a multinational company. In his spare time, Mark also acts as a consultant for Mayfair Hut Inc., a local company. In this scenario, Mark is a: a. management accountant. b. forensic accountant. c. government accountant. d. public accountant.

d. public accountant.

Lance signs a contract with Gerove Corp. to perform an external audit for the company. In his audit, he finds certain minor issues in the firm's financial statements but is of the view that the statements are, nevertheless, an accurate representation of the firm's financial status. In this scenario, Lance is most likely to issue a(n) _____ opinion. a. unqualified b. adverse c. concurring d. qualified

d. qualified

As a shareholder of Syder Corporation, Carl wants to know whether the company had earned a profit over the last financial year. He begins by looking into the net income of the company to know if it has sufficient amount of money to pay off the workers and suppliers and also the amount of money remaining with the owners. In this scenario, Carl is looking at Syder Corporation's _____. a. articles of incorporation b. retention schedule c. information repository d. statement of cash flows

d. statement of cash flows