Chapter 8

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

Assets

7. The assets of Prosian Italia, a marble and Granite Company, amount to $400 million, and its liabilities add up to $180 million. Based on the accounting equation, Prosian Italia's owners' equity is equal to _____.

• $220 million

23. The owners' equity of Senesta Corp., an event management company, adds up to $23 million, and its liabilities add up to $17 million. Based on the accounting equation, the assets of Senesta Corp. are worth _____.

• $40 million

24. 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 flexible budget

13. Which of the following is a difference between managerial accounting and financial accounting?

• Financial accounting is governed by a set of generally accepted accounting principles, whereas managerial accounting uses procedures developed internally that are not required to follow generally accepted accounting principles.

10. The first stage in activity-based costing is to:

• Identify specific activities that create indirect costs and determine the factors that drive the costs of these activities.

3. In the context of budgeting, a flexible budget:

• Is designed to show the appropriate budgeted level of costs for each different level of sales.

25. In the context of balance sheets, which of the following is a difference between liabilities and owners' equity?

• Liabilities indicate the claims outsiders have against the firm's assets, whereas owners' equity refers to the claims the owners have against their firm's assets.

19. 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:

• Must sever all ties with any firms or institutions that she served prior to joining the board.

18. 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:

• Public accountant.

8. 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:

• Retained earnings.

14. Ashley, a manager at a toy manufacturing company, needs to create a financial document for the company that would show how the company's operating, investing, and financing activities are expected to affect the asset, liability, and owners' equity accounts. To prepare this document, Ashley needs to collect data from:

• The budgeted income statement, the capital expenditure budget, and the cash budget.

21. The total assets of a dairy products manufacturing company are calculated. However, a sum of $5 million from the value of the company's property, plant, and equipment assets is not taken into account as the machinery is bound to become unusable after a certain period of time. In the context of balance sheets, the amount of $5 million that is subtracted from the original value of the total assets is called _____.

• accumulated depreciation

1. Dylan is a supervisory manager in the production department of a tea manufacturing company. Each year, he actively participates in the budgeting process of the company. His input is valued by the top management as he is able to identify the issues in his department. In this scenario, it can be said that Dylan's company follows the _____ too budgeting.

• bottom-up approach

17. 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 _____.

• budgetary slack

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

• current assets

9. To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's overall performance, Rowen sport 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 _____.

• financial accounting

20. Harold, a financial accountant in a company, is asked to identify the changes in the company's account values between 2014 and 2016. To get the required information, he uses comparative financial statements, which state the figures for the two years side by side. These comparative financial statements make it easier for Harold to identify the changes that may have taken place during that period. In this scenario, Harold is most likely using _____ to get the required information.

• horizontal analysis

4. 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) _____.

• intangible asset

12. 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.

• internal auditor

2. The management of a sugar manufacturing company sets aside a sum of $50,000 in its budget for the purchase of new machinery that would double the production. In the given scenario, the management is in the process of planning the _____ of the company.

• operating budget

22. 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) _____.

• qualified opinion

5. In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing _____.

• revenues

6. The preparation of operating budgets begins with the development of a (n) _____.

• sales budget