ACC-240 Chapter 1 Accounting—Present and Past & Chapter 2 Financial Statements and Accounting Concepts/Principles

Which statements are true regarding stockholders' equity?

- It is sometimes referred to as net worth - It is equal to assets minus liabilities. - It is sometimes referred to as net assets.

Which of the following statements are true about liabilities of a firm?

- Liabilities are probable future sacrifices of economic benefits. - Accounts payable is an example of liabilities.

Which of the following are other names for the income statement?

- Statement of operations - Profit and loss statement - Statement of earnings

Which of the following statements are true about the assets of a firm?

- The economic benefits associated with assets must be obtained or controlled by the firm. - Assets are probable future economic benefits to the firm. - Assets represent the amount of resources controlled by the firm. - Assets result from past transactions or events of the firm.

A qualified audit opinion may be issued in cases where which of the following are true?

- The independent auditor determines that one or more items presented in the financial statements represent a significant departure from GAAP. - The independent auditor is unable to perform certain auditing procedures.

Which of the following are considered selling, general, and administrative expenses?

- Wages expense - Depreciation expense - Advertising expense

A qualified audit opinion may be issued in which of the following cases?

- When an explanatory paragraph is added regarding the firm's inability to continue as a going concern - When the independent auditor determines that one or more items as shown in the financial statements are not presented fairly

Stockholders' equity is the ownership right of the stockholders in the ____ that remain after subtracting the ____ of the corporation.

- assets - liabilities

Financial statements are primarily oriented toward the ____ user and are primarily concerned with ____ information.

- external - past

Accounting is the process of ____, ____, and ____ economic information about an organization for the purpose of making decisIons and informed judgments.

- identifying - measuring - communicating

Assets are ____ future economic benefits obtained or controlled by a particular entity as a result of ____ transactions or events.

- probable - past

If total assets are equal to $10,000 and total stockholders' equity is equal to $3,000, then:

- total liabilities are equal to $7,000

Which statement is true about a balance sheet?

A balance sheet is generally prepared as of the end of a fiscal reporting period.

Which statement about bookkeeping is correct?

Bookkeeping procedures have been thoroughly systematized using manual, mechanical, and computer techniques.

Which of the following is not true regarding cash?

Cash minus current liabilities is equal to net assets.

True or false: A CPA exam is given nationally but is administered by individual states; thus each state has it's own education and experience requirements to sit for the exam and to be granted licensure as а СРА.

True

True or false: The growing complexity of federal, state, municipal, and foreign income tax laws has led to a demand for professional accountants who are specialists in various aspects of taxation.

True

True or false: The title "controller" is used to designate the chief accounting officer of a corporation.

True

Merchandise inventory is:

a current asset account

Davy Ltd. borrows money from a bank that has to be repaid within 3 months. For this transaction, Davy Ltd. debited the cash account and credited the short-term debt account in its book of accounts. Therefore, the short-term debt account is an example of ____.

a current liability

CHAPTER 1 The process of identifying, measuring, and communicating an organization's economic information for the purpose of making decisions and informed judgments is called ____.

accounting

Current liabilities:

are those liabilities that are likely to be paid with cash within one year of the balance sheet date

Bookeeping procedures:

are used to accumulate the financial results of many of an entity's activities

The income statement reports all of the following account types except:

assets

The balance sheet is a listing of the organization's:

assets, liabilities, and stockholders' equity

The balance sheet:

at the end of one period is the balance sheet at the beginning of the next period

The two main components of paid-in capital are:

common stock and additional paid-in capital

Primary users of a firm's accounting information include all of the following except ____.

competitors

The subset of managerial accounting related to the determination and accumulation of product, process, or service costs is known as ____ accounting.

cost

Selling, general, and administrative expenses include:

depreciation expense

Financial statements are primarily oriented toward:

external users and are based on transactions and events that have happened in the past

The process that results in the preparation and reporting of financial statements for an entity is referred to as ____ accounting.

financial

Financial accounting when compared to managerial and cost accounting:

has primarily an external orientation and are based primarily on past historical cost data

The link between last year's balance sheet and this year's balance sheet is this year's:

income statement

Income from operations:

is a subtotal on the income statement that is not affected by the firm's tax rate or by amount of interest expense incurred

The type of accounting work that is concerned with the use of economic and financial information to plan, control, and support the management decision-making process Is known as ____ accounting.

managerial

Accounting information is usually required for:

nearly every kind of organization

The two main components reported on the statement or changes in stockholders' equity are:

paid-in capital and retained earnings

The financial position of an entity is reported at a(n) ____ in time.

point

Financial accounting generally refers to the:

process that results in the preparation and reporting or financial statements for an entity

Net sales:

represent the amount of sales of merchandise to customers, less any sales returns

Cost of goods sold:

represents the total cost of merchandise sold to customers

Gross profit:

results from subtracting cost of goods sold from net sales

Shareholders of a corporation receive ____ of stock as evidence of their ownership interest in the corporation.

shares

If total assets are equal to $15,000 and total liabilities are equal to $9,000, then:

total stockholders' equity is equal to $6,000.

Which statement is true regarding the income statement?

It is a link between the balance sheets at the beginning and end of the year.

Which of the following is not a disadvantage of proprietorship?

It is not easy to form.

Which of the following is not an advantage of proprietorship?

Its owner has limited personal liability.

Which of the following is true regarding the balance sheet components?

Liabilities are the obligations of the organization.

Which of the following entities are counted amongst the "Big 4" CPA firms?

- Deloitte Touche Tohmatsu - KPMG International

An unqualified, or "clean," independent auditor's opinion does which of the following?

- Describes briefly the work that is involved in performing an audit - States that the named financial statements "present fairly, in all material respects" the financial position of the entity - States that the named financial statements "present fairly, in all material respects" the entity's results of operations for the period

Which of the following are among the "Big 4" CPA firms?

- EY (formerly Ernst & Young) - PricewaterhouseCoopers

What information do the current generally accepted accounting principles and auditing standards require the financial statements of an entity to show for the reporting period?

- Earnings for the period - Financial position at the end of the period - Investments by and distributions to owners (i.e., stockholders) during the period - Cash flows during the period

Which of the following are primary users of a firm's accounting information?

- Employees - Investors - Regulatory agencies - Management

Which statements are true regarding the cost of goods sold?

- It is normally shown as a separate expense because of its significance - It represents the total cost of merchandise sold to customers. - It is frequently called cost of sales or cost of products sold.

What are the three principal forms of business organization?

- Partnership - Proprietorship - Corporation

Revenues, expenses, gains, and losses are reported on the ____ ____.

- income - statement

Which of the following is a current asset?

Cash

Which of the following is true regarding the income statement?

Gross profit, income from operations, and income before taxes are all subtotals on the income statement.

Which statement is true regarding a firm's fiscal year?

It is the annual period used for reporting to owners, the government, and others.

The cash flow activities for an entity are reported for a(n) ____ of time.

period OR point

Alternative names used to describe the income statement include all of the following except the:

statement of financial position

The owners of a corporation are called ____.

stockholders

Proprietorships and partnerships have the ____ liability characteristic in common.

unlimited

Audits are required for companies:

whose securities (stocks or bonds) are publicly traded by investors

Tax practitioners typically develop specialization in the taxation of which of the following?

- International tax law issues - Trusts and estates - Partnerships in general

Which statements are true regarding a firm's fiscal year?

- It can be any 12-month period. - It Is often the same as the calendar year. - It is the annual period used for reporting purposes.

Which of the following statements are true regarding net assets?

- Net assets are equal to assets minus liabilities. - Net assets is another term for net worth. - Net assets are equal to stockholders' equity.

Which of the following statements are not true about net sales?

- Net sales include only credit sales, not cash sales - Net sales represent the difference between gross profit and cost of goods sold

Which of the following statements are correct about accounting information?

- Not all people become accountants, but almost all people use accounting information. - Accounting information supports decisions and informed judgments.

Which of the following statements about transactions are true?

- They can be seen as the bricks that build financial statements. - They are the starting point in the accounting process that end with the preparation of financial statements. - They are economic interchanges between entities.

The "controller" is usually responsible for both the ____ and ____ accounting functions of the organization.

- financial - managerial

Which of the following is not one of the three principal forms of business organization?

LLC

Which statement is correct about managerial accounting?

Managerial accounting is concerned with the use of economic and financial information to ban and control the activities of an entity.

Which of the following statements about partnerships is true?

The income earned from partnerships is taxed at the partner level.

Which statement is correct about the role of an internal auditor?

The qualifications of an internal auditor are similar to those of any other professional accountant.

Managerial accounting and cost accounting when compared to financial accounting:

have primarily an internal orientation, and the data are more likely to be used in a future-oriented way

The balance sheet:

is like a snapshot of the organization's financial position, frozen at a specific point in time.

An unqualified, or "clean" independent auditor's opinion:

states that the auditor's work requires the application of generally accepted auditing standards (GAAS).

Which of the following statements are true regarding the balance sheet equation?

- It is another term for the accounting equation. - It can be expressed as A = L + SE. - It must remain in balance after each transaction is recorded.

Accounting information is required by governmental units at which of the following levels?

- Federal - State - Municipal

Which of the following are the required financial statements under generally accepted accounting principles and auditing standards?

- Income statement - Balance sheet - Statement of cash flows - Statement of changes in stockholders' equity

Which statements are true regarding gross profit?

- It represents the seller's maximum "cushion" available to cover all other operating expenses before it is possible to have net income. - It is sometimes referred to as gross margin.

Which of the following statements are true about liabilities of a firm?

- Liabilities are present obligations to transfer assets or provide services to other organizations. - Liabilities are amounts owed to other entities. - Liabilities are claims against the firm by its creditors.

Accounting information is required by which entities?

- Not-for-profit entities, such as hospitals and voluntary health and welfare organizations - Not-for-profit entities, such as trade associations and country clubs

Current assets include cash and other assets:

that are likely to be converted into cash or used to benefit the entity within one year

Which entities are responsible for performing an audit?

- Individual CPAs - Public accounting firms

CHAPTER 2 Accounts are summarized in financial ____, whereas ____ are summarized in accounts.

- statements - transactions

Which statement is correct in regard to cost accounting?

Cost accounting relates to the determination and accumulation of product, process, or service costs.

Which statements are true regarding the par value per share of common stock?

- It is often a nominal amount such as $1 per share. - It is an arbitrary value assigned when the corporation is organized. - It is a relic from the past, that for all practical purposes, has lost its significance.

Which of the following statements are true regarding stockholders' equity?

- It is sometimes referred to as owners equity. - It is the equity in the assets that remain after subtracting the liabilities. - It is sometimes referred to as net worth. - It is sometimes referred to as net assets.

An internal auditor is responsible for which of the following?

- Performing functions much like those performed by an independent (external) auditor, but perhaps on a smaller scale - Analyzing the operating efficiency of one of the company's divisions

Accounting graduates are frequently employed in which of the following areas of practice?

- Public accounting, such as auditing, tax return preparation, and financial planning - Governmental accounting, working as accountants at the state or local level of government

The statement of changes in owners' equity, the statement of changes in retained earnings, and the statement of changes in capital stock are alternative names for the more commonly reported statement of changes in ____ ____.

- stockholders' - equity

All states have enacted legislation that requires a minimum of ____ semester hours to be granted licensure as a CPA.

150

An unqualified, or, clean, independent auditor's opinion does which of the following?

- Explains that the audit was conducted in accordance with the standards of the GAAP (United States) - States that it is the independent auditor's responsibility to express an opinion about the financial statements - States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period

Which of the following statements are true regarding income from operations?

- It is frequently called operating income. - It is frequently called earnings from operations. - It is a subtotal on the income statement that is not affected by the firm's tax rate or by the amount of interest expense incurred.

Which of the following calculations are made on the income statement?

- Gross profit minus selling, general, and administrative expenses equals income from operations. - Income from operations minus interest expense equals income before taxes. - Net sales minus the cost of goods sold equals gross profit. - Income before income taxes minus income taxes equals net income.

Accounting graduates are frequently employed in which of the following areas of practice?

- Industrial accounting, working as management accountants for manufacturing, merchandising, or service firms - Not-for-profit accounting, working as accountants for colleges or universities, hospitals, or voluntary health and welfare organizations

Which of the following statements is not true regarding accounts receivable?

Accounts receivable is recorded for the company's gross profit on credit sales.