Chapter 1 Review Quiz

Suppose a number of your friends have organized a company to develop and sell a new software product. They have asked you to loan them $13,000 to help get the company started, and they have promised to repay your $13,000 plus 9% interest in one year. Of the following, which amount may be described as the return on your investment?

13,000 x .09

The Financial Accounting Standards Board is:

A private group that conducts research and determines generally accepted accounting principles.

In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles:

Are understood and observed by all the participants in the financial reporting process.

Publicly owned companies are those whose ownership shares are:

Bought and sold through stock exchanges or over-the-counter markets.

Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind is called:

Corporate governance

The objectives of an accounting system include all of the following, except:

Dictate the specific types of business transactions the enterprise may pursue.

Which of the following is considered a return "on" investment?

Dividends

The primary function of external auditors is to:

Express an opinion on the fairness of the company's financial statements.

The CPA examination is administered by the General Accounting Office of the U.S. Government. T or F

False

The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed:

Generally accepted accounting principles.

Establishing international accounting standards is the responsibility of:

IASB (International Accounting Standards Board)

Investors may be described as:

Individuals and enterprises that have ownership interest in a reporting entity.

The principal difference between management accounting and financial accounting is that financial accounting information is:

Intended primarily for use by decision makers outside the business organization.

Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the informational needs of:

Investors and Creditors

Which of the following is a characteristic of financial accounting information?

Its preparation requires judgement

The NYSE requires all listed companies to:

Maintain an internal audit function

Which of the following is not an important factor in ensuring the integrity of accounting information?

The cost of preparing the financial information.

Which of the following is not characteristic of financial accounting?

The information is confidential and is intended for use only by company management.

In the phrase "generally accepted accounting principles," the words accounting principles refers to:

The standards, assumptions, and concepts that serve as "ground rules" for financial reporting.

Which of the following is not a basic function of an information system?

To ensure that a business organization will be managed profitably.

The Sarbanes-Oxley Act places responsibility on CEOs and CFOs of companies to certify the fairness of a company's financial statements. The Act also created the Public Company Accounting Oversight Board, which oversees the public accounting profession. T or F

True

The Securities and Exchange Commission is instrumental in the development of financial accounting standards. T or F

True

Which financial statement is primarily concerned with reporting the financial position of a business at a particular time?

balance sheet

A data analytics system is the integrated management of core business processes that an organization can use to collect, store, manage, and interpret data across a wide range of business activities. T or F

false

Managerial accounting information is designed primarily to assist investors and creditors in deciding how to allocate scarce resources. T or F

false

Generally accepted accounting principles:

may change over time

All internal control systems need to be monitored. T or F

true

An accounting practice can become a "generally accepted accounting principle" through widespread use, even if the practice is not mentioned in the official pronouncements of the accounting standard-setting organizations. T or F

true

Financial accounting standards issued by the FASB are considered generally accepted accounting principles. T or F

true

Investors are individuals and other enterprises that have provided equity to the reporting enterprise. T or F

true

Management accounting information is oriented toward the future while financial accounting information is historical in nature. T or F

true

One purpose of generally accepted accounting principles is to make accounting information prepared by different companies more comparable T or F

true

The Code of Ethics of the AICPA calls for a member in public practice to be independent in fact and appearance when providing auditing services. T or F

true

Which of the following are not considered "external" users of financial statements?

Managers

The basic purpose of generally accepted accounting principles is to:

Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements.

The financial statements of a business entity:

Provide information about the cash flow prospects of the company.

Financial statements are designed primarily to:

Provide people outside the business organization with information about the company's financial position and operating results.

The Sarbanes-Oxley Act of 2002 created:

Public Company Accounting Oversight Board

Management accountants primarily are concerned with developing information:

Suited to the needs of decision makers within the organization.

The field of accounting may best be described as:

The art of interpreting, measuring, and describing economic activity.