Chapter 8

In the context of owners' equity, which of the following is true of retained earnings? a. They are accumulated earnings reinvested in a company rather than being paid to the owners. b. They refer to a firm's additional profits that are used for paying executive salary. c. They refer to salaries that are withheld in case an employee is involved in fraudulent activities. d. They are a firm's earnings that are kept aside for crisis management situations.

a. They are accumulated earnings reinvested in a company rather than being paid to the owners.

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

b. The value of what is given up in exchange for something else

Which of the following is an example of an intangible asset? a. The new machinery bought by a clothing company b. The cash received by a company from the sale of its inventory stock c. The goodwill showed by a food manufacturing company by helping its competitor at a time of crisis d. The land leased out by a farmer to a private company for commercial use

c. The goodwill showed by a food manufacturing company by helping its competitor at a time of crisis

A _____ is one that is not based on a single assumed level of sales and enables managers to make meaningful comparisons between actual costs and budgeted costs.

flexible budget

_____ is a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period.

Budgeting

_____ is the profit or loss a firm earns in the time period covered by the financial statement that reports the revenues and expenses.

Net income

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

Sarbanes-Oxley Act of 2002

_____ indicate the cash a firm spends, or other assets it uses up, to carry out the business activities necessary to generate its revenue.

Expenses

Which of the following statements is true of activity-based costing (ABC)? a. It is more complex than the direct labor method. b. It involves a five-stage process. c. It assigns costs based on the "one size fits all" rule. d. It determines the absolute cost per unit of production.

a. It is more complex than the direct labor method

In which of the following ways do public accountants differ from management accountants? a. Public accountants conduct external audits, whereas management accountants analyze the financial statements of their own organization. b. Management accountants are associated with CPA firms, whereas public accountants can only be internal auditors. c. Management accountants are answerable to the Securities and Exchange Commission, whereas public accountants are answerable to their own organization. d. Public accountants rely on data provided by top managers, whereas management accounts rely on data provided by middle and supervisory managers.

a. Public accountants conduct external audits, whereas management accountants analyze the financial statements of their own organization.

A severe cyclone causes substantial damage to a brick manufacturing company's production equipment. As a result, the company spends a sum of $25,000 to repair the equipment. Given this information, the sum of $25,000 that the company spends is its _____.

a. indirect cost

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

assets

Which of the following is true of government accountants in the United States? a. They do not need to adhere to the generally accepted accounting principles. b. They perform a narrow set of accounting functions solely for federal government agencies. c. They help ensure that a nation's banks and other financial institutions comply with the rules and regulations controlling their behavior. d. They provide services such as tax preparation, external auditing, or management consulting to clients on a fee basis.

c. They help ensure that a nation's banks and other financial institutions comply with the rules and regulations controlling their behavior.

Which of the following is true of current assets? a. They include a firm's tangible assets, such as machinery and equipment. b. They include the long-term assets of a firm. c. They are resources that a firm decides to set aside to pay its long-term liabilities. d. They are resources that a firm expects to use up within a year.

d. They are resources that a firm expects to use up within a year.

In the context of managerial accounting, _____ are costs that are incurred as the result of some specific cost object.

direct costs

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.

In the accounting equation, assets are equal to:

liabilities plus owners' equity.

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

revenues

If an auditor doesn't find any problems with the way a firm's financial statements were prepared and presented, the report will offer a(n) _____ opinion.

unqualified

The current liabilities of a company are reflected in the:

wages owed to the workers for work that they have already completed.