Type:
Test Bank
Resource:
Financial Accounting
Edition:
8th Edition
Author(s):
William Thomas Wendy M. Tietz Greg Berberich Catherine Seguin
Financial Accounting, 8Ce (Thomas / Tietz / Berberich / Seguin) Chapter 1 The Financial Statements 1.1 Explain why accounting is the language of business 1) Which of the following persons or groups have the ultimate control of a corporation? A) the chief executive officer B) the board of directors C) the audit committee D) the shareholders Answer: D Diff: 2 Type: MC L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 2) Financial statements are: A) reports issued by outside consultants who are hired to analyze key operations of the business B) reports created by management that states it is responsible for the acts of the corporation C) standard documents that tell us how well a business is performing and where it stands in financial terms D) standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms Answer: C Diff: 1 Type: MC L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 3) Since they are both the same activities, the terms "accounting" and "bookkeeping" are synonymous and can be used interchangeably. Answer: FALSE Explanation: Bookkeeping is a mechanical part of accounting. Accounting requires an understanding of the principles used. Diff: 2 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting
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4) The three forms of business organizations are proprietorships, partnerships, and non-profit organizations. Answer: FALSE Explanation: Proprietorships, partnerships, and Corporations. Diff: 1 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 5) Accounting is called an information system since it measures business activities, processes data into reports, and communicates results to decision makers. Answer: TRUE Diff: 1 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 6) From a legal perspective, proprietors, partners, and shareholders are personally liable for a corporation's debts. Answer: FALSE Explanation: Shareholders are not personally liable for a corporation. Diff: 2 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 7) From an accounting viewpoint, a proprietorship is a distinct and separate entity from the proprietor. Answer: TRUE Diff: 2 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting
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8) The owners' equity of proprietorships and partnerships is different. Answer: TRUE Explanation: The equity of a proprietorship is for one person but the equity for a partnership is for two or more individuals, partnerships, corporations, or other types of entities. Diff: 2 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 9) Financial accounting information is prepared exclusively for external users. Answer: FALSE Explanation: Financial accounting information is prepared for both internal and external users. Diff: 1 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 10) Management accounting is prepared primarily for external users. Answer: FALSE Explanation: Management accounting is prepared primarily for internal users. Diff: 1 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting 11) One benefit of organizing a business as a proprietorship is that the proprietor is not required to pay income tax on the business' earnings. Answer: FALSE Explanation: The proprietor must report the proprietorship's income on his or her personal tax return. Diff: 1 Type: TF L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting
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12) Accounting is often referred to as "the language of business." Why is accounting described this way? How is accounting different from bookkeeping? Answer: Accounting is the system that measures business activities, processes that information into reports, and communicates the results to decision makers. Accounting, as an information system, provides the elements necessary for management and others to make decisions and estimate how well a company may perform in the future. Accounting is the common "language" used by managers, investors, and others to communicate information about a business. Bookkeeping is simply the procedural element of accounting that processes the accounting data. Accounting is an information system, of which bookkeeping is a component. Diff: 1 Type: ES L.O.: 1-1 CPA COMPETENCIES: Chapter 1 1.1.1 Evaluates financial reporting needs 1.1.2 Evaluates the appropriateness of the basis of financial reporting 1.1.3 Evaluates reporting systems, data requirements and business processes to support reliable financial reporting
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