Title: Accounting Theory
Course: Question Banks

Q: Which one of the following situations would best be addressed by looking at managerial accounting information?
- You are the person in charge of extending credit to corporate customers.
- You want to compare results of operations between two publicly traded companies.
- You are a production manager trying to budget next month’s production in units.
A: You are a production manager trying to budget next month’s production in units.

Q: Which one of the following would be most interested in managerial accounting information?
- Creditor or lender
- Taxing authorities
- Production supervisor
A: Production supervisor

Q: Which one of the following best describes the managerial accounting function?
- To turn data into information for external users
- To make financial projections for short and long-term planning
- To turn data into information for internal users
A: To turn data into information for internal users

Q: The Financial Accounting Standards Board promulgates (enacts) ________.
- International Financial Reporting Standards (IFRS)
- Federal regulations
- Generally Accepted Accounting Principles (GAAP)
A: Generally Accepted Accounting Principles (GAAP)

Q: The ________ requires publicly traded companies to comply with Generally Accepted Accounting Principles (GAAP) in preparing financial statements.
- International Accounting Standards Board (IASB)
- Internal Revenue Code of 1986
- Securities Exchange Commission (SEC)
A: Securities Exchange Commission (SEC)

Q: Generally Accepted Accounting Principles are ________.
- established by acts of Congress
- are suggestions rather than rules
- promulgated (enacted by) the Financial Accounting Standards Board
A: promulgated (enacted by) the Financial Accounting Standards Board

Q: The AICPA guide suggests considering ________ if you can’t resolve a serious ethical conflict with your employer or client.
- sharing concerns with co-workers
- learning to let go of your own opinions
- resigning from an assignment or job
A: resigning from an assignment or job

Q: ________ is the code or moral system that provides criteria for evaluating right and wrong.
- The AICPA guide
- GAAP
- Ethics
A: Ethics

Q: Legal violations ________.
- are unique to publicly traded corporations
- are always unethical acts as well
- can happen at all levels of an organization
A: can happen at all levels of an organization

Q: ________ are set with external users in mind.
- Managerial accounting standards
- Tax accounting standards
- Financial accounting standards
A: Financial accounting standards

Q: Which one of the following would be internal users of financial information?
- Internal Revenue Service
- Investors
- Management
A: Management

Q: Users of managerial accounting information include ________.
- investors and lenders
- the general public
- managers and corporate executives
A: managers and corporate executives

Q: Based on demographic data, the New York company you work for is planning to expand operations by establishing sales outlets in Maine, Delaware, New Jersey, and Ontario, Canada. Currently, the CEO makes most of the day-to-day decisions and you oversee all the salespeople. As a member of the strategic planning team, you should suggest adopting a more ________ organizational structure.
- centralized, functional
- functional
- decentralized, divisional
A: decentralized, divisional

Q: Which of the following terms BEST describes an organization structure where managers oversee company-wide departments, like sales and accounting?
- Divisional
- International
- Functional
A: Functional

Q: An upper management philosophy of “run it like you own it” and relative autonomy of a business segment indicates which kind of formal structure?
- Functional
- Informal
- Divisional
A: Divisional

Q: One of the advantages of a corporation is ________.
- double taxation of profits
- unlimited liability
- limited liability
A: limited liability

Q: A ________ is a legal form of business that can take advantage of some of the advantages of both corporations and partnership.
- partnership
- sole proprietorship
- limited liability company (LLC)
A: limited liability company (LLC)

Q: Which one of the following forms of organization is the easiest to form?
- Corporation
- Partnership
- Sole proprietorship
A: Sole proprietorship

Q: Which one of the following is the best place to find financial information for a corporation?
- Wikipedia or other internet sources
- Management’s Discussion and Analysis in the annual report
- The audited financial statements in the annual report
A: The audited financial statements in the annual report

Q: Which part of the annual report would you read if you were interested in what the leadership of the company has to say?
- The audit report
- Footnotes and disclosures to the audited financial statements
- Management’s Discussion and Analysis
A: Management’s Discussion and Analysis

Q: Which section of the annual report would be the BEST place to turn to if you were interested in more details about the balance sheet or the income statement?
- Management’s Discussion and Analysis
- The audit report
- Footnotes and disclosures to the audited financial statements
A: Footnotes and disclosures to the audited financial statements

Q: Which one of the following would NOT result in one economic entity for accounting purposes?
- A merger of two companies
- A company forms a wholly owned subsidiary
- A private investor who buys stock
A: A private investor who buys stock

Q: Which one of the following would be the BEST indicator that a company was a going concern?
- The company reports net income on the income statement for the fiscal year
- The company shows overall positive cash flow for the fiscal year
- Assets exceed liabilities by a substantial margin
A: Assets exceed liabilities by a substantial margin

Q: Which one of the following would be MOST LIKELY to cause concern?
- The company reports net loss on the income statement for the fiscal year
- The company shows overall negative cash flow for the fiscal year
- Liabilities exceed assets by a substantial margin
A: Liabilities exceed assets by a substantial margin

Q: In examining the income statement of a publicly traded company, which one of the following accounting concepts would give you the MOST confidence that the revenues were not overstated?
- Materiality
- Full disclosure
- Conservatism
A: Conservatism

Q: As you review the audited financial statements of a publicly traded company, you notice wild variations in the amount of professional expenses reported each year. Which one of the following accounting principles would be the BEST cause for you to trust and rely upon the financial reports?
- Materiality
- Conservatism
- Verifiability
A: Verifiability

Q: As you pour over the financial statements of your company, you see that inventory is listed as an asset at $155,000 but you are pretty sure the inventory is worth far more than that. Which one of the following accounting principles would BEST account for the discrepancy between what you are reading in the financials and what you believe to be true?
- Consistency
- Going concern
- Historical cost
A: Historical cost

Q: Under the rules of accrual basis accounting, revenue is recognized as it is ________.
- received
- realized
- earned
A: earned

Q: Which one of the following concepts or principles guides the timing of the recognition of an expense under the rules of accrual basis accounting?
- Conservatism
- Materiality
- The matching principle
A: The matching principle

Q: In accrual basis accounting, to recognize revenue means to ________ it.
- realize
- receive
- record
A: record