True or False
1. Management accounting supplies information to individuals and groups outside of
2. An MIS contains an AIS plus additional systems.
3. The Sarbanes-Oxley Act of 2002 increased oversight of accountants and increased the
penalties for professional misconduct.
4. A code of ethics provides an answer to virtually every ethical problem that arises.
5. In a small sole proprietorship, direct observation by the proprietor is a useful internal control
on accounting systems.
6. The current value of a company's stock is primarily dependent on the expectations of its
7. Assets = Liabilities + Owners' Equity
8. For government agencies, the Government Accounting Standards Board is the equivalent of
the FASB for publicly traded corporations.
9. In the temporal rate method of foreign currency translation, the goal is to measure each
subsidiary transaction as though it were made by the parent company.
10. Government auditing standards, known as the "Yellow Book," contains standards for audits
of government organizations.
11. Financing decisions are made independently of capital budgeting decisions.
12. Capital budgeting looks at total costs and total earnings for a project, adjusted for the
changing value of money over time.
13. Typically, most of a firm's assets are financed with debt.
14. The capital gain on a share of common stock is the current market price minus the par value.
15. When an investment bank underwrites a stock issue, they will have two sources of income:
the markup on the sale and their professional fees.
16. Cuvita's job involves keeping track of and reporting her company's expenditures. Cuvita's most likely job title is
a. Chief Executive Officer.
c. human resources manager.
e. production worker.
17. Tarana is employed by a heating oil company to manage its inventory. Therefore, Tarana must be a
a. certified public accountant (CPA).
b. management accountant.
c. government accountant.
d. member of the Federal Accounting Standards Board (FASB).
e. public accountant.
18. Theodore Roosevelt, speaking about the importance of ethics education, said, "To educate the person in mind and not in __________ is to educate a menace to society."
a. the accounting profession
19. Enron CEO Jeffrey Skilling hired Arthur Andersen, a public accounting firm, to assess the adequacy of the organization's accounting controls and to certify that the financial statements were properly prepared. In the relationship between Enron and the accounting firm, Arthur Andersen was acting as the
a. financial manager.
b. venture capitalist.
c. investment banker.
20. While working on her company's accounting information system, Kim accidentally deletes some important information. Kim represents the type of security threat known as a(n)
a. natural disaster.
b. error or omission.
c. disgruntled employee.
d. external person.
e. dishonest employee.
21. Accountants __________ the firm's profits.
22. To compute a proportionate expense,
a. compare one year's expenses to another.
b. subtract liabilities from assets.
c. divide an expense by net revenues.
d. adjust expenses for inflation.
e. subtract income tax expense from net income.
23. Elissa's business owns an expensive printing press which cost $400,000 when it was new but now, five years later, has a book value of only $200,000. The changing book value of the press is due to a process called
c. intangible asset.
24. Jenny, a public accountant auditing a large corporation, should examine all of the following except
a. inventory stored in warehouses.
b. bank account balances.
c. valuation procedures for liabilities.
d. disclosure of income.
e. management qualifications.
25. When a multinational firm translated its financial statements from subsidiaries into its reporting currency, it translated cash and cash-like items using the current exchange rate. This is an indicator that the company was using the
a. temporal rate method.
b. consolidated method.
c. hyperinflationary method.
d. GAAP method.
e. current rate method or temporal rate method.
26. AIG, an insurance firm, had net income last year of $63 billion. Over that same period, the company's stock price went from $61 per share to $65 per share. Therefore, AIG had
a. economic profits but no accounting profits.
b. accounting profits but no economic profits.
c. economic profits and accounting profits.
d. neither economic profits nor accounting profits.
e. profits but nolosses.
27. Financing decisions are concerned with
a. choosing funding sources.
b. increases in a company's stock price.
c. the administration of assets.
d. the trade-offs between alternative projects.
e. a company's net income.
28. A bank loans $1,000 for one year. Annually, the real rate is 2 percent, the inflation rate is 2 percent, the default rate is 8 percent, and the riskless rate is 4 percent. If the bank did notconsider the possibility of default, what amount of total interest would they earn on this loan?
29. An important difference between commercial paper and bonds is the
a. interest rate.
b. regions where they may be sold.
c. effect on corporate income tax.
e. maturity date.
30. Andrew says, "All of my finances—checking, savings, and investments—are handled through a single company." Andrew has a(n)
a. single underwriter.
b. personal dealer.
c. asset management account.
d. investment banker.
e. stock executer.
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