63 Test Bank for Financial Accounting in an Economic
Context 8th
Edition by Pratt Multiple Choice Questions-Page 1
The cash paid during the year to satisfy a company’s debt is found
in its
1.

a. statement of cash flows.

2.

b. income statement.

3.

c. statement of shareholders’ equity.

4.

d. auditor’s report.

Dividends declared and paid to the owners are found in the
1.

a. management letter.

2.

b. income statement.

3.

2.

b. revenues less expenses during a period of time.

3.

c. how much cash that management has paid for bonuses.


4.

d. operating, investing, and financing activities.

An explanation about the assumptions, estimates, and choices of
alternative accounting methods used in the financial statements is
found in the
1.

a. footnotes to the balance sheet.

2.

b. auditor’s report.

3.

c. statement of shareholders’ equity.

4.


3.

c. information about dividends the company paid to its owners.

4.

d. revenues less expenses during a period of time.

An equity investor is
1.

2.
3.

a. a person who provides money to a company with the expectation that it will
be paid back with interest.
b. a creditor that has a regular trade relationship.
c. a person who provides money to a company as a gift with a stipulation that
it will be used as agreed.


4.

d. a person who provides money to a company, though the original money
never has to be repaid, and who may be entitled to receive periodic cash
payments.

The board of directors
1.



d.The company’s auditors.

The balance sheet communicates
1.
2.

a.proof to the investor that the company is profitable.
b. assets, liabilities, and shareholders’ equity with all transactions reflected
through the year.

3.

c. assets, liabilities, and shareholders’ equity as of a certain date.

4.

d. operating, investing, and financing activities.

An internal control system
1.

a.is maintained to ensure that transactions of a company are properly
recorded and reported and the assets are safeguarded.

2.

b.is included in the set of footnotes to the financial statements.

3.


a.more fully explain certain items in the financial statements.

2.

b.reflect financial notes personalized by the company’s executive team.

3.

c.show the detail of salaries of every employee.

4.

d.justify fraudulent business practices.

As a potential creditor, you are interested in a company’s ability to
pay loan interest and principal as they come due. Which of the
following would be of the greatest interest to you in your analysis?
1.

a. statement of shareholders’ equity.

2.

b. income statement.

3.

c. statement of cash flows.


b. the amounts owed that must be paid in the future.

3.

4.

c.the total measured past growth of a firm less the amount distributed to the
owners.
d.amounts the company paid during the past year.

Which one of the following statements is true?
1.

a.Financial accounting is the only accounting used in the United States.

2.

b.Companies that have a profit objective use not-for-profit accounting.

3.

c. Managerial accounting targets operating decisions.

4.

d. Financial and tax accounting are virtually the same.

Considering and understanding how business decisions affect the
financial statements is
1.


d. Statement of cash flows.

A Certified Public Accountant
1.

a.reviews every transaction that a company conducts during any given year.


2.

b.performs a company’s audit.

3.

c.is one of the investors of a company.

4.

d.is responsible for the preparation and integrity of a company’s financial
statements.

The amount which a company’s customers owe the company for
products delivered or services rendered is found in the
1.

a. footnotes only.

2.


a. the total past profits retained in the business.

2.

b. a company’s future growth.

3.

c. the amount invested in the firm by its owners.

4.

d. amounts retained for payments to vendors.

Solvency may be described as
1.

a. an amount owed that must be paid in the future.

2.

b. amounts that can be distributed to owners only.

3.

c. the amount invested in the firm by its owners.


4.


3.

c. beginning balance plus income less dividends.

4.

d. how much cash the company owes its employees.

CPA is an abbreviation for
1.

a. Certified Public Accountant.

2.

b. Certified Production Accountant.

3.

c. Consumer Protection Agency.

4.

d. Certified Permissible Accounting.

A statement that “the financial statements were prepared in
accordance with generally accepted accounting principles” is found
in the
1.



d.Auditors

63 Free Test Bank for Financial Accounting in an
Economic Context 8th Edition by Pratt Multiple Choice
Questions-Page 2
Ownership of an equity security entitles the holder to which basic
right?
1.

a. The right to management outstanding loans.

2.

b. The right to pay dividends.

3.

c. The right to vote for company directors at the annual shareholders' meeting.

4.

d. The right to certify financial report reviews.

Financial accounting practices and standards used in other
countries
1.

a.are the same as practices used by United States companies.



d. company pays its fair share of income taxes.

Which of the following factors is least likely to encourage managers
and auditors to act professionally?
1.

a. professional reputation.

2.

b. tax structure

3.

c. legal liability

4.

d. ethics.

Which of the following groups make up a company’s audit
committee?
1.

a. Auditors.

2.

b. Outside directors from the Board.

1.

a.are laws created and enacted by Congress.

2.

b.define the standards for internal management reporting.


3.

c.increase the level of credibility in financial statements.

4.

d.are created by the Securities and Exchange Commission.

What encourages management to refrain from pressuring auditors
too strongly?
1.

a. Possible legal liability

2.

b. Outside investors and creditors

3.

c. Prospects of higher net income

b.the World Bank.

3.

c.the Big Four accounting firms.

4.

d.the IASB.

Annual reports of public companies
1.

a.are published once per year.

2.

b.include financial statements adjusted for inflation.

3.

c.are also known as Form 10-K.

4.

d.are published by companies 4 times per year.


Which of the following is least likely to be a by-product of ethical
business practices?


4.

d.France.

Which of the following statements is true?
1.

a. Dividend payments are determined by management.

2.

b. Dividend payments are specified by a contract.

3.

c. Dividend payments are based on company collateral.

4.

d. Dividend payments are paid at the board of director's discretion.

Shareholders
1.

a.and employees are the owners of a company.

2.

b.receive repayment of the cash they have invested in a business.

1.
2.

3.

a. A statement about conformity with GAAP.
b. A statement about the fair presentation of the financial conditions and
operations of
the audited company.

4.

c. A statement about the effectiveness of the company's internal control
system.

5.

d. A statement about the function of the company's board of directors.

Which of the following is a public exchange for equity and debt
securities?
1.

a. The Federal Trade Commission.

2.

b. The New York Stock Exchange.

3.

2.

b. earning power

3.

c. collateral

4.

d. annual interest.

Which one of the following is true concerning the International
Accounting Standards Board?
1.

a.It is the international accounting standards setting body that is attempting to
bring greater uniformity to worldwide accounting practices.

2.

b.It approves all financial statements before they are distributed to users.

3.

c.It consistently disagrees with the FASB on its rulemaking.

4.

d.It requires both national and international companies around the world apply

3.

c.by a company’s independent auditors.

4.

d.from and to the SEC.

When management goes beyond ethical boundaries in its attempt
to make financial statements appear attractive, management
1.

a.should be commended for its creativity.


2.

b.will not need an annual audit.

3.

c.should pay its employees larger bonuses.

4.

d.is perpetrating fraud or possible criminal activity.

Which of the following is a measure of past profits that have been
retained in a business?
1.

d.return payments at the discretion of the board of directors.

Where would you most likely find a detailed explanation about
estimates used in the financial statements of a company?
1.

a. management letter

2.

b. financial footnotes

3.

c. debt restrictions

4.

d. debt contracts.

All of the following are functions of the board of directors except:
1.

a. Attending quarterly meetings.

2.

b. Conducting performance review for management.

3.


2.

b.auditor is independent.

3.

c.audit firm is also responsible for preparing the tax return.

4.

d. auditor is paid 1% of the company’s profits for the audit services provided.

Which of the following best describes assets paid to owners of a
company as a return for their initial investment?
1.

a. payables

2.

b. compensation contracts

3.

c. dividends

4.

d. interest.


c.The SEC has enacted rules to help ensure financial literacy among audit
committee members.

4.

d.Since management constructs the financial statements, auditors have no
legal liability to those who rely upon these reports.