Busn 10th Edition Kelly Test Bank

BUSN 10th Edition Kelly Test Bank
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Name: Class: Date:
Chapter 08: Accounting: Decision Making by the Numbers

1. A firm's operating budget represents the firm's overall plan of action for a specified time period.
a. True
b. False
ANSWER: False
2. In the accounting equation, assets are equal to liabilities minus the owners' equity.
a. True
b. False
ANSWER: False
3. John and Elizabeth evaluate three telecommunication companies to determine the best company to invest in. A
horizontal analysis will enable them to make comparisons of financial statements of the three companies over the past
several years and help in the determination of the increase in their profits.
a. True
b. False
ANSWER: True
4. The Financial Accounting Standards Board (FASB) is barred from modifying and expanding the generally accepted
accounting principles (GAAP).
a. True
b. False
ANSWER: False
5. In order for CPA firms to perform audits with integrity, they must be tied to the firms they audit.
a. True
b. False
ANSWER: False
6. The chief financial officer of the NoveauNoir Production Company requests his accountant, Felipe, to prepare a
customized report of the cost overruns at the company's production facility in Los Angeles. In this scenario, Felipe is a
managerial accountant.
a. True
b. False
ANSWER: True
7. Alexis decides to check with his accountant as to how much money his company owes to the raw materials supplier. To
determine this, Alexis should ask the accountant to provide him with the company's balance sheet.
a. True
b. False
ANSWER: True
8. The members of the Financial Accounting Standards Board (FASB) are appointed by the Securities and Exchange
Commission.
a. True
b. False
ANSWER: False
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9. The Securities and Exchange Commission (SEC) bans publicly traded corporations from making comparative financial
statements.
a. True
b. False
ANSWER: False
10. To preserve independence and impartiality, the Financial Accounting Standards Board (FASB) members are required
to:
a. serve the board until their retirement.
b. sever all ties with any firms or institutions they served prior to joining the board.
c. sign a non-disclosure agreement and hand over all information of their previous companies to the board.
d. pass a rigorous two-day, four-part examination on major accounting concepts.
ANSWER: b
11. A pharmaceutical company wanted to create a budget that was practical and that would enable its managers to make
more accurate comparisons between actual costs and budgeted costs. Thus, the company created a budget that was
developed over a range of possible sales levels and was designed to show the appropriate budgeted level of costs for each
different level of sales. Given this information, which of the following budgets did the company create?
a. A rolling budget
b. A flexible budget
c. A black budget
d. A static budget
ANSWER: b
12. Fiona, the external auditor reviewing a telecommunications company's accounts, finds that the company's internal
accountants have entered false data in the company records. Instead of stating the actual figures, which would reveal the
poor performance of the company, the accountants have overstated the company's earnings. In this case, she will most
likely offer a(n) _____ in the independent auditor's report.
a. qualified opinion
b. unqualified opinion
c. adverse opinion
d. concurring opinion
ANSWER: c
13. Marcus is a venture capitalist who invests in start-ups and small businesses. He is interested in investing in an online
start-up company that has been in business for a year. Before making a decision, Marcus does some research on the value
of the company's assets and liabilities. In this scenario, Marcus is most likely analyzing the company's:
a. income statement.
b. balance sheet.
c. articles of incorporation.
d. operating budget.
ANSWER: b
14. To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's
overall performance, Rowensport Corporation, a multinational company, releases statements that contain details of the
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company's profits and losses over the past five years. In this scenario, the company is most likely involved in _____.
a. financial accounting
b. cost accounting
c. follow-up auditing
d. social auditing
ANSWER: a
15. A public accounting firm takes up a contract to perform an external audit for an oil manufacturing company. The firm,
however, is already in a consulting contract with the oil company. Because of its prior association with the oil company
and the hefty fee the oil company pays the firm, the firm manipulates the audit report. Which of the following laws is
violated in this scenario?
a. The Sarbanes-Oxley Act
b. The Blaine Act
c. The Landrum-Griffin Act
d. The Dawes Act
ANSWER: a
16. __________is the profit or loss a firm earns in the time period covered by the income statement.
a. Shared debt
b. Owners' equity
c. Net income
d. Cash flow
ANSWER: c
17. Sigborne Corp., a food and beverage company, commences its budgeting process by requesting the middle managers
of the company to collect data from their respective departments and submit a consolidated report stating the needs of
their departments. Harold, the manager of the packaging department, overstates the needs of his department. In this
scenario, Harold is guilty of _____.
a. outwrestling
b. budgetary slack
c. extortion
d. budget maximization
ANSWER: b
18. While performing a financial analysis for his organization, Morris discovers that there has been mismanagement of
employee funds over the past three months. He immediately reports this to his supervisors. In this scenario, Morris is most
likely a(n) _____.
a. public prosecutor
b. government accountant
c. internal auditor
d. public accountant
ANSWER: c
19. In the context of budget preparation, which of the following is a disadvantage of participatory budgeting?
a. It can lead to budgetary slack.
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b. It fails to motivate middle and first-line managers.

c. It results in an inadequate representation of the issues faced by individual departments.
d. It fails to identify the resources needed to achieve goals.
ANSWER: a
20. A famous musician sells the copyright of one of his songs to a record company for $2 million. In this scenario, the sale
of the copyright of the song exemplifies the sale of a(n) _____.
a. current liability
b. operating liability
c. tangible asset
d. intangible asset
ANSWER: d
21. In the context of financial budgets, the capital expenditure budget:

a. provides quarterly estimates of the number of units of each product a firm expects to sell.
b. identifies a firm's planned investments in major fixed assets and long-term projects.
c. identifies short-term fluctuations in cash flows that display cash deficits and surpluses.
d. contains the budgets for direct labor, direct materials, and overhead costs.
ANSWER: b
22. In the recent years, the Financial Accounting Standards Board (FASB) and the International Accounting Standards
Board (IASB) have come together to:
a. restructure the qualification and clearance standards for certified public accountants universally.
b. impose stricter punishments in cases of fraudulent and unethical accounting.
c. maneuver other nations into adopting the accounting practices of the United States.
d. find ways to make U.S. accounting practices more consistent with those in other nations.
ANSWER: d
23. Dylan is a supervisory manager in the production department of a tea manufacturing company. Each year, he actively
participates in the budgeting process of the company. His input is valued by the top management as he is able to identify
the issues in his department. In this scenario, it can be said that Dylan's company follows the _____ to budgeting.
a. top-down approach
b. incremental approach
c. bottom-up approach
d. zero-based approach
ANSWER: c
24. In the context of budget preparation, which of the following is an advantage of using bottom-up budgeting?
a. It is less time consuming than the top-down approach.
b. It eliminates the possibility of budgetary slack.
c. Middle managers are likely to be highly motivated to achieve budgetary goals.
d. Supervisory managers are likely to know the long-term strategic needs of a company.
ANSWER: c
25. The overstating of needs or setting low budget goals by managers in a budgeting process can result in _____.
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a. budgetary slack
b. a budget crisis
c. a budgetary deficit
d. budget maximization
ANSWER: a
26. The assets of Prosian Italia, a marble and granite company, amount to $400 million, and its liabilities add up to $180
million. Based on the accounting equation, Prosian Italia's owners' equity is equal to _____.
a. $580 million
b. $72,000 million
c. $2 million
d. $220 million
ANSWER: d
27. In the context of owners' equity, which of the following is true of retained earnings?
a. They refer to a firm's additional profits that are used for paying executive salary.
b. They are accumulated earnings reinvested in a company rather than being paid to the owners.
c. They are a firm's earnings that are kept aside for crisis management situations.
d. They refer to salaries that are withheld in case an employee is involved in fraudulent activities.
ANSWER: b
28. Angela is part of the senior management of Fifian Inc., an event management company. She along with other members
of the senior management plans the annual budget of the company. Angela, however, is not required to take inputs from or
involve the middle and supervisory managers of the company in this planning process. In the given scenario, Fifian Inc.
most likely uses _____.
a. top-down budgeting
b. incremental budgeting
c. bottom-up budgeting
d. zero-based budgeting
ANSWER: a
29. The total assets of a dairy products manufacturing company are calculated. However, a sum of $5 million from the
value of the company's property, plant, and equipment assets is not taken into account as the machinery is bound to
become unusable after a certain period of time. In the context of balance sheets, the amount of $5 million that is
subtracted from the original value of the total assets is called _____.
a. deferred income
b. bequest value
c. accumulated depreciation
d. laid-down cost
ANSWER: c
30. Jenny, an external auditor from a public accounting firm, verified the financial statements of a real estate company. At
the end of her review, Jenny did not find any discrepancies in the figures presented by the company and the accounting
methods of the company. In this scenario, the independent auditor's report most likely offered a(n) _____.
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c. adverse opinion
ANSWER: b
31. Lossaire, a jewelry house, needs to increase the company's declining cash inflow through its financing activities. In
this context, Lossaire is most likely to:
a. sell the goods and services that it produces.
b. sell its fixed assets and financial assets bought as long-term investments.
c. form partnerships and mergers with companies operating in the same industry.
d. issue additional shares of its own stock.
ANSWER: d
32. Which of the following is a difference between managerial accounting and financial accounting?
a. Financial accounting is governed by a set of generally accepted accounting principles, whereas managerial
accounting uses procedures developed internally that are not required to follow generally accepted accounting
principles.
b. Financial accounting is primarily intended to provide information to internal stakeholders, whereas managerial
accounting is primarily intended to provide information to external stakeholders.
c. Managerial accounting summarizes the past performance of a company, whereas financial accounting provides
reports on the past performance of a company and also makes projections about the future.
d. Managerial accounting presents financial statements on a predetermined schedule, whereas financial
accounting creates reports upon request by management rather than according to a predetermined schedule.
ANSWER: a
33. Costs are deducted from revenue in several stages to show how net income is determined. The first step in this process
is to deduct:
a. costs of damaged goods.
b. costs of purchased goods
c. costs of goods mortgaged.
d. costs of goods sold.
ANSWER: d
34. Fred, a financial accountant at a multinational company, is asked by his supervisor to find out the exact income the
company earns from the sale of its products over the next five weeks. To do this, for the next five weeks, Fred matches the
revenue earned from the sale of the company's products and matches the expenses incurred by the company to the revenue
they help produce. In this scenario, which of the following has Fred used to get the required information?
a. Accrual-basis accounting
b. Horizontal analysis
c. Liquidity index
d. Static analysis
ANSWER: a
35. In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing
_____.

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a. debts
b. investments
c. revenues
d. cost of shares
ANSWER: c
36. The three kinds of basic financial statements that are prepared in financial accounting are:
a. statement of debts, letter of credit, and articles of incorporation.
b. comfort letter, master budget, and credit statement.
c. balance sheet, income statement, and statement of cash flows.
d. pro forma report, request for proposal, and articles of incorporation.
ANSWER: c
37. In the context of balance sheets, patents, trademarks, and copyrights are examples of _____.
a. fixed assets
b. current assets
c. liquid assets
d. intangible assets
ANSWER: d
38. In the context of budgeting, a flexible budget:

a. is based on a single assumed level of sales.
b. is designed to show the appropriate budgeted level of costs for each different level of sales.
c. is the budget that is prepared before a static budget.
d. cannot be used by companies for evaluation and comparisons involving real-world sales situations.
ANSWER: b
39. The Securities and Exchange Commission hires Tim to procure and analyze data on the state's tax revenues and
expenditures to ensure that they are recorded and reported in accordance with regulations and requirements. In this case,
Tim is most likely a(n) _____.
a. external auditor
c. public prosecutor
ANSWER: b
40. 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.
a. qualified
b. unqualified
c. adverse
d. concurring
ANSWER: b

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41. The first stage in activity-based costing is to:
a. multiply the total cost of producing each good by the number of goods.
b. identify specific activities that create indirect costs and determine the factors that drive the costs of these
activities.
c. divide the total cost of goods available for sale by the total units available for sale.
d. identify specific activities that create direct costs and determine the marketing factors that influence the costs
of these activities.
ANSWER: b
42. In the context of statement of cash flows, cash flows from operating activities show the amount of cash that flowed
into the company from:
a. dividends.
b. public grants.
c. executive compensations.
d. taxes on capital gains.
ANSWER: a
43. In the context of financial statements of a company, cash flow statements commonly begin with _____.
a. net income
b. net debt
c. the shared profit amount
d. the shared expenses
ANSWER: a
44. The preparation of operating budgets begins with the development of a(n) _____.
a. sales budget
b. budgeted income statement
c. capital and taxes budget
d. expenditure budget
ANSWER: a
45. In the context of financial statements, which of the following statements is true of large corporations?
a. Large corporations with publicly traded stock must provide an annual report containing financial statements to
all stockholders.
b. They must file reports with the Securities and Exchange Commission every five years.
c. Large corporations with privately traded stock must provide an annual report containing details of incoming
and outgoing cash.
d. They must file quarterly and annual reports with the Financial Accounting Standards Board.
ANSWER: a
46. The management of a fertilizer company decides to increase the company's cash flow by increasing its financing
activities. In this context, the company is most likely to:
a. sell the goods and services that it produces.
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d. take short-term and long-term loans.

ANSWER: d
47. In the context of balance sheets, which of the following is a difference between liabilities and owners' equity?
a. Liabilities refer to the claims internal stakeholders have against the external stakeholders, whereas owners'
equity refers to claims external stakeholders have against the internal stakeholders.
b. Liabilities indicate the claims outsiders have against the firm's assets, whereas owners' equity refers to the
claims the owners have against their firm's assets.
c. Owners' equity indicates the claims internal stakeholders have against the firm's assets, whereas liabilities refer
to the claims external stakeholders have against the firm's assets.
d. Owners' equity indicates the claims outsiders have against the firm's assets, whereas liabilities refer to the
claims the owners have against their firm's assets.
ANSWER: b
48. _____ 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.
a. Outsourcing
b. Benchmarking
c. Budgeting
d. Auditing
ANSWER: c
49. Colin, the manager of the production department in an apparel manufacturing company, is accused of budgetary slack
by a senior manager in his company. Colin is accused of budgetary slack because he:
a. did not create the company's budget in a timely and consistent manner.
b. made errors in the budgeting process, which resulted in operational problems.
c. did not include the minor expenses incurred by his department in the budget.
d. overstated the needs of his department in the budget.
ANSWER: d
50. The management of a sugar manufacturing company sets aside a sum of $50,000 in its budget for the purchase of new
machinery that would double the production. In the given scenario, the management is in the process of planning the
_____ of the company.
a. marketing budget
b. financial budget
c. operating budget
d. static budget
ANSWER: c
51. In the context of balance sheets, retained earnings are a major component of the _____ section.
a. owners' equity
b. statement of cash flows
c. company's liabilities
d. articles of incorporation
ANSWER: a
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52. Which of the following statements is true of activity-based costing (ABC)?

a. It determines the absolute cost per unit of production.
b. It is more complex than the direct labor method.
c. It involves a five-stage process.
d. It assigns costs based on the "one size fits all" rule.
ANSWER: b
53. 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. explicit cost
b. implicit cost
c. indirect cost
d. direct cost
ANSWER: c
54. George, a managerial accountant in a jute manufacturing company, is asked to calculate the total amount of money the
company spends on the wages of its workers and on the payments it makes to its suppliers for raw materials. By finding
out the company's total actual expenses, the management can come to a decision on whether or not the company can
increase its workers' wages by at least ten percent. In this scenario, George is asked to calculate the company's _____.
a. incremental costs
b. implicit costs
c. out-of-pocket costs
d. opportunity costs
ANSWER: c
55. Ashley, a manager at a toy manufacturing company, needs to create a financial document for the company that would
show how the company's operating, investing, and financing activities are expected to affect the asset, liability, and
owners' equity accounts. To prepare this document, Ashley needs to collect data from:
a. the static budget, the cash budget, and the budgeted income statement.
b. the production budget, the capital expenditure budget, and the sales budget.
c. the sales budget, the cash budget, and the budgeted income statement.
d. the budgeted income statement, the capital expenditure budget, and the cash budget.
ANSWER: d
56. Grydon Inc. has applied for a business loan in the United Bank. To best assess the loan case, the loan officer at the
bank, Cerejo, decides to look at the company's net income. Cerejo will find this information in Grydon's _____.
a. profit and loss statement
b. statements of cash flow
c. stockholders' equity statement
d. statement of retained earnings
ANSWER: a
57. Acloe Inc., a nutrition bar manufacturing company, plans to commence its budget preparation. The management of the

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organization comes to a consensus that it will use a budgeting approach that will encourage the active participation of the
middle and supervisory managers and consider their suggestions while creating the budget. Acloe Inc. is most likely to
adopt the _____ budgeting approach.
a. top-down
b. incremental
c. bottom-up
d. evolutionary
ANSWER: c
58. Harold, a financial accountant in a company, is asked to identify the changes in the company's account values between
2014 and 2016. To get the required information, he uses comparative financial statements, which state the figures for the
two years side by side. These comparative financial statements make it easier for Harold to identify the changes that may
have taken place during that period. In this scenario, Harold is most likely using _____ to get the required information.
a. activity-based costing
b. horizontal analysis
c. liquidity index
d. static analysis
ANSWER: b
59. Daryl is an accountant in Vansert Inc., a multinational healthcare company. He is responsible for providing analysis,
preparing financial statements, and reporting the financial transactions of the company to the deputy chairman of the
company. In this scenario, Daryl is most likely a _____.
a. forensic accountant
c. public accountant
d. management accountant
ANSWER: d
60. Maurice, the supervising manager of a telecommunications company, requires detailed information about the expenses
that the company incurred from its monthly operations in the last fiscal year. In this scenario, Maurice should refer to the
_____.
a. profit and loss statement
b. statement of cash flow
c. owners' equity statement
d. statement of retained earnings
ANSWER: a
61. In the context of balance sheets, accounts receivable is an example of__________.

a. current liabilities
b. immovable assets
c. current assets
d. depreciated liabilities
ANSWER: c
62. David, a financial accountant at a multinational company, is asked to study the comparative financial statements of a

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prospective partner firm. He uses comparative income statements to determine the changes in the assets and liabilities of
the firm and whether the net income of the firm has increased or decreased over the past five years. In this scenario, David
is most likely using _____.
a. activity-based costing
b. horizontal analysis
c. a statistical syllogism
d. static analysis
ANSWER: b
63. In the context of budget preparation, the master budget of a firm organizes the _____ into a unified whole.
a. static budget and the cash flow budget
b. static budget and the financial budget
c. cash flow budget and the operating budget
d. financial budget and the operating budget
ANSWER: d
64. In the context of balance sheets, resources owned by a firm are known as__________.
a. holdings
b. assets
c. capitals
d. liabilities
ANSWER: b
65. Janice is an accountant in a public relations firm. She prepares financial reports upon request by the management of
the firm and does not stick to a predetermined schedule. The reports that she prepares mainly help the internal
stakeholders of the firm. Given this information, it can be said that Janice performs _____.
a. financial accounting
b. managerial accounting
c. governmental accounting
d. forensic accounting
ANSWER: b
66. Jonathan, a grocery store owner, is due to pay suppliers for delivering goods for a specific month. To ascertain how
much money he owes the suppliers, Jonathan should check the:
a. rate card.
b. balance sheet.
c. pro forma statement.
d. operating budget.
ANSWER: b
67. The employees of an information technology company complain that the company has been spending a lot of funds in
wasteful activities, such as office renovation, instead of revising the employees' salaries. In this case, the company should
hire a(n) _____ to keep a check on the company's expenses and prevent the problem from aggravating.
a. public prosecutor
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c. internal auditor
ANSWER: c
68. Congress passed the__________that banned business relationships that might create conflicts of interest between
certified public accounting (CPA) firms and the companies they audit.
a. Sarbanes-Oxley Act of 2002
b. Securities Exchange Act of 1934
c. Glass-Steagall Act of 1933
d. McCain-Feingold Act of 2002
ANSWER: a
69. A steel manufacturing company is going through a financial crisis because of which it is unable to pay its employees
and suppliers their dues. The management of the company sells some of the fixed assets of the company to cover these
expenses. In the context of the statement of cash flows, the company gets the required capital by engaging in _____.
a. investing activities
b. financing activities
c. operating activities
d. budgeting activities
ANSWER: a
70. Luke works in an accounting firm that offers services such as tax preparation and external auditing to corporate
companies. Luke is currently providing consultation to a client that deals in automobile parts. In this scenario, Luke is
most likely a:
a. public accountant.
b. managerial accountant.
c. government accountant.
d. forensic accountant.
ANSWER: a
71. In the context of accounting, which of the following best defines cost?
a. The value of equities a firm has at its disposal
b. The income from which public expenses are met
c. The income lost due to unaccountable decision-making
d. The value of what is given up in exchange for something else
ANSWER: d
72. Poline Foods, a food processing company, needs to increase its declining cash inflow through its operating activities.
In this context, Poline Foods is most likely to:
a. sell its goods or services.
d. issue additional shares of its own stock.
ANSWER: a

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73. Andrew is performing an audit of the financial statements of a cosmetics company. While analyzing the financial
statements, he identifies some minor concerns. However, he believes that on balance the company's statements are
accurate and its accounting methods are consistent with the generally accepted accounting principles. In this scenario, the
independent auditor's report will most likely offer a(n) _____.
c. adverse opinion
ANSWER: a
74. Milora, a clothing company, purchases 50 sewing machines from a company called Quick Sew on credit. Milora is
supposed to pay an amount of $76,000 to Quick Sew. This amount is due within a year of the date on the balance sheet. In
this scenario, the amount of credit that Milora owes Quick Sew is referred to as Milora's _____.
a. current liability
b. borrowing base
c. charge-off
d. intangible asset
ANSWER: a
75. Lorraine works for an accounting firm that performs external audits, provides consulting services, and does the tax
preparation for other businesses and individuals. Given this information, Lorraine is most likely a _____.
b. public accountant
c. government accountant
ANSWER: b
76. Daniel, the owner of a bookstore, decides to reinvest his personal profits from the current fiscal year toward
renovating the store and expanding its inventory. In the context of owners' equity, the profits that Daniel reinvests in the
bookstore are called:
a. bonus shares.
b. retained earnings.
c. current liabilities.
d. equity releases.
ANSWER: b
77. Rolette Clemens is a financial institution that provides loans to businesses. It rejects a textile company's request for a
loan after it reviews the value of the company's assets, liabilities, and owners' equity and finds them to be unsatisfactory.
In this scenario, Rolette Clemens most likely analyzed the company's _____ to assess its financial condition.
a. statement of cash flows
b. balance sheet
c. income statement
d. operating budget
ANSWER: b

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78. Harold, a financial accountant at an automobile company, is asked to calculate the net income of the company for a
given period. He deducts the cost of goods sold from the revenue earned during that period. Before deducting the
company's operating expenses from the gross profit, he deducts the rent and the insurance premium paid by the company
during that period. In the given scenario, Harold deducted the company's _____ from the company's operating expenses.
a. testamentary expenses
b. selling expenses
c. administrative expenses
d. accrued expenses
ANSWER: c
79. Sidney is a member of the Financial Accounting Standards Board (FASB) and is entrusted with the responsibility of
establishing accounting principles in the United States. As a member of the board, Sidney:
a. is to serve a seven-year term and cannot be reappointed to serve another term.
b. must sever all ties with any firms or institutions that she served prior to joining the board.
c. is responsible for directing the Securities and Exchange Commission to enforce the accounting standards.
d. must pass a rigorous two-day, four-part examination to be promoted as a certified fraud examiner.
ANSWER: b
80. Miller is the owner of a restaurant that has several franchises. One of the franchisees owes Miller a sum of $18,000 for
the goods that he had bought from Miller on credit. In this scenario, the money owed to Miller is known as _____.
a. checkoff
b. the freight expense
c. accounts receivable
d. the laid-down cost
ANSWER: c
81. Logan, an independent auditor, is assigned to perform an audit for a software company. After the audit, he notices
some serious lapses and discrepancies in the numbers mentioned in the firm's financial statements. In this scenario, Logan
is most likely to offer a(n) _____ opinion in his audit report.
a. qualified
b. unqualified
c. adverse
d. concurring
ANSWER: c
82. The owners' equity of Senesta Corp., an event management company, adds up to $23 million, and its liabilities add up
to $17 million. Based on the accounting equation, the assets of Senesta Corp. are worth _____.
a. $1.35 million
b. $391 million
c. $7 million
d. $40 million
ANSWER: d
83. Prenora Inc., a newly established company, is set to prepare its first budget. The top management of the company
decides to use a budgeting approach that will seek active participation from the middle and supervisory managers of the

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company. In the given scenario, Prenora Inc. will most likely use the _____ to budgeting.
a. top-down approach
b. incremental approach
c. bottom-up approach
d. zero-based approach
ANSWER: c
84. The management of an electronics company created the annual budget on a single assumed level of sales. This level of
sales is to remain constant for the whole year. Later, the management finds it difficult to accurately measure the financial
progress of the firm as the values in the estimated budget vary significantly from the actual sales. In the given scenario,
the management most likely created a _____.
a. perpetual budget
b. zero deficit budget
c. black budget
d. static budget
ANSWER: d
85. Betty's job entails detecting problems such as embezzlement, waste, mismanagement, and employee theft at her
organization. In this case, Betty is a(n) _____.
a. forensic auditor
c. internal auditor
d. certified public accountant
ANSWER: c
86. In the context of an independent auditor's report, if the auditor identifies some minor concerns but believes that on
balance the firm's statements remain a fair and accurate representation of the company's financial position, the report will
offer a(n) _____ opinion.
a. qualified
b. unqualified
c. adverse
d. clean
ANSWER: a
87. Sebastian is an employee at Plowell Inc. His duties include preparing reports and analyzing company data. He also
appraises financial performances and verifies the accuracy and validity of the company's internal records. In this scenario,
Sebastian's role is that of a _____ in the organization.
b. social audit examiner
c. certified fraud examiner
ANSWER: d
88. In the context of balance sheets, the accounting equation tells us that the value of a firm's assets must be:
a. greater than the amount of financing provided by owners plus the amount provided by creditors to purchase
Name: Class: Date:
those assets.
b. equal to the amount of financing provided by owners plus the amount provided by creditors to purchase those
assets.
c. negligible when compared to the amount of financing provided by owners plus the amount provided by
creditors to purchase those assets.
d. less than the amount of financing provided by owners plus the amount provided by creditors to purchase those
assets.
ANSWER: b
89. Gerald wants to find out the net income of his business for the last quarter. He deducts the cost of goods sold from the
revenue earned during that period and then deducts the operating expenses from the gross profit. If Gerald decides to
subtract the salary of his employees from the operating expenses before deducting the operating expenses from the gross
profit, which of the following expenses would he be deducting?
a. Testamentary expenses
b. Administrative expenses
c. Selling expenses
d. Accrued expenses
ANSWER: c
90. In the context of managerial accounting,__________are costs that are incurred as the result of some specific cost
object.
a. direct costs
b. implicit costs
c. indirect costs
d. fixed costs
ANSWER: a

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Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

b. It fails to motivate middle and first-line managers.

21. In the context of financial budgets, the capital expenditure budget:

Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

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Chapter 08: Accounting: Decision Making by the Numbers

38. In the context of budgeting, a flexible budget:

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Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

d. take short-term and long-term loans.

Chapter 08: Accounting: Decision Making by the Numbers

52. Which of the following statements is true of activity-based costing (ABC)?

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Chapter 08: Accounting: Decision Making by the Numbers

61. In the context of balance sheets, accounts receivable is an example of__________.

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Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

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Chapter 08: Accounting: Decision Making by the Numbers

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Chapter 08: Accounting: Decision Making by the Numbers

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Chapter 08: Accounting: Decision Making by the Numbers

Chapter 08: Accounting: Decision Making by the Numbers

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