Instant Download PDF BUSN 2nd Edition Kelly Test Bank Full Chapter

BUSN 2nd Edition Kelly Test Bank
Go to download the full and correct content document:

https://testbankfan.com/product/busn-2nd-edition-kelly-test-bank/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
BUSN 2nd Edition Kelly Solutions Manual
https://testbankfan.com/product/busn-2nd-edition-kelly-solutions-
manual/
BUSN 11th Edition kelly Test Bank
https://testbankfan.com/product/busn-11th-edition-kelly-test-
bank/
BUSN 10th Edition Kelly Test Bank
https://testbankfan.com/product/busn-10th-edition-kelly-test-
bank/
BUSN 9th Edition Kelly Test Bank
https://testbankfan.com/product/busn-9th-edition-kelly-test-bank/
Busn 8 8th Edition Kelly Test Bank
https://testbankfan.com/product/busn-8-8th-edition-kelly-test-
bank/
BUSN 5 5th Edition Kelly Test Bank
bank/
BUSN Canadian 3rd Edition Kelly Test Bank
https://testbankfan.com/product/busn-canadian-3rd-edition-kelly-
test-bank/
bank/
bank/
Chapter 8 Accounting: Decision Making by the Numbers
TRUE/FALSE
1. Accounting is a system for recognizing, recording, organizing, analyzing, summarizing, and

reporting information about the financial transactions that affect an organization.
ANS: T DIF: LL1 REF: Page 95 OBJ: 1
2. Recording financial transactions is an accounting function.
3. The managers of a company are the only stakeholders of a company that have a legitimate
interest in its accounting information.
ANS: F DIF: LL2 REF: Page 95 OBJ: 1
4. Key users of a corporation’s accounting information include managers, government agencies,

and stockholders.
5. Mary Reardon is an employee and stockholder for the McNeely Company. Mary is
considered a primary user of her firm’s accounting information.
6. Accounting systems are utilized by companies for several reasons, but they have little value
when it comes to making economic decisions.
7. Internal auditors are also known as certified public accountants.
8. Private accountants work within a business organization, preparing reports and analyzing
financial information for the company that employs them.
9. The use of computerized accounting systems has greatly reduced the need for private
accountants in medium and large-sized firms.
10. Accountant and bookkeeper are just two terms that refer to the same profession.

11. Private, internal, and government accountants are business titles used by certified public
accountants.
12. The accounting profession is seldom concerned with the interpretation of financial
information.
13. The vast majority of firms today use computerized accounting systems and sophisticated
software to record and summarize transactions.
14. Through additional preparation, accountants may become a certified management

accountant (CMA), certified public accountant (CPA), and/or certified internal auditor. These
certifications signify advanced preparation in their field.
15. Private accountants work for private citizens who are not part of a firm, while public
accountants work internally for publicly traded companies.
16. Internal auditors are private accountants responsible for verifying their company’s internal
accounting procedures.
17. Public accountants provide a variety of accounting services for clients on a fee basis.
18. Private and public accountants do the same type of work but have different qualifications.
19. Forensic accountants combine their knowledge of accounting with investigative skills.
20. Forensic accountants provide standardized reports primarily intended for managers and other
decision-makers employed by an organization.
21. The Financial Accounting Standards Board (FASB) is the private, self-regulating board
established to develop and enforce the generally accepted accounting principles that guide
the practice of financial accounting.

22. FASB is an acronym that stands for Federal Accounting Systems Board.
23. Generally accepted accounting principles (GAAP) are a set of accounting standards used in
the preparation of financial statements.
24. As a result of the accounting scandals of the early 21st century, many states have imposed
new ethics-related requirements on certified public accountants.
25. Financial accounting is the branch of accounting that prepares financial statements for use by
owners, creditors, suppliers, and other stakeholders.
26. The rules governing the practice of financial accounting are established and enforced by the
Federal Accounting Standards Commission (FASC).
27. One criticism of GAAP is that it is too rigid and fails to take into account the fact that one size
doesn’t fit all in accounting.
28. GAAP is the policy board that establishes the rules known as the FASB of accounting.
29. The purpose of GAAP is to specify the procedures used in managerial accounting to prepare
budgets and cost reports.
30. Two of the goals underlying GAAP are to ensure that the statements prepared in financial
accounting are relevant and consistent.
31. Since it deals strictly with numbers, the practice of accounting is free from ethical
considerations.
32. Recently, some critics of current practices have suggested that GAAP’s flexibility allows
managers to manipulate financial statements in ways that make their firms’ financial
performance appear to be better than it really was.
33. Assets = Liabilities + Net income.
34. Liabilities are resources owned by a firm.
35. A statement of cash flows is the financial statement identifying a firm’s sources and uses of
cash in a given accounting period.
36. According to the accounting equation, Assets - Expenses = Net Income.
37. The owners’ equity section of the balance sheet indicates the claims a firm’s owners have
against their company’s assets.
38. Net income is the difference between the revenue a firm earns and the expenses it incurs in
a given time period.
39. An income statement is the financial statement that reports revenues, expenses, and net
income resulting from a firm’s operations over an accounting period.
40. Revenue, expenses, and net income are the key sections found on a statement of cash
flows.
41. The statement of cash flows shows the cash flowing in and out of the firm from three types of
activities: operations, investing, and financing. It also shows the net increase or decrease in
cash from all three sources and the total amount of cash on hand at the end of the period.
42. Assets are the tangible and intangible resources of value owned by a firm.
43. The accounting equation is based on the fact that the value of a firm’s assets is, by definition,
exactly equal to the financing provided by creditors and by owners for the purchase of those
assets.
44. Liabilities could include bank loans and current payments owed to suppliers.
45. Expenses are listed on the left side of a balance sheet.
46. Revenues are increases in a firm’s assets resulting from the sale of goods, the provision of
services, or other activities intended to earn income.
47. A balance sheet is a financial statement reporting the financial position of a firm at a
particular point in time by identifying and reporting the value of the firm’s assets, liabilities,
and owners’ equity.
48. The accounting entity approach is an accounting method that recognizes revenue when it is
earned and matches expenses to the revenues produced.
ANS: F DIF: LL2 REF: Pages 100-101

OBJ: 4
49. Accrual-basis accounting is the method that recognizes revenue when it is earned and
matches expenses to those revenues.
ANS: T DIF: LL2 REF: Pages 100-101

OBJ: 4
50. A company’s balance sheet will “balance” even if it is on the verge of bankruptcy.
51. Business expenses are available resources that stakeholders control.
52. The statement of retained earnings shows how retained earnings have changed from one
accounting period to the next. By subtracting dividends paid to shareholders from net income,
managers will see changes in this statement over time.
53. Balance sheets only reflect the assets and liabilities of the cost of goods sold.

54. The cash balance reported at the bottom of the statement of cash flows should equal the
amount of cash reported for a balance sheet prepared at the end of the same accounting
period.
55. Ralph owns some stock in the Lottadoe Corporation, and wants to know whether this
company earned a profit over the most recent year. This information would be available in the
company’s balance sheet.
ANS: F DIF: LL3 REF: Page 99-100

OBJ: 4
56. Rosalyn owns stock in Munnymacher Inc. and just received her annual report from this
company. If she wants to see the total value of Munnymacher’s assets, she should look at
the company’s balance sheet.
ANS: T DIF: LL3 REF: Page 99-100

OBJ: 4
57. The cash flows received from operations reported in the statement of cash flows should be
exactly equal to the revenue the firm reports on its income statement.

OBJ: 4
58. A college student registers for classes and pays the tuition with a credit card. Because it uses
accrual-basis accounting, the college will recognize the payment as revenue as soon as the
transaction turns into cash in the school’s bank account.
59. When an external audit doesn’t uncover any problems with the firm’s financial methods and
statements, the auditor will issue an unqualified opinion.
60. The Sarbanes-Oxley Act of 2002 included provisions designed to improve external auditing
procedures and enhance financial reporting for publicly traded firms.
61. Ratio analysis computes rates, proportions, or percentages in order to compare selected
values contained in a firm’s financial statements.
62. Vertical analysis is an analysis of information in financial statements that involves expressing
various accounts as a percentage of some base amount.

63. Horizontal analysis is an analysis of financial statements comparing account values reported
over a period of years. This information is used to serve as a basis of comparison and to
identify trends.
64. Publicly traded firms with complex changes in their operations may report these changes in
the notes section of their annual report.
65. Horizontal analysis compares the balance sheet in a given year to the income statement and
statement of cash flows in that same year to ensure that these three statements contain
consistent information.
66. Geoff has been looking at some liquidity ratios for K&M Enterprises. This indicates that he
wants to know whether the firm is likely to face problems in repaying its current liabilities.
67. The main purpose of liquidity ratios is to determine whether a firm will be able to repay its
current debts as they come due.
68. Arthur Andersen’s solution to its ethical dilemma ultimately led it to become a stronger and
more competitive accounting firm.
69. Activity-based costing is a technique used by managerial accountants to assign product costs
based on links between activities that drive costs and the production of specific products.
70. Budgeting is a management tool that explicitly shows how a firm will acquire and use
resources needed to achieve its goals over a specific time period.
71. Financial budgets are the budget documents that identify cash and other financial resources
the firm will acquire and use to finance operations and make planned investments in fixed
assets.
72. Operating budget documents include the cash budget and the capital budget.

OBJ: 6
73. Managerial accounting involves developing standardized reports according to a
predetermined schedule.
74. The master budget is a combined statement of an organization’s operational and financial
budgets that represents the firm’s overall plan of action for a specified time period.
75. Incremental analysis is the evaluation and comparison of the financial impact different
alternatives would have in a particular decision-making situation.
76. Managerial accounting is the branch of accounting that provides reports and analysis to
managers to help those managers make informed business decisions.
77. Lakitha has been asked to evaluate the desirability of outsourcing some functions her
company currently performs internally. In order to carry out her analysis, she plans to
compare the costs and revenues resulting from outsourcing to the firm’s current costs and
revenues. Lakitha’s approach is an example of incremental analysis.
MULTIPLE CHOICE
78. ______________ is a system for recognizing, recording, organizing, summarizing, analyzing,

and reporting information about the financial transactions that affect an organization.
a) Accounting
b) Bookkeeping
c) Managerial finance
d) Auditing
ANS: A DIF: LL1 REF: Page 95 OBJ: 1
79. Accounting provides users with
a) auditing references to assist the IRS in collecting tax payments.

b) timely and relevant information needed to make sound economic decisions.
c) information on the financial decisions of its shareholders.
d) knowledge of how to position a product for its market.
ANS: B DIF: LL2 REF: Page 95 OBJ: 1
80. Managers, stockholders, employees, and creditors are
a) auditors of the health and well-being of a company.

b) all employees of a corporation.
c) all users of accounting information to assess a company’s finances.
d) designated by the board of directors to review company documents.
ANS: C DIF: LL2 REF: Page 95 OBJ: 1
81. Employees would most likely use their employer’s accounting information to
a) assess dynamic marketplace conditions for employment opportunities.

b) develop their personal financial plan.
c) calculate their hourly wage rate.
d) evaluate the financial performance of the company and make the case for pay
raises or bonuses.
ANS: D DIF: LL2 REF: Page 95 OBJ: 1
82. Stockholders would most likely use accounting information provided by their firm to
a) make capital budgeting decisions.

b) gauge whether the firm is generating a satisfactory return on their investment.
c) determine whether the firm can repay them for their stock.
d) obtain information needed to fill out their individual tax returns.
83. Tiny Timber Tree Farms applied to United Bank for a business loan. Which financial
statements would the loan officer of the bank be most likely to request?
a) Balance sheets, income statements, and cash flow statements.

b) Journals, ledgers, and trial balances.
c) Total debits and total credits.
d) The prospectus, statement of retained earnings, and total liability statement.
ANS: A DIF: LL3 REF: Pages 95; 99-101
OBJ: 1, 4
84. ___________ encompasses the routine procedures involved in recording financial

transactions, while ___________ goes further by analyzing and interpreting this information
and communicating the results to stakeholders.
a) Accounting, bookkeeping
b) Auditing, bookkeeping
c) Costing, auditing
d) Bookkeeping, accounting
85. _________ are responsible for verifying accuracy of their organization’s internal records and
validating the accounting procedures.
a) IRS officials
b) Public accountants
c) Internal auditors
d) Forensic bookkeepers
86. ______________ accountants combine their knowledge of accounting with investigative
skills. These accountants can help detect and investigate tax evasion, embezzlement, money
laundering, and securities fraud.
a) Forensic
b) Auditing
c) Government
d) Private
87. The accounting tasks once performed by bookkeepers are significantly different due to
a) the government’s having substantially changed recording requirements.

b) computers that now perform routine tasks formerly performed by bookkeepers.
c) escalating fraud that resulted from bookkeepers’ unethical acts.
d) societal changes that affect what stockholders and other stakeholders want from a
firm.
88. ____________ perform or assist in a wide variety of tasks for the firms in which they work.
These tasks include budgeting, cost and asset management, and the preparation of reports
for the firm’s stakeholders.
a) Private accountants
b) Public accountants
c) Internal auditors
d) Government accountants
89. _______________ accountants provide individuals and businesses a wide variety of services
on a fee basis, including income tax preparation, external auditing services, and consultation
on a variety of accounting issues and problems.
a) Private
b) Public
c) Forensic
d) Contract-basis
90. ____________ work for local, state, and federal agencies. They prepare government
financial statements as well as perform tasks similar to those carried out by their private
sector counterparts.
a) Fiscal accountants
b) Recording accountants
c) Comptrollers
d) Government accountants
91. Which of the following statements about private accountants is INCORRECT? Private
accountants
a) help prepare financial statements

b) work for a variety of clients on a fee basis.
c) help prepare budgets.
d) may work for a private firm or for a nonprofit organization.
92. Samantha is an accounting major who has been disturbed by all of the recent accounting
scandals. She has decided to dedicate her career to catching those involved in
embezzlement, securities fraud, money laundering, and other white collar crimes. One way
Samantha could achieve this would be to seek training as a(n)
a) certified bookkeeper.
b) forensic accountant.
c) transactional accountant.
d) FASB analyst.
93. ____________ is the private self-regulating board established to develop generally accepted
accounting principles used in the practice of financial accounting.
a) GAAP
b) FASB
c) NFASC
d) FARPA
94. ____________ addresses the needs of the external stakeholders, including stockholders,
creditors, and government regulators.
a) Forensic accounting
b) Investigative accounting
c) Managerial accounting
d) Financial accounting
95. Taken together, the body of principles that guides the financial accounting process used to
create financial statements is referred to as
a) GRAPE (Generally Reliable Accounting Principles and Ethics).

b) GAAP (Generally Accepted Accounting Principles).
c) AAASP (American Association of Accountants Standards and Principles).
d) GRASP (Guidelines for Reliable Accounting Standards and Procedures).
96. Corporate scandals involving companies such as Enron, Tyco, and WorldCom resulted in a
a) surge in the reputation of the accounting profession, because it seemed as if

accountants were the only individuals in many organizations who refused to go
along with the fraudulent schemes.
b) resurgence of investor confidence.
c) call for improved ethical training and standards in the accounting profession.
d) decision by the government to replace external auditors with government auditors.
97. ____________________ would provide stockholders or creditors with information about the
overall financial performance of a firm, while _________________ would provide information
needed by a firm’s vice president of marketing who wants to view changes in the marketing
budget for a new product.
a) Internal auditors; financial accounting

b) Financial accounting; accrual accounting
c) Financial accounting; managerial accounting
d) Bookkeepers; auditors
ANS: C DIF: LL2 REF: Page 97, 104
OBJ: 3, 6
98. The FASB has the responsibility of establishing the principles used to prepare financial
statements. A key goal of these principles is to
a) create a fair distribution of corporate income among various stakeholders.

b) ensure that the firm’s value is fairly assessed and that its taxes are fair but not
excessive.
c) provide external stakeholders with relevant and reliable information about a firm’s
financial condition.
d) provide the company’s managers with access to sensitive proprietary financial
information while preventing competitors and other outsiders from obtaining this
information.
99. Which statement about FASB is FALSE?
a) One goal of the FASB is to ensure the information in financial statements is

relevant.
b) FASB requires that all businesses use the same accounting methods.
c) The SEC has delegated authority to FASB to develop GAAP.
d) FASB works to ensure financial statements are comparable, consistent, and
reliable.
ANS: B DIF: LL2 REF: Pages 97-98
OBJ: 3
100. During the first few years of the 21st century, the accounting profession
a) was recognized as the most ethical of all the business professions.

b) suffered a loss of jobs as computerized systems did away with the need for
professional accountants.
c) focused mainly on helping firms improve the quality and accuracy of the financial
information provided to stakeholders.
d) was embarrassed by a series of scandals that seemed to suggest a serious
decline in accounting standards.
ANS: D DIF: LL2 REF: Pages 98-99
OBJ: 3
101. According to Arthur Levitt, a former chair of the SEC, the degree of flexibility that currently
exists within GAAP
a) makes accounting statements more consistent and comparable.

b) allows managers to use creative accounting that makes their company’s financial
results look better than they really are.
c) is one of the greatest strengths of our accounting system because it allows
managers the ability to quickly adapt to changing market conditions.
d) has been a great benefit to shareholders, because it gives them greater access to
financial information than would be possible if rules were less flexible.
102. To provide external shareholders with relevant, reliable, consistent, and comparable financial
information, the accounting profession has adopted __________________ to guide the
practice of financial accounting.
a) generally accepted accounting principles (GAAP)

b) formal accounting rules and procedures (FARP)
c) standardized accounting procedures (SAP)
d) general accounting rules for financial statements (GARFS)
ANS: A DIF: LL2 REF: Pages 97-98
OBJ: 3
103. Recent calls to reform GAAP have focused on the need for the FASB to
a) eliminate the necessity for standardization so that small businesses and big
businesses will account for earnings in significantly different ways.
b) give firms more flexibility in their accounting procedures so that they can present
their earnings in the most meaningful way.
c) allow CPA firms a greater role in advising the firms that they audit.
d) make it more difficult for firms to manipulate results, thus making it easier for
investors to compare financial results of different firms.
104. The balance sheet is organized to reflect the accounting equation, which is
a) Assets = Liabilities + Owners’ Equity.

b) Owners’ Equity = Liabilities + Assets.
c) Assets - Liabilities = Assets + Owners’ Equity.
d) Liabilities = Assets + Owners’ Equity.
105. The major output of financial accounting is a set of statements including the
a) balance sheet, income statement, and statement of cash flows.

b) general journal, cash budget, and capital budget.
c) dividend record, auditor’s opinion, and master budget.
d) annual report, social audit, and balanced scorecard.
106. The __________ summarizes a firm’s financial position at a specific point in time (i.e., a
specific quarter or year).
a) statement of cash flows

b) income statement
c) balance sheet
d) investment income statement
107. _________ are valuable things owned by the firm.
a) Retained earnings
b) Owners’ equities
c) Liabilities
d) Assets
108. __________ is/are what the firm owes its creditors.
a) Retained earnings
b) Owners’ equity
c) Liabilities
d) Assets
109. __________ is/are the claims owners have against the firm’s assets.
a) Loans payable
b) Owners’ equity
c) Liabilities
d) Assets
110. The ___________ indicates whether a firm earned a profit or suffered a loss over the past
accounting period.
a) balance sheet
b) income statement
c) statement of cash flows
d) cash budget
111. The income statement shows that
a) Owners’ Equity - Assets = Liabilities.

b) Net Income - Expenses = Revenue.
c) Revenue - Expenses = Net Income.
d) Assets = Liabilities + Owners’ Equity.
112. The ___________ shows the cash flowing in and out of a firm through its operating,
investing, and financing activities.
a) retained earnings
b) statement of cash flows
c) income statement
d) operating budget
113. According to the _____________ method of accounting, revenues are recognized when they
are earned and payment is reasonably assured.
a) accrual
b) actuarial
c) managerial
d) LIFO
114. The amount of cash at the end of the period, as reflected on the statement of cash flows,
should match the
a) retained earnings for the same period.

b) cash on the current balance sheet.
c) liabilities for next accounting period.
d) retained earnings for the previous reporting period.
115. According to the accrual basis of accounting, expenses are
a) listed on the firm’s balance sheet as liabilities.

b) recognized as soon as cash is paid.
c) not tax deductible.
d) matched with the revenues they helped generate.
116. Which of the following would be listed in the owners’ equity section of a balance sheet?
a) Cash.
b) Accounts receivable.
c) Net income.
d) Retained earnings.
117. All of the following are assets EXCEPT
a) cash.
b) inventory.
c) salaries payable.
d) buildings.
118. As the owner of 100 shares of Megabux Corporation’s stock, Elbert Treble wants to know
whether his company earned a profit or loss during the past year. He can find the answer to
this by looking at Megabux’s
a) master budget.
b) income statement.
c) statement of cash flows.
d) revenue report.
119. All of the following are liabilities EXCEPT
a) bank loans.
b) wages payable.
c) accounts payable.
d) cost of goods sold.
120. The two broad sources of financing for a firm are
a) owners and non-owners.

b) retained earnings and assets.
c) income and profit.
d) cash and credit.
121. __________________ normally is the first asset listed on a balance sheet.
a) Accounts receivable
b) Cash
c) Inventory
d) Equipment
122. Which of the following would be listed in the liabilities section of the balance sheet?
a) Retained earnings.
b) Debits.
c) Short-term notes payable.
d) Expenses.
123. Which item would be listed first on the income statement?
a) Revenue.
b) Cost of goods sold.
c) Net operating income.
d) Retained earnings.
124. Which of the following items would be listed on an income statement?
a) Cost of goods sold.

b) Current liabilities.
c) Cash flows from operations.
d) Accounts receivable.
125. By subtracting dividends paid to shareholders from the net income, managers are able to
calculate the
a) increase in net income.

b) decrease in profit margins.
c) change in the cash balance in the firm’s bank account.
d) change in retained earnings.
126. Profit is the difference between
a) retained earnings and cost of goods sold.

b) notes payable and accounts payable.
c) revenue and expenses.
d) assets and liabilities.
127. If a firm’s assets = $6,000 and its liabilities = $3,500, then owners’ equity =
a) $6,000.
b) $2,000.
c) $2,500.
d) $4,500.
128. The statement of cash flows shows a firm’s
a) sources and uses of cash that result from its operating, investing, and financing
activities.
b) schedule of payments for the debts that come due in the next year.
c) net profit or loss.
d) current assets and current liabilities that are likely to result in cash flows over the
next accounting period.
129. The _______________ would provide stakeholders with information about how a firm
obtained and used cash in the most recent accounting period, as well as its cash balance at
the end of the accounting period.
a) cash budget
b) income statement
c) stockholders’ equity statement
d) statement of cash flows
130. The accounting equation shows us that the value of the firm’s assets must equal the value of
the firm’s
a) earnings at a point in time.

b) revenues minus expenses.
c) owners’ equity.
d) financing provided by owners and creditors.
131. Lottadoe’s liabilities are $130,000, and its owners’ equity is $170,000. This means that
Lottadoe’s
a) total assets are $300,000.

b) net income is $40,000.
c) net income for the current year was $300,000.
d) net cash flow for the current year was $40,000.
132. Which of the following statements is the rationale for the accounting equation?
a) What the firm owns minus what it owes creditors equals what it is worth to its
owners.
b) A firm is worth its equity minus its assets.
c) The firm’s profit is equal to its revenue minus its expenses.
d) Assets must equal earnings minus expenses.
133. As represented on the balance sheet, a firm has two sources of funds: the firm’s
a) assets and liabilities.

b) liabilities and the owners’ equity.
c) assets and owners’ equity.
d) assets and earnings.
134. Sabiha is the small business loan officer at Regional National Bank. It is her job to approve
loans for small businesses so that the local economy will grow. One factor she looks at
carefully when making loan decisions is the amount of debt the firm already has outstanding.
She can find this information by looking at the firm’s
a) income statement.
b) balance sheet.
c) statement of cash flows.
d) cash budget.
OBJ: 4
135. A business has two sources of funds: the owners and the non-owners. The financing
provided by owners is represented on the balance sheet as ____________, and the financing
provided by non-owners is represented on the balance sheet as ___________.
a) liabilities; retained earnings

b) dividends; interest
c) owners’ equity; liabilities
d) revenues; expenses
136. A firm’s current liabilities
a) are what it owes to its shareholders.

b) are due in less than a year.
c) do not have to be repaid on any specific date. Instead, repayment can be deferred
as long as the firm is willing and able to make the required interest payments.
d) must equal its current assets.
137. A firm’s cost of goods sold is subtracted from the ________________ on the
___________________ in order to compute the firm’s ____________________.
a) total assets; balance sheet; net worth

b) revenue; statement of cash flows; cash balance
c) revenue; income statement; gross profit
d) liabilities; balance sheet; total profit
138. Publicly traded corporations in the United States must have a CPA firm
a) perform standard horizontal, vertical, and ratio analyses.

b) perform an annual external audit.
c) prepare the financial statements filed with the IRS.
d) address the stockholders at their annual meeting.
139. The auditor’s ______ indicate(s) whether the firm’s financial statements are prepared and
presented in a way that is likely to fairly represent the firm’s financial condition.
a) letter to the CEO

b) footnotes
c) opinion
d) certification statement
ANS: C DIF: LL1 REF: Pages 102-103
OBJ: 5
140. A(n) ______________ is issued if the external auditor does not find any problems with the
way a firm prepares and reports its financial statements.
a) qualified opinion
b) unqualified opinion
c) adverse opinion
d) no opinion
141. An auditor issuing a(n) ___________ has uncovered serious and widespread problems with
the preparation of a firm’s financial statements.
a) qualified opinion
b) unqualified opinion
c) adverse opinion
d) untenured opinion
142. _________ expresses each balance sheet or income statement item as a percentage of key
values.
a) Profitability analysis
b) Actuarial analysis
c) Vertical analysis
d) Horizontal analysis
143. _____ compare(s) select items in financial statements by computing percentages, rates, and
proportions.
a) Profitability quotients
b) Ratio analysis
d) Pro rata analysis
144. _________ compares information contained in a firm’s financial statements over a period of
two or more years.
a) Profitability analysis
b) Ratio analysis
d) Horizontal analysis
145. ___________ measure how effectively a firm manages assets to generate revenue.
a) Liquidity ratios
b) Asset management ratios
c) Leverage ratios
d) Profitability ratios
146. _________ measure the extent to which a firm relies on debt to finance ongoing operations.
a) Liquidity ratios
c) Leverage ratios
147. ____________ measure a firm’s ability to pay current debts as they come due.
a) Liquidity ratios
c) Leverage ratios
148. The Sarbanes-Oxley Act banned business relationships between ____________ that would
create ______________.
a) stockholders and boards of directors; income tax fraud

b) CPA firms and the companies they audit; conflicts of interest
c) stockbrokers and their clients; opportunities for insider trading
d) financial analysts and stockbrokers; the ability to manipulate stock prices for
personal gain
149. In evaluating companies across industries, financial managers will often read the
____________ as a means of interpreting the statements correctly.
a) balance sheet
b) income statement
c) retained earnings statement
d) independent auditor’s report
150. We utilize ___________ to measure the rate of return on asset investment, or the return on
sales.
a) Liquidity ratios
c) Leverage ratios
151. The notes to financial statements included in an annual report
a) often disclose information about changes in accounting practices and about any
special circumstances that had an impact on the firm’s financial performance.
b) cite the specific GAAP rulings applied by the auditor and explain the reasons for
any concerns the auditor has.
c) show the actual calculations used to derive all key figures reported in the financial
statement, thus enabling stakeholders to more accurately compare the results of
different companies.
d) are important to management but usually have little significance to investors and
other external stakeholders.
ANS: A DIF: LL2 REF: Pages 103-104
OBJ: 5
152. In order for CPA firms to perform external audits that meet the needs of stakeholders, they
must
a) become actively involved in the firm’s management.

b) serve as consultants to the firms they audit.
c) work closely with the firm’s comptroller throughout the year.
d) remain independent and objective.
153. A key goal of the_____________________ was to remove some of the conflicts of interest
that undermined the role of external auditors and led to the accounting scandals of the late
1990s and early 21st century.
a) Financial Accountability Act

b) Securities and Exchange Act
c) Sarbanes-Oxley Act
d) Taft-Hartley Act
154. The Sarbanes-Oxley Act created the _________________ to protect the interests of
investors and further the public interest in the preparation of fair and informative financial
statements.
a) Public Company Accounting Oversight Board (PCAOB)

b) Securities and Exchange Commission (SEC)
c) Financial Accounting Standards Board (FASB)
d) Forensic Accounting Standards Commission (FASC)
155. _____________ was a highly respected accounting firm with a global reputation until it was
convicted of obstruction of justice in 2002 for shredding Enron documents.
a) Deloitte Touche
b) Ernst & Young
c) Grant Thornton
d) Arthur Andersen
156. Mason owns stock in Munnymacher Inc. and wants to see if he can identify any trends in its
financial performance over the past few years. This suggests he would want to perform a(n)
a) incremental analysis.
b) horizontal analysis.
c) vertical analysis.
d) elasticity analysis.
157. Radcliffe McCoy is the financial manager for his company. He is comparing income
statements from the past three years to see the trend (if any) in cost of goods sold and other
expenses. He is using
a) vertical analysis.
b) horizontal analysis.
c) ratio analysis.
d) managerial analysis.
158. Small business owner Barry Shain has always paid all of his current bills on time. However,
this year he has more bills coming due than normal. Which type of ratio would help him
evaluate whether he is likely to have enough cash to continue meeting his obligations over
the next year?
a) liquidity ratio.
b) managerial ratio.
c) leverage ratio.
d) profitability ratio.
159. By calculating a ____________, Paul Pezzelle determined that his firm was financed by debt
and equity at a ratio of 1:1 (50 percent with debt and 50 percent with equity).
a) liquidity ratio
b) managerial ratio
c) leverage ratio
d) profitability ratio
160. _____________ provide reports, information, and analysis to managers to assist them with
making better informed decisions.
a) Auditors
b) Technological accountants
c) Financial accountants
d) Managerial accountants
161. While _________ is concerned with preparing financial statements for external stakeholders
according to a fixed schedule, ___________ provides information to internal stakeholders on
an “as needed” basis.
a) financial accounting, managerial accounting
b) managerial accounting, financial accounting
c) audit results, ratio analysis
d) a master budget, the three basic financial statements
ANS: A DIF: LL1 REF: Pages 97; 104
OBJ: 3; 6
162. ___________ is a technique used by managerial accountants to assign product costs based
on links between activities that drive costs and the production of specific products.
a) Actual basis costing

b) Activity-based costing
c) Actuarial-based costing
d) Break-even analysis
163. The _________________ budget brings together all of the firm’s budgeting documents to
provide a unified plan for the a specific budget period.
a) operating
b) master
c) fiscal
d) A-level
164. The _____________ budget deals with the firm’s plans for investing in major fixed assets and
long-term projects.
.
a) strategic
b) long-term
c) capital
d) operating
165. The process of developing the operating budget begins with the
a) sales budget.
b) income statement.
c) production schedule.
d) capital budget.
166. ________________addresses the needs of managers, providing detailed reports to

management with information that makes informed decision-making possible.
a) Forensic accounting
b) Investigative accounting
c) Managerial accounting
d) Financial accounting
167. When managerial accountants assign costs to the production of specific products, the costs
that are easiest to assign are
a) property taxes and income taxes.

b) insurance premiums and depreciation expenses.
c) general maintenance expenses and direct labor.
d) direct labor and direct materials costs.
168. Which of the following statements does NOT reflect the main purposes of managerial
accounting?
a) Prepares customized reports designed to deal with specific issues.

b) Provides information used in the preparation of budgets.
c) Presents financial statements on a predetermined schedule.
d) Creates reports upon request by management.
169. When managers are looking at different ways to achieve a certain goal, they may perform
___________ as a means of comparing how the alternative decisions would affect the firm’s
revenues and costs.
a) activity-based costing
b) incremental analysis
c) ratio analysis
d) marketing analysis
170. The financial budget of a firm includes
a) both the capital budget and cash budget.

b) the sales budget, marketing budget, and tax budget.
c) both the revenue budget and cost budget.
d) all of the budget documents developed for a given fiscal period.
171. Tiny Timber Tree Farms has decided to adopt activity-based costing. One likely reason the
firm’s accountants decided on this approach was to
a) provide a more meaningful way to assign overhead costs to specific products.

b) simplify the process of assigning costs to specific products.
c) base costing on the amount of direct labor used to produce each product.
d) move from a system that focuses on assigning costs to goods and services to a
system that assigns costs to activities.
172. Arvid’s Moving and Storage has a fleet of 37 trucks. Arvid currently has two of his own
mechanics who perform all of the routine maintenance as well as other minor repairs on all of
the trucks. However, he wonders whether outsourcing this work would be more cost-effective
and asks his accountant to work with two managers to analyze such a change. Which of the
following types of analysis would the accountant be most likely to use?
a) Incremental analysis.
b) Horizontal analysis.
c) Ratio analysis.
d) CPM analysis.
173. Pierre’s Gourmet Foods produces high-quality desserts and appetizers that are distributed by
upscale grocery stores. When assigning production costs to its various food products, the
costs of ingredients used to make a product are ____________, the cost of the workers who
prepare the product are _______________, and the cost of the rent and insurance on the
building are ________________.
a) direct costs, derived costs, fixed costs

b) tax-exempt costs, taxable costs, depreciable expenses
c) fixed costs, proportional costs, capital costs
d) direct materials costs, direct labor costs, overhead costs
174. Desmond owns a restaurant and is considering buying his desserts from a local bakery rather
than continuing to hire a pastry chef for this purpose. When he performs an incremental
analysis, which of the following would be considered an incremental cost?
a) The utilities, including the oven costs that are shared with the other chefs, during
regular hours of operation.
b) The pastry chef’s wages.
c) The head chef and salad chef’s wages.
d) The insurance on the restaurant’s building and equipment.
OBJ: 6
175. Preparing a good budget is beneficial because
a) it fosters better communication and coordination among members of various

departments with direct responsibility for producing products and services.
b) it provides direction through the identification of goals and plans of action.
c) it provides an effective way to monitor progress.
d) All of these statements are benefits of budgeting.
176. As a financial manager for his firm, Martin Meyer is worried about possible cash shortages
his firm might face over the next few months. The ____________ budget would help him
identify periods when cash might be very tight.
a) revenue
b) sales
c) liquidity
d) cash
ESSAY
177. Define the term accounting, and explain how accounting information is used by a variety of
stakeholders.
ANS:
Accounting is a system for recognizing, recording, organizing, summarizing, analyzing and
reporting information about the financial transactions that affect an organization. This system
provides its users with relevant, timely information that allows them to make sound economic
decisions. In fact, accounting is so important, that it’s sometimes called the language of
business.
DIF: LL3 OBJ: 1
178. List and describe at least three users of a firm’s accounting information.
ANS:
Students will most probably draw from the key users discussed in the text.
Managers: Marketing managers, for instance, need information about sales in various
regions and for various product lines. Financial managers need up-to-date facts about
debt, cash, inventory, and capital.
Stockholders: As owners of the company, most stockholders have a keen interest in

its financial performance, especially as indicated by the firm’s financial statements.
Has management generated a strong enough return on their investment?
Employees: Strong financial performance would help employees make their case for
nice pay raises and hefty bonuses. But if earnings drop—especially multiple times—
many employees might decide to polish their résumés!
Creditors: Bankers and other lenders want to know that a company has the financial
resources needed to pay back what it borrows.
However, note that other stakeholders could also be correctly listed, including
government regulators, competitors, and the media.
DIF: LL3 OBJ: 1
179. Discuss the career opportunities available to accountants.
ANS:
Students might list several of the following types of accounting careers:
Private accountants work within an organization, analyzing financial information and
preparing reports and statements for that organization.
Internal auditors are private accountants who play an important role by verifying the
accuracy of their firm’s internal records and the validity of its accounting procedures.
Public accountants provide a broad range of accounting and consulting services to

clients on a fee basis. They may help clients set up accounting systems or assist in tax
preparation.
Government accountants work for a wide variety of government agencies at the local,
state, and federal levels. In general, they perform tasks similar to those of public and
private accountants.
Forensic accountants combine in-depth knowledge of accounting with training in law

and investigative techniques to help detect and investigate white-collar crimes, such as
tax evasion, embezzlement, money laundering, and securities fraud.
DIF: LL3 OBJ: 2
180. List and describe the qualifications one needs to fill an accounting position.
ANS:
Most accounting jobs today require at least a bachelor’s degree in accounting plus a solid
grasp of spreadsheets and more specialized accounting software. Many employers in
today’s job market strongly prefer accountants who have earned a master’s in accounting or
attained professional certification by becoming a certified public accountant (CPA), certified
management accountant (CMA), or certified internal auditor. These professional certifications
indicate that an individual has extensive education and experience in the designated field,
has passed a rigorous examination, and has satisfied other requirements.
DIF: LL3 OBJ: 2
181. Discuss the duties and responsibilities of several types of accountants.
ANS:
· Private accountants: Many accountants work within an organization, preparing

reports and analyzing financial information specific to that organization. These private
accountants perform a wide variety of tasks, including budgeting, cost and asset
management, and the preparation of reports for managers and financial statements
for owners and other stakeholders. While most private accountants work within profit-
seeking businesses, many work for nonprofit organizations, such as charities, private
schools, and churches.
· Internal auditors: Internal auditors are private accountants who are responsible for
verifying the accuracy of their organization’s internal records and the validity of its
accounting procedures. They can identify areas where mismanagement, waste, and
fraud may exist.
· Public accountants: Public accountants provide a broad range of accounting and
consulting services to clients on a fee basis. These clients may be individuals,
corporations, nonprofit organizations, or government agencies. Typical public
accounting services include income tax preparation, external auditing services, and
consultation on a variety of accounting issues and problems. Public accountants often
help new companies design their accounting systems and procedures. They also
update and improve accounting systems for mature companies.
· Government accountants: As their name implies, government accountants work for
a wide variety of government agencies at the local, state, and federal levels. In
general, they perform tasks similar to those of public and private accountants. The
IRS, the Securities and Exchange Commission, the FBI, and other government
agencies involved in law enforcement and regulation employ forensic accountants,
who combine knowledge of accounting with investigative skills. Forensic accountants
can help detect and investigate white-collar crimes such as tax evasion,
embezzlement, money laundering, and securities fraud. They’re often called on to
serve as expert witnesses in court cases involving these crimes.
DIF: LL3 OBJ: 2
182. Identify the four goals of Generally Accepted Accounting Principles (GAAP).
ANS:
Generally accepted accounting principles (GAAP) are rules that govern the practice of
financial accounting. The goal of these rules is to ensure that financial statements are:
Relevant: They contain information that helps the user understand the firm’s financial
performance and condition.
· Reliable: They provide information that is objective, accurate, and verifiable.
· Consistent: They provide financial statements based on the same core assumptions
and procedures over time; if a firm introduces any significant changes in how it
prepares its financial statements, GAAP requires it to clearly identify and describe
these changes.
· Comparable: They present accounting statements in a reasonably standardized way,
allowing users to track the firm’s financial performance over a period of years and
compare its results with those for other firms.
DIF: LL3 OBJ: 3
183. Define the purpose of the Financial Accounting Standard Board (FASB).
ANS:
The Financial Accounting Standards Board is a private, self-regulating board that oversees
the practice of financial accounting in the United States. One of its most important functions
is the development and interpretation of generally accepted accounting principles
(GAAP).Through GAAP, the FASB aims to ensure that financial statements are:
· Relevant: They contain information that helps the user understand the firm’s financial
performance and condition.
· Reliable: They provide information that is objective, accurate, and verifiable.
· Consistent: They provide financial statements based on the same core assumptions
and procedures over time; if a firm introduces any significant changes in how it
prepares its financial statements, GAAP requires it to clearly identify and describe
these changes.
· Comparable: They present accounting statements in a reasonably standardized way,
allowing users to track the firm’s financial performance over a period of years and
compare its results with those for other firms.
DIF: LL3 OBJ: 3
184. What are the major financial statements? Describe the key elements of those financial
statements.
ANS:
The major financial statements are the balance sheet, income statement, and statement of
cash flows. The balance sheet shows the firm’s financial position at a specific point in time by
identifying and reporting the value of its assets, liabilities, and owners’ equity. The income
statement shows the net income (profit or loss) the firm earns over a stated period of time by
deducting expenses from revenues. The statement of cash flows shows the inflows and
outflows of cash that result from a firm’s operations, its financing activities, and its investing
activities during a given time period. This statement also shows the net change in cash and
the total amount of cash on hand at the end of the time period.
DIF: LL3 OBJ: 4
185. Describe the purpose of an income statement. Give the equation that illustrates the logic that
explains the way the income statement is organized, and define each one of the equation’s
terms.
ANS:
The income statement shows the net income (profit or loss) the firm earns over a stated
period of time. We can use a simple equation to illustrate the logic behind the way the income
statement is organized:
Revenue - Expenses - Net Income
In this equation:
· Revenue represents the increase in the amount of assets (such as cash and
accounts receivable) the firm earns in a given time period as the result of its ongoing
operations. A firm normally earns revenue by selling goods or by charging fees for
providing services (or both).
· Expenses indicate the cash a firm spends or other assets it uses up to carry out the
normal business activities necessary to generate its revenue. Many of the expenses
on an income statement are referred to as costs.
· Net income is the profit or loss the firm earns in the time period covered by the
income statement. As our equation indicates, it’s the difference between the amount
of revenue the firm earns and its expenses. If the difference is positive, the firm has
earned a profit. If it’s negative, the firm has suffered a loss. Net income is often called
the “bottom line” of the income statement because it is such an important measure of
the firm’s operating success.
DIF: LL3 OBJ: 4
186. What is a balance sheet? What is the accounting equation? Define each term in the
accounting equation.
ANS:
The balance sheet summarizes a firm’s financial position at a specific point in time. It is
organized to reflect the most famous equation in all of accounting, so famous that it is usually
referred to simply as the accounting equation:
Assets = Liabilities + Owners’ Equity.
What does each term in the accounting equation mean? And what is the logic of the
relationship it represents?
Assets are things of value that the firm owns, such as its cash, inventory of goods
available for sale, land, machinery, equipment, and buildings. Accounts receivable,
which indicates the amount of money credit customers owe to the firm, is another
asset found on many balance sheets.
Liabilities indicate what the firm owes to non-owners or, put another way, they
represent the claims non-owners have against the firm’s assets. The amount a firm
owes to a bank when it takes out a loan is an example of a liability. Accounts payable,
what the firm owes suppliers when it buys supplies on credit, is another example of a
liability.
Owners’ equity refers to the claims the owners have against their firm’s
assets. In a corporation, one of the key owners’ equity accounts is common
stock, which represents the shares of ownership investors have in a
business. Retained earnings, which are the earnings that have been
reinvested in the company (rather than distributed to owners), are also
included in owners’ equity.
DIF: LL3 OBJ: 4
187. Explain how horizontal, vertical, and ratio analysis can provide management with insights into
a firm’s financial performance.
ANS:
Horizontal analysis compares information in a firm’s financial statements over a period of two
or more years. This type of analysis helps stakeholders identify important changes and
trends in key accounts. Vertical analysis expresses each item on a balance sheet or income
statement as a percentage of some key value. This makes it easier to see how each item
compares, in terms of its relative size, to some key value in the same statement. Ratio
analysis computes percentages, rates, or proportions based on items in financial statements.
These ratios help stakeholders evaluate specific aspects of the firm’s financial performance,
such as its ability to pay debts coming due, how effectively it manages its assets, the extent
to which it relies on debt in its overall financial structure, and its overall profitability.
DIF: LL3 OBJ: 5

188. Describe ratio analysis and its purpose. List and describe four broad categories of ratios.
ANS:
Ratio analysis compares selected items found in financial statements by computing
percentages, rates, or proportions. There are several broad categories of ratios:
· Liquidity ratios measure the ability of firms to pay current liabilities as they come due.
· Asset management ratios provide insights into how effectively firms manage their
assets to generate revenue.
· Leverage ratios indicate the extent to which a firm relies on debt financing to finance
its operations.
Profitability ratios provide ways to look at the return a firm earns on its
investment relative to its sales, total assets, or stockholders’ equity.
DIF: LL3 OBJ: 5
189. Discuss the purpose of each of the following activities performed by managerial accountants:
(1) product costing
(2) incremental analysis
(3) budgeting
ANS:
Managers must have an accurate measure of the costs incurred to produce their firm’s goods
and services in order to set prices and evaluate efficiency.
Incremental analysis helps managers evaluate and compare the impact different alternatives
have on costs and revenues in a decision-making situation. A key to incremental analysis is
to focus only on the costs and revenues that will actually change as the result of a decision.
A budget facilitates planning by translating goals into measurable quantities and requiring
managers to identify the specific resources needed to achieve them.
DIF: LL3 OBJ: 6
190. Define and describe the purpose of a master budget.
ANS:
A master budget brings together all of the documents in the operating and financial budgets
into a unified whole, representing the firm’s overall plan of action for a specified time period.
In other words, the master budget shows how all of the pieces fit together to form a complete
picture.
DIF: LL3 OBJ: 6
191. Explain how financial accounting and managerial accounting differ.
ANS:
Table 1: Comparison of Financial and Managerial Accounting
Financial Accounting: Managerial Accounting:
1. Is primarily intended to provide 1. Is primarily intended to provide
information to external stakeholders such information to internal stakeholders such as
as stockholders, creditors, and government the managers of specific divisions or
regulators. departments.
2. Prepares a standard set of financial 2. Prepares customized reports designed to

statements. deal with specific problems or issues.
3. Presents financial statements on a 3. Creates reports upon request by

predetermined schedule (usually quarterly management rather than according to a
and annually). predetermined schedule.
4. Is governed by a set of generally 4. Uses procedures developed internally

accepted accounting principles (GAAP). and is not required to follow GAAP.
DIF: LL3 OBJ: 6

Another random document with
no related content on Scribd:
Thus educational systems become the chief enemies of education,
and seats of learning the chief obstacles to the growth of knowledge,
while in an otherwise stagnant or decadent society these tendencies
sooner or later get the upper hand and utterly corrupt the social
memory. The power of the professor is revealed not so much by the
things he teaches, as by the things he fails or refuses to teach.
History is full of examples. How many religions have not perished
from ritual sclerosis, how many sciences have not been degraded
into pseudo-sciences or games! Logic has been just examinable
nonsense for over two thousand years. The present economic chaos
in the world has been indirectly brought about by the policy adopted
by the professors of economics forty or fifty years ago, to suit their
own convenience. For they then decided that they must escape from
the unwelcome attentions of the public by becoming more ‘scientific’;
i.e. they ceased to express themselves in plain language and took to
mathematical formulae and curves instead; with the result that the
world promptly relapsed into its primitive depths of economic
ignorance. So soon as the professors had retired from it, every
economic heresy and delusion, which had been exposed and
uprooted by Adam Smith, at once revived and flourished. In one
generation economics disappeared completely from the public ken
and the political world, and the makers of the Peace Treaties of 1919
were so incapable of understanding an economic argument that not
even the lucid intelligence of Mr Keynes could dissuade them from
enacting the preposterous conditions which rendered impossible the
realization of their aims.[A] Nor was it so very long ago that, in order
to save the Mathematical Tripos at Cambridge, it had to be recast,
because it had degenerated into an intellectual jig-saw puzzle,
wholly unrelated to the applications of mathematics to the other
sciences. To avoid jealousies, I hasten to add that the University of
Oxford, which has organized itself as an asylum for lost causes,
skilfully cultivates, by means of its classical and historical studies, a
backward-looking bias in its alumni. The true ‘Greats’ man is meant
to go down indelibly imbued with the conviction that in matters of
morals and politics nothing of importance has been discovered or
said since Plato and Aristotle, and that nothing else matters.
Clearly then we cannot take for granted that in any society
knowledge can progress without limits, nor can we count on our
academic institutions to save us from stagnation and decay, even in
matters of knowledge. All institutions are social mechanisms, and all
mechanisms need a modicum of intelligent supervision, in the
absence of which they become dangerous engines of destruction.
IV
It appears then that we can extract no guarantee of progress either
from the nature of Man or from the nature of human institutions.
There is no law of progress, if by law be meant a superior power
able to coerce the creatures that are said to ‘obey’ it. Neither can we
extract from history any proof of the superiority of civilized man over
his uncivilized ancestors. Such progress as has been attained has
been achieved only by the active co-operation of the progressive
organisms: every step has been fought for, and progress has ceased
whenever effort ceased, or was switched off into different directions.
Consequently, modern man has no right to ‘boast himself far better
than his fathers’—in intrinsic quality. Intrinsically, i.e. apart from the
effects of culture and social training, it is probable that he is slightly
inferior in capacity to his own ancestors, while very markedly inferior
to the great races of antiquity (like the Greeks) in their hey-day. Nor
is there any reason to suppose that his moral nature has changed
materially. Modern man may be a little tamer and better-tempered,
because he has been herded together much more closely than
primitive man, and city life, even in slums, demands, and produces,
a certain ‘urbanity.’ For many generations those who would not pack
tight and could not stand the strain of constantly exhibiting ‘company
manners’ and accommodating their action to those of their fellows,
must have fled away into the wilds, where they could be
independent, or have eliminated themselves in other ways, e.g. by
committing murder. It is probable that the social history of Iceland,
settled as it was by unbridled individualists who would not brook any
form of organized government, might throw some light on this
process of taming the individual.
Nevertheless there is little doubt that, in the main, humanity is still
Yahoo-manity. Alike in mentality and in moral, modern man is still
substantially identical with his palæolithic ancestors. He is still the
irrational, impulsive, emotional, foolish, destructive, cruel, credulous,
creature he always was. Normally the Yahoo in him is kept under
control by the constant pressure of a variety of social institutions; but
let anything upset an established social order, and the Yahoo comes
to the front at once. The history of the past fifty years abundantly
proves that man is still capable of atrocities equal to any in his
record. Not only have we lived through the greatest political and the
deadliest natural convulsion, the Great War and the Tokio
earthquake, but the Russian Revolution has outdone the French and
Landru the legendary Bluebeard, while for mingled atrocity and
baseness the murders of Rasputin and of Alexander of Serbia are
unsurpassed in history. The painful truth is that civilization has not
improved Man’s moral nature. His moral habits are still mainly
matters of custom, and the effect of moral theories is nugatory
everywhere. Thus civilization is not even skin deep; it does not go
deeper than the clothes.
V
Clearly it is risky to expose the inelastic nature of so stubbornly
conservative a creature to new conditions at a rapid rate. He may not
be able to adapt himself quickly enough, and his old reactions, which
did little or no harm before, may become extremely dangerous. Yet
this is just what has happened. Science has exposed the palæolithic
savage masquerading in modern garb to a series of physical and
mental shocks which have endangered his equilibrium. It has also
enormously extended his power and armed him with a variety of
delicate and penetrating instruments which have often proved edge
tools in his hands and which the utmost wisdom could hardly be
trusted to use aright. Under these conditions the fighting instinct
ceases to be an antiquated foible, like the hunting instinct, and
becomes a deadly danger. No wonder the more prescient are
dismayed at the prospect of the old savage passions running amok
in the full panoply of civilization!
VI
Nor is this the final item in our tale of woe. A third and most sinister
fact which has to be faced is that Civilization, as at present
constituted, is very definitely a deteriorating agency, conducing to the
degeneration of mankind. This effect of Civilization is nothing new,
but has been operating, it would seem, from the beginning, though
not probably as intensively as now: its discovery, however, is very
recent. It is quite indirect, unintended, and fortuitous, but cumulative,
and in the long run has probably been a chief cause in the decay of
States and civilizations, as well as an important factor in the arrest of
biological development which we have had to recognize.
A simple and easily observable sociological fact is at the bottom of
the mischief. The different classes in a society have different birth-
rates and death-rates, and the differences between these yield their
several net rates of increase or decrease. Now, whereas under the
conditions of savage life class differences can hardly exist, or, at
least cannot be accentuated, so that the whole tribe flourishes or
perishes together, and among barbarians the upper classes have a
very great advantage and the tribe recruits itself chiefly from the
children of the chiefs, because the conditions of life are so severe
that the lower classes are not able to rear many children; in civilized
societies these conditions are reversed. It is found that though both
birth-rates and death-rates grow as we descend the social scale, so
does the net rate of increase. Indeed, the highest or ruling class
nowhere appears to keep up its numbers without considerable
recruitment from below. So society, as at present organized, is
always dying off at the top, and proliferating at the bottom, of the
social pyramid.
The disastrous consequences of this sort of social organization may
easily be apprehended, with a little reflection. (1) All societies, even
those whose social structure is most rigid, have need of ability,
discover it, and reward it by social promotion. But (2) as this
promotion means passing into a class with a relatively inadequate
rate of reproduction, the biological penalty attaching to social
promotion is racial extinction. Thus (3) the ultimate reward of merit is
sterilization, and society appears to be an organization devoted to
the suicidal task of extirpating any ability it may chance to contain, by
draining it away from any stratum in which it may occur, promoting it
into the highest, and there destroying it. It is exactly as though a
dairyman should set in motion apparatus for separating the cream
from the milk, and then, as it rose, skim it off, and throw it away!
At present it is calculated that the highest classes in the chief
civilized societies only reproduce themselves to the extent of fifty per
cent. of their number in each generation, so that the hereditary ability
of half of them is lost in each generation. But even then the
remainder is largely wasted. It is churned into froth and scum by
social forces. For neither now nor at any time has social intelligence
shown itself equal to devising a training for the youth of the highest
classes that would provide them with adequate stimuli to develop
their faculties, and to lead a strenuous life of social service. The
children of the rich are tempted to live for ‘society’ in the narrower
sense, which means frittering away one’s life on a round of vacuous
amusement; and they rarely resist the temptation.
Naturally it is difficult to trace the accumulation of ability in the upper
social strata which is theoretically to be expected. On the other hand,
in some subjects at any rate, the symptoms of a world-wide dearth of
ability are becoming unmistakable. The Great War, though it made
abundantly manifest the prevalence of incompetents in high places,
did not reveal the existence either of a great general or of a great
statesman anywhere.
It is superfluous to insist either on the fatuity of a social organization
such as this, or on the certainty of racial degeneration which it
entails: but it may be well to draw attention to the rapidity with which
these degenerative processes are at present sapping the vitality and
value of our civilized races. The failure to reproduce does not, as in
former times, affect merely the aristocracy in the highest social
strata; it has spread to the whole of the professional and middle
classes, and to most classes of skilled labour. It is not too much to
say that, with the exception of the miners, none of the desirable
elements in the nation are doing their bit to keep up the population,
and that its continued growth is mainly due to the unrestrained
breeding of the casual labourers and the feeble-minded.
In the rest of the population its increase is checked by birth-control
and the postponement of marriage, neither of which affects the
undesirables. They are too stupid, reckless, and ignorant to practise
the former, and have nothing to gain by the latter. Also, to make it
quite certain that they shall form a true ‘proletariate,’ the wisdom of
our rulers ordains that a knowledge of birth-control shall be a (fatal)
privilege reserved for the intelligent and well-to-do. They instruct the
police to prevent it from penetrating to the poor and stupid—
apparently from the mistaken idea that the State needs plenty of
cheap labour and cheap cannon-fodder. So child-bearing remains
compulsory for the wretched women of the poor, whereas elsewhere
only those women produce children who desire them, and natural
selection is thus allowed gradually to eliminate the temperament of
the unwilling (and, therefore, probably less competent) mother.
The dysgenic effects of this class-discrimination are further
intensified by other tendencies: (1) The advance of medicine and
hygiene has enormously diminished selective mortality in all classes,
and improved the chances of weaklings to survive and leave
descendants. (2) The advance of philanthropy preserves them,
especially in the lower classes, where formerly the mortality was
largely selective and a high death-rate both counteracted an
excessive birth-rate and increased the value of the survivors. The
emotional appeal of ‘baby-saving’ goes so directly to the heart of
civilized man that his head never reflects whether the particular baby
is worth saving, and whether a baby from a different breed and with
a better pedigree would not be better worth having. (3) Modern
obstetrics save the lives of thousands of women, whose physique is
such that in former times they would inevitably have died in child-
birth. The result is that child-birth is becoming more difficult. Also
babies brought up on the bottle, which has an irresistible attraction
for microbes of all sorts, are apt to be less healthy than those
nourished in the more primitive manner.
(4) Lastly, the bastardizing, which used formerly to provide for a
considerable infusion of the blood of the upper classes into the
lower, has now practically ceased. Since the merry days of King
Charles II, very few noble families of royal descent have been added
to the peerage.
VII
Our civilization, therefore, carries within it the seeds of its own decay
and destruction, and it does not require high prophetic gifts to predict
the future of a race which goes the way marked out for it by such
perversely suicidal institutions. It cannot improve, but must
degenerate, and the only question would seem to be whether the
decadence of Man will leave him viable as a biological species. At
present it looks very much as though his blind leaders would lead
their blinder followers from catastrophe to catastrophe, through
imperialist world-wars to class-wars and to race-wars: but even if, by
some miraculous rally of human intelligence, these convulsions
should be averted, the prospect will not really be improved. The
violent destruction of the human race by war will only be more
dramatic: it will not be more fatal than its gradual decay as its arts
and sciences slowly fossilize, or peter out, in an overwhelming flood
of feeble-mindedness.
VIII
This is the one alternative. We shall get to it, if we go on as we are
going: but it is not our doom. The alternative is to exercise the
danger by an adequate reform of human nature and of human
institutions. This again seems attainable in at least two ways.
The first, and more paradoxical, of these would make a direct frontal
attack on the palæolithic Yahoo, and try to bring about his moral
reformation. The means for this purpose are ready to hand. Christian
ethics have been in being, as a moral theory, for nearly two thousand
years. If the Yahoo could be really christianized, he would at any rate
cease to cut his own throat in cutting his neighbour’s. And it is
astonishing how much scientific support is forthcoming for the
paradoxes of Christian ethics. It is an historical fact that the meek
have a knack of inheriting the earth after their lords and masters
have killed each other off, and that passive resistance wears out the
greatest violence, and conscientious objection defeats the craftiest
opportunism, if only you can get enough of them. It is a biological
fact that the rabbit survives better than the tiger; and the same would
appear to be true of the human ‘rabbit’ and the Nietzschean ‘wild
beast.’ Intrinsically, therefore, Christian ethics might be well worth
trying.
I wish I could believe it likely that this policy will be tried. But the
palæolithic Yahoo has been dosed with Christian ethics for two
thousand years, and they have never either impressed or improved
him. Their paradoxes give him a moral shock, and he has not brains
enough to grasp their rationality. He will exclaim rather with the
gallant admiral in the House of Commons, when justly indignant at
the unheard-of notion that a ‘moral gesture’ of a Labour Government
might be the best policy, “Good God, sir, if we are to rely for our air
security on the Sermon on the Mount, all I can say is, ‘God help us!’”
Besides, the proposal to put Christian principles into practice would
be bitterly opposed by all the Churches in Christendom.[B]
It may be more prudent, therefore, to try a safer though slower way,
that of the eugenical reform and reconstruction of our social
organization. As to the possibilities in this direction, I incline to be
much more hopeful than either Mr Haldane or Mr Russell. Mr
Haldane despises eugenics, because he is looking for the more
spectacular advent of the ‘ectogenetic baby,’ to be the Saviour of
mankind. But he might not arrive, or be seriously delayed in
transmission, or fail to come up to Mr Haldane’s expectations; and,
meanwhile, we cannot afford to wait.
Mr Russell distrusts eugenics, because he fears that any eugenical
scheme put into practice will be ‘nobbled’ by our present ruling rings,
and perverted into an instrument to consolidate their power. He
thinks that dissent from dominant beliefs and institutions will be
taken as proof of imbecility, and sterilized accordingly,[C] and that the
result would merely be to spread over all the world the hopeless
uniformity and commonplaceness of the ideals and practice of the
American business man, as depicted by Mr Sinclair Lewis.
This prognostication would be very plausible, if we supposed
eugenics to be introduced into the social structure from above,
privily, and in small doses, and by way of administrative order, as
under the existing Acts to check the spread of feeble-mindedness.
But this method would be impracticable. It would not generate
anything like the social momentum necessary to carry through any
radical reform. To make it effective, it would have to be backed by a
powerful, enthusiastic, and intelligent public sentiment. This
presupposes that the public has been biologically educated to
appreciate the actual situation, and has been thoroughly wrought up
about the fatuity of our social order, and understands what is wrong
with it. If it understands that much, it can also be made to see that it
is fantastic to expect to leap to the Ideal State by a social revolution.
No one now knows what the institutions of an Ideal State would be
like, nor how they would work. We only know that they will have to
be evolved out of our present institutions, even as the Superman has
to be evolved out of the primitive Yahoo. In either case, the process
will be gradual, and its success will depend upon details, on taking
one step after another at the right rate in the right direction, making a
new adjustment here, overcoming an old difficulty there, removing
obstacles, smoothing over the shell-holes and scars dating from
Man’s lurid past, and, in general, feeling one’s way systematically
and scientifically to better things. Such a mode of progression may
seem unheroic, but it has the great advantage that it is unlikely to go
irretrievably wrong. If we know from the outset that we are tentatively
feeling our way, we shall always be on the look out for traps and
possibilities of going astray, trying out the value of our policies by
their results, and willing to retrace our steps when we have made a
false one.
The social temper, therefore, will become far more intelligent and
reasonable than it has been hitherto. It will be slow to dogmatize,
and will regard the toleration of differences of opinion as among the
cardinal principles of a sanely progressive social order. For as we
can no longer assume, with Plato and the other Utopians, that
perfection may be postulated, provision has always to be made for
the improvement of the social order. It can never be accepted as
absolutely good, but must always be regarded as capable, in
principle, of being bettered. Even the best of established institutions
are only good relatively to the alternatives to which they showed
themselves superior: under changed conditions they may become
inferior, and may fail us, or ruin us, if we do not make haste to
transform them into something better fitted to the new conditions.
Hence the social order must be plastic, and must never be allowed
to grow rigid. There must always be room in it for experiments that
have a reasonable prospect of turning out to be improvements. For
progress will depend on the timely adoption of such novelties.
But society has no means of commanding them at will. It has to wait
till they occur to some one. As biological variations have to arise
spontaneously before they can be selected, so valuable new ideas
have to occur in a human mind before they can be tried and
approved. Society cannot originate discoveries, it can only refrain
from so organizing itself as to stamp them out when they occur. It is
vitally necessary, therefore, that we should beware of suppressing
variations, whether of thought or of bodily endowment, that may
prove to be valuable.
Also, of course, we shall have to realize that our whole procedure is
essentially experimental, and all that this implies. We do not know, at
the outset, what would be the best obtainable type, either of man or
of society; true, but we mean to find out. Nor is it unreasonable to
expect to do so as we go along. We start with a pretty shrewd
suspicion that certain types, say the feeble-minded, the sickly, the
insane, are undesirable, and that no good can come of coddling and
cultivating them: we similarly are pretty sure that certain other types,
say the intelligent, healthy, and energetic, are inherently superior to
the former. We try, therefore, to improve and increase the better
types. How precisely, and how most effectively we do not quite know,
though we can make pretty good preliminary guesses. So we try.
That will entail experimentation in a variety of directions, with ‘control
experiments,’ and a modicum of mistakes. But our mistakes will not
be fatal, because if we advance tentatively and with intelligent
apprehension, we shall realize them in time, and shall not feel bound
to persist in any course that yields unsatisfactory results.
It is really one of the great advantages of eugenics that it cannot
proceed upon any cut-and-dried scheme, but will have to be guided
by the results of experiment and the fruits of experience, each of
which will be followed and discussed by an intensely interested
public. For the difficulties of eugenics are all difficulties of detail, and
intelligent attention to detail may overcome them all. Thus the
dysgenical working of civilized society, which has come about
unintentionally through the unfortunate convergence of a number of
tendencies, may be altered similarly, by changing the incidence of
social forces.
IX
If scientific eugenics can put a stop to the contra-selection incidental
to civilization, Man will recover the plasticity and the progressiveness
he once possessed, and will be able to evolve further—in whatever
direction seems to him best. We need not take alarm at this
possibility, for with his superior knowledge he may surely be trusted
to make a better job of his evolution than the Lemur and the
Pithecanthropus, who were our progenitors and managed to evolve
into modern man.
But the process will necessarily be a slow one, even though a
comprehensive scheme of eugenics will be providing simultaneously
two sources of improvement, by the elimination of defectives at the
bottom of the social scale, and by the increase of ability at the top.
As, moreover, time presses, and sheer destruction may overtake us
before eugenics have made much difference, it would be highly
desirable if some means could be found to accelerate the change of
heart required. For this purpose, I am much less inclined to put my
trust in the advance of pharmacology than Mr Haldane and Mr
Russell.[D] Hitherto new drugs have only meant new vices,
sometimes (like cocaine) of so fascinating a character as to distract
the whole police force from their proper function of repressing crime.
So it seems legitimate to be very sceptical about moral
transformation scenes to be wrought by pills and injections.
On the other hand there does seem to be a science from the
possible progress of which something of a sensational kind might not
unreasonably be expected. It is, moreover, the science most directly
concerned with affairs of this sort. Psychology, the science of human
mentality, is, by common consent, in a deplorably backward state. It
has remained a ground for metaphysical excursions and a
playground for the arbitrary pedantries of classificatory systematists.
Its efforts to become scientific have only led it to ape assumptions
and to borrow notions found to be appropriate in sciences with
widely different problems and objects. The results, as the
psychologists themselves confess, are meagre and disappointing;
which, of course, only proves that the borrowed notions are
inappropriate and incapable of making Psychology into an effective
science. But if psychologists should take it into their heads to settle
down to business, to recognize the primary obligation of every
science to develop methods and conceptions capable of working
upon its subject-matter, and so tried to authenticate their ‘truth’ after
the ordinary fashion of the other sciences, namely by the pragmatic
test of successful working, some surprising effects might be elicited
even from the actual human mind.
For there is reason to suppose that its present organization is very
far from being the best of which it is capable. It has come about in a
very haphazard manner, and we are not at present making anything
like an adequate use of all our powers. Hence by changing the
gearing and re-arranging the traditional coupling, so to speak, of our
faculties, improvements might conceivably be wrought which would
seem to us to border on the miraculous. Thus a pragmatically
efficient Psychology might actually invert the miracle of Circe, and
really transform the Yahoo into a man.
X
I have endeavoured in this very summary sketch to show that the
doom of Tantalus is by no means unconditional, and that he can
save himself if he chooses, and that by no superhuman effort, but
merely by recognizing facts that are right before his nose and well
within his comprehension, and by a little clear thinking upon their
import. But I would not presume to predict that he will save himself:
history affords no unambiguous guide. It seems to show that
something worse and something better than what actually happens
is always conceivable, and that neither our hopes nor our fears are
ever fully realized. If so, poor Tantalus, hoping against hope, fearing
against reason, may muddle along for a good while yet, without
repeating either his ancient error of imagining that he could sup with
the gods, or his modern folly of using his reason, as Goethe’s
Mephistopheles declared, only to become more bestial than any
beast!
FOOTNOTES:
[A] The most absurd perhaps was the clause, appearing
in all the Peace Treaties, which made ‘reparations’ a first
charge on all the assets of the defeated countries. This,
of course, completely destroyed their credit, and
incapacitated them from raising a loan, forcing them to
have recourse to progressive inflation, and so into
bankruptcy.
[B] This does not mean, of course, that there are no
Christians in the Churches, but only that they are not in
control of these institutions.
[C] Icarus, p. 49.
[D] cf. Daedalus, p. 34; Icarus, p. 54.
TRANSCRIBER’S NOTE:
Obvious typographical errors have been corrected.
*** END OF THE PROJECT GUTENBERG EBOOK TANTALUS ***
Updated editions will replace the previous one—the old editions

will be renamed.
Creating the works from print editions not protected by U.S.

copyright law means that no one owns a United States copyright
in these works, so the Foundation (and you!) can copy and
distribute it in the United States without permission and without
paying copyright royalties. Special rules, set forth in the General
Terms of Use part of this license, apply to copying and
distributing Project Gutenberg™ electronic works to protect the
PROJECT GUTENBERG™ concept and trademark. Project
Gutenberg is a registered trademark, and may not be used if
you charge for an eBook, except by following the terms of the
trademark license, including paying royalties for use of the
Project Gutenberg trademark. If you do not charge anything for
copies of this eBook, complying with the trademark license is
very easy. You may use this eBook for nearly any purpose such
as creation of derivative works, reports, performances and
research. Project Gutenberg eBooks may be modified and
printed and given away—you may do practically ANYTHING in
the United States with eBooks not protected by U.S. copyright
law. Redistribution is subject to the trademark license, especially
commercial redistribution.
START: FULL LICENSE

Instant Download PDF BUSN 2nd Edition Kelly Test Bank Full Chapter

Uploaded by

Copyright:

Available Formats

You might also like

Instant Download PDF BUSN 2nd Edition Kelly Test Bank Full Chapter

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Instant Download PDF BUSN 2nd Edition Kelly Test Bank Full Chapter

Uploaded by

Copyright:

Available Formats

BUSN 2nd Edition Kelly Test Bank

Go to download the full and correct content document:

BUSN 2nd Edition Kelly Solutions Manual

BUSN 11th Edition kelly Test Bank

BUSN 10th Edition Kelly Test Bank

BUSN 9th Edition Kelly Test Bank

BUSN 5 5th Edition Kelly Test Bank

BUSN Canadian 3rd Edition Kelly Test Bank

BUSN 6 6th Edition Kelly Test Bank

BUSN 7 7th Edition Kelly Test Bank

1. Accounting is a system for recognizing, recording, organizing, analyzing, summarizing, and

ANS: T DIF: LL1 REF: Page 95 OBJ: 1

2. Recording financial transactions is an accounting function.

ANS: T DIF: LL2 REF: Page 95 OBJ: 1

ANS: F DIF: LL2 REF: Page 95 OBJ: 1

4. Key users of a corporation’s accounting information include managers, government agencies,

ANS: T DIF: LL2 REF: Page 95 OBJ: 1

ANS: T DIF: LL2 REF: Page 95 OBJ: 1

ANS: F DIF: LL2 REF: Page 95 OBJ: 1

7. Internal auditors are also known as certified public accountants.

ANS: F DIF: LL1 REF: Page 96 OBJ: 2

ANS: T DIF: LL1 REF: Page 96 OBJ: 2

ANS: F DIF: LL1 REF: Page 96 OBJ: 2

ANS: F DIF: LL1 REF: Page 96 OBJ: 2

ANS: F DIF: LL2 REF: Page 96 OBJ: 2

ANS: F DIF: LL2 REF: Page 96 OBJ: 2

ANS: T DIF: LL2 REF: Page 96 OBJ: 2

14. Through additional preparation, accountants may become a certified management

ANS: T DIF: LL2 REF: Page 97 OBJ: 2

ANS: F DIF: LL2 REF: Page 96 OBJ: 2

ANS: T DIF: LL2 REF: Page 96 OBJ: 2

ANS: T DIF: LL2 REF: Page 96 OBJ: 2

ANS: F DIF: LL2 REF: Page 96 OBJ: 2

ANS: T DIF: LL2 REF: Page 96 OBJ: 2

ANS: F DIF: LL2 REF: Page 96 OBJ: 2

ANS: T DIF: LL1 REF: Page 97 OBJ: 3

ANS: F DIF: LL1 REF: Page 97 OBJ: 3

ANS: T DIF: LL1 REF: Page 97 OBJ: 3

ANS: T DIF: LL1 REF: Page 99 OBJ: 3

ANS: T DIF: LL2 REF: Page 97 OBJ: 3

ANS: F DIF: LL2 REF: Page 97 OBJ: 3

ANS: F DIF: LL2 REF: Page 98 OBJ: 3

ANS: F DIF: LL2 REF: Page 97 OBJ: 3

ANS: F DIF: LL2 REF: Page 98 OBJ: 3

ANS: T DIF: LL2 REF: Page 98 OBJ: 3

ANS: F DIF: LL2 REF: Page 98 OBJ: 3

33. Assets = Liabilities + Net income.

ANS: F DIF: LL1 REF: Page 99 OBJ: 4

34. Liabilities are resources owned by a firm.

ANS: F DIF: LL1 REF: Page 99 OBJ: 4

ANS: T DIF: LL1 REF: Page 101 OBJ: 4

36. According to the accounting equation, Assets - Expenses = Net Income.

ANS: F DIF: LL1 REF: Page 100 OBJ: 4

ANS: T DIF: LL1 REF: Page 99 OBJ: 4

ANS: T DIF: LL1 REF: Page 100 OBJ: 4

ANS: T DIF: LL1 REF: Page 100 OBJ: 4

ANS: F DIF: LL1 REF: Page 100 OBJ: 4

ANS: T DIF: LL1 REF: Page 101 OBJ: 4