SECTION A

Indicate the best answer for each question in the space provided.

1The best definition of an accounting system is:

aJournals, ledgers, and worksheets.

bManual or computer-based records used in developing information about an entity for use by managers and also persons outside the organization.

cThe personnel, procedures, devices, and records used by an entity to develop accounting information and communicate this information to decision makers.

dThe concepts, principles, and standards specifying the information which should be included in financial statements, and how that information should be presented.

2Suppose a number of your friends have organized a company to develop and sell a new software product.They have asked you to loan them $7,000 to help get the company started, and have promised to repay your $7,000 plus 10% interest in one year.Of the following, which amount may be described as the return on your investment?

a$7,000.

b$700.

c$7,700.

dSome other amount.

3Which of the following is generally not considered one of the general purpose financial statements issued by a corporation?

aIncome statement forecast for the coming year.

bBalance sheet.

cStatement of financial position.

dStatement of cash flows.

4All of the following are characteristics of management accounting, except:

aReports are used primarily by insiders rather than by persons outside of the business entity.

bIts purpose is to assist managers in planning and controlling business operations.

cInformation must be developed in conformity with generally accepted accounting principles or with income tax regulations.

dInformation may be tailored to assist in specific management decisions.

5Which of the following is not an objective of financial reporting?

aProvide information useful in assessing amount, timing, and uncertainty of future cash flows.

bProvide information useful in making investment and credit decisions.

cProvide information about economic resources, claims to resources, and changes in resources and claims.

dProvide information to guarantee the enterprise achieves its goals, objectives, and mission.

SECTION B

Match the organizations on the left with the descriptions on the right.Each description should be used only once.

OrganizationDescription

Financial Accounting Standards Boarda.Government agency that regulates

financial reporting by publicly-

held companies.

Securities and Exchange Commission b.International organization dedicated

to the advancement of internal

auditing.

American Accounting Associationc.Private organization most directly

involved in the development and

issuance of accounting standards.

Institute of Internal Auditorsd.Organization dedicated to the

advancement of accounting education

and research.

American Institute of CPAseOrganization most involved with the

ethical conduct of the accountants

working within a company.

Institute of Management Accountants f.Organization which develops formal

standards for auditing in the

United States.

Internal Revenue Serviceg.A government agency that handles

income tax returns of individuals and

businesses and performs an audit

function [to] verify the data presented.

International Accounting h.An organization which develops

Standards Boardinternational accounting

standards.

_______Committee of Sponsoring Organizations. iAn organization dedicated to improvingfinancial reporting through ethics, internal controls, and corporate governance.

SECTION C

The following is a list of various characteristics of accounting information.In the space provided identify each as a characteristic of either financial or management accounting information.

1.The information is summarized in a set of statements distributed to the public.

2.The information is historical in nature. It reports the results of events and transactions that have already occurred.

3.The timeliness of the information is more critical than its completeness.

4.To increase its usefulness to investors and creditors, the information is usually accompanied by explanations from management.

5.The information is intended to be used for planning and control decisions.

SECTION D

Provide concise written answers to the following:

1.Investors and creditors are interested in a company's "cash flow prospects."What two specific concerns of investors and creditors are summarized by the term "cash flow prospects?"

2.List three financial statements that are used to communicate financial accounting information to interested external parties.

3.Provide a brief example to illustrate that externally reported financial accounting information must be based in part on estimates, judgments, and assumptions.

4.Briefly explain how generally accepted accounting principles enhance the integrity of financial accounting information.