BE309 Fundamentals of Financial Accounting Cohort 12/02 Final Exam Due March 5, 2013

Instructions: Select the letter of the correct answer and write a comprehensive response to the essay. 1. The Sarbanes-Oxley Act of 2002 created: A. The Security and Exchange Commission B. The Financial Accounting Standards Board C. The Public Company Accounting Oversight Board D. The Income Tax Return Overview Board 2. The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed: A. The conceptual framework. B. Generally accepted accounting principles. C. Statements of Financial Accounting Concepts. D. American standards for certified public accountants. 3. A balance sheet is designed to show: A. How much a business is worth. B. The profitability of the business during the current year. C. The assets, liabilities, and owners' equity of a business as of a particular date. D. The cost of replacing the assets and of paying off the liabilities at December 31. 4. Which of the following best defines an asset? A. Something with physical form that is valued at cost in the accounting records. B. An economic resource owned by a business and expected to benefit future operations. C. An economic resource representing cash or the right to receive cash in the near future. D. Something owned by a business that has a ready market value. 5. The concept of adequate disclosure means that: A. The accounting department of a business must inform management of the accounting principles used in preparing the financial statements. B. The company must inform users of any significant facts necessary for proper interpretation of the financial statements, including events occurring after the financial statement date. C. The independent auditors must disclose in the financial statements any and all errors detected in the company's accounting records. D. The financial statements should include a comprehensive list of each transaction that occurred during the year.

6. The realization principle indicates that revenue usually should be recognized and recorded in the accounting records: A. When goods are sold or services are rendered to customers. B. When cash is collected from customers. C. At the end of the accounting period. D. Only when the revenue can be matched by an equal dollar amount of expenses. 7. Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles: A. Business entity concept and realization principle. B. Cost principle and the accounting equation. C. Realization principle and matching principle. D. Matching principle and safety principle. 8. The concept of materiality: A. Involves only tangible assets and not intangible assets. B. Relates only to the income statement and not the balance sheet. C. Is always an exact percentage of a financial account balance. D. Is measured by an items influence on the decisions of users of financial statements. 9. What types of information must be disclosed in the financial statements? A. The comprehensive list issued by the FASB. B. Only information that is determined by management. C. Non-financial information that is not included in the basic financial statements. D. Ratio analysis. 10. In a perpetual inventory system: A. Merchandising transactions are recorded as they occur. B. No effort is made to record the Cost of Goods Sold until year-end. C. Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold. D. The need for ever taking physical inventory is eliminated. 11. Periodic inventory systems are used primarily by: A. Small businesses with manual accounting systems. B. Large manufacturing companies. C. Small businesses that sell a low volume of high-priced items. D. Companies that sell a high volume of low-priced items and record sales transactions on point-of-sale terminals. 12. Book value per share of common stock is derived by which of the following A. Stockholders equity divided by the number of shares authorized. B. Stockholders equity divided by the number of shares outstanding. C. Net income divided by the number of shares outstanding D. Net income divided by the number of shares authorized.

Essay: What would be the ethical implications of not having a regulatory framework, such as GAAP, FASB, the SEC and other agencies to set the rules and oversee the production and disclosure of financial accounting information?