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Chapter 1: Role of Accounting in Society

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Chapter 1: Role of Accounting in Society

20 problems · 1 figure

Multiple Choice 1.1 §1.1 source ↗

Accounting is sometimes called the “language of _____.”
  1. a.
    Wall Street
  2. b.
    business
  3. c.
    Main Street
  4. d.
    financial statements

Answer

B. business

Multiple Choice 1.3 §1.2 source ↗

External users of financial accounting information include all of the following except ________.
  1. a.
    lenders such as bankers
  2. b.
    governmental agencies such as the IRS
  3. c.
    employees of a business
  4. d.
    potential investors

Answer

C. employees of a business

Multiple Choice 1.5 §1.2 source ↗

All of the following are examples of managerial accounting activities except ________.
  1. a.
    preparing external financial statements in compliance with GAAP
  2. b.
    deciding whether or not to use automation
  3. c.
    making equipment repair or replacement decisions
  4. d.
    measuring costs of production for each product produced

Answer

A. preparing external financial statements in compliance with GAAP

Multiple Choice 1.7 §1.3 source ↗

The primary purpose of what type of business is to serve a particular need in the community?
  1. a.
    for-profit
  2. b.
    not-for-profit
  3. c.
    manufacturing
  4. d.
    retail

Answer

B. not-for-profit

Multiple Choice 1.9 §1.3 source ↗

A governmental agency can best be described by which of the following statements?
  1. a.
    has a primary purpose of making a profit
  2. b.
    has a primary purpose of using taxpayer funds to provide services
  3. c.
    produces goods for sale to the public
  4. d.
    has regular shareholder meetings

Answer

B. has a primary purpose of using taxpayer funds to provide services

Multiple Choice 1.11 §1.4 source ↗

Which of the following is not considered a stakeholder of an organization?
  1. a.
    creditors
  2. b.
    lenders
  3. c.
    employees
  4. d.
    community residents
  5. e.
    a business in another industry

Answer

E. a business in another industry

Multiple Choice 1.13 §1.4 source ↗

Which of the following sell stock on an organized stock exchange such as the New York Stock Exchange?
  1. a.
    publicly traded companies
  2. b.
    not-for-profit businesses
  3. c.
    governmental agencies
  4. d.
    privately held companies
  5. e.
    government-sponsored entities

Answer

A. publicly traded companies

Multiple Choice 1.15 §1.4 source ↗

The accounting information of a privately held company is generally available to all of the following except for ________.
  1. a.
    governmental agencies
  2. b.
    investors
  3. c.
    creditors and lenders
  4. d.
    competitors

Answer

D. competitors

Multiple Choice 1.17 §1.5 source ↗

Which of the following is typically required for entry-level positions in the accounting profession?
  1. a.
    bachelor’s degree
  2. b.
    master’s degree
  3. c.
    Certified Public Accountant (CPA)
  4. d.
    Certified Management Accountant (CMA)
  5. e.
    only a high school diploma

Answer

A. bachelor’s degree

Multiple Choice 1.19 §1.5 source ↗

What type of organization primarily offers tax compliance, auditing, and consulting services?
  1. a.
    corporations
  2. b.
    public accounting firms
  3. c.
    governmental entities
  4. d.
    universities

Answer

B. public accounting firms

Question 1.1 §1.2 source ↗

Research your top five career choices. Identify financial factors that might influence your career choice. The following websites might be helpful in answering this question.

• Occupational Outlook Handbook: https://www.bls.gov/ooh/

• National Association of Colleges and Employers: http://www.naceweb.org/

• O*Net OnLine: https://www.onetonline.org/find/

Answer

Answers will vary but should include factors such as starting salaries, value of fringe benefits, cost of living, and other monetary factors.

Question 1.3 §1.2 source ↗

Think about a recent purchase you made. Describe what financial and nonfinancial factors went into that purchase. Rank the factors, and explain how you made the final decision to purchase the item.

Answer

Answers will vary but should include considerations such as price, convenience, features, ease of purchase, availability, and other decision-making factors.

Question 1.5 §1.2 source ↗

The following information was taken from the Netflix financial statements.

Netflix, Inc., Consolidated Statement of Operations, For the Years, 2014, 2015, and 2016 Sales: December 31, 2014 $5,504,656*, December 31, 2015 $6,779,511, December 31, 2016 $8,830,669. *Dollar values are in thousand of U S dollars. Source: United States Security and Exchange Commission. “Netflix, Inc. Consolidated Statements of Operations.” www.sec.gov.

For Netflix, sales is the product of the number of subscribers and the price charged for each subscription. What observations can you make about the previous three years of Netflix’s sales? Given this data, provide any predictions you can make about the future financial performance of Netflix. What nonfinancial factors influenced that prediction?

Answer

Responses should comment on the growth Netflix has experienced. Although this may have been due to subscription price increases, the biggest driver of these increases is the number of subscriptions. While this is only a few data points, it does appear likely that Netflix will continue to grow sales in the next year or so. Factors influencing this prediction would be competition, changes in the streaming market, and economic considerations.

Question 1.7 §1.3 source ↗

Use the internet to research one for-profit, one governmental, and one not-for-profit entity. For each entity, describe the following:

A. the primary purpose of the entity

B. the types of activities that accountants would record (hint: what is the source of the entity’s funding, and what costs might the entity have?)

C. the types of decisions that might be made in this organization and how financial and nonfinancial information might help the decision-making process

Answer

Answers will vary, but responses should state, in a sentence or two, the primary purpose of the entity. The goal of this exercise is to have students clearly communicate why the entity exists, the stakeholders served by the entity, and the role accounting plays in the organization.

Question 1.9 §1.3 source ↗

Assume you are considering opening a retail business. You are trying to decide whether to have a traditional “brick-and-mortar” store or to sell only online. Explain how the activities and costs differ between these two retail arrangements.

Answer

Answers will vary but should highlight aspects of each model: Brick-and-mortar: higher investment in physical storefront, interior, etc., to attain visual appeal; insurance and regulatory requirements; space/storage considerations; lower delivery costs; no delivery time. Online: less overhead costs, higher delivery costs, higher website and technology costs, competition.

Question 1.11 §1.3 source ↗

How would you categorize or classify a company like Disney?

Answer

Manufacturer: movies; service: hotels, restaurants, waste removal, entertainment; retail: shopDisney, clothes and apparel.

Question 1.13 §1.4 source ↗

Use the internet to visit the Securities and Exchange Commission (SEC) website (https://www.sec.gov/). Write a report discussing the following:

A. several of the services provided by the SEC

B. why the services are important to the investing public

C. why you think the SEC would require publicly traded companies to file financial information

Answer

Answers will vary but should include the key services of the SEC related to regulation and enforcement. You may be particularly interested to explore the SEC’s whistle-blowing initiatives. Responses regarding required filings for publicly traded companies should include a discussion about the relationship between transparency and protecting the public interest. The significant amount of invested capital by the investing public is also relevant to the discussion.

Question 1.15 §1.4 source ↗

According to a company press release, on January 5, 2012, Hansen Natural Corporation changed its name to Monster Beverage Corporation. According to Yahoo Finance, on that day the value of the company stock (symbol: MNST) was $15.64 per share. On January 5, 2018, the stock closed at $63.49 per share. This represents an increase of nearly 306%.

A. Discuss the factors that might influence the increase in share price.

B. Consider yourself as a potential shareholder. What factors would you consider when deciding whether or not to purchase shares in Monster Beverage Corporation today?

Answer

Answers will vary but should include the increase in popularity of energy drinks and Monster’s partnership with the Coca-Cola Company (which now owns close to a 17% stake in Monster). Considerations as to whether or not to purchase Monster shares today would include the estimated future performance of the company, the energy drink market, purchasing at a high point, etc.

Question 1.17 §1.5 source ↗

Many professional certifications now have requirements for ethics training.

A. Define ethics.

B. Why does the accounting profession put so much emphasis on acting ethically?

Answer

Answers will vary but should include a discussion of the importance for accountants to provide information that is unbiased. Accountants have an obligation to protect the public interest by reporting information that is useful for decision-making but does not sway the user in a particular way. Accountants are in a unique position where they serve many stakeholders, including their employer, clients, and the public. The interests of all stakeholders must be considered while maintaining the highest level of integrity.

Question 1.19 §1.5 source ↗

Accounting is not the only profession to offer professional certifications. Many other professions have certifications that are either required or encouraged for entry or advancement in the profession. Think of two to three career paths that you have considered or are considering. After doing some research, complete the following:

A. Identify the name of the certification and the institute that administered the certification.

B. Explain the education and/or experience requirements for taking the exam and earning the license.

C. Discuss any of the benefits, financial or otherwise, of earning the certification.

Answer

Answers will vary and may include certifications/licensing in nursing, information technology, engineering, human resources management, counseling, medicine, and many other occupations.

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Problems and answers are adapted from Principles of Accounting, Volume 1: Financial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.