Question 1

Charging off equipment that cost less than $20 would be an example of the application of:

Accepted Answer

d.	materiality.

Answer

a.	going concern.
b.	cost.
c.	matching.
d.	materiality.
e.	realization.

Question 2

The going concern assumption:

Accepted Answer

c.	allows for the statements to be prepared under generally accepted accounting principles.

Answer

a.	is applicable to all financial statements.
b.	primarily involves periodic income measurement.
c.	allows for the statements to be prepared under generally accepted accounting principles.
d.	requires that accounting procedures be the same from period to period.
e.	none of the answers are correct.

Question 3

Understating assets and revenues is justified based on:

Accepted Answer

e.	None of the answers are correct.

Answer

a.	realization assumption.
b.	matching.
c.	consistency.
d.	realization.
e.	None of the answers are correct.

Question 4

The assumption that enables us to prepare periodic statements between the time that a business commences operations and the time it goes out of business is:

Accepted Answer

a.	time period.

Answer

a.	time period.
b.	business entity.
c.	historical cost.
d.	transaction.
e.	None of the answers are correct.

Question 5

Valuing assets at their liquidation values is not consistent with:

Accepted Answer

c.	going concern.

Answer

a.	conservatism.
b.	materiality.
c.	going concern.
d.	time period.
e.	None of the answers are correct.

Question 6

The business being separate and distinct from the owners is an integral part of the:

Accepted Answer

c.	business entity assumption.

Answer

a.	time period assumption.
b.	going concern assumption.
c.	business entity assumption.
d.	realization assumption.
e.	None of the answers are correct.

Question 7

The principle that assumes the reader of the financial statements is not interested in the liquidation values is:

Accepted Answer

e.	None of the answers are correct.

Answer

a.	conservatism.
b.	matching.
c.	time period.
d.	realization.
e.	None of the answers are correct.

Question 8

An accounting period that ends when operations are at a low ebb is:

Accepted Answer

c.	the natural business year.

Answer

a.	a calendar year.
b.	a fiscal year.
c.	the natural business year.
d.	an operating year.
e.	None of the answers are correct.

Question 9

The accounting principle that assumes that inflation will not take place or will be immaterial is:

Accepted Answer

a.	monetary unit.

Answer

a.	monetary unit.
b.	historical cost.
c.	realization.
d.	going concern.
e.	None of the answers are correct.

Question 10

Valuing inventory at the lower of cost or market is an application of the:

Accepted Answer

d.	conservatism principle.

Answer

a.	monetary unit.
b.	historical cost.
c.	realization.
d.	going concern.
e.	None of the answers are correct.

Question 11

The realization principle leads accountants to usually recognize revenue at:

Accepted Answer

d.	the point of sale.

Answer

a.	the end of production.
b.	during production.
c.	the receipt of cash.
d.	the point of sale.
e.	None of the answers are correct.

Question 12

The comment that "items that are not material may be recorded in the financial statements in the most economical and expedient manner possible" is representative of:

Accepted Answer

d.	materiality.

Answer

a.	matching.
b.	conservatism.
c.	realization.
d.	materiality.
e.	None of the answers are correct.

Question 13

The Financial Accounting Standards Board has issued statements between:

Accepted Answer

c.	1973-present.

Answer

a.	1960-1973.
b.	1939-1959.
c.	1973-present.
d.	1966-1976.
e.	None of the answers are correct.

Question 14

Accountants face a problem of when to recognize revenue. Which of the following methods of recognizing revenue is not used in practice?

Accepted Answer

b.	Point of order acceptance

Answer

a.	Point of sale
b.	Point of order acceptance
c.	End of production
d.	Receipt of cash
e.	Revenue recognized during production

Question 15

The organization that has by federal law the responsibility to adopt auditing standards is the:

Accepted Answer

b.	Public Company Accounting Oversight Board.

Answer

a.	New York Stock Exchange.
b.	Public Company Accounting Oversight Board.
c.	Accounting Principles Board.
d.	Financial Accounting Standards Board.
e.	AICPA Committee on Accounting Procedure.

Question 16

By law, the setting of accounting standards is the responsibility of the:

Accepted Answer

d.	Securities and Exchange Commission.

Answer

a.	AICPA Committee on Accounting Procedure.
b.	New York Stock Exchange.
c.	Accounting Principles Board.
d.	Securities and Exchange Commission.
e.	Financial Accounting Standards Board.

Question 17

The assumption that allows accountants to accept some inaccuracy, because of incomplete information about the future, in exchange for more timely reporting is:

Accepted Answer

b.	time period.

Answer

a.	conservatism.
b.	time period.
c.	business entity.
d.	materiality.
e.	realization.

Question 18

Which of these measurement attributes is not currently used in practice?

Accepted Answer

b.	Relevant cost

Answer

a.	Historical cost
b.	Relevant cost
c.	Current market value
d.	Current cost
e.	Present value

Question 19

The following data relate to Swift Company for the year ended December 31, 2012. Swift Company uses the accrual basis.
Sales on credit	$250,000
Cost of inventory sold on credit	170,000
Collections from customers	220,000
Purchase of inventory on credit	150,000
Payment for purchases	140,000
Selling expenses (accrual basis)	40,000
Payment for selling expenses	45,000

Which of the following amounts represents income for Swift Company for the year ended December 31, 2012?

Accepted Answer

c.	$40,000

Answer

a.	$60,000
b.	$50,000
c.	$40,000
d.	$35,000
e.	$30,000

Question 20

The following data relate to Gorr Company for the year ended December 31, 2012. Gorr Company uses the accrual basis.

Sales for cash	$200,000
Sales for credit	220,000
Cost of inventory sold	180,000
Collections from customers	300,000
Purchases of inventory on credit	190,000
Payment for purchases	180,000
Selling expenses (accrual basis)	50,000
Payment for selling expenses	60,000

Which of the following represents income for Gorr Company for the year ended December 31, 2010?

Accepted Answer

c.	$190,000

Answer

a.	$180,000
b.	$185,000
c.	$190,000
d.	$200,000
e.	None of the answers are correct.

Question 21

The following data relate to Falcon Company for the year ended December 31, 2012. Falcon Company uses the cash basis.

Sales for cash	$180,000
Sales for credit	190,000
Cost of inventory sold	210,000
Collections from customers	350,000
Purchases of inventory on credit	200,000
Payment for purchases	220,000
Selling expenses (accrual basis)	60,000
Payment for selling expenses	70,000

Which of the following amounts represents income for Falcon Company for the year ended December 31, 2012?

Accepted Answer

d.	$60,000

Answer

a.	$90,000
b.	$80,000
c.	$70,000
d.	$60,000
e.	None of the answers are correct.

Question 22

In order to determine the economic success of a grocery store, we should view it as separate from the other resources that are owned by this individual.

Answer

true

Question 23

Many of our present financial statement figures would be misleading if it were not for the going concern assumption.

Answer

true

Question 24

The going concern assumption does not influence the classification of assets and liabilities.

Answer

true

Question 25

The most accurate way to account for the success or failure of an entity is to accumulate all transactions from the opening of business until the business eventually liquidates.

Answer

true

Question 26

An entity usually cannot reasonably account for the profits related to inventory until that inventory is sold in the normal course of business.

Answer

true

Question 27

To the extent that money does not remain stable, it loses its usefulness as the standard for measuring financial transactions.

Answer

true

Question 28

A loss in value of money is called inflation.

Answer

true

Question 29

At the time of originally recording a transaction, historical cost also represents the fair market value.

Answer

true

Question 30

It would always be conservative to value inventory at market.

Answer

true

Question 31

Accountants normally recognize revenue when cash is received.

Answer

true

Question 32

The 1933 and 1934 U.S. federal securities laws virtually gave the Securities and Exchange Commission (SEC) authority and responsibility for the development of generally accepted accounting principles.

Answer

true

Question 33

The Statements of Financial Accounting Concepts are intended to provide the Financial Accounting Standards Board with a common foundation and the basic underlying reasoning on which to consider the merits of various alternative accounting principles.

Answer

true

Question 34

Eventually, the Financial Accounting Standards Board intends to evaluate current principles in terms of the concepts established in the Financial Accounting Concepts.

Answer

true

Question 35

Financial Accounting Concepts establish generally accepted accounting principles.

Answer

true

Question 36

According to the second Financial Accounting Concept, those characteristics of information that make it a desirable commodity can be viewed as a hierarchy of qualities, with understandability and usefulness for decision making of most importance.

Answer

true

Question 37

Timeliness is a pervasive constraint imposed upon financial accounting information.

Answer

true

Question 38

Relevance and reliability are two primary qualities that make accounting information useful for decision making.

Answer

true

Question 39

Predictive value, feedback value, and timeliness are ingredients needed to ensure that the information is reliable.

Answer

true

Question 40

Decision usefulness is a pervasive constraint imposed upon financial accounting information.

Answer

true

Question 41

Relevance is a quality requiring that the information be timely and that it also have predictive value or feedback value or both.

Answer

true

Question 42

The SEC has the authority to determine generally accepted accounting principles and to regulate the accounting profession.

Answer

true

Question 43

Some industry practices lead to accounting reports that do not conform to the general theory that underlies accounting.

Answer

true

Question 44

All important events that influence the prospects for the entity are recorded and therefore are reflected in the financial statements.

Answer

true

Question 45

The accrual basis of accounting recognizes revenue when realized (realization concept) and expenses when incurred (matching concept).

Answer

true

Question 46

The cash basis recognizes revenue when cash is received and expenses when cash is paid.

Answer

true

Question 47

Among the many responsibilities of the PCAOB is to adopt accounting standards.

Answer

true

Question 48

For a public company, the SEC requires that a report be filed annually on its internal control systems.

Answer

true

Question 49

At the end of the fiscal year, an adjusting entry is made that increases both interest expense and interest payable. This entry is an application for which accounting principle?

Accepted Answer

c.	Matching

Answer

a.	Full disclosure
b.	Materiality
c.	Matching
d.	Going concern
e.	Realization

Question 50

Who is responsible for the preparation and integrity of financial statements?

Accepted Answer

b.	Management

Answer

a.	A cost accountant
b.	Management
c.	An auditor
d.	A bookkeeper
e.	The FASB

Question 51

Which of the following is not an objective of the SEC's integrated disclosure system?

Accepted Answer

b.	To lessen the impact of the FASB

Answer

a.	To coordinate the Form 10-K requirements with those of the annual report
b.	To lessen the impact of the FASB
c.	To expand the management discussion of liquidity, capital resources, and results of operations
d.	To improve the quality of disclosure
e.	To standardize information requirements

Question 52

Which of the following is not a type of audit opinion?

Accepted Answer

d.	Clean opinion

Answer

a.	Unqualified opinion
b.	Qualified opinion
c.	Adverse opinion
d.	Clean opinion
e.	Disclaimer of opinion

Question 53

Which of the following statements is not true?

Accepted Answer

e.	The accountant's report expresses an opinion on reviewed financial statements.

Answer

a.	A qualified opinion or an adverse opinion may bring into question the reliability of the financial statements.
b.	A disclaimer of opinion indicates that one should not look to the auditor's report as an indication of the reliability of the statements.
c.	In some cases, outside accountants are associated with financial statements when they have performed less than an audit.
d.	A review is substantially less in scope than an examination in accordance with generally accepted auditing statements.
e.	The accountant's report expresses an opinion on reviewed financial statements.

Question 54

In addition to the balance sheet, the income statement, and the statement of cash flows, a complete set of financial statements must include:

Accepted Answer

c.	a note disclosure of such items as accounting policies.

Answer

a.	an auditor's opinion.
b.	a ten-year summary of operations.
c.	a note disclosure of such items as accounting policies.
d.	historical common-size (percentage) summaries.
e.	a list of corporate officers.

Question 55

Which of the following statements is not correct concerning summary annual reports?

Accepted Answer

d.	A summary annual report is adequate for reasonable analysis.

Answer

a.	A summary annual report omits much of the financial information included in an annual report.
b.	When a company issues a summary annual report, the proxy materials it sends to shareholders must include a set of fully audited statements and other required financial disclosures.
c.	A summary annual report generally has more nonfinancial pages than financial pages.
d.	A summary annual report is adequate for reasonable analysis.
e.	The concept of a summary annual report was approved by the Securities and Exchange Commission.

Question 56

Which of the following is not a true statement relating to the Treadway Commission?

Accepted Answer

e.	The Treadway Commission is a voluntary-sector organization formed to support the Sarbones-Oxley Act.

Answer

a.	The Treadway Commission is the popular name for the National Commission on Fraudulent Reporting. 
b.	The Treadway Commission has released reports detailing internal control systems.
c.	Management’s Report on Internal Control over Financial Reporting and the independent public accounting from report to the shareholders and board of directors often refer to criteria established on internal control by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
d.	The Treadway Commission has issued a number of recommendations for the prevention of fraud on financial reports, ethics, and effective internal controls. 
e.	The Treadway Commission is a voluntary-sector organization formed to support the Sarbones-Oxley Act.

Question 57

Which of these statements is not true?

Accepted Answer

e.	The form of the journals are the same from industry to industry.

Answer

a.	Transactions must be recorded in a journal.
b.	All transactions could be recorded in the general journal.
c.	Companies use a number of special journals to record most transactions.
d.	Special journals are designed to improve record- keeping efficiency.
e.	The form of the journals are the same from industry to industry.

Question 58

Which of these statements is not true?

Accepted Answer

e.	With double-entry, each transaction is recorded twice.

Answer

a.	Asset, liability, and stockholders' equity accounts are referred to as permanent accounts.
b.	Revenue, expense, and dividend accounts are described as temporary accounts.
c.	Temporary accounts are closed at the end of the period to retained earnings.
d.	The balance sheet will not balance until the temporary accounts are closed to retained earnings.
e.	With double-entry, each transaction is recorded twice.

Question 59

Which of the following is a type of audit opinion that a firm would usually prefer?

Accepted Answer

a.	Uqualified opinion

Answer

a.	Uqualified opinion
b.	Qualified opinion
c.	Adverse opinion
d.	Clear opinion
e.	None of the answers are correct.

Question 60

Which of the following is a permanent account?

Accepted Answer

c.	Building

Answer

a.	Dividends
b.	Advertising expense
c.	Building
d.	Selling expense
e.	Insurance expense

Question 61

Which of the following is a temporary account?

Accepted Answer

a.	Advertising expense

Answer

a.	Advertising expense
b.	Land
c.	Building
d.	Accounts payable
e.	Bonds payable

Question 62

In terms of debits and credits, which of the following accounts have the same normal balances?

Accepted Answer

c.	Advertising expense, selling expense, accounts receivable

Answer

a.	Accounts payable, accounts receivable, notes payable
b.	Dividends, accounts receivable, notes payable
c.	Advertising expense, selling expense, accounts receivable
d.	Land, building, accounts payable
e.	Common stock, notes payable, land

Accounting principles and assumptions: GAAP concepts

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