1-5 Objective Demos

Question 1

Identify one of the four fundamental assumptions that matches the example.

“A company that began operations in 2001 reinvests income in retained earnings each year through 2020 without any adjustments for inflation.”

Answer 1

Monetary Unit Assumption

Question 2

Identify one of the four fundamental assumptions that matches the example.

“Even though a shareholder holds an ownership interest in a corporation, the corporation owns its assets (equipment, buildings, and so forth). Those assets are not owned directly by its shareholders.”

Answer 2

Economic Entity Assumption

Question 3

Identify one of the four fundamental assumptions that matches the example.

“The segregation of assets and liabilities into the categories of current and noncurrent is supported by the assumption that the company will be in existence beyond one year.”

Answer 3

Going Concern Assumption

Question 4

Identify one of the four fundamental assumptions that matches the example.

“A company with publicly traded securities registered with the Securities and Exchange Commission is required to report financial statement information on a quarterly and annual basis that coincides with its fiscal year.”

Answer 4

Periodicity Assumption

Question 5

Identify one of the four fundamental assumptions that matches the example.

“The benefit of a widely recognized, favorable reputation of a company is not converted into a dollar amount on its financial statements.”

Answer 5

Monetary Unit Assumption

Question 6

Identify one of the four fundamental assumptions that matches the example.

“Two legally separated companies (a parent company and a subsidiary company) are consolidated and reported as one company for financial reporting purposes.”

Answer 6

Economic Entity Assumption

Question 7

Identify one of the four fundamental assumptions that matches the example.

“A company purchases a patent with a useful life of 10 years. The company amortizes the patent over 10 years rather than reporting the patent at its liquidation value.”

Answer 7

Going Concern Assuption

Question 8

Identify one of the four fundamental assumptions that matches the example.

“A company records an accrual for salaries expense as of the date of its fiscal year-end, December 31, 2020, in order to properly recognize incurred expenses for the fiscal year.”

Answer 8

Periodicity Assumption