Exam 1

Question 1

General-purpose financial statements are the product of

a. financial accounting.
b. managerial accounting.
c. both financial and managerial accounting.
d. neither financial nor managerial accounting.

Answer 1

financial accounting.

Question 2

Which of the following is not a user of financial reports?

a. Creditors.
b. Government agencies.
c. Unions.
d. All of these are users.

Answer 2

All of these are users.

Question 3

The financial statements most frequently provided include all of the following except the

a. balance sheet.
b. income statement.
c. statement of cash flows.
d. statement of retained earnings.

Answer 3

statement of retained earnings.

Question 4

The information provided by financial reporting pertains to

a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
b. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.
c. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
d. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

Answer 4

individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

Question 5

All the following are differences between financial and managerial accounting in how accounting information is used except to

a. plan and control company’s operations.
b. decide whether to invest in the company.
c. evaluate borrowing capacity to determine the extent of a loan to grant.
d. All the answer choices are correct.

Answer 5

All the answer choices are correct.

Question 6

Which of the following represents a form of communication through financial reporting but not through financial statements?

a. Balance sheet.
b. President’s letter.
c. Income statement.
d. Notes to financial statements.

Answer 6

President’s letter.

Question 7

The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization’s operations is called

a. financial accounting.
b. managerial accounting.
c. tax accounting.
d. auditing.

Answer 7

How does accounting help the capital allocation process attract investment capital?

a. By providing timely, relevant information.
b. By encouraging innovation.
c. By promoting productivity.
d. By providing timely, relevant information and by encouraging innovation.

Question 8

How does accounting help the capital allocation process attract investment capital?

a. By providing timely, relevant information.
b. By encouraging innovation.
c. By promoting productivity.
d. By providing timely, relevant information and by encouraging innovation.

Answer 8

By providing timely, relevant information.

Question 9

Which of the following helps in determining whether a business thrives?

a. Markets.
b. Free enterprise.
c. Competition.
d. All of these answer choices are correct.

Answer 9

All of these answer choices are correct.

Question 10

Which of the following is related to an effective capital allocation?

a. Promoting productivity.
b. Encouraging innovation.
c. Providing an efficient market for buying and selling securities.
d. All of these answer choices are correct.

Answer 10

All of these answer choices are correct.

Question 11

Financial statements in the early 2000s provide information related to

a. nonfinancial measurements.
b. forward-looking data.
c. hard assets (inventory and plant assets).
d. None of these answer choices are correct.

Answer 11

hard assets (inventory and plant assets).

Question 12

Which of the following is not a major challenge facing the accounting profession?

a. Nonfinancial measurements.
b. Timeliness.
c. Accounting for hard assets.
d. Forward-looking information.

Answer 12

Accounting for hard assets.

Question 13

What is the objective of financial reporting?

a. Provide information that is useful to management in making decisions.
b. Provide information that clearly portrays nonfinancial transactions.
c. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.
d. Provide information that excludes claims to the resources.

Answer 13

Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.

Question 14

Primary users for general-purpose financial statements include

a. creditors.
b. employees.
c. investors.
d. both creditors and investors.

Answer 14

both creditors and investors.

Question 15

Which of the following will be of interest to investors in decision-making?

a. Assessing the company’s ability to generate net cash inflows.
b. Assessing management’s ability to protect and enhance the capital providers’ investments.
c. Both assessing the company’s ability to generate net cash inflows and assessing management’s ability to protect and enhance the capital provider’s investments.
d. Assessing the company’s ability to collect debts.

Answer 15

Both assessing the company’s ability to generate net cash inflows and assessing management’s ability to protect and enhance the capital provider’s investments.

Question 16

Accrual accounting is used because

a. cash flows are considered less important.
b. it provides a better indication of a company’s ability to generate cash flows than the cash basis.
c. it recognizes revenues when cash is received and expenses when cash is paid.
d. None of the answer choices are correct.

Answer 16

it provides a better indication of a company’s ability to generate cash flows than the cash basis.

Question 17

Which perspective is adopted as a part of the objective of general-purpose financial reporting?

a. A decision-usefulness perspective.
b. A proprietary perspective.
c. An entity perspective.
d. A financial reporting perspective.

Answer 17

An entity perspective.

Question 18

Which of the following is a requirement for an accounting principle to be called “generally accepted”?

a. An authoritative accounting rule-making body has established it in an official pronouncement.
b. The principle has been accepted as appropriate because of its universal application.
c. An authoritative accounting rule-making body has established it and it has been accepted because of its universal application.
d. None of the answer choices are correct.

Answer 18

An authoritative accounting rule-making body has established it and it has been accepted because of its universal application.

Question 19

A common set of accounting standards and procedures are called

a. financial accounting standards.
b. generally accepted accounting principles.
c. objectives of financial reporting.
d. statements of financial accounting concepts.

Answer 19

generally accepted accounting principles.

Question 20

Which of the following is a general limitation of “general purpose financial statements”?

a. General purpose financial statements may not be the most informative for a specific enterprise.
b. General purpose financial statements are not comparable.
c. General purpose financial statements do not fairly present a company’s financial operations.
d. None of the answer choices are correct.

Answer 20

General purpose financial statements may not be the most informative for a specific enterprise.

Question 21

What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?

a. The SEC requires all companies listed on an exchange to submit their financial statements to the SEC.
b. The SEC coordinates with the AICPA in establishing accounting standards.
c. The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.
d. The SEC reviews financial statements for compliance.

Answer 21

The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.

Question 22

What is due process in the context of standard setting at the FASB?

a. The FASB operates in full view of the public.
b. Public hearings are held on proposed accounting standards.
c. Interested parties can make their views known.
d. All of the answer choices are correct.

Answer 22

All of the answer choices are correct.

Question 23

Which of the following organizations has been responsible for setting U.S. accounting standards?

a. The Accounting Principles Board.
b. The Committee on Accounting Procedure.
c. The Financial Accounting Standards Board.
d. All of the answer choices are correct.

Answer 23

All of the answer choices are correct.

Question 24

Why did the AICPA create the Accounting Principles Board?

a. The SEC disbanded the previous standard setting organization.
b. The previous standard setting organization did not provide a structured set of accounting principles.
c. No such organization existed in the past.
d. None of the answer choices are correct.

Answer 24

The previous standard setting organization did not provide a structured set of accounting principles.

Question 25

Which organization was responsible for issuing Accounting Research Bulletins?

a. The Accounting Principles Board.
b. The Committee on Accounting Procedure.
c. The SEC.
d. The FASB.

Answer 25

The Committee on Accounting Procedure.

Question 26

A characteristic of generally accepted accounting principles include:

a. a common set of standards and principles.
b. standards and principles are based a federal statutes.
c. acceptance requires an affirmative vote of Certified Public Accountants.
d. practices that become accepted for at least a year by all industry members.

Answer 26

a common set of standards and principles.

Question 27

Characteristics of generally accepted accounting principles include all of the following except

a. authoritative accounting that the rule-making body has established as a principle of reporting.
b. standards are considered useful by the profession.
c. each principle is approved by the SEC.
d. practice has become universally accepted over time.

Answer 27

each principle is approved by the SEC.

Question 28

Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight?

a. Smaller membership.
b. The FASB board members were well-paid.
c. The FASB board members were CPAs.
d. Due process.

Answer 28

Due process.

Question 29

The passage of a new FASB Accounting Standards Update requires the support of

a. seven Board members.
b. three Board members.
c. four Board members.
d. five Board members.

Answer 29

four Board members.

Question 30

What is the purpose of Emerging Issues Task Force?

a. Provide interpretation of existing standards.
b. Provide a consensus on how to account for new and unusual financial transactions.
c. Provide interpretive guidance.
d. Provide timely guidance on select issues.

Answer 30

Provide a consensus on how to account for new and unusual financial transactions.

Question 31

Which organization is responsible for issuing Emerging Issues Task Force Statements?

a. The FASB
b. The CAP
c. The APB
d. The SEC

Answer 31

The FASB

Question 32

The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as

a. consistently primary.
b. consistently secondary.
c. sometimes primary and sometimes secondary.
d. non-existent.

Answer 32

sometimes primary and sometimes secondary.

Question 33

The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

a. FASB.
b. AICPA.
c. SEC.
d. APB.

Answer 33

SEC.

Question 34

Companies that are listed on a stock exchange are required to submit their financial statements to the

a. AICPA.
b. APB
c. FASB.
d. SEC.

Answer 34

SEC.

Question 35

The Financial Accounting Standards Board (FASB) was proposed by the

a. American Institute of Certified Public Accountants.
b. Accounting Principles Board.
c. Study Group on the Objectives of Financial Statements.
d. Study Group on establishment of Accounting Principles (Wheat Committee).

Answer 35

Study Group on establishment of Accounting Principles (Wheat Committee).

Question 36

Which of the following is true of the Financial Accounting Standards Board

a. It has issued a series of pronouncements entitled Auditing Standards Updates.
b. It was the forerunner of the current Accounting Principles Board.
c. It is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.
d. The members of the FASB are appointed by the Financial Accounting Foundation.

Answer 36

The members of the FASB are appointed by the Financial Accounting Foundation.

Question 37

The Financial Accounting Foundation

a. oversees the operations of the FASB.
b. oversees the operations of the AICPA.
c. provides information to interested parties on financial reporting issues.
d. works with the Financial Accounting Standards Advisory Council to provide informa-tion to interested parties on financial reporting issues.

Answer 37

oversees the operations of the FASB.

Question 38

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

a. the FASB issues exposure drafts of proposed standards.
b. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
c. all members of the FASB possess extensive experience in financial reporting.
d. a majority of the members of the FASB are CPAs drawn from public practice.

Answer 38

all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.

Question 39

The Financial Accounting Standards Board employs a “due process” system which

a. is an efficient system for collecting dues from members.
b. enables interested parties to express their views on issues under consideration.
c. identifies the accounting issues that are the most important.
d. requires that all accountants must receive a copy of financial standards.

Answer 39

enables interested parties to express their views on issues under consideration.

Question 40

Which of the following is not a publication of the FASB?

a. Statements of Financial Accounting Concepts
b. Accounting Research Bulletins
c. Interpretations
d. Technical Bulletins

Answer 40

Accounting Research Bulletins

Question 41

FASB Technical Bulletins

a. are similar to FASB Interpretations in that they establish enforceable standards under the AICPA’s Code of Professional Ethics.
b. are issued monthly by the FASB to deal with current topics.
c. are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle.
d. were recently discontinued by the FASB because they dealt with specialized topics having little impact on financial reporting in general.

Answer 41

are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle.

Question 42

The purpose of the Emerging Issues Task Force is to

a. develop a conceptual framework as a frame of reference for the solution of future problems.
b. lobby the FASB on issues that affect a particular industry.
c. do research on issues that relate to long-term accounting problems.
d. issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly.

Answer 42

issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly.

Question 43

The American Institute of Certified Public Accountants (AICPA) continues to be involved in all of the following except

	a. developing and enforcing professional ethics.
	b. developing auditing standards for public companies.
	c. providing professional education programs.
	d. All of the answer choices are correct.

Answer 43

developing auditing standards for public companies.

Question 44

Which of the following pronouncements were issued by the Accounting Principles Board?

	a. Accounting Research Bulletins
	b. APB Opinions
	c. APB Statements of Position
	d. Statements of Financial Accounting Concepts

Answer 44

APB Opinions

Question 45

Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?

a. AICPA
b. FASB
c. IASB
d. SEC

Answer 45

IASB

Question 46

Which of the following organizations has not published accounting standards?

a. American Institute of Certified Public Accountants.
b. Securities and Exchange Commission.
c. Financial Accounting Standards Board.
d. All of these have published accounting standards.

Answer 46

All of these have published accounting standards.

Question 47

The purpose of Statements of Financial Accounting Concepts is to

a. establish GAAP.
b. modify or extend an existing FASB Accounting Standards Update.
c. form a conceptual framework for solving existing and emerging problems.
d. determine the need for FASB involvement in an emerging issue.

Answer 47

form a conceptual framework for solving existing and emerging problems.

Question 48

Members of the Financial Accounting Standards Board are

a. employed by the American Institute of Certified Public Accountants (AICPA).
b. part-time employees.
c. required to hold a CPA certificate.
d. independent of any other organization.

Answer 48

independent of any other organization.

Question 49

The following are part of the "due process" system used by the FASB in the evolution of a typical FASB Accounting Standards Update:
1.	Exposure Draft
2.	FASB Accounting Standards Update
3.	Preliminary Views
The chronological order in which these items are released is as follows:
a.	1, 2, 3.
b.	1, 3, 2.
c.	2, 3, 1.
d.	3, 1, 2.

Answer 49

3, 1, 2.

Question 50

Which of the following is true of generally accepted accounting principles?

a. GAAP includes detailed practices and procedures as well as broad guidelines of general application.
b. GAAP is influenced by pronouncements of the SEC and IRS.
c. GAAP changes over time as the nature of the business environment changes.
d. All of these answer choices are correct.

Answer 50

All of these answer choices are correct.

Question 51

The most significant current source of generally accepted accounting principles is the

a. AICPA.
b. SEC.
c. APB.
d. FASB.

Answer 51

FASB.

Question 52

Which of the following is not a part of generally accepted accounting principles?

a. The FASB Interpretations
b. The CAP Accounting Research Bulletins
c. The APB Opinions
d. All of these are part of generally accepted accounting principles.

Answer 52

All of these are part of generally accepted accounting principles.

Question 53

Which of the following publications does not qualify as a statement of generally accepted accounting principles?

a. Statements of financial standards issued by the FASB
b. Accounting interpretations issued by the FASB
c. APB Opinions
d. Accounting research studies issued by the AICPA

Answer 53

Accounting research studies issued by the AICPA

Question 54

Rule 203 of the Code of Professional Conduct addresses:

a. ethical requirements.
b. financial statements being based on generally accepted accounting principles.
c. advertising to obtain clients.
d. auditing financial statements.

Answer 54

financial statements being based on generally accepted accounting principles.

Question 55

What is the purpose of a FASB Staff Position?

a. Provide interpretation of existing standards.
b. Provide a consensus on how to account for new and unusual financial transactions.
c. Provide interpretive guidance.
d. Provide timely guidance on select issues.

Answer 55

Provide interpretive guidance

Question 56

Which of the following is not considered a component of generally accepted accounting principles?

a. FASB Implementation Guides.
b. Widely recognized industry practices.
c. Articles published in CPA journals.
d. AICPA Accounting Interpretations.

Answer 56

Articles published in CPA journals.

Question 57

Financial accounting standard-setting in the United States

a. can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.
b. is based solely on research and empirical findings.
c. is a legalistic process based on rules promulgated by governmental agencies.
d. is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

Answer 57

can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.

Question 58

The purpose of the International Accounting Standards Board is to

a. issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.
b. develop a uniform currency in which the financial transactions of companies through-out the world would be measured.
c. promote uniform accounting standards among countries of the world.
d. arbitrate accounting disputes between auditors and international companies.

Answer 58

promote uniform accounting standards among countries of the world.

Question 59

Which of the following is a source of pressure that may influence the accounting standard setting process?

a. Congress.
b. Lobbyist.
c. CPA firms.
d. All of these answers are correct.

Answer 59

All of these answers are correct.

Question 60

What is a possible danger if politics plays too big a role in accounting standard setting?

a. Accounting standards that are not truly generally accepted.
b. Individuals may influence the standards.
c. User groups become active.
d. The FASB delegates its authority to elected officials.

Answer 60

Accounting standards that are not truly generally accepted.

Question 61

What is the “expectations gap”?

a. The difference between what the public thinks the accountant should not do and what the accountant knows they should do.
b. The difference between what the public thinks the accountant is doing and what Congress says the accountant is doing.
c. The difference between what the public thinks the accountant should do and what the accountant thinks they can do.
d. The difference between what the accountant is doing and what the Courts say the accountant should be doing.

Answer 61

The difference between what the public thinks the accountant should do and what the accountant thinks they can do.

Question 62

What is not a reason that accounting standards may differ across countries?

a. Governments.
b. Language.
c. Culture.
d. Past practice.

Answer 62

Language.

Question 63

What would be an advantage of having all countries adopt and follow the same accounting standards?

a. Agreement.
b. Comparability.
c. Lower preparation costs.
d. Comparability and lower preparation costs.

Answer 63

Comparability and lower preparation costs.

Question 64

Which of the following is an ethical concern of accountants?

a. Earnings manipulation.
b. Conservative accounting.
c. Industry practices.
d. None of these answers are correct.

Answer 64

Earnings manipulation.

Question 65

21. Generally accepted accounting principles
    a. are fundamental truths or axioms that can be derived from laws of nature.
    b. derive their authority from legal court proceedings.
    c. derive their credibility and authority from general recognition and acceptance by the accounting profession.
    d. have been specified in detail in the FASB conceptual framework.

Answer 65

derive their credibility and authority from general recognition and acceptance by the accounting profession.

Question 66

A soundly developed conceptual framework of concepts and objectives should

a. increase financial statement users’ understanding of and confidence in financial reporting.
b. enhance comparability among companies’ financial statements.
c. allow new and emerging practical problems to be more quickly solved.
d. All of these answer choices are correct.

Answer 66

All of these answer choices are correct.

Question 67

Which of the following is not true concerning a conceptual framework in accounting?

a. It should be a basis for standard-setting.
b. It should allow practical problems to be solved more quickly by reference to it.
c. It should be based on fundamental truths that are derived from the laws of nature.
d. All of these answer choices are true.

Answer 67

It should be based on fundamental truths that are derived from the laws of nature.

Question 68

What is a purpose of having a conceptual framework?

a. To enable the profession to more quickly solve emerging practical problems.
b. To provide a foundation from which to build more useful standards.
c. Neither a nor b.
d. To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.

Answer 68

To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.

Question 69

Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

a. A conceptual framework should increase financial statement users’ understanding of and confidence in financial reporting.
b. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
c. A coherent set of accounting standards and rules should result.
d. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

Answer 69

Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

Question 70

In the conceptual framework for financial reporting, what provides “the why”–the purpose of accounting?

a. Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
b. Qualitative characteristics of accounting information
c. Elements of financial statements
d. Objective of financial reporting

Answer 70

Objective of financial reporting

Question 71

The underlying theme of the conceptual framework is

a. decision usefulness.
b. understandability.
c. faithful representation.
d. comparability.

Answer 71

decision usefulness.

Question 72

The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except

a. potential equity investors.
b. potential lenders.
c. present investors.
d. All of these answers are correct.

Answer 72

All of these answers are correct.

Question 73

What is the primary objective of financial reporting as indicated in the conceptual framework?

a. Provide information that is useful to those making investing and credit decisions.
b. Provide information that is useful to management.
c. Provide information about those investing in the entity.
d. All of these answer choices are correct.

Answer 73

Provide information that is useful to those making investing and credit decisions.

Question 74

If the LIFO inventory method was used last period, it should be used for the current and following periods because of

a. comparability.
b. materiality.
c. timeliness.
d. verifiability.

Answer 74

comparability.

Question 75

What is the following is a characteristic describing the primary quality of relevance?

a. Predictive value.
b. Materiality.
c. Verifiability.
d. Understandability.

Answer 75

Predictive value.

Question 76

Which of the following is a fundamental quality of useful accounting information?

a. Comparability.
b. Relevance.
c. Neutrality.
d. Materiality.

Answer 76

Relevance.

Question 77

Which of the following is a primary quality of useful accounting information?

a. Conservatism.
b. Comparability.
c. Faithful representation.
d. Consistency.

Answer 77

Faithful representation.

Question 78

What is meant by comparability when discussing financial accounting information?

a. Information has predictive or confirmatory value.
b. Information is reasonably free from error.
c. Information that is measured and reported in a similar fashion across companies.
d. Information is timely.

Answer 78

Information that is measured and reported in a similar fashion across companies.

Question 79

What is meant by consistency when discussing financial accounting information?

a. Information that is measured and reported in a similar fashion across points in time.
b. Information is timely.
c. Information is measured similarly across the industry.
d. Information is verifiable.

Answer 79

Information that is measured and reported in a similar fashion across points in time.

Question 80

Which of the following is an ingredient of relevance?

a. Verifiability.
b. Neutrality.
c. Timeliness.
d. Materiality.

Answer 80

Materiality.

Question 81

Which of the following is an ingredient of faithful representation?

a. Predictive value.
b. Materiality.
c. Neutrality.
d. Confirmatory value.

Answer 81

Neutrality.

Question 82

Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information?

a. Consistency.
b. Verifiability.
c. Timeliness.
d. Comparability.

Answer 82

Consistency.

Question 83

Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?

a. Comparability.
b. Timeliness.
c. Understandability.
d. Verifiability.

Answer 83

Timeliness.

Question 84

What is the quality of information that is capable of making a difference in a decision?

a. Faithful representation.
b. Materiality.
c. Timeliness.
d. Relevance.

Answer 84

Relevance.

Question 85

Neutrality is an ingredient of which fundamental quality of information?

a. Faithful representation.
b. Comparability.
c. Relevance.
d. Understandability.

Answer 85

Faithful representation.

Question 86

If the FIFO inventory method was used last period, it should be used for the current and following periods because of

a. relevance.
b. neutrality.
c. understandability.
d. consistency.

Answer 86

consistency.

Question 87

The pervasive criterion by which accounting information can be judged is that of

a. decision usefulness.
b. freedom from bias.
c. timeliness.
d. comparability.

Answer 87

decision usefulness.

Question 88

The two fundamental qualities that make accounting information useful for decision making are

a. comparability and timeliness.
b. materiality and neutrality.
c. relevance and faithful representation.
d. faithful representation and comparability.

Answer 88

relevance and faithful representation.

Question 89

Accounting information is considered to be relevant when it

a. can be depended on to represent the economic conditions and events that it is intended to represent.
b. is capable of making a difference in a decision.
c. is understandable by reasonably informed users of accounting information.
d. is verifiable and neutral.

Answer 89

is capable of making a difference in a decision.

Question 90

The quality of information that means the numbers and descriptions match what really existed or happened is

a. relevance.
b. faithful representation.
c. completeness.
d. neutrality.

Answer 90

faithful representation.

Question 91

Which of the following does not relate to relevance?

a. Materiality
b. Predictive value
c. Confirmatory value
d. All of these answer choices relate to relevance.

Answer 91

All of these answer choices relate to relevance.

Question 92

According to Statement of Financial Accounting Concepts No. 2, materiality is an ingredient of the fundamental quality of
		Relevance	Faithful Representation
	a.	Yes	Yes
	b.	No	Yes
	c.	Yes	No
	d.	No	No

Answer 92

Yes No

Question 93

According to Statement of Financial Accounting Concepts No. 2, completeness is an ingredient of the fundamental quality of
		Relevance	Faithful Representation
	a.	Yes	No
	b.	Yes	Yes
	c.	No	No
	d.	No	Yes

Answer 93

No Yes

Question 94

According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the fundamental quality of
		Relevance	Faithful Representation
	a.	Yes	Yes
	b.	No	Yes
	c.	Yes	No
	d.	No	No

Answer 94

No Yes

Question 95

Neutrality means that information

a. provides benefits which are at least equal to the costs of its preparation.
b. can be compared with similar information about an enterprise at other points in time.
c. would have no impact on a decision maker.
d. cannot favor one set of interested parties over another.

Answer 95

cannot favor one set of interested parties over another.

Question 96

The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is

a. relevance.
b. faithful representation.
c. verifiability.
d. neutrality.

Answer 96

verifiability.

Question 97

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of
		Relevance	Faithful Representation
	a.	Yes	No
	b.	Yes	Yes
	c.	No	No
	d.	No	Yes

Answer 97

Yes No

Question 98

Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of
		Faithful Representation	Relevance
	a.	Yes	Yes
	b.	No	Yes
	c.	Yes	No
	d.	No	No

Answer 98

Yes No

Question 99

Financial information demonstrates consistency when

a. firms in the same industry use different accounting methods to account for the same type of transaction.
b. a company changes its estimate of the salvage value of a fixed asset.
c. a company fails to adjust its financial statements for changes in the value of the measuring unit.
d. None of these answer choices are correct.

Answer 99

None of these answer choices are correct.

Question 100

Financial information exhibits the characteristic of consistency when

a. expenses are reported as charges against revenue in the period in which they are paid.
b. a company applies the same accounting treatment to similar events, from period to period.
c. extraordinary gains and losses are not included on the income statement.
d. accounting procedures are adopted which give a consistent rate of net income.

Answer 100

a company applies the same accounting treatment to similar events, from period to period.

Question 101

Information about different companies and about different periods of the same company can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?
		Comparability	Consistency
	a.	Companies	Companies
	b.	Companies	Periods
	c.	Periods	Companies

Answer 101

Companies Periods

Question 102

When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of

a. relevance.
b. faithful representation.
c. consistency.
d. None of these answer choices are correct.

Answer 102

None of these answer choices are correct.

Question 103

The elements of financial statements include investments by owners. These are increases in an entity’s net assets resulting from owners’

a. transfers of assets to the entity.
b. rendering services to the entity.
c. satisfaction of liabilities of the entity.
d. All of these answer choices are correct.

Answer 103

All of these answer choices are correct.

Question 104

In classifying the elements of financial statements, the primary distinction between revenues and gains is

a. the materiality of the amounts involved.
b. the likelihood that the transactions involved will recur in the future.
c. the nature of the activities that gave rise to the transactions involved.
d. the costs versus the benefits of the alternative methods of disclosing the transactions involved.

Answer 104

the nature of the activities that gave rise to the transactions involved.

Question 105

A decrease in net assets arising from peripheral or incidental transactions is called a(n)

a. capital expenditure.
b. cost.
c. loss.
d. expense.

Answer 105

loss.

Question 106

One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements,” comprehensive income is equal to

a. revenues minus expenses plus gains minus losses.
b. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners.
c. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities.
d. None of these answer choices are correct.

Answer 106

None of these answer choices are correct.

Question 107

Which of the following elements of financial statements is not a component of comprehensive income?

a. Revenues
b. Distributions to owners
c. Losses
d. Expenses

Answer 107

Distributions to owners

Question 108

The calculation of comprehensive income includes which of the following?
Operating Income Distributions to Owners
a. Yes Yes
b. No No
c. No Yes
d. Yes No

Answer 108

Yes No

Question 109

According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time?

a. Assets.
b. Expenses.
c. Equity.
d. Liabilities.

Answer 109

Expenses.

Question 110

According to the FASB Conceptual Framework, the elementsassets, liabilities, and equitydescribe amounts of resources and claims to resources at/during a
			Moment in Time	Period of Time
		a.	Yes	No
		b.	Yes	Yes
		c.	No	Yes
		d.	No	No

Answer 110

Yes No

Question 111

Which of the following is not a basic element of financial statements?

a. Assets.
b. Balance sheet.
c. Losses.
d. Revenue.

Answer 111

Balance sheet.

Question 112

Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement?

a. Equity.
b. Revenue.
c. Gains.
d. Expenses.

Answer 112

Equity.

Question 113

Issuance of common stock for cash affects which basic element of financial statements?

a. Revenues.
b. Losses.
c. Liabilities.
d. Equity

Answer 113

Equity.

Question 114

Which basic element of financial statements arises from peripheral or incidental transactions?

a. Assets.
b. Liabilities.
c. Gains.
d. Expenses.

Answer 114

Gains.

Question 115

Which of the following is not a basic assumption underlying the financial accounting structure?

a. Economic entity assumption.
b. Going concern assumption.
c. Periodicity assumption.
d. Historical cost assumption.

Answer 115

Historical cost assumption.

Question 116

Which basic assumption is illustrated when a firm reports financial results on an annual basis?

a. Economic entity assumption.
b. Going concern assumption.
c. Periodicity assumption.
d. Monetary unit assumption.

Answer 116

Periodicity assumption.

Question 117

Which basic assumption may not be followed when a firm in bankruptcy reports financial results?

a. Economic entity assumption.
b. Going concern assumption.
c. Periodicity assumption.
d. Monetary unit assumption.

Answer 117

Going concern assumption.

Question 118

Which accounting assumption or principle is being violated if a company provides financial reports only when it introduces a new product?

a. Economic entity.
b. Periodicity.
c. Revenue recognition.
d. Full disclosure.

Answer 118

Periodicity.

Question 119

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?

a. Monetary unit assumption.
b. Periodicity assumption.
c. Going-concern assumption.
d. Economic entity assumption.

Answer 119

Monetary unit assumption.

Question 120

During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of
		Relevance	Periodicity
	a.	No	No
	b.	Yes	No
	c.	No	Yes
	d.	Yes	Yes

Answer 120

No Yes

Question 121

Under current GAAP, inflation is ignored in accounting due to the

a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. periodicity assumption.

Answer 121

monetary unit assumption.

Question 122

The economic entity assumption

a. is inapplicable to unincorporated businesses.
b. recognizes the legal aspects of business organizations.
c. requires periodic income measurement.
d. is applicable to all forms of business organizations.

Answer 122

is applicable to all forms of business organizations.

Question 123

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the

a. economic entity assumption.
b. relevance characteristic.
c. comparability characteristic.
d. neutrality characteristic.

Answer 123

economic entity assumption.

Question 124

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?

a. Cost constraint
b. Periodicity assumption
c. Conservatism constraint
d. Expense recognition principle

Answer 124

Periodicity assumption

Question 125

What accounting concept justifies the usage of depreciation and amortization policies?

a. Going concern assumption
b. Fair value principle
c. Full disclosure principle
d. Monetary unit assumption

Answer 125

Going concern assumption

Question 126

The assumption that a company will not be sold or liquidated in the near future is known as the

a. economic entity assumption.
b. monetary unit assumption.
c. periodicity assumption.
d. None of these answer choices are correct.

Answer 126

None of these answer choices are correct.

Question 127

Which of the following is an implication of the going concern assumption?

a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current-noncurrent classification of assets and liabilities is justifiable and significant.
d. All of these.

Answer 127

All of these.

Question 128

Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more

a. verifiable.
b. relevant.
c. indicative of the entity’s purchasing power.
d. conservative.

Answer 128

verifiable.

Question 129

Valuing assets at their liquidation values rather than their cost is inconsistent with the

a. periodicity assumption.
b. expense recognition principle.
c. materiality constraint.
d. historical cost principle.

Answer 129

historical cost principle.

Question 130

Revenue is recognized in the accounting period in which the performance obligation is satisfied. This statement describes the

a. consistency characteristic.
b. expense recognition principle.
c. revenue recognition principle.
d. relevance characteristic.

Answer 130

revenue recognition principle.

Question 131

Generally, revenue from sales should be recognized at a point when

a. management decides it is appropriate to do so.
b. the product is available for sale to the ultimate consumer.
c. the entire amount receivable has been collected from the customer and there remains no further warranty liability.
d. None of these answer choices are correct.

Answer 131

None of these answer choices are correct.

Question 132

Revenue generally should be recognized

a. at the end of production.
b. at the time of cash collection.
c. when realized.
d. when the performance obligation is satisfied.

Answer 132

when the performance obligation is satisfied.

Question 133

The measurement principle includes the

a. fair value principle only.
b. historical cost principle only.
c. revenue recognition principle and expense recognition principle.
d. historical cost principle and the fair value principle.

Answer 133

historical cost principle and the fair value principle.

Question 134

Which of the following is commonly referred to as the matching principle?

a. Revenue recognition principle
b. Measurement principle
c. Expense recognition principle
d. Full disclosure principle

Answer 134

Expense recognition principle

Question 135

Product costs include each of the following except

a. overhead.
b. officer’s salaries.
c. material.
d. labor.

Answer 135

officer’s salaries.

Question 136

The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the

a. consistency characteristic.
b. expense recognition principle.
c. materiality quality.
d. revenue recognition principle.

Answer 136

expense recognition principle.

Question 137

The accounting principle of expense recognition is best demonstrated by

a. not recognizing any expense unless some revenue is realized.
b. associating effort (expense) with accomplishment (revenue).
c. recognizing prepaid rent received as revenue.
d. establishing an Appropriation for Contingencies account.

Answer 137

associating effort (expense) with accomplishment (revenue).

Question 138

Which of the following serves as the justification for the periodic recording of depreciation expense?

a. Association of efforts (expense) with accomplishments (revenue)
b. Systematic and rational allocation of cost over the periods benefited
c. Immediate recognition of an expense
d. Minimization of income tax liability

Answer 138

Systematic and rational allocation of cost over the periods benefited

Question 139

Application of the full disclosure principle

a. is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits.
b. is violated when important financial information is buried in the notes to the financial statements.
c. is demonstrated by the use of supplementary information explaining the effects of financing arrangements.
d. requires that the financial statements be consistent and comparable.

Answer 139

is demonstrated by the use of supplementary information explaining the effects of financing arrangements.

Question 140

Which of the following is an argument against using historical cost in accounting?

a. Fair values are more relevant.
b. Historical costs are based on an exchange transaction.
c. Historical costs are reliable.
d. Fair values are subjective.

Answer 140

Fair values are more relevant.

Question 141

When is revenue generally recognized?

a. When cash is received.
b. When the warranty expires.
c. When production is completed.
d. When the company satisfies the performance obligation.

Answer 141

When the company satisfies the performance obligation.

Question 142

Which of the following is a component of the revenue recognition principle?

a. Cash is received and the amount is material.
b. Recognition occurs when the performance obligation is satisfied.
c. Production is complete and there is an active market for the product.
d. Cash is realized or realizable and production is complete.

Answer 142

Recognition occurs when the performance obligation is satisfied.

Question 143

A company has a performance obligation when it agrees to

a. perform a service for a customer and receives cash payment.
b. sell a product to a customer after receiving payment.
c. perform a service or sell a product to a customer.
d. None of the answer choices are correct.

Answer 143

perform a service or sell a product to a customer.

Question 144

Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles?

a. President’s letter to shareholders.
b. Balance sheet.
c. Income statement.
d. Notes to financial statements.

Answer 144

President’s letter to shareholders.

Question 145

What is the general approach as to when product costs are recognized as expenses?

a. In the period when the expenses are paid.
b. In the period when the expenses are incurred.
c. In the period when the vendor invoice is received.
d. In the period when the related revenue is recognized.

Answer 145

In the period when the related revenue is recognized.

Question 146

Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting?

a. Economic entity.
b. Going concern.
c. Historical cost.
d. Full disclosure.

Answer 146

Historical cost.

Question 147

Recognition of expense related to amortization of an intangible asset illustrates which principle of accounting?

a. Expense recognition.
b. Full disclosure.
c. Revenue recognition.
d. Historical cost.

Answer 147

Expense recognition.

Question 148

When should an expenditure be recorded as an asset rather than an expense?

a. Never.
b. Always.
c. If the amount is material.
d. When future benefit exists.

Answer 148

When future benefit exists.

Question 149

Which accounting assumption or principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet?

a. Going concern.
b. Monetary unit.
c. Historical cost.
d. Full disclosure.

Answer 149

Historical cost.

Question 150

Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company’s stock price?

a. Full disclosure.
b. Going concern.
c. Historical cost.
d. Expense recognition

Answer 150

Full disclosure.

Question 151

Which assumption or principle requires that all information significant enough to affect a decision of reasonably informed users should be reported in the financial statements?

a. Matching.
b. Going concern.
c. Historical cost.
d. Full disclosure.

Answer 151

Full disclosure.

Question 152

A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle?

a. Revenue recognition.
b. Going concern.
c. Historical cost.
d. Monetary unit.

Answer 152

Historical cost.

Question 153

Which of the following is a constraint in presenting financial information?

a. Cost-benefit relationship.
b. Full disclosure.
c. Relevance.
d. Consistency.

Answer 153

Cost-benefit relationship.

Question 154

All of the following represent costs of providing financial information except

a. preparing.
b. disseminating.
c. accessing capital.
d. auditing.

Answer 154

accessing capital.

Question 155

Which of the following is a benefit of providing financial information?

a. Potential litigation.
b. Auditing.
c. Disclosure to competition.
d. Improved allocation of resources.

Answer 155

Improved allocation of resources

Question 156

Where is materiality not used in providing financial information?

a. Applying the revenue recognition principle.
b. Determining what items to include in the financial statements.
c. Applying the going concern assumption.
d. Determining the level of disclosure.

Answer 156

Applying the going concern assumption.

Question 157

What is prudence or conservatism?

a. Understating assets and net income.
b. When in doubt, recognizing the option that is least likely to overstate assets and income.
c. Recognizing the option that is least likely to overstate assets and income.
d. Recognizing revenue when earned and realized.

Answer 157

When in doubt, recognizing the option that is least likely to overstate assets and income.

Question 158

Expensing the cost of copy paper when the paper is acquired is an example

a. materiality.
b. expense recognition.
c. conservatism.
d. industry practices.

Answer 158

materiality.

Question 159

Which of the following statements concerning the cost-benefit relationship is not true?

a. Business reporting should exclude information outside of management’s expertise.
b. Management should not be required to report information that would significantly harm the company’s competitive position.
c. Management should not be required to provide forecasted financial information.
d. If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.

Answer 159

If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.

Question 160

Which of the following relates to both relevance and faithful representation?

a. Cost constraint
b. Predictive value
c. Verifiability
d. Neutrality

Answer 160

Cost constraint

Question 161

Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the

a. consistency characteristic.
b. expense recognition principle.
c. materiality quality.
d. historical cost principle.

Answer 161

materiality quality.

Question 162

Which of the following statements about materiality is correct?

a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of relative size or importance.
c. An item is material if its inclusion or omission would influence or change the judgment of a reasonable person.
d. All of these answers are correct.

Answer 162

All of these answers are correct.

Question 163

Which of the following is considered a pervasive constraint by Statement of Financial Accounting Concepts No. 8?

a. Conservatism
b. Timeliness
c. Verifiability
d. Cost-constraint

Answer 163

Cost-constraint

Question 164

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as

a. prudence or conservatism.
b. the materiality concept.
c. the substance over form principle.
d. the industry practices concept.

Answer 164

prudence or conservatism.

Question 165

The second level of the conceptual framework includes each of the following except

a. elements.
b. principles.
c. enhancing qualities.
d. fundamental qualities.

Answer 165

principles.

Question 166

Trade-offs between the characteristics that make information useful may be necessary or beneficial. Issuance of interim financial statements is an example of a trade-off between

a. relevance and faithful representation.
b. faithful representation and periodicity.
c. timeliness and materiality.
d. understandability and timeliness.

Answer 166

relevance and faithful representation.

Question 167

Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between

a. verifiability and faithful representation.
b. faithful representation and comparability.
c. timeliness and verifiability.
d. neutrality and consistency.

Answer 167

timeliness and verifiability.

Question 168

In matters of doubt and great uncertainty, accounting issues should be resolved by choosing the alternative that has the least favorable effect on net income, assets, and owners’ equity. This guidance comes from

a. the cost constraint.
b. the industry practices constraint.
c. prudence or conservatism.
d. the full disclosure principle.

Answer 168

prudence or conservatism.

Question 169

Factors that shape an accounting information system include the

	a. nature of the business.
	b. size of the firm.
	c. volume of data to be handled.
	d. All of these answer choices are correct.

Answer 169

All of these answer choices are correct.

Question 170

The process of transferring figures from the book of original entry to the ledger accounts is called

	a. adjusting.
	b. balancing.
	c. ledgering.
	d. posting.

Answer 170

posting.

Question 171

Debit always means

	a. the right side of an account.
	b. an increase.
	c. a decrease.
	d. None of these answer choices are correct.

Answer 171

None of these answer choices are correct.

Question 172

An accounting record into which the essential facts and figures in connection with all transactions are first recorded is called the

	a. ledger.
	b. account.
	c. trial balance.
	d. None of these answer choices are correct.

Answer 172

None of these answer choices are correct.

Question 173

A trial balance

a. proves that debits and credits are equal in the ledger.
b. supplies a listing of open accounts and their balances that are used in preparing financial statements.
c. is normally prepared three times in the accounting cycle.
d. All of these answer choices are correct.

Answer 173

All of these answer choices are correct.

Question 174

Which of the following is a real (permanent) account?

	a. Goodwill
	b. Service Revenue
	c. Accounts Receivable
	d. Both Goodwill and Accounts Receivable

Answer 174

Both Goodwill and Accounts Receivable

Question 175

Which of the following is a nominal (temporary) account?

	a. Unearned Service Revenue
	b. Salaries and Wages Expense
	c. Inventory
	d. Retained Earnings

Answer 175

Salaries and Wages Expense

Question 176

Nominal accounts are also called

	a. temporary accounts.
	b. permanent accounts.
	c. real accounts.
	d. None of these answer choices are correct.

Answer 176

temporary accounts.

Question 177

The double-entry accounting system means

	a. Each transaction is recorded with two journal entries.
	b. Each item is recorded in a journal entry, then in a general ledger account.
	c. The dual effect of each transaction is recorded with a debit and a credit.
	d. None of these answer choices are correct.

Answer 177

None of these answer choices are correct.

Question 178

When a corporation pays a note payable and interest,

	a. the account notes payable will be increased.
	b. the account interest expense will be decreased.
	c. they will debit notes payable and interest expense.
	d. they will debit cash.

Answer 178

they will debit notes payable and interest expense.

Question 179

Stockholders’ equity is not affected by all

	a. cash receipts.
	b. dividends.
	c. revenues.
	d. expenses.

Answer 179

cash receipts.

Question 180

The debit and credit analysis of a transaction normally takes place

	a. before an entry is recorded in a journal.
	b. when the entry is posted to the ledger.
	c. when the trial balance is prepared.
	d. at the end of the accounting cycle.

Answer 180

before an entry is recorded in a journal.

Question 181

The accounting equation must remain in balance

	a. throughout each step in the accounting cycle.
	b. only when journal entries are recorded.
	c. only at the time the trial balance is prepared.
	d. only when formal financial statements are prepared.

Answer 181

throughout each step in the accounting cycle.

Question 182

The difference between the accounting process and the accounting cycle is

a. the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions.
b. the accounting cycle represents the steps taken to accomplish the accounting process.
c. the accounting process represents the steps taken to accomplish the accounting cycle.
d. merely semantic, because both concepts refer to the same thing.

Answer 182

the accounting cycle represents the steps taken to accomplish the accounting process.

Question 183

An optional step in the accounting cycle is the preparation of

a. adjusting entries.
b. closing entries.
c. a statement of cash flows.
d. a post-closing trial balance.

Answer 183

a post-closing trial balance.

Question 184

Which of the following criteria must be met before an event or item should be recorded for accounting purposes?

	a. The event or item can be measured objectively in financial terms.
	b. The event or item is relevant and reliable.
	c. The event or item is an element.
	d. All of these must be met.

Answer 184

All of these must be met.

Question 185

Which of the following is a recordable event or item?

	a. Changes in managerial policy
	b. The value of human resources
	c. Changes in personnel
	d. None of these answer choices are correct.

Answer 185

None of these answer choices are correct.

Question 186

Which of the following is not an internal event?

	a. Depreciation
	b. Using raw materials in the production process
	c. Dividend declaration and subsequent payment
	d. All of these are internal transactions.

Answer 186

Dividend declaration and subsequent payment

Question 187

External events do not include

	a. interaction between an entity and its environment.
	b. a change in the price of a good or service that an entity buys or sells.
	c. improvement in technology by a competitor.
	d. using buildings and machinery in operations.

Answer 187

using buildings and machinery in operations.

Question 188

A trial balance may prove that debits and credits are equal, but

	a. an amount could be entered in the wrong account.
	b. a transaction could have been entered twice.
	c. a transaction could have been omitted.
	d. All of these answer choices are correct

Answer 188

All of these answer choices are correct.

Question 189

A general journal

	a. chronologically lists transactions and other events, expressed in terms of debits and credits.
	b. contains one record for each of the asset, liability, stockholders’ equity, revenue, and expense accounts.
	c. lists all the increases and decreases in each account in one place.
	d. contains only adjusting entries.

Answer 189

chronologically lists transactions and other events, expressed in terms of debits and credits.

Question 190

A journal entry to record the sale of inventory on account will include a

	a. debit to Inventory.
	b. debit to Accounts Receivable.
	c. debit to Sales Revenue.
	d. credit to Cost of Goods Sold.

Answer 190

debit to Accounts Receivable.

Question 191

A journal entry to record a payment on account will include a

	a. debit to Accounts Receivable.
	b. credit to Accounts Receivable.
	c. debit to Accounts Payable.
	d. credit to Accounts Payable.

Answer 191

debit to Accounts Payable.

Question 192

A journal entry to record a receipt of rent in advance will include a

	a. debit to Rent Revenue.
	b. credit to Rent Revenue.
	c. credit to Cash.
	d. credit to Unearned Revenue

Answer 192

credit to Unearned Revenue.

Question 193

Which of the following errors will cause an imbalance in the trial balance?

a. Omission of a transaction in the journal.
b. Posting an entire journal entry twice to the ledger.
c. Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable.
d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

Answer 193

Listing the balance of an account with a debit balance in the credit column of the trial balance.

Question 194

Which of the following is not a principal purpose of an unadjusted trial balance?

a. It proves that debits and credits of equal amounts are in the ledger.
b. It is the basis for any adjustments to the account balances.
c. It supplies a listing of open accounts and their balances.
d. It proves that debits and credits were properly entered in the ledger accounts.

Answer 194

It proves that debits and credits were properly entered in the ledger accounts.

Question 195

An adjusting entry should never include

a. a debit to an expense account and a credit to a liability account.
b. a debit to an expense account and a credit to a revenue account.
c. a debit to a liability account and a credit to revenue account.
d. a debit to a revenue account and a credit to a liability account.

Answer 195

a debit to an expense account and a credit to a revenue account.

Question 196

Which of the following is an example of an accrued expense?

a. Office supplies purchased at the beginning of the year and debited to an expense account.
b. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.
c. Depreciation expense
d. Rent recognized during the period, to be received at the end of the year

Answer 196

Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.

Question 197

Which of the following statements is true about the accrual basis of accounting?

a. The timing of cash receipts and disbursements is emphasized.
b. A minimal amount of record keeping is required in accrual basis accounting compared to cash basis.
c. This method is used less frequently by businesses than the cash method of accounting.
d. Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.

Answer 197

Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.

Question 198

An adjusting entry to record an accrued expense involves a debit to a(an)

a. expense account and a credit to a prepaid account.
b. expense account and a credit to Cash.
c. expense account and a credit to a liability account.
d. liability account and a credit to an expense account.

Answer 198

expense account and a credit to a liability account

Question 199

The failure to properly record an adjusting entry to accrue an expense will result in an
a. understatement of expenses and an understatement of liabilities.
b. understatement of expenses and an overstatement of liabilities.
c. understatement of expenses and an overstatement of assets.
d. overstatement of expenses and an understatement of assets.
v

Answer 199

understatement of expenses and an understatement of liabilities.

Question 200

Which of the following properly describes a deferral?

a. Cash is received after revenue is recognized.
b. Cash is received before revenue is recognized.
c. Cash is paid after expense is incurred.
d. Cash is paid in the same time period that an expense is incurred.

Answer 200

Cash is received before revenue is recognized.

Question 201

The failure to properly record an adjusting entry to accrue a revenue item will result in an

a. understatement of revenues and an understatement of liabilities.
b. overstatement of revenues and an overstatement of liabilities.
c. overstatement of revenues and an overstatement of assets.
d. understatement of revenues and an understatement of assets.

Answer 201

understatement of revenues and an understatement of assets.

Question 202

The omission of the adjusting entry to record depreciation expense will result in an

a. overstatement of assets and an overstatement of owners’ equity.
b. understatement of assets and an understatement of owner’s equity.
c. overstatement of assets and an overstatement of liabilities.
d. overstatement of liabilities and an understatement of owners’ equity.

Answer 202

overstatement of assets and an overstatement of owners’ equity.

Question 203

Adjustments are often prepared

	a. after the balance sheet date, but dated as of the balance sheet date.
	b. after the balance sheet date, and dated after the balance sheet date.
	c. before the balance sheet date, and dated before the balance sheet date.
	d. before the balance sheet date, and dated after the balance sheet date.

Answer 203

after the balance sheet date, but dated as of the balance sheet date.

Question 204

At the time a company prepays a cost

	a. it debits an asset account to show the service or benefit it will receive in the future.
	b. it debits an expense account to match the expense against revenues recognized.
	c. its credits a liability account to show the obligation to pay for the service in the future.
	d. it credits an asset account and debits an expense account.

Answer 204

it debits an asset account to show the service or benefit it will receive in the future.

Question 205

How do these prepaid expenses expire?
Rent Supplies
a. With the passage of time Through use and consumption
b. With the passage of time With the passage of time
c. Through use and consumption Through use and consumption
d. Through use and consumption With the passage of time

Answer 205

With the passage of time Through use and consumption

Question 206

Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for

	a. an unearned revenue.
	b. a prepaid expense.
	c. an accrued revenue.
	d. an accrued expense.

Answer 206

a prepaid expense.

Question 207

Unearned revenue on the books of one company is likely to be

	a. a prepaid expense on the books of the company that made the advance payment.
	b. an unearned revenue on the books of the company that made the advance payment.
	c. an accrued expense on the books of the company that made the advance payment.
	d. an accrued revenue on the books of the company that made the advance payment.

Answer 207

a prepaid expense on the books of the company that made the advance payment.

Question 208

To compute interest expense on a note for an adjusting entry, the formula is (principal × annual rate × a fraction). The numerator and denominator of the fraction are:
Numerator Denominator
a. Length of time note has been outstanding 12 months
b. Total length of note 12 months
c. Length of time until note matures Total length of note
d. Length of time note has been outstanding Total length of note

Answer 208

Length of time note has been outstanding 12 months

Question 209

Adjusting entries are necessary to

			1. obtain a proper matching of revenue and expense.
			2. achieve an accurate statement of assets and equities.
			3. adjust assets and liabilities to their fair market value.
	a. 1
	b. 2
	c. 3
	d. 1 and 2

Answer 209

1 and 2

Question 210

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

	a. To reduce the federal income tax liability
	b. To aid management in cash-flow analysis
	c. To match the costs of production with revenues as recognized
	d. To adhere to the accounting constraint of conservatism

Answer 210

To match the costs of production with revenues as recognized

Question 211

When an expense is paid in cash before it is used, it is called a(n)

	a. prepaid expense.
	b. accrued expense.
	c. estimated expense.
	d. cash expense.

Answer 211

prepaid expense.

Question 212

When revenue or expense has been recognized or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense.

	a. deferred
	b. adjusted
	c. estimated
	d. None of these answer choices are correct.

Answer 212

None of these answer choices are correct.

Question 213

When a revenue is collected and recorded in advance, it is normally accounted for as a(n) ___________ revenue.

	a. accrued
	b. prepaid
	c. unearned
	d. cash

Answer 213

unearned

Question 214

An accrued expense can best be described as an amount

	a. paid and currently matched with earnings.
	b. paid and not currently matched with earnings.
	c. not paid and not currently matched with earnings.
	d. not paid and currently matched with earnings.

Answer 214

not paid and currently matched with earnings.

Question 215

During an accounting period, if an expense has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

	a. a liability account and an asset account.
	b. an asset or contra asset account and an expense account.
	c. a liability account and an expense account.
	d. a receivable account and a revenue account.

Answer 215

a liability account and an expense account.

Question 216

Which of the following must be considered in estimating depreciation on an asset for an accounting period?

	a. The original cost of the asset
	b. Its useful life
	c. The decline of its fair value
	d. Both the original cost of the asset and its useful life.

Answer 216

Both the original cost of the asset and its useful life.

Question 217

Which of the following would not be a correct form for an adjusting entry?

	a. A debit to a revenue and a credit to a liability
	b. A debit to an expense and a credit to a liability
	c. A debit to a liability and a credit to a revenue
	d. A debit to an asset and a credit to a liability

Answer 217

A debit to an asset and a credit to a liability

Question 218

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?

	a. Expiration of prepaid insurance
	b. Depreciation of fixed assets
	c. Use of supplies
	d. All of these answer choices are correct.

Answer 218

All of these answer choices are correct.

Question 219

A prepaid expense can best be described as an amount

	a. paid and currently matched with revenues.
	b. paid and not currently matched with revenues.
	c. not paid and currently matched with revenues.
	d. not paid and not currently matched with revenues.

Answer 219

paid and not currently matched with revenues.

Question 220

An accrued revenue can best be described as an amount

	a. collected and currently matched with expenses.
	b. collected and not currently matched with expenses.
	c. not collected and currently matched with expenses.
	d. not collected and not currently matched with expenses.

Answer 220

not collected and currently matched with expenses.

Question 221

An unearned revenue can best be described as an amount

	a. collected and currently matched with expenses.
	b. collected and not currently matched with expenses.
	c. not collected and currently matched with expenses.
	d. not collected and not currently matched with expenses.

Answer 221

collected and not currently matched with expenses.

Question 222

An adjusted trial balance

	a. is prepared after the financial statements are completed.
	b. proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have been made.
	c. is a required financial statement under generally accepted accounting principles.
	d. cannot be used to prepare financial statements.

Answer 222

proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have been made.

Question 223

Which type of account is always debited during the closing process?

	a. Dividends
	b. Expense
	c. Revenue
	d. Retained earnings

Answer 223

Revenue

Question 224

Which of the following statements best describes the purpose of closing entries?

a. To faciliate posting and taking a trial balance.
b. To determine the amount of net income or net loss for the following period.
c. To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.
d. To complete the record of various transactions that were started in a prior period.

Answer 224

To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.

Question 225

If ending accounts receivable exceeds the beginning accounts receivable

a. cash collections during the period exceed the amount of revenue recognized.
b. net income for the period is less than the amount of cash-basis income.
c. no cash was collected during the period.
d. cash collections during the year are less than the amount of revenue recognized.

Answer 225

cash collections during the year are less than the amount of revenue recognized.

Question 226

Under the cash-basis of accounting, revenues are recorded

	a. when they are recognized and realized.
	b. when they are recognized and realizable.
	c. when they are recognized.
	d. when they are realized.

Answer 226

when they are realized.

Question 227

When converting from cash-basis to accrual-basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual-basis service revenue?

	a. Subtract ending accounts receivable.
	b. Subtract beginning unearned service revenue.
	c. Add ending accounts receivable.
	d. Add cash sales.

Answer 227

Add ending accounts receivable.

Question 228

When converting from cash-basis to accrual-basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual-basis operating expenses?

	a. Add beginning accrued liabilities.
	b. Subtract beginning prepaid expense.
	c. Subtract ending prepaid expense.
	d. Subtract interest expense.

Answer 228

Subtract ending prepaid expense.

Question 229

Reversing entries are

			1. normally prepared for prepaid, accrued, and estimated items.
			2. necessary to achieve a proper matching of revenue and expense.
			3. useful in simplifying the recording of transactions in the next accounting period.
	a. 1
	b. 2
	c. 3
	d. 1 and 2

Answer 229

3

Question 230

Adjusting entries that should be reversed include those for prepaid or unearned items that

a. create an asset or a liability account.
b. were originally entered in a revenue or expense account.
c. were originally entered in an asset or liability account.
d. create an asset or a liability account and were originally entered in a revenue or expense account.

Answer 230

create an asset or a liability account and were originally entered in a revenue or expense account.

Question 231

Adjusting entries that should be reversed include

	a. all accrued revenues.
	b. all accrued expenses.
	c. those that debit an asset or credit a liability.
	d. All of these answer choices are correct.

Answer 231

All of these answer choices are correct.

Question 232

A reversing entry should never be made for an adjusting entry that

a. accrues unrecorded revenue.
b. adjusts expired costs from an asset account to an expense account.
c. accrues unrecorded expenses.
d. adjusts unexpired costs from an expense account to an asset account.

Answer 232

adjusts expired costs from an asset account to an expense account.

Question 233

The worksheet for Sharko Co. consisted of five pairs of debit and credit columns. The dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. That item is

a. net income for the period.
b. beginning inventory.
c. cost of goods sold.
d. net loss for the period.

Answer 233

net loss for the period.

Question 234

The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general expense.
b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect.
c. revenues, expenses, gains, and losses.
d. all of these.

Answer 234

revenues, expenses, gains, and losses.

Question 235

Information in the income statement helps users to

a. evaluate the past performance of the enterprise.
b. provide a basis for predicting future performance.
c. help assess the risk or uncertainty of achieving future cash flows.
d. all of these.

Answer 235

all of these.

Question 236

Limitations of the income statement include all of the following except

a. items that cannot be measured reliably are not reported.
b. only actual amounts are reported in determining net income.
c. income measurement involves judgment.
d. income numbers are affected by the accounting methods employed.

Answer 236

income numbers are affected by the accounting methods employed.

Question 237

The income statement information would help in which of the following tasks?

a. Evaluate the liquidity of a company.
b. Evaluate the solvency of a company
c. Estimate future cash flows
d. Estimate future financial flexibility

Answer 237

Estimate future cash flows

Question 238

Which of the following is an example of managing earnings down?

a. Changing estimated bad debts from 3 percent to 2.5 percent of sales.
b. Revising the estimated life of equipment from 10 years to 8 years.
c. Not writing off obsolete inventory.
d. Reducing research and development expenditures.

Answer 238

Revising the estimated life of equipment from 10 years to 8 years.

Question 239

Which of the following is an example of managing earnings up?

a. Decreasing estimated salvage value of equipment.
b. Writing off obsolete inventory.
c. Underestimating warranty claims.
d. Accruing a contingent liability for an ongoing lawsuit.

Answer 239

Underestimating warranty claims.

Question 240

What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income?

a. Increase research and development activities.
b. Relax credit policies for customers.
c. Delay shipments to customers until after the end of the fiscal year.
d. Delay purchases from suppliers until after the end of the fiscal year.

Answer 240

Relax credit policies for customers.

Question 241

Which of the following is not a generally practiced method of presenting the income statement?

a. Including prior period adjustments in determining net income
b. The single-step income statement
c. The consolidated statement of income
d. Including gains and losses from discontinued operations of a component of a business in determining net income

Answer 241

Including prior period adjustments in determining net income

Question 242

The occurrence which most likely would have no effect on 2012 net income (assuming that all amounts involved are material) is the

a. sale in 2012 of an office building contributed by a stockholder in 1983.
b. collection in 2012 of a receivable from a customer whose account was written off in 2011 by a charge to the allowance account.
c. settlement based on litigation in 2012 of previously unrecognized damages from a serious accident which occurred in 2010.
d. worthlessness determined in 2012 of stock purchased on a speculative basis in 2008.

Answer 242

collection in 2012 of a receivable from a customer whose account was written off in 2011 by a charge to the allowance account.

Question 243

In order to be classified as an extraordinary item in the income statement, an event or transaction should be

a. unusual in nature, infrequent, and material in amount.
b. unusual in nature and infrequent, but it need not be material.
c. infrequent and material in amount, but it need not be unusual in nature.
d. unusual in nature and material, but it need not be infrequent.

Answer 243

unusual in nature, infrequent, and material in amount.

Question 244

Classification as an extraordinary item on the income statement would be appropriate for the

a. gain or loss on disposal of a component of the business.
b. substantial write-off of obsolete inventories.
c. loss from a strike.
d. none of these.

Answer 244

none of these.

Question 245

Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes?

a. Only if floods in the geographical area are unusual in nature and occur infrequently.
b. Only if the flood damage is material in amount and could have been reduced by prudent management.
c. Under any circumstances as an extraordinary item.
d. Flood damage should never be classified as an extraordinary item.

Answer 245

Only if floods in the geographical area are unusual in nature and occur infrequently.

Question 246

How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements?

a. Shown as a separate item in operating revenues or expenses if material and supplemented by a footnote if deemed appropriate.
b. Shown in operating revenues or expenses if material but not shown as a separate item.
c. Shown net of income tax after ordinary net earnings but before extraordinary items.
d. Shown net of income tax after extraordinary items but before net earnings.

Answer 246

Shown as a separate item in operating revenues or expenses if material and supplemented by a footnote if deemed appropriate.

Question 247

Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?

a. The gain or loss on disposal should be reported as an extraordinary item.
b. Results of operations of a discontinued component should be disclosed immediately below extraordinary items.
c. Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement.
d. The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.

Answer 247

Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement.

Question 248

When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as

a. a prior period adjustment.
b. an extraordinary item.
c. an amount after continuing operations and before extraordinary items.
d. a bulk sale of plant assets included in income from continuing operations.

Answer 248

an amount after continuing operations and before extraordinary items.

Question 249

A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement
	Net of Tax	Disclosed Separately
a.	No	No
b.	Yes	Yes
c.	No	Yes
d.	Yes	No

Answer 249

No Yes

Question 250

Companies use intraperiod tax allocation for all of the following items except

a. Discontinued operations.
b. Extraordinary items.
c. Changes in accounting estimates.
d. Income from continuing operations.

Answer 250

Changes in accounting estimates.

Question 251

Which of the following earnings per share figures must be disclosed on the face of the income statement?

a. EPS for income before taxes.
b. The effect on EPS from unusual items.
c. EPS for gross profit.
d. EPS for income from continuing operations.

Answer 251

EPS for income from continuing operations.

Question 252

A correction of an error in prior periods' income will be reported
	In the income statement	Net of tax
a.	Yes	Yes
b.	No	No
c.	Yes	No
d.	No	Yes

Answer 252

No Yes

Question 253

Which of the following items will not appear in the retained earnings statement?

a. Net loss
b. Prior period adjustment
c. Discontinued operations
d. Dividends

Answer 253

Discontinued operations

Question 254

Which one of the following types of losses is excluded from the determination of net income in income statements?

a. Material losses resulting from transactions in the company’s investments account.
b. Material losses resulting from unusual sales of assets not acquired for resale.
c. Material losses resulting from the write-off of intangibles.
d. Material losses resulting from correction of errors related to prior periods.

Answer 254

Material losses resulting from correction of errors related to prior periods.

Question 255

Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as

a. an increase in depreciation expense for the year in which the error is discovered.
b. a component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements.
c. an extraordinary item for the year in which the error was made.
d. a prior period adjustment.

Answer 255

a prior period adjustment.

Question 256

Which of the following is included in comprehensive income?

a. Investments by owners.
b. Unrealized gains on available-for-sale securities.
c. Distributions to owners.
d. Changes in accounting principles.

Answer 256

Unrealized gains on available-for-sale securities.

Question 257

Which of the following is not an acceptable way of displaying the components of other comprehensive income?

a. Combined statement of retained earnings
b. Second income statement
c. Combined statement of comprehensive income
d. As part of the statement of stockholders’ equity

Answer 257

Combined statement of retained earnings

Question 258

Comprehensive income includes all of the following except

a. dividend revenue.
b. losses on disposal of assets.
c. investments by owners.
d. unrealized holding gains.

Answer 258

investments by owners.

Question 259

Which of the following is a limitation of the balance sheet?

a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these

Answer 259

All of these

Question 260

Balance sheet information is useful for all of the following except to

a. compute rates of return
b. analyze cash inflows and outflows for the period
c. evaluate capital structure
d. assess future cash flows

Answer 260

analyze cash inflows and outflows for the period

Question 261

The correct order to present current assets is

a. cash, accounts receivable, prepaid items, inventories.
b. cash, accounts receivable, inventories, prepaid items.
c. cash, inventories, accounts receivable, prepaid items.
d. cash, inventories, prepaid items, accounts receivable.

Answer 261

cash, accounts receivable, inventories, prepaid items.

Question 262

The basis for classifying assets as current or noncurrent is conversion to cash within

a. the accounting cycle or one year, whichever is shorter.
b. the operating cycle or one year, whichever is longer.
c. the accounting cycle or one year, whichever is longer.
d. the operating cycle or one year, whichever is shorter.

Answer 262

the operating cycle or one year, whichever is longer

Question 263

Which of the following is a current asset?

a. Cash surrender value of a life insurance policy of which the company is the beneficiary.
b. Investment in equity securities for the purpose of controlling the issuing company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installment receivables normally collectible in 18 months.

Answer 263

Trade installment receivables normally collectible in 18 months.

Question 264

Which of the following should not be considered as a current asset in the balance sheet?

a. Installment notes receivable due over 18 months in accordance with normal trade practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the business.
c. Equity or debt securities purchased with cash available for current operations.
d. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.

Answer 264

The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.

Question 265

Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as

a. current assets.
b. property, plant, and equipment.
c. intangible assets.
d. long-term investments.

Answer 265

long-term investments.

Question 266

When a portion of inventories has been pledged as security on a loan,

a. the value of the portion pledged should be subtracted from the debt.
b. an equal amount of retained earnings should be appropriated.
c. the fact should be disclosed but the amount of current assets should not be affected.
d. the cost of the pledged inventories should be transferred from current assets to noncurrent assets.

Answer 266

the fact should be disclosed but the amount of current assets should not be affected.

Question 267

Which of the following is not a long-term investment?

a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund

Answer 267

Franchise

Question 268

A generally accepted method of valuation is

1. trading securities at market value.
2. accounts receivable at net realizable value.
3. inventories at current cost.
   a. 1
   b. 2
   c. 3
   d. 1 and 2

Answer 268

1 and 2

Question 269

Which item below is not a current liability?

a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable

Answer 269

Stock dividends distributable

Question 270

Working capital is

a. capital which has been reinvested in the business.
b. unappropriated retained earnings.
c. cash and receivables less current liabilities.
d. none of these.

Answer 270

none of these.

Question 271

An example of an item which is not an element of working capital is

a. accrued interest on notes receivable.
b. goodwill.
c. goods in process.
d. temporary investments.

Answer 271

goodwill.

Question 272

Long-term liabilities include

a. obligations not expected to be liquidated within the operating cycle.
b. obligations payable at some date beyond the operating cycle.
c. deferred income taxes and most lease obligations.
d. all of these.

Answer 272

all of these.

Question 273

Which of the following should be excluded from long-term liabilities?
a. Obligations payable at some date beyond the operating cycle
b. Most pension obligations
c. Long-term liabilities that mature within the operating cycle and will be paid from a sinking fund
d. None of these
None of these

Answer 273

None of these

Question 274

Treasury stock should be reported as a(n)

a. current asset.
b. investment.
c. other asset.
d. reduction of stockholders’ equity.

Answer 274

reduction of stockholders’ equity.

Question 275

Which of the following should be reported for capital stock?

a. The shares authorized
b. The shares issued
c. The shares outstanding
d. All of these

Answer 275

All of these

Question 276

Which of the following would be classified in a different major section of a balance sheet from the others?

a. Capital stock
b. Common stock subscribed
c. Stock dividend distributable
d. Stock investment in affiliate

Answer 276

Stock investment in affiliate

Question 277

The stockholders’ equity section is usually divided into what three parts?

a. Preferred stock, common stock, treasury stock
b. Preferred stock, common stock, retained earnings
c. Capital stock, additional paid-in capital, retained earnings
d. Capital stock, appropriated retained earnings, unappropriated retained earnings

Answer 277

Capital stock, additional paid-in capital, retained earnings

Question 278

Which of the following is not an acceptable major asset classification?

a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Deferred charges

Answer 278

Deferred charges

Question 279

Which of the following is a contra account?

a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation

Answer 279

Accumulated depreciation

Question 280

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the

a. retained earnings statement.
b. income statement.
c. statement of cash flows.
d. statement of financial position.

Answer 280

statement of cash flows.

Question 281

The statement of cash flows provides answers to all of the following questions except

a. where did the cash come from during the period?
b. what was the cash used for during the period?
c. what is the impact of inflation on the cash balance at the end of the year?
d. what was the change in the cash balance during the period?

Answer 281

what is the impact of inflation on the cash balance at the end of the year?

Question 282

If common stock was issued to acquire an $8,000 machine, how would the transaction appear on the statement of cash flows?

a. It would depend on whether you are using the direct or the indirect method.
b. It would be a positive $8,000 in the financing section and a negative $8,000 in the investing section.
c. It would be a negative $8,000 in the financing section and a positive $8,000 in the investing section.
d. It would not appear on the statement of cash flows but rather on a schedule of noncash investing and financing activities.

Answer 282

It would not appear on the statement of cash flows but rather on a schedule of noncash investing and financing activities.

Question 283

In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be classified as a(n)

a. operating activity.
b. financing activity.
c. extraordinary activity.
d. investing activity.

Answer 283

financing activity.

Question 284

In preparing a statement of cash flows, cash flows from operating activities

a. are always equal to accrual accounting income.
b. are calculated as the difference between revenues and expenses.
c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.
d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

Answer 284

can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.

Question 285

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?

a. Sale of equipment at book value
b. Sale of merchandise on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable at a discount

Answer 285

Sale of equipment at book value

Question 286

Preparing the statement of cash flows involves all of the following except determining the

a. cash provided by operations.
b. cash provided by or used in investing and financing activities.
c. change in cash during the period.
d. cash collections from customers during the period.

Answer 286

cash collections from customers during the period.

Question 287

The current cash debt coverage ratio is often used to assess

a. financial flexibility.
b. liquidity.
c. profitability.
d. solvency.

Answer 287

liquidity.

Question 288

Free cash flow is calculated as net cash provided by operating activities less

a. capital expenditures.
b. dividends.
c. capital expenditures and dividends.
d. capital expenditures and depreciation.

Answer 288

capital expenditures and dividends.

Question 289

One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description of financial flexibility?

a. The nearness to cash of assets and liabilities.
b. The firm’s ability to respond and adapt to financial adversity and unexpected needs and opportunities.
c. The firm’s ability to pay its debts as they mature.
d. The firm’s ability to invest in a number of projects with different objectives and costs.

Answer 289

The firm’s ability to respond and adapt to financial adversity and unexpected needs and opportunities.

Question 290

Net cash provided by operating activities divided by average total liabilities equals the

a. current cash debt coverage ratio.
b. cash debt coverage ratio.
c. free cash flow.
d. current ratio.

Answer 290

cash debt coverage ratio.

Question 291

The presentation of long-term liabilities in the balance sheet should disclose

a. maturity dates.
b. interest rates.
c. conversion rights.
d. All of the above.

Answer 291

All of the above.

Question 292

Typical contractual situations that are disclosed in the notes to the balance sheet include all of the following except

a. debt covenants
b. lease obligations
c. advertising contracts
d. pension obligations

Answer 292

advertising contracts

Question 293

Accounting policies disclosed in the notes to the financial statements typically include all of the following except

a. the cost flow assumption used
b. the depreciation methods used
c. significant estimates made
d. significant inventory purchasing policies

Answer 293

significant inventory purchasing policies

Question 294

Which of the following best exemplifies a contingency that is reported in the notes to the financial statements?

a. Losses from potential future lawsuits
b. Loss from a lawsuit settled out of court prior to the end of the fiscal year
c. Warranty claims on future sales
d. Estimated loss from an ongoing lawsuit

Answer 294

Estimated loss from an ongoing lawsuit

Question 295

Which of the following is not a method of disclosing pertinent information?

a. Supporting schedules
b. Parenthetical explanations
c. Cross reference and contra items
d. All of these are methods of disclosing pertinent information.

Answer 295

All of these are methods of disclosing pertinent information.