Foundational Principles

Question 1

Price-level changes (inflation & deflation) are not recognized in the accounting records

Answer 1

Monetary unit

Question 2

Sufficient financial information is presented so that reasonably prudent investors will not be mislead

Answer 2

Full disclosure

Question 3

Property, plant, and equipment are capitalized over the periods that they benefit

Answer 3

Historical cost and matching

Question 4

There is no intent to liquidate the company’s operations or activities

Answer 4

Going concern

Question 5

Market value is used by companies for the valuation of certain securities that are regularly bought and sold

Answer 5

Fair value

Question 6

After initial acquisition, the entity values land at its original transaction price

Answer 6

Historic cost

Question 7

All significant post-balance sheet events are reported

Answer 7

Full disclosure

Question 8

Revenue is recorded at the point of sale

Answer 8

Revenue recognition and realization

Question 9

All important aspects of bond indentures are presented in financial statements

Answer 9

Full disclosure

Question 10

The rationale for accrual accounting is stated

Answer 10

Full disclosure

Question 11

The use of consolidated statements is justified

Answer 11

Economic entity and control

Question 12

Reporting must be done at defined time intervals

Answer 12

Periodicity

Question 13

An allowance for doubtful accounts is established

Answer 13

Matching/fair value

Question 14

Goodwill is recorded only at the time of a business combination and does not change unless the goodwill becomes impaired

Answer 14

Historic cost

Question 15

Sales commission costs are charged to expense in the period of the sale

Answer 15

Matching