Test 1

Question 1

Relevance and faithful representation are the two fundamental qualities that make accounting information useful for decision making.
True
False

Answer 1

True

Question 2

The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards.
True
False

Answer 2

False

Question 3

The idea of consistency does not mean that companies cannot switch from one accounting method to another.
True
False

Answer 3

True

Question 4

The objective of financial reporting is the foundation of the conceptual framework.
True
False

Answer 4

True

Question 5

Timeliness and neutrality are two ingredients of relevance.
True
False

Answer 5

False

Question 6

An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit.
True
False

Answer 6

True

Question 7

Financial statements are the principal means through which a company communicates its financial information to those outside it.
True
False

Answer 7

True

Question 8

General-purpose financial statements are the product of

financial accounting.

managerial accounting.

both financial and managerial accounting.

neither financial nor managerial accounting.

Answer 8

financial accounting.

Question 9

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

By providing timely, relevant information.

By encouraging innovation.

By promoting productivity.

By providing timely, relevant information and by encouraging innovation.

Answer 9

By providing timely, relevant information.

Question 10

Investors are interested in financial reporting because it provides information that is useful for making decisions.
True
False

Answer 10

True

Question 11

One purpose of a trial balance is to prove that debits and credits are equal in the general ledger.
True
False

Answer 11

True

Question 12

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.
True
False

Answer 12

True

Question 13

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts.
True
False

Answer 13

False

Question 14

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue recognized in the current accounting period.
True
False

Answer 14

True

Question 15

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.
True
False

Answer 15

True

Question 16

Total stockholders’ equity consists of common stock and the earnings retained in the business.
True
False

Answer 16

True

Question 17

The accrual-basis of accounting recognizes revenue when the performance obligation is satisfied and expenses when cash is paid.
True
False

Answer 17

False

Question 18

Debit always means
the right side of an account.
an increase.
a decrease.
None of these answer choices are correct

Answer 18

None of these answer choices are correct
( Left or left side )

Question 19

Which of the following is a real (permanent) account?
Goodwill
Service Revenue
Accounts Receivable
Both Goodwill and Accounts Receivable

Answer 19

Both Goodwill and Accounts Receivable

Question 20

Which of the following is a nominal (temporary) account?
Unearned Service Revenue
Salaries and Wages Expense
Inventory
Retained Earnings

Answer 20

Salaries and Wages Expense

Question 21

Financial accounting is the process of identifying, measuring, analyzing, and communicating financial
information needed by management to plan, evaluate, and control a company’s operations.
A) True
B) False

Answer 21

B

Question 22

Users of financial accounting statements have both coinciding and conflicting needs for information of
various types.
A) True
B) False

Answer 22

A

Question 23

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 23

C

Question 24

Relevance and faithful representation are the two fundamental qualities that make accounting
information useful for decision making.
A) True
B) False

Answer 24

A

Question 25

The objective of general‐purpose financial reporting is to provide financial information about a reporting
entity to which of the following
A) potential equity investors.
B) potential lenders.
C) present investors.
D) All of these answers are correct.

Answer 25

D

Question 26

What is meant by consistency when discussing financial accounting information?
A) Information presented by a company applies the same accounting treatment to similar events, from
period to period.
B) Information is timely.
C) Information is classified, characterized, and presented clearly and concisely.
D) Information is verifiable

Answer 26

A

Question 27

Which of the following is an ingredient of faithful representation?
A) Predictive value
B) Materiality
C) Neutrality
D) Confirmatory value

Answer 27

C

Question 28

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.
A) True
B) False

Answer 28

A

Question 29

In general, debits refer to increases in account balances, and credits refer to decreases.
A) True
B) False

Answer 29

B

Question 30

Which of the following is a real (permanent) account?
A) Goodwill
B) Service Revenue
C) Accounts Receivable
D) Both Goodwill and Accounts Receivable

Answer 30

D

Question 31

Stockholders’ equity is not affected by all
A) cash receipts.
B) dividends.
C) revenues.
D) expenses

Answer 31

A

Question 32

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 32

D

Question 33

Companies should report the results of operations of a business component that will be disposed of
separately from continuing operations.
A) True
B) False

Answer 33

A

Question 34

The income statement reveals
A) resources and equities of a firm at a point in time.
B) resources and equities of a firm for a period of time.
C) net earnings (net income) of a firm at a point in time.
D) net earnings (net income) of a firm for a period of time

Answer 34

D

Question 35

The balance sheet omits many items that are of financial value to the business but cannot be recorded
objectively.
A) True
B) False

Answer 35

A

Question 36

Collection of a loan is reported as an investing activity in the statement of cash flows.
A) True
B) False

Answer 36

A

Question 37

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 always reported.
D) All of these answer choices are correct

Answer 37

D

Question 38

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 38

C