Deck 1: Introduction to Financial Reporting

Question 1

Understating assets and revenues is justified based on:

A)realization assumption.
B)matching.
C)consistency.
D)realization.
E)None of the answers are correct.

Answer 1

E

Question 2

The Financial Accounting Standards Board has issued statements between:

A)1960-1973.
B)1939-1959.
C)1973-present.
D)1966-1976.
E)None of the answers are correct.

Answer 2

C

Question 3

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

A)Point of sale
B)Point of order acceptance
C)End of production
D)Receipt of cash
E)Revenue recognized during production

Answer 3

B

Question 4

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

A)time period.
B)business entity.
C)historical cost.
D)transaction.
E)None of the answers are correct.

Question 5

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

A)New York Stock Exchange.
B)Public Company Accounting Oversight Board.
C)Accounting Principles Board.
D)Financial Accounting Standards Board.
E)AICPA Committee on Accounting Procedure.

Question 6

The realization principle leads accountants to usually recognize revenue at:

A)the end of production.
B)during production.
C)the receipt of cash.
D)the point of sale.
E)None of the answers are correct.

Question 7

The going concern assumption:

A)is applicable to all financial statements.
B)primarily involves periodic income measurement.
C)allows for the statements to be prepared under generally accepted accounting principles.
D)requires that accounting procedures be the same from period to period.
E)none of the answers are correct.

Question 8

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

A)conservatism.
B)matching.
C)time period.
D)realization.
E)None of the answers are correct.

Question 9

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

A)monetary unit.
B)historical cost.
C)realization.
D)going concern.
E)None of the answers are correct.

Question 10

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

A)matching.
B)conservatism.
C)realization.
D)materiality.
E)None of the answers are correct.

Question 11

The Accounting Principles Board issued Opinions between:

A)1959-1973.
B)1939-1959.
C)1973-present.
D)1966-1976.
E)None of the answers are correct.

Question 12

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

A)time period assumption.
B)going concern assumption.
C)business entity assumption.
D)realization assumption.
E)None of the answers are correct.

Question 13

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

A)New York Stock Exchange.
B)Accounting Principles Board.
C)Accounting Research Studies.
D)AICPA committee on Accounting Procedure.
E)Financial Accounting Standards Board.

Question 14

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

A)a calendar year.
B)a fiscal year.
C)the natural business year.
D)an operating year.
E)None of the answers are correct.

Question 15

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

A)going concern.
B)cost.
C)matching.
D)materiality.
E)realization.

Question 16

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

A)AICPA Committee on Accounting Procedure.
B)New York Stock Exchange.
C)Accounting Principles Board.
D)Securities and Exchange Commission.
E)Financial Accounting Standards Board.

Question 17

Valuing assets at their liquidation values is not consistent with:

A)conservatism.
B)materiality.
C)going concern.
D)time period.
E)None of the answers are correct.

Question 18

The assumption that deals with when to recognize the costs that are associated with the revenue that is being recognized is:

A)matching.
B)going concern.
C)consistency.
D)materiality.
E)None of the answers are correct.

Question 19

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

A)time period assumption.
B)realization principle.
C)going concern principle.
D)conservatism principle.
E)None of the answers are correct.

Question 20

All but one of the following statements indicates a difference between the Financial Accounting Standards Board (FASB)and prior approaches.Select the one that is not a difference.

A)The FASB is independent of the AICPA.
B)The size of the board is much smaller.
C)The FASB has broader representation.
D)The FASB is the primary board for the development of generally accepted accounting principles.
E)Members of the FASB serve on a full-time basis.

Question 21

Accountants provide for inflation using which of the following accounting principles?

A)Going concern
B)Time period
C)Conservatism
D)Materiality
E)None of the answers are correct.

Question 22

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

A)$180,000
B)$185,000
C)$190,000
D)$200,000
E)None of the answers are correct.

Question 23

The following data relate to Rocket Company for the year ended December 31,2012.Rocket Company uses the cash basis. $\begin{array}{llcc} \text {Sales on credit } &\$180,000 \\ \text {Cost of inventory sold on credit } &130,000\\ \text { Collections from customers } &1700,000\\ \text { Purchase of inventory on credit } &140,000\\ \text { Payment for purchases } &150,000\\ \text { Selling expenses (accrual basis) } &20,000\\ \text { Payment for selling expenses } &25,0000\end{array}$
Which of the following amounts represents income for Rocket Company for the year ended December 31,2012?

A)$30,000
B)$5,000 loss
C)$40,000
D)$45,000
E)$50,000

Question 24

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

Question 25

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

Question 26

A loss in value of money is called inflation.

Question 27

The following data relate to Swift Company for the year ended December 31,2012.Swift Company uses the accrual basis. $\begin{array}{llcc} \text {Sales on credit } &\$250,000 \\ \text {Cost of inventory sold on credit } &170,000\\ \text { Collections from customers } &220,000\\ \text { Purchase of inventory on credit } &150,000\\ \text { Payment for purchases } &140,000\\ \text { Selling expenses (accrual basis) } &40,000\\ \text { Payment for selling expenses } &45,0000\end{array}$

Which of the following amounts represents income for Swift Company for the year ended December 31,2012?

A)$60,000
B)$50,000
C)$40,000
D)$35,000
E)$30,000

Question 28

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

A)conservatism.
B)time period.
C)business entity.
D)materiality.
E)realization.

Question 29

Understating expenses is justified based on:

A)time period assumption.
B)conservatism assumption.
C)materiality assumption.
D)matching assumption.
E)None of the answers are correct.

Question 30

It would always be conservative to value inventory at market.

Question 31

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

Question 32

Other than December,the most popular month for fiscal year-end is:

A)January.
B)March.
C)June.
D)September.
E)October.

Question 33

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

A)Full disclosure
B)Materiality
C)Matching
D)Realization
E)Historical cost

Question 34

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

Question 35

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

Question 36

The following data relate to Falcon Company for the year ended December 31,2012.Falcon Company uses the cash basis. $\begin{array}{llcc} \text {Sales for cash } &\$180,000 \\ \text {Sales for credit } &190,000\\ \text { Cost of inventory sold } &210,000\\ \text { Collections from customers } &350,000\\ \text { Purchases of inventory on credit} &200,000\\ \text { Payment for purchases} &220,000\\ \text {Selling expenses (accual basis) } &60,000\\ \text { Payment for selling expenses } &70,000\end{array}$

Which of the following amounts represents income for Falcon Company for the year ended December 31,2012?

A)$90,000
B)$80,000
C)$70,000
D)$60,000
E)None of the answers are correct.

Question 37

Which of the following does not relate to The Public Company Accounting Oversight Board (PCAOB)?

A)Two members of the board must be CPAs.
B)In addition to appointing the five members of the PCAOB,the SEC is responsible for the oversight and enforcement authority over the Board.
C)The PCAOB consists of five members appointed by the SEC.
D)The PCAOB is to adopt auditing standards.
E)The PCAOB is to adopt accounting standards.

Question 38

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

Question 39

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

Question 40

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

A)Historical cost
B)Relevant cost
C)Current market value
D)Current cost
E)Present value

Question 41

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

Question 42

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

Question 43

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

Question 44

Performance indicators for nonbusiness organizations are usually formal budgets and donor restrictions.

Question 45

The time period assumption indicates that the entity will remain in business for an indefinite period time.

Question 46

Accountants normally recognize revenue when cash is received.

Question 47

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

Question 48

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

Question 49

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

Question 50

Timeliness is a pervasive constraint imposed upon financial accounting information.

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

Reasonable inaccuracies of accounting for an entity,short of its complete life span,are accepted.

Question 58

Using the business entity assumption,the financial statements are prepared separate and distinct from the owners of the entity.

Question 59

Financial Accounting Concepts establish generally accepted accounting principles.

Question 60

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

Question 61

The IASC does not have authority to enforce its standards,but these standards have been adopted in whole or in part by many countries.

Question 62

The Sarbanes-Oxley Act has had an insignificant effect on the relationship between the company and the internal auditor.

Question 63

Reporting under Sarbanes-Oxley revealed that very few companies had material weaknesses in their controls and processes.

Question 64

The accountant records only the events that affect the financial position of the entity and that can be reasonably determined in monetary terms.

Question 65

Private companies are required to report under Sarbanes-Oxley.

Question 66

Some firms question the costs/benefits of implementing Sarbanes-Oxley.

Question 67

Accounting standards codification ^TM reorganizes the accounting pronouncements into approximately 90 accounting topics.

Question 68

With the expansion of international business and global capital markets,the business community and governments have shown a decreased interest in the harmonization of international accounting standards.

Question 69

In 2007,the Securities and Exchange Commission announced that it would accept financial statements from foreign private issues without reconciliation to U.S.GAAP if they are prepared using IFRS as issued by the International Accounting Standards Board.

Question 70

Accounting Trends & Techniques is a compilation of data obtained by a survey of annual reports to stockholders undertaken for the purpose of analyzing the accounting information disclosed in such reports.

Question 71

Domestic accounting standards have developed to meet the needs of international environments.

Question 72

The Sarbanes-Oxley Act has materiality implications.

Question 73

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

Question 74

In the United States,the issue of financial reporting standards for small and medium-sized entities (SME)has been debated for many years.These debates did not result in separate standards for SME.

Question 75

Accounting standards codification ^TM addresses U.S.GAAP for nongovernmental entities.

Question 76

Web sites are not very useful when performing analysis.

Question 77

Most companies are on a 51-52 week fiscal year.

Question 78

The IASB published an IFRS for SMEs in 2009.

Question 79

The Sarbanes-Oxley Act has far-reaching consequences for financial reporting and the CPA profession.

Question 80

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