Question 1

The most important qualitative characteristic that accounting information should possess is

Accepted Answer

Decision usefulness is the overarching qualitative characteristic that encompasses relevance and reliability, ensuring that accounting information is helpful for decision-making.

Question 2

Which of the following statements about relevant accounting information is true?

Accepted Answer

Relevant information must be provided in a timely manner to influence decision-making; it does not necessarily have to be within one month as timeliness can vary depending on the context and nature of the decision.

Question 3

Which of the following characteristics make accounting information relevant?

Accepted Answer

The answer of Which of the following characteristics make accounting...

Question 4

Which of the following statements about reliable accounting information is true?

Accepted Answer

The answer of Which of the following statements about reliable...

Question 5

Reliability in accounting indicates the possession by information of which of the following traits?

Accepted Answer

The answer of Reliability in accounting indicates the possession by...

Question 6

The concept indicating that specific items of accounting information are important is

Accepted Answer

Materiality refers to the significance of financial information in influencing the decision-making of users. It determines whether an item is important enough to be included in financial statements.

Question 7

The situation of accountants preparing meaningful financial reports for on-going businesses by dividing their lives into reporting intervals of equal length reflects the

Accepted Answer

The accounting period concept is the principle that allows businesses to divide their economic activities into specific time periods for reporting purposes, such as months, quarters, or years. This concept enables the preparation of meaningful and timely financial reports by segmenting the continuous business activities into manageable intervals.

Question 8

The requirement for publicly owned companies to issue quarterly and annual financial statements is mandated by the

Accepted Answer

The Securities and Exchange Commission (SEC) mandates that publicly owned companies issue quarterly and annual financial statements to ensure transparency and protect investors.

Question 9

In the U.S., the historical cost principle

Accepted Answer

The answer of In the U.S., the historical cost principle
...

Question 10

Tipple Co. is located in southern Mississippi and the property value of the company's headquarters was reduced after a hurricane uprooted all the trees and caused significant erosion. Tipple Co. should

Accepted Answer

The conservatism principle in accounting suggests recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but only recognizing revenues and assets when they are assured of being received. This principle guides companies to report a lower value of assets if their value decreases, ensuring that the financial statements do not overstate the company's financial position. In the case of Tipple Co., writing down the property value to its fair market value after the hurricane damage reflects a more accurate and conservative representation of the company's assets.

Question 11

Which of the following concepts is of highest importance in recording asset values in recessionary times?

Accepted Answer

Conservatism is the most important concept in recording asset values during recessionary times because it advises caution in reporting financial information and suggests reporting lower values of assets and revenues when uncertain, which is particularly relevant in economic downturns to avoid overstating financial health.

Question 12

The concept that mandates that businesses use a common unit in accounting for their transactions is the

Accepted Answer

The unit of measurement concept in accounting states that all transactions should be recorded in a single consistent currency. This allows for the uniform measurement and comparison of financial information.

Question 13

The belief that an entity will continue to operate, unless there is evidence to the contrary, is the

Accepted Answer

The going concern assumption is the accounting principle that assumes a company will continue to operate indefinitely, unless there is evidence to suggest it will not. This assumption allows businesses to defer some of their prepaid expenses over future periods.

Question 14

Requiring the transactions of a business be accounted for separately from the personal transactions of its owners reflects the

Accepted Answer

The entity concept in accounting states that a business must be accounted for as an entity separate from its owners or other businesses. This means that the transactions of the business cannot be mixed with the personal transactions of its owners.

Question 15

Before being recorded in a business's accounting records, revenue should be

Accepted Answer

The answer of Before being recorded in a business's accounting...

Question 16

Tyler Tours provides transportation services and requires clients to book trips at least one month in advance. Tyler Tours bills its customers on the first day of the month and requires payments to be made on the last day of the month. When should Tyler Tours recognize revenue from its services?

Accepted Answer

Revenue is recognized when the service is performed or the goods are delivered, which in this case is when the customers actually travel.

Question 17

O'Connor Inc. provides apartments to local university students under different revenue packages. One popular package allows students to pay the annual rent in advance and take a 25% discount over the monthly rate. O'Connor should recognize the related revenue for students who choose this package

Accepted Answer

Revenue recognition over time is appropriate in this case because the service (providing an apartment) is performed evenly over the contract period. This aligns with the principle that revenue should be recognized as the related services are provided.

Question 18

An internet service provider requires customers to prepay for six months' service. On August 1, 2010 Ricky Roberts paid $480 for internet service for the next six-month period. On August 1, how will the internet service record the amount received from Roberts?

Accepted Answer

Unearned revenue is the correct answer because when the internet service provider receives payment for services that have not yet been provided, it is considered unearned revenue. This liability account represents the obligation of the company to provide services in the future.

Question 19

Which of the following statements about expense recognition rules is true?

Accepted Answer

The correct answer is D because the recognition of an expense does not necessarily require cash to be paid. Expenses can be recognized when they are incurred, regardless of the actual cash payment.

Question 20

The basis that reflects a transaction's economic impact, regardless of whether cash is involved, is the

Accepted Answer

The accrual basis of accounting reflects a transaction's economic impact when it occurs, regardless of when cash is exchanged. This approach recognizes revenues when earned and expenses when incurred, providing a more accurate picture of a company's financial position than the cash basis of accounting.

Quiz 2: Concepts and Elements Underlying Accounting