Question 1

The International Accounting Standards Board (IASB)
A) Hopes to create harmony among accounting practices of different countries.
B) Is the government group that establishes reporting requirements for companies that issue stock to the public.
C) Has the authority to impose its standards on companies
D) Is the only source of U.S. generally accepted accounting principles (GAAP).
E) Applies only to companies that are members of the European Union.

Accepted Answer

The IASB aims to create a set of globally recognized accounting standards that can be used across all countries, promoting harmonization of accounting practices worldwide.

Question 2

Recording the items on the financial statements in dollars is done because of the:
A) Objectivity principle
B) Monetary unit principle
C) Revenue recognition principle
D) Going-concern principle
E) Cost principle

Accepted Answer

The monetary unit principle requires that only transactions that can be expressed in terms of money are recorded in the financial statements. This means that all items on the statements are recorded in dollars, the primary unit of currency in the United States.

Question 3

The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:
A) APB
B) FASB
C) AAA
D) AICPA
E) SEC

Accepted Answer

The Financial Accounting Standards Board (FASB) is the private board that currently has the authority to establish U.S. generally accepted accounting principles (GAAP). The other options, such as the APB and AAA, either no longer have authority or never had the authority to establish GAAP. The AICPA is an organization of accounting professionals but does not have the authority to establish GAAP. The SEC has oversight authority, but does not establish GAAP themselves.

Question 4

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:
A) Accounting equation
B) Cost principle
C) Going-concern principle
D) Realization principle
E) Business entity principle

Accepted Answer

The cost principle requires assets and services to be recorded initially at their actual cost, which is the amount of cash or cash equivalent given in exchange. This principle ensures that financial statements reflect the true economic reality of a business.

Question 5

The objectivity principle:
A) Means that information is supported by independent, unbiased evidence.
B) Means that information can be based on what the preparer thinks is true.
C) Means that financial statement should contain information that is optimistic.
D) Means that a business may not recognize revenue until cash is received.
E) Means the assets acquired must be recorded at what the company paid for them.

Accepted Answer

The objectivity principle states that information presented in financial statements should be supported by independent, unbiased evidence. This means that the information should be based on verifiable facts, rather than the preparer's personal opinions or biases. As such, choice A is the correct answer. Choices B, C, D, and E do not accurately reflect the objectivity principle.

Question 6

A corporation:
A) Is a legal entity separate and distinct from its owners.
B) Must have many owners.
C) Has shareholders who have unlimited liability for the acts of the corporation.
D) Is the same as a limited liability partnership.
E) Does not have to pay taxes.

Accepted Answer

A corporation is a legal entity that is separate and distinct from its owners. This means that the corporation can own property, enter into contracts, and sue or be sued in its own name. The owners, who are called shareholders, have limited liability for the acts of the corporation, which means that their personal assets are not at risk if the corporation is sued or goes bankrupt.

Question 7

Generally Accepted Accounting Principles:
A) Focus on the review of a situation.
B) Do not require financial statements.
C) Never change.
D) Intend to make information on the financial statements relevant, reliable, and comparable.
E) Oversees Security and Exchange Commission.

Accepted Answer

Generally Accepted Accounting Principles (GAAP) intend to make information on the financial statements relevant, reliable, and comparable. This means that financial statements prepared according to GAAP should include information that is useful for decision-making, information that can be trusted, and information that can be compared to other companies or periods. GAAP does not focus on the review of a situation, it requires financial statements, and it can change over time as new accounting standards are developed. Additionally, GAAP is not overseen by the Securities and Exchange Commission (SEC), although the SEC does require publicly traded companies to follow GAAP in their financial reporting.

Question 8

Businesses can take all of the following forms except:
A) Sole proprietorship
B) Common stock
C) Partnership
D) Corporation
E) Limited liability corporation

Accepted Answer

Common stock is not a form of business, it is a form of ownership in a corporation. The other options (sole proprietorship, partnership, corporation, and limited liability corporation) are all forms of business entities.

Question 9

A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000, and purchased for $137,000. The land should be recorded in the purchaser's books at:
A) $95,000
B) $137,000
C) $138,500
D) $140,000
E) $150,000

Accepted Answer

The answer of A parcel of land is: offered for...

Question 10

The Maximum Experience Company acquired a building for $500,000. Maximum Experience had an appraisal done and found that the building was worth $575,000. The seller had paid $300,000 for the building six years ago. Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000?
A) Monetary unit principle
B) Going-concern principle
C) Cost principle
D) Business entity principle
E) Revenue recognition principle

Accepted Answer

The cost principle dictates that assets should be recorded at their historical cost, which in this case is $500,000. The fact that the building may now be worth more or less than its historical cost is irrelevant under the cost principle.

Question 11

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:
A) AICPA
B) FASB
C) CAP
D) SEC
E) IASB

Accepted Answer

The organization described in the question is the International Accounting Standards Board (IASB), which is responsible for developing and promoting the use of International Financial Reporting Standards (IFRS) worldwide. The other options listed do not have a focus on creating harmony among accounting practices globally. The AICPA is a professional organization for CPAs in the United States, the FASB sets accounting standards in the U.S., the CAP is not a known accounting organization, and the SEC is a government agency responsible for regulating securities markets in the U.S.

Question 12

Ethical behavior requires:
A) That an auditor's pay not depend on the figures in the client's reports.
B) Auditors to invest in businesses they audit.
C) Analysts to report information favorable to their companies.
D) Managers to use accounting information to benefit themselves.
E) That an auditor provides a favorable opinion.

Accepted Answer

Ethical behavior requires auditors to maintain independence and objectivity in their audit work. If an auditor's pay is tied to the figures in the client's reports, there is a risk of bias and a conflict of interest which undermines the independence and objectivity of the audit. The other choices listed are all examples of unethical behavior.

Question 13

Which of the following statements best describes the relationship of U.S. GAAP and IFRS?
A) They are identical.
B) They are entirely different conceptual frameworks.
C) They are similar but not identical.
D) Neither has anything to do with accounting.
E) They both relate only to publicly traded companies.

Accepted Answer

U.S. GAAP and IFRS are similar in many ways, but they also have key differences. While both frameworks aim to provide a common language for companies to report financial information, they have different approaches and requirements in areas such as revenue recognition and inventory valuation. Many countries have adopted or are in the process of adopting IFRS, but the U.S. has not fully done so and still operates under GAAP for now.

Question 14

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:
A) Going-concern principle
B) Business entity principle
C) Objectivity principle
D) Cost principle
E) Monetary unit principle

Accepted Answer

The principle described in the question is the going-concern principle. This principle assumes that the business will continue operating and carries on its operations for the foreseeable future. This assumption is critical in measuring a company's long-term financial health and is a fundamental factor in financial statement preparation.

Question 15

The principle that (A) requires revenue to be recognized at the time it is earned, (B) allows the inflow of assets associated with revenue to be in a form other than cash, and (C) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is called the:
A) Going-concern principle
B) Cost principle
C) Revenue recognition principle
D) Objectivity principle
E) Business entity principle

Accepted Answer

The description provided matches the Revenue recognition principle, which requires revenue to be recognized when it is earned, allows for non-cash assets to be received, and measures revenue as the cash plus the value of non-cash assets received. The other principles listed do not match the provided description.

Question 16

Which of the following elements are found on the balance sheet?
A) Service revenue
B) Net income
C) Operating activities
D) Utilities expense
E) Retained earnings

Accepted Answer

Retained earnings are found on the balance sheet as they represent the cumulative profits earned by the company that have not been distributed as dividends.

Question 17

Social responsibility:
A) Is a concern for the impact of one's actions on society as a whole.
B) Is a code that helps in dealing with confidential information.
C) Is required by the SEC.
D) Requires that all businesses conduct social audits.
E) Is mandated by the federal government.

Accepted Answer

Social responsibility refers to a concern for the impact of one's actions on society as a whole. It involves businesses voluntarily taking steps to improve society and the environment, beyond legal and financial requirements. It is not a code for dealing with confidential information, mandated by the federal government, or required by the SEC. Social audits are one tool that businesses can use to assess their social responsibility initiatives, but they are not a requirement.

Question 18

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:
A) Objectivity principle
B) Realization principle
C) Business entity principle
D) Going-concern principle
E) Revenue recognition principle

Accepted Answer

The Business entity principle states that a business is a separate entity from its owner(s) and therefore personal assets and transactions of the owner should not be included in the records and reports of the business. This principle is important for maintaining accurate and reliable financial information for the business itself, as well as for external parties such as investors and creditors. Including personal assets and transactions of the owner would create confusion and potential inaccuracies in the financial statements, and would be in conflict with the business entity principle.

Question 19

The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the:
A) Revenue recognition principle
B) Going-concern principle
C) Objectivity principle
D) Business entity principle
E) Cost principle

Accepted Answer

The revenue recognition principle provides guidance on when revenue should be recognized on the income statement in accordance with GAAP. It requires that revenue be recognized when it is realized or realizable and earned, meaning the product or service has been delivered or the performance obligation has been satisfied.

Question 20

The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone's belief or opinion is the:
A) Business entity principle
B) Monetary unit principle
C) Going-concern principle
D) Objectivity principle
E) Full disclosure principle

Accepted Answer

The principle that financial statement information should be objective and supported by independent, unbiased evidence is the Objectivity principle. This principle ensures that financial reports provide an accurate representation of a company's financial position and performance, without being influenced by personal beliefs or opinions.

Quiz 1: Introducing Financial Accounting

The International Accounting Standards Board (IASB)

Recording the items on the financial statements in dollars is done because of the:

The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:

The objectivity principle:

A corporation:

Generally Accepted Accounting Principles:

Businesses can take all of the following forms except:

A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000, and purchased for $137,000. The land should be recorded in the purchaser's books at:

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:

Ethical behavior requires:

Which of the following statements best describes the relationship of U.S. GAAP and IFRS?

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Which of the following elements are found on the balance sheet?

Social responsibility:

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:

The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the:

The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone's belief or opinion is the: