Question 1

All of the following are different expressions for net income except:

Accepted Answer

Capital refers to the owner's equity or the amount invested into the business, it is not a measure of net income. B, C and D are all expressions used to refer to net income.

Question 2

Which of the following organizations is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements?

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements. The Financial Accounting Standards Board (FASB) is responsible for setting accounting standards, the Securities and Exchange Commission (SEC) oversees financial reporting and disclosure requirements, and the International Accounting Standards Board (IASB) sets international accounting standards.

Question 3

Which organization, in addition to the Financial Accounting Standards Board (FASB), occasionally issues authoritative rules for financial statements?

Accepted Answer

The Securities and Exchange Commission (SEC) occasionally issues authoritative rules for financial statements in addition to the Financial Accounting Standards Board (FASB). The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that are used in many countries, but its authority is not recognized in the United States. The Accounting Profession is not a specific organization that issues authoritative rules, and the Internal Revenue Service (IRS) is not responsible for financial statement rules.

Question 4

Which concept is the reason the dollar is used in the preparation of financial statements?

Accepted Answer

The concept that explains the use of the dollar in the preparation of financial statements is the "Monetary Unit Assumption," not listed among the provided options. This assumption states that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.

Question 5

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000.If Sawaddee total liabilities increased by $31,000 and its owners' equity decreased by $53,000 during the year, what was the amount of its total assets at the end of the year?

Accepted Answer

The accounting equation is Assets = Liabilities + Owners' Equity. Initially, Owners' Equity = $450,000 - $230,000 = $220,000. During the year, Liabilities increased by $31,000 and Owners' Equity decreased by $53,000. New Liabilities = $230,000 + $31,000 = $261,000. New Owners' Equity = $220,000 - $53,000 = $167,000. Therefore, new Assets = $261,000 + $167,000 = $428,000.

Question 6

The reliability of the information in a company's financial statements is the responsibility of which of the following?

Accepted Answer

The reliability of the information in a company's financial statements is primarily the responsibility of the company's management. The SEC oversees and enforces securities laws, the CPA audits the financial statements to provide assurance on their reliability, and clients are users of the financial statements. None of the options directly bear the responsibility for the reliability of the information in the financial statements.

Question 7

In order for accounting information to be useful in making informed decisions, it must be

Accepted Answer

Relevant information is important as it must be related to the decision being made. Reliable information is also important as it must be accurate and free from bias. Therefore, for accounting information to be useful in making informed decisions, it must be both relevant and reliable.

Question 8

When selecting between the best alternatives regarding an ethical dilemma in accounting all of the following should be considered except:

Accepted Answer

Profitability should not be the only consideration when making ethical decisions in accounting. The focus should be on providing relevant, accurate, and neutral information to stakeholders.

Question 9

Which one of the following is an assumption made in the preparation of financial statements?

Accepted Answer

The preparation of financial statements assumes that the entity for which the statements are prepared is a distinct entity from its owners. This means that the financial statements represent the financial performance and position of the entity itself, rather than the personal finances of the owners. Assumptions related to inflation, time periods, and market values may also be made in the preparation of financial statements, but the assumption related to distinct entity status is fundamental.

Question 10

The natural progression in items from one statement to another and preparation of financial statements is best represented by the following order:

Accepted Answer

The correct order starts with the income statement, which shows the company's revenues and expenses. The net income or loss from the income statement is then used in the statement of retained earnings to show changes in retained earnings over the period. Finally, the updated retained earnings figure is used in the balance sheet, which also influences the statement of cash flows.

Question 11

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000.If Sawaddee's total assets doubled to $1,000,000 and its owners' equity remained the same during the year, what was the amount of its total liabilities at the end of the year?

Accepted Answer

The owners' equity at the beginning of the year is $450,000 - $230,000 = $220,000. Since the owners' equity remains the same, the total liabilities at the end of the year are $1,000,000 - $220,000 = $780,000.

Question 12

The statement of retained earnings accomplishes which of the following?

Accepted Answer

The statement of retained earnings summarizes the changes in the retained earnings account over a single period of the business, including income earned and dividends paid. It does not accumulate all revenues for the year, summarize the balance sheet accounts, or summarize the capital stock accounts over the life of the business.

Question 13

To which of the following entities must a company report if it sells its stock on the organized stock market?

Accepted Answer

The Securities and Exchange Commission (SEC) is the regulatory body responsible for overseeing the securities markets in the United States, including the organized stock market. Companies that sell their stock on the organized stock market are required to file regular financial reports with the SEC to ensure compliance with regulations and investor protection. The AICPA and AAA are professional organizations for accountants, while the IASB is an international accounting standard-setting body and would not be directly involved in regulating stock market activities in the US.

Question 14

Domenico Enterprises purchased land for $2,000,000 in 1999.In 2016, an independent appraiser assessed the value at $4,400,000.What amount should appear on the financial statements in 2016 with respect to the land?

Accepted Answer

Under generally accepted accounting principles (GAAP), land is recorded at its historical cost. Therefore, despite the appraisal value, the land should be reported at its purchase price of $2,000,000.

Question 15

The Securities and Exchange Commission (SEC) is concerned with

Accepted Answer

The SEC is primarily concerned with companies that issue securities to the general public, as their mission is to protect investors and maintain fair, orderly, and efficient markets.

Question 16

Which of the following is a five-member body that has the authority from Congress to set standards for conducting audits?

Accepted Answer

PCAOB (Public Company Accounting Oversight Board) is the only five-member body that has the authority from Congress to set standards for conducting audits. FASB (Financial Accounting Standards Board) sets accounting standards, SEC (Securities and Exchange Commission) oversees financial markets, and AICPA (American Institute of Certified Public Accountants) is a professional organization for accountants.

Question 17

Why is the time period assumption required?

Accepted Answer

The time period assumption is required because external users of financial statements want statements that accurately reflect net income or earnings for a specific time period. This allows them to make informed decisions based on the financial performance of the company during a certain period of time.

Question 18

Which the following organizations is primarily responsible for establishing GAAP today?

Accepted Answer

The answer of Which the following organizations is primarily responsible...

Question 19

Which one of the following statements is true concerning assets?

Accepted Answer

Accountants use the term historical cost to refer to the original cost of an asset. This means that assets are recorded at their original cost, and not at their current market value, for financial reporting purposes. Option A is incorrect because assets are not adjusted for inflation when recorded, but may be adjusted for inflation in certain situations, such as when preparing financial statements under IFRS. Option B is incorrect as financial reporting standards generally require assets to be recorded at historical cost, and not at market value. Option C is incorrect as the time-period approach refers to the allocation of expenses and revenues to specific accounting periods, and is not directly related to the recording of assets.

Question 20

All of the following are important provisions of the Sarbanes-Oxley Act except:

Accepted Answer

The Sarbanes-Oxley Act does not require companies to prepare both FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) financial statements. This is not a provision of the act.

Quiz 1: Accounting As a Form of Communication