Question 1

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 a component of stockholder's equity.

Question 2

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 requires financial information to be supported by independent, unbiased evidence. This helps ensure the accuracy and reliability of the information presented. It is important for financial statements to provide a clear and accurate picture of a company's financial position, and the objectivity principle helps to achieve this goal.

Question 3

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 share many similarities, including their focus on providing reliable and relevant financial information to users. However, there are also significant differences between the two frameworks, particularly in areas such as revenue recognition, inventory valuation, and financial statement presentation. While efforts to converge the two frameworks have been ongoing for many years, there are still areas where differences persist.

Question 4

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 states that assets should be recorded at their historical cost, which in this case is $500,000. The fact that the building may be worth more now or that the seller paid less for it six years ago is not relevant to the initial recording of the asset.

Question 5

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 when conducting audits. If an auditor's pay depends on the figures in the client's reports, they may be incentivized to overlook or ignore potential issues in order to maintain a good relationship with the client and ensure future business. Maintaining independence and objectivity is essential for ethical behavior in auditing.

Question 6

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's main goal is to create global harmonization in accounting practices, known as International Financial Reporting Standards (IFRS).

Question 7

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 others listed are accounting organizations, but do not have the same level of authority as the FASB in setting GAAP.

Question 8

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 under GAAP should provide information that is useful to stakeholders, such as investors and creditors, in making decisions. GAAP are not focused on reviewing a situation nor do they oversee the Securities and Exchange Commission. GAAP are also subject to change as they must adapt to new economic, legal, and business developments. Financial statements are a key product of GAAP as they provide stakeholders with a summary of a company's financial performance and position.

Question 9

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 going-concern principle assumes that the business will continue to operate in the foreseeable future. This principle is fundamental in accounting, as it allows financial statements to reflect the actual value of the company's assets and liabilities. Without this principle, financial statements would have to reflect the liquidation value of the company's assets, which would likely differ significantly from their going-concern value.

Question 10

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 requires financial statement information to be supported by independent, unbiased evidence is known as the objectivity principle. This means that evidence presented in financial statements should be verifiable and based on facts rather than opinions or beliefs. The other principles listed do not relate specifically to this requirement for objective evidence.

Question 11

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 land should be recorded at the purchase price of $137,000.

Question 12

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 revenue recognition principle requires revenue to be recognized at the time it is earned regardless of the form of payment or assets received. It also measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received. This principle helps ensure accuracy and consistency in reporting financial results.

Question 13

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 the ethical concept that people and organizations have an obligation to act for the benefit of society at large. It involves considering the impact of one's actions on the broader community and taking steps to address any negative effects. This can include issues related to the environment, human rights, social justice, and more. It is not a code for confidential information, required by the SEC, mandated by the federal government, nor does it require social audits.

Question 14

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 the records and reports of a business should only include transactions of the business and not the personal assets and transactions of the owner. This principle helps to maintain clear separation between the personal affairs of the owner and the business operations. Including personal assets and transactions in business records would be in violation of this principle.

Question 15

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 type of stock that represents ownership in a corporation. The other options, sole proprietorship, partnership, corporation, and limited liability corporation, are all forms of business entities.

Question 16

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 considered a separate legal entity from its owners, which means it can own property, enter into contracts, and be sued in its own name. This also means that the liability of the owners is limited to the amount of their investment in the corporation, and they are not personally responsible for the debts or actions of the corporation.

Question 17

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 financial statements to be recorded in a common unit of measure, which in most cases is the dollar. This means that only transactions that can be expressed in monetary terms are recorded in the financial statements.

Question 18

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 at their initial cash value, also known as actual cost. This principle ensures that accounting information is reliable and objective.

Question 19

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 International Accounting Standards Board (IASB) attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance through the development and promotion of International Financial Reporting Standards (IFRS). AICPA, FASB, CAP, and SEC are all organizations within the United States and do not focus on international accounting practices.

Question 20

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 outlines the criteria that must be met for revenue to be recognized on the income statement in accordance with GAAP. This principle states that revenue should be recognized when it is earned and realized or realizable, and when the company has substantially completed its obligations to the customer. This principle helps to ensure that companies do not overstate their revenue and provides consistency in financial reporting.

Quiz 1: Introducing Financial Accounting

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

The objectivity principle:

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

Ethical behavior requires:

The International Accounting Standards Board (IASB) :

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

Generally accepted accounting Principles:

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:

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

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:

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:

Businesses can take all of the following forms except:

A corporation:

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

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