Accounting Principles Test

1. Which of the following is a method of timing business transactions or choosing

accounting principles so that the firm reports smaller variations in income from year to
year than it would otherwise?

1. Conservatism
2. Income Smoothing
3. Profit Maximization
4. Least and Latest Rule

2. What is the accounting objective which best relates to the percentage of completion
method?

1. Conservatism
2. Accurate Presentation
3. Tax Minimization
4. Income Smoothing

3. What entry would a donor make when giving a cash donation to a charity, where the
donor retains the right to revoke the contribution?Answers:

1. Dr: Cash, Cr: Refundable Advance to Charity

2. Dr: Refundable Advance to Charity, Cr: Cash
3. Dr: Expense, Cr: Cash
4. Dr: Revenue, Cr: Expense

4. Companies of what size have been impacted the most by the SOX from a cost
perspective?

1. Mid-sized companies feel the impact the most

2. There is no correlation between company size and the cost of implementing the
provisions of the Act
3. The larger companies as the larger the company, the more it has to pay to implement
the provisions of the Act
4. The smaller companies as the cost of implementing the provisions of the Act does not
decrease proportionally with the size of the company

5. What is the acronym for the agency authorized by the U.S. Congress to regulate,
among other things, the financial reporting practices of most public corporations?

1. SEC
2. IASC
3. FASB
4. GAAP

6. What is the accounting objective which best relates to the MACRS method?

1. Income Smoothing
2. Profit Maximization
3. Tax Minimization
4. None of the above
7. What is the phrase with no agreement on meaning which implies to most analysts that
earnings quality increase with the likelihood of recurrence?

1. Quality of financial position

2. Quality of earnings
3. Conservatism objective
4. None of the above

8. What entry would a donor make when giving a cash donation to a charity?

1. Dr: Revenue, Cr: Cash

2. Dr: Expense – Cash, Cr: Cash
3. Dr: Liability, Cr: Cash
4. Dr: Expense – Contributions, Cr: Cash

9. What is the accounting objective which best relates to the double declining balance
method?

1. Conservatism
2. Income Smoothing
3. Profit Maximization
4. Tax Minimization

10. What is the effect of the SOX on public companies?

1. It has made regulations more strict

2. It has added accountability to the upper management
3. It has forced companies to look at their internal controls
4. All of the above

11. Which of the following accounts may appear on a company’s balance sheet when the
incomes for financial and tax reporting are different?

1. Income tax expenses

2. Deferred income tax liability
3. Sales tax expenses
4. All of the above

12. What is the accounting objective which best relates to the Lower of Cost or Market
Price method?

1. Accurate Presentation
2. Tax Minimization
3. Profit Maximization
4. Conservatism

13. Which of the following is a method of accounting for the exploration costs of a
Expense in total when incurred

1. Capitalize only the costs related to mineral deposits

2. Capitalize all costs associated with productive as well as non-productive mineral
deposits
3. None of the above
14. What is the accounting objective which best relates to the straight line method?

1. Profit Maximization
2. Conservatism
3. Tax Minimization
4. None of the above

15. How is an unconditional promise to give a donation to a charity accounted for by the
charity?

1. Not recorded at all until 100% contribution is received

2. Never recorded even after receipt
3. As revenue only when the donation is made
4. As revenue when the promise is made

16. What is the acronym for the independent board responsible, since 1973, for
establishing generally accepted accounting principles?

1. GAAP
2. IASC
3. SEC
4. FASB

17. What is form 8-K?

1. Monthly filing with the SEC reporting director salaries

2. As needed filing to disclose any significant issues or changes
3. Quarterly financial reports filed with the SEC
4. Annual financial reports filed with the SEC

18. What is the acronym for an independent board responsible, since 1973, for
establishing generally accepted accounting principles?

1. SEC
2. IASC
3. FASB
4. None of the above

19. Who can review the filings made by public companies with the SEC?

1. Only company executives

2. Anyone using the EDGAR system
3. Only law enforcement officials
4. Only the staff of the SEC and the company executives

20. What change was made in regarding the penalization of the whistleblowers (people
who alert the authorities about the illegal activities in a corporation) by the companies?

1. They are now themselves subject to fraud charges for uncovering the crimes
2. They are put under witness protection
3. They are offered a transfer to a new department
4. They are now protected against retaliation by the company in order to encourage
employees to bring the wrong doings of the companies to light
21. Which of the following courses of action should a firm take in order to minimize the
present value of income tax payments?

1. Use the LIFO inventory method instead of FIFO durating periods of rising prices
2. Depreciate fixed assets on the straight-line method rather than the MACRS method
3. Capitalize exploration costs instead of expensing them
4. All of the above

22. What kind of organization issuing securities would NOT have to register them with
the SEC?

1. A private IT firm
2. The government
3. A publicly traded book publisher
4. A firm with no revenue

23. What factors affect the balance sheet, given the articulation of the income statement
with the balance sheet and the factors that imply high or low quality of earnings?

1. Quality of Financial Position

2. Profit Maximization
3. Quality of Earnings
4. Conceptual Framework

24. What is the phrase which, though there is no agreement on its meaning, implies to
most analysts that the quality of earnings improves with the likelihood of recurrence?

1. Quality of Financial Position

2. Quality of Earnings
3. Least and Latest Rule
4. Accurate Presentation

25. What is the accounting objective which best relates to the disclosing of the cost of
employee stock options (not expensing)?

1. Conservatism
2. Profit Maximization
3. Income Smoothing
4. Tax Minimization

26. What is the purpose of a Registration Statement?

1. To offer securities to the public

2. To disclose the operations during the first year
3. To provide information to the public about a company before it is traded publicly
4. Financial records for the company from inception to date

27. Which of the following is true of the Sarbanes Oxley Act?

1. It has bolstered investor confidence

2. It has increased all stock prices
3. It has increased the number of foreign corporations registering in the US
4. It has created more work for corporate accounting departments
28. For which of the following accounts would the use of ‘the lower of cost or market
price’ principle be acceptable?

1. Inventory
2. Land
3. Prepaid rent
4. All of the above

29. Which of the following is a valid criticism of the SOX?

1. It has made regulations more strict

2. It has made foreign companies reluctant to register on US stock exchanges due to the
burden of SOX reporting
3. It allows for looser corporate standards
4. It makes a few people accountable for the misdeeds of a corporation

30. Which of the following must generally be used for financial reporting if it is used for
income tax reporting?

1. FIFO
2. LIFO
3. NIFO
4. Installment sales method

31. What is the reporting objective that calls for the anticipation of all losses incurred
but defers the recognition of gains or profits until they are realized in arm’s length
transactions?

1. Conservatism
2. Materialism
3. Matching
4. Smoothing

32. Which of the following is used by the FASB in the selection of acceptable accounting
principles?

1. Conservatism
2. Matching
3. Materialism
4. Conceptual Framework

33. What value should a contribution be accounted for at?

1. Historical value
2. Fair value
3. Market value
4. Value determined by auditors

34. What is the qualitative accounting objective suggesting that information reported in
a financial statement should correspond as precisely as possible to the economic effects
underlying transactions and events?

1. Conceptual Framework
2. Quality of Financial Position
 3. Accurate Presentation
4. Least and Latest Rule

35. What is the accounting objective which best relates to the expensing of R&D costs?

1. Income Smoothing
2. Accurate Reporting
3. Conservatism
4. Profit Maximization

36. What is Form 10-K?

1. Monthly filing with the SEC reporting salaries to the directors

2. As needed filing to disclose any significant issues or changes
3. Quarterly financial reports filed with the SEC
4. Annual financial reports filed with the SEC

37. Which FASB sets the requirements for accounting for Non-Profit organizations?

1. FASB SFAS 999

2. FASB SFAS 100
3. FASB SFAS 99
4. FASB SFAS 117

38. What two filings are required when a company wishes to list its stock?

1. Forms 10K and 10Q

2. Forms S-X and S-K
3. Forms 8K and 10Q
4. Forms S-X and X-S

39. In which year was the Sarbanes Oxley Act passed?

1. 2008
2. 1945
3. 2002
4. 1845

40. What is the accounting objective which best relates to the capitalization of prepaid
advertising costs?

1. Profit Maximization
2. Accurate Presentation
3. Tax minimization
4. None of the above

41. Which doctrine lays down that a firm should account for a given set of operations so
as to make reported net income as large as possible?

1. Least and latest rule

2. Profit maximization
3. Income smoothing
 4. None of the above

42. For which of the following would the use of the straight-line method of amortization
be acceptable?

1. Building
2. Patent
3. Goodwill
4. All of the above

43. What are the 3 types of Health Care Organizations for accounting purposes?

1. Incorporated, Limited Liability, Sole Proprietor

2. Asset based, Liability based, Expense based
3. Investor-owned, Non-Profit, Governmental
4. Private, Public, LLC

44. What is the accounting objective which best relates to the weighted average
inventory method?

1. Tax Minimization
2. Income Smoothing
3. Profit Maximization
4. None of the above

45. Which of the following methods is normally considered to be acceptable for financial
reporting?

1. MACRS
2. Lower of cost or market price for inventories
3. Direct write off of uncollectible accounts
4. Capitalization of R&D Costs

46. What change was made to the internal controls of the companies by the SOX?

1. All company processes and related internal controls now need to be documented and
then tested by an outside auditing firm
2. Companies no longer have to document their internal controls since the auditors do
the job
3. Internal controls can be more lax than before
4. Companies have to provide for internal controls only to satisfy the auditors

47. What is the acronym for an organization that promotes the international
harmonization of accounting standards?

1. SEC
2. IASC
3. FASB
4. None of the above
48. How are third party adjustments to patient bills reflected in the financial
statements?

1. As an addition to revenue
2. As a deduction from revenue
3. As a liability
4. As an asset

49. What is the database created by the SEC for companies to file electronically?

1. PCAOB
2. EDGAR
3. SEC
4. IRS

50. What was the purpose of the Sarbanes Oxley act, in general?

1. To allow for caps on management salaries

2. To allow for price setting on the stock market
3. To regulate employee pension funds
4. To better regulate public and private companies in the wake of recent accounting
scandals

51. What are forms 10K and 10Q referred to as?

1. Periodic Filings
2. Financial Statements
3. Information Returns
4. Tax Returns

52. What is the acronym for the agency authorized by the U.S. Congress to regulate the
financial reporting practices of most public corporations?

1. SEC
2. IASC
3. FASB
4. None of the above

53. Which of the following methods would be employed to help accomplish the following
objective: smoothing a firm’s income as a means of minimizing large fluctuations in the
price of its stock.

1. Weighted average inventory

2. Percentage of completion method for long term construction contracts
3. Straight line amortization of patents
4. All of the above

54. What is the doctrine that the firm should account for a given set of operations so as

1. Conservatism
2. Quality of Earnings
3. Profit Maximization
4. Matching
55. Which of the financial accounting objectives listed below would seem to be closest to
the objective of tax reporting?

1. Conservatism
2. Fair Presentation
3. Accuracy
4. Profit Maximization

56. What is ‘paying the least amount of taxes as late as possible within the law to
minimize the present value of tax payments for a given set of operations’ a description
of?

1. Profit Maximization
2. Least and Latest Rule
3. Conservatism
4. Income Smoothing

57. What is the accounting objective which best relates to the completed contract
method?

1. Income Smoothing
2. Profit Maximization
3. Tax Minimization
4. None of the above

58. What is the accounting objective which best relates to the LIFO method?

1. Income Smoothing
2. Accurate Presentation
3. Conservatism
4. None of the above

59. How should a firm compensating its employees by granting them the option to
purchase its shares report it?

1. Merely disclose the cost of those grants

2. Charge that cost as expense for the period during which it makes the grant
3. Choose either of the options a and b
4. Neither a nor b

60. What is the accounting objective which best relates to the percentage of sales
method for uncollectible accounts?

1. Accurate Presentation
2. Tax Minimization
3. Profit Maximization
4. Conservatism

61. What is the acronym for the organization that promotes international IASB

1. FASB
2. SEC
3. IRS
62. What is the accounting objective which best relates to the FIFO method?

1. Tax Minimization
2. Income Smoothing
3. Profit Maximization
4. Accurate Reporting

63. What change was made by the Act regarding the authority competent to sign the
company tax returns?

1. Only the CEO now has the authority to sign the company tax returns
2. Any employee can now sign a tax return
3. Only the firm’s CPA can sign the tax returns
4. Only the person who has prepared the return can sign it

64. What new board was created as part of the Sarbanes Oxley Act?

1. SEC – Securities and Exchange Commission

2. IRS – Internal Revenue Service
3. PCAOB – Public Company Accounting Oversight Board
4. GAAP – Generally Accepted Accounting Principles

65. In which years were the Securities & Exchange Acts created?

1. 1980 and 1981

2. 1933 and1934
3. 1920 and 1930
4. 1802 and 1920

66. What is form 10-Q?

1. Monthly filing with the SEC reporting director salaries

2. As needed filing to disclose any significant issues or changes
3. Quarterly financial reports filed with the SEC
4. Annual financial reports filed with the SEC

67. How is a donated asset accounted by a non-profit organization based on its fair
market value?

1. Dr: Asstes, Cr: Revenue

2. Dr: Revenue, Cr: Liability
3. Dr: Expenses, Cr: Assets
4. Dr: Revenue, Cr: Expenses

68. What statements are required of a Non-Profit organization?

1. statement of financial position, statement of cash flows, and statement of activity and
changes in net assets
2. Bank Statements
3. Cash Flows and Income Statement
4. Changes in retained earnings, statement of cash flows, income statemen