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Q. Which of the following statements is not an objective of financial reporting?

Provide information that is useful in investment and credit decisions. Provide information about enterprise resources claims to those resources, and changes to them. Provide information on the liquidation value of an enterprise Provide information that is useful in assessing cash flow prospects Q. Accounting principles are generally accepted only when An authoritative accounting rule-making body has established it in an official pronouncement. It has been accepted as appropriate because of its universal application Both a and b Neither a nor b Q. Companies that are listed on a stock exchange are required to submit their financial statements to the AICPA APB FASB SEC Q. The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is The FASB issues exposure drafts proposed standards All members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions All members of the FASB possess extensive experience in financial reporting A majority of the members of the FASB are CPAs drawn from public practice Q. The financial Accounting Standards Board employs a due process system which Is an efficient system for collecting dues from members Enables interested parties to express their views on issues under consideration Identifies the accounting issues that are the most important Requires that all accountants must receive a copy of financial statements Q. The purpose of the Emerging Issues Task Force is to Develop a conceptual framework as a frame of reference for the solution of future problems Lobby the FASB on issues that affect long-term accounting problems Do research on issues that relate to long-term accounting problems Issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly CCDBBD

Q. The purpose of Statements of Financial Accounting Concepts is to a. b. c. d. Establish GAAP Modify or extend the existing FASB Standards Statement Form a conceptual framework for solving existing and emerging problems Determine the need for FASB involvement in an emerging issue

Q. The most significant current source of generally accepted accounting principles is the a. b. c. d. AICPA SEC APB FASB

Q. Generally accepted accounting principles a. Are fundamental truths or axioms that can be derived from laws of nature b. Derive their authority from legal court proceedings c. Derive their credibility and authority from general recognition and acceptance by the accounting profession d. Have been specified in detail in the FASB conceptual framework Q. The objectives of financial reporting include all of the following except to provide information that a. Is useful to the Internal Revenue Service in allocating the tax burden to the business community b. Is helpful to those making investment and credit decisions c. Is helpful in assessing future cash flows d. Identifies the economic resources (assets), the claims to those resources (liabilities), and the changes in those resources and claims Q. The overriding criterion by which accounting information can be judged is that of a. b. c. d. Usefulness for decision making Freedom from bias Timeliness Comparability

Q. The two primary qualities that make accounting information useful for decision making are a. b. c. d. Comparability and consistency Materiality and timeliness Relevance and reliability Reliability and comparability CDCAAC

Q. Accounting information is considered to be relevant when it Can be depended on to represent the economic conditions and events that it is intended to represent Is capable of making a difference in a decision Is understandable by reasonably informed users of accounting information Is verifiable and neutral Q. According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of Relevance Reliability Yes Yes No Yes Yes No No No Q. According to Statement of Financial Accounting Concepts No. 2, verifiability is an ingredient of the primary quality of Relevance Reliability Yes No Yes Yes No No No Yes Q. Information is neutral if it Provides benefits which are at least equal to the costs of its preparation Can be compared with similar information about an enterprise at other points in time Would have no impact on a decision maker Is free from bias toward a predetermined result

Q. The characteristic that is demonstrated when a high degree of consensus can be secured among independent measures using the same measurement methods is relevance reliability verifiability neutrality Q. The elements of financial statements include investments by owners. These are increases in an entitys net assets resulting from owners Transfers of assets to the entity Rendering services to the entity Satisfaction of liabilities of the entity All of these BCDDCD

Q. In classifying the elements of financial statements, the primary distinction between revenues and gains is The materiality of the amounts involved The likelihood that the transactions involved will recur in the future The nature of the activities that gave rise to the transaction involved The costs versus the benefits of the alternative methods of disclosing the transactions involved Q. A decrease in net assets arising from peripheral or incidental transactions is called a(n) a. b. c. d. Capital expenditure cost loss expense a. b. c. d.

Q. Which of the following elements of financial statements is not a component of comprehensive income? a. b. c. d. Revenues Distributions to owners Losses Expenses

Q. According to the FASB Conceptual Framework, the elements-assets, liabilities, and equity-describe amounts of resources and claims to resources at/during a Moment in Time Period of Time a. Yes No b. Yes Yes c. No Yes d. No No Q. Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? a. b. c. d. Monetary unit assumption Periodicity assumption Going concern assumption Economic entity assumption

Q. During the lifetime of an entity, accountants produce financial statements at artificial points in time in accordance with the concept of Objectivity Periodicity a. No No b. Yes No c. No Yes d. Yes Yes CCBAAC

Q. The economic entity assumption Is inapplicable to unincorporated businesses Recognizes the legal aspects of business organizations Requires periodic income measurement Is applicable to all forms of business organizations Q. Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the Economic entity assumption Relevance characteristic Comparability characteristic Neutrality characteristic Q. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept? Cost/benefit constraint Periodicity assumption Conservatism constraint Matching principle Q. Continuation of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of Consistency Going Concern No No Yes No No Yes Yes Yes Q. Although many objections have been raised about the historical cost principle, it is still widely supported for financial reporting because it Is an objectively determinable amount Is a good measure of current value Facilitates comparisons between years Takes into account price-level adjusted information Q. Under the revenue recognition principle, revenue is generally recognized when the earning process is virtually complete and An exchange transaction has occurred The merchandise has been ordered All expenses have been identified The accounting process is virtually complete DABCAA

Q. The concept referred to by the matching principle is that a. b. c. d. Current liabilities have the same period of existence as the current assets All cash disbursements for a period be matched to cash receipts for the period Net income should be reported on a quarterly basis Where possible the expenses to be included in the income statement where incurred to produce the revenues

Q. In complying with the full disclosure principle, an accountant must determine the amount of disclosure necessary. How much disclosure is enough? a. b. c. d. Information sufficient for a person without any knowledge of accounting to understand the statements. All information that might be of interest to an owner of a business enterprise. Information that is of sufficient importance to influence the judgment and decisions of an informed user Information sufficient to permit most persons coming in contact with the statements to reach an accurate decision about the financial condition of the enterprise Q. Valuing assets at their liquidation values rather than their cost is inconsistent with the a. b. c. d. Periodicity assumption Matching principle Materiality constraint Historical cost principle

Q. Revenue is generally recognized when realized or realizable and earned. This statement describes the a. b. c. d. Consistency characteristic Matching principle Revenue recognition principle Relevance characteristic

Q. Which of the following is not a time when revenue may be recognized? a. b. c. d. At time of sale At receipt of cash During production All of these are possible times of revenue recognition

Q. Under Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability? a. b. c. d. Cost-benefit constraint Predictive value verifiability representational faithfulness

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Q. Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the a. b. c. d. Consistency characteristic Matching principle Materiality constraint Historical cost principle

Q. In matters of doubt and great uncertainty, accounting issues should be resolved by choosing the alternative that has the least favorable effect on net income, assets, and owners equity. This guidance comes from the a. b. c. d. Materiality constraint Industry practices constraint Conservatism constraint Full disclosure principle

Q. Which of the following is a limitation of the balance sheet? a. b. c. d. Many items that are of financial value are omitted Judgments and estimates are used Current fair value is not reported All of these

Q. Solvency refers to the a. b. c. d. Ability of an enterprise to pay its debts as they mature Amount of time that is expected to elapse until an asset is realized Amount of time that is expected to elapse until a liability has to be paid Amount of time that is expected to elapse until an asset is converted into cash

Q. The primary purpose of the balance sheet is to reflect a. b. c. d. The firms potential for growth in stock values in the stock market Items of value, debts, and net worth The value of items owned by the firm The status of the firms assets in case of forced liquidation of the firm

Q. For accounting purposes, the operating cycle concept a. Has become obsolete b. Affects the income statement but not the balance sheet c. Permits some assets to be classified as current even though they are more than one year removed from becoming cash d. Causes the distinction between current and noncurrent items to depend on whether they will affect cash within one year CCDABC

Q. Which of the following is not a current asset? a. Prepaid property taxes that relate to the next operating period b. The cash surrender value of a life insurance policy carried by a corporation on its president c. Marketable securities purchased as a temporary investment of cash d. Installment notes receivable due over 15 months in accordance with normal trade practices Q. Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as a. b. c. d. Current assets Property, plant, and equipment Intangible assets Long-term investments

Q. Long-term liabilities include a. b. c. d. Obligations not expected to be liquidated within the operating cycle Obligations payable at some date beyond the operating cycle Deferred income taxes and most lease obligations All of these

Q. Which of the following should be reported for capital stock? a. b. c. d. The shares authorized The shares issued The shares outstanding All of these

Q. The stockholders equity section is usually divided into what three parts? a. b. c. d. Preferred stock, common stock, treasury stock Preferred stock, common stock, retained earnings Capital stock, additional paid-in capital, retained earnings Capital stock, appropriated retained earnings, unappropriated retained earnings

Q. Which of the following is not a method of disclosing pertinent information? a. b. c. d. Supporting schedules Parenthetical explanations Cross reference and contra items All of these are methods of disclosing pertinent information

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Q. Significant accounting policies may not be a. b. c. d. Selected on the basis of judgment Selected from existing acceptable alternatives Unusual or innovative in application Omitted from financial-statement disclosure

Q. The occurrence that most likely would have no effect on 2008 net income is the a. Sale in 2008 of an office building contributed by a stockholder in 1962 b. Collection in 2008 of a dividend from an investment c. Correction of an error in the financial statements of a prior period discovered subsequent to their issuance d. Stock purchased in 1994 deemed worthless in 2008 Q. The accountant for Orion Sales Company is preparing the income statement for 2008 and the balance sheet at 12/31/08. The January 1, 2008 merchandise inventory balance will appear a. Only as an asset on the balance sheet b. Only in the cost of goods sold section of the income statement c. As a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet d. As an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet Q. Which of the following should not be reported on the income statement as an extraordinary item? a. The write-off of major assets as a result of new environmental laws prohibiting their use b. The write-off of a large receivable resulting from a customers bankruptcy proceedings c. A large loss as a result of an earthquake d. Expropriation of assets by a foreign government Q. In general, the basic difference between the concepts of revenues and gains concerns a. The materiality of the item being considered b. Whether the event giving rise to the item relates to the typical activity of the enterprise c. Whether the item is taxable in the current year d. The effect on total assets of the enterprise Q. When a company changes from one accounting principle to another, the income statement for the year of change a. Will normally not be affected, as this event is taken directly to Retained Earnings b. Should include only footnote disclosure so readers will be aware of the change c. Should include the cumulative effect, based on a retroactive computation, disclosed as a separate-line item d. Should include the effect of the change related to the current year only and be disclosed as a separate line item DCBBBA

Q. Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a. b. c. d. Only if floods in the geographical area are unusual in nature and occur infrequently Only if the flood damage is material in amount and could have been reduced by prudent management Under any circumstances as an extraordinary item Flood damage should never be classified as an extraordinary item Q. How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements? a. Shown as a separate item in operating revenues or expenses if material and supplemented by a footnote if deemed appropriate b. Shown in operating revenues or expenses if material but not shown as a separate item c. Shown net of income tax after ordinary net earnings but before extraordinary items d. Shown net of income tax after extraordinary items but before net earnings Q. Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business? a. The gain or loss on disposal should be reported as an extraordinary item b. Results of operations of a discontinued component should be disclosed immediately below extraordinary items c. Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement d. The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations. Q. The revenue recognition principle provides that revenue is recognized when a. b. c. d. It is realized It is realizable It is realized or reliable and it is earned None of these

Q. In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a. The terms of payment in the contract b. The degree to which a reliable estimate of the estimate of the costs to complete and extent of progress toward completion is practicable c. The method commonly used by the contractor to account for other long-term construction contracts d. The inherent nature of the contractors technical facilities used in construction Q. The percentage of completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions? a. b. c. d. Estimates of progress toward completion, revenues, and costs are reasonably dependable The contractor can be expected to perform the contractual obligation The buyer can be expected to satisfy some of the obligations under the contract The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement. AACCBC

Q. In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the a. b. c. d. Total costs incurred to date Total estimated cost Unbilled portion of he contract price Total contract price

Q. One of the more common techniques that companies use to determine the progress toward completion in the percentage-of-completion method is the a. b. c. d. Revenue-percentage basis Cost-percentage basis Progress completion basis Cost-to-cost basis

Q. The principle advantage of the completed-contract method is that a. Reported revenue is based on final results rather than estimates of unperformed work b. It reflects current performance when the period of a contract extends into more than one accounting period c. It is not necessary to recognize revenue at the point of sale d. A greater amount of gross profit and net income is reported than is the case when the percentage-of-completion method is use Q. Under the completed-contract method a. Revenue, cost, and gross profit are recognized during the production cycle b. Revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed c. Revenue, cost, and gross profit are recognized at the time the contract is completed d. None of these Q. Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be a. Recognized in the current period, regardless of whether the percentage-of-completion or completedcontract method is employed b. Recognized in the current period under the percentage-of-completion method, but the completedcontract method should defer recognition of the loss to the time when the contract is completed c. Recognized in the current period under the completed-contract method, but the percentage-ofcompletion method should defer the loss until the contract is completed d. Deferred and recognized when the contract is completed, regardless of whether the percentage-ofcompletion or completed-contract method is employed Q. Which of the following methods is used when the collectability of the receivable is so uncertain that gross profit (or income) is not recognized until cash is received? a. b. c. d. Percentage-of-completion method Completed-contract method Installment-sales method Deposit method BDACAC

Q. The installment-sales method of recognizing profit for accounting purposes is acceptable if a. b. c. d. Collections in the year of sale do not exceed 30% of the total sales price An unrealized profit account is credited Collection of the sales price is not reasonably assured The method is consistently used for all sales of similar merchandise

Q. Which of the following is not considered cash for financial reporting purposes? a. b. c. d. Petty cash funds and change funds Money orders, certified checks, and personal checks Coin, currency, and available funds Postdated checks and I.O.U.s

Q. Bank overdrafts, if material, should be a. b. c. d. Reported as a deduction from the current asset section Reported as a deduction from cash Netted against cash and a net cash amount reported Reported as a current liability

Q. When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n) a. b. c. d. Trade discount Nominal discount Enhancement discount Cash discount

Q. If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as a. A deduction from sales in the income statement b. An item of other expense in the income statement c. A deduction from accounts receivable in determining the net realizable value of accounts receivable d. Sales discounts forfeited in the cost of goods sold section of the income statement Q. Which of the following methods of determining bad debt expense does not properly match expense and revenue? a. Charging bad debts with a percentage of sales under the allowance method b. Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method c. Charging bad debts with an amount derived from aging accounts receivable under the allowance method d. Charging bad debts as accounts are written off as uncollectible CDDDAD

Q. Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? a. b. c. d. A percentage of sales adjusted for the balance in the allowance A percentage of sales not adjusted for the balance in the allowance A percentage of accounts receivable not adjusted for the balance in the allowance An amount derived from aging accounts receivable and not adjusted for the balance in the allowance

Q. Green company wrote off a clients account receivable of $400 as uncollectible. What will be the effect on net income under the following methods of recognizing bad debt expense? Direct Write-off Allowance a. Decrease None b. None Decrease c. None None d. Decrease Decrease Q. The allowance method is preferable to the direct write-off method because the allowance method a. Relies on estimates which are always accurate and stable among years b. Reflects the real facts c. Recognizes the expense of a bad debt in the year in which the account is determined to be uncollectible d. Recognizes the expense of a bad debt in the same period as the sale Q. The journal entries for a bank reconciliation a. b. c. d. Are taken from the balance per bank section only May include a debit to Office Expense for bank service charges May include a credit to Accounts Receivable for an NSF check May include a debit to Accounts Payable for an NSF check

Q. When preparing a bank reconciliation for the purpose of arriving at the correct cash balance a. b. c. d. Outstanding checks can be added to the balance per books NSF checks should be deducted from the balance per books Deposits in transit are deducted from the balance per bank Notes collected by the bank should be added to the balance per bank

Q. Goods in transit which are shipped f.o.b. shipping point should be a. b. c. d. Included in the inventory of the seller Included in the inventory of the buyer Included in the inventory of the shipping company None of these

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Q. Goods in transit which are shipped f.o.b. destination should be a. b. c. d. Included in the inventory of the seller Included in the inventory of the buyer Included in the inventory of the shipping company None of these

Q. Which of the following items should be included in a companys inventory at the balance sheet date? a. Goods in transit which were purchased f.o.b. destination b. Goods received from another company for sale on consignment c. Goods sold to a customer which are being held for the customer to call for at his or her convenience d. None of these Q. Goods on consignment are a. b. c. d. Included in the consignees inventory Recorded in a Consignment Out account which is an inventory account Recorded in a Consignment In account which is an inventory account All of these

Q. In a period of rising prices, the inventory method which tends to give the highest reported net income is a. b. c. d. Base stock First-in, first-out Last-in, first-out Weighted-average

Q. In a period of rising prices, the inventory method which tends to give the highest reported inventory is a. b. c. d. FIFO Moving average LIFO Weighted-average

Q. Under the lower-of-cost-or-market rule, market will be replacement cost except when replacement cost is a. b. c. d. Higher than cost Less than net realizable value Less than net realizable value less a normal profit margin Less than cost

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Q. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their a. b. c. d. Selling price will be less than their replacement cost Replacement cost will be more than their net realizable value Cost will be less than their replacement cost Future utility will be less than their cost

Q. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term market? a. b. c. d. Net realizable value Net realizable value less a normal profit margin Current replacement cost Discounted present value

Q. In no case can market in the lower-of-cost-or-market rule be more than a. Estimated selling price in the ordinary course of business b. Estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal c. Estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin d. Estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses Q. Designated market value a. Is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin b. Should always be equal to net realizable value c. May sometimes exceed net realizable value d. Should always be equal to net realizable value less a normal profit margin Q. Lower-of-cost-or-market a. b. c. d. Is most conservative if applied to the total inventory Is most conservative if applied to major categories of inventory Is most conservative if applied to individual items of inventory Must be applied to major categories for taxes

Q. The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it a. Is unacceptable for income tax purposes b. Gives results based upon estimates which may be subject to considerable uncertainty c. Is likely to assign a small amount of revenue to a period during which much revenue was actually earned d. None of these DCBACB

Q. Under the cost-recovery method of revenue recognition, a. Income is recognized on a proportionate basis as the cash is received on the sale of the product b. Income is recognized when the cash received from the sale of the product is greater than the cost of the product c. Income is recognized immediately d. None of these Q. Prepaid expenses are included in the current assets section of the balance sheet because a. They will be converted into cash within one year or the operating cycle, whichever is longer b. If they had not been already paid they would require the use of cash during the next year or operating cycle c. They were already included in operating expenses on the income statement in the year cash was expended d. They reflect payments that were made in a prior period that will not be charged to expense in the current period Q. One of the main reasons for separating liabilities into current and long-term is to a. b. c. d. Provide decision makers with information regarding currently maturing debts Separate large and small debts Separate capital into its component parts Separate total equity into its two basic parts

Q. A liability to be paid next year would not be included in the current liability section of the balance sheet if the debt is expected to be refinanced through another long-term issue, or a. The operating cycle is less than one year b. The liability is to be paid with cash that the company expects to earn during the next year c. If the debt is to be retired out of noncurrent assets d. The liability is the result of a nonoperating debt instrument due within the next year

Q. The correct order to present current assets is a. b. c. d. Cash, accounts receivable, prepaid items, inventories Cash, accounts receivable, inventories, prepaid items Cash, inventories, accounts receivable, prepaid items Cash, inventories, prepaid items, accounts receivable

Q. The basis of for classifying assets as current or noncurrent is conversion to cash within the a. b. c. d. Accounting cycle or one year, whichever is shorter Operating cycle or one year, whichever is longer Accounting cycle or one year, whichever is longer Operating cycle or one year, whichever is shorter

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Q. The current assets section of the balance sheet should include a. b. c. d. machinery patents goodwill inventory

Q. Information about different entities and about different periods of the same entity can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives? Comparability Consistency a. Entities Entities b. Entities Periods c. Periods Entities d. Periods Periods Q. If accounting information is verifiable, representationally faithful, and neutral, it can be considered a. relevant b. timely c. comparable d. reliable Q. Financial information exhibits the characteristic of consistency when a. Expenses are reported as charges against revenue in the period in which they are paid b. Accounting entities give accountable events the same accounting treatment from period to period c. Extraordinary gains and losses are not included on the income statement d. Accounting procedures are adopted which give a consistent rate of net income

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