Test bank for financial reporting and analysis using financial accounting information 12th

Test Bank for Financial Reporting and Analysis Using
Financial Accounting Information 12th
Multiple Choice Questions
The organization that has by federal law the responsibility to adopt auditing
standards is the:
1.

a.New York Stock Exchange

2.

b.Public Company Accounting Oversight Board

3.

c.Accounting Principles Board

4.

d.Financial Accounting Standards Board

5.

e.AICPA Committee on Accounting Procedure

Which of these measurement attributes is not currently used in practice?
1.

a.historical cost

2.

b.relevant cost

3.

c.current market value

4.

d.current cost

5.

e.present value

An accounting period that ends when operations are at a low ebb is:
1.

a.a calendar year

2.

b.a fiscal year

3.

c.the natural business year


4.

d.an operating year

5.

e.none of the answers are correct.

Accountants provide for inflation using which of the following accounting
principles?
1.

a.going concern

2.

b.time period

3.

c.conservatism

4.

d.materiality

5.

e.none of the answers are correct

Valuing inventory at the lower of cost or market is an application of the:

1.

a.time period assumption

2.

b.realization principle

3.

c.going concern principle

4.

d.conservatism principle

5.

e.none of the answers are correct

At the end of the fiscal year, an adjusting entry is made that increases salaries
payable and increases salaries expense. This entry is an application of which
accounting principle?
1.

a.full disclosure

2.

b.materiality

3.

c.matching


4.

d.realization

5.

e.historical cost

The most significant current source of generally accepted accounting
principles is the:
1.

a.New York Stock Exchange

2.

b.Accounting Principles Board

3.

c.Accounting Research Studies

4.

d.AICPA committee on Accounting Procedure

5.

e.Financial Accounting Standards Board

The assumption that deals with when to recognize the costs that are
associated with the revenue that is being recognized is:
1.

a.matching

2.

b.going concern

3.

c.consistency

4.

d.materiality

5.

e.none of the answers are correct

All but one of the following statements indicates a difference between the
Financial Accounting Standards Board (FASB) and prior approaches. Select

the one that is not a difference.
1.

a.The FASB is independent of the AICPA.

2.

b.The size of the board is much smaller.


3.

c.The FASB has broader representation.

4.

d.The FASB is the primary board for the development of generally accepted accounting
principles.

5.

e.Members of the FASB serve on a full-time basis.

Understating assets and revenues is justified based on:
1.

a.realization assumption

2.

b.matching

3.

c.consistency

4.

d.realization

5.

e.none of the answers are correct

The principle that assumes the reader of the financial statements is not
interested in the liquidation values is:
1.

a.conservatism

2.

b.matching

3.

c.time period

4.

d.realization

5.

e.none of the answers are correct

Accountants face a problem of when to recognize revenue. Which of the
following methods of recognizing revenue is not used in practice?
1.

a.point of sale

2.

b.point of order acceptance


3.

c.end of production

4.

d.receipt of cash

5.

e.revenue recognized during production

Other than December, the most popular month for fiscal year-end is:

1.

a.January

2.

b.March

3.

c.June

4.

d.September

5.

e.October.

The going concern assumption:
1.

a.is applicable to all financial statements

2.

b.primarily involves periodic income measurement

3.

c.allows for the statements to be prepared under generally accepted accounting
principles

4.

d.requires that accounting procedures be the same from period to period

5.

e.none of the answers are correct

By law, the setting of accounting standards is the responsibility of the:
1.

a.AICPA Committee on Accounting Procedure

2.

b.New York Stock Exchange

3.

c.Accounting Principles Board


4.

d.Securities and Exchange Commission

5.

e.Financial Accounting Standards Board

The Financial Accounting Standards Board has issued statements between:
1.

a.1960-1973

2.

b.1939-1959

3.

c.1973-present

4.

d.1966-1976

5.

e.none of the answers are correct

Valuing assets at their liquidation values is not consistent with:
1.

a.conservatism

2.

b.materiality

3.

c.going concern

4.

d.time period

5.

e.none of the answers are correct

The realization principle leads accountants to usually recognize revenue at:
1.

a.the end of production

2.

b.during production

3.

c.the receipt of cash

4.

d.the point of sale


5.

e.none of the answers are correct

The following data relate to Falcon Company for the year ended December 31,
2010. Falcon Company uses the cash basis. Sales for cash: $180,000; Sales
for credit: 190,000; Cost of inventory sold: 210,000; Collections from
customers: 350,000; Purchases of inventory on credit: 200,000; Payment for
purchases: 220,000; Selling expenses (accrual basis): 60,000; Payment for
selling expenses: 70,000. Which of the following amounts represents income
for Falcon Company for the year ended December 31, 2010?
1.

a.$90,000

2.

b.$80,000

3.

c.$70,000

4.

d.$60,000

5.

e.none of the answers are correct

Which of the following does not relate to The Public Company Accounting
Oversight Board (PCAOB)?
1.

a.Two members of the board must be CPAs

2.

b.In addition to appointing the five members of the PCAOB, the SEC is responsible for
the oversight and enforcement authority over the Board

3.

c.The PCAOB consists of five members appointed by the SEC

4.

d.The PCAOB is to adopt auditing standards

5.

e.The PCAOB is to adopt accounting standards

Understating expenses is justified based on:
1.

a.time period assumption


2.

b.conservatism assumption

3.

c.materiality assumption

4.

d.matching assumption

5.

e.none of the answers are correct

The Accounting Principles Board issued Opinions between:
1.

a.1959-1973

2.

b.1939-1959

3.

c.1973-present

4.

d.1966-1976

5.

e.none of the answers are correct

The accounting principle that assumes that inflation will not take place or will
be immaterial is:
1.

a.monetary unit

2.

b.historical cost

3.

c.realization

4.

d.going concern

5.

e.none of the answers are correct

The business being separate and distinct from the owners is an integral part
of the:
1.

a.time period assumption


2.

b.going concern assumption

3.

c.business entity assumption

4.

d.realization assumption

5.

e.none of the answers are correct

The following data relate to Rocket Company for the year ended December 31,
2010. Rocket Company uses the cash basis. Sales on credit: $180,000; Cost of
inventory sold on credit: 130,000; Collections from customers: 170,000;
Purchase of inventory on credit: 140,000; Payment for purchases: 150,000;

Selling expenses (accrual basis:)20,000; Payment for selling expenses:
25,000. Which of the following amounts represents income for Rocket
Company for the year ended December 31, 2010?
1.

a.$30,000

2.

b.$5,000 loss

3.

c.$40,000

4.

d.$45,000

5.

e.$50,000

The assumption that enables us to prepare periodic statements between the
time that a business commences operations and the time it goes out of
business is:
1.

a.time period

2.

b.business entity

3.

c.historical cost

4.

d.transaction


5.

e.none of the answers are correct

The comment that “items that are not material may be recorded in the
financial statements in the most economical and expedient manner possible”
is representative of:
1.

a.matching

2.

b.conservatism

3.

c.realization

4.

d.materiality

5.

e.none of the answers are correct

The assumption that allows accountants to accept some inaccuracy, because
of incomplete information about the future, in exchange for more timely
reporting is:
1.

a.conservatism

2.

b.time period

3.

c.business entity

4.

d.materiality

5.

e.realization

Charging off equipment that cost less than $20 would be an example of the
application of:
1.

a.going concern

2.

b.cost


3.

c.matching

4.

d.materiality

5.

e.realization

The following data relate to Gorr Company for the year ended December 31,
2010. Gorr Company uses the accrual basis. Sales for cash: $200,000; Sales
for credit: 220,000; Cost of inventory sold: 180,000; Collections from
customers: 300,000; Purchases of inventory on credit: 190,000; Payment for

purchases: 180,000; Selling expenses (accrual basis): 50,000; Payment for
selling expenses: 60,000. Which of the following represents income for Gorr
Company for the year ended December 31, 2010?
1.

a.$180,000

2.

b.$185,000

3.

c.$190,000

4.

d.$200,000

5.

e.none of the answers are correct

The following data relate to Swift Company for the year ended December 31,
2010. Swift Company uses the accrual basis. Sales on credit: $250,000; Cost
of inventory sold on credit: 170,000; Collections from customers: 220,000;
Purchase of inventory on credit: 150,000; Payment for purchases: 140,000;
Selling expenses (accrual basis):40,000; Payment for selling expenses:45,000.
Which of the following amounts represents income for Swift Company for the
year ended December 31, 2010?

1.

a.$60,000

2.

b.$50,000


3.

c.$40,000

4.

d.$35,000

5.

e.$30,000


True-False Questions
Timeliness is a pervasive constraint imposed upon financial accounting
information.
1.

True

2.

False

A loss in value of money is called inflation.
1.

True

2.

False

Many companies are on a 51-52 week fiscal year.
1.

True

2.

False

The Statements of Financial Accounting Concepts are intended to provide the
Financial Accounting Standards Board with a common foundation and the
basic underlying reasoning on which to consider the merits of various
alternative accounting principles.
1.

True

2.

False

The Sarbanes-Oxley Act has far-reaching consequences for financial
reporting and the CPA profession.
1.

True

2.

False


Some industry practices lead to accounting reports that do not conform to the
general theory that underlies accounting.
1.

True

2.

False

According to the second Financial Accounting Concept, those characteristics
of information that make it a desirable commodity can be viewed as a
hierarchy of qualities, with understandability and usefulness for decision
making of most importance.
1.

True

2.

False

Some firms question the costs/benefits of implementing Sarbanes-Oxley.
1.

True

2.

False

For many companies that use December 31 for the year-end, we cannot tell if
December 31 was selected because it represents a natural business year or if
it was selected to represent a calendar year.
1.

True

2.

False

The accountant records only the events that affect the financial position of the
entity and that can be reasonably determined in monetary terms.
1.

True

2.

False


The most accurate way to account for the success or failure of an entity is to
accumulate all transactions from the opening of business until the business
eventually liquidates.
1.

True

2.

False

The time period assumption indicates that the entity will remain in business
for an indefinite period time.
1.

True

2.

False

For a public company, the SEC requires that a report be filed annually on its
internal control systems.

1.

True

2.

False

Relevance and reliability are two primary qualities that make accounting
information useful for decision making.
1.

True

2.

False

Reporting under Sarbanes-Oxley revealed that very few companies had
material weaknesses in their controls and processes.
1.

True

2.

False


Financial Accounting Concepts establish generally accepted accounting

principles.
1.

True

2.

False

The going concern assumption does not influence the classification of assets
and liabilities.
1.

True

2.

False

All important events that influence the prospects for the entity are recorded
and therefore are reflected in the financial statements.
1.

True

2.

False

Reasonable inaccuracies of accounting for an entity, short of its complete life

span, are accepted.
1.

True

2.

False

Predictive value, feedback value, and timeliness are ingredients needed to
ensure that the information is reliable.
1.

True

2.

False


Relevance is a quality requiring that the information be timely and that it also
have predictive value or feedback value or both.
1.

True

2.

False

To the extent that money does not remain stable, it loses its usefulness as the
standard for measuring financial transactions.
1.

True

2.

False

Accounting Trends & Techniques is a compilation of data obtained by a
survey of 600 annual reports to stockholders undertaken for the purpose of
analyzing the accounting information disclosed in such reports.
1.

True

2.

False

Accounting standards codification TM addresses U.S. GAAP for
nongovernmental entities.
1.

True

2.

False

Performance indicators for nonbusiness organizations are usually formal
budgets and donor restrictions.
1.

True

2.

False


The Sarbanes-Oxley Act has materiality implications.
1.

True

2.

False

Decision usefulness is a pervasive constraint imposed upon financial
accounting information.
1.

True

2.

False

At the time of originally recording a transaction, historical cost also
represents the fair market value.
1.

True

2.

False

In order to determine the economic success of a grocery store, we should
view it as separate from the other resources that are owned by this individual.
1.

True

2.

False

The Sarbanes-Oxley Act has had an insignificant effect on the relationship
between the company and the internal auditor.
1.

True

2.

False

Accounting standards codification TM reorganizes the accounting
pronouncements into approximately 90 accounting topics.
1.

True

2.

False

Many of our present financial statement figures would be misleading if it were
not for the going concern assumption.
1.

True

2.

False

The SEC has the authority to determine generally accepted accounting
principles and to regulate the accounting profession.
1.

True

2.

False

Using the business entity assumption, the financial statements are prepared
separate and distinct from the owners of the entity.
1.

True

2.

False

The 1933 and 1934 U.S. federal securities laws virtually gave the Securities
and Exchange Commission (SEC) authority and responsibility for the
development of generally accepted accounting principles.
1.

True

2.

False


Private companies are required to report under Sarbanes-Oxley.
1.

True

2.

False

An entity usually cannot reasonably account for the profits related to
inventory until that inventory is sold in the normal course of business.
1.

True

2.

False

The accrual basis of accounting recognizes revenue when realized (realization
concept) and expenses when incurred (matching concept).
1.

True

2.

False

Web sites are not very useful when performing analysis.
1.

True

2.

False

Eventually, the Financial Accounting Standards Board intends to evaluate
current principles in terms of the concepts established in the Financial
Accounting Concepts.
1.

True

2.

False


Among the many responsibilities of the PCAOB is to adopt accounting
standards.
1.

True

2.

False

Accountants normally recognize revenue when cash is received.
1.

True

2.

False

It would always be conservative to value inventory at market.
1.

True

2.

False

The cash basis recognizes revenue when cash is received and expenses
when cash is paid.
1.

True

2.

False