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

Test Bank for Financial Reporting and Analysis Using Financial
Accounting Information 12th Edition

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
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
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 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


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 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 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


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
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
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


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 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 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


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
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.
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 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
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
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


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 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
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
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

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


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
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

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 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 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


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

1. True

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

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

1. True
2. False
A loss in value of money is called inflation.

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

1. True
2. False


It would always be conservative to value inventory at market.

1. True
2. False
Accountants normally recognize revenue when cash is received.

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
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
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


Financial Accounting Concepts establish generally accepted accounting
principles.

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

1. True
2. False
Reasonable inaccuracies of accounting for an entity, short of its complete life
span, are accepted.

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

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

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

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

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

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
The SEC has the authority to determine generally accepted accounting
principles and to regulate the accounting 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
All important events that influence the prospects for the entity are recorded
and therefore are reflected in the financial statements.

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


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

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

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

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


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

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
Private companies are required to report under Sarbanes-Oxley.

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


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

1. True
2. False

The Sarbanes-Oxley Act has materiality implications.

1. True
2. False
Web sites are not very useful when performing analysis.

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

1. True
2. False


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

1. True
2. False