Question 1

A primary objective of financial reporting is to:

Accepted Answer

A)  assist investors in predicting prospective cash flows. 
B)  assist investors in analyzing the economy. 
C)  assist suppliers in determining an appropriate discount to offer a particular company. 
D)  enable banks to determine an appropriate interest rate for their commercial loans. 
A)  assist investors in predicting prospective cash flows. 
B)  assist investors in analyzing the economy. 
C)  assist suppliers in determining an appropriate discount to offer a particular company. 
D)  enable banks to determine an appropriate interest rate for their commercial loans.

Question 2

The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is

Accepted Answer

A)  relevance. 
B)  reliability. 
C)  verifiability. 
D)  neutrality. 
E)  None of these answers are correct. 
A)  relevance. 
B)  reliability. 
C)  verifiability. 
D)  neutrality. 
E)  None of these answers are correct.

Question 3

ABC Inc. is being sued by a client for an alleged breach of contract. The company's lawyers are uncertain as to what the outcome of the case will be. The client is suing ABC for $500,000 plus arrearages. Should ABC record a liability on its books due to the impending litigation? Why or why not?

Accepted Answer

No. Although some might argue that not r

Question 4

Which of the following accounting concepts best justifies the use of accruals and deferrals?

Accepted Answer

A)  Cost/benefit constraint 
B)  Unit-of-measure assumption 
C)  Continuity assumption 
D)  Materiality constraint 
A)  Cost/benefit constraint 
B)  Unit-of-measure assumption 
C)  Continuity assumption 
D)  Materiality constraint

Question 5

If, in year 1, a company used LIFO; year 2, FIFO; and in year 3, moving average cost for inventory valuation, which of the following assumptions, constraints, or principles would be violated:

Accepted Answer

A)  cost. 
B)  time period. 
C)  matching. 
D)  consistency. 
E)  materiality. 
A)  cost. 
B)  time period. 
C)  matching. 
D)  consistency. 
E)  materiality.

Question 6

In order to recognize sales revenue, collection of cash from the buyer is not necessary; however, collection must be reasonably assured.

Accepted Answer

A) True 
 B)False

Question 7

Interperiod comparability is significantly enhanced when two similar companies use the same accounting methods during a single reporting period.

Accepted Answer

A) True 
 B)False

Question 8

Relevance and representation faithfulness are the fundamental qualities under IFRS.

Accepted Answer

A) True 
 B)False

Question 9

The assumption that dollars will buy the same quantity of goods and services today as they would have five years ago is the:

Accepted Answer

A)  revenue recognition principle. 
B)  time period assumption. 
C)  separate entity assumption. 
D)  unit-of-measure assumption. 
E)  continuity assumption. 
A)  revenue recognition principle. 
B)  time period assumption. 
C)  separate entity assumption. 
D)  unit-of-measure assumption. 
E)  continuity assumption.

Question 10

Which of the following is the incorrect basis for recognizing the expense indicated?

Accepted Answer

A)  Sales commissions expense on the basis of relationship with sales. 
B)  Administrative salaries expense recognized as incurred. 
C)  Amortization expense on the basis of time. 
D)  Cost of goods sold expense on a subjective or arbitrary basis. 
A)  Sales commissions expense on the basis of relationship with sales. 
B)  Administrative salaries expense recognized as incurred. 
C)  Amortization expense on the basis of time. 
D)  Cost of goods sold expense on a subjective or arbitrary basis.

Question 11

Verifiability is an ingredient of the qualitative criteria of $$\begin{array} { | l | l |l | } 
\hline &\text { Relevance}&\text {Reliabiliy } \
\hline 1& \text { Yes } & \text { No } \
\hline 2& \text { Yes } & \text { Yes } \
\hline 3& \text { No } & \text { No } \
\hline 4& \text { No } & \text { Yes } \
\hline
\end{array}$$

Accepted Answer

A)  Choice 1 
B)  Choice 2 
C)  Choice 3 
D)  Choice 4 
A)  Choice 1 
B)  Choice 2 
C)  Choice 3 
D)  Choice 4

Question 12

Accounting transactions must always be realized prior to being recognized.

Accepted Answer

A) True 
 B)False

Question 13

Application of the full disclosure principle

Accepted Answer

A)  is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. 
B)  is violated when important financial information is buried in the notes to the financial statements. 
C)  is demonstrated by the use of supplementary information presenting the effects of changing prices. 
D)  requires that the financial statements be consistent and comparable. 
A)  is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. 
B)  is violated when important financial information is buried in the notes to the financial statements. 
C)  is demonstrated by the use of supplementary information presenting the effects of changing prices. 
D)  requires that the financial statements be consistent and comparable.

Question 14

Relevance is not a function of:

Accepted Answer

A)  feedback value. 
B)  verifiability. 
C)  timeliness. 
D)  predictive value. 
A)  feedback value. 
B)  verifiability. 
C)  timeliness. 
D)  predictive value.

Question 15

The underlying assumptions of accounting include all of the following except:

Accepted Answer

A)  unit-of-measure. 
B)  separate entity. 
C)  time period. 
D)  continuity. 
E)  conservatism. 
A)  unit-of-measure. 
B)  separate entity. 
C)  time period. 
D)  continuity. 
E)  conservatism.

Question 16

Accrual accounting is essentially an application of:

Accepted Answer

A)  the conservatism principle. 
B)  the historical cost principle. 
C)  the materiality constraint. 
D)  the matching principle. 
A)  the conservatism principle. 
B)  the historical cost principle. 
C)  the materiality constraint. 
D)  the matching principle.

Question 17

Recognition requires the measurement of an item for inclusion in the financial statements.

Accepted Answer

A) True 
 B)False

Question 18

Under which of the following will revenues and expenses most likely be reported in the period they are earned or incurred?

Accepted Answer

A)  Cash basis accounting 
B)  A combination of accrual and cash basis accounting 
C)  Single entry accounting 
D)  Accrual basis accounting 
A)  Cash basis accounting 
B)  A combination of accrual and cash basis accounting 
C)  Single entry accounting 
D)  Accrual basis accounting

Question 19

The list price of a new van was $30,000 at a local car dealership. However, a customer convinced the dealer to sell the van for $25,000 (the van had cost the dealer $20,000 one year earlier). The van would cost the dealer $24,000 today. Inflation is 5% per year. The amount of profit that would be recognized by the dealer as a result of the sale using the physical capital maintenance approach is:

Accepted Answer

A)  $1,000 
B)  $2,500 
C)  $5,000 
D)  $6,000 
A)  $1,000 
B)  $2,500 
C)  $5,000 
D)  $6,000

Question 20

The underlying concept that the value of accounting information must exceed the expenditures incurred to provide it is called the:

Accepted Answer

A)  substance over form. 
B)  cost/benefit implementation constraint. 
C)  conservatism. 
D)  full-disclosure principle. 
A)  substance over form. 
B)  cost/benefit implementation constraint. 
C)  conservatism. 
D)  full-disclosure principle.

A primary objective of financial reporting is to:

The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is

ABC Inc. is being sued by a client for an alleged breach of contract. The company's lawyers are uncertain as to what the outcome of the case will be. The client is suing ABC for $500,000 plus arrearages. Should ABC record a liability on its books due to the impending litigation? Why or why not?

Which of the following accounting concepts best justifies the use of accruals and deferrals?

If, in year 1, a company used LIFO; year 2, FIFO; and in year 3, moving average cost for inventory valuation, which of the following assumptions, constraints, or principles would be violated:

In order to recognize sales revenue, collection of cash from the buyer is not necessary; however, collection must be reasonably assured.

Interperiod comparability is significantly enhanced when two similar companies use the same accounting methods during a single reporting period.

Relevance and representation faithfulness are the fundamental qualities under IFRS.

The assumption that dollars will buy the same quantity of goods and services today as they would have five years ago is the:

Which of the following is the incorrect basis for recognizing the expense indicated?

Verifiability is an ingredient of the qualitative criteria of Relevance Reliabiliy 1 Yes No 2 Yes Yes 3 No No 4 No Yes

Accounting transactions must always be realized prior to being recognized.

Application of the full disclosure principle

Relevance is not a function of:

The underlying assumptions of accounting include all of the following except:

Accrual accounting is essentially an application of:

Recognition requires the measurement of an item for inclusion in the financial statements.

Under which of the following will revenues and expenses most likely be reported in the period they are earned or incurred?

The underlying concept that the value of accounting information must exceed the expenditures incurred to provide it is called the:

The Framework for Financial Reporting

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters

Exam 2: Accounting Judgements

A primary objective of financial reporting is to:

The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is

ABC Inc. is being sued by a client for an alleged breach of contract. The company's lawyers are uncertain as to what the outcome of the case will be. The client is suing ABC for $500,000 plus arrearages. Should ABC record a liability on its books due to the impending litigation? Why or why not?

Which of the following accounting concepts best justifies the use of accruals and deferrals?

If, in year 1, a company used LIFO; year 2, FIFO; and in year 3, moving average cost for inventory valuation, which of the following assumptions, constraints, or principles would be violated:

In order to recognize sales revenue, collection of cash from the buyer is not necessary; however, collection must be reasonably assured.

Interperiod comparability is significantly enhanced when two similar companies use the same accounting methods during a single reporting period.

Relevance and representation faithfulness are the fundamental qualities under IFRS.

The assumption that dollars will buy the same quantity of goods and services today as they would have five years ago is the:

Which of the following is the incorrect basis for recognizing the expense indicated?

Verifiability is an ingredient of the qualitative criteria of Relevance Reliabiliy 1 Yes No 2 Yes Yes 3 No No 4 No Yes

Accounting transactions must always be realized prior to being recognized.

Application of the full disclosure principle

Relevance is not a function of:

The underlying assumptions of accounting include all of the following except:

Accrual accounting is essentially an application of:

Recognition requires the measurement of an item for inclusion in the financial statements.

Under which of the following will revenues and expenses most likely be reported in the period they are earned or incurred?

The underlying concept that the value of accounting information must exceed the expenditures incurred to provide it is called the:

The Framework for Financial Reporting

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters