Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition Gary A Porter Curtis L Norton Test bank

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Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition Gary A Porter Curtis L Norton Test bank

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1. Financial statements are intended to tell the reader the value of a company.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp.52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

2. Accountants are the main reason financial statements are prepared.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

3. The SEC created the objectives of financial reporting.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

4. The purpose of financial reporting is to provide economic information to external decision makers only.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

5. An objective of financial reporting is to reflect economic information concerning a company’s cash flows.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

6. The concept of conservatism is the capacity of information to make a difference in a decision.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

7. There is a standard threshold for materiality set by the Financial Accounting Standards Board for all companies.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

8. The lack of a common depreciation method makes it impossible to compare the performance of companies using different methods.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

9. The amount of a transaction may be immaterial by company standards but still be considered significant by financial statement users.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

10. The quality of accounting information that allows a user to compare two or more accounting periods for a single company is known as consistency.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

11. Materiality deals with the insignificance of an error in accounting information.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

12. The quality of accounting information that makes it comprehensible to those willing to spend the necessary time is consistency.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

13. The quality of accounting information that allows a user to analyze two or more companies and look for similarities and differences is known as understandability.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

14. Most businesses have an operating cycle of greater than one year.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

15. Current assets, other than cash, are expected to be sold or consumed beyond a company’s normal operating cycle.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

16. Obligations related to operating activities that will be paid within the company’s operating cycle must be reported as current liabilities on a classified balance sheet.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

17. The operating cycle for all businesses is one year.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

18. A construction company that builds skyscrapers is likely to have an operating cycle longer than one year.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

 

 

19. Three common categories of long-term assets are: (1) property, plant, and equipment, (2) investments, and (3) intangibles.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

20. In the Stockholders’ Equity section of a classified balance sheet, a distinction is made between amounts invested by owners and amounts accumulated from business earnings.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

21. One primary purpose of a classified balance sheet is to help users evaluate the liquidity of a company.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

22. The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among their current assets.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

23. An advantage of the current ratio is that it considers the makeup of the current assets.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

24. The excess of current assets over current liabilities is referred to as working capital.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

25. A balance sheet shows cash, $75,000; marketable securities, $115,000; accounts receivable, $150,000; and $222,500 of inventories. Current liabilities are $225,000. The current ratio is 2.5 to 1.   a. True   b. False   ANSWER:   True RATIONALE:   ($75,000 + $115,000 + $150,000 + $222,500)/$225,000 = 2.5 DIFFICULTY:   Moderate REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Analyzing

 

26. If a firm has a current ratio of 2, the subsequent receipt of a 60-day note receivable to settle an open account will cause the ratio to decrease.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Analyzing

 

27. The purchase of inventory for cash will cause the current ratio to decrease.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 62-64 LEARNING OBJECTIVES:   FACC.PONO.18.02-04 – LO: 02-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

28. Income from operations does not include interest revenue and interest expense because these items are considered to be non-operating in nature.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 64-66 LEARNING OBJECTIVES:   FACC.PONO.18.02-05 – LO: 02-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

29. Some analysts properly refer to a company’s profit margin as its return on assets.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 66-67 LEARNING OBJECTIVES:   FACC.PONO.18.02-06 – LO: 02-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

30. Dividends declared and paid reduce a company’s retained earnings balance.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 67-68 LEARNING OBJECTIVES:   FACC.PONO.18.02-07 – LO: 02-07 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

31. Dividends paid appear on both the income statement and the statement of retained earnings.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 67-68 LEARNING OBJECTIVES:   FACC.PONO.18.02-07 – LO: 02-07 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

32. The statement of cash flows, like the income statement, reports only operating activities of a company.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 68-70 LEARNING OBJECTIVES:   FACC.PONO.18.02-08 – LO: 02-08 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-24-Statement of Cash AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

33. The primary responsibility for the preparation and integrity of the financial statements in an annual report belongs to the company’s independent accountants (CPAs).   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 70-73 LEARNING OBJECTIVES:   FACC.PONO.18.02-09 – LO: 02-09 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

34. Independent auditors (CPAs) render an opinion that the financial statements do or do not fairly present a company’s financial position, operating results, and cash flows.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 70-73 LEARNING OBJECTIVES:   FACC.PONO.18.02-09 – LO: 02-09 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

35. An independent auditor’s (CPA’s) report is a guarantee that the financial statements are free from fraud or material error.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 70-73 LEARNING OBJECTIVES:   FACC.PONO.18.02-09 – LO: 02-09 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

36. In the independent auditors’ report included with the annual report, management discusses the financial statements and provides the shareholders with explanations for certain amounts reported in the statements.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 70-73 LEARNING OBJECTIVES:   FACC.PONO.18.02-09 – LO: 02-09 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

Multiple Choice

 

37. What is the primary objective of financial reporting?   a. To help investors make credit decisions.   b. To help management assess cash flows.   c. To protect users from fraudulent financial information.   d. To provide useful information for decision making   ANSWER:   d DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

38. In preparing financial statements, accountants should consider all of the following except   a. the objectives of financial reporting.   b. the characteristics that make accounting information useful.   c. the most useful way to display the information found on the financial statements.   d. the presentation of the value of a company.   ANSWER:   d DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

39. “Claims to economic resources” are known as   a. assets and liabilities.   b. liabilities and stockholders’ equity.   c. owners’ equity and stockholders’ equity.   d. retained earnings and revenues.   ANSWER:   b DIFFICULTY:   Moderate REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

40. Which of the following is not an objective of financial reporting?   a. To reflect prospective cash receipts to investors and creditors.   b. To reflect prospective cash flows to an enterprise.   c. To reflect resources and claims to resources.   d. To reflect current stock prices and information concerning stock markets.   ANSWER:   d DIFFICULTY:   Moderate REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

41. Which of the following is the best description of the purpose of financial reporting?   a. To allow users to access the daily detailed records of a business   b. To help the users reach their decisions in an informed manner   c. To provide users with an assessment of how long the company will continue as a going concern   d. To allow users access to a list of all the individuals who owe the company money   ANSWER:   b DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

42. Which of the following statements is true concerning external users of financial information?   a. External users need detailed records of the business to make informed decisions.   b. External users are primarily responsible for the preparation of financial statements.   c. External users rely on the financial statements to help make informed decisions.   d. External users rely on management to tell them whether the company is a good investment.   ANSWER:   c DIFFICULTY:   Easy REFERENCES:   pp. 52-53 LEARNING OBJECTIVES:   FACC.PONO.18.02-01 – LO: 02-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

 

 

43. Relevant information can be quantitative or qualitative. In deciding whether to go to college part time or full time, which of the following is a qualitative factor for a student?   a. The cost of tuition   b. The opportunity to make friends   c. The price of football tickets   d. “Good Student” discounts on auto insurance rates   ANSWER:   b DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

44. The preparation of financial statements requires that the information be understandable   a. only to CPAs.   b. to those willing to spend the time to understand it.   c. only to those who take an accounting course.   d. only to financial analysts and brokers.   ANSWER:   b DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-01-Purpose AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

45. Jones, Inc., a manufacturer of tires, has given you its most recent annual report in an effort to obtain a sizable loan. The company is very profitable and appears to have a sound financial position. Based on a report presented on prime-time television last night, you are aware that Jones is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn. The information presented on television is an example of financial information that is   a. relevant.   b. consistent.   c. predictable.   d. comparable.   ANSWER:   a DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

46. If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of   a. comparability.   b. consistency.   c. neutrality.   d. understandability.   ANSWER:   a DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

47. Jackson Transportation purchases many pieces of office furniture with an individual cost below $200 each. Jackson chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company’s accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Jackson to expense the furniture?   a. Conservatism   b. Matching   c. Materiality   d. Verifiability   ANSWER:   c DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

48. You are comparing three companies that use different depreciation methods. Which of the following would help you the most in making a comparison of the companies?   a. The average earnings per share for the quarter   b. Prospective cash receipts   c. Claims to resources   d. Disclosure of accounting policies   ANSWER:   d DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

49. Tavella Co. applies the consistency convention. What does this mean?   a. Tavella Co. uses the same names for all its expenses as its competitors.   b. Tavella Co. has selected certain accounting principles that can never be changed.   c. Tavella Co. applies the same accounting principles each accounting period.   d. Tavella Co. applies the same accounting principles as its competitors.   ANSWER:   c DIFFICULTY:   Easy REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

50. Information that is material means that an error or alternative method of handling a transaction   a. would possibly affect the judgment of someone relying on the financial statements.   b. would not affect the decisions of users.   c. might cause a company to understate its earnings for the accounting period.   d. could increase the profitability of a company.   ANSWER:   a DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

51. An accountant is uncertain about the best estimate of an amount for a business transaction. If two amounts are about equally likely, the amount least likely to overstate assets and income is selected. Which of the following qualities is characterized by this action?   a. Comparability   b. Conservatism   c. Materiality   d. Neutrality   ANSWER:   b DIFFICULTY:   Moderate REFERENCES:   pp. 53-56 LEARNING OBJECTIVES:   FACC.PONO.18.02-02 – LO: 02-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

52. Which of the following is a current asset?   a. Building   b. Office Supplies   c. Land   d. Truck   ANSWER:   b DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

53. Which of the following is a noncurrent asset?   a. Land   b. Accounts receivable   c. Cash   d. None of these are correct   ANSWER:   a DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

54. Which of the following includes only current assets?   a. Accounts receivable, cash, inventory, office supplies   b. Cash, accounts payable, inventory, office supplies   c. Cash, land, accounts receivable, inventory   d. Accounts receivable, cash, furniture, office supplies   ANSWER:   a DIFFICULTY:   Moderate REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

 

 

55. To determine the source of a company’s noncurrent assets, on which financial statement will you look?   a. Income statement only   b. Balance sheet only   c. Both the balance sheet and the income statement   d. Both the income statement and the statement of retained earnings   ANSWER:   b DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

Bevco Company Bevco Company has provided the following information from its accounting records for the current year:   Cash $ 55,000   Accounts receivable $ 45,000   Inventory 65,000   Land 75,000   Accounts payable 50,000   Notes payable (due 2021) 150,000   Retained earnings ?   Capital stock 20,000

 

56. Read the information for Bevco Company. What are Bevco’ current assets?   a. $100,000   b. $165,000   c. $210,000   d. $240,000   ANSWER:   b RATIONALE:   ($55,000 Cash + $45,000 Accounts Receivable + $65,000 Inventory = $165,000) DIFFICULTY:   Easy REFERENCES:   pp. 56-61 LEARNING OBJECTIVES:   FACC.PONO.18.02-03 – LO: 02-03 NATIONAL STANDARDS:   United States – BUSPROG: Analytic ACCREDITING STANDARDS:   ACBSP: APC-09 – Financial Statements AICPA: FN-Measurement KEYWORDS:   Bloom’s: Analyzing

 

 

Porter_UFA10e_TB_ch04   True / False

 

1. Recognition is the process of formally recording or incorporating an item into the financial statements.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

2. The unit of measure in Japan is the U.S. dollar.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Measurement KEYWORDS:   Bloom’s: Remembering

 

3. When initially recording the cost of land purchased, most companies use the cost of the land at the time it is purchased.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

4. Because of its objective nature, historical cost is the attribute used to measure many of the assets recognized on the balance sheet.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Measurement KEYWORDS:   Bloom’s: Remembering

 

5. The accounting profession is currently experimenting with financial statements adjusted for the changing value of the dollar since inflation is increasing.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Measurement KEYWORDS:   Bloom’s: Remembering

 

6. The process of recording an item in the financial statements is called measurement.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-05-Accounting Cycle AICPA: FN-Measurement KEYWORDS:   Bloom’s: Remembering

 

 

 

7. The amount of cash that could be received by selling an asset currently is called historical cost.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Measurement KEYWORDS:   Bloom’s: Remembering

 

8. Under the accrual method, expenses are recognized when revenue is earned.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

9. The statement of cash flows reflects the revenues actually earned by the business, regardless of whether cash has been collected.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

10. When a company recognizes the portion of supplies used during a year, the effect is to decrease net income.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

11. All financial statements are prepared using the accrual basis of accounting.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

12. The justification for the accrual basis of accounting lies in the needs of financial statement users for periodic information on the financial position and the profitability of the entity.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

13. Most companies use the cash basis of accounting.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

14. The income statement tells the reader about the actual cash inflows during a period of time.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

15. The revenue recognition principle does not pertain to situations where revenue is recognized over time such as long-term contracts, franchises, commodities, and installment sales.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   p. 155 LEARNING OBJECTIVES:   FACC.PONO.18.04-03 – LO: 04-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

16. Revenue is always earned continuously over time.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   p. 155 LEARNING OBJECTIVES:   FACC.PONO.18.04-03 – LO: 04-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

17. The revenue recognition principle involves two factors: paid and incurred.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   p. 155 LEARNING OBJECTIVES:   FACC.PONO.18.04-03 – LO: 04-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

18. An asset is always involved when revenue is recognized.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   p. 155 LEARNING OBJECTIVES:   FACC.PONO.18.04-03 – LO: 04-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

19. The recognition of revenue may result from the settlement of a liability rather than from the acquisition of an asset.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   p. 155 LEARNING OBJECTIVES:   FACC.PONO.18.04-03 – LO: 04-03 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

20. Expired costs are called assets.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 155-158 LEARNING OBJECTIVES:   FACC.PONO.18.04-04 – LO: 04-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

21. Three months before year-end, Billings Company signed a $100,000, 12%, six-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 155-158 LEARNING OBJECTIVES:   FACC.PONO.18.04-04 – LO: 04-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

 

 

22. Costs incurred for purchases of merchandise result in an asset, Merchandise Inventory, and are eventually matched with revenue at the time the product is sold.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 155-158 LEARNING OBJECTIVES:   FACC.PONO.18.04-04 – LO: 04-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

23. Matching can occur directly (like cost of goods sold), indirectly (like plant assets), or immediately when no future benefits from the cost are expected.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 155-158 LEARNING OBJECTIVES:   FACC.PONO.18.04-04 – LO: 04-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

24. Conceptually, anytime a cost is incurred, an asset is acquired.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 155-158 LEARNING OBJECTIVES:   FACC.PONO.18.04-04 – LO: 04-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

25. A cost can be an asset or expense depending on whether the future economic benefits have expired or not.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 155-158 LEARNING OBJECTIVES:   FACC.PONO.18.04-04 – LO: 04-04 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

26. One effect of recognizing depreciation is a decrease in net income.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

27. A company that forgets to recognize depreciation for the year overstates its income and assets.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

28. An entry that includes the Cash account is probably an adjustment.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

29. Every company prepares only four adjustments—one for each of the four types of adjustments.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

30. When cash is paid before an expense is incurred, an accrual is necessary.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

31. The amount of interest accrued is added to the Note Payable account and reported in the Liabilities section of the balance sheet.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

32. Accumulated depreciation is increased when depreciation is recognized.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

33. Adjustments are recorded for all transactions involving outside entities.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

34. When revenue is earned before the receipt of cash, an adjustment that increases a receivable and decreases a liability account is recorded.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

35. Every adjustment involves at least one income statement and one balance sheet account.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

36. When an expense is incurred prior to the payment of cash for that expense, an adjustment that increases an expense account and decreases an asset is prepared.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

37. The balance in the account, Rent Collected in Advance, is reported as an asset on the balance sheet of the landlord.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 158-172 LEARNING OBJECTIVES:   FACC.PONO.18.04-05 – LO: 04-05 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-07-Adjusting Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

38. While most companies make adjustments and prepare statements monthly, companies complete the accounting cycle only once per year.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-05-Accounting Cycle AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

39. Accountants often prepare work sheets at the end of an accounting period in place of financial statements.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-05-Accounting Cycle AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

40. Financial statements should be prepared before any adjustments are made.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-05-Accounting Cycle AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

41. Interim financial statements are prepared annually.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-05-Accounting Cycle AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

42. Adjustments are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-05-Accounting Cycle AICPA: FN-Measurement KEYWORDS:   Bloom’s: Remembering

 

 

 

43. Balance sheet accounts are called real accounts.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-08-Closing Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

44. Expense accounts are closed or zeroed out in the closing process.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-08-Closing Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

45. Closing entries serve two important purposes: (1) to return the balances in all temporary or nominal accounts to zero to start the next accounting period and (2) to transfer the net income (or net loss) and the dividends of the period to the Retained Earnings account.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy REFERENCES:   pp. 172-174 LEARNING OBJECTIVES:   FACC.PONO.18.04-06 – LO: 04-06 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-08-Closing Entries AICPA: FN-Reporting KEYWORDS:   Bloom’s: Remembering

 

 

 

Multiple Choice

46. Measurement of the economic effects on an entity involves each of the following except   a. quantification of effects.   b. identification of the attribute to be measured.   c. selection of an appropriate unit of measure.   d. recording the economic effects in the financial statements.   ANSWER:   d DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

47. The selection of historical cost over current value as the attribute to be measured for assets is an example of the trade-off of   a. reliability over relevance.   b. costs over benefit.   c. comparability over consistency.   d. understandability over verifiability.   ANSWER:   a DIFFICULTY:   Moderate REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

48. An accountant describes the effects of an economic event on an entity by recording the transaction and reporting the amount on the financial statements. What is this called?   a. Measurement   b. Recognition   c. Disclosure   d. Matching   ANSWER:   b DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

49. A decline in purchasing power is evidenced by all of the following except   a. inflation.   b. a continuing rise in the general level of prices in an economy.   c. buying the same amount of goods or services for a higher price a year later.   d. current value is equal to historical cost.   ANSWER:   d DIFFICULTY:   Moderate REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

50. Which of the following is the attribute used to measure many assets that are recognized on a balance sheet, because it is more objective and verifiable?   a. Market value   b. Historical cost   c. Liquidation value   d. Current replacement cost   ANSWER:   b DIFFICULTY:   Easy REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

51. Why is the use of the U.S. dollar as a unit of measure for financial statement data in the United States widely accepted?   a. The U.S. dollar remains stable over a long period of time.   b. The U.S. dollar is universally recognized as a reliable financial measure.   c. The U.S. dollar is the medium of monetary exchange in the United States.   d. The U.S. dollar is required for financial statement presentation by the FASB and SEC.   ANSWER:   c DIFFICULTY:   Moderate REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

 

 

52. Which one of the following statements is true?   a. Recognition is concerned with the dollar amount of each economic effect that should be reported in the financial statements.   b. Measurement is concerned with how economic effects should be quantified.   c. The stability concept is concerned with identification of the specific entity for which economic effects are to be recognized and measured.   d. The monetary unit assumption is concerned with the valuation of economic effects in terms of current purchasing power.   ANSWER:   b DIFFICULTY:   Moderate REFERENCES:   pp. 150-152 LEARNING OBJECTIVES:   FACC.PONO.18.04-01 – LO: 04-01 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-02-GAAP AICPA: FN-Reporting KEYWORDS:   Bloom’s: Understanding

 

53. Sally’s Choice sells season memberships for $200 each. During January 2017, 60 season memberships were sold. As of March 31, 2017, $3,000 of season membership fees had been collected from customers. The season runs for four months starting March 1, 2017. Which one of the following is an amount reported on the financial statements for the period ending March 31, 2017?   a. Unearned membership revenue of $3,000   b. Unearned membership revenue of $9,000   c. Accounts receivable of $3,000   d. Membership revenue of $9,000   ANSWER:   b DIFFICULTY:   Moderate REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

 

 

54. Fox Auto sold merchandise to a customer for $3,000 on credit on March 10. The customer paid Fox Auto the amount due on March 31. Under the accrual basis of accounting, which of the following statements is true?   a. Fox Auto will recognize the revenue on March 31.   b. The March 10 transaction increases revenue, but has no effect on assets because cash has not been received.   c. Revenue is recognized after the cost of the merchandise sold has been paid by Fox Auto.   d. The March 31 transaction has no effect on total assets under the accrual basis.   ANSWER:   d DIFFICULTY:   Moderate REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Communications ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Reporting KEYWORDS:   Bloom’s: Applying

 

55. Alexander City Consultants started business on January 1, 2017, and immediately purchased $1,000 of supplies on credit to use in the business. At the end of the month, 25% of the supplies remain unpaid and 20% are still on hand. What amounts should appear on the financial statements for January 2017? Income Statement                            Statement of Cash Flows   a. ​ $ 1,000 $ 1,000 ​   b. ​ $ 1,000   $ 750 ​   c. ​  $ 800     $ 25 ​   d. ​  $ 800    $ 750 ​   ANSWER:   d RATIONALE:   $1,000 (Purchase) – $200 (20% on hand of original $1,000) = $800 $1,000 (Purchase) – $250 (or 25% unpaid of original $1,000) = $750 DIFFICULTY:   Challenging REFERENCES:   pp. 152-155 LEARNING OBJECTIVES:   FACC.PONO.18.04-02 – LO: 04-02 NATIONAL STANDARDS:   United States – BUSPROG: Analytic ACCREDITING STANDARDS:   ACBSP: APC-04-Cash vs. Accrual AICPA: FN-Measurement KEYWORDS:   Bloom’s: Analyzing