ACC 301 Chapter 1 Multiple Choice

In general, revenue is recognized when the earnings process is virtually complete and: A) Goods or services are transferred to the customer. B) A purchase order is received. C) Cash is collected. D) Production is completed.

A) Goods or services are transferred to the customer Feedback: Revenues are recognized when goods or services are transferred to the customer. That is when the seller has satisfied its obligation to the customer.

The SEC exerts a continuing influence on the establishment of accounting standards. It does so primarily by: A) Monitoring the development of GAAP within the accounting profession and using its stature to influence that development. B) Exercising its statutory authority to prescribe external financial reporting requirements. C) Allying with the AICPA to lobby the efforts of the FASB. D) Providing auxiliary funding to the FASB.

A) Monitoring the development of GAAP within the accounting profession and using its stature to influence that development Feedback: The SEC has the final authority on accounting standards but has delegated the task of setting accounting standards to the private sector.

The underlying assumption that assumes that the life of a company can be divided into artificial time periods is: A) Periodicity. B) Going concern. C) Economic entity. D) Monetary unit.

A) Periodicity Feedback: Periodicity assumes the life of a company can be split into time periods such as months, quarters and years.

The main objective of the IASB is to: A) Set accounting standards for all European Union countries. B) Develop a single set of global accounting standards. C) Regulate financial information for all companies around the world. D) None of the above.

B) Develop a single set of global accounting standards Feedback: The objective of the IASB is to develop a single set of high-quality, understandable, and enforceable global accounting standards.

Financial statements generally include all of the following except: A) Income statement. B) Federal income tax return. C) Balance sheet. D) Statement of cash flows.

B) Federal income tax return Feedback: The fourth financial statement is the statement of shareholders' equity. The Federal tax return is not a financial statement.

The underlying assumption that presumes a company will continue indefinitely is: A) Periodicity. B) Going concern. C) Economic entity. D) Monetary unit.

B) Going concern Feedback: Going concern assumes the company will continue to operate indefinitely.

The qualitative characteristic that means there is agreement between a measure and a real-world phenomenon is: A) Verifiability. B) Representational faithfulness. C) Neutrality. D) Materiality.

B) Representational faithfulness Feedback: Representational faithfulness exists when there is agreement between a measure or description and the phenomenon it purports to represent. Verifiability is an enhancing characteristic. Neutrality and materiality are components/aspects.

The documents that set forth fundamental concepts on which financial accounting and reporting standards will be based are: A) Statements of Financial Accounting Standards. B) Statements of Financial Accounting Concepts. C) Accounting Principles Board Opinions. D) All of the above.

B) Statements of Financial Accounting Concepts Feedback: Statements of Financial Accounting Standards and Accounting Principles Board Opinions are actual accounting standards.

Relevance requires that information possess predictive and/or: A) Neutrality. B) Completeness. C) Confirmatory value. D) Freedom from error.

C) Confirmatory value Feedback: The three components/aspects of relevance are predictive value, confirmatory value and materiality. Neutrality, completeness and freedom from error are the components/aspects of faithful representation.

Which of the following is considered a practical constraint on the qualitative characteristics? A) Verifiability. B) Conservatism. C) Cost effectiveness. D) Timeliness.

C) Cost effectiveness Feedback: The benefits of the information being provided must exceed the costs of doing so.

The process of providing financial information to external decision makers is referred to as: A) Public accounting. B) Government accounting. C) Financial accounting. D) Managerial accounting.

C) Financial accounting Feedback: Financial accounting provides information primarily to investors and creditors.

The primary objective of matching is to: A) Provide timely information to external decision-makers. B) Provide full disclosure. C) Recognize expenses in the same period as the related revenue. D) All of the above.

C) Recognize expenses in the same period as the related revenue Feedback: The matching principles states that expenses should be recognized in the period in which they produce revenues. More generally, expenses and revenues that arise from the same underlying transactions or economic events appear in the income statement in the same periods.

Which of the following characteristics does not describe an asset? A) Probable future economic benefits. B) Controlled by an entity. C) Requires the receipt of cash. D) Result of a past transaction.

C) Requires the receipt of cash Feedback: Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

GAAP includes which of the following pronouncements: A) Statements of Financial Accounting Standards. B) Accounting Research Bulletins. C) Accounting Principles Board Opinions. D) All of the above.

D) All of the above

Which of the following characteristics does not describe a liability? A) Result of a past transaction. B) Probable future sacrifices. C) Present obligation. D) Must be legally enforceable.

D) Must be legally enforceable Feedback: Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

The two primary decision-specific qualities that make accounting information useful are: A) Verifiability and representational faithfulness. B) Predictive value and feedback value. C) Cost effectiveness and materiality. D) Relevance and faithful representation.

D) Relevance and faithful representation Feedback: Relevance and faithful representation are the two fundamental characteristics of financial information.

The primary objective of financial reporting is to provide information: A) About a firm's financing and investing activities. B) About a firm's management team. C) About a firm's product lines. D) That is useful in decision making.

D) That is useful in decision making Feedback: The objectives of financial reporting are to provide information: (1) useful for decision making; (2) that helps predict cash flows; and (3) about economic resources, claims to resources, and changes in resources and claims.