Acct 3110 Exam 1

Ethics deals with the ability to distinguish _____ from _____

Blank 1: right Blank 2: wrong

True or false: Cash basis accounting is the required accounting method for most profit-oriented companies.

False

The full-disclosure principle requires that financial statements report which of the following?

All material relevant information.

Which of the following forms of business provide shares of stock as an ownership interest?

Corporation

Which of the following are required SEC disclosures?

Executive stock option information Director compensation Executive compensation

Which of the following financial statement elements are measured and reported as a result of providing goods and services to customers?

Expenses Revenues

True or false: Accounts receivable result from the sale of goods or services for cash.

False

_____ accounting is chiefly concerned with providing information to external users

Financial

Which of the following transactions would be recorded as a prepaid expense?

Insurance paid for 6 months. Rent for an office building paid for 12 months.

What level of the fair value hierarchy includes inputs other than quoted prices that are observable for the asset or liability?

Level 2

What level of the fair value hierarchy includes unobservable inputs that reflect the entity's own assumptions?

Level 3

What refers to the riskiness of a company with regard to the amount of liabilities in its capital structure?

Long-term solvency

An analysis provided by the company's management is included in the

Management Discussion and Analysis.

What does a liability represent?

Obligations owed to other entities

The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following?

Operations Liquidity Capital resources

How are current liabilities satisfied?

The use of current assets. The creation of other current liabilities.

Which of the following is true regarding disclosure notes?

They explain or elaborate on data presented in the financial statements.

Income tax expense is reported in what way on the income statement

as a separate line item

Logan Corp. purchases supplies on account and appropriately records the transaction in an asset account. The adjusting journal entry at year-end when accounting for supplies used will require a

debit to supplies expense credit to supplies

Supplies expense is ______ and supplies is ______ for the amount of supplies used during the period that were originally recorded as an asset when purchased.

debited, credited

What account is affected when a customer pays in advance for services to be performed in the future?

deferred revenues

The process of including additional pertinent information in the financial statements and accompanying notes is referred to as

disclosure

Which of the following items are classified as operating items on the income statement?

employee salary expense utility expense

Adjusting journal entries are needed to record

expense incurred, but not yet paid revenue earned, but not yet received

Operating items include

expenses from the principal revenue-generating activities of the company. revenues from the principal revenue-generating activities of the company.

Inventory for a wholesale or retail company includes which of the following?

finished goods

Unearned revenue represents cash received from a customer for goods or services to be provided in a

future period

Deferred revenue should be classified as a(n) ____ on the balance sheet.

liability

Responsibility for the financial statements and other information found in the annual report lies with

management

The full-disclosure principle requires financial statements to provide all ____ _____ information regarding the company

material relevant

The main focus of accounting information is to

provide useful information for decision making.

The primary purpose of financial reporting is to provide useful information for decision making to

providers of capital

Which of the following are liquidity ratios?

quick ratio current ratio

One of the purposes of adjusting entries is to

recognize all revenues earned during the period.

To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for,

rent expense is debited, prepaid rent is credited

Which of the following items are included in calculating operating income?

revenues related to primary revenue-generating activities expenses related to primary revenue-generating activities

SEC requirements provide for disclosures on executive and director compensation, particularly concerning ____ options.

stock

A company purchases a building by signing a $200,000 10% interest-bearing note due at the end of five years. At what amount should the building be recorded

200,000

Hernandez Corporation purchases a building for $300,000 cash. The building was appraised at $310,000. The tax assessment on the building was $280,000. Three months after purchasing the building, Company Z offers Hernandez $320,000 for the building. At what amount should the building be reported in Hernandez's financial statements according to the historical cost principle

300,000

The financial reporting model used by the majority of profit oriented companies is ____ accounting

Accrual

Which of the following models is best in helping predict future cash flows?

Accrual accounting

Which accounting model best meets the primary goal of users of financial reporting?

Accrual basis

What is the difference between an account payable and a note payable?

An account payable is usually due in 30-60 days.

How should liquid investments expected to be converted to cash within the current operating cycle be reported in the balance sheet?

As a short-term investment in the current asset section.

Bear Corp. has $100,000 cash in the bank restricted to repay a note payable that matures in 2 years. How should this $100,000 be reported?

As restricted cash in the long-term section of the balance sheet.

Current assets include which of the following

Cash Short term investments

Matching cost of goods sold with the revenues generated during the period is an example of which approach to expense recognition?

Cause-and-effect relationship.

Which of the following items are considered cash equivalents?

Commercial paper due in 1 month. Money market funds that are quickly converted to cash. U.S. Treasury bills due in 2 months.

The ______ was established to set U.S. accounting standards and is the current standard setting body

FASB

The private sector organization that is currently responsible for setting accounting standards in the United States is the

FASB

The organization that is responsible for the standard setting process for states and cities in the United States is the

Governmental Accounting Standards Board.

The organization that develops global accounting standards is the

International Accounting Standards Board.

Select the four criteria used to determine if an item is recognized in the financial statements according to SFAC 5.

Reliability Relevance Definition Measurability

What was the purpose of the FASB Accounting Standards Codification project?

Reorganize all relevant accounting pronouncements in U.S. GAAP.

The legal authority to set accounting and reporting standards for companies whose securities are publicly traded lies with the

SEC

Recording depreciation on fixed assets is an example of which approach to expense recognition?

Systematic and rational allocation.

Which organization is currently the national professional organization for certified professional public accountants?

The AICPA

Which of the following provides an underlying structure for the development of accounting standards?

The Conceptual Framework

Accounts receivable represents which of the following?

The amount owed by customers.

Why are inventories reported as current assets?

They are normally sold within the operating cycle.

Which of the following represents the IASB's primary objective?

To develop high quality global standards used to make economic decisions

What is the purpose of the auditor?

To help ensure management has appropriately applied GAAP in preparing the financial statements.

True or false: Financial accounting is primarily concerned with providing financial information to external users.

True

True or false: The FASB considers written comments from interested parties before issuing an Accounting Standards Update.

True

True or false: The operating cycle for most firms is 1 year or less.

True

The purpose of the balance sheet is to report

a company's financial position on a specific date.

The AICPA is the national professional organization for certified professional public ______

accountants

A prepaid expense represents a(n) _____ recorded when an expense is paid in advance

asset

A probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events is a(n)

asset

The FASB recently issued a standard that requires companies recognize revenue

at a point in time or over a period of time when goods or services are transferred to customers for the amount the company expects to be entitled to receive

Who serves as an independent intermediary to help ensure that management has appropriately applied GAAP in preparing the financial statements?

auditors

The financial statement that provides information about liquidity and long-term solvency is the

balance sheet

Schwinn is a company that makes bicycles. Which of the following items would be included in Schwinn's inventory?

bicycle chains finished bicycles bicycle tires

A company's assets minus its liabilities shown on the balance sheet is referred to as its ______ value.

book

Money on hand and in banks that is available for use in the operations of the business is shown in the _____ account on the balance sheet.

cash

Which of the following items should be included in cash on the balance sheet?

cashier's checks money orders cash on hand

Expense recognition is implemented by which of the following ways?

cause-and-effect relationship. associating expenses and revenues in a specific period of time. in the period incurred systematic and rational allocation.

The FASB Accounting Standards ________ organizes all relevant accounting pronouncements in a searchable, online database

codification

The "Accounting Constitution", a coherent system of interrelated objectives and fundamentals that lead to consistent standards and that prescribe the nature, function, and limits of financial accounting and reporting is referred to as the _____ framework

conceptual

According to the conceptual framework, for accounting information to be relevant, what qualities must it possess?

confirmatory value predictive value

A temporary investment or short-term marketable security should be reported in which section of the balance sheet?

current asset

Inventories held for sale in the normal course of business are classified in the balance sheet as

current asset

The overriding objective in the hierarchy of qualitative characteristics of financial reporting information is

decision usefulness.

The purpose of the FASB's conceptual framework in accounting is to

establish objectives and fundamental concepts on which to base standards.

A code or moral system that provides criteria for evaluating right or wrong is referred to as ________

ethics

The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date is the

fair value.

If the SEC does not agree with a standard issued by the private sector, it can

force a change in the standard.

In addition to issuing accounting standards, the FASB has formulated a conceptual _______ to provide an underlying theoretical and conceptual structure for accounting standards

framework

The ____ ____ principle requires that any information useful to decision makers be provided in the financial statements, subject to the cost effectiveness constraint.

full disclosure

Reporting assets at net realizable value helps predict:

future cash flows

The IASB is dedicated to developing a set of high-quality, understandable, and enforceable ______ accounting standards

global

The IASB's main objective is to develop a single set of standards that have what characteristics?

high-quality understandable enforceable

The principle stating that asset and liability measurements should be based on the amount given or received in the original transaction is referred to as the ___ ____ principle

historical cost

What accounting principle states that an asset or liability should be recorded at the amount given or received in the exchange transaction?

historical cost

The four basic accounting assumptions

identify the frequency of reporting assume the entity will continue to exist identify the entity being reported on identify the denomination in which reporting occurs

Disclosure refers to the process of

including additional information in the financial statements and notes.

Patents, copyrights, and franchises are examples of what?

intangibles

______ consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale.

inventory

Assets not used directly in the operations of the business are referred to as

investments

Common practice requires that current assets are presented on the balance sheet in the order of

liquidity

The balance sheet provides useful information about a company's _____ and long-term solvency.

liquidity

A _____ firm will include finished goods, work in process, and raw materials as part of their inventory.

manufacturing

Expenses are _____ to revenues from the same transaction

matched

The revenue/expense approach focuses on the income statement because it relies on which accounting principles?

matching revenue recognition

Predictive value, confirmatory value, and _____ all relate to the fundamental characteristic of relevance in financial information

materiality

The process of associating numerical amounts to the elements of the financial statements is referred to as

measurement

Which of the following are among the basic assumptions underlying U.S. GAAP?

monetary unit periodicity economic entity going concern

The amount of cash into which an asset is expected to be converted in the normal course of business is the asset's

net realizable value.

Before issuing an Accounting Standards Update, the FASB undertakes a series of information-gathering steps including

open hearings deliberations written comments

The ____ cycle refers to the period of time necessary to convert cash to raw materials, raw materials to a finished product, the finished product to receivables, and then receivables back to cash

operating

Auditors examine financial statements to express a professional, independent _____ on the financial statements.

opinion

Balance sheets often include a catch-all classification of noncurrent assets called _____ long-term assets.

other

The primary forms of business organization in the United States are the sole proprietorship, ____ , and the corporation.

partnership

Which of the following may be recorded on the balance sheet as intangible assets?

patents copyrights trademarks

The process of admitting information into the financial statements is referred to as

recognition

The process of admitting or recording an item into the basic financial statements is referred to as

recognition

Predictive value and confirmatory value are components of which primary qualitative characteristic?

relevance

Which of the following items should not be included in cash and cash equivalents in the balance sheet?

restricted cash

Expense recognition often matches ____ and _____ that arise from the same transaction.

revenue and expenses

An emphasis is placed on proper income statement item recognition under what approach under US GAAP?

revenue/expense approach

What information regarding an entity's future cash flows are investors and lenders interested in?

timing amount uncertainty

The Accounting Standards Codification is organized into

topics and subtopics.

A recently issued FASB standard requires that companies recognize revenue when goods or services are ______ to customers for the amount the company expects to be entitled to receive in exchange for those goods or services

transferred

Which of the following are common characteristics of property, plant, and equipment?

used in normal operations tangible long-lived