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