Accounting 100 Adaptive Practice Chapter 2
A company buys an office building for $2 million on January 1st, 2022. On December 31st, 2022, the market value of the building has grown to $2.5 million even though, according to GAAP, the company must depreciate this asset each year. What is the net amount for the building in the company's records on December 31st, 2022? A $2 million less the accumulated depreciation B $2.5 million less the accumulated depreciation C $2 million D $2.5 million
A $2 million less the accumulated depreciation
A company purchased 100 units for $20 per unit. The value of the inventory rose to $22 per unit within two months. According to the historical cost principle, the company would report these units at ________ on the balance sheet. A $2,000 B $2,000 plus a separate line item for $200 appreciation C $2,200 D $2,000 less depreciation
A $2,000
Stellar Corporation produced and sold 5,200 digital recorders during 2022. It reported $250,000 cash provided by operating activities. In order to maintain production at 5,200 recorders, Stellar invested $15,300 in equipment. Stellar paid $1,100 in dividends. What is Stellar's free cash flow? A $233,600 B $235,800 C $234,700 D $265,300
A $233,600
What does the going concern assumption state? A A business will remain in operation for the foreseeable future. B A business will be purchased by another business. C A business will be liquidated in the near future. D A business is in a growth industry.
A A business will remain in operation for the foreseeable future.
What does the periodicity assumption state? A A company can choose artificial time periods that divide the life of a business and prepare useful reports for those time periods. B The life of a business is determined by the period of the fiscal year that a company chooses. C A company should prepare reports that cover the period of one year and only at the end of each year. D The economic life of a business runs from January 1 through December 31.
A A company can choose artificial time periods that divide the life of a business and prepare useful reports for those time periods.
What does the economic entity assumption state? A Economic events of every entity can be separately identified and accounted for. B Economic events of a sole proprietorship cannot be distinguished from the personal economic events of its owners. C Economic events must be reported to the Securities and Exchange Commission. D Economic events of different entities can be combined if all the entities are corporations.
A Economic events of every entity can be separately identified and accounted for.
Which of the following entities is most concerned with the cost constraint when applying it to new accounting standards? A FASB B PCAOB C SEC D individual companies
A FASB
Which of the following statements is NOT true? A Faithful representation results when different companies use the same accounting principles and methods. B Faithful representation means that information is complete, unbiased, and free of error. C An item is material when its size makes it likely to influence the decision of an investor or creditor. D The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions.
A Faithful representation results when different companies use the same accounting principles and methods.
Which of the following is the primary accounting standard-setting body in the United States? A Financial Accounting Standards Board (FASB) B Securities and Exchange Commission (SEC) C Public Company Accounting Oversight Board (PCAOB) D International Accounting Standards Board (IASB)
A Financial Accounting Standards Board (FASB)
Which individual is involved in making sure their company complies with the monetary unit assumption? A Ingrid makes sure that each item in the financial statements has an accurate dollar value. B Matthew makes sure that all transactions that occurred within the past month are included in the monthly financial statements. C Jolene makes sure that all personal financial transactions are not included in the company's financial statements. D Ahmed makes sure that it is reasonable to assume that the company will continue operating well into the future.
A Ingrid makes sure that each item in the financial statements has an accurate dollar value.
Two foreign companies want to trade shares of their stock on U.S. stock exchanges. One company follows IFRS but the other company does not. If the FASB changes an accounting standard for GAAP, how will this affect each foreign company? A Only the company that does not conform to IFRS will have to change their accounting practices to conform to GAAP. B Only the company that conforms to IFRS will have to change their accounting practices to conform to GAAP. C Both companies will have to change their accounting practices to conform to GAAP. D Neither company will have to change their accounting practices to conform to GAAP.
A Only the company that does not conform to IFRS will have to change their accounting practices to conform to GAAP.
Ahrens Inc is preparing its January 31 balance sheet. Ahrens has $3,100 in Supplies to be used in March, $4,700 Notes Receivable to be collected in August, $800 in Prepaid Insurance to be used in April, and $6,200 in Accounts Receivable to be collected in June. In what order should Ahrens list these assets? A Supplies, Prepaid Insurance, Accounts Receivable, Notes Receivable B Accounts Receivable, Notes Receivable, Prepaid Insurance, Supplies C Prepaid Insurance, Supplies, Notes Receivable, Accounts Receivable D Supplies, Notes Receivable, Accounts Receivable, Prepaid Insurance
A Supplies, Prepaid Insurance, Accounts Receivable, Notes Receivable
Which quality of an asset makes it more appropriate for the fair value principle rather than the historical cost principle? A The market price of the asset is readily available and reliable. B The value of the asset depends on the specific agreement between the buyer and seller. C The asset never undergoes depreciation, but the seller reports a gain or loss upon sale of the asset. D The asset undergoes depreciation over time.
A The market price of the asset is readily available and reliable.
According to the historical cost principle, assets are reported at the amount paid for them regardless of changes in value over time. A True B False
A True
Four companies were sued by customers for injuries sustained from faulty products. All four companies settled out of court for $400,000. For which of the following companies is this event the LEAST material? A a company with assets totaling $36 billion B a company with assets totaling $3 million C a company with assets totaling $1.2 million D a company with assets totaling $18 million
A a company with assets totaling $36 billion
In order for accounting information to be understandable, it must A be presented clearly and concisely. B use similar accounting principles as competitor companies. C use the same accounting principles from year to year. D be provided at the right time.
A be presented clearly and concisely.
Why is accounting information relevant to business decisions? A because it confirms prior expectations B because it is neutral in its representations C because it is prepared on an annual basis D because it is verified by external auditor
A because it confirms prior expectations
A regional manager travels frequently for work, using a company credit card to pay for hotel costs. One weekend, he uses his company credit card to pay for his family to stay at a hotel on a personal vacation. However, he does not inform the company that the transaction was for personal use. This is in violation of which key assumption in financial reporting? A economic entity assumption B periodicity assumption C monetary unit assumption D going concern assumption
A economic entity assumption
Assets that are actively traded and that have readily available market value information should use which measurement principle? A fair value principle B full disclosure principle C historical cost principle D cost constraint principle
A fair value principle
Verifiability, one of the enhancing qualities of useful financial information, is most related to which fundamental quality of useful information? A faithful representation B materiality C relevance D timeliness
A faithful representation
Beach Body Gear has high revenues in the summer, average revenues in the spring and fall, and low revenues in the winter. Therefore, it provides quarterly financial statements associated with each season. The division of financial statements based on revenue levels is an example of the ________ assumption. A periodicity B monetary unit C going concern D economic entity
A periodicity
Predictive value and confirmatory value are two important characteristics of ________ information. A relevant B consistent C verifiable D comparable
A relevant
A company can best make predictions of future events if the information is A relevant. B verifiable. C comparable. D consistent.
A relevant.
A company buys investment securities for $1 million on January 1st, 2022. On December 31st, 2022, the market value of the securities have grown to $1.5 million. What is the amount for the investment securities on December 31st, 2022, according to the historical cost principle? The fair value principle? A $1.5 million; $1.5 million B $1 million; $1.5 million C $1 million; $1 million D $1.5 million; $1 million
B $1 million; $1.5 million
Gourmet Foods has three complexes that cost $150 million. The current fair value of the complexes is $350 million. The complexes are reported as assets on the balance sheet at ________ million. A $350 B $150 C $225 D $50
B $150
In 2022, Rigby Construction had net income $32,000; net sales $200,000; and average share outstanding 12,000. There were no preferred dividends. What was the company's 2022 earnings per share? A $26.70 B $2.67 C $0.27 D $1.75
B $2.67
A company purchased a factory for $25 million and owned it for 10 years, its useful life. During that time, the value of the factory was appraised for a high of $35 million and a low of $15 million. What is the highest possible value this asset could have in the accounting records of this company? A $15 million B $25 million C $10 million D $35 million
B $25 million
In 2022, Cooke Corporation had cash receipts of $46,000 and cash disbursements of $22,000. Cooke's ending cash balance at December 31, 2022, was $78,000. What was Cooke's beginning cash balance? A $68,000 B $54,000 C $32,000 D $78,000
B $54,000 ($78,000 - $46,000 + $22,000 = $54,000)
Carter Accessories purchased a factory for $745,000 in 2016. They assume the building has a useful life of 50 years, so they depreciate the value of the building by $14,900 each year, starting in 2017. In 2022, the market value of the factory is $1,063,000. Based on the historical cost principle, at what amount should the building be reported on their year-end financial statements for 2022? A $745,000 B $745,000 less depreciation C $1,063,000 D $1,063,000 less depreciation
B $745,000 less depreciation
Grossman Lumber reported $102,000 net cash provided by its operating activities. If the company invests $4,000 in capital expenditures and distributes $8,000 in dividends, its free cash flow will be A $98,000. B $90,000. C $102,000. D $94,000.
B $90,000.
Good Buys has current assets of $2,500,000 and current liabilities of $1,000,000. If they issue $50,000 of new stock, what will their new current ratio be? A 3:1 B 2.55:1 C 3.2:1 D 1.5:1
B 2.55:1 (($2,500,000 + $50,000) ÷ $1,000,000 = 2.55:1)
Which of the following statements are true? Select all that apply. A Comparability means using the same accounting principles from year to year within a company. B Faithful representation means that information is complete, unbiased, and free of error. C Verifiable accounting information must be based on industry-wide accounting principles and methods. D The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions.
B Faithful representation means that information is complete, unbiased, and free of error. C Verifiable accounting information must be based on industry-wide accounting principles and methods.
Which of the following sets the generally accepted accounting principles and standards in the United States that guide accounting professionals? A Public Company Accounting Oversight Board (PCAOB) B Financial Accounting Standards Board (FASB) C International Financial Reporting Standards (IFRS) D International Accounting Standards Board (IASB)
B Financial Accounting Standards Board (FASB)
Which of the following is true about timely accounting information? A It is presented in such a way that reasonably informed users can comprehend its meaning. B It is available to decision-makers while it is still representative of the company's financial standings. C It is able to be confirmed by multiple independent observers that use the same methods to calculate financial information. D It provides information that accurately depicts what really happened during the accounting period it represents.
B It is available to decision-makers while it is still representative of the company's financial standings.
Which of the following statements about generally accepted accounting principles is true? A They have eliminated all errors in accounting. B They are accounting rules that are recognized as a general guide for financial reporting. C They are accounting rules formulated by the Internal Revenue Service. D They are sound in theory but rarely used in real life.
B They are accounting rules that are recognized as a general guide for financial reporting.
Which enhancing qualities of useful financial information are similar in that they both require the use of the same accounting principles and methods? A verifiability and timeliness B comparability and consistency C comparability and understandability D timeliness and consistency
B comparability and consistency
Accounting information that has relevance (select all that apply) A accurately depicts what really happened. B confirms or corrects prior expectations. C provides accurate expectations about the future. D is neutral in its conclusions.
B confirms or corrects prior expectations. C provides accurate expectations about the future.
Clark Manufacturing is having trouble keeping a good accountant on staff, and each new accountant who comes in uses different accounting principles and methods. Because of this, Clark Manufacturing is violating which quality of good financial information? A understandability B consistency C timeliness D verifiability
B consistency
Under which assumption would it mean that the activities of one auto maker can be distinguished from activities of another auto maker? A full disclosure assumption B economic entity assumption C monetary unit assumption D periodicity assumption
B economic entity assumption
If an asset has a readily available and reliable market price, which measurement principle is most appropriate for recording the value of that asset? A historical cost principle B fair value principle C current value principle D full disclosure principle
B fair value principle
Consistency means that the same accounting principles and methods are used A within industries. B from year to year. C in all annual reports. D by similar firms.
B from year to year.
According to the ________ principle, a company can purchase an asset for $1,000 and, despite an increase in value over time, can continue to report the asset for $1,000. A cost constraint B historical cost C materiality D fair value
B historical cost
Which assumption states that the economic life of a business can be divided into artificial time periods? A economic entity assumption B periodicity assumption C going concern assumption D monetary unit assumption
B periodicity assumption
What ratios measure the income or operating success of a company for a given period of time? A liquidity ratios B profitability ratios C current ratios D debt to assets ratios
B profitability ratios
According to the FASB, useful information should possess which two fundamental characteristics? A faithful representation and materiality B relevance and faithful representation C relevance and confirmatory value D relevance and predictive value
B relevance and faithful representation
Information that is useful in making a business decision is considered to have A understandability. B relevance. C comparative value. D consistency.
B relevance.
Because accounting information confirms prior expectations, it is A helpful for comparability. B relevant in making business decisions. C very useful for verification. D biased toward one position.
B relevant in making business decisions.
Financial information that is accurate and available when managers are trying to make decisions is A verifiable. B timely. C consistent. D predictive.
B timely.
Why is it important for accounting information to be neutral? A to be relevant B to enhance faithful representation C to maintain consistency D to enhance comparability
B to enhance faithful representation
An auditor goes through the financial statements and records of a company, and his calculations match the financial information the company accountants have provided. This is an example of financial information that is A understandable. B verifiable. C comparable. D consistent.
B verifiable.
The FASB most always considers which concept in their own decision-making process when creating new accounting standards? A materiality B the monetary unit assumption C cost constraint D historical cost
C cost constraint
A frozen yogurt business has current assets of $25,000 and current liabilities of $10,000. Its current ratio is A 0.3:1. B 4:1. C 2.5:1. D 3:1.
C 2.5:1.
What is one way that a company can know whether their financial information is verifiable? A Decision-makers are able to access the information when it is needed to help make decisions. B Company personnel do not use company finances for personal gain. C An auditor's calculations match the company accountant's calculations. D Stockholders are able to interpret and comprehend the meaning of the financial statements.
C An auditor's calculations match the company accountant's calculations.
________ are rules and practices that are recognized as a general guide for financial reporting purposes. A Auditing regulations B Financial statements C Generally accepted accounting principles D Financial reporting concepts
C Generally accepted accounting principles
The ________ issues International Financial Reporting Standards. A IFRS B International Auditing Standards Committee C International Accounting Standards Board D Financial Accounting Standards Board
C International Accounting Standards Board
A cost constraint might have which of the following effects? A It might increase the chance of the FASB requiring a company to disclose information in the financial statements. B It might change the method by which the IASB requires financial information to be reported in the financial statements. C It might prevent the FASB from requiring a company to disclose certain information in the financial statements. D It might cause a company to include an auditor's report with the financial statements.
C It might prevent the FASB from requiring a company to disclose certain information in the financial statements.
Four companies each lost $30,000 in revenue due to the release of a competitor's product. For which of the following companies is this event the MOST material? A a company that has annual revenue of $10,000,000 B a company that has annual revenue of $1 billion C a company that has annual revenue of $100,000 D a company that has annual revenue of $1,000,000
C a company that has annual revenue of $100,000
Earnings per share is dependent on A the number of shares owned by investors only. B net income only. C both net income and the number of shares owned by investors. D the market value of the stock.
C both net income and the number of shares owned by investors.
Which accounting quality is enhanced when different companies in the same industry follow the same accounting principles? A consistency B verifiability C comparability D understandability
C comparability
The accounting quality of comparability is enhanced when A a company uses the same accounting principles and methods from year to year. B financial information is presented in a clear and concise fashion. C different companies use the same accounting principles. D independent observers obtain similar results when using the same methods.
C different companies use the same accounting principles.
Mitchell Financial Services purchased some investment securities as part of their company's investing activities. Each time the company prepares their financial statements, the accountant checks the market value of the securities and records their new value in the financial reports. This is an example of using the ________ principle. A cost constraint B full disclosure C fair value D historical cost
C fair value
Valuing assets at the price that would be received when selling the asset is consistent with the A economic entity assumption. B periodicity assumption. C fair value principle. D historical cost principle.
C fair value principle.
erifiability, one of the enhancing qualities of useful financial information, is most related to which fundamental quality of useful information? A materiality B relevance C faithful representation D timeliness
C faithful representation
A company that is concerned with identifying circumstances or events that have materiality and including the relevant information in their financial documents will be successful at complying with which principle in financial reporting? A fair value principle B faithful representation principle C full disclosure principle D cost constraint principle
C full disclosure principle
Peterson Industries purchased equipment in 2020 costing $259,000. The equipment has a useful life of 15 years, so they depreciate the value of the equipment by $17,267 each year. The market value of the equipment in 2022 is $250,000. If they record the value of the equipment as $259,000 less depreciation on the 2022 financial statements, rather than at $250,000, they are following the ________ principle. A full disclosure B fair value C historical cost D recorded cost
C historical cost
In order to fulfill the full disclosure principle, where should companies report circumstances and events that would make a difference to statement users that cannot be reported in the four financial statements? A in the annual report summary B in the auditor's report C in the notes to the financial statements D in the management discussion and analysis
C in the notes to the financial statements
When accounting information is ________ it enhances faithful representation. A verifiable B consistent C neutral D timely
C neutral
What is the purpose of the Public Company Accounting Oversight Board? A to set accounting standards in the United States B to oversee U.S. financial markets and accounting standard-setting bodies C to help determine auditing standards and review the performance of auditing firms D to set international accounting standards
C to help determine auditing standards and review the performance of auditing firms
Which of the following statements is most related to the economic entity assumption? A "Make sure you compile the results of the employee satisfaction survey so we can include the relevant information in our next financial statements." B "We are a small, family-owned company, but my son plans to take over as CEO when I retire, so all our employees should still have jobs." C "The financial reports need to be completed by the end of August because our fiscal year ends on June 30." D "When you go on a business trip, the company will reimburse you for meals and hotel, but you will not be reimbursed for costs incurred when you go sightseeing."
D "When you go on a business trip, the company will reimburse you for meals and hotel, but you will not be reimbursed for costs incurred when you go sightseeing."
Which of the following statements is most related to the economic entity assumption? A "We are a small, family-owned company, but my son plans to take over as CEO when I retire, so all our employees should still have jobs." B "Make sure you compile the results of the employee satisfaction survey so we can include the relevant information in our next financial statements." C "The financial reports need to be completed by the end of August because our fiscal year ends on June 30." D "When you go on a business trip, the company will reimburse you for meals and hotel, but you will not be reimbursed for costs incurred when you go sightseeing."
D "When you go on a business trip, the company will reimburse you for meals and hotel, but you will not be reimbursed for costs incurred when you go sightseeing."
Sol-Tex has net income of $1,300,000 and 400,000 shares outstanding. It has preferred dividends of $300,000. What are the earnings per share? A $4.33 B $1.86 C $0.25 D $2.50
D $2.50
Val-Tek has current assets of $1,700,000 and current liabilities of $900,000. If they pay $100,000 owed to a creditor, what will their new current ratio be? A 1.5:1 B 1:1 C 4:1 D 2:1
D 2:1
Which of the following examples is a correct use of the fair value principle? A Evansville Transport reports the value of their investment securities at their original cost when they create their financial statements. B Evansville Transport reports the value of their real estate at the original cost when they create their financial statements. C Evansville Transport reports the value of their real estate at current market value when they create their financial statements. D Evansville Transport reports the value of their investment securities at current market value when they create their financial statements.
D Evansville Transport reports the value of their investment securities at current market value when they create their financial statements.
________ are characteristics that are most closely associated with relevant information. A Consistency and comparability B Faithful representation and verifiability C Timeliness and understandability D Predictive value and confirmatory value
D Predictive value and confirmatory value
Federal oversight of U.S. financial markets and accounting standards is given to which of the following agencies? A Internal Revenue Service B Federal Reserve Board C Public Company Accounting Oversight Board (PCAOB) D Securities and Exchange Commission (SEC)
D Securities and Exchange Commission (SEC)
Which quality of an asset makes it more appropriate for the fair value principle rather than the historical cost principle? A The asset never undergoes depreciation, but the seller reports a gain or loss upon sale of the asset. B The asset undergoes depreciation over time. C The value of the asset depends on the specific agreement between the buyer and seller. D The market price of the asset is readily available and reliable.
D The market price of the asset is readily available and reliable.
How are comparability and consistency similar as enhancing qualities of useful financial information? A They both require the company to conform to GAAP. B They both require financial statements to be completed quickly after the end of the accounting period. C They both require financial information to be presented clearly and concisely. D They both require the use of the same accounting principles and methods.
D They both require the use of the same accounting principles and methods.
If the FASB changes an accounting standard for GAAP, which company will this affect the least? A a U.S. company that wants to have their shares traded on U.S. national stock exchanges B a U.S. company that does not want to have their shares traded on U.S. national stock exchanges C a foreign company that wants to have their shares traded on U.S. stock exchanges who uses accounting practices that do not comply with IFRS D a foreign company that wants to have their shares traded on U.S. stock exchanges who uses accounting practices that comply with IFRS
D a foreign company that wants to have their shares traded on U.S. stock exchanges who uses accounting practices that comply with IFRS
If the FASB finds that providing certain information in a financial statement will bear significant costs for the company but will only be minimally useful to statement users, they may decide to not require companies to provide the information based on A the fair value principle. B the economic entity assumption. C relevance. D cost constraint.
D cost constraint.
A company that reports assets and liabilities that reflect market value prices is using which of the following? A cost constraint principle B historical cost principle C full disclosure principle D fair value principle
D fair value principle
According to the ________, when assets are acquired they are recorded at the amount paid for them. A economic entity assumption B periodicity assumption C fair value principle D historical cost principle
D historical cost principle
Which of the following assets should be recorded using the fair value principle? A land B equipment C office supplies D investment securities
D investment securities
In order for accounting information to be relevant, it must A be reported on a monthly basis. B be presented clearly and concisely. C accurately depict what really happened. D make a difference in a business decision.
D make a difference in a business decision.
Which concept helps a company decide on a case-by-case basis which items or events should be included in their financial statements in order to comply with the full disclosure principle? A consistency B understandability C cost constraint D materiality
D materiality
One of Kendra's roles as an accountant is to make sure that all of the company's financial transactions are included in the financial statements and that none of the company's non-financial information is included in the financial statements. Kendra has been tasked with making sure the company complies with which assumption? A going concern assumption B periodicity assumption C economic entity assumption D monetary unit assumption
D monetary unit assumption
The important information included in customer satisfaction reports is not included in the financial statements because it fails to support which of the following assumptions? A going concern assumption B periodicity assumption C economic entity assumption D monetary unit assumption
D monetary unit assumption
Which of the enhancing qualities of useful financial information is most related to the fundamental quality of faithful representation? A understandability B comparability C timeliness D verifiability
D verifiability
The ______ ______ assumption assumes that activities of one business are distinguished from those of another business.
economic entity