CA chapter 14 (multiple choice)

Which of the following is allowed under generally accepted accounting principles?

A large company recorded the $20 cost of a tool as an expense, although the item is expected to be used for 3 years.

Which of the following statements are correct? a. Under accrual basis of accounting revenue is recorded in the period in which it is earned b. Under the accrual basis of accounting, expenses are recorded in the period in which they are incurred c. Both of the above statements are correct d. neither of the above statements are correct

Both of the above statements are correct

Each year there was an increase in the market value of some stock owned by the Mudstream Co but the accountant didn't record the increase in asset value and equity until the stock was sold. In this situation, the accountant

Followed the realization principle

Which of the following statements is not correct?

The securities and exchange commission (SEC) issues that statements of financial accounting standards

financial report users need information about: a. profits b. economic resources (assets) c. claims against the assets (liabilities and owner equity) d. all of these

all of these

the accounting standards executive committee issues three important types of documents a. accounting and auditing guides b. statements of position c. practice bulletins d. all of these

all of these

the SECs 2003 report to congress on principles based accounting observed that the first characteristic of objectives based standards, dictated by the Sarbanes Oxley act is that any standard must be based on

an improved and consistently applied framework

the financial accounting standards board is

an independent organization

depreciating equipment over its useful life is an example of

applying the matching principle

investors and creditors expect to receive a cash flow from the business entity: a. directly from distribution of company earnings b. indirectly through the disposition of their interest for cash c. both of the above d. neither of the above

both of the above

The Cervantes Company uses the same method of depreciation for its equipment in each fiscal period. This practice is an example of

consistency

in its conceptual framework, the FASB concluded that financial reporting rules should concentrate on providing information that is helpful to

current and potential investors and creditors in making investment and credit decisions

an accountant who records revenue when a credit sale is made rather than waiting for the receipt of cash from the customer is

following the accrual principle

Keeping the personal assets of the owner of a business separate from the assets of the firm is an example of

following the separate entity assumption

an accountant charged the repairs expense account for a tool that cost $12. The tool had an estimated useful life of 5 years, however, the accountant didn't choose to depreciate it, the modifying convention that the accountant followed was

materiality

A deviation from generally accepted accounting principles is

permissible if the amount involved is immaterial

the Garrison Co offers terms of net 30 days for its credit sales. It records the revenue from these sales as soon as the sales are made rather than waiting until cash is received from the customers. This is an example of the

realization principle

accounting information that is capable of making a difference in a decision by the report user is

relevant

the four assumptions financial statement users should be able to assume that preparers of the statements have made in preparing the statements that are listed by the FASBs conceptual framework are

separate economic entity , going concern, monetary unit and periodicity of income

the statements of financial accounting standards that automatically become generally accepted accounting principles are issued by

the FASB

When a new company was formed, one partner contributed some used equipment he owned. The equipment was appraised at $44,000 and $50,000 by two different dealers. The accountant entered the equipment at $44,000 in the financial records of the partnership. This example is

the conservatism principle

Recording land at its cost rather than its appraisal value illustrates

the cost basis principle

the financial statements in the annual report of a corporation contain footnotes explaining the methods used to depreciate the firms equipment. This practice is an example of

the full disclosure principle

When Tamar Snyder opened a shoe store, her accountant did not include the cash in her personal savings account as one of the assets of the business. This is an example of

the separate entity assumption

In order to ensure that they are meaningful and useful, financial statements should be prepared

using generally accepting accounting principles (GAAP)