Intermediate Accounting
The IASB and FASB boards have agreed that the objective of general purpose financial reporting is to provide
financial information about a company that is useful to investors, lenders and other creditors
A constraint mentioned by GAAP on qualitative characteristics is
benefits greater costs
The city of Anchorage sold land for its appraised value to the Big Bear Oil Company on June 1, 2014, that originally cost the city $950,000. On June 1, 2014, the land was appraised at a value of $1,400,000, and on December 31, 2014, the land's value was estimated to be $1,450,000. On Big Bear Oil Company's balance sheet at December 31, 2014, the land should be valued at
$1,400,000
Information related to the Berkley Company for the calendar year 2015 follows:
$290
Which of the following is a sales return?
A customer returns merchandise for a refund
Neutrality
Absence of bias intended to influence financial statement users' behavior in a particular direction.
What sources of information used by external decision making are directly affected by existing FASB standards?
Accounting Policies
Monetary Unit
Accounting measurements for U.S. companies are reported in dollars.
Consistancy
Accounting methods and procedures applied in the same manner from period to period.
Which statement is true?
All cash sales should be recorded in the cash receipts journal
FASB's financial reporting model identifies which specific financial statements?
All of these choices are correct.
What is the goal of FASB and IASB in the creation of the conceptual framework?
All of these choices are correct.
Which of the following items is NOT included in FASB's conceptual framework of accounting theory?
All of these choices are included in the conceptual framework.
Which of the following is a permanent account?
Allowance for Doubtful Accounts
Conservitism
An accounting alternative is selected that is least likely to overstate assets and income.
Expense Recognition
Appropriate recognition when a company consumes economic resources in conducting business operations.
Revenue Recognition
Appropriate recognition when a company creates economic benefits (inflows of assets or settlements of obligations) by providing goods or services to customers.
The accounting equation can be expressed as
Assets - Liabilities = Shareholders' Equity
The accounting equations is
Assets - Liabilities = Shareholders' Equity
Which accounts are increased by using debits?
Assets, Cost of Goods Sold, Expenses
Beginning in 1938 and extending to the present, which is the correct sequence of accounting rule-making bodies?
CAP-APB-FASB
Relevance
Capacity to make a difference in a decision, enabling users to predict future outcomes and/or confirm prior expectations.
Which of the following rules is incorrect?
Common stock accounts are increased by debit entries and decreased by credit entries.
Understandability
Comprehensible to users.
Verifiability
Different knowledgeable and independent observers can reach consensus that a particular representation is faithful.
Three major organizations in the private and public sector develop U.S. and International Financial Reporting Standards. They include all of the following except the
EU (European Union).
Comparability
Enables users to identify and explain similarities and differences between two or more sets of economic facts.
After formulating a strategic plan, a company will engage in what three types of activities?
Financing, investing, and operating
The Securities Exchange Act of 1934 established extensive reporting requirements for listed companies. Which is not a commonly required report?
Form S-2. A registration statement
Completeness
Full disclosure of all the information necessary to understand the information being reported.
Confirmatory Value
Helps decision makers confirm or correct prior predictions or expectations.
Predictive Value
Helps decision makers form expectations about the future.
Going Concern
In the absence of evidence to the contrary, the business can be reasonably expected to operate long enough to carry out its existing commitments
Which of the following statements regarding financial flexibility is true?
It is the ability of a company to take adapt changes in the amounts and timing of cash flows.
Timeliness
Making information available to decision makers before it loses its capacity to influence decisions.
What additional supplementary information should be included as part of the financial statements under GAAP?
Notes to financial statements
What is the correct order of presentation for the statement of cash flows?
Operating, Investing, Financing
Decision usefulness
Overall objective of financial information.
Which of the following statements regarding a post-closing trial balance is false?
Post-closing trial balances only contain temporary accounts.
Which of the following accounts would not be closed to Income Summary during the year-end closing process?
Prepaid Rent
Which of the following is not a major step necessary to complete the accounting cycle?
Prepare the adjusted trial balance
Free From Error
Presented as accurately as possible, using a process that reflects the best available inputs.
The accounting cycle is a series of steps that process the accounting information contained in its transactions, events, and arrangements. What are the steps involved in this task?
Record, organize, summarize, report
What is the correct presentation of the income statement?
Revenues - expenses + gains - losses = Net Income
Which of the following is a contra account?
Sales Discounts Taken
Which of the following organizations has legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets?
Securities and Exchange Commission
Which organization has the most legal authority?
Securities and Exchange Commission
Which of the following statements is not true with regard to the benefits derived from the FASB's conceptual framework of accounting?
The Statements of Financial Accounting Concepts is the primary source of GAAP for accountants.
Reporting Entity
The financial statements represent the business, rather than its owners.
What relationship exists between the general journal and the general ledger?
The general ledger accounts contain the same information as those in the general journal, but it is just in a different format.
Materiality
The nature and magnitude of an omission or misstatement that would influence the judgment of reasonable users of that information.
What is Financial Reporting?
The process of communicating financial accounting information to existing and potential investors, creditors, lenders, and other external decision makers.
Recognition
The process of formally recording and reporting an item in the financial statements of a company.
Accrual Accouting
The process of measuring and reporting the economic effects of transactions, events, and circumstances in the appropriate period when those effects occur, even though the cash consequences may occur in a different period.
Period of Time
To provide timely information, companies prepare and report financial statements at the end of each year.
Historical Cost
Transactions and events are recognized initially at the exchange price to provide relevant and reliable information.
Which T-account is incorrect?
Unearned Rent + -
As a potential equity investor, what information about a company would you be least interested in prior to making an investment decision?
What are the employee benefits and compensation packages?
Faithful representation
When the words and amounts accurately depict the economic substance of what they purport to depict.
An adjusting entry always affects
an income statement account and a balance sheet account.
Intracompany comparability would be violated if
a company changed its bad debts expense estimate from one percent to two percent
A subsidiary ledger is
a group of accounts, all of which relate to one specific company activity.
The Securities and Exchange Commission has the legal authority to prescribe accounting principles and reporting practices for
all companies issuing publicly traded securities
A prepaid expense is
an item of goods or services purchased by the company for use in its operations but not fully consumed by the end of the accounting period
The accountant failed to make the adjusting entry to record the depreciation for the year. This error would cause
an overstatement of assets.
Adjusting journal entries are made
at the end of the accounting period
Auditors face ethical issues because
auditors may express an opinion that may impact employees of a company
Which of the following is an internal user of a company's financial information?
company treasurer
Which of the following are considered enhancing characteristics of accounting information?
comparability and consistency
The total of the individual customer account balances should equal the balance in Accounts Receivable, which is the
control account.
Operating expenses would not include
cost of goods sold.
Which of the following transactions would be recorded in a sales journal of the type illustrated in the text?
customer purchase of merchandise on credit terms
What is the ultimate objective of accounting information?
decision usefulness
Notes to financial statements provide
discussions that further explain items shown in the financial statements
Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited?
equipment purchased for use in the business operations
Print Item The state legislature is currently debating a bill that, if passed, would require the Roberts Company to go out of business. Which of the following principles or assumptions related to the preparation of Roberts financial statements is most directly affected by this impending vote of the legislature?
going concern
Accrued revenues
have been earned, but not yet collected or recorded.
Which statement measures and reports the financial results of a company's performance for a period of time?
income statement
The four major financial statements of a corporation consist of the
income statement, balance sheet, statement of cash flows, and statement of changes in shareholders' equity
An accrued expense is an expense
incurred but neither paid nor recorded.
Posting is the procedure of transferring information from the
journal to the ledger
Which of the following types of information was specifically identified by the FASB as being useful in assessing the amounts, timing, and uncertainty of a company's future cash flows?
liquidity
Calculator Print Item Using an allowance method of accounting to recognize uncollectible accounts receivable is an application of which accounting convention?
matching principle
Which qualitative characteristic is an ingredient of relevance?
materiality
Long Corporation has adopted the policy of charging to expense at the time of purchase all assets having a cost of less than $200, regardless of the life expectancy of the asset. This policy is most closely related to the
materiality principle
Which fundamental characteristic is an ingredient of faithful representation?
neutrality
The use of the historical cost principle is justified because the resulting information has the qualitative characteristics of
neutrality and verifiability
The first part of the conceptual framework project had to do with establishing which projects?
objectives
When cash is debited for rents that are collected but are not yet earned, the amount credited should be
presented as a liability until earned
The primary reason that financial accounting and managerial accounting have somewhat different objectives is because they
provide information for different decisions
Which of the following adjusting entries involves the recognition of an accrued expense?
recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period
The purpose of closing entries is to
reduce all temporary accounts to zero.
According to the FASB hierarchy of fundamental qualitative characteristics, the two primary qualities making accounting information useful are
relevance and faithful representation
Which one of the following assumptions or principles most logically supports the preparation of a single set of consolidated financial statements that combines the financial information of several wholly owned but separately identifiable businesses?
reporting entity
Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence process. The process of changing these standards usually involves
selecting the best standard between existing U.S. and international standards.
What financial statement is considered the cornerstone of financial reporting?
the balance sheet
All of the following items are classified as accounting assumptions and conventions except for
timeliness
The FASB Accounting Standards Codification is expected to provide all of the following benefits except
to codify authoritative support such as results of academic research.
Accrual accounting relates the financial effects of a company's transactions
to the period in which they occur rather than to when the cash receipts or payment occurs
The basic purpose of a trial balance is to
verify that the total credits equal the total debits.