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Exam
Name___________________________________
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) Recognition requires the measurement of an item for inclusion in
the financial statements.
1) _______
2) The use of historical cost, rather than liquidation value, is
supported by the continuity assumption.
2) _______
3) The use of fair value rather than historical cost increases both the
relevance and verifiability of the financial statements.
3) _______
4) The separate entity assumption has more validity for a larger
corporation than it would for a sole proprietorship.
4) _______
5) The unit of measure assumption holds that all aspects of a
company’s business operations can be readily quantified.
5) _______
6) The goal of maximizing shareholder wealth is consistent with the
entity concept.
6) _______
7) The continuity assumption holds that a business will carry on
indefinitely.
7) _______
8) Legally, as well as for accounting statement purposes, a
corporation is treated as a separate entity apart from its
stockholders, whereas a partnership is treated as one entity
including the owners.
8) _______
9) The time period concept dictates that the reporting period or fiscal
period of an entity must be for 12 months.
9) _______
10) Under the productive capacity capital maintenance approach, a
profit is assumed to have been earned only if enough financial
capital has been recovered by the end of the year to enable the
business to operate at the same level as at the beginning of the
year.
10) ______
11) “Substance over form” effectively refers to Representational
Faithfulness in the conceptual framework.
11) ______
12) The first step in choosing an accounting policy is to understand a
company’s primary reporting objectives.
12) ______
13) The continuity assumption assumes that a company will have a
perpetual life.
13) ______
14) Predictive value is a component of representational faithfulness. 14) ______
15) Equity is a residual and as such is not specifically defined in the
IFRS Conceptual Framework.
15) ______
16) The qualitative characteristics follow the same hierarchy under
both the IFRS and ASPE Conceptual Frameworks.
16) ______
17) Revenues must ultimately lead to cash flows in order to be
recognized.
17) ______
18) Assuming that the continuity assumption is valid, accrual
accounting income and cash based income would be expected to
“even out” over the long term.
18) ______
19) Deferrals are required when cash flows are received before they
affect the income statement, while accruals affect the income
statement prior to cash being exchanged.
19) ______
20) The use of deferrals and accruals in accounting relates to the Time
Period Assumption.
20) ______
21) Under IFRS, Level 1 amounts refer to quoted prices or directly
observable amounts.
21) ______
22) Under ASPE, capital maintenance can be said to be achieved if a
company has maintained or increased its productive capacity.
22) ______
23) Information is reliable when it is in agreement with the actual
underlying transactions and events, the agreement is capable of
independent verification and the information is reasonably free
from error and bias.
23) ______
24) The going concern principal does not apply if a company is
expected to be liquidated in the next 24 months.
24) ______
25) Relevance is of primary importance in financial reporting,
whereas comparability is of secondary importance.
25) ______
26) Interperiod comparability is significantly enhanced when two
similar companies use the same accounting methods during a
single reporting period.
26) ______
27) Information is neutral when it is free from bias that would lead
users towards making decisions that are influenced by the way the
information is measured or presented.
27) ______
28) Accounting transactions must always be realized prior to being
recognized.
28) ______
29) Accounting should provide information that is useful in assessing
the “value” of an entity; however, accounting information does not
necessarily report the actual “value” of the entity.
29) ______
30) The nominal dollar capital maintenance approach is the mostly
widely used application of the stable currency assumption in
Nor
th
Ameri
can
practice. 30) ___
___
31) The nominal dollar capital maintenance approach implicitly
recognizes that inflation is under control, and thus ignores
inflation in the preparation of financial statements.
31) ______
32) The constant dollar capital maintenance approach adjusts for the
decline in the asset’s productive capacity when reporting earnings.
32) ______
33) The nominal dollar capital maintenance approach adjusts for the
replacement cost of the assets when reporting earnings.
33) ______
34) At times, reliability must be sacrificed in order to enhance the
relevance of accounting information.
34) ______
35) To Recording periodic depreciation on assets such as buildings or
machinery is an application of the matching principle.
35) ______
36) The matching concept is the name applied to the process of
associating expenses with revenues.
36) ______
37) An example of the full disclosure principle would be a firm
signing a major contract in November to construct custom
machinery for a client. Work in the current year is nil, yet the
notes to the firm’s financial statements discuss the nature and
dollar amount of the contract.
37) ______
38) The understandability concept states that the information
contained in financial statements should be understandable to
persons who have a reasonable understanding of business and
economic conditions and are willing to study the information with
reasonable diligence.
38) ______
39) One of the objectives of financial reporting is to help users assess
the amounts, timing and uncertainty of prospective cash flows of
the enterprise.
39) ______
40) The continuity assumption holds that the entity will continue in
business for the foreseeable future but it does not mean that it will
be a going concern forever.
40) ______
41) Revenue is recognized when service is rendered and collection is
probable.
41) ______
42) Materiality is one of the underlying constraints in the application
of the IFRS conceptual framework.
42) ______
43) Under IFRS, a change in accounting policy must result in
information that is more reliable and relevant.
43) ______
44) Under IFRS 13, Level 3 inputs are deemed to be more reliable tha n
Level 2
inputs.
44) ___
___
45) In order to recognize sales revenue, collection of cash from the
buyer is not necessary; however, collection must be reasonably
assured.
45) ______
46) No revenue whatsoever from the performance of a service can be
recognized until all of the service has been performed.
46) ______
47) Warranty expense on goods sold should be recognized in the
period of the sale, even though the costs to fulfill warranty claims
will not be incurred until two or three years later.
47) ______
48) The full disclosure principle asserts that the financial reports of a
business enterprise should disclose all reliable information relating
to its economic affairs.
48) ______
49) Relevance and representation faithfulness are the fundamental
qualities under IFRS.
49) ______
50) The separate entity assumption applies only to legally separate
entities such as corporations; it does not apply to proprietorships
or other unincorporated businesses.
50) ______
51) Under IFRS 13, a publicly quoted share price would be an
example of a Level 1 Input.
51) ______
52) Comparability is an enhancing quality under IFRS and ASPE. 52) ______
53) The cost-benefit trade-off is a persuasive constraint under both
IFRS and ASPE.
53) ______
54) Materiality is a component of representational faithfulness under
IFRS.
54) ______
55) Verifiability focuses on the correct application of a basis of
measurement rather than its appropriateness.
55) ______
56) Under IFRS and ASPE, both assets and liabilities are mostly arises
from past events.
56) ______
57) The quality of information that gives assurance that it is
reasonably free of error and bias and is a faithful representation is
relevance.
57) ______
58) A furniture builder accepts a purchase order from a client to build
a customized dresser. The acceptance of this contract on that date
is executory in nature and the builder must thus record a liability
on that date.
58) ______
59) Comparability is sometimes sacrificed for consistency. 59) ______
60) In classifying the elements of financial statements, the primary
distinction between revenues and gains is the materiality of the
amounts involved.
60) ______
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or
answers the question.
61) The going concern or continuity assumption is critical to financial
accounting. The assumption
61) ______
A) Supports the use of historical cost valuation for assets rather
than market values.
B) Requires that we immediately expense prepaid accounts
because they do not represent a future cash inflow.
C) Means that a corporation has a definite ending date.
D) Is always maintained for all firms for all years.
62) The objective of financial reporting is: 62) ______
A) To provide information useful for decision making by
investors and creditors.
B) To provide the market value of a firm at a point in time.
C) To require all companies to comply with GAAP.
D) To provide the total market value of its common stock.
63) A firm’s accounting policy is to immediately expense the cost of
metal wastebaskets it purchases for use by its employees at their
desks. The total cost of wastebaskets in any year is $1,000 and the
firm has $6 billion in total assets. The firm expects the
wastebaskets to last indefinitely. The firm
63) ______
A) Is violating GAAP
B) Is violating the relevance principle
C) Is invoking the conservatism constraint
D) Is invoking the materiality constraint
E) None of these answers are correct.
64) The sales manager of a firm has the use of a blue company-owned
automobile to use to visit potential customers. The sales manager
also owns her own identical car except that it is red. The manager
paid for the red car with funds earned from her employment as
sales manager. The firm will report the cost of the blue auto in its
balance sheet, but not the red auto. This is an example of:
64) ______
A) Separate entity
B) Reliability
C) Matching
D) Going concern
E) None of these answers are correct.
65) Preparation of financial statements with adequate notes is
primarily based on the:
65) ______
A) full-disclosure principle.
B) separate entity assumption.
C) cost principle.
D) reliability quality.
E) cost/benefit constraint.
66) Which of the following accounting concepts best justifies the use
of accruals and deferrals?
66) ______
A) Unit-of-measure assumption
B) Cost/benefit constraint
C) Materiality constraint
D) Continuity assumption
67) Accounting traditionally has been influenced by conservatism
because of the:
67) ______
A) inherent uncertainties of many accounting measurements.
B) probability of undetected errors in the financial statements.
C) large number of transactions recorded in any one period.
D) difficulty in measuring net income on the accrual basis.
E) difficulty in making certain calculations.
68) The organization created to develop accounting standards in
Canada, the AcSB, is LEAST concerned with:
68) ______
A) reported earnings.
B) reported comparability of results.
C) reported cash flows.
D) reporting financial position.
E) all of these answers are correct.
69) The continuity assumption is the basis for the rule that: 69) ______
A) the income statement should not include material gains and
losses that are both unusual and infrequent.
B) the cost of installing a machine should not be included in the
recorded cost of the machine, but rather expensed
immediately.
C) the cost of operational assets should be allocated to expense
systematically and rationally over their useful lives.
D) treasury stock should not be reported in the balance sheet as
an asset.
70) S Corporation offered to issue 5,000 shares of its no par value
common shares to another company in exchange for a building at
a time when there were 1,000,000 shares already outstanding and
were selling for $02-04 Apply the fundamental and enhancing
qualities and pervasive constraints of financial reporting..00 per
share at the time. The owner of the building had the opportunity to
sell it to a competing buyer for $26,000. However, because the
seller wanted the S Corporation shares, S’s offer was accepted. At
what amount should the building be reported in S’s financial
statements?
70) ______
A) $10,000 B) $26,000 C) $20,000 D) $16,000
71) C Corporation exchanged 20,000 shares of its nonconvertible
preferred shares for land owned by B Corporation. A competing
buy
er
previo
usly
had
offered
$150,00
0 cash
for the
land.
Because
of tax
consequ
ences,
the cash
offer
was not
accepted
and the
lot was
exchang
ed for
the
shares.
C
Corpora
tion
previous
ly had
sold
only
100
shares
of its
preferre
d shares
at $9 per
share
several
months
ago.
Based
on the
cost
principl
e, at
what
amount
should
the land
be
reported
on C’s
financial
stateme
nts? 71) ______
A) $150,000 B) $160,000
C) $165,000 D) $180,000
72) The list price of a new van was $30,000 at a local car dealership.
However, a customer convinced the dealer to sell the van for
$25,000 (the van had cost the dealer $20,000 one year earlier).
The van would cost the dealer $24,000 today. Inflation is 5% per
year. The amount of profit that would be recognized by the dealer
as a result of the sale using the nominal dollar approach is:
72) ______
A) $2,500 B) $10,000 C) $6,000 D) $5,000
73) The list price of a new van was $30,000 at a local car dealership.
However, a customer convinced the dealer to sell the van for
$25,000 (the van had cost the dealer $20,000 one year earlier).
The van would cost the dealer $24,000 today. Inflation is 5% per
year. The amount of profit that would be recognized by the dealer
as a result of the sale using the constant dollar financial capital
maintenance approach is:
73) ______
A) $9,000 B) $4,000 C) $10,000 D) $5,000
74) The list price of a new van was $30,000 at a local car dealership.
However, a customer convinced the dealer to sell the van for
$25,000 (the van had cost the dealer $20,000 one year earlier).
The van would cost the dealer $24,000 today. Inflation is 5% per
year. The amount of profit that would be recognized by the dealer
as a result of the sale using the physical capital maintenance
approach is:
74) ______
A) $5,000 B) $2,500 C) $6,000 D) $1,000
75) Accounting information is considered to be relevant when it 75) ______
A) can be depended on to represent the economic conditions and
events that it is intended to represent.
B) is verifiable and neutral.
C) is understandable by reasonably informed users of accounting
information.
D) is capable of making a difference to a decision-maker.
76) The quality of information that gives assurance that it is
reasonably free of error and bias and is a faithful representation is
76) ______
A) relevance.
B) reliability.
C) neutrality.
D) verifiability.
E) None of these answers are correct.
77) Timeliness is an ingredient of the qualitative criteria of
Relevance Reliability
1 Yes Yes
2 No Yes
3 Yes No
4 No No
77)
______
A) Choice 1 B) Choice 2
C) Choice 3 D) Choice 4
78) Verifiability is an ingredient of the qualitative criteria of
Relevance Reliability
1 Yes No
2 Yes Yes
3 No No
4 No Yes
78) ______
A) Choice 1 B) Choice 2
C) Choice 3 D) Choice 4
79) Neutrality is an ingredient of the qualitative criteria of
Relevance Reliability
1 Yes Yes
2 No Yes
3 Yes No
4 No No
79) ______
A) Choice 1 B) Choice 2
C) Choice 3 D) Choice 4
80) Predictive value is an ingredient of the qualitative criteria of
Relevance Reliability
1 Yes No
2 Yes Yes
3 No No
4 No Yes
80) ______
A) Choice 1 B) Choice 2
C) Choice 3 D) Choice 4
81) Representational faithfulness is an ingredient of the qualitative
criteria of
Relevance Reliability
1 Yes Yes
2 No Yes
3 Yes No
4 No No
81) ______
A) Choice 1 B) Choice 2
C) Choice 3 D) Choice 4
82) A primary objective of financial reporting is to: 82) ______
A) enable banks to determine an appropriate interest rate for
their commercial loans.
B) assist investors in predicting prospective cash flows.
C) assist investors in analyzing the economy.
D) assist suppliers in determining an appropriate discount to
offer a particular company.
83) If, in year 1, a company used LIFO; year 2, FIFO; and in year 3,
moving average cost for inventory valuation, which of the
following assumptions, constraints, or principles would be
violated:
83) ______
A) consistency.
B) matching.
C) time period.
D) materiality.
E) cost.
84) Which of the following qualities does the cost principle primarily
support?
84) ______
A) Verifiability B) Conservatism
C) Timeliness D) Predictive value
85) The inclusion of notes and supporting schedules in the financial
statements reflect application of the:
85) ______
A) comparability characteristic.
B) industry peculiarities constraint.
C) full-disclosure principle.
D) relevance quality.
E) time period assumption.
86) Certain costs of doing business are capitalized when incurred and
then amortized over subsequent accounting periods to:
86) ______
A) reduce the income tax.
B) match the costs incurred with revenues earned.
C) conform to the comparability characteristic.
D) aid management in decision-making.
E) conform to the conservatism constraint.
87) Adjusting entries are needed because an entity: 87) ______
A) has expenses.
B) uses the accrual basis of accounting.
C) has earned revenue during the period by selling products
from its central operations.
D) uses the cash basis of accounting rather than the accrual
basis.
88) A large international corporation immediately expenses the $50
cost of a small item of office equipment. This is an example of:
88) ______
A) reliability.
B) materiality.
C) conservatism.
D) an accounting error.
E) None of these answers are correct.
89) When an $30 asset with a six-year estimated useful life is recorded as an
expense
at the
date of
purchas
e, this is
an
applicati
on of
the:
89) ___
___
A) matching principle.
B) unit-of-measure assumption.
C) materiality constraint.
D) cost principle.
E) None of these answers are correct.
90) Which of the following distinguishes the personal transactions of
business owners from business transactions?
90) ______
A) Separate entity assumption
B) Full-disclosure principle
C) Materiality constraint
D) Unit-of-measure assumption
91) A corporation needed a new warehouse; a contractor quoted a
$250,000 price to construct it. The corporation believed that it
could build the warehouse for $215,000 and decided to use
company employees to construct the warehouse. The final
construction cost incurred by the corporation was $240,000 but
the asset was recorded at $250,000. This is in violation of the:
91) ______
A) revenue recognition principle.
B) matching principle.
C) cost principle.
D) time period assumption.
E) None of these answers are correct.
92) Which of the following is the incorrect basis for recognizing the
expense indicated?
92) ______
A) Cost of goods sold expense on a subjective or arbitrary basis.
B) Amortization expense on the basis of time.
C) Administrative salaries expense recognized as incurred.
D) Sales commissions expense on the basis of relationship with
sales.
93) When a corporation buys a portion of its own common shares, the
recording must conform to the:
93) ______
A) accrual principle.
B) cost principle.
C) revenue recognition principle.
D) matching principle.
94) A corporation reports the sale of some of its shares to a
shareholder in its financial statements, and the shareholder reports
the
sa
me
transac
tion as
an
investm
ent.
Therefor
e,
94) ___
___
A) the revenue recognition principle has been violated.
B) no accounting concept has been violated.
C) the separate entity assumption has been violated.
D) the double entry accounting concept has been violated.
95) The separate entity assumption: 95) ______
A) is not applicable to an unincorporated business.
B) recognizes the legal nature of a business organization.
C) requires periodic income measurement.
D) is applicable to both incorporated and unincorporated
businesses.
96) An accounting error may be all of the following except: 96) ______
A) An inaccurate estimate made in good faith.
B) A mistake.
C) unintentional.
D) intentional.
97) Under which of the following will revenues and expenses most
likely be reported in the period they are earned or incurred?
97) ______
A) A combination of accrual and cash basis accounting
B) Cash basis accounting
C) Accrual basis accounting
D) Single entry accounting
98) Estimating bad debt expense for the period is based primarily on
the:
98) ______
A) revenue recognition principle.
B) cost principle.
C) matching principle.
D) conservatism constraint.
E) full-disclosure principle.
99) A corporation made the following entries:
A Prepaid insurance 900
Cash 900
B Depreciation expense 10,000
Accumulated depreciation 10,000
C Wages payable 3,000
Cash 3,000
D Inventory of Merchandise 4,000
Accounts payable 4,000
Which entry must have been made as a direct result of the
matching principle?
99) ______
A) A B) B C) C D) D
100) The assumption that dollars will buy the same quantity of goods
and services today as they would have five years ago is the:
100) _____
A) time period assumption.
B) separate entity assumption.
C) revenue recognition principle.
D) unit-of-measure assumption.
E) continuity assumption.
101) Revenues and expenses often are recognized in income statement
accounts even though no cash has been received or paid. This is
primarily a result of applying the:
101) _____
A) accrual basis of accounting.
B) continuity assumption.
C) full-disclosure principle.
D) revenue recognition principle.
102) The underlying assumptions of accounting include all of the
following except:
102) _____
A) separate entity.
B) continuity.
C) unit-of-measure.
D) time period.
E) conservatism.
103) The measurement conventions of accounting include all of the
following except:
103) _____
A) full-disclosure.
B) revenue recognition.
C) continuity.
D) historical cost.
E) matching.
104) The implementation constraints include all of the following
except:
104) _____
A) cost/benefit. B) materiality.
C) conservatism. D) separate entity.
105) The underlying concept that the value of accounting information
must exceed the expenditures incurred to provide it is called the:
105) _____
A) conservatism.
B) substance over form.
C) cost/benefit implementation constraint.
D) full-disclosure principle.
106) The materiality constraint: 106) _____
A) does not necessarily imply that an immaterial amount can be
ignored for accounting purposes.
B) is only relevant when preparing annual financial statements
as opposed to quarterly statements.
C) is applicable only for low-cost items that cost less than, say,
$500.
D) is the only defence for gross negligence by an independent
accountant.
107) The use of deferrals and accruals is a direct result of the: 107) _____
A) cost/benefit constraint.
B) separate entity assumption.
C) unit-of-measure assumption.
D) time period assumption.
108) An item is not material if: 108) _____
A) Its cost is less than $25.
B) Its omission will not influence the judgement of a reasonable
person.
C) The accounting equation (A = L + OE) does not include the
item.
D) It decreases the qualitative usefulness of the financial
statements, but not the quantitative usefulness.
109) Financial information exhibits the characteristic of consistency
when
109) _____
A) Expenses are reported as charges against revenue in the
period in which they are paid.
B) Unusual or infrequent gains and losses are not included on
the income statement.
C) Accounting entities give “accountable” events the same
accounting treatment from period to period.
D) accounting procedures are adopted which give a consistent
rate of net income.
110) Valuing assets at their liquidation values rather than their cost is
inconsistent with the
110) _____
A) time period assumption. B) historical cost principle.
C) matching principle. D) materiality constraint.
111) Which of the following is NOT a time when revenue may be
recognized?
111) _____
A) At time of sale of goods.
B) During production of goods.
C) Sale of Property of a manufacturing company.
D) At receipt of cash from sale of goods.
112) Application of the full disclosure principle 112) _____
A) requires that the financial statements be consistent and
comparable.
B) is demonstrated by the use of supplementary information
presenting the effects of changing prices.
C) is theoretically desirable but not practical because the costs of
complete disclosure exceed the benefits.
D) is violated when important financial information is buried in
the notes to the financial statements.
113) Which of the following relates to both relevance and reliability? 113) _____
A) Verifiability.
B) Predictive value.
C) Cost-benefit constraint.
D) Representational faithfulness.
E) None of these answers are correct.
114) Charging off the cost of a calculator with an estimated useful life
of 10 years as an expense of the period when purchased is an
example of the application of the
114) _____
A) materiality constraint. B) consistency characteristic.
C) matching principle. D) historical cost principle.
115) Which of the following accounting concepts states that before a
transaction is recorded, sufficient evidence must exist to allow two
or more knowledgeable individuals to reach essentially the same
conclusion about the transaction?
115) _____
A) Cost principle
B) Continuity assumption
C) Separate entity assumption
D) Materiality constraint
E) Reliability quality
116) The recognition of periodic amortization expense on
company-owned automobiles requires estimating both salvage or
residual value, and the useful life of the vehicles. The use of
estimates in this case is an example of:
116) _____
A) Conservatism
B) Providing relevant data at the expense of reliability
C) Maintaining consistency
D) Invoking the materiality constraint rather than the cost
benefit constraint
E) None of these answers are correct.
117) A firm does not know exactly how long its equipment will last.
The firm decides to use shorter rather than longer useful lives for
amortizing the equipment. This is an example of:
117) _____
A) Conservatism
B) Materiality
C) Reliability
D) Unit of measure
E) None of these answers are correct.
118) Revenue is recognized when 118) _____
A) Service is rendered
B) The contract is signed
C) When the customer places the order
D) Service is rendered and collection is probable
E) It is collected in cash
119) The matching concept 119) _____
A) Requires that a debit is matched or posted for every credit
B) Is the name applied to the process of associating expenses
with revenues
C) Treats all costs as expenses
D) Treats all costs as being directly related to revenue generation
120) A firm signs a major contract in December to construct custom
machinery for a client. No work is begun the current year, yet the
notes to the firm’s financial statements discuss the nature and
dollar amount of the contract. This is an example of
120) _____
A) Conservatism
B) Reliability
C) Full disclosure
D) Historical cost
E) None of these answers are correct.
121) A firm purchased $40,000 of supplies in its first year of operations
but used up only $30,000 of the supplies during the year.
Therefore:
121) _____
A) Because the firm is a going concern, the firm should record
$40,000 of supplies in the balance sheet at the end of the year
B) Under the matching concept, the firm should report $30,000
of expense
C) Under the relevance characteristic, the firm should expense
$40,000
D) Under the materiality constraint, it makes no difference what
the firm does with respect to accounting for supplies
122) J. Green is the sole owner and manager of the ABC Lawn and
Grass Service. Green purchased a new station wagon only for
personal use. Green uses a dump truck in the business. Which of
the following assumptions, principles, or constraints would be
violated if Green recorded the cost of the station wagon as an asset
of the business?
122) _____
A) Continuity assumption
B) Materiality constraint
C) Full-disclosure principle
D) Conservatism constraint
E) Separate entity assumption
123) Recording periodic depreciation on assets such as buildings or
machinery is an application of the:
123) _____
A) cost principle.
B) unit-of-measure assumption.
C) matching principle.
D) materiality constraint.
E) conservatism constraint.
124) When assets are acquired, they should be recorded in the accounts
in conformity with the:
124) _____
A) cost principle.
B) separate entity assumption.
C) matching principle.
D) full-disclosure principle.
E) materiality constraint.
125) Under ASPE (Private Entity GAAP), which of the following is an
ingredient of reliability?
125) _____
A) Predictive value B) Verifiability
C) Understandability D) Materiality
126) Under ASPE, feedback value is an ingredient of:
Relevance Reliability
1 Yes Yes
2 Yes No
3 No No
4 No Yes
126) _____
A) Choice 1 B) Choice 2
C) Choice 3 D) Choice 4
127) The information provided by financial reporting pertains to: 127) _____
A) individual business enterprises and industries rather than to
the economy as a whole or to members of society as
consumers.
B) individual business enterprises, industries and the economy
as a whole, rather than to members of society as consumers.
C) individual business enterprises, rather than to industries of
the economy as a whole or to members of society as
consumers.
D) individual business enterprises and the economy as a whole,
rather than to industries or to members of society as
consumers.
128) Relevance is sometimes sacrificed for: 128) _____
A) Conservatism. B) Reliability.
C) Objectivity. D) Comparability
129) If accounting information is timely and has predictive and
feedback value, then it can be characterized as:
129) _____
A) Relevant. B) Qualitative.
C) Reliable. D) Verifiable.
130) The primary qualitative criteria of accounting information include
which of the following:
130) _____
A) Relevance.
B) Materiality.
C) Comparability (including consistency).
D) Understandability.
131) Relevance is not a function of: 131) _____
A) predictive value. B) timeliness.
C) feedback value. D) verifiability.
132) Accrual accounting is essentially an application of: 132) _____
A) the historical cost principle.
B) the materiality constraint.
C) the conservatism principle.
D) the matching principle.
133) Increases in equity (net assets) from peripheral or incidental
transactions of an entity are called:
133) _____
A) gains. B) revenues.
C) economic benefits. D) net income.
134) At the date of purchase of a service which is not immediately used
up, the cost of such unused service is a(n):
134) _____
A) liability. B) expense.
C) revenue. D) asset.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
135) State the accounting assumption, principle, information characteristic, or
constraint that is most applicable in the following cases.1. All significant
post-balance sheet events are reported.________2. Personal transactions of
the proprietor are distinguished from business transactions.________3.
Goodwill is capitalised and amortised over the periods benefited.________4.
Assuming that dollars today will buy as much as 10 years ago.________5.
Rent paid in advance is recorded as prepaid rent.________6. Financial
statements are prepared each year.________7. All payments less than $25 are
expensed as incurred. (Do not use conservatism.)________8. The company
employs the same inventory valuation method from period to period.
________
136) State the accounting assumption, principle, information characteristic or
constraint that is most applicable:1. An officer of Nanuck Inc. purchased a
new home computer for personal use with company money, charging
miscellaneous expense.________2. A machine, which cost $60,000, is
reported at its current market value of $90,000.________3. Nanuck Inc.
decides to establish a large loss and related liability this year because of the
possibility that it may lose a pending patent infringement lawsuit. The
possibility of loss is considered remote by its lawyers.________4. Because
the company’s income is low this year, a switch from accelerated depreciation
to straight-line depreciation is made this year.
________5. The president of Nanuck Inc. believes it is foolish to report
financial information on a yearly basis. Instead, the president believes that
financial information should be disclosed only when significant new
information is available related to the company’s operations. ________
137) Fill in the blanks below with the accounting principle, assumption, or related
item that BEST completes each sentence.1. Recognition of revenue at the end
of production is an allowable exception to the ________ principle.2.
Parenthetical balance sheet disclosure of the inventory method utilised by a
