1. The primary function of financial accounting is to
provide relevant financial information to parties external to business
enterprises.
True False 2. Accrual accounting attempts to measure revenues and
expenses that occurred during accounting periods so they equal net operating
cash flow.
True False 3. The FASB is currently the public sector
organization responsible for setting accounting standards in the U.S.
True False 4. The Public Reform and Investor Protection Act of
2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing
standards in the United States.
True False 5. A rules-based approach to standard setting stresses
professional judgment as opposed to following a list of rules.
True False 6. Under federal securities laws, the SEC has the
authority to set accounting standards in the U.S.
True False
7. The primary responsibility for properly applying
GAAP when communicating with investors and creditors through financial
statements lies with a firm’s auditors.
True False 8. Auditors play an important role in the resource
allocation process by adding credibility to financial statements.
True False 9. Materiality can be affected by the dollar amount of
an item, the nature of the item, or both.
True False 10. Conservatism is a desired qualitative
characteristic of accounting information.
True False 11. Equity is a residual amount representing the
owner’s interest in the assets of the business.
True False 12. Revenues are inflows or other enhancements of
assets or settlements of liabilities from activities that constitute the
entity’s ongoing operations.
True False 13. Gains or losses result, respectively, from the
disposition of business assets for greater than, or less than, their book
values.
True False 14. Comprehensive income is another term for net
income.
True False
15. Determining fair value by calculating the present
value of future cash flows is a level 1 type of input.
True False 16. The FASB’s framework for measuring fair value
doesn’t change the situations in which fair value is used under current
GAAP.
True False
Matching Questions
17. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term by placing the letter designating the best term in the space
provided by the phrase.
1. Predictive value
Information is
useful in projecting cash flows.
____
2. Relevance
Pertinent to the
decision at hand.
____
3. Distribution to owners
Information is
available prior to the decision.
____
4. Confirmatory value
Decrease in
equity due to transfers to owners.
____
5. Timeliness
Information
confirms expectations.
____
18. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term by placing the letter designating the best term in the space
provided by the phrase.
1. Gain
Along with
relevance, a fundamental decision-specific quality.
____
2. Materiality
Results if an
asset is sold for more than book value.
____
3. Completeness
Information
contains all information necessary for faithful representation.
____
4. Comprehensive income
The change in
equity from nonowner transactions.
____
5. Faithful representation
Concerns the decision-making
impact of both the amount and nature of an item.
____
19. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term with their phrases by placing the letter designating the best
term in the space provided by the phrase.
1. Neutrality
Important in
analysis between firms.
____
2. Comparability
Accounting
information should be unbiased.
____
3. Consistency
The process of including
data in financial statements.
____
4. Cost effectiveness
Applying the
same accounting practices over time.
____
5. Recognition
Considers the
value of using information relative to cost of providing it.
____
20. Listed below are ten terms are followed by a list
of phrases that describe or characterize five of the terms. Match each phrase
with the correct term by placing the letter designating the best term in the
space provided by the phrase.
1. Monetary unit assumption
Implies
consensus among different observers.
____
2. Verifiability
Assumes all
transactions can be identified with a particular entity.
____
3. Economic entity assumption
Assumes an
entity will continue to operate indefinitely.
____
4. Going concern assumption
Requires
reporting the financial life of an entity in discrete time frames.
____
5. Periodicity assumption
Ignores the
possibility of inflation.
____
21. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term by placing the letter designating the best term in the space
provided by the phrase.
1. Historical cost principle
Basis of
measurement for fixed assets.
____
2. Materiality
Recognition of
revenue only after certain criteria are satisfied.
____
3. Matching principle
Guide to expense
recognition.
____
4. Full-disclosure principle
Reporting of all
information that could affect decisions.
____
5. Realization principle
Application of
GAAP sometimes avoided under this constraint.
____
22. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term by placing the letter designating the best term in the space
provided by the phrase.
1. Financial Accounting Standards Board
It is a
practical justification for choosing among alternative accounting
methods.
____
2. Accounting Principles Board
It established
GAAP before the FASB.
____
3. Conservatism
Its EITF
Issues are GAAP when entered in the Accounting Standards
Codification.
____
4. AICPA
It has the
authority to set U.S. accounting standards.
____
5. Securities and Exchange Commission
It is the
national organization for CPAs in the U.S.
____
23. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term by placing the letter designating the best term in the space
provided by the phrase.
1. Expenses
Net
assets.
____
2. Equity
Outflows of
resources to generate revenues.
____
3. Distributions to owners
Cash
dividends.
____
4. Investments by owners
Claims of
creditors against the assets of a business.
____
5. Liabilities
Transfers of
resources in exchange for common and preferred stock.
____
24. Listed below are ten terms followed by a list of
phrases that describe or characterize five of the terms. Match each phrase with
the correct term by placing the letter designating the best term in the space
provided by the phrase.
1. Losses
Net outflows
from peripheral transactions.
____
2. Assets
Increases in
equity from the sale of goods and/or services.
____
3. Revenues
Results if an
asset is sold for more than book value.
____
4. Comprehensive income
All changes in
equity except owner transactions.
____
5. Gains
Probable future
economic benefits controlled by an entity.
____
25. Listed below are ten organizations followed by a
list of phrases that describe or characterize the organizations. Match each
phrase with the correct organization by placing the letter designating the best
term in the space provided by the phrase.
1. SEC
Establishes
auditing standards in the U.S for public companies.
____
2. FASB
Primary national
organization of accountants working in industry.
____
3. IASB
Sets accounting
standards in the U.S.
____
4. AICPA
Provides timely
responses to financial reporting issues.
____
5. EITF
The FASB’s
parent organization.
____
6. PCAOB
Parent
organization of the IASB.
____
7. IMA
FASB’s
predecessor.
____
8. IASC
Regulates the
financial reporting for public companies.
____
9. APB
National
organization of certified public accountants.
____
10. FAF
Sets global
accounting standards.
____
