Ch1 Analysis

CHAPTER 1INTRODUCTION TO FINANCIAL REPORTING MULTIPLE CHOICE 1. Charging off equipment that constitute less than $20 would be an example of the application of a. dismission connect b. cost c. matching d. existentity e. actualisation autonomic nervous systemD 2. The deprivation link given a. is applicable to either monetary statements b. primarily involves limitical income measuring c. allows for the statements to be prep atomic number 18d under primarily eat uped story doctrines d. requires that explanation system procedures be the same from flow to period e. no(prenominal) of the answers atomic number 18 lay let out autonomic nervous systemC 3.Understating assets and grosss is justify based on a. actualization confidence b. matching c. body d. actualization e. n hotshot of the answers atomic number 18 be autonomic nervous systemE 4. The trust that enables us to prep ar periodic statements among the prison term that a product line commences operatio ns and the time it goes out of fear is a. time period b. pipeline entity c. historical cost d. transaction e. none of the answers be shed light on autonomic nervous systemA 5. Valuing assets at their liquidation determine is non consistent with a. conservatism b. corporeality c. going lodge in d. time period . none of the answers atomic number 18 settle autonomic nervous systemC 6. The worry being separate and app arnt from the owners is an integral part of the a. time period assumption b. going concern assumption c. railway line entity assumption d. realization assumption e. none of the answers argon correct autonomic nervous systemC 7. The principle that assumes the reader of the financial statements is non interested in the liquidation repute is a. conservatism b. matching c. time period d. realization e. none of the answers atomic number 18 correct ANSE 8. An score period that ends when operations are at a low ebb is a. a calendar twelvemonth b. a fiscal twelv emonth c. the natural vexation year d. an operating(a) year e. none of the answers are correct ANSC 9. The chronicle principle that assumes that inflation will non take place or will be immaterial is a. monetary unit b. historical cost c. realization d. going concern e. none of the answers are correct ANSA 10. Valuing arsenal at the lower of cost or grocery is an application of the a. time period assumption b. realization principle c. going concern principle d. conservatism principle e. none of the answers are correct ANSD 11.The realization principle ranges accountants to usually masses revenue at a. the end of production b. during production c. the receipt of cash d. the efflorescence of sale e. none of the answers are correct ANSD 12. The interpretation that items that are not material may be recorded in the financial statements in the close stintingal and expedient manner likely is representative of a. matching b. conservatism c. realization d. materiality e. none o f the answers are correct ANSD 13. The assumption that deals with when to recognize the costs that are associated with the revenue that is being accepted is a. matching b. going concern c. consistency d. materiality e. none of the answers are correct ANSA 14. The more or less significant current source of generally accepted chronicle principles is the a. vernal York Stock refilling b. account Principles Board c. chronicle Research Studies d. AICPA mission on business relationship Procedure e. fiscal be Standards Board ANSE 15. All but one of the future(a) statements indicates a departure between the pecuniary news report Standards Board (FASB) and prior approaches. Select the one that is not a difference. a. The FASB is independent of the AICPA. b. The size of the gameboard is much smaller. c. The FASB has broader representation. d. The FASB is the primary board for the developing of generally accepted accounting principles. e. Members of the FASB serve on a fu ll-time basis. ANSD 16. The score Principles Board issued Opinions between a. 1959-1973 b. 1939-1959 c. 1973-present d. 1966-1976 e. none of the answers are correct ANSA 17. The pecuniary accounting Standards Board has issued statements between a. 1960-1973 b. 1939-1959 c. 1973-present d. 1966-1976 e. none of the answers are correct ANSC 18. Accountants face a problem of when to recognize revenue. Which of the side by side(p) methods of recognizing revenue is not used in practice? a. point of sale b. point of come out acceptance c. end of production d. receipt of cash e. revenue recognized during production ANSB 19. The organization that has by federal fairness the responsibility to adopt auditing standards is the a. New York Stock Exchange b. Public conjunction Accounting Oversight Board c. Accounting Principles Board d. Financial Accounting Standards Board . AICPA Committee on Accounting Procedure ANSB 20. By law, the setting of accounting standards is the responsibility o f the a. AICPA Committee on Accounting Procedure b. New York Stock Exchange c. Accounting Principles Board d. Securities and Exchange Commission e. Financial Accounting Standards Board ANSD 21. The assumption that allows accountants to accept some inaccuracy, because of incomplete study about the future, in interchange for more timely inform is a. conservatism b. time period c. business entity d. materiality e. realization ANSB 22.Which of the succeeding(a) does not bushel to The Public Company Accounting Oversight Board (PCAOB)? a. Two members of the board must be CPAs b. In addition to appointing the five members of the PCAOB, the SEC is beliefworthy for the oversight and enforcement authority over the Board c. The PCAOB consists of five members appointed by the SEC d. The PCAOB is to adopt auditing standards e. The PCAOB is to adopt accounting standards ANSE 23. Understating expenses is justified based on a. time period assumption b. conservatism assumption c. materiality a ssumption d. matching assumption . none of the answers are correct ANSE 24. At the end of the fiscal year, an adjusting entry is do that step-ups salaries payable and increases salaries expense. This entry is an application of which accounting principle? a. full divine revelation b. materiality c. matching d. realization e. historical cost ANSC 25. Accountants provide for inflation using which of the following accounting principles? a. going concern b. time period c. conservatism d. materiality e. none of the answers are correct ANSE 26. Which of these measurement attributes is not currently used in practice? . historical cost b. relevant cost c. current food market take to be d. current cost e. present nurture ANSB 27. The following data relate to Swift Company for the year end celestial latitude 31, 2008. Swift Company uses the accrual basis. Sales on recognize$250,000 Cost of enumeration sold on recognize170,000 Collections from customers220,000 Purchase of armory on as sign150,000 stipend for purchases140,000 Selling expenses (accrual basis)40,000 compensation for selling expenses45,000 Which of the following amounts represents income for Swift Company for the year cease December 31, 2008? a. $60,000 b. $50,000 c. $40,000 d. $35,000 e. $30,000 ANSC 28. The following data relate to Rocket Company for the year finish December 31, 2008. Rocket Company uses the cash basis. Sales on credit$180,000 Cost of inventory sold on credit130,000 Collections from customers170,000 Purchase of inventory on credit140,000 Payment for purchases150,000 Selling expenses (accrual basis)20,000 Payment for selling expenses25,000 Which of the following amounts represents income for Rocket Company for the year finish December 31, 2008? a. $30,000 b. $5,000 loss c. $40,000 . $45,000 e. $50,000 ANSB 29. The following data relate to Gorr Company for the year ended December 31, 2008. Gorr Company uses the accrual basis. Sales for cash$200,000 Sales for credit 220,000 Cost of inventory sold 180,000 Collections from customers 300,000 Purchases of inventory on credit 190,000 Payment for purchases 180,000 Selling expenses (accrual basis) 50,000 Payment for selling expenses 60,000 Which of the following represents income for Gorr Company for the year ended December 31, 2008? a. $180,000 b. $185,000 c. $190,000 d. $200,000 e. none of the answers are correct ANSC 30. The following data relate to Falcon Company for the year ended December 31, 2008. Falcon Company uses the cash basis. Sales for cash$180,000 Sales for credit 190,000 Cost of inventory sold 210,000 Collections from customers 350,000 Purchases of inventory on credit 200,000 Payment for purchases 220,000 Selling expenses (accrual basis) 60,000 Payment for selling expenses 70,000 Which of the following amounts represents income for Falcon Company for the year ended December 31, 2008? a. $90,000 b. $80,000 c. $70,000 d. $60,000 e. none of the answers are correct ANSD 31. Other than December, the mo st popular month for fiscal year-end is a. January b. action c. June d. September e. October ANSD TRUE/FALSE 1. In invest to determine the economic success of a grocery store, we should view it as separate from the different resources that are owned by this individual. ANST 2. Many of our present financial statement figures would be misleading if it were not for the going concern assumption. ANST 3. The going concern assumption does not influence the classification of assets and liabilities. ANSF 4.The most dead-on(prenominal) way to account for the success or failure of an entity is to accumulate all transactions from the opening of business until the business eventually liquidates. ANST 5. An entity usually cannot reasonably account for the profits related to inventory until that inventory is sold in the normal course of business. ANST 6. To the fulfilment that money does not remain stable, it loses its benefit as the standard for measuring rod financial transactions. ANS T 7. A loss in value of money is called inflation. ANST 8. At the time of originally transcription a transaction, historical cost besides represents the fair market value.ANST 9. It would always be conservative to value inventory at market. ANSF 10. Accountants normally recognize revenue when cash is received. ANSF 11. The 1933 and 1934 U. S. federal securities laws virtually gave the Securities and Exchange Commission (SEC) authority and responsibility for the development of generally accepted accounting principles. ANST 12. The tales of Financial Accounting Concepts are intended to provide the Financial Accounting Standards Board with a common foundation and the basic underlying reasoning on which to pick up the merits of various alternative accounting principles. ANST 13.Eventually, the Financial Accounting Standards Board intends to evaluate current principles in terms of the concepts leavened in the Financial Accounting Concepts. ANST 14. Financial Accounting Concepts make believe generally accepted accounting principles. ANSF 15. According to the countenance Financial Accounting Concept, those characteristics of discipline that make it a desirable trade good can be viewed as a hierarchy of qualities, with understandability and effectiveness for decision making of most importance. ANST 16. Performance indicators for nonbusiness organizations are usually formal budgets and donor restrictions.ANST 17. Reasonable inaccuracies of accounting for an entity, short of its complete life span, are accepted. ANST 18. Using the business entity assumption, the financial statements are prepared separate and distinct from the owners of the entity. ANST 19. The time period assumption indicates that the entity will remain in business for an indecisive period time. ANSF 20. successionliness is a permeant constraint imposed upon financial accounting information. ANSF 21. relevancy and reliability are two primary qualities that make accounting information usef ul for decision making. ANST 22.Predictive value, feedback value, and timeliness are ingredients indispensable to ensure that the information is reliable. ANSF 23. Decision usefulness is a pervasive constraint imposed upon financial accounting information. ANSF 24. Relevance is a quality requiring that the information be timely and that it also exhaust prophetical value or feedback value or both. ANST 25. The SEC has the authority to determine generally accepted accounting principles and to regulate the accounting profession. ANST 26. Some industry practices lead to accounting reports that do not correct to the general theory that underlies accounting.ANST 27. All important events that influence the prospects for the entity are recorded and therefore are reflected in the financial statements. ANSF 28. The accrual basis of accounting recognizes revenue when realized (realization concept) and expenses when incurred (matching concept). ANST 29. The cash basis recognizes revenue whe n cash is received and expenses when cash is paid. ANST 30. The accountant records notwithstanding the events that affect the financial maculation of the entity and that can be reasonably rigid in monetary terms. ANST 31.The Sarbanes-Oxley stand for has far-r individuallying consequences for financial reporting and the CPA profession. ANST 32. Among the many responsibilities of the PCAOB is to adopt accounting standards. ANSF 33. For a public company, the SEC requires that a report be filed annually on its interior(a) control systems. ANST 34. The Sarbanes-Oxley Act has had an insignificant effect on the relationship between the company and the internal auditor. ANSF 35. Reporting under Sarbanes-Oxley revealed that very few companies had material weaknesses in their controls and processes. ANSF 36.Private companies are required to report under Sarbanes-Oxley. ANSF 37. Some firms question the costs/benefits of implementing Sarbanes-Oxley. ANST 38. For many companies that use Dec ember 31 for the year-end, we cannot tell if December 31 was selected because it represents a natural business year or if it was selected to represent a calendar year. ANST 39. Accounting Trends & Techniques is a compilation of data obtained by a survey of 600 annual reports to stockholders undertaken for the purpose of analyzing the accounting information disclosed in such reports. ANST 40.Many companies are on a 51-52 week fiscal year. ANSF 41. The Sarbanes-Oxley Act has materiality implications. ANST 42. Web sites are not very useful when performing analysis. ANSF 43. Accounting standards code TM reorganizes the accounting pronouncements into approximately 90 accounting topics. ANST 44. Accounting standards codification TM addresses U. S. GAAP for nongovernmental entities. ANST PROBLEMS 1. required Listed below are several accounting principles and assumptions. mates the letter of each with the appropriate statement. a. business enterprise entitye. Historical costi.Full disclo sure b. Going concernf. Conservatismj. Verifiability c. Time periodg. Realizationk. Materiality d. Monetary unith. Consistencyl. persistence practices 1. Some industry practices lead to accounting reports that do not conform to the general theory that underlies accounting. 2. Requires the accountant to adhere as closely as possible to verifiable data. 3. Requires the entity to give the same treatment to comparable transactions. 4. Directs that the measurement that has the least favorable effect on net income and financial position in the current period be selected. 5. The decision is made to accept some inaccuracy because of incomplete information about the future in supplant for more timely reporting. 6. Involves the relative size and importance of an item to a firm. 7. A reasonable summarization of financial information is required. 8. Deals with the problem of when to recognize revenue. 9. The primary value that is used for financial statements. 10. Standard of measure for financial statements. 11. The assumption that the entity being accounted for will remain in business for an indefinite period of time. 12. Assumption that a businesss financial statements are separate and distinct from the personal transactions of the owners. ANS 1. l 2. j 3. h 4. f 5. c 6. k 7. i 8. g 9. e 10. d 11. b 12. a 2. Required State the accounting principle or assumption that is most applicable a. The company uses the same accounting principle from period to period. b. Financial statements are prepared periodically. c. Subscriptions paid in advance are recorded as unearned subscription income. d. All significant financial transactions are reported. e. Personal transactions of the stockholders are not recorded on the companys financial statements. f. Land is recorded at $10,000, which was the amount paid. Current value of the land is $25,000. g. The accountants determine that the company is in danger of going ruin and therefore refuse to certify the statements as prepared harmonise to generally accepted accounting principles. h. The company loses a major customer and does not record a loss. ANS a. consistency b. time period c. realization d. full disclosure e. business entity f. historical cost g. going concern h. transaction approach . Listed below are ten interrelated elements that are directly related to measuring performance and status of an enterprise according to SFAC none 6, Elements of Financial Statements. a. Assetsf. Comprehensive income b. Liabilitiesg. Revenues c. Equityh. Expenses d. Investments by ownersi. Gains e. Distribution to ownersj. losses Required Match the letter with the appropriate definition. 1. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide work to different entities in the future as a resultant of prehistoric transactions or events. 2. Increases in the equity of a particular business enterprise resulting from transf ers to the enterprise from other entities of something of value to obtain or increase ownership interests (or equity) in it. Assets are most commonly received as investments by owners, but that which is received may also include work or satisfaction or conversion of liabilities of the enterprise. 3. A decrease in the equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners.Decreases ownership interest (or equity) in an enterprise. 4. Decreases in the equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period, nevertheless those that result from expenses or distributions to owners. 5. Outflows or other consumption or using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out othe r activities that onstitute the entitys ongoing major or central operations. 6. The change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. 7. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. 8. The residual interest in the assets of an entity after deducting its liabilities. 9. Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or engaging in other activities that constitute the entitys ongoing major or central operations. 10. Increases in the equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances from revenues or investments by owners. ANS 1. b 2. d 3. e 4. j 5. h 6. f 7. a 8. c 9. g 10. i 4.Listed below are several qualitative characteristics. a. understandability b. usefulness for decision making c. relevance d. reliability e. predictive f. feedback value g. timely h. verifiable i. representational faithfulness j. neutrality k. comparability l. materiality m. benefits of information should exceed its cost Required Match the letter (or letters) that goes with each statement. 1. Two constraints included in the hierarchy. 2. For this quality, the information needs to have predictive and feedback value and be timely. 3. These are the qualitative characteristics that are viewed as having the most importance. 4. SFAC No. 2 indicates that to be reliable, the information needs to have these characteristics. 5. Interacts with relevance and reliability to contribute to the usefulness of information. 6. Two primary qualities that make accounting information useful for decision making. 7. For this quality, the information must be verifiable, field of honor to representational faithfulness, and neutral. 8. SFAC No. 2 indicates that to be relevant, the information needs to have these characteristics. ANS 1. l, m 2. c 3. a, b 4. h, i, j 5. k 6. c, d 7. d 8. e, f, g 5. Listed below are ten phrases with the appropriate abbreviation. a. mostly Accepted Accounting Principles (GAAP) b. Securities and Exchange Commission (SEC) c. American Institute of assured Public Accountants (AICPA) d. Accounting Principles Board (APB) e. Financial Accounting Standards Board (FASB) f. Statements of Financial Standards (SFAS) g. Discussion Memorandum (DM) h. Statements of Position (SOP) i. Emerging Issues Task Force (EITF) j. Financial Reporting Releases (FRRs) k. The Public Company Accounting Oversight Board (PCAOB) Required Match the letter with the appropriate definition. 1. Issued by the SEC and give the SECs prescribed position on matters relating to fina ncial reports. 2. Accounting principles that have substantial classical support. 3. A task force of representatives from the accounting profession created by the FASB to deal with emerging issues of financial reporting. 4. Created by the Securities Exchange Act of 1934. 5. Issued by the Accounting Standards Division of the AICPA to influence the development of accounting standards. 6. A professional accounting organization whose members are certified public accountants (CPAs). 7. Issued official opinion on accounting standards between 1959-1973. 8. This board issues four types of pronouncements (1) Statements of Financial Accounting Standards (SFAS), (2) Interpretations, (3) skillful Bulletins, and (4) Statements of Financial Accounting Concepts (SFAC). 9. Presents all known facts and points of view on a topic issued by the FASB. 10. Issued by the Financial Accounting Standards Board (FASB) and establish GAAP for specific accounting issues. 11. Responsible for adopting aud iting standards. ANS 1. j 2. a 3. i 4. b 5. h 6. c 7. d 8. e 9. g 10. f 11. k 6. Listed below are Concept Statements. a. Statement of Financial Accounting Concepts No. 1 b. Statement of Financial Accounting Concepts No. 2 c. Statement of Financial Accounting Concepts No. 3 d. Statement of Financial Accounting Concepts No. 4 e. Statement of Financial Accounting Concepts No. 5 f. Statement of Financial Accounting Concepts No. 6 g. Statement of Financial Accounting Concepts No. 7 RequiredMatch the letter that goes with each Concept Statement title. 1. Objectives of Financial Reporting by nonbusiness 2. Elements of Financial Statements of Business Enterprises 3. Qualitative Characteristics of Accounting Information 4. Elements of Financial Statements (a replacement of No. 3) 5. Objective of Financial Reporting by Business Enterprises 6. science and Measurement in Financial Statements of Business Enterprise 7. Using immediate payment Flow Information in Accounting Measurements ANS 1. d 2. c 3. b 4. f 5. a 6. e 7. g