ACG4101 Chapters 1-7 Review
Questions – 100% Solved
The underlying assumption that presumes a company will continue indefinitely is:
Economic entity.
Periodicity.
Going concern.
Monetary unit. - answer Going concern.
In general, revenue is recognized when:
a purchase order is received.
goods or services are transferred to the customer.
cash is collected.
production is completed. - answergoods or services are transferred to the customer.
The qualitative characteristic that means there is agreement between a measure and a
real-world phenomenon is:
Neutrality.
Materiality.
Representational faithfulness.
Verifiability. - answerRepresentational faithfulness.
Which of the following characteristics does not describe an asset?
Result of a past transaction.
Probable future economic benefits.
Controlled by an entity.
Requires the receipt of cash. - answerRequires the receipt of cash.
Which of the following is considered a practical constraint on the qualitative
characteristics?
Conservatism.
Timeliness.
Cost effectiveness.
Verifiability. - answerCost effectiveness.
Relevance requires that information possess predictive and/or:
Freedom from error.
,Completeness.
Confirmatory value.
Neutrality. - answerConfirmatory value.
The SEC exerts a continuing influence on the establishment of accounting standards. It
does so primarily by:
Monitoring the development of GAAP within the accounting profession and using its
stature to influence that development.
Exercising its statutory authority to prescribe external financial reporting requirements.
Providing auxiliary funding to the FASB.
Allying with the AICPA to lobby the efforts of the FASB. - answerMonitoring the
development of GAAP within the accounting profession and using its stature to
influence that development.
Fernblatt Incorporated recognizes revenue in the period in which it records an asset for
the related account receivable, rather than in the period in which the account receivable
is collected in cash. Fernblatt's accounting approach is an example of:
periodicity.
matching.
cash basis accounting.
accrual accounting. - answeraccrual accounting.
The two primary decision-specific qualities that make accounting information useful are:
Predictive value and feedback value.
Cost effectiveness and materiality.
Verifiability and representational faithfulness.
Relevance and faithful representation. - answerRelevance and faithful representation.
Under accounting principles generally accepted in the United States, in order for an item
to qualify for recognition in the financial statements of a company, the item must
I. Be measurable in monetary terms
II. Reflect the consensus expectations of investors
III. Meet the definition of an element of the financial statements - answerI and III only.
Consistency and feedback relate most closely to which two of the following accounting
concepts, respectively?
Predictive value and confirmatory value
Recognition and full disclosure
Conservatism and cost/benefit
Recognition and matching - answerPredictive value and confirmatory value
, Comparability, understandability, timeliness, and verifiability are enhancing qualitative
characteristics that contribute to:
Relevance Faithful Representation
a.YesNo
b.NoNo
c.NoYes
d.YesYes - answerOption d
Information is considered material to the financial statements if
I. It falls within industry-specific quantitative guidelines published by the Financial
Accounting Standards Board.
II. Its omission could make a difference in the decisions made by a user relying on the
financial statements.
III. Its misstatement could make a difference in the decisions made by a user relying on
the financial statement. - answerII and III only.
Alpha Co. reports inventory on its balance sheet using the same generally accepted
methods as applied by Beta Co. These facts relate most closely to which of the
following qualitative characteristics of financial reporting?
Comparability
Materiality
Verifiability
Understandability - answerComparability
Conceptually, interim financial statements can be described as emphasizing which of
the following?
I. Timeliness
II. Relevance
III. Verifiability - answerI and II only.
Cash flows during the first year of operations for the Harman-Kardon Consulting
Company were as follows: Cash collected from customers, $365,000; Cash paid for
rent, $45,000; Cash paid to employees for services rendered during the year, $125,000;
Cash paid for utilities, $55,000.
In addition, you determine that customers owed the company $65,000 at the end of the
year, and no bad debts were anticipated. Also, the company owed the gas and electric
company $2,500 at year-end, and the rent payment was for a two-year period.
Calculate accrual net income for the year. - answer225,000
The closing entry for revenues involves:
a debit to revenues and a credit to retained earnings.
a debit to retained earnings and a credit to revenues.
a debit to revenues and a credit to common stock.
Questions – 100% Solved
The underlying assumption that presumes a company will continue indefinitely is:
Economic entity.
Periodicity.
Going concern.
Monetary unit. - answer Going concern.
In general, revenue is recognized when:
a purchase order is received.
goods or services are transferred to the customer.
cash is collected.
production is completed. - answergoods or services are transferred to the customer.
The qualitative characteristic that means there is agreement between a measure and a
real-world phenomenon is:
Neutrality.
Materiality.
Representational faithfulness.
Verifiability. - answerRepresentational faithfulness.
Which of the following characteristics does not describe an asset?
Result of a past transaction.
Probable future economic benefits.
Controlled by an entity.
Requires the receipt of cash. - answerRequires the receipt of cash.
Which of the following is considered a practical constraint on the qualitative
characteristics?
Conservatism.
Timeliness.
Cost effectiveness.
Verifiability. - answerCost effectiveness.
Relevance requires that information possess predictive and/or:
Freedom from error.
,Completeness.
Confirmatory value.
Neutrality. - answerConfirmatory value.
The SEC exerts a continuing influence on the establishment of accounting standards. It
does so primarily by:
Monitoring the development of GAAP within the accounting profession and using its
stature to influence that development.
Exercising its statutory authority to prescribe external financial reporting requirements.
Providing auxiliary funding to the FASB.
Allying with the AICPA to lobby the efforts of the FASB. - answerMonitoring the
development of GAAP within the accounting profession and using its stature to
influence that development.
Fernblatt Incorporated recognizes revenue in the period in which it records an asset for
the related account receivable, rather than in the period in which the account receivable
is collected in cash. Fernblatt's accounting approach is an example of:
periodicity.
matching.
cash basis accounting.
accrual accounting. - answeraccrual accounting.
The two primary decision-specific qualities that make accounting information useful are:
Predictive value and feedback value.
Cost effectiveness and materiality.
Verifiability and representational faithfulness.
Relevance and faithful representation. - answerRelevance and faithful representation.
Under accounting principles generally accepted in the United States, in order for an item
to qualify for recognition in the financial statements of a company, the item must
I. Be measurable in monetary terms
II. Reflect the consensus expectations of investors
III. Meet the definition of an element of the financial statements - answerI and III only.
Consistency and feedback relate most closely to which two of the following accounting
concepts, respectively?
Predictive value and confirmatory value
Recognition and full disclosure
Conservatism and cost/benefit
Recognition and matching - answerPredictive value and confirmatory value
, Comparability, understandability, timeliness, and verifiability are enhancing qualitative
characteristics that contribute to:
Relevance Faithful Representation
a.YesNo
b.NoNo
c.NoYes
d.YesYes - answerOption d
Information is considered material to the financial statements if
I. It falls within industry-specific quantitative guidelines published by the Financial
Accounting Standards Board.
II. Its omission could make a difference in the decisions made by a user relying on the
financial statements.
III. Its misstatement could make a difference in the decisions made by a user relying on
the financial statement. - answerII and III only.
Alpha Co. reports inventory on its balance sheet using the same generally accepted
methods as applied by Beta Co. These facts relate most closely to which of the
following qualitative characteristics of financial reporting?
Comparability
Materiality
Verifiability
Understandability - answerComparability
Conceptually, interim financial statements can be described as emphasizing which of
the following?
I. Timeliness
II. Relevance
III. Verifiability - answerI and II only.
Cash flows during the first year of operations for the Harman-Kardon Consulting
Company were as follows: Cash collected from customers, $365,000; Cash paid for
rent, $45,000; Cash paid to employees for services rendered during the year, $125,000;
Cash paid for utilities, $55,000.
In addition, you determine that customers owed the company $65,000 at the end of the
year, and no bad debts were anticipated. Also, the company owed the gas and electric
company $2,500 at year-end, and the rent payment was for a two-year period.
Calculate accrual net income for the year. - answer225,000
The closing entry for revenues involves:
a debit to revenues and a credit to retained earnings.
a debit to retained earnings and a credit to revenues.
a debit to revenues and a credit to common stock.
