BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
BUS-A 204 - INTRODUCTION TO FINANCIAL ACCOUNTING: HONORS |
EXAM QUESTIONS AND CORRECT ANSWERS | VERIFIED FINANCIAL
ACCOUNTING LATEST 2026/2027
BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
1. Under the FASB Conceptual Framework, the objective of general
purpose financial reporting is to provide financial information that is
useful to:
A. Regulators in guaranteeing the entity's future cash flows
B. Management in setting internal budgets and controlling costs
C. The Internal Revenue Service in determining the entity's taxable income
D. Existing and potential investors, lenders, and other creditors in making
decisions about providing resources to the entity
ANSWER : D. Existing and potential investors, lenders, and other
creditors in making decisions about providing resources to the entity
The Framework names capital providers (investors, lenders, other
creditors) as the primary users; tax authorities and management are not
the target audience.
Page 1 of 61
, BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
2. Which pair represents the fundamental qualitative characteristics of
useful financial information?
A. Understandability and materiality
B. Relevance and faithful representation
C. Verifiability and timeliness
D. Comparability and consistency
ANSWER : B. Relevance and faithful representation
Relevance and faithful representation are fundamental; comparability,
verifiability, timeliness, and understandability only enhance them.
3. Materiality is best described as:
A. A requirement that every reported amount be independently audited
B. An entity-specific aspect of relevance based on the nature or magnitude
of an item
C. A rule requiring all purchases under $1,000 to be expensed
D. A separate fundamental characteristic that overrides relevance
ANSWER : B. An entity-specific aspect of relevance based on the
nature or magnitude of an item
An item is material if omitting or misstating it could influence users'
decisions, which makes it a company-specific facet of relevance.
4. A company buys land for $400,000. One year later an appraisal
values the land at $520,000, but the company continues to report it at
$400,000. This practice follows the:
A. Historical cost principle
B. Full disclosure principle
C. Revenue recognition principle
D. Fair value principle
ANSWER : A. Historical cost principle
Land and most operating assets stay at original cost; appraisal increases
are not booked under U.S. GAAP.
Page 2 of 61
, BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
5. The owner of a sole proprietorship pays her home mortgage from
her personal account and does not record it in the business records.
This reflects the:
A. Economic entity assumption
B. Monetary unit assumption
C. Going concern assumption
D. Periodicity assumption
ANSWER : A. Economic entity assumption
The business is treated as separate from its owner, so personal
transactions stay off the company's books.
6. Reporting long-lived assets at cost less accumulated depreciation,
rather than at liquidation value, is justified primarily by the:
A. Periodicity assumption
B. Going concern assumption
C. Monetary unit assumption
D. Economic entity assumption
ANSWER : B. Going concern assumption
If the business is expected to keep operating, liquidation values are not
relevant; cost allocation over useful life makes sense.
7. Which of the following is classified as an enhancing qualitative
characteristic?
A. Neutrality
B. Faithful representation
C. Relevance
D. Timeliness
ANSWER : D. Timeliness
Timeliness enhances usefulness; neutrality is a component of faithful
representation, not a separate enhancing quality.
Page 3 of 61
, BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
8. To be a faithful representation, financial information should be:
A. Predictive, confirmatory, and material
B. Comparable, verifiable, and timely
C. Conservative, consistent, and audited
D. Complete, neutral, and free from error
ANSWER : D. Complete, neutral, and free from error
The Framework describes faithful representation through completeness,
neutrality, and freedom from error.
9. The body with statutory authority to set financial reporting
standards for publicly traded U.S. companies, which has largely
delegated standard setting to the FASB, is the:
A. Securities and Exchange Commission
B. International Accounting Standards Board
C. Public Company Accounting Oversight Board
D. American Institute of CPAs
ANSWER : A. Securities and Exchange Commission
Congress gave the SEC legal authority under the securities acts; the SEC
recognizes FASB standards as authoritative GAAP.
10. The cost constraint in financial reporting holds that:
A. All costs must be recorded at their current replacement value
B. The benefits of reported information should justify the costs of
providing and using it
C. Companies may omit any information that costs money to prepare
D. Assets should be reported at the lower of cost or market in all cases
ANSWER : B. The benefits of reported information should justify the
costs of providing and using it
Standard setters weigh whether the usefulness of information outweighs
the expense of producing it.
Page 4 of 61
BUS-A 204 - INTRODUCTION TO FINANCIAL ACCOUNTING: HONORS |
EXAM QUESTIONS AND CORRECT ANSWERS | VERIFIED FINANCIAL
ACCOUNTING LATEST 2026/2027
BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
1. Under the FASB Conceptual Framework, the objective of general
purpose financial reporting is to provide financial information that is
useful to:
A. Regulators in guaranteeing the entity's future cash flows
B. Management in setting internal budgets and controlling costs
C. The Internal Revenue Service in determining the entity's taxable income
D. Existing and potential investors, lenders, and other creditors in making
decisions about providing resources to the entity
ANSWER : D. Existing and potential investors, lenders, and other
creditors in making decisions about providing resources to the entity
The Framework names capital providers (investors, lenders, other
creditors) as the primary users; tax authorities and management are not
the target audience.
Page 1 of 61
, BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
2. Which pair represents the fundamental qualitative characteristics of
useful financial information?
A. Understandability and materiality
B. Relevance and faithful representation
C. Verifiability and timeliness
D. Comparability and consistency
ANSWER : B. Relevance and faithful representation
Relevance and faithful representation are fundamental; comparability,
verifiability, timeliness, and understandability only enhance them.
3. Materiality is best described as:
A. A requirement that every reported amount be independently audited
B. An entity-specific aspect of relevance based on the nature or magnitude
of an item
C. A rule requiring all purchases under $1,000 to be expensed
D. A separate fundamental characteristic that overrides relevance
ANSWER : B. An entity-specific aspect of relevance based on the
nature or magnitude of an item
An item is material if omitting or misstating it could influence users'
decisions, which makes it a company-specific facet of relevance.
4. A company buys land for $400,000. One year later an appraisal
values the land at $520,000, but the company continues to report it at
$400,000. This practice follows the:
A. Historical cost principle
B. Full disclosure principle
C. Revenue recognition principle
D. Fair value principle
ANSWER : A. Historical cost principle
Land and most operating assets stay at original cost; appraisal increases
are not booked under U.S. GAAP.
Page 2 of 61
, BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
5. The owner of a sole proprietorship pays her home mortgage from
her personal account and does not record it in the business records.
This reflects the:
A. Economic entity assumption
B. Monetary unit assumption
C. Going concern assumption
D. Periodicity assumption
ANSWER : A. Economic entity assumption
The business is treated as separate from its owner, so personal
transactions stay off the company's books.
6. Reporting long-lived assets at cost less accumulated depreciation,
rather than at liquidation value, is justified primarily by the:
A. Periodicity assumption
B. Going concern assumption
C. Monetary unit assumption
D. Economic entity assumption
ANSWER : B. Going concern assumption
If the business is expected to keep operating, liquidation values are not
relevant; cost allocation over useful life makes sense.
7. Which of the following is classified as an enhancing qualitative
characteristic?
A. Neutrality
B. Faithful representation
C. Relevance
D. Timeliness
ANSWER : D. Timeliness
Timeliness enhances usefulness; neutrality is a component of faithful
representation, not a separate enhancing quality.
Page 3 of 61
, BUS-A 204 Introduction to Financial Accounting: Honors (3 cr.)
8. To be a faithful representation, financial information should be:
A. Predictive, confirmatory, and material
B. Comparable, verifiable, and timely
C. Conservative, consistent, and audited
D. Complete, neutral, and free from error
ANSWER : D. Complete, neutral, and free from error
The Framework describes faithful representation through completeness,
neutrality, and freedom from error.
9. The body with statutory authority to set financial reporting
standards for publicly traded U.S. companies, which has largely
delegated standard setting to the FASB, is the:
A. Securities and Exchange Commission
B. International Accounting Standards Board
C. Public Company Accounting Oversight Board
D. American Institute of CPAs
ANSWER : A. Securities and Exchange Commission
Congress gave the SEC legal authority under the securities acts; the SEC
recognizes FASB standards as authoritative GAAP.
10. The cost constraint in financial reporting holds that:
A. All costs must be recorded at their current replacement value
B. The benefits of reported information should justify the costs of
providing and using it
C. Companies may omit any information that costs money to prepare
D. Assets should be reported at the lower of cost or market in all cases
ANSWER : B. The benefits of reported information should justify the
costs of providing and using it
Standard setters weigh whether the usefulness of information outweighs
the expense of producing it.
Page 4 of 61
