Exam (elaborations) Test Bank For Intermediate Accounting

1. Accounting has been given various definitions, which of the following is not one of those definitions a. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. b. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part of at least, of a financial character and interpreting the results thereof. c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users. d. Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information. 2. It is the first process used in accounting. It refers to the identification of events as to whether they are recognized or not in the financial statements. a. Identifying b. Measuring c. Communicating d. Auditing 3. The following statements correctly refer to the accounting process. I. Measuring is the accounting process of analyzing business activities as to whether or not they will be recognized in the books. II. Recognition refers to the process of including the effects of an event in the totals of the statement of financial position or the statement of profit or loss and other comprehensive income through memo entries. III. Disclosure of events in the notes to financial statement without including in the totals of the statement of financial position or statement of profit or loss and other comprehensive income is not an application of the recognition principle. IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and its effect can be measured reliably. V. Sociological and psychological matters are within the scope of accounting. a. I, II, III, IV, V b. I, II, III, IV c. IV d. III, IV Types of Events 4. These events involve changes in the economic resources or obligations of entities involving other entities but do not involve transfers of resources or obligations a. External events c. External events other than transfers b. Non-reciprocal transfers d. Internal events 3 5. Events involving an entity and an external party. a. External events c. External events other than transfers b. Non-reciprocal transfers d. Internal events 6. Events in which an entity transfers (or receives) economic resources to (from) another entity without directly receiving (or giving) value in exchange. a. External events c. External events other than transfers b. Non-reciprocal transfers d. Internal events 7. These events result to a sudden or unanticipated loss from fortuitous events. a. Internal events c. External events other than transfers b. Non-reciprocal transfers d. Casualty 8. Which of the following statements is true? I. Loss from theft should be classified as a nonreciprocal transfer II. Internal events are changes in economic resources by actions of other entities that do not involve transfers of enterprise resources and obligations III. Nonreciprocal transfers involve the transfer of resources in only one direction, either from an entity to other entities or from other entities to the entity. IV. Internal events are sudden, substantial, unanticipated reductions in enterprise resources not caused by other entities V. Fire, earthquake and flood are examples of accountable events classified as internal events. a. I, II, III, V b. I, III, V c. II, III, IV, V d. I, III, IV, V 9. All of the following are events considered as exchange or reciprocal transfer, except a. purchase of investment in equity securities b. sale of equipment for non-interest bearing note c. subscription on the entity’s own equity instrument d. exchange of a note payable for an account payable e. borrowing of money from a bank 10. All of the following are events considered as nonreciprocal transfer, except a. declaration of cash dividends c. payment of accounts payable b. declaration of stock dividends d. imposition of fines 11. All of the following are events considered as external events other than transfers, except a. obsolescence c. imposition of fines b. inflation d. vandalism 12. All of the following are events considered as internal events, except a. Transfer of goods from work-in-process to finished goods inventory b. flood, earthquake, fire and other “Acts of God” c. transformation of biological assets from immature to mature d. vandalism committed by the entity’s employees 13.Which of the following events is considered an internal event? a. sale of inventory on account b. provision of capital by owners c. borrowing of money d. conversion of raw materials into finished goods 14.Which of the following events is considered an external event? a. production c. payment of taxes b. casualty loss d. growth of biological assets 15.Which of the following events is considered an internal event? a. theft c. vandalism b. contributions by owners d. degeneration of biological assets 16.Which of the following correctly relates to accountable events? I. An obsolete asset which has no use was received in exchange of an existing asset. This transaction may be classified as an exchange. II. An entity exchanges a non-cash asset for another non-cash asset in an exchange transaction with commercial substance. This is a reciprocal transfer. III. An entity issues its shares of stocks in exchange for a non-cash asset. This is a reciprocal transfer.