Accounting Exam 1 (100 out of 100) Questions and Answers (2025 Updated Version).

Accounting Exam 1 (100 out of 100) Questions and Answers (2025 Updated Version). What is a correct form of the Accounting Equation? Assets - Liabilities = Stockholder's Equity What financial statement is typically prepared first? Income Statement What is the equation for Retained Earnings? Net Income - Dividends What financial statement is prepared for just a point in time? Balance Sheet What group is known as the "enforcer" in regards to accounting standards for public companies? SEC What "PCAOB" stand for? Public Company Accounting Oversight Board What was NOT one of the notable changes to the accounting profession as a result of SOX? a. Established the Committee on Accounting Procedure b. Required audit partners to rotate every 5 years c. CEO & CFO sign off on financial statements d. Established the PCAOB Established the Committee on Accounting Procedure When was the AAA established? 1916 Receiving cash from a previously billed customer would include: A credit to accounts receivable When a company issues common stock to investors, what will occurs? An increase to the company's common stock balance Purchasing inventory on account would include: A credit to accounts payable The "Cost of Goods Sold" account shows up in what financial statement? income statement What is the "normal balance" for expenses? Debit Which of the following is NOT a temporary account? a. Dividends b. Rent Expense c. Cash d. Service Revenue c. Cash Which of the following is a permanent account? a. Sales revenue b. prepaid rent c. cost of goods sold d. wages expense prepaid rent Deferred revenue shows up in what financial statement? Balance Sheet Paying for advertising for the current period would include: A debit to advertising expense Which of the following is NOT an accounting assumption? a. Monetary unit b. Historical Cost c. going concern d. economic entity Historical cost Which of the following is a fundamental quality in the conceptual framework? a. Relevance b. Comparability c. Verifiability d. Timeliness a. Relevance Which of the following is NOT an ingredient of faithful representation? a. Neutrality b. Free from error c. Predictive vale d. Completeness c. Predictive value Which of the following represents decreases in net assets as a result of transfers to owners? a. investments b. comprehensive income c. distributions d. expenses c. distributions What level is the LEAST subjective in the fair value hierarchy? Level 1 What provides the rationale behind why plaint assets are not reported at liquidation value? going concern The objective of financial reporting in the conceptual framework is: Decision Usefulness Treasury Stock has a normal: Debit Balance Interest Revenue increases on which side? Credit side Deferred Revenue decreases on which side? debit side Dividends show up in what financial statement? Statement of Stockholders' Equity Prepaid advertising decreases on the: Credit side The FASAC typically consults with the IASB on major policy issues False Politics play a role n established GAAP (Generally Accepted Accounting Principles). True Neutrality is an ingredient of which fundamental quality of information? Faithful representation A decrease in net assets arising from peripheral or incidental transactions is called a(n) Loss We have an expert-written solution to this problem! Product costs include each of the following except officer's salaries Expensing the cost of copy paper when the paper is acquired is an example materiality The second level of the conceptual framework includes each of the following except a. elements b. principles c. enhancing qualities d. fundamental qualities b. principles We have an expert-written solution to this problem! When a company acquires equipment on account, what is the affect on the accounting equation? Increases an Asset and Increases a Liability Paying for insurance to cover your company in future periods would include: A debit to prepaid insurance When the company receives cash before they have provided the service, what should they book? A credit to deferred revenue The financial statement that represents the accounting equation is the: Balance Sheet Where are public companies required to file their financial statements? Which of the following would increase assets and increase liabilities? Purchase office supplies on account Which of the following is possible for a particular business transaction? Decrease assets; Increase assets A company's cash balance is reported in which two financial statements? Balance sheet and statement of cash flows A dividend revenue account from an investment in another company is increased with a: credit For publicly traded companies, what is the annual financial report called? 10K What group maintains the accounting profession's code of ethics? AICPA Choose the correct statement about GAAP. A. It is a violation of SEC regulations for publicly traded companies to depart from GAAP. B. Firms may not restate financial statements previously issued. C. GAAP are laws D. Only publicly traded companies must comply with GAAP. A. It is a violation of SEC regulations for publicly traded companies to depart from GAAP. What group currently writes the Generally Accepted Accounting Principles? A. Securities and Exchange Commission. B. Financial Accounting Standards Board. C. Internal Revenue Service. D. Financial Accounting Foundation B. Financial Accounting Standards Board. The purpose of financial accounting is to provide information primarily for which of the following groups? A. Government. B. Investors and creditors. C. Internal Revenue Service. D. Financial Accounting Standards Board. B. Investors and creditors. The FASB is a(n): A. Private sector body. B. Group of accounting firms. C. Governmental unit. D. International organization A. Private sector body. Which of the following accounting pronouncements is the most authoritative? A. The FASB Accounting Standards Codification. B. FASB Statement of Financial Accounting Concepts. C. FASB Technical Bulletin. D. AICPA Statement of Position. A. The FASB Accounting Standards Codification. The objective of general-purpose financial reporting in the conceptual framework is: A. Reliability B. Comparability C. Understandability D. Decision usefulness D. Decision usefulness Generally, revenues are recognized when the: A. Cash is received B. Performance obligation is satisfied C. Product is produced D. All of the above B. Performance obligation is satisfied With regard to fair value, which of the following measurements is considered the least subjective? A. Observable inputs that reflect quoted prices for identical assets or liabilities. B. Inputs that are observable either directly or through corroboration with observable data. C. For purposes of fair value, all of the measures are considered equally subjective. D. Unobservable inputs. A. Observable inputs that reflect quoted prices for identical assets or liabilities. When a company changes accounting principles, it financial statements lack ______________. A. Faithful Representation B. Predictive Value C. Consistency D. Confirmatory Value C. Consistency Consider the following list of accounts: Accounts Payable Cash Prepaid Rent Common Stock Salaries Payable Equipment Supplies Rent Expense How many of these accounts have a normal credit balance? A) Five. B) Two. C) Four. D) Three. D) Three We have an expert-written solution to this problem! How many of the following accounts will appear on the balance sheet? Equipment Service Revenue Deferred Revenue Salaries Expense Utilities Payable Prepaid Rent Common Stock Dividends A) 4 B) 7 C) 5 D) 3 C) 5 We have an expert-written solution to this problem! An expense has what effect on the accounting equation? A) Increase assets. B) No effect. C) Decrease liabilities. D) Decrease stockholders' equity. D) Decreased stockholders' equity; expenses are in retained earnings with is an SHs' Equity account We have an expert-written solution to this problem! Which of the following is not a benefit associated with the FASB Conceptual Framework Project? A. A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting. B. Practical problems should be more quickly solvable by reference to an existing conceptual framework. C. A coherent set of accounting standards and rules should result. D. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. D. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. We have an expert-written solution to this problem! Which of the following violates the concept of faithful representation? A. The management report refers to new discoveries and inventions made, but the financial statements never report the results. B. Financial statements included buildings with a carrying amount estimated by management. C. Financial statements were issued one year late. D. All of the choices violate faithful representation. B. Financial statements included buildings with a carrying amount estimated by management. Which of the following is a characteristic describing the primary quality of relevance? A. Materiality. B. Predictive value. C. Verifiability. D. Understandability. B. Predictive value. We have an expert-written solution to this problem! If accounting information is complete, free from error, and neutral, it can be considered: A. relevant B. timely. C. comparable. D. a faithful representation. D. a faithful representation. The major objective of the quality of comparability is to: A. provide timely financial information for statement users. B. promote comparability between financial statements of different accounting periods. C. enable users to identify the real similarities and differences in economic events between companies. D. be sure the same information is disclosed in each accounting period. B. promote comparability between financial statements of different accounting periods. Comprehensive income includes all changes in equity during a period except: A. sale of assets other than inventory. B. those resulting from investments by or distribution to owners. C. sales to a particular entity where ultimate payment by the entity is doubtful. D. those resulting from revenue generated by a totally owned subsidiary. B. those resulting from investments by or distribution to owners. According to the FASB conceptual framework, equity A. is the residual interest in the assets of an entity that remains after deducting its liabilities. B. is the same thing as comprehensive income. C. is the net gains less the net loses for a period of time. D. is the net revenues and expenses for a period of time. A. is the residual interest in the assets of an entity that remains after deducting its liabilities. The economic entity assumption in accounting is best reflected by which of the following statements? A. When a parent and subsidiary company are merged for accounting and reporting purposes the economic entity assumption is violated. B. The best way to truly measure the results of enterprise activity is to measure them at the time the enterprise is liquidated. C. The activity of a business enterprise can be kept separate and distinct from its owners and any other business unit. D. A business enterprise is in business to enhance the economic well being of its owners. C. The activity of a business enterprise can be kept separate and distinct from its owners and any other business unit. We have an expert-written solution to this problem! In accounting an economic entity may be defined as: A. a business enterprise. B. an individual. C. a division within a business enterprise. D. all of the above. D. all of the above. We have an expert-written solution to this problem! Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? A. Monetary unit assumption. B. Periodicity assumption. C. Goingconcern assumption. D. Economic entity assumption. A. Monetary unit assumption. We have an expert-written solution to this problem! Although many objections have been raised about the "cost" principle, it is still widely supported for financial reporting because it A. is an objectively determinable amount. B. is a good measure of current value. C. facilitates comparisons between years. D. takes into account price-level adjusted information. A. is an objectively determinable amount. Under the revenue recognition principle, revenue is generally recognized when: A. a company satisfies its performance obligations. B. the merchandise has been ordered. C. all expenses have been identified. D. the accounting process is virtually complete. A. a company satisfies its performance obligations. Which of the following is a correct statement regarding the expense recognition principle? A. Expenses are recognized when they make a contribution to revenue. B. Costs can be charged to the current period as an expense simply because no connection with revenue can be determined. C. In recognizing expenses, accountants attempt to follow the approach of let the expense follow the revenue. D. All of the choices are correct. D. All of the choices are correct. The concept referred to by the "expense recognition" principle is A. that current liabilities have the same period of existence as the current assets. B. that all cash disbursements for a period be matched to cash receipts for the period. C. that net income should be reported on a quarterly basis. D. that where possible the expenses to be included in the income statement were incurred to produce the revenues. D. that where possible the expenses to be included in the income statement were incurred to produce the revenues. In complying with the full disclosure principle, an accountant must determine the amount of disclosure necessary. How much disclosure is enough? A. Information sufficient for a person without any knowledge of accounting to understand the statements. B. All information that might be of interest to an owner of a business enterprise. C. Information that is of sufficient importance to influence the judgment and decisions of an informed user. D. Information sufficient to permit most persons coming in contact with the statements to reach an accurate decision about the financial condition of the enterprise. C. Information that is of sufficient importance to influence the judgment and decisions of an informed user. We have an expert-written solution to this problem! What is the constraint that supports considering that the benefits of the information outweigh the sacrifices to provide the information? A. Cost. B. Prudence. C. Consistency. D. Conservatism. A. Cost.