@PROFDOCDIGITALLIBRARIES
TEST BANK
FINANCIAL ACCOUNTING THEORY
LATEST 2024/2025 VERSION
(ANSWERS ARE AT THE END OF THIS DOCUMENT)
1. Which of the following accounts is reported under equity of the statement of financial position?
a. Dividend declared and paid
b. Share capital–ordinary
c. Revenue
d. All of the choices are reported in the equity section of the statement of financial position
2. Revenue is
a. Impacted by debit and credit in the same way that expenses are impacted by debit and credit.
b. A subdivision of equity, providing information about why equity increased.
c. Reported in the statement of financial position as a current item.
d. All of the choices are correct regarding revenue.
3. A document prepared to prove the equality of debits and credits after all adjustments is the
a. Adjusted statement of financial position
b. Adjusted trial balance
c. Adjusted financial statements
d. Postclosing trial balance
4. A cash refund to a customer for merchandise returned should be entered in
a. Sales journal
b. Purchases journal
c. Cash payments journal
d. Cash receipts journal
5. All of the following adjusting entries affect both the statement of financial position and income
statement, except
a. Accrued expenses
b. Prepaid expenses using the asset method
c. Unearned income using the income method
d. All of these affect both the statement of financial position and income statement.
6. The second level of the Conceptual Framework
a. Provides conceptual building blocks that explain the qualitative characteristics of accounting
information
b. Defines the elements of financial statements
c. Serves as a bridge between the “why” and the “how” of accounting
d. All of the choices are correct
7. The IASB has given entities the option of using fair value to report all of the following, except
a. Receivables
b. Investments
c. Financial liabilities
d. All of the choices can be measured at fair value.
8. Which of the following is a benefit of providing financial information?
a. Potential litigation
b. Auditing
, 10. Which of the following represents a form of communication through financial reporting but not
through financial statements?
a. Statement of financial position
b. President's letter
c. Income statement
d. Notes to financial statements
11. What would be an advantage of having all countries adopt and follow the same accounting
standards?
a. Consistency
b. Comparability
c. Lower preparation costs
d. Comparability and lower preparation costs
12. An objective of financial reporting is to provide
a. Information about the investors in the business entity.
b. Information about the liquidation value of the resources held by the entity.
c. Information that is useful in assessing cash flow prospects.
d. Information that will attract new investors.
13. The statement of financial position information is useful for all of the following, except
a. Assessing risk
b. Evaluating liquidity
c. Evaluating financial flexibility
d. Determining free cash flows
14. The statement of financial position
a. Omits many items that are of financial value.
b. Makes very limited use of judgment and estimate
c. Uses fair value for most assets and liabilities.
d. All of the choices are correct regarding the statement of financial position.
15. Which is a noncurrent asset?
a. Amount due from customer within a period of 12 to 18 months in accordance with normal
credit terms.
b. Equity investment acquired principally for generating a profit from short-term fluctuation in
price
c. Goods in process of production for sale in the ordinary course of business
d. Cash fund set aside for payment of equipment to be delivered a month after reporting period.
16. Limitations of the income statement include all of the following, except
a. Items that cannot be measured reliably are not reported.
b. Only actual amounts are reported in determining net income.
c. Income measurement involves judgment.
d. Income numbers are affected by the accounting method employed.
17. The income statement information would help in which of the following tasks?
a. Evaluate the liquidity of an entity
b. Evaluate the solvency of an entity
c. Estimate future cash flows
d. Estimate future financial flexibility
18. Which of the following is an example of managing earnings down?
a. Changing estimated bad debts from higher percent to lower percent of sales.
b. Revising the estimated life of equipment from ten years to five years.
TEST BANK
FINANCIAL ACCOUNTING THEORY
LATEST 2024/2025 VERSION
(ANSWERS ARE AT THE END OF THIS DOCUMENT)
1. Which of the following accounts is reported under equity of the statement of financial position?
a. Dividend declared and paid
b. Share capital–ordinary
c. Revenue
d. All of the choices are reported in the equity section of the statement of financial position
2. Revenue is
a. Impacted by debit and credit in the same way that expenses are impacted by debit and credit.
b. A subdivision of equity, providing information about why equity increased.
c. Reported in the statement of financial position as a current item.
d. All of the choices are correct regarding revenue.
3. A document prepared to prove the equality of debits and credits after all adjustments is the
a. Adjusted statement of financial position
b. Adjusted trial balance
c. Adjusted financial statements
d. Postclosing trial balance
4. A cash refund to a customer for merchandise returned should be entered in
a. Sales journal
b. Purchases journal
c. Cash payments journal
d. Cash receipts journal
5. All of the following adjusting entries affect both the statement of financial position and income
statement, except
a. Accrued expenses
b. Prepaid expenses using the asset method
c. Unearned income using the income method
d. All of these affect both the statement of financial position and income statement.
6. The second level of the Conceptual Framework
a. Provides conceptual building blocks that explain the qualitative characteristics of accounting
information
b. Defines the elements of financial statements
c. Serves as a bridge between the “why” and the “how” of accounting
d. All of the choices are correct
7. The IASB has given entities the option of using fair value to report all of the following, except
a. Receivables
b. Investments
c. Financial liabilities
d. All of the choices can be measured at fair value.
8. Which of the following is a benefit of providing financial information?
a. Potential litigation
b. Auditing
, 10. Which of the following represents a form of communication through financial reporting but not
through financial statements?
a. Statement of financial position
b. President's letter
c. Income statement
d. Notes to financial statements
11. What would be an advantage of having all countries adopt and follow the same accounting
standards?
a. Consistency
b. Comparability
c. Lower preparation costs
d. Comparability and lower preparation costs
12. An objective of financial reporting is to provide
a. Information about the investors in the business entity.
b. Information about the liquidation value of the resources held by the entity.
c. Information that is useful in assessing cash flow prospects.
d. Information that will attract new investors.
13. The statement of financial position information is useful for all of the following, except
a. Assessing risk
b. Evaluating liquidity
c. Evaluating financial flexibility
d. Determining free cash flows
14. The statement of financial position
a. Omits many items that are of financial value.
b. Makes very limited use of judgment and estimate
c. Uses fair value for most assets and liabilities.
d. All of the choices are correct regarding the statement of financial position.
15. Which is a noncurrent asset?
a. Amount due from customer within a period of 12 to 18 months in accordance with normal
credit terms.
b. Equity investment acquired principally for generating a profit from short-term fluctuation in
price
c. Goods in process of production for sale in the ordinary course of business
d. Cash fund set aside for payment of equipment to be delivered a month after reporting period.
16. Limitations of the income statement include all of the following, except
a. Items that cannot be measured reliably are not reported.
b. Only actual amounts are reported in determining net income.
c. Income measurement involves judgment.
d. Income numbers are affected by the accounting method employed.
17. The income statement information would help in which of the following tasks?
a. Evaluate the liquidity of an entity
b. Evaluate the solvency of an entity
c. Estimate future cash flows
d. Estimate future financial flexibility
18. Which of the following is an example of managing earnings down?
a. Changing estimated bad debts from higher percent to lower percent of sales.
b. Revising the estimated life of equipment from ten years to five years.
