Accounting Principles exam with
verified correct answers
The personal assets of the owner of a company will not appear on the company's balance sheet
because of which principle/guideline? - answer economic entity
Which principle/guideline requires a company's balance sheet to report its land at the amount
the company paid to acquire the land, even if the land could be sold today at a significantly
higher amount? - answer cost
The cost principle requires the accountant to show assets at cost and expenses at cost rather
than at higher amounts. Accountants are not allowed to recognize gains from merely holding
the land. To be able to recognize a gain on the land, the company would have to sell the land.
Which principle/guideline allows a company to ignore the change in the purchasing power of
the dollar over time? - answer monetary unit
Which principle/guideline requires the company's financial statements to have footnotes
containing information that is important to users of the financial statements? - answer full
disclosure
Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial? - answer materiality
Which principle/guideline is associated with the assumption that the company will continue on
long enough to carry out its objectives and commitments? - answer going-concern
A very large corporation's financial statements have the dollar amounts rounded to the nearest
$1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny?
- answer materiality
verified correct answers
The personal assets of the owner of a company will not appear on the company's balance sheet
because of which principle/guideline? - answer economic entity
Which principle/guideline requires a company's balance sheet to report its land at the amount
the company paid to acquire the land, even if the land could be sold today at a significantly
higher amount? - answer cost
The cost principle requires the accountant to show assets at cost and expenses at cost rather
than at higher amounts. Accountants are not allowed to recognize gains from merely holding
the land. To be able to recognize a gain on the land, the company would have to sell the land.
Which principle/guideline allows a company to ignore the change in the purchasing power of
the dollar over time? - answer monetary unit
Which principle/guideline requires the company's financial statements to have footnotes
containing information that is important to users of the financial statements? - answer full
disclosure
Which principle/guideline justifies a company violating an accounting principle because the
amounts are immaterial? - answer materiality
Which principle/guideline is associated with the assumption that the company will continue on
long enough to carry out its objectives and commitments? - answer going-concern
A very large corporation's financial statements have the dollar amounts rounded to the nearest
$1,000. Which accounting principle/guideline justifies not reporting the amounts to the penny?
- answer materiality
