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Generally accepted accounting principles
are fundamental truths or axioms that can be derived from laws of nature.
derive their authority from legal court proceedings.
derive their credibility and authority from general recognition and acceptance by the accounting profession.
have been specified in detail in the FASB conceptual framework.

derive their credibility and authority from general recognition and acceptance by the accounting profession.

Which of the following are not true concerning a conceptual framework in accounting?
All of the statements are true.
It should be based on fundamental truths that are derived from the laws of nature.
It should allow practical problems to be solved more quickly by reference to it.
It should be a basis for standard-setting.

It should be based on fundamental truths that are derived from the laws of nature.

Accounting information is considered to be relevant when it
is capable of making a difference in a decision.
is verifiable and neutral.
can be depended on to represent the economic conditions and events that it is intended to represent.
is understandable by reasonably informed users of accounting information.

is capable of making a difference in a decision.

A decrease in net assets arising from peripheral or incidental transactions is called a(n)
expense.
cost.
loss.
capital expenditure.

loss.

Under current GAAP, inflation is ignored in accounting due to the
economic entity assumption.
going concern assumption.
periodicity assumption.
monetary unit assumption.

monetary unit assumption.

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the
relevance characteristic.
economic entity assumption.
comparability characteristic.
neutrality characteristic.

economic entity assumption.

Revenue is generally recognized when realized or realizable and earned. This statement describes the
revenue recognition principle.
completeness characteristic.
relevance characteristic.
matching principle.

revenue recognition principle.

"When products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash" is a definition of
allocated revenue.
realizable revenue.
earned revenue.
realized revenue.

realized revenue.

Expensing the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of applying the
historical cost principle.
materiality quality.
consistency characteristic.
expense recognition principle.

materiality quality.

Which of the following statements concerning the cost-benefit relationship is not true?
Business reporting should exclude information outside of management's expertise.
Management should not be required to report information that would significantly harm the company's competitive position.
Management should not be required to provide forecasted financial information.
If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.

If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.

All of the following accounts are increased on the credit side except:
Salaries Expense.
Retained Earnings.
Service Revenues.
Common Stock.

Salaries Expense.

Dividends are increased on the debit side.
• True
• False

true

Nominal accounts are periodically closed.
• True
• False

true

Posting is the process of transferring items entered in a general journal to the:
trial balance.
financial statements.
general ledger.
worksheet.

general ledger.

An accrued expense is
an expense that has been incurred but for which payment has not yet been made.
initially recorded as an asset.
an expense for which cash is paid before the expense is incurred.
an expense which is recorded with the passage of time.

an expense that has been incurred but for which payment has not yet been made.

When a corporation pays a notes payable and interest, they will debit notes payable and interest expense.
True/False

true

The debit and credit analysis of a transaction normally takes place
before an entry is recorded in a journal.
True/False

true

Adjusting journal entries are necessary to
1. obtain a proper matching of revenue and expense
2. achieve an accurate statement of assets and equities
3. adjust assets and liabilities to fair market value.
Options:
1. only
1. and 2.
2. only
1 2 and 3

1. and 2.

Is salary expense a nominal (temporary) account?
True/False

true

Information in the income statement helps users to
all of these.
evaluate the past performance of the enterprise.
help assess the risk or uncertainty of achieving future cash flows.
provide a basis for predicting future performance.

all of these.

The gain or loss from disposal of a component of a business is shown as a (an):
extraordinary item.
part of discontinued operations.
unusual gain or loss.
prior period adjustment.

part of discontinued operations.

Extraordinary items must be both unusual in nature and infrequent in occurrence.
True
False

true

Earnings per share (EPS) is calculated using the weighted average number of shares of both common and preferred stock outstanding.
True
False

false

Earnings management generally makes income statement information more useful for predicting future earnings and cash flows.
True/False

false

Companies report the results of operations of a component of a business that will be disposed of separately from continuing operations.
True/False

true

Gains or losses from exchange or translation of foreign currencies are reported as extraordinary items.
true/false

false

Intraperiod tax allocation relates the income tax expense of the period to the specific items that give rise to the amount of the tax provision.
True/False

true

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles?
(a) On the face of the statement of retained earnings (or, statement of stockholders' equity).
(b) In the footnotes to the financial statements.
(c) On the face of the income statement.
(d) Either (a) or (c).

(c) On the face of the income statement.

Which of the following is an example of managing earnings up?
Underestimating warranty claims.
Decreasing estimated salvage value of equipment.
Writing off obsolete inventory.
Accruing a contingent liability for an ongoing lawsuit.

Underestimating warranty claims.

Which of the following is an example of managing earnings down?
Changing estimated bad debts from 3 percent to 2.5 percent of sales.
Reducing research and development expenditures.
Revising the estimated life of equipment from 10 years to 8 years.
Not writing off obsolete inventory.

Revising the estimated life of equipment from 10 years to 8 years.

Earnings per share is computed as net income:
minus preferred dividends divided by the ending common shares outstanding.
minus preferred dividends divided by the weighted average of common shares outstanding.
divided by the weighted average of common shares outstanding.
dividing by ending common shares outstanding.

minus preferred dividends divided by the weighted average of common shares outstanding.

Bonds are valued using present value-based measurements.
True/False

true

All of the following variables are fundamental to solving interest problems except the:
All of the options are fundamental variables.
present value.
future value.
number of time periods.

All of the options are fundamental variables.

Present value is
the value now of a future amount.
the amount that must be invested now to produce a known future value.
always smaller than the future value.
all of these.

all of these.

An annuity in which the rents begin after a specified number of periods is a (an):
future annuity.
annuity due.
deferred annuity.
ordinary annuity.

deferred annuity.

The time value of money refers to the fact that a dollar received today is worth less than a dollar promised at some time in the future.
True/False

false

If the compounding period is less than one year, the annual interest rate must be converted to the compounding period interest rate by dividing the annual rate by the number of compounding periods per year.
True/false

true

What best describes the time value of money?
Accounts receivable that are determined uncollectible.
The interest rate charged on a loan.
An investment in a checking account.
The relationship between time and money.

The relationship between time and money.

At the date of issue, bond buyers determine the present value of the bonds' cash flows using the market interest rate.
True/False

true

What is NOT a variable that is considered in interest computations?
Interest rate.
Assets.
Time.
Principal.

Assets.

Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals.
True/false

true

Compound interest uses the accumulated balance at each year end to compute interest in the succeeding year.
True/False

true

Accounting topics where present value-based accounting measurements are relevant include all of the following except
long-term assets.
stockholders' equity.
sinking funds.
leases.

stockholders' equity.

Research and development costs:
should be charged to expense when incurred.
usually are small in dollar amount.
are intangible assets.
include periodic alternatives to existing products.

should be charged to expense when incurred.

Which of the following is not a characteristic of intangible assets?
They lack physical existence.
They are long-term in nature
They are all subject to amortization.
They are not financial instruments.

They are all subject to amortization.

When a new company is acquired, which of these intangible assets, unrecorded on the acquired company's books, might be recorded in addition to goodwill?
A brand name.
A patent.
A customer list.
All of the above.

All of the above.

Purchased goodwill should
be written off as soon as possible as an extraordinary item.
be written off by systematic charges as a regular operating expense over the period benefited.
be written off as soon as possible against retained earnings.
not be amortized.

not be amortized.

The reason goodwill is sometimes referred to as a master valuation account is because
it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business.
the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation.
it represents the purchase price of a business that is about to be sold.
it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value.

it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business.

Companies should test indefinite life intangible assets at least annually for:
recoverability.
impairment.
estimated useful life.
amortization.

impairment.

Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.
True/False

false

If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.
True/false

false

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