Question 1

Which of the following elements are found on the balance sheet?
A) Service revenue
B) Net income
C) Operating activities
D) Utilities expense
E) Retained earnings

Accepted Answer

Retained earnings are found on the balance sheet as they represent the accumulated earnings that have not been distributed as dividends. The other options are not found on the balance sheet. Service revenue and utilities expense are found on the income statement, net income is calculated by subtracting expenses from revenues on the income statement, and operating activities are typically found in the statement of cash flows.

Question 2

The objectivity principle:
A) Means that information is supported by independent, unbiased evidence.
B) Means that information can be based on what the preparer thinks is true.
C) Means that financial statement should contain information that is optimistic.
D) Means that a business may not recognize revenue until cash is received.
E) Means the assets acquired must be recorded at what the company paid for them.

Accepted Answer

The objectivity principle requires that financial information is based on independent, unbiased evidence. It is important to ensure that financial statements are not influenced by personal opinions or biases of preparers.

Question 3

Which of the following statements best describes the relationship of U.S.GAAP and IFRS?
A) They are identical.
B) They are entirely different conceptual frameworks.
C) They are similar but not identical.
D) Neither has anything to do with accounting.
E) They both relate only to publicly traded companies.

Accepted Answer

U.S.GAAP and IFRS are similar but not identical. While they share many similarities, there are also some key differences between the two sets of accounting standards, such as the treatment of certain items like leases and inventory. Many countries around the world have adopted or are in the process of transitioning to IFRS, while the United States still primarily uses U.S.GAAP.

Question 4

Social responsibility:
A) Is a concern for the impact of one's actions on society as a whole.
B) Is a code that helps in dealing with confidential information.
C) Is required by the SEC.
D) Requires that all businesses conduct social audits.
E) Is mandated by the federal government.

Accepted Answer

Social responsibility refers to the obligation of individuals and organizations to consider the impact of their actions on society as a whole. It involves acting in a way that not only benefits oneself, but also takes into account the well-being of others and the environment. While there may be laws and regulations that require certain actions, social responsibility goes beyond legal compliance and is a voluntary commitment to doing what is right for society.

Question 5

Recording the items on the financial statements in dollars is done because of the:
A) Objectivity principle
B) Monetary unit principle
C) Revenue recognition principle
D) Going-concern principle
E) Cost principle

Accepted Answer

The monetary unit principle states that financial transactions should be recorded in a common unit of currency. For example, in the US, financial statements are recorded in dollars. This principle allows for consistency and comparability in financial reporting.

Question 6

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:
A) Accounting equation
B) Cost principle
C) Going-concern principle
D) Realization principle
E) Business entity principle

Accepted Answer

The cost principle requires accounting information to be based on actual cost and assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange. This principle is important for ensuring accurate financial reporting and preventing misrepresentation of financial information.

Question 7

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold,unless evidence shows that it will not continue,is the:
A) Going-concern principle
B) Business entity principle
C) Objectivity principle
D) Cost principle
E) Monetary unit principle

Accepted Answer

The going-concern principle is the principle that prescribes that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue. This principle is important because it allows companies to present financial statements that are relevant and useful for decision-making purposes. It helps users of financial statements to better understand the current and future financial position of the company.

Question 8

The accounting guideline prescribing that financial statement information be supported by independent,unbiased evidence other than someone's belief or opinion is the:
A) Business entity principle
B) Monetary unit principle
C) Going-concern principle
D) Objectivity principle
E) Full disclosure principle

Accepted Answer

The principle described in the question is the objectivity principle, which requires that financial statement information be based on unbiased and factual evidence rather than subjective opinions or beliefs.

Question 9

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:
A) AICPA
B) FASB
C) CAP
D) SEC
E) IASB

Accepted Answer

The International Accounting Standards Board (IASB) is the organization responsible for developing and promoting internationally accepted accounting standards. Its goal is to create more coherence and consistency in financial reporting across different countries, through its International Financial Reporting Standards (IFRS).

Question 10

Businesses can take all of the following forms except:
A) Sole proprietorship
B) Common stock
C) Partnership
D) Corporation
E) Limited liability corporation

Accepted Answer

Common stock is not a form of business. It is a type of security that represents ownership in a corporation. Sole proprietorship, partnership, corporation, and limited liability corporation are all forms of business.

Question 11

A parcel of land is: offered for sale at $150,000,assessed for tax purposes at $95,000,recognized by its purchasers as being worth $140,000,and purchased for $137,000.The land should be recorded in the purchaser's books at:
A) $95,000
B) $137,000
C) $138,500
D) $140,000
E) $150,000

Accepted Answer

The answer of A parcel of land is: offered for...

Question 12

The private board that currently has the authority to establish U.S.generally accepted accounting principles is the:
A) APB
B) FASB
C) AAA
D) AICPA
E) SEC

Accepted Answer

The Financial Accounting Standards Board (FASB) is the private board that currently has the authority to establish U.S. generally accepted accounting principles (GAAP). The other options (APB, AAA, AICPA, SEC) either had previous involvement in establishing GAAP or have a different role in the accounting profession.

Question 13

The Maximum Experience Company acquired a building for $500,000.Maximum Experience had an appraisal done and found that the building was worth $575,000.The seller had paid $300,000 for the building six years ago.Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000?
A) Monetary unit principle
B) Going-concern principle
C) Cost principle
D) Business entity principle
E) Revenue recognition principle

Accepted Answer

The cost principle states that assets should be recorded at their historical cost, which in this case is the $500,000 that Maximum Experience paid for the building. The fact that the building's current value is $575,000 is not relevant in this case, as the cost principle focuses on the original cost of the asset.

Question 14

A corporation:
A) Is a legal entity separate and distinct from its owners.
B) Must have many owners.
C) Has shareholders who have unlimited liability for the acts of the corporation.
D) Is the same as a limited liability partnership.
E) Does not have to pay taxes.

Accepted Answer

A corporation is a legal entity that is separate from its owners, also known as shareholders. This means that the corporation can enter into contracts, buy and sell property, and sue or be sued in its own name, without involving individual shareholders.

Question 15

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:
A) Objectivity principle
B) Realization principle
C) Business entity principle
D) Going-concern principle
E) Revenue recognition principle

Accepted Answer

According to the business entity principle, the personal assets and transactions of a business owner should be kept separate from the records and reports of the business. This principle is important to maintain the integrity and accuracy of a company's financial statements, which should only reflect the financial activity of the business itself.

Question 16

Generally Accepted Accounting Principles:
A) Focus on the review of a situation.
B) Do not require financial statements.
C) Never change.
D) Intend to make information on the financial statements relevant, reliable, and comparable.
E) Oversees Security and Exchange Commission.

Accepted Answer

Generally Accepted Accounting Principles (GAAP) are a set of guidelines and standards that aim to make financial information on the statements relevant, reliable, and comparable. They provide a framework for preparing financial statements that can be understood and analyzed by investors, creditors, and other stakeholders. GAAP get updated from time to time, so they are not static and can change. The Security and Exchange Commission (SEC) does not oversee GAAP, but they require companies to follow GAAP when submitting financial statements.

Question 17

The principle that (A)requires revenue to be recognized at the time it is earned,(B)allows the inflow of assets associated with revenue to be in a form other than cash,and (C)measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is called the:
A) Going-concern principle
B) Cost principle
C) Revenue recognition principle
D) Objectivity principle
E) Business entity principle

Accepted Answer

The principle described in the question is the revenue recognition principle which requires revenue to be recognized when it is earned, even if the inflow of assets is noncash. It also measures the revenue as the cash plus the cash equivalent value of any noncash assets.

Question 18

The International Accounting Standards Board (IASB)
A) Hopes to create harmony among accounting practices of different countries.
B) Is the government group that establishes reporting requirements for companies that issue stock to the public.
C) Has the authority to impose its standards on companies
D) Is the only source of U.S. generally accepted accounting principles (GAAP).
E) Applies only to companies that are members of the European Union.

Accepted Answer

The IASB aims to create consistency and alignment between accounting standards used in different countries.

Question 19

The question of when revenue should be recognized on the income statement (according to GAAP)is addressed by the:
A) Revenue recognition principle
B) Going-concern principle
C) Objectivity principle
D) Business entity principle
E) Cost principle

Accepted Answer

The revenue recognition principle provides guidance on when revenue should be recognized on the income statement according to GAAP. It states that revenue should be recognized when it is earned and realized or realizable, and when the control of the goods or services has been transferred to the customer.

Question 20

Ethical behavior requires:
A) That an auditor's pay not depend on the figures in the client's reports.
B) Auditors to invest in businesses they audit.
C) Analysts to report information favorable to their companies.
D) Managers to use accounting information to benefit themselves.
E) That an auditor provides a favorable opinion.

Accepted Answer

Ethical behavior requires independence and objectivity from auditors. If an auditor's pay depends on the figures in the client's reports, then there is a conflict of interest and the auditor may not be able to provide an unbiased opinion. Therefore, it is important for an auditor's pay to not depend on the figures in the client's reports in order to maintain ethical behavior. The other choices listed would not be considered ethical behavior.

Quiz 1: Introducing Accounting in Business

Which of the following elements are found on the balance sheet?

The objectivity principle:

Which of the following statements best describes the relationship of U.S.GAAP and IFRS?

Social responsibility:

Recording the items on the financial statements in dollars is done because of the:

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:

The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold,unless evidence shows that it will not continue,is the:

The accounting guideline prescribing that financial statement information be supported by independent,unbiased evidence other than someone's belief or opinion is the:

The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:

Businesses can take all of the following forms except:

A parcel of land is: offered for sale at $150,000,assessed for tax purposes at $95,000,recognized by its purchasers as being worth $140,000,and purchased for $137,000.The land should be recorded in the purchaser's books at:

The private board that currently has the authority to establish U.S.generally accepted accounting principles is the:

A corporation:

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:

Generally Accepted Accounting Principles:

The International Accounting Standards Board (IASB)

The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the:

Ethical behavior requires: