Question 1

Congress passed the Sarbanes-Oxley Act to
A)Provide jobs to U.S.accountants and limit the number of jobs sent outside the country
B)Impose penalties on CEO's and CFO's who knowingly sign off on bogus accounting reports,although at this time the penalties are token amounts
C)Help curb financial abuses at companies that issue their stock to the public
D)Force auditors to attest to the absolute accuracy of the financial statements
E)Require that all companies publicly disclose their internal control plans

Accepted Answer

The Sarbanes-Oxley Act was passed in response to financial abuses at companies that issued their stock to the public, such as Enron and WorldCom. It was designed to improve financial reporting and curb fraudulent accounting practices in public companies. The act includes provisions for financial disclosures, internal control reporting, and penalties for fraudulent accounting practices. It does not specifically aim to provide jobs for accountants, impose token penalties, force auditors to attest to the absolute accuracy of financial statements, or require all companies to publicly disclose their internal control plans.

Question 2

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 6 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 requires that assets should be recorded at their historical cost, which is the amount paid to acquire or produce them. In this case, Maximum Experience acquired the building for $500,000, which is the historical cost of the asset. Even though the building may have increased in value since it was purchased, the cost principle dictates that it should be recorded at its original cost.

Question 3

Planning activities:
A)Are the means organizations must use to pay for resources
B)Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services
C)Involve defining the ideas,goals and actions of an organization
D)Are the carrying out of an organization's plans
E)Involve using resources to research,develop,purchase,produce and market products and services

Accepted Answer

The answer of Planning activities:
A)Are the means organizations must use...

Question 4

Marian Mosely is the owner of Mosely Accounting Services.Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?
A)Monetary unit assumption
B)Going-concern assumption
C)Cost assumption
D)Business entity assumption
E)None of these.Since Marian is a sole proprietor,she is not required to separate her personal financial information from the financial information of Mosely Accounting Services

Accepted Answer

The business entity assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services. As a sole proprietor, the business and the owner are considered as separate entities for accounting purposes.

Question 5

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 is also known as historical cost principle, which requires companies to record assets at their original cost when they were acquired, regardless of changes in market value over time. This principle helps ensure consistency and objectivity in financial statements.

Question 6

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

Accepted Answer

The Monetary unit principle requires that all items on financial statements be expressed in a common unit of currency, typically the currency of the country in which the company operates. This ensures that financial statements are easily understood and comparable.

Question 7

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

The business entity principle states that the business's financial transactions should be kept separate from its owner's personal transactions. This means that the personal assets and transactions of the owner should not be included in the business's records and reports, as it would violate the principle of business entity. The other principles listed are not directly related to this scenario.

Question 8

A limited partnership:
A)Includes a general partner with unlimited liability
B)Is subject to double taxation
C)Has owners called stockholders
D)Is the same as a corporation
E)Must only have two partners

Accepted Answer

A limited partnership includes one or more general partners who have unlimited liability for the debts and obligations of the partnership, and one or more limited partners who have limited liability but cannot participate in the management of the partnership.

Question 9

The amounts reported in the accounts for assets used in operations are based on their costs.This practice is best justified by the:
A)Cost principle
B)Going-concern principle
C)Objectivity principle
D)Business entity principle
E)Revenue recognition principle

Accepted Answer

The cost principle requires that assets be recorded at their historical cost, which is the amount paid to acquire them. This is the most reliable measure for the value of an asset and is therefore the best justification for reporting assets at cost. The going-concern principle relates to the assumption that the entity will continue to operate in the foreseeable future, while the objectivity principle requires that accounting information be supported by objective evidence. The business entity principle requires that the business be treated as a separate accounting entity from its owner(s), while the revenue recognition principle relates to the timing of when revenue should be recognized.

Question 10

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 question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the revenue recognition principle. This principle governs the timing of revenue recognition and requires that revenue be recognized when it is earned and can be measured reliably. It also provides guidelines for determining the amount of revenue to be recognized and how to allocate revenue among accounting periods.

Question 11

On December 15,2010,Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2011.Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2011 and not 2010?
A)Monetary unit principle
B)Going-concern principle
C)Cost principle
D)Business entity principle
E)Revenue recognition principle

Accepted Answer

The revenue recognition principle requires revenue to be recognized when it is earned, which typically occurs when services are performed or products are delivered. In this case, Myers Legal Services signed a contract to provide legal services in 2011, so the revenue should be recognized in 2011 when the services are provided. Therefore, the legal fees revenue should not be recorded in 2010.

Question 12

An example of a financing activity is:
A)Buying office supplies
B)Obtaining a long-term loan
C)Buying office equipment
D)Selling inventory
E)Buying land

Accepted Answer

Obtaining a long-term loan is a financing activity because it involves raising capital (money) which is intended for long term use. This activity is distinct from buying office supplies (operating activity), buying office equipment (investing activity), selling inventory (operating activity), or buying land (investing activity).

Question 13

A partnership:
A)Is also called a sole proprietorship
B)Has unlimited liability
C)Has to have a written agreement in order to be legal
D)Is a legal organization separate from its owners
E)Has owners called shareholders

Accepted Answer

A partnership has unlimited liability, meaning the owners (called partners) are personally responsible for all debts and obligations of the business. This is in contrast to a corporation, which has limited liability protection for its shareholders.

Question 14

According to generally accepted accounting principles,a company's balance sheet should show the company's assets at:
A)The cash equivalent value of what was given up
B)The current market value of the assets at the balance sheet date
C)The cash paid to acquire them,even if something other than cash was given in the exchange
D)The best estimate from a certified internal auditor
E)The objective value to external users

Accepted Answer

The answer of According to generally accepted accounting principles,a company's...

Question 15

An example of an operating activity is:
A)Paying wages
B)Purchasing office equipment
C)Borrowing money from a bank
D)Selling stock
E)Paying off a loan

Accepted Answer

Operating activities involve the day-to-day operations of a business, such as the purchase and sale of goods and services, payment of wages and salaries, and collection of accounts receivable. Paying wages is an example of an operating activity as it is directly related to the production and sale of goods and services.

Question 16

Which of the following accounting principles would prescribe that all goods and services purchased is recorded at cost?
A)Going-concern principle
B)Continuing-concern principle
C)Cost principle
D)Business entity principle
E)Consideration principle

Accepted Answer

The cost principle states that all goods and services purchased should be recorded at their historical cost. This means that any assets purchased should be recorded at the cost paid, rather than their current market value. This principle is important for maintaining accuracy and consistency in accounting records.

Question 17

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 and what the company paid for them

Accepted Answer

The objectivity principle states that information presented in financial statements should be supported by independent, unbiased evidence. This ensures that the information presented is reliable and trustworthy. Option B is incorrect because financial statements should not be based on the preparer's personal beliefs or opinions. Option C is incorrect because financial statements should be neutral, not optimistic or pessimistic. Option D is incorrect because revenue recognition is governed by its own principles, and the objectivity principle applies to all financial statement information. Option E is incorrect as it refers to the cost principle rather than the objectivity principle.

Question 18

Revenue is properly recognized:
A)When the customer's order is received
B)Only if the transaction creates an account receivable
C)At the end of the accounting period
D)Upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price
E)When cash from a sale is received

Accepted Answer

Revenue is recognized when the business completes the sale or performs the services and obtains the right to collect the sale price. This is known as the "realization principle" in accounting, which states that revenue should be recognized when it is earned, regardless of when payment is received. Therefore, revenue cannot be recognized at the time of order receipt or at the end of the accounting period, since it does not necessarily coincide with the completion of the sale or service. Similarly, revenue cannot be recognized only if an account receivable is created, as some transactions may not involve a credit sale. Cash receipt is also not a necessary condition for revenue recognition, as some sales may be made on credit or involve delayed payment terms.

Question 19

The principle that (1)requires revenue to be recognized at the time it is earned, (2)allows the inflow of assets associated with revenue to be in a form other than cash and (3)measures the amount of revenue as the cash plus the cash equivalent value of any non-cash 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 revenue recognition principle states that revenue should be recognized when it is earned, regardless of when cash is received. It also allows for revenue to be recognized when assets other than cash are received in exchange for goods or services. This principle is a fundamental concept in accounting and is critical to accurately reflecting a company's financial performance.

Question 20

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 a universal set of accounting standards that can be applied across different countries to create harmony among accounting practices.

Quiz 1: Introducing Accounting in Business

Congress passed the Sarbanes-Oxley Act to

Planning activities:

Marian Mosely is the owner of Mosely Accounting Services.Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?

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:

Recording the items on the financial statements in dollars is:

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 limited partnership:

The amounts reported in the accounts for assets used in operations are based on their costs.This practice is best justified by the:

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

On December 15,2010,Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2011.Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2011 and not 2010?

An example of a financing activity is:

A partnership:

According to generally accepted accounting principles,a company's balance sheet should show the company's assets at:

An example of an operating activity is:

Which of the following accounting principles would prescribe that all goods and services purchased is recorded at cost?

The objectivity principle:

Revenue is properly recognized:

The International Accounting Standards Board (IASB)