Question 1

The principle of consistency means that:
A) the accounting methods used by an entity never change.
B) the same accounting methods are used by all firms in an industry.
C) the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.
D)there are no alternative methods of accounting for the same transaction.

Accepted Answer

The principle of consistency means that an entity should use the same accounting methods and principles from period to period for similar transactions. However, if a change in accounting methods is made, the effect of the change must be disclosed in the financial statements or notes to the financial statements. Therefore, choice C is correct because it accurately reflects the principle of consistency. Choices A, B, and D are not correct because they do not fully explain the principle of consistency.

Question 2

Which of the following is not a limitation of financial statements?
A) Financial statements report quantitative economic information; they do not reflect qualitative economic variables.
B) The cost principle requires assets to be recorded at their original cost; thus, the balance sheet does not generally reflect the fair values of most assets and liabilities.
C) Net income from the income statement is added to the Retained Earnings account balance in the balance sheet.
D)Estimates are used in many areas of accounting; when the estimate is made, about the only fact known is that the estimate is probably not equal to the "true" amount.

Accepted Answer

This statement is not a limitation of financial statements, but rather a concept or principle of accounting. The addition of net income to the Retained Earnings account balance in the balance sheet is a standard accounting procedure. A limitation of financial statements is a factor that restricts or hinders their usefulness, such as the fact that financial statements do not reflect qualitative economic variables or that estimates may not be completely accurate.

Question 3

Which of the following accounting methods accomplishes much of the matching of revenues and expenses?
A) Match accounting.
B) Cash accounting.
C) Accrual accounting.
D)Full disclosure accounting.

Accepted Answer

Accrual accounting is the method that accomplishes much of the matching of revenues and expenses because it recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid. This allows for a more accurate representation of a company's financial performance and helps ensure that revenues and expenses are matched in the same accounting period. On the other hand, cash accounting only recognizes revenues and expenses when cash is received or paid, which can lead to a mismatch of revenues and expenses. Match accounting and full disclosure accounting are not generally recognized accounting methods.

Question 4

Accrual accounting:
A) is designed to match revenues and expenses.
B) results in the balance sheet showing the fair value of the entity's assets.
C) means that expenses are recorded when they are paid.
D)cannot result in the entity having net income unless cash is received from customers.

Accepted Answer

Accrual accounting is based on the matching principle, which means that revenues and expenses are recognized in the period they are earned or incurred, regardless of when cash is received or paid. This ensures that financial statements accurately reflect the entity's financial performance and position. Option B is incorrect because the balance sheet shows the historical cost of assets, not their fair value. Option C is incorrect because expenses may be incurred but not yet paid, and they should still be recognized under accrual accounting. Option D is incorrect because net income can be generated from non-cash transactions, such as depreciation expense or accruals.

Question 5

Consolidated financial statements report financial position, results of operations, and cash flows for:
A) a parent corporation and its subsidiaries.
B) a parent corporation alone.
C) two corporations that are owned by the same individual.
D)a parent corporation and its 100% owned subsidiaries only.

Accepted Answer

Consolidated financial statements report the financial position, results of operations, and cash flows of a parent corporation and its subsidiaries as a single entity. Therefore, option A is the correct answer. The other options do not meet the criteria for consolidated financial statements.

Question 6

The Statement of Cash Flows:
A) shows how cash changed during the period.
B) is an optional financial statement.
C) shows the change in the fair value of the entity's common stock during the period.
D)shows the dividends that will be paid in the future.

Accepted Answer

The Statement of Cash Flows shows how cash changed during the period by categorizing cash inflows and outflows into operating, investing, and financing activities. It is a required financial statement, not optional. It does not show the change in fair value of common stock or future dividends.

Question 7

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Liabilities at the end of the year totaled:
A) $980
B) $1,056
C) $1,672
D)$1,820

Accepted Answer

The answer of At the beginning of the fiscal year,...

Question 8

The balance sheet of an entity:
A) shows the fair value of the assets at the date of the balance sheet.
B) reflects the impact of inflation on the replacement cost of the assets.
C) reports plant and equipment at its opportunity cost.
D)shows amounts that are not adjusted for changes in the purchasing power of the dollar.

Accepted Answer

The balance sheet reports the assets at their historical cost, which means it does not reflect changes in the purchasing power of the dollar. Therefore, the answer is D.

Question 9

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Total stockholders' equity at the end of the year was:
A) $164
B) $188
C) $212
D)$316

Accepted Answer

The answer of At the beginning of the year, paid-in...

Question 10

The principle of full disclosure pertains to:
A) The entity fully discloses all client data.
B) The entity fully discloses all proprietary information.
C) The entity fully discloses all necessary information to prevent a reasonably astute user of financial statements from being misled.
D)The entity fully discloses all necessary information to prevent all users of financial statements from being misled.
E) All of the above.

Accepted Answer

The principle of full disclosure refers to the idea that an entity should fully disclose all necessary information to prevent a reasonably astute user of financial statements from being misled. This does not necessarily mean that all client data or proprietary information must be disclosed. The main goal is to ensure that financial statements provide a complete and accurate representation of a company's financial situation.

Question 11

Matching revenues and expenses refers to:
A) having revenues equal expenses.
B) recording revenues when cash is received.
C) accurately reflecting the results of operations for a fiscal period.
D)recording revenues when a product is sold or a service is rendered.

Accepted Answer

The answer of Matching revenues and expenses refers to:
A) having...

Question 12

The going concern concept refers to a presumption that:
A) the entity will be profitable in the coming year.
B) the entity will not be involved in a merger within a year.
C) the entity will continue to operate in the foreseeable future.
D)top management of the entity will not change in the coming year.

Accepted Answer

The going concern concept assumes that the entity has the ability to continue its operations in the foreseeable future without the need to liquidate assets or seek bankruptcy protection. This assumption is important in financial reporting as it influences the valuation of assets and liabilities, and the determination of profits or losses.

Question 13

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Stockholders' equity at the end of the year totaled:
A) $1,672
B) $1,744
C) $1,896
D)$2,876

Accepted Answer

The answer of At the beginning of the fiscal year,...

Question 14

Which of the following is not included in a corporation's annual report?
A) The reporting firm's financial statements for the fiscal year.
B) The report of the external auditor's examination of the financial statements.
C) Notes to the financial statements and key financial data for at least the past five years.
D)A detailed Management's Discussion and Analysis section.
E) All of the above are included in a corporation's annual report.

Accepted Answer

All of the options listed (A-D) are typically included in a corporation's annual report. Therefore, E - "All of the above are included in a corporation's annual report" - is the correct choice.

Question 15

On January 31, an entity's balance sheet showed total assets of $2,250 and liabilities of $750. Stockholders' equity at January 31 was:
A) $1,500
B) $3,000
C) $1,250
D)$750

Accepted Answer

The answer of On January 31, an entity's balance sheet...

Question 16

On January 31, an entity's balance sheet showed net assets of $3,075 and liabilities of $675. Stockholders' equity on January 31 was:
A) $2,400
B) $3,075
C) $3,750
D)$675

Accepted Answer

The answer of On January 31, an entity's balance sheet...

Question 17

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Net income for the year was:
A) $20
B) $22
C) $30
D)$40

Accepted Answer

The answer of At the beginning of the year, paid-in...

Question 18

At the end of the year, retained earnings totaled $5,100. During the year, net income was $750, and dividends of $360 were declared and paid. Retained earnings at the beginning of the year totaled:
A) $6,210
B) $3,990
C) $3,690
D)$4,710

Accepted Answer

The answer of At the end of the year, retained...

Question 19

Which of the following is not a limitation of financial statements?
A) It is possible that two firms operating in the same industry may follow different accounting methods for the exact same transaction.
B) Full disclosure requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled.
C) Financial statements are not adjusted to show the impact of inflation.
D)Financial statements do not reflect opportunity cost, which is an economic concept relating to income forgone because an opportunity to earn income was not pursued.

Accepted Answer

Full disclosure is actually a requirement of financial statements, so it is not a limitation. The other options are all limitations of financial statements.

Question 20

A concept or principle that relates to transactions is:
A) materiality.
B) full disclosure.
C) original cost.
D)consistency.

Accepted Answer

The answer of A concept or principle that relates to...

Quiz 2: Financial Statements and Accounting Conceptsprinciples

The principle of consistency means that:

Which of the following is not a limitation of financial statements?

Which of the following accounting methods accomplishes much of the matching of revenues and expenses?

Accrual accounting:

Consolidated financial statements report financial position, results of operations, and cash flows for:

The Statement of Cash Flows:

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Liabilities at the end of the year totaled:

The balance sheet of an entity:

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Total stockholders' equity at the end of the year was:

The principle of full disclosure pertains to:

Matching revenues and expenses refers to:

The going concern concept refers to a presumption that:

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Stockholders' equity at the end of the year totaled:

Which of the following is not included in a corporation's annual report?

On January 31, an entity's balance sheet showed total assets of $2,250 and liabilities of $750. Stockholders' equity at January 31 was:

On January 31, an entity's balance sheet showed net assets of $3,075 and liabilities of $675. Stockholders' equity on January 31 was:

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Net income for the year was:

At the end of the year, retained earnings totaled $5,100. During the year, net income was $750, and dividends of $360 were declared and paid. Retained earnings at the beginning of the year totaled:

Which of the following is not a limitation of financial statements?

A concept or principle that relates to transactions is: