MIDTERM EXAMINATION

Name Student Number

Professor Name Date of Examination
Section SET A

I. True or False 10. The historical cost principle would be

1. The primary responsibility for properly of limited usefulness if not for the
applying accounting standards when going concern assumption. T
communicating with investors and 11. Revenues, gains, and distributions to
creditors through financial statements lies
owners all increase equity.F
with a firm's auditors. F
12. The idea of consistency does not
2. The IASB's conceptual framework
provides accounting guidance when more mean that companies cannot switch
specific accounting standards are not from one accounting method to
applicable.. T another. T
3. Assets classified as property, plant, and 13. Relevance and faithful representation
equipment include machinery, equipment, are the two primary qualities that
and inventories. F make accounting information useful
4. Accrued salaries and wages in a statement for decision making T
of financial position represent salaries and
14. Users of financial statements are
wages that have been earned by
employees but not yet paid. T assumed to need no knowledge of
5. Accounting standards are now less business and financial accounting
likely to require the recording or matters to understand information
disclosure of fair value information. F contained in financial statements. F
6. Financial Accounting Concepts set 15. The first level of the conceptual
forth fundamental objectives and framework identifies the recognition,
concepts that are used in developing measurement, and disclosure
future standards of financial concepts used in establishing
accounting and reporting. T accounting standards. F
7. Users of financial accounting 16. On June 1, Lucy & Bros received an
statements have both coinciding and order for 500 cupcakes. Lucy
conflicting needs for information of delivered the cupcakes to the client
various types. T on June 25. A $50 deposit was
8. Timeliness and neutrality are two received on June 5 and the remaining
ingredients of relevance. F $450 was paid on June 30. Lucy likely
9. The expense recognition principle would recognize revenue on June 30.
states that debits must equal credits F
in each transaction. F 17. Financial accounting emphasizes
special purpose information based on
presumption that significant numbers a. Information that is
of users need similar information F measured and reported
18. Prudence or conservatism means in a similar fashion
when in doubt, choose the solution across points in time
that will be least likely to overstate b. Information is timely
liabilities or expenses. F c. Information is measured
19. Land held for speculation is reported similarly across the
in the property, plant, and equipment industry
section of the balance sheet. F d. Information is verifiable
20. Companies frequently describe the 24. Which of the following is an
terms of all long-term liability ingredient of faithful
agreements in notes to the financial representation?
statements. T a. Predictive value
b. Materiality
c. Neutrality.
II. Multiple Choice: Shade the circle d. Confirmatory value
of the letter of your 25. Changing the method of
corresponding answer inventory valuation should be
21. Which of the following is a reported in the financial
primary characteristic of useful statements under what
accounting information? qualitative characteristic of
a. Conservatism accounting information?
b. Comparability a. Consistency.
c. Faithful representation b. Verifiability.
d. Consistency c. Timeliness.
22. What is meant by comparability d. Comparability
when discussing financial 26. Company A issuing its annual
accounting information? financial reports within one
a. Information has month of the end of the year is an
predictive or example of which ingredient of
confirmatory value fundamental quality of
b. Information is reasonably accounting information?
free from error a. Neutrality.
c. Information that is b. Timeliness
measured and reported c. Predictive value
in a similar fashion d. Completeness
across companies 27. Accounting information is
d. Information is timely. considered to be relevant when it
23. What is meant by consistency a. can be depended on to
when discussing financial represent the economic
accounting information? conditions and events
that it is intended to c. a company fails to adjust
represent its financial statements
b. is capable of making a for changes in the value
difference in a decision of the measuring unit
c. is understandable by d. none of these
reasonably informed 31. Financial information exhibits the
users of accounting characteristic of consistency
information when
d. s verifiable and neutral. a. expenses are reported as
28. The quality of information that charges against revenue
means the numbers and in the period in which
descriptions match what really they are paid
existed or happened is b. companies apply the
a. Relevance same accounting
b. faithful representation treatment to similar
c. completeness events, from period to
d. neutrality. period.
29. Neutrality means that c. extraordinary gains and
information losses are not included on
a. provides benefits which the income statement
are at least equal to the d. accounting procedures
costs of its preparation are adopted which give a
b. can be compared with consistent rate of net
similar information about income
an enterprise at other 32. In classifying the elements of
points in time financial statements, the primary
c. would have no impact on distinction between revenues and
a decision maker gains is
d. cannot favor one set of a. the materiality of the
interested parties over amounts involved
another. b. the likelihood that the
30. Financial information does not transactions involved will
demonstrate consistency when recur in the future
a. firms in the same industry c. the nature of the
use different accounting activities that gave rise
methods to account for to the transactions
the same type of involved.
transaction d. the costs versus the
b. a company changes its benefits of the alternative
estimate of the salvage methods of disclosing the
value of a fixed asset transactions involved.
33. According to the FASB conceptual d. auditing
framework, which of the 37. Which of the following is a
following elements describes general limitation of "general
transactions or events that affect purpose financial statements"?
a company during a period of a. General purpose
time? financial statements may
a. Assets not be the most
b. Expenses informative for a specific
c. Equity. enterprise
d. Liabilities b. General purpose financial
34. The economic entity assumption statements are
a. is inapplicable to comparable
unincorporated c. General purpose financial
businesses statements are assumed
b. recognizes the legal to present fairly the
aspects of business company's financial
organizations. operations.
c. requires periodic income d. None of the above.
measurement 38. The net assets of a business are
d. is applicable to all forms equal to
of business a. current assets minus
organizations. current liabilities
35. A common set of accounting b. total assets plus total
standards and procedures are liabilities
called c. total assets minus total
a. financial accounting stockholders' equity
standards d. none of these
b. generally accepted 39. The basis for classifying assets as
accounting principles current or noncurrent is
c. conceptual frameworks conversion to cash within
d. objectives of financial a. the accounting cycle or
reporting one year, whichever is
36. The process of identifying, shorter
measuring, analyzing, and b. the operating cycle or
communicating financial one year, whichever is
information needed by longer
management to plan, evaluate, c. the accounting cycle or
and control an organization’s one year, whichever is
operations is called4 longer.
a. financial accounting. d. the operating cycle or
b. managerial accounting one year, whichever is
c. tax accounting shorter.
40. The basis for classifying assets as b. Stock dividends
current or noncurrent is the distributable
period of time normally required c. The currently maturing
by the accounting entity to portion of long-term debt
convert cash invested in d. Trade accounts payable
a. inventory back into cash, 44. Long-term liabilities include
or 12 months, whichever a. obligations not expected
is shorter to be liquidated within
b. receivables back into the operating cycle
cash, or 12 months, b. obligations payable at
whichever is longer some date beyond the
c. tangible fixed assets back operating cycle
into cash, or 12 months, c. deferred income taxes
whichever is longer and most lease
d. inventory back into cash, obligations
or 12 months, whichever d. all of these.
is longer. 45. Preparation of consolidated
41. The current assets section of the financial statements when a
balance sheet should include parent-subsidiary relationship
a. Machinery exists is an example of the
b. Patents a. economic entity
c. Goodwill assumption
d. Inventory b. relevance characteristic
42. Which of the following is a c. comparability
current asset? characteristic
a. Cash surrender value of a d. neutrality characteristic
life insurance policy of 46. What accounting concept justifies
which the company is the the usage of depreciation and
bene ficiary amortization policies?
b. Investment in equity a. Going concern
securities for the purpose assumption
of controlling the issuing b. Fair value principle
company c. Full disclosure principle
c. Cash designated for the d. Monetary unit
purchase of tangible fixed assumption
assets 47. The assumption that a company
d. Trade installment will not be sold or liquidated in
receivables normally the near future is known as the
collectible in 18 months a. economic entity
43. Which item below is not a current assumption
liability? b. monetary unit
a. Unearned revenue assumption
c. periodicity assumption accomplishments
d. none of these (revenue)
48. Revenue is generally recognized b. Systematic and rational
when realized or realizable and allocation of cost over
earned. This statement describes the periods benefited
the c. Immediate recognition of
a. consistency an expense
characteristic. d. Minimization of income
b. expense recognition tax liability
principle 52. When is revenue generally
c. revenue recognition recognized?
principle a. When cash is received.
d. relevance characteristic b. When the warranty
49. Revenue generally should be expires
recognized c. When production is
a. at the end of production completed.
b. at the time of cash d. When the sale occurs.
collection 53. Which of the following is not a
c. when realized required component of financial
d. when realized or statements prepared in
realizable and earned accordance with generally
50. The accounting principle of accepted accounting principles?
expense recognition is best a. President's letter to
demonstrated by shareholders
a. not recognizing any b. Balance sheet.
expense unless some c. Income statement
revenue is realized. d. Notes to financial
b. associating effort statements.
(expense) with 54. When should an expenditure be
accomplishment recorded as an asset rather than
(revenue) an expense?
c. recognizing prepaid rent a. Never
received as revenue b. Always
d. establishing an c. If the amount is material
Appropriation for d. When future benefit
Contingencies account exits.
51. Which of the following serves as 55. Which accounting assumption or
the justification for the periodic principle is being violated if a
recording of depreciation company reports its corporate
expense? headquarter building at its fair
a. Association of efforts value on the balance sheet?
(expense) with a. Going concern
b. Monetary unit financial statements at regular
c. Historical cost artificial points in time
d. Full disclosure. a. Accounting entity
56. The basic accounting concept that b. Going concern
refers to the tendency of c. Accounting period
accountants to resolve d. Stable monetary unit
uncertainty in favor of 60. The communicating process of
understating assets and revenues accounting includes all of the
and overstating liabilities and following except
expenses is known as a. Recording
a. prudence or b. Classifying
conservatism c. Summarizing
b. the materiality constraint. d. Interpreting
c. the substance over form
principle
d. the industry practices
constrain
57. Trade-offs between the
characteristics that make
information useful may be
necessary or beneficial. Issuance
of interim financial statements is
an example of a trade-off
between
a. relevance and faithful
representation
b. faithful representation
and periodicity
c. timeliness and
materiality.
d. understandability and
timeliness
58. The relatively stable economic,
political and social environment
supports
a. Conservatism
b. Materiality
c. Timeliness
d. Going Concern
59. Which underlying assumption
serves as the basis for preparing