Deck 4: Accounting Principles and End-Of-Period Adjustments

Question 1

Assets and liabilities should not be offset except when offsetting is specifically required or permitted by an accounting standard.

Answer 1

True

Question 2

Which of the following fixed assets is not subject to downward value adjustments?

A) Building
B) Equipment
C) Land
D) Office furniture

Answer 2

C

Question 3

Where there is modest inflation,accounting assumes that the purchasing power of the monetary unit is:

A) Stable.
B) Decreasing.
C) Increasing.
D) None of these.

Answer 3

A

Question 4

A 'contra asset' account is listed in the balance sheet on the assets side but with a negative (credit)balance.

Question 5

How often are firms generally required to report their financial position?

A) Quarterly
B) Yearly
C) Monthly
D) Half-yearly

Question 6

Using historical cost,at what time are assets recorded at the amount of cash or cash equivalents paid,or the fair value of the consideration given to acquire them?

A) Time of their designing
B) Time of their depreciation
C) Time of their acquisition
D) Time of their disposal

Question 7

The IASB (IAS 16)defines fixed or tangible assets as assets held by an entity for which purpose(s)?

A) Use in the production or supply of goods or services
B) Administrative purposes
C) Rental to others
D) All of these

Question 8

Using replacement cost,at what time are liabilities carried at the undiscounted amount of cash,or cash equivalents,that would be required to settle the obligation?

A) Before the end of the accounting period
B) In a near future
C) Within 12 months
D) Right now

Question 9

A business has two bank accounts: one has a positive balance of 50 CU and the second has a negative balance of 70 CU.What should be reported in the balance sheet?

A) A net negative balance of 20 CU on the assets side.
B) A net negative balance of 20 CU on the liabilities side.
C) A balance of 70 CU on the assets side and a balance of 50 CU on the liabilities side.
D) A balance of 50 CU on the assets side and a balance of 70 CU on the liabilities side.

Question 10

Why is a physical inventory of existing fixed assets carried out on a regular basis?

A) To check that the assets are used in more than one period.
B) To check that the assets do physically exist.
C) To check that the assets are properly depreciated.
D) None of these.

Question 11

What are the four critical requirements or constraints which information users place on accounting?

A) Objectivity,Prudence,Accuracy,Periodicity
B) Objectivity,Prudence,Quality of information,Timeliness
C) Subjectivity,Prudence,Quality of information,Periodicity
D) Objectivity,Prudence,Quality of information,Periodicity

Question 12

The going concern principle is a key reason for valuing assets and resources or liabilities at their historical costs rather than at their ____ value.

A) Replacement
B) Present
C) Liquidation
D) Discounted

Question 13

What effect does the adjusting entry recognizing interest expense have on the basic accounting equation?

A) Increase in assets,increase in liabilities
B) Increase in liabilities,decrease in shareholders' equity
C) Decrease in assets,decrease in liabilities
D) Decrease in liabilities,increase in shareholders' equity

Question 14

If the resale price of an item in inventory decreases below its acquisition or manufacturing cost,when should the loss in value be recognized?

A) Immediately
B) When the item is replaced
C) When the item is sold
D) None of these

Question 15

Which of the following is an example of an adjusting entry?

A) The payment of wages which have been accrued
B) The collection of an accounts receivable
C) The return of defective inventory
D) The accrual of interest expense

Question 16

The accrual principle consists in recognizing or recording an event when the cash transactions it induces have been completed.

Question 17

Financial accounting only records transactions expressed in financial units.

Question 18

There is an officially recognized and generally accepted definition of 'true and fair' as it applies to financial statements.

Question 19

Why is it necessary to know the income generated by the managers' decisions and actions?

A) In order to know the performance potential of the firm and evaluate the quality of the management and of their decisions as agents of the shareholders.
B) In order to provide a basis for the state to levy taxes based on income.
C) In order to share the income between partners or shareholders.
D) All of these

Question 20

Which measurement basis should be used to prepare the financial statements when a business is liquidated?

A) Historical cost
B) Realizable value
C) Replacement cost
D) Present value

Question 21

When an error is uncovered,the most common solution is to cancel the erroneous entry by means of:

A) A 'reversing entry'.
B) An 'upturned entry'.
C) An 'opposite entry'.
D) None of these