Question 1

For the FASB, one of the primary desirable characteristics of accounting information is "relevance."

Accepted Answer

A) True 
 B)False

Question 2

In accounting, the concept for whether different experts will agree on a measurement is

Accepted Answer

A)  Verifiability 
B)  Consistency 
C)  Timeliness 
D)  Materiality

Question 3

In accounting, the concept for whether information is produced quickly enough to be used in decision-making is

Accepted Answer

A)  Consistency 
B)  Representational faithfulness 
C)  Timeliness 
D)  Materiality

Question 4

The financial accounting "element" that best describes a loan payable to a bank is

Accepted Answer

A)  Assets 
B)  Liability 
C)  Equity 
D)  Expense 
E)  Revenue

Question 5

The financial accounting element that best describes a payment of rental expense for the company's offices for the operations during the year is

Accepted Answer

A)  Assets 
B)  Liability 
C)  Distribution to owners 
D)  Expense 
E)  Revenue

Question 6

Assume that a magazine publishing company collects $120 from a customer for a 12-month subscription, but has not yet sent out any magazines when the accounting period ends. Under accrual accounting, at the time this money is collected, the books should reflect

Accepted Answer

A)  A liability of $120 and a revenue of $120 
B)  Cash of $120 and an expense of $120 
C)  Nothing, since no magazines have yet been mailed 
D)  A liability of $120 and cash of $120

Question 7

The Rachel Corp. provides consulting services. One of its customers paid it $6,000 on December 1, 2016 for services in both December 2016 and January 2017. Rachel Corp originally recorded the receipt of this money as an increase in cash and as an increase in deferred revenues. What adjustment is required on December 31, 2016?

Accepted Answer

A)  No adjustment is needed 
B)  An increase in cash of $3,000 and an increase in equity of $3,000 (there would be $3,000 of revenue) 
C)  A decrease in deferred revenues of $3,000 and an increase in equity of $3,000 (There would be $3,000 of revenues) 
D)  An increase of deferred revenues of $3,000 and an increase in revenues and equity of $3,000.

Question 8

According to the FASB, it is desirable for companies who are uncertain of exactly what their assets are worth to report them

Accepted Answer

A)  "Conservatively," at values somewhat lower than they expect them to be worth 
B)  ""Neutrally," at the most likely estimate of what the assets are worth 
C)  "Aggressively," at values somewhat higher than they expect them to be worth 
D)  At zero value

Question 9

The amount of cash a company spends to buy a new factory is best described as which type of cash flow?

Accepted Answer

A)  Operating 
B)  Investing 
C)  Financing 
D)  Not a cash flow

Question 10

All of the following items are expenses except

Accepted Answer

A)  Inventory 
B)  Rent expense 
C)  Income tax expense 
D)  Cost of goods sold

Question 11

Jaycox Company received $1,000 cash from the issue of stock on January 1, 2016. During 2015 the Jaycox Company earned $3,500 of revenue on account. The company collected $2,400 cash from accounts receivable and paid $3,000 cash for operating expenses. Based on this information alone

Accepted Answer

A)  Total assets increased by $1,500 
B)  Total assets decreased by $3,500 
C)  Total assets increased by $2,400 
D)  Total assets did not change

Question 12

The Freddie Corp. pays its workers every Friday. This year, December 31 was a Wednesday. As of the end of the year, the employees had worked Monday, Tuesday, and Wednesday, and they had earned $3,000 for those three days. What adjustment, if any, is needed in this situation as of December 31?

Accepted Answer

A)  A $3,000 increase to net assets and to owners' equity (salary expense is reduced by $3,000) 
B)  A $3,000 decrease in cash, and a $3,000 decrease to owners' equity (salary expense is increased by $3,000) 
C)  A $3,000 increase in salaries payable, and a $3,000 decrease in owners' equity (salary expense is increased by $3,000) 
D)  No adjustment is needed

Question 13

The Ruth Corp. has a machine that it bought January 1, 2016, for $10,000. The machine is used in making the company's products. It expects the machine to last five years in total, and then to have zero value at the end of five years (December 31, 2020) What adjustment, if any, is needed in 2016 with regard to this machine?

Accepted Answer

A)  No adjustment is needed 
B)  An increase in accumulated depreciation of $2,000, and a reduction in equity of $2,000 (there would be $2,000 of depreciation expense.) 
C)  A reduction in total assets of $10,000, and a reduction in equity of $10,000 (there would be $10,000 of depreciation expense.) 
D)  A reduction in cash of $2,000, and a reduction in equity of $2,000 (there would be $2,000 of depreciation expense.)

Question 14

The idea that expenses should be shown in financial statements in the same period in which they help the company earn revenues is referred to as

Accepted Answer

A)  Matching 
B)  Going concern 
C)  Historical cost 
D)  Cash basis accounting

Question 15

Investments a company makes in new factories should be classified as operating cash flows on a cash flow statement.

Accepted Answer

A) True 
 B)False

Question 16

In the problem above, the cost of hiring the group's own buses is an example of a

Accepted Answer

A)  Variable cost 
B)  Fixed cost 
C)  Step cost 
D)  Mixed cost

Question 17

The financial accounting "element" that best describes a dividend paid by a company to its shareholders is

Accepted Answer

A)  Assets 
B)  Liability 
C)  Distribution to owners 
D)  Expense 
E)  Revenue

Question 18

Which of the following types of transaction will result in an accounting entry that will decrease the recorded equity of a medical insurance company?

Accepted Answer

A)  Paying cash for land 
B)  Borrowing money from a bank 
C)  Selling new shares of common stock to stockholders for cash 
D)  Salary expenses

Question 19

There is no conceptual difference in the FASB framework between revenues and gains.

Accepted Answer

A) True 
 B)False

Question 20

The Abex Corp. spent $10,000 on a one-year insurance policy, on April 1 of Year 1. How much insurance expense should be recognized by Abex in its December 31, Year 1 income statement?

Accepted Answer

A)  None 
B)  2500 
C)  5000 
D)  7500 
E)  10000

Exam 2: Selecting Your Business Structure

For the FASB, one of the primary desirable characteristics of accounting information is "relevance."

In accounting, the concept for whether different experts will agree on a measurement is

In accounting, the concept for whether information is produced quickly enough to be used in decision-making is

The financial accounting "element" that best describes a loan payable to a bank is

The financial accounting element that best describes a payment of rental expense for the company's offices for the operations during the year is

Assume that a magazine publishing company collects $120 from a customer for a 12-month subscription, but has not yet sent out any magazines when the accounting period ends. Under accrual accounting, at the time this money is collected, the books should reflect

According to the FASB, it is desirable for companies who are uncertain of exactly what their assets are worth to report them

The amount of cash a company spends to buy a new factory is best described as which type of cash flow?

All of the following items are expenses except

Jaycox Company received $1,000 cash from the issue of stock on January 1, 2016. During 2015 the Jaycox Company earned $3,500 of revenue on account. The company collected $2,400 cash from accounts receivable and paid $3,000 cash for operating expenses. Based on this information alone

The Freddie Corp. pays its workers every Friday. This year, December 31 was a Wednesday. As of the end of the year, the employees had worked Monday, Tuesday, and Wednesday, and they had earned $3,000 for those three days. What adjustment, if any, is needed in this situation as of December 31?

The idea that expenses should be shown in financial statements in the same period in which they help the company earn revenues is referred to as

Investments a company makes in new factories should be classified as operating cash flows on a cash flow statement.

In the problem above, the cost of hiring the group's own buses is an example of a

The financial accounting "element" that best describes a dividend paid by a company to its shareholders is

Which of the following types of transaction will result in an accounting entry that will decrease the recorded equity of a medical insurance company?

There is no conceptual difference in the FASB framework between revenues and gains.

The Abex Corp. spent $10,000 on a one-year insurance policy, on April 1 of Year 1. How much insurance expense should be recognized by Abex in its December 31, Year 1 income statement?