1. Accounting information is important to society because:

a. Company managers can determine the progress toward reaching personal and organizational goals

b. Investors can compare the relative worthiness of investments

c. A capitalistic economy can be more efficient through the reallocation of resources

d. All of the above

2. "Comparability" as defined by the Financial Accounting Standards Board means that:

a. The information must be verifiable, must correctly measure economic inflows and outflows, and must be free of bias in those measurements.

b. The comparison of financial information of two companies must be logically made and inferences drawn from them can be trusted to be correct. The rules of measurement must be essentially the same.

c. The comparison of two years of financial information of the same company can be made and inferences drawn from them can be trusted to be correct. The rules of measurement must be the same from one year to the next.

d. The periods compared must be stated in dollars of equal purchasing power.

3. Financial information in the 19th and early part of the 20th century can be characterized as:

a. Incomplete

b. Fraudulent

c. Misleading

d. All of the above

4. Generally Accepted Accounting Principles (GAAP):

a. are determined by a majority vote of the shareholders

b. are required to be used by all U.S. companies that are publicly traded.

c. are required to be used by all U.S. companies

d. were originally written by Congress

5. The accrual basis of accounting describes:

a. the way the statement of cash flows is prepared

b. the timing of when a binding contract is signed

c. the length of the time period in which revenues and expenses are measured

d. when revenues should be recognized as earned and expenses recognized as incurred

6. If a company provided services to customers in April for $100,000 but only received $60,000 by the end of that month, revenues would be recognized in the amount of:

a. $100,000

b. $80,000, the average of the two numbers

c. $60,000, the cash actually collected

d. $40,000, the cash to be collected in a future period

7. Which of the following transactions do NOT follow the entity concept.

a. The owner used the business checking account to pay the utility bill for his home and recorded it as a business expense.

b. The owner removed inventory of the business for his personal use and recorded it as a withdrawal

c. The owner reimbursed the business for travel that was partly for personal pleasure

d. A shareholder loaned money to the corporation for 60 days and it was recorded as a note payable

8. The historical cost principle states that:

a. assets should be reported on the balance sheet at the original price paid for the asset less any systematic depreciation

b. liabilities should be reported at the amounts borrowed regardless of payments made to satisfy the debt.

c. assets should be reported at the lowest price which that type of asset ever sold for historically.

d. both a. and b. are correct

9. Materiality states that:

a. The correct accounting should be done no matter how small the transaction.

b. When the amounts are so small as to be inconsequential to the interpretation of financial well being, any reasonable treatment of the transaction will be acceptable.

c. A $1,000 error will have the same effect on a company like IBM as it will have on a small proprietorship.

d. Financial statement totals must reach a certain dollar amount before the information is relevant and reliable

10. The time period assumption has the effect of

a. allowing publicly held companies to report their results at various times at the management’s discretion

b. allowing the government regulators such as the Securities Exchange Commission to order a financial statement within a certain time period if it suspects fraud.

c. making it practical for a company to issue financial statements on a daily basis

d. breaking up the life of an enterprise into fiscal periods such as quarterly or yearly.