FINANCIAL ACCOUNTING REVIEW Pre-board Examination 13.

If a company employs the gross method of recording accounts

receivable from customers, then sales discounts taken should be
1.Which of the following items should not be included in the Cash reported as
caption on the statement of financial position a. a deduction from sales in the income statement.
a. Coins and currency in the cash register b. an item of "other income and expense" in the income statement.
b. Checks from other parties presently in the cash register c. a deduction from accounts receivable in determining the net
c. Amounts on deposit in checking account at the bank realizable value of accounts receivable.
d. Postage stamps on hand d. sales discounts forfeited in the cost of goods sold section of the
income statement.
2. All of the following may be included under the heading of "cash" 14. Why do companies provide trade discounts?
except a. To avoid frequent changes in catalogs.
a. currency. b. To induce prompt payment.
b. money market funds. c. To easily alter prices for different customers.
c. checking account balance. d. Both a. and c.
d. savings account balance.
15. Of the approaches to record cash discounts related to accounts
3. In which account are post-dated checks received classified? receivable, which is more theoretically correct?
a. Receivables. a. Net approach.
b. Prepaid expenses. b. Gross approach.
c. Cash. c. Allowance approach.
d. Payables. d. All three approaches are theoretically correct.

4. What is a compensating balance? 14. All of the following are problems associated with the valuation of
a. Savings account balances. accounts receivable except for
b. Margin accounts held with brokers. a. uncollectible accounts.
c. Temporary investments serving as collateral for outstanding loans. b. returns.
d. Minimum deposits required to be maintained in connection with a c. cash discounts under the net method.
borrowing arrangement. d. allowances granted.

5.Under which section of the statement of financial position is "cash 15. Which of the following concepts relates to using the allowance
restricted for plant expansion" reported? method in accounting for accounts receivable?
a. Current assets. a. Bad debt expense is an estimate that is based on historical and
b. Non-current assets. prospective information.
c. Current liabilities. b. Bad debt expense is based on the actual amounts determined to
d. Equity. be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis
6. A cash equivalent is a short-term, highly liquid investment that is of the receivables aging.
readily convertible into known amounts of cash and d. Bad debt expense is management's determination of which
a. is acceptable as a means to pay current liabilities. accounts will be sent to the attorney for collection.
b. has a current market value that is greater than its original cost
c. bears an interest rate that is at least equal to the prime rate of 16. Which of the following is included in the normal journal entry to
interest at the date of liquidation. record the collection of accounts receivable previously written off when
d. is so near its maturity that it presents insignificant risk of changes using the allowance method?
in interest rates. a. Debit Allowance for Doubtful Accounts, credit Accounts
Receivable.
7. Bank overdrafts generally should be b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
a. reported as a deduction from the current asset section. c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
b. reported as a deduction from cash. d. Debit Accounts Receivable, credit Allowance for Doubtful
c. netted against cash and a net cash amount reported. Accounts
d. reported as a current liability.
17. Which of the following methods of determining bad debt expense
8. Deposits held as compensating balances does not properly match expense and revenue?
a. usually do not earn interest. a. Charging bad debts with a percentage of sales under the
b. if legally restricted and held against short-term credit may be allowance method.
included as cash. b. Charging bad debts with an amount derived from a percentage of
c. if legally restricted and held against long-term credit may be accounts receivable under the allowance method.
included among current assets. c. Charging bad debts with an amount derived from aging accounts
d. none of these. receivable under the allowance method.
d. Charging bad debts as accounts are written off as uncollectible
9. Which of the following should be recorded in Accounts Receivable?
a. Receivables from officers 18. Under IFRS, which of the following is not permitted for accounting
b. Receivables from subsidiaries for material amounts of uncollectable accounts receivable?
c. Dividends receivable a. Percentage of receivables, allowance method.
d. None of these b. Percentage of sales, allowance method.
c. Direct write-off method.
10. What is the preferable presentation of accounts receivable from d. All of the choices are acceptable under IFRS.
officers, employees, or affiliated companies on a statement of financial
position 19. Which of the following is an appropriate reconciling item to the
a. As offsets to equity. balance per bank in a
b. By means of footnotes only. bank reconciliation?
c. As assets but separately from other receivables. a. Bank service charge.
d. As trade notes and accounts receivable if they otherwise qualify b. Deposit in transit.
as current assets c. Bank interest.
d. Chargeback for NSF check.
11. When a customer purchases merchandise inventory from a business
organization, she may be given a discount which is designed to induce 20. Which of the following is not true?
prompt payment. Such a discount is called a(n) a. The imprest petty cash system in effect adheres to the rule of
a. trade discount. disbursement by check.
b. nominal discount. b. Entries are made to the Petty Cash account only to increase or
c. enhancement discount. decrease the size of the fund or to adjust the balance if not replenished
d. cash discount. at year-end.
c. The Petty Cash account is debited when the fund is replenished.
12. Trade discounts are d. All of these are not true.
a. not recorded in the accounts; rather they are a means of
computing a price. 21. The journal entries for a bank reconciliation
b. used to avoid frequent changes in catalogues. a. are taken from the "balance per bank" section only.
c. used to quote different prices for different quantities purchased. b. may include a debit to Office Expense for bank service charges.
d. all of the above. c. may include a credit to Accounts Receivable for an NSF check.
d. may include a debit to Accounts Payable for an NSF check.

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22. When preparing a bank reconciliation, bank credits are
a. added to the bank statement balance.
b. deducted from the bank statement balance.
c. added to the balance per books.
d. deducted from the balance per books.
23. Computers For You is a retailer specializing in selling computers and
related equipment. Which of the following would not be reported in the
merchandise inventory account reported on the statement of financial
position for Computers For You at December 31, 2017?
a. Computer purchased for resale during November 2017.
b. Shelving materials purchased during December 2017.
c. Freight costs related to the computers purchased in November.
d. All of the choices are included in the merchandise inventory
account at December 31, 2017.
24.Culver Company purchases the majority of its inventory from three
primary suppliers for re-sale to customers around the world. Culver
Company’s statement of financial position will include
a. Finished goods inventory.
b. Work-in-process inventory.
c. Merchandise inventory.
d. All of the choices are correct.
25. Companies must allocate the cost of all the goods available for sale
(or use) between
a.The cost goods on hands at the beginning of the period as
reported on the statement of financial position and the cost of goods
acquired or produced during the period.
b.The cost of goods on hand at the end of the period as reported on
the statement of financial position and the cost of goods acquired or
produced during the period.
c.The income statement and the statement of financial position.
d. All of the choices are correct.
26. Mineral Makers (MM) Company keeps its inventory records using a
perpetual system. At December 31, 2017, the unadjusted balance in the
inventory account is P64,000. Through a physical count on December 31,
2017, MM determines that its actual merchandise inventory at year-end
is P62,500. Which of the following is true regarding the statement of
financial position and the income statement of MM at December 31,
2017?
a. Inventory is increased and cost of goods sold is decreased by
P1,500.
b. Inventory is decreased and cost of goods sold is increased by
P1,500.
c. Inventory is increased and cost of goods sold is increased by
P1,500.
d. Inventory is decreased and cost of goods sold is decreased by
P1,500.
27. Tang, Inc. sells collectible jewelry on consignment from various
manufacturers. Additionally, Tang sells its own line of specialty jewelry
manufactured in-house. On December 31, 2017, during Tang, Inc 's
annual inventory count, an inexperienced new staff member included in
Tang’s ending inventory P350,000 worth of inventory held on
consignment from Metcalf Associates. Which of the following is correct
regarding the impact of this error on Tang’s income statement and
statement of financial position at December 31, 2017?
a. Ending inventory is understated by P350,000.
b. Retained earnings is overstated by P350,000.
c. Cost of goods sold is overstated by P350,000.
d. The financial statements are correctly stated.
28. Where should goods in transit that were recently purchased f.o.b.
destination be included on the statement of financial position?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the statement of financial position.
29. Goods in transit which are shipped f.o.b. shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
30. Which of the following items should be included in a company's
inventory at the statement of financial position date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer
to call for at his or her convenience.
d. None of these.
31. The failure to record a purchase of merchandise on account even
though the goods are properly included in the physical inventory results
in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and liabilities and an
overstatement of assets.
d. an understatement of liabilities and an overstatement of equity.
32. If the beginning inventory for 2017 is overstated, the effects of this
error on cost of goods sold for 2017, net income for 2017, and assets at
December 31, 2018, respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
33. The failure to record a purchase of merchandise on account even
though the goods are properly included in the physical inventory results
in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and liabilities and an
overstatement of assets.
d. an understatement of liabilities and an overstatement of equity.
34. Dolan Co. received merchandise on consignment. As of March 31,
Dolan had recorded the transaction as a purchase and included the
goods in inventory. The effect of this on its financial statements for
March 31 would be
a. no effect.
b. net income was correct and current assets and current liabilities
were overstated.
c. net income, current assets, and current liabilities were overstated.
d. net income and current liabilities were overstated.
35. Green Co. received merchandise on consignment. As of January
31, Green included the goods in inventory, but did not record the
transaction. The effect of this on its financial statements for January 31
would be
a. net income, current assets, and retained earnings were
overstated.
b. net income was correct and current assets were understated.
c. net income and current assets were overstated and current
liabilities were understated.
d. net income, current assets, and retained earnings were
understated.
36. What is the effect of a P50,000 overstatement of last year's
inventory on current years ending retained earning balance?
a. Understated by P50,000.
b. No effect.
c. Overstated by P50,000.
d. Need more information to determine.
37. When inventory is misstated, its presentation lacks?
a. Relevance.
b. Faithful representation.
c. Comparability.
d. All of the choices are correct.
38. Which of the following is a product cost as it relates to inventory?
a. Selling costs.
b. Interest costs.
c. Raw materials.
d. Abnormal spoilage.
39. Which of the following is a period cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
40. Which method may be used to record cash discounts a company
receives for paying suppliers promptly?
a. Net method.
b. Gross method.
c. Average method.
d. a and b.
41. Which of the following is included in inventory costs?
a. Product costs.
b. Period costs.
c. Product and period costs.
d. Neither product or period costs.
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42. Which of the following is correct? 53. In a period of rising prices, the inventory method which tends to give
a. Selling costs are product costs. the highest reported net income is
b. Manufacturing overhead costs are product costs. a. moving-average.
c. Interest costs for routine inventories are product costs. b. first-in, first-out.
d. All of these. c. specific identification.
d. weighted-average.
43. Costs which are inventoriable include all of the following except
a. costs that are directly connected with the bringing of goods to the 54. In a period of rising prices, the inventory method which tends to give
place of business of the buyer. the highest reported inventory is
b. costs that are directly connected with the converting of goods to a a. FIFO.
salable condition. b. moving average.
c. buying costs of a purchasing department. c. specific identification.
d. selling costs of a sales department. d. weighted-average.

44. Which of the following types of interest cost incurred in connection 55. The acquisition cost of a certain raw material changes frequently.
with the purchase or manufacture of inventory should be capitalized as The book value of the inventory of this material at year end will be the
a product cost? same if perpetual records are kept as it would be under a periodic
a. Purchase discounts lost inventory method only if the book value is computed under the
b. Interest incurred during the production of discrete projects such a. weighted-average method.
as ships or real estate projects b. moving average method.
c. Interest incurred on notes payable to vendors for routine c. FIFO method.
purchases made on a repetitive basis d. None of these.
d. All of these should be capitalized. 56. Which of the following is a reason why the specific identification
method may be considered ideal for assigning costs to inventory and
45. The use of a Discounts Lost account implies that the recorded cost of cost of goods sold?
a purchased inventory item is its a. The potential for manipulation of net income is reduced.
a. invoice price. b. There is no arbitrary allocation of costs.
b. invoice price plus the purchase discount lost. c. The cost flow matches the physical flow.
c. invoice price less the purchase discount taken. d. Able to use on all types of inventory.
d. invoice price less the purchase discount allowable whether taken
or not. 57. In a period of falling prices which inventory method generally
46. The use of a Purchase Discounts account implies that the recorded provides the lowest reported inventory?
cost of a purchased inventory item is its a. Average cost.
a. invoice price. b. FIFO.
b. invoice price plus any purchase discount lost. c. Moving average.
c. invoice price less the purchase discount taken. d. Specific identification.
d. invoice price less the purchase discount allowable whether taken
or not. 58. In a period of falling prices, which inventory method generally
provides the lowest amount of net income?
47. When using the periodic inventory system, which of the following a. Average cost.
generally would not be separately accounted for in the computation of b. Moving average.
cost of goods sold? c. FIFO.
a. Trade discounts applicable to purchases during the period d. Specific identification.
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the 59. The International Accounting Standards Board requires the specific
period identification method in certain circumstances. Which of the following is
d. Cost of transportation-in for merchandise purchased during the likely to be a circumstance where the specific identification criteria can
period be met?
a. Unit price is low.
48. Which inventory costing method most closely approximates current b. Inventory turnover is low.
cost for ending inventory? c. Inventory quantities are large.
a. Average d. All of the choices are circumstances where the criteria are likely to
b. FIFO be met.
c. LIFO
d. Specific identification 60. The financial statements most frequently provided include all of the
following except the
49. The pricing of issues from inventory must be deferred until the end a. statement of financial position.
of the accounting period under the following method of inventory b. income statement.
valuation: c. statement of cash flows.
a. moving average. d. statement of retained earnings.
b. weighted-average.
c. specific identification. 61. All the following are differences between financial and managerial
d. FIFO. accounting in how accounting information is used except to
a. plan and control company's operations.
50. An inventory pricing procedure in which the oldest costs incurred b. decide whether to invest in the company.
rarely have an effect on the ending inventory valuation is c. evaluate borrowing capacity to determine the extent of a loan to
a. FIFO. grant.
b. LIFO. d. All the above.
c. specific identification.
d. weighted-average. 62. Which of the following represents a form of communication through
financial reporting but not through financial statements?
51. Which method of inventory pricing best approximates specific a. Statement of financial position.
identification of the actual flow of costs and units in most manufacturing b. President's letter.
situations? c. Income statement.
a. Average cost d. Notes to financial statements.
b. First-in, first-out
c. moving-average 63. The process of identifying, measuring, analyzing, and communicating
d. weighted-average financial information needed by management to plan, evaluate, and
control an organization’s operations is called
52. Assuming no beginning inventory, what can be said about the trend a. financial accounting.
of inventory prices if cost of goods sold computed when inventory is b. managerial accounting.
valued using the FIFO method exceeds cost of goods sold when c. tax accounting.
inventory is valued using the average cost method? d. auditing.
a. Prices decreased.
b. Prices remained unchanged.
c. Prices increased.
d. Price trend cannot be determined from information given.

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64. How does accounting help the capital allocation process attract a. Earnings manipulation.
investment capital? b. Conservative accounting.
a. Provides timely, relevant information. c. Industry practices.
b. Encourages innovation. d. None of the above.
c. Promotes productivity.
d. a and b above. 76. The international financial reporting environment includes
challenges in financial reporting including all of the following except:
65. An effective capital allocation process a. Political environment.
a. promotes productivity. b. Expectations gap.
b. encourages innovation. c. Decision-usefulness.
c. provides an efficient market for buying and selling securities. d. Ethics.
d. all of these. 77. Significant financial reporting issues facing global financial reporting
and efficient capital allocation include all of the following except:
66. What would be an advantage of having all countries adopt and a. How to provide backward-looking information.
follow the same accounting standards? b. How to report nonfinancial measures such as customer satisfaction.
a. Consistency. c. How to provide forward-looking information.
b. Comparability. d. How to provide real-time financial statement information.
c. Lower preparation costs.
d. b and c 78. A soundly developed conceptual framework of concepts and
67. General-purpose financial statements are the product of objectives should
a. financial accounting. a. increase financial statement users' understanding of and
b. managerial accounting. confidence in financial reporting.
c. both financial and managerial accounting. b. enhance comparability among companies' financial statements.
d. neither financial nor managerial accounting. c. allow new and emerging practical problems to be more quickly
solved.
68. Users of financial reports include all of the following except: d. all of these.
a. creditors.
b. government agencies. 79. Which of the following (a-c) are not true concerning a conceptual
c. unions. framework in account-ing?
d. All of these are users. a. It should be a basis for standard-setting.
b. It should allow practical problems to be solved more quickly by
69. What is a major objective of financial reporting? reference to it.
a. Provide information that is useful to management in making c. It should be based on fundamental truths that are derived from
decisions. the laws of nature.
b. Provide information that clearly portray nonfinancial transactions. d. All of the above (a-c) are true.
c. Provide information that is useful to assess the amounts, timing,
and uncertainty of perspective cash receipts. 80. What is a purpose of having a conceptual framework?
d. Provide information that excludes claims to the resources. a. To enable the profession to more quickly solve emerging practical
problems.
70. Which of the following statements is not an objective of financial b. To provide a foundation from which to build more useful
reporting? standards.
a. Provide information that is useful in investment and credit c. Neither a nor b.
decisions. d. Both a and b.
b. Provide information about enterprise resources, claims to those
resources, and changes to them. 81. In the conceptual framework for financial reporting, what provides
c. Provide information on the liquidation value of an enterprise. "the why"--the goals and purposes of accounting?
d. Provide information that is useful in assessing cash flow a. Measurement and recognition concepts such as assumptions,
prospects. principles, and constraints
b. Qualitative characteristics of accounting information
71. Accrual accounting is used because c. Elements of financial statements
a. cash flows are considered less important. d. Objective of financial reporting
b. it provides a better indication of ability to generate cash flows
than the cash basis. 82. The underlying theme of the conceptual framework is
c. it recognizes revenues when cash is received and expenses when a. decision usefulness.
cash is paid. b. understandability.
d. none of the above. c. reliability.
d. comparability.
72. One element of the objective of financial reporting is to provide
a. information about the investors in the business entity. 83. What is the objective of financial reporting as indicated in the
b. information about the liquidation values of the resources held by conceptual framework?
the enterprise. a. provide information that is useful to those making investing and
c. information that is useful in assessing cash flow prospects. credit decisions.
d. information that will attract new investors. b. provide information that is useful to management.
c. provide information about those investing in the entity.
73. As part of the objective of general-purpose financial reporting, there d. All of the above.
is an emphasis on “assessing cash flow prospects.” Under International
Financial Reporting Standards (IFRS) this is interpreted to mean: 84. The overriding criterion by which accounting information can be
a. Cash basis accounting is preferred over accrual based accounting. judged is that of
b. Information about the financial effects of cash receipts and cash a. usefulness for decision making.
payments is generally considered the best indicator of a b. freedom from bias.
company’s present and continuing ability to generate favorable c. timeliness.
cash flows. d. comparability.
c. Over the long run, trends in revenues and expenses are generally
more meaningful than trends in cash receipts and disbursements. 85. Which of the following is a fundamental quality of useful accounting
d. All of the choices are correct regarding “assessing cash flow information?
prospects” under IFRS. a. Comparability.
b. Relevance.
74. Which of the following is not a major challenge facing the accounting c. Consistency.
profession? d. Materiality.
a. Nonfinancial measurements.
b. Timeliness. 86. Which of the following is a fundamental quality of useful accounting
c. Accounting for hard assets. information?
d. Forward-looking information. a. Conservatism.
b. Comparability.
c. Faithful representation.
d. Consistency.

87. What is meant by comparability when discussing financial accounting

75. Which of the following is an ethical concern of accountants? information?

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 a. Information has predictive or feedback value. a. firms in the same industry use different accounting methods to
b. Information is reasonably free from error. account for the same type of transaction.
c. Information that is measured and reported in a similar fashion b. a company changes its estimate of the salvage value of a fixed
across companies. asset.
d. Information is timely. c. a company fails to adjust its financial statements for changes in the
value of the measuring unit.
88. What is meant by consistency when discussing financial accounting d. none of these.
information?
a. Information that is measured and reported in a similar fashion 99. When information about two different enterprises has been
across points in time. prepared and presented in a similar manner, the information exhibits
b. Information is timely. the characteristic of
c. Information is measured similarly across the industry. a. relevance.
d. Information is verifiable. b. reliability.
c. consistency.
89. Which of the following is an ingredient of relevance? d. none of these.
a. Completeness.
b. Representational faithfulness. 100. Which of the following is not a basic assumption underlying the
c. Neutrality. financial accounting structure?
d. Predictive value. a. Economic entity assumption.
b. Going concern assumption.
90. Which of the following is an ingredient of faithful representation? c. Periodicity assumption.
a. Predictive value. d.Historical cost assumption.
b. Timeliness.
c. Neutrality. 101. Proponents of historical cost ordinarily maintain that in comparison
d. Feedback value. with all other valuation alternatives for general purpose financial
reporting, statements prepared using historical costs are more
91. Changing the method of inventory valuation should be reported in a. verifiable.
the financial statements under what qualitative characteristic of b. relevant.
accounting information? c. indicative of the entity's purchasing power.
a. Understandability. d. conservative.
b. Verifiability.
c. Timeliness. 102. Valuing assets at their liquidation values rather than their cost is
d. Comparability. inconsistent with the
a. periodicity assumption.
92. Company A issuing its annual financial reports within one month of b. matching principle.
the end of the year is an example of which enhancing quality of c. materiality constraint.
accounting information? d. historical cost principle.
a. Neutrality.
b. Timeliness. 103. Revenue is generally recognized when a sale occurs. This statement
c. Predictive value. describes the
d. Representational faithfulness. a. consistency characteristic.
b. matching principle.
93. What is the quality of information that enables users to better c. revenue recognition principle.
forecast future operations? d. relevance characteristic.
a. Reliability.
b. Materiality. 104. Generally, revenue from sales should be recognized at a point when
c. Comparability. a. management decides it is appropriate to do so.
d. Relevance. b. the product is available for sale to the ultimate consumer.
c. the entire amount receivable has been collected from the
94. Which of the following ingredients of fundamental qualities is part of customer and there remains no further warranty liability.
faithful representation? d. none of these.
a. Neutrality.
b. Productive value. 105.Revenue generally should be recognized
c. Confirmatory value. a. at the end of production.
d. Timeliness. b. at the time of cash collection.
c. when realized.
95. Decision makers vary widely in the types of decisions they make, the d. when a sale occurs.
methods of decision making they employ, the information they already
possess or can obtain from other sources, and their ability to process 106. Which of the following is not a time when revenue may be
information. Consequently, for information to be useful there must be a recognized?
linkage between these users and the decisions they make. This link is a. At time of sale
a. relevance. b. At receipt of cash
b. reliability. c. During production
c. understandability. d. All of these are possible times of revenue recognition.
d. materiality.
107. The Allowance for Doubtful Accounts, which appears as a deduction
96. The two fundamental qualities that make accounting information from Accounts Receivable on a statement of financial position and which
useful for decision making are is based on an estimate of bad debts, is an application of the
a. comparability and consistency. a. consistency characteristic.
b. materiality and timeliness. b. expense recognition principle.
c. relevance and faithful representation. c. materiality constraint.
d. reliability and comparability. d. revenue recognition principle.
108. The accounting principle of expense recognition is best
96. Accounting information is considered to be relevant when it
demonstrated by
a. can be depended on to represent the economic conditions and
a. not recognizing any expense unless some revenue is realized.
events that it is intended to represent.
b. is capable of making a difference in a decision. b. associating effort (expense) with accomplishment (revenue).
c. recognizing prepaid rent received as revenue.
c. is understandable by reasonably informed users of accounting
information. d. establishing an Appropriation for Contingencies account.
d. is verifiable and neutral. 109. Application of the full disclosure principle
a. is theoretically desirable but not practical because the costs of
97. The quality of information that gives assurance that it is reasonably complete disclosure exceed the benefits.
free of error and bias b. is violated when important financial information is buried in the
a. relevance. notes to the financial statements.
b. faithful representation. c. is demonstrated by the use of supplementary information
c. verifiability. presenting the effects of changing prices.
d. neutrality. d. requires that the financial statements be consistent and
98. Financial information does not demonstrate consistency when comparable.

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110. Which of the following is an argument against using historical cost 122. The International Accounting Standards Board has given companies
in accounting? the option of using fair value to report all of the following except:
a. Fair values are more relevant. a. Receivables
b. Historical costs are based on an exchange transaction. b. Investments
c. Historical costs are reliable. c. Financial liabilities
d. Fair values are subjective. d. All of the choices can be valued at fair value.

111. When is revenue generally recognized? 123. Under International Financial Reporting Standards (IFRS) revenue
a. When cash is received. may be recognized
b. When the warranty expires. a. At the point of sale.
c. When production is completed. b. During production.
d. When the sale occurs. c. At the end of production.
d. All of the choices may be acceptable for revenue recognition under
112. Which of the following are the two components of the revenue IFRS.
recognition principle?
a. Cash is received and the amount is material. 124. Under International Financial Reporting Standards (IFRS) _______
b. It is probable that future economic benefits will flow to the costs are charged off in the immediate period and ________ costs may
company and it is possible to reliably measure the amount. be carried into future periods.
c. Production is complete and there is an active market for the a. Period; product.
product. b. Material; overhead.
d. Cash is realized or realizable and production is complete. c. Product; period.
d. Overhead; administrative.
113. Which of the following practices may not be an acceptable
deviation from recognizing revenue at the point of sale? 125. Under International Financial Reporting Standards (IFRS) notes to
a. Upon receipt of cash. the financial statements
b. During production. a. Must be quantifiable.
c. Upon receipt of order. b. Must qualify as an element.
d. End of production. c. Amplify or explain items presented in the main body of the
financial statements.
114. Which of the following is not a required component of financial d. All of the choices are correct regarding notes to the financial
statements prepared in accordance with generally accepted accounting statements.
principles?
a. President's letter to shareholders. 126. Under International Financial Reporting Standards (IFRS)
b. Statement of financial position. supplementary information
c. Income statement. a. May be information that is high in relevance but low in
d. Notes to financial statements. reliability.
b. May include explanations of uncertainties and contingencies.
115. What is the general approach as to when product costs are c. May include descriptions of accounting policies and methods.
recognized as expenses? d. All of the choices are correct regarding supplementary
a. In the period when the expenses are paid. information.
b. In the period when the expenses are incurred.
c. In the period when the vendor invoice is received. 127. Which of the following is a constraint in presenting financial
d. In the period when the related revenue is recognized. information?
a. Materiality.
116. Not adjusting the amounts reported in the financial statements for b. Full disclosure.
inflation is an example of which basic principle of accounting? c. Relevance.
a. Economic entity. d. Consistency.
b. Going concern.
c. Historical cost. 128. All of the following represent costs of providing financial
d. Full disclosure. information except
a. preparing.
117. Recognition of expense related to amortization of an intangible b. disseminating.
asset illustrates which principle of accounting? c. accessing capital.
a. Expense recognition. d. auditing.
b. Full disclosure.
c. Revenue recognition. 129. Which of the following are benefits of providing financial
d. Historical cost. information?
a. Potential litigation.
118. When should an expenditure be recorded as an asset rather than b. Auditing.
an expense? c. Disclosure to competition.
a. Never. d. Improved allocation of resources.
b. Always.
c. If the amount is material. 130. Where is materiality not used in providing financial information?
d. When future benefit exits. a. Applying the revenue recognition principle.
b. Determining what items to include in the financial statements.
119. Which accounting assumption or principle is being violated if a c. Applying the going concern assumption.
company is a party to major litigation that it may lose and decides not to d. Determining the level of disclosure.
include the information in the financial statements because it may have
a negative impact on the company's stock price? 131. Expensing the cost of copy paper when the paper is acquired is an
a. Full disclosure. example of which constraint?
b. Going concern. a. Materiality.
c. Historical cost. b. Cost-benefit.
d. Matching. c. Conservatism.
d. Industry practices.
120. Which assumption or principle requires that all information 132. Charging off the cost of a wastebasket with an estimated useful life
significant enough to affect a decision of reasonably informed users of 10 years as an expense of the period when purchased is an example
should be reported in the financial statements? of the application of the
a. Matching. a. consistency characteristic.
b. Going concern. b. matching principle.
c. Historical cost. c. materiality constraint.
d. Full disclosure. d. historical cost principle.

121. The basic principles of accounting used by the International 134. Which of the following statements about materiality is not correct?
Accounting Standards Board include all of the following except : a. An item must make a difference or it need not be disclosed.
a. Measurement b. Materiality is a matter of relative size or importance.
b. Full disclosure c. An item is material if its inclusion or omission would influence or
c. Revenue recognition change the judgment of a reasonable person.
d. Going concern d. All of these are correct statements about materiality.

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135. The International Accounting Standards Board’s conceptual
framework includes a cost-benefit constraint. Which of the following 147. How should the following costs affect a retailer's inventory
best describes the cost-benefit constraint? valuation?
a. The benefits of the information must be greater than the costs of Freight-in Interest on Inventory Loan
providing it. a. Increase No effect
b. Financial information should be free from cost to users of the b. Increase Increase
information. c. No effect Increase
c. Costs of providing financial information are not always evident or d. No effect No effect
measurable, but must be considered.
d. All of the choices are correct. 148. During periods of rising prices, a perpetual inventory system would
result in the same dollar amount of ending inventory as a periodic
136. Which basic assumption is illustrated when a firm reports financial inventory system under which of the following inventory cost flow
results on an annual basis? methods?
a. Economic entity assumption. FIFO Average
b. Going concern assumption. a. Yes No
c. Periodicity assumption. b. Yes Yes
d. Monetary unit assumption. c. No Yes
d. No No
137. Which basic assumption may not be followed when a firm in
bankruptcy reports financial results? 149. Hite Co. was formed on January 2, 2017, to sell a single product.
a. Economic entity assumption. Over a two-year period, Hite's acquisition costs have increased steadily.
b. Going concern assumption. Physical quantities held in inventory were equal to three months' sales
c. Periodicity assumption. at December 31, 2017, and zero at December 31, 2018. Assuming the
d. Monetary unit assumption. periodic inventory system, the inventory cost method which reports the
highest amount of each of the following is
138. Which accounting assumption or principle is being violated if a Inventory Cost of Sales
company provides financial reports in connection with a new product December 31, 2017 2018
introduction? a. Average FIFO
a. Economic entity. b. Average Average
b. Periodicity. c. FIFO FIFO
c. Revenue recognition. d. FIFO Average
d. Full disclosure.

139. Which of the following basic accounting assumptions is threatened 150. Under the allowance method of recognizing uncollectible accounts,
by the existence of severe inflation in the economy? the entry to write off an uncollectible account
a. Monetary unit assumption. a. increases the allowance for uncollectible accounts.
b. Periodicity assumption. b. has no effect on the allowance for uncollectible accounts.
c. Going-concern assumption. c. has no effect on net income.
d. Economic entity assumption. d. decreases net income.

140. During the lifetime of an entity accountants produce financial

statements at artificial points in time in accordance with the concept of
Objectivity Periodicity
a. No No
b. Yes No
c. No Yes
d. Yes Yes

141. Under current IFRS, inflation is ignored in accounting due to the

a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. periodicity assumption.

142. The economic entity assumption

a. is inapplicable to unincorporated businesses.
b. recognizes the legal aspects of business organizations.
c. requires periodic income measurement.
d. is applicable to all forms of business organizations.

143. Preparation of consolidated financial statements when a parent-

subsidiary relationship exists is an example of the
a. economic entity assumption.
b. relevance characteristic.
c. comparability characteristic.
d. neutrality characteristic.

144. During the lifetime of an entity, accountants produce financial

statements at arbitrary points in time in accordance with which basic
accounting concept?
a. Cost/benefit constraint
b. Periodicity assumption
c. Materiality constraint
d. Expense recognition principle

145. The assumption that a business enterprise will not be sold or

liquidated in the near future is known as the
a. economic entity assumption.
b. monetary unit assumption.
c. materiality assumption.
d. none of these.

146. Which of the following is an implication of the going concern

assumption?
a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable and
appropriate.
c. The current-noncurrent classification of assets and liabilities is
justifiable and significant.
d. All of these.
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