Accounting in Action: Chapter 1 Exam
Exam info
- Subject
- Accounting Principles
- Exam type
- University
- Questions
- 20
- Duration
- 40 min
- Answers
- ✓ With explanations
Questions (20)
- Q 1.
Which sequence correctly represents the three major activities performed in accounting?
- A.
Communication, identification, recording
- B.
Identification, recording, communication
- C.
Recording, interpretation, identification
- D.
Planning, recording, decision-making
- A.
- Q 2.
A company receives cash from a customer and records the transaction in its accounting system. Which accounting activity is primarily being performed?
- A.
Identification
- B.
Recording
- C.
Communication
- D.
Evaluation
- A.
- Q 3.
Which group consists entirely of internal users of accounting information?
- A.
Investors, lenders, and government agencies
- B.
Finance, marketing, and human resource managers
- C.
Shareholders, suppliers, and customers
- D.
Banks, brokers, and tax authorities
- A.
- Q 4.
A creditor wants to determine whether a company will be able to pay its debts as they become due. Which use of accounting information does this represent?
- A.
Internal operational planning
- B.
External credit analysis
- C.
Employee compensation planning
- D.
Product pricing strategy
- A.
- Q 5.
How do bookkeeping and accounting differ?
- A.
Bookkeeping includes only identifying transactions, while accounting includes all other activities.
- B.
Accounting includes identification, recording, and communication, while bookkeeping is narrower.
- C.
They are exactly the same because neither activity includes interpretation.
- D.
Bookkeeping is broader than accounting because accountants do not record transactions.
- A.
- Q 6.
Which statement best describes ethics in financial reporting?
- A.
Ethics are principles used only to determine the tax rate of a business.
- B.
Ethics are standards of conduct used to judge actions as right or wrong, honest or dishonest, and fair or unfair.
- C.
Ethics require every asset to be recorded at fair value.
- D.
Ethics apply only to transactions involving outside investors.
- A.
- Q 7.
Why did Congress enact the Sarbanes-Oxley Act?
- A.
To replace all accounting standards with a single corporate rule
- B.
To reduce unethical conduct and decrease the likelihood of future corporate accounting scandals
- C.
To require every business to organize as a corporation
- D.
To prohibit companies from reporting assets at historical cost
- A.
- Q 8.
Which organization is identified as the primary accounting standard-setting body in the United States?
- A.
International Accounting Standards Board
- B.
Financial Accounting Standards Board
- C.
U.S. Internal Revenue Service
- D.
American Stock Exchange
- A.
- Q 9.
Under the historical cost principle, an asset is normally recorded at:
- A.
The amount paid to acquire the asset
- B.
The highest price the asset could be sold for in the current market
- C.
The amount that would be required to replace the asset today
- D.
Its fair value in every later reporting period
- A.
- Q 10.
Which statement correctly applies the historical cost principle to an asset whose market value later rises above its original cost?
- A.
The asset must be immediately reported at the higher market value.
- B.
The asset may be recorded at the higher value only when required by another applicable accounting principle.
- C.
The asset must continue to be reported at its original cost regardless of all other rules.
- D.
The asset must be removed from the accounting records because its value changed.
- A.
- Q 11.
What is meant by the fair value principle?
- A.
Assets must always be recorded at their original acquisition cost.
- B.
Assets and liabilities are reported at the price received to sell an asset or settle a liability.
- C.
Only transactions involving cash may be included in accounting records.
- D.
The activities of an owner must be combined with those of the business.
- A.
- Q 12.
Financial information is relevant when it:
- A.
Can make a difference in a decision
- B.
Was prepared using the lowest possible cost
- C.
Includes every economic event affecting the business
- D.
Is identical for every company in an industry
- A.
- Q 13.
Which quality of useful accounting information requires reported numbers and descriptions to correspond to what actually happened?
- A.
Comparability
- B.
Faithful representation
- C.
Materiality
- D.
Timeliness
- A.
- Q 14.
Under the monetary unit assumption, which transaction data should be included in accounting records?
- A.
Only data that can be expressed in terms of money
- B.
All operating events, regardless of whether they can be measured in money
- C.
Only cash transactions
- D.
Only transactions approved by the company's board of directors
- A.
- Q 15.
A business keeps its financial records separate from the personal transactions of its owner. Which assumption is being followed?
- A.
Monetary unit assumption
- B.
Economic entity assumption
- C.
Historical cost principle
- D.
Revenue recognition principle
- A.
- Q 16.
Combining the accounting records of two unrelated businesses into a single set of accounts would violate which assumption?
- A.
Economic entity assumption
- B.
Monetary unit assumption
- C.
Historical cost principle
- D.
Fair value principle
- A.
- Q 17.
A company owned by two individuals is generally characterized by which feature?
- A.
Ownership divided into transferable shares of stock
- B.
One owner who is personally liable for all debts
- C.
Two or more owners who generally have unlimited personal liability
- D.
A separate legal entity with limited liability
- A.
- Q 18.
Which characteristic most clearly distinguishes a corporation from a proprietorship or partnership?
- A.
It usually has more than one owner.
- B.
It is organized as a separate legal entity with ownership divided into shares of stock.
- C.
Its owner is usually also its manager.
- D.
Its owners commonly face unlimited personal liability for business debts.
- A.
- Q 19.
Why is ethical financial reporting especially important to the broader economy?
- A.
Unethical reporting can cause investors to lose confidence in corporate accounting and damage the economy.
- B.
Ethical reporting eliminates all business risks.
- C.
Ethical reporting guarantees that every company will be profitable.
- D.
Ethical reporting allows firms to disregard accounting standards.
- A.
- Q 20.
A company reports an asset at its original purchase price even though its current market value has increased. Which accounting principle is being applied?
- A.
Economic entity assumption
- B.
Monetary unit assumption
- C.
Historical cost principle
- D.
Fair value principle
- A.
Answers and explanations are in mode.