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Exam 14: Accounting Principles and Reporting Standards

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Question 1

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The financial statements in the annual report of a corporation contain footnotes explaining the methods used to depreciate the firm's equipment.This practice is an example of

A) the consistency principle.
B) the conservatism constraint.
C) the full disclosure principle.
D) the accrual principle.

E) B) and D)
F) C) and D)

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Question 2

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Which of the following statements is NOT true?

A) The American Institute of CPA's has in the past had strong influence on the development of accounting principles.
B) The Sarbanes-Oxley Act places great emphasis on internal controls and fraud prevention.
C) The SEC has authority to accept or reject financial accounting principles and standards developed by the FASB.
D) Because of the Sarbanes-Oxley Act,it is probable that the FASB's conceptual framework will become less important in developing accounting principles and standards.

E) C) and D)
F) B) and C)

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Question 3

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An accountant generally assumes that a firm is a(n)____________________ and will continue to operate indefinitely.

Holly Day Company purchased a piece of land 10 years ago for $50,000.Holly Day Company is considering selling the land.The piece of land was recently appraised for $120,000,they received an offer from a prospective buyer for $105,000,and a similar piece of land 5 block away recently sold for $113,000.How much should Holly Day Company report on its balance sheet for the piece of land?

Each year there was an increase in the market value of some stock owned by the Mudstream Company,but the accountant did not record the increase in asset value and equity until the stock was sold.In this situation,the accountant

Depreciating equipment over its useful life is an example of

When a new company was formed,one partner contributed some used equipment he owned.The equipment was appraised at $44,000 and $50,000 by two different dealers.The accountant entered the equipment at $44,000 in the financial records of the partnership.This is an example of

Accountants use footnotes to financial statements to disclose information that may influence investor decisions.

A deviation from generally accepted accounting principles is

An accountant charged the Repairs Expense account for a tool that cost $12.The tool had an estimated useful life of 5 years;however,the accountant did not choose to depreciate it.The modifying constraint that the accountant followed was

The Boston Red Sox receives cash from its season ticket holders in advance for the entire season.Under the revenue recognition principle,the Boston Red Sox should recognize the revenue from the season ticket holders

The Garrison Company offers terms of net 30 days for its credit sales.It records the revenue from these sales as soon as the sales are made rather than waiting until cash is received from the customers.This is an example of the

Accounting information that is capable of making a difference in a decision by the user of the report is

The ____________________ assumption,which assumes that a firm will continue to operate indefinitely,permits carrying forward a portion of the cost of assets that will be used in future periods.

Assets are recorded at cost when they are purchased,but the asset accounts are adjusted each year to reflect changes in market value.

The cost-benefit test constraint refers to:

The accountant records an expense for wages earned by employees during the last four days of the year,even though the wages will not be paid in that year.The accountant is following the ____________________ principle.

Antonio Hanley owns a small automobile service center.He recently approached the local bank for a loan to finance an expansion of his service center.Antonio prepared the balance sheet given below and submitted it with his loan application.The balance sheet does not conform to generally accepted accounting principles.Using the additional information provided by the owner,prepare a corrected balance sheet in accordance with generally accepted accounting principles.

The separate entity assumption permits businesses to record property and equipment as assets that will provide benefits in future periods.

The Cervantes Company uses the same method of depreciation for its equipment in each fiscal period.This practice is an example of