CHAPTER 1INTRODUCTION TO FINANCIAL REPORTING

Financial Statement Analysis, 13e Charles H.Gibson (Test Bank all Chapters)

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CHAPTER 1—INTRODUCTION TO FINANCIAL REPORTING

MULTIPLE CHOICE

• Charging off equipment that cost less than $20 would be an example of the application of:
• going concern.
• cost.
• matching.
• materiality.
• realization.

ANS: D PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

2. The going concern assumption:

• is applicable to all financial statements.
• primarily involves periodic income measurement.
• allows for the statements to be prepared under generally accepted accounting principles.
• requires that accounting procedures be the same from period to period.
• none of the answers are correct.

ANS: C PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

3. Understating assets and revenues is justified based on:

• realization assumption.
• matching.
• consistency.
• realization.
• None of the answers are correct.

ANS: E PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

• The assumption that enables us to prepare periodic statements between the time that a business

commences operations and the time it goes out of business is:

• time period.
• business entity.
• historical cost.
• transaction.
• None of the answers are correct.

ANS: A PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis 2 / 4

TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

5. Valuing assets at their liquidation values is not consistent with:

• conservatism.
• materiality.
• going concern.
• time period.
• None of the answers are correct.

ANS: C PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

• The business being separate and distinct from the owners is an integral part of the:
• time period assumption.
• going concern assumption.
• business entity assumption.
• realization assumption.
• None of the answers are correct.

ANS: C PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

• The principle that assumes the reader of the financial statements is not interested in the liquidation

values is:

• conservatism.
• matching.
• time period.
• realization.
• None of the answers are correct.

ANS: E PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

8. An accounting period that ends when operations are at a low ebb is:

• a calendar year.
• a fiscal year.
• the natural business year.
• an operating year.
• None of the answers are correct.

ANS: C PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min. 3 / 4

• The accounting principle that assumes that inflation will not take place or will be immaterial is:
• monetary unit.
• historical cost.
• realization.
• going concern.
• None of the answers are correct.

ANS: A PTS: 1 DIF: Difficulty: Moderate NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

10. Valuing inventory at the lower of cost or market is an application of the:

• time period assumption.
• realization principle.
• going concern principle.
• conservatism principle.
• None of the answers are correct.

ANS: D PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

• The realization principle leads accountants to usually recognize revenue at:
• the end of production.
• during production.
• the receipt of cash.
• the point of sale.
• None of the answers are correct.

ANS: D PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Knowledge NOT: Time: 1 min.

• The comment that "items that are not material may be recorded in the financial statements in the most

economical and expedient manner possible" is representative of:

• matching.
• conservatism.
• realization.
• materiality.
• None of the answers are correct.

ANS: D PTS: 1 DIF: Difficulty: Easy NAT: BUSPROG: Communication STA: AICPA: FN: Measurement | ACBSP: GAAP | IMA: Financial Statement Analysis TOP: Traditional Assumptions of the Accounting Model KEY: Bloom's: Comprehension NOT: Time: 1 min.

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