21) All of the following are true statements about the entity assumption EXCEPT for:
A) the entity assumption draws a sharp boundary around each entity.
B) the transactions of the business cannot be combined with the transactions of the owner.
C) the entity assumption ensures that the business will continue indefinitely.
D) under the entity assumption, the entity is any organization that stands apart as a separate economic unit.
22) Verifiability means that the information:
A) is timely and understandable.
B) is understandable.
C) must be capable of being checked for accuracy, completeness and reliability.
D) is material and relevant.
23) The accounting assumption that states that the business, rather than its owners, is the reporting unit is the:
A) entity assumption.
B) going concern assumption.
C) stable-monetary-unit assumption.
D) historical cost assumption.
24) The stable monetary unit assumption:
A) ensures that accounting records and statements are based on the most reliable data available.
B) holds that the entity will remain in operation for the foreseeable future.
C) maintains that each organization or section of an organization stands apart from other organizations and individuals.
D) enables accountants to ignore the effect of inflation on the accounting records.
25) Historical cost:
A) is determined for each asset on a yearly basis.
B) is equal to the amount of cash paid less the dollar value of all non-cash consideration given in the exchange.
C) is a verifiable measure that is relatively free from bias.
D) is the amount that the business could sell the asset for.
26) The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is the:
A) historical cost principle.
B) objectivity principle.
C) reliability principle.
D) stable dollar principle.
27) The relevant measure of the value of the assets of a company that is going out of business is the:
A) liquidating value.
B) inflation-adjusted book value.
C) historical cost.
D) book value.
28) The CEO of Clarkson Company owns a vacation home in Hawaii. Clarkson Company owns a factory in Detroit where they are headquartered. Which of these properties is considered an asset(s) of the business?
A) Only the vacation home in Hawaii
B) Only the factory in Detroit
C) Both the vacation home in Hawaii and the factory in Detroit
D) Neither the vacation home in Hawaii nor the factory in Detroit
29) A construction company paid $80,000 cash for equipment used in the business. At the time of purchase, the equipment had a list price of $90,000. When the balance sheet was prepared, the fair value of the equipment was $83,000. At what amount should the equipment be reported on the balance sheet of the company?
A) $80,000
B) $83,000
C) $85,000
D) $90,000
30) If a company prepares its financial statements three years after the end of their accounting period, they have violated the qualitative characteristic of:
A) understandability.
B) timeliness.
C) verifiability.
D) materiality.
31) Below is a list of qualitative characteristics of accounting. Following the list is a series of descriptive phrases.
A) faithful representation
B) timeliness
C) relevance
D) comparability
E) verifiability
________1.Information must be transparent so it makes sense to reasonably informed users.
________2.Accounting information must be complete, free from bias, and without material error.
________3.The information must be capable of being checked for accuracy and completeness.
________4.Making information available early enough to users to help them make decisions.
________5.Accounting information is reported the same way by different companies.
________6.Information makes a difference in a decision.
Required: Match each characteristic with the appropriate phrase.
Answer: 1. F, 2. A, 3. E, 4. B, 5. D, 6. C
Diff: 3
LO: 1-2
AACSB: Reflective Thinking
AICPA Bus Persp: Legal/Regulatory
AICPA Functional: Measurement, Reporting