Kieso Chapters 1- 3

Front 1

The financial statements most frequently provided include all of the following except the:
A. balance sheet.
B. statement of cash flows.
C. statement of retained earnings.
D. statement of stockholders' equity.

Back 1

C. statement of retained earnings.

Front 2

An effective process of capital allocation is critical to a healthy economy, which:
A. promotes productivity.
B. encourages innovation.
C. provides an efficient and liquid market for buying and selling securities.
D. All of the options are correct.

Back 2

D. All of the options are correct

Front 3

Challenges facing financial accounting include all of the following except:
A. forward-looking information.
B. financial measurements.
C. soft assets.
D. timeliness.

Back 3

B. financial measurements

Front 4

All of the following are objectives of financial reporting except to provide information:
A. about enterprise resources, claims to those resources, and changes in them.
B. that is useful in investment and credit decisions.
C. about the management and major shareholders of an enterprise.
D. that is useful in assessing cash flow prospects

Back 4

C. about the management and major shareholders of an enterprise

Objectives of financial reporting include all of the options except providing information about the management and major shareholders

Front 5

The term GAAP means:
A. generally accepted accounting practices.
B. generally accepted accounting principles.
C. generally accepted auditing practices.
D. generally accepted accounting purposes

Back 5

generally accepted accounting principles

Front 6

Which one of the following organizations has not been instrumental in the development of financial accounting standards?
A. AICPA.
B. FASB.
C. IMA.
D. SEC

Back 6

C. IMA

Front 7

Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders?
A. AICPA.
B. FASB.
C. GASB.
D. SEC

Back 7

D. SEC

Front 8

The first step taken in the establishment of a typical FASB statement is:
A. the board conducts research and analysis and a discussion memorandum is issued.
B. a public hearing on the proposed standard is held.
C. the board evaluates the research and public response and issues an exposure draft.
D. topics are identified and placed on the board's agenda

Back 8

topics are identified and placed on the board's agenda

Front 9

The most authoritative source of GAAP among the following is FASB:
A. Emerging Issues Task Force Statements.
B. Implementation Guides.
C. Interpretations.
D. Technical Bulletins

Back 9

C. Interpretations

Front 10

International Financial Reporting Standards (IFRS) are issued by the:
A. FASB.
B. IASB.
C. IASF.
D. SEC.

Back 10

B. IASB

Front 11

All of the following are true regarding iGAAP except:
A. iGAAP includes standards referred to as International Auditing Standards (IAS).
B. iGAAP tends to be simpler in its accounting than U.S. GAAP.
C. iGAAP is more principle-based than U.S. GAAP.
D. iGAAP standards are developed by the IASB

Back 11

A. iGAAP includes standards referred to as International Auditing Standards (IAS).

Front 12

All of the following statements about the conceptual framework are correct except it:
A. is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
B. prescribes the nature, function, and limits of financial accounting and financial statements.
C. increases financial statement users' understanding of and confidence in financial reporting.
D. All of these options are correct

Back 12

D. All of these options are correct

Front 13

The first level of the conceptual framework is the:
A. elements of financial statements.
B. objectives of financial reporting.
C. qualitative characteristics of accounting information.
D. recognition and measurement concepts.

Back 13

B. objectives of financial reporting

Front 14

The objectives of financial reporting include all of the following except to provide information that is:
A. useful to those making investment and credit decisions.
B. helpful to present and potential investors, creditors, and other users.
C. used in establishing and applying accounting standards.
D. about economic resources and claims to those resources

Back 14

C. used in establishing and applying accounting standards

Front 15

All of the following are ingredients of relevance except:
A. feedback value.
B. predictive value.
C. timeliness.
D. verifiability

Back 15

D. verifiability

Front 16

Secondary qualities of accounting information are:
A. comparability and consistency.
B. cost/benefits and materiality.
C. relevance and reliability.
D. representational faithfulness and neutrality

Back 16

A. comparability and consistency

Front 17

Which of the following statements about comprehensive income is incorrect?
A. It is more inclusive than the traditional notion of net income.
B. Unrealized holding gains on available-for-sale securities are included in comprehensive income.
C. It includes all changes in equity during a period except net income.
D. Changes in equity of an entity during a period from transactions and other events from nonowner sources are included in comprehensive income

Back 17

C. It includes all changes in equity during a period except net income

Front 18

Increases in equity from peripheral or incidental transactions of an entity are:
A. expenses.
B. gains.
C. investments by owners.
D. revenues

Back 18

B. gains.

Front 19

Depreciation and amortization policies are justifiable and appropriate because of the:
A. economic entity assumption.
B. going concern assumption.
C. monetary unit assumption.
D. periodicity assumption

Back 19

. going concern assumption

Front 20

The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods is the:
A. economic entity assumption.
B. going concern assumption.
C. monetary unit assumption.
D. periodicity assumption.

Back 20

D. periodicity assumption

Front 21

Generally, revenue should be recognized:
A. during production.
B. at the end of production.
C. at the time of sale.
D. at the time cash is received.

Back 21

C. at the time of sale

Front 22

Generally, expenses are recognized when the:
A. wages are paid.
B. work is performed.
C. product is produced.
D. work or product actually makes its contribution to revenue

Back 22

D. work or product actually makes its contribution to revenue.

Front 23

Providing information that is of sufficient importance to influence the judgment:
and decisions of an informed user is required by the
A. full disclosure principle.
B. historical cost principle.
C. matching principle.
D. revenue recognition principle.

Back 23

A. full disclosure principle

Front 24

In providing information with the qualitative characteristics that make it useful, two overriding constraints that must be considered are:
A. industry practices and conservatism.
B. materiality and conservatism.
C. cost-benefit relationship and industry practices.
D. cost-benefit relationship and materiality

Back 24

D. cost-benefit relationship and materiality.

Front 25

Companies and their auditors have adopted a general rule of thumb that anything under 5% of _______ is considered not material.
A. assets.
B. liabilities.
C. net income.
D. sales.

Back 25

C. net income.

Front 26

Which constraint states, when in doubt, choose the solution that will be least likely to overstate assets and net income?
A. Materiality.
B. Industry practices.
C. Cost-benefit relationship.
D. Conservatism.

Back 26

D. Conservatism

Front 27

All of the following statements are false regarding the IASB and FASB convergence efforts except:
A. the FASB framework extensively discusses and assumes that reporting entities are going concerns.
B. the IASB and FASB have not been able to agree on qualitative characteristics, so that part of the project was scrapped.
C. the FASB framework does not identify accrual accounting as an assumption.
D. there is a need to change many aspects of existing frameworks

Back 27

C. the FASB framework does not identify accrual accounting as an assumption

Front 28

The financial statement that shows the financial condition of the enterprise at the end of a period is the:
A. income statement.
B. statement of retained earnings.
C. balance sheet.
D. statement of cash flows

Back 28

C. balance sheet.

Front 29

All of the following accounts are increased on the credit side except:
A. Common Stock.
B. Dividends.
C. Retained Earnings.
D. Revenues.

Back 29

B. Dividends.

The dividends account is increased on the debit side.

Front 30

Which of the following are reported in the stockholders' equity section of the balance sheet?
A. Revenues and expenses.
B. Dividends and retained earnings.
C. Common stock and dividends.
D. Common stock and retained earnings

Back 30

D. Common stock and retained earnings


Common stock and retained earnings are reported in the stockholders' equity section of the balance sheet

Front 31

An optional step in the accounting cycle is the preparation of:
A. the trial balance.
B. adjusting entries.
C. closing entries.
D. the worksheet

Back 31

D. the worksheet

Front 32

All of the following are external events except:
A. a transaction with another entity.
B. consuming raw materials in production processes.
C. a change in the price of a good that an entity buys or sells.
D. an improvement in technology by a competitor

Back 32

B. consuming raw materials in production processes

Front 33

Posting is the process of transferring items entered in a general journal to the:
A. worksheet.
B. trial balance.
C. general ledger.
D. financial statements

Back 33

C. general ledger

Front 34

Which of the following statements about a trial balance is incorrect?
A. Its primary purpose is to prove the mathematical equality of debits and credits after posting.
B. It uncovers errors in journalizing and posting.
C. It is useful in the preparation of financial statements.
D. It proves that all transactions have been recorded

Back 34

D. It proves that all transactions have been recorded

Front 35

An adjusting entry would never include a:
A. debit to an expense account and a credit to an asset account.
B. debit to an expense account and a credit to a liability account.
C. debit to a liability account and a credit to a revenue account.
D. debit to an asset account and a credit to a liability account

Back 35

D. debit to an asset account and a credit to a liability account

Front 36

The adjusting entry to record revenue that has been earned, but was previously recorded as unearned results in a debit to:
A. an asset account and a credit to a revenue account.
B. a liability account and a credit to a revenue account.
C. an expense account and a credit to a revenue account.
D. a revenue account and a credit to an asset account

Back 36

B. a liability account and a credit to a revenue account

Front 37

If the adjusting entry for an accrued expense is not made:
A. assets will be overstated.
B. expenses will be overstated.
C. liabilities will be understated.
D. owner's equity will be understated

Back 37

C. liabilities will be understated

Front 38

In the closing process all of the revenue and expense account balances are transferred to the:
A. Capital account.
B. Income Summary account.
C. Retained Earnings account.
D. Dividends account

Back 38

B. Income Summary account.

Front 39

All of the following accounts are used with a perpetual inventory system except:
A. Cost of Goods Sold.
B. Inventory.
C. Purchases.
D. Sales Revenue.

Back 39

C. Purchases

Front 40

The post-closing trial balance consists only of:
A. asset and liability accounts.
B. nominal accounts.
C. revenue and expense accounts.
D. real accounts

Back 40

D. real accounts

Front 41

A work sheet:
A. replaces financial statements.
B. is a required step in the accounting cycle.
C. causes the financial statements to be prepared on a delayed basis.
D. is an informal device for accumulating and sorting information needed for the financial statements

Back 41

D. is an informal device for accumulating and sorting information needed for the financial statements.

Front 42

Which one of the following appears in both the income statement and balance sheet columns of a work sheet?
A. Merchandise Inventory.
B. Net income.
C. Retained Earnings.
D. Sales.

Back 42

B. Net income

Front 43

All of the following are points made about accounting information systems and their relationship to the convergence efforts by the IASB and the FASB except:
A. the cost of good information and better internal controls is a general held reason for why U.S. security markets more competitive.
B. while there is a need to work toward international convergence of accounting standards, there has also been a movement to improve international auditing standards.
C. commentators argue that SOX is the cause of the relative decline of U.S. IPOs.
D. commentators argue that the growth in non-U.S. markets is a natural consequence of general globalization of capital flows

Back 43

A. the cost of good information and better internal controls is a general held reason for why U.S. security markets more competitive.

Front 44

Corporations whose securities are listed on a U.S. stock exchange are required to file audited financial statements with the Financial Accounting Standards Board.
A. True
B. False

Back 44

B. False

Front 45

Accounting Research Bulletins (ARBs) were issued by the Accounting Principles Board (APB).
A. True
B. False

Back 45

B. False

Front 46

APB Opinions were issued by the Accounting Practices Board.
A. True
B. False

Back 46

B. False

Front 47

Financial Accounting Concepts are a major type of pronouncement issued by the FASB.
A. True
B. False

Back 47

A. True

Front 48

The passage of a new FASB Standards Statement requires the support of three of five Board members.
A. True
B. False

Back 48

A. True

Front 49

Financial reports generally focus on soft assets such as Apple's brand image or Wal-Mart's supply chain management system.
A. True
B. False

Back 49

B. False

Front 50

The AICPA's Practice Bulletins provide the Accounting Standards Executive Committee's views on narrow financial reporting issues that have not been addressed by the FASB.
A. True
B. False

Back 50

A. True

Front 51

Section 404 of the Sarbanes Oxley-Act requires public companies to attest to the effectiveness of their internal controls.
A. True
B. False

Back 51

A. True

Front 52

Foreign companies that list on U.S. exchanges are required to use U.S. GAAP.
A. True
B. False

Back 52

B. False

Front 53

All listed companies in the European Union use iGAAP.
A. True
B. False

Back 53

A. True

Front 54

iGAAP is more “rule-based” in its approach to standards than U.S. GAAP.
A. True
B. False

Back 54

B. False

Front 55

Which of the following generally provides a better indication of an enterprise's present and continuing ability to generate favorable cash flows?
A. Cash basis accounting.
B. Accrual basis accounting.
C. Managerial basis accounting.
D. Financial basis accounting

Back 55

B. Accrual basis accounting

Front 56

Which group selects members of the FASB?
A. FAF.
B. SEC.
C. AICPA.
D. FASAC

Back 56

A. FAF

Front 57

Which of the following is not a significant difference between the FASB and its predecessor, the APB?
A. Greater autonomy.
B. Larger membership.
C. Increased independence.
D. Broader representation

Back 57

B. Larger membership

Front 58

Which of the following organizations is not part of the current standard-setting structure?
A. Financial Accounting Foundation.
B. Financial Accounting Standards Board.
C. Financial Accounting Council.
D. Financial Accounting Standards Advisory Council.

Back 58

C. Financial Accounting Council

Front 59

Which of the following documents is not issued during the due process system that results in a new pronouncement?
A. Staff positions.
B. FASB Standard.
C. Exposure draft.
D. Discussion memorandum

Back 59

A. Staff positions

Front 60

The Financial Accounting Standards Board is composed of how many board members?
A. 7.
B. 10.
C. 5.
D. 18

Back 60

C. 5

Front 61

The organization whose purpose is to reach consensus on how to account for new and unusual financial transactions that have potential for creating differing financial reporting practices is the:
A. FASB.
B. FASAC.
C. EITF.
D. AICPA.

Back 61

C. EITF

Front 62

All of the following are true regarding the FASB Codification except:
A. the goal of the Codification was to provide one place where all authoritative literature about financial statement preparation could be found.
B. the purpose of the Codification is to create new GAAP.
C. the Codification was created to simplify user access.
D. the Codification changes the way GAAP is documented, presented, and updated.

Back 62

B. the purpose of the Codification is to create new GAAP

Front 63

International Financial Reporting Standards (IFRSs) are issued by the:
A. FASB
B. IASB
C. SEC
D. EU

Back 63

B. IASB

Front 64

The Sarbanes Oxley Act does all of the following except:
A. requires codes of ethics for senior financial officers.
B. transfers the final authority for GAAP to the PCAOB.
C. strengthens independence rules for auditors.
D. requires independence and financial expertise for members of the audit committee

Back 64

B. transfers the final authority for GAAP to the PCAOB.

Front 65

All of the following statements are true regarding convergence of U.S. GAAP with iGAAP except:
A. foreign companies that trade shares in U.S. markets are required to reconcile their accounting with U.S. GAAP under these convergence efforts.
B. the IASB has looked to the United States to determine the structure it should follow in establishing iGAAP.
C. iGAAP standard-setting structure is very similar to the standard-setting structure in the United States.
D. iGAAP tends to be less stringent in its disclosure requirements than U.S. GAAP.

Back 65

A. foreign companies that trade shares in U.S. markets are required to reconcile their accounting with U.S. GAAP under these convergence efforts.

Front 66

The historical cost principle applies even when a firm is not a going concern.
A. True
B. False

Back 66

B. False

Front 67

There are no exceptions to the revenue recognition rule that revenue is only recognized at the time of sale.
A. True
B. False

Back 67

B. False

Front 68

The full disclosure principle requires that all information that is of sufficient importance to influence the judgment and decisions of informed users be disclosed in the main body of the financial statements and in the notes to the financial statements.
A. True
B. False

Back 68

B. False

Front 69

The pervasive criterion of accounting information is decision usefulness.
A. True
B. False

Back 69

A. True

Front 70

Information that has been measured and reported in a similar manner for different enterprises is considered comparable.
A. True
B. False

Back 70

A. True

Front 71

For information to be reliable, it needs to have predictive or feedback value.
A. True
B. False

Back 71

B. False

Front 72

The FASB sometimes issues standards that have undesirable economic effects on an industry or company.
A. True
B. False

Back 72

A. True

Front 73

The periodicity assumption specifies that the appropriate time period for financial reporting is the calendar year.
A. True
B. False

Back 73

B. False

Front 74

Certain financial instruments are reported at fair value rather than historical cost.
A. True
B. False

Back 74

A. True

Front 75

Costs are classified as period costs when a company cannot establish a direct relationship between the cost and revenues.
A. True
B. False

Back 75

A. True

Front 76

The objective of the joint project of the IASB and the FASB is to develop a conceptual framework to replace the going concern concept.
A. True
B. False

Back 76

B. False

Front 77

The conceptual framework contains how many Statements of Financial Accounting Concepts that related to financial reporting for business enterprises?
A. 7
B. 6
C. 5
D. 4

Back 77

B. 6

The framework consists of 6 Statements of Financial Accounting Concepts. SFAC 1 –3 and 5 – 7. SFAC 4 deals with non-business enterprises

Front 78

The conceptual framework for financial reporting consists of how many levels?
A. 1
B. 2
C. 3
D. 4

Back 78

C. 3

Front 79

Which level of the conceptual framework is devoted to recognition and measurement concepts?
A. First.
B. Second.
C. Third.
D. All three levels

Back 79

C. Third


The third level which consists of assumptions, principles, and constraints

Front 80

The primary qualities of accounting information are:
A. comparability and consistency.
B. relevance and consistency.
C. comparability and reliability.
D. relevance and reliability

Back 80

D. relevance and reliability

Front 81

All of the following are ingredients of reliability, except:
A. feedback value.
B. neutrality.
C. representational faithfulness.
D. verifiability

Back 81

A. feedback value

Front 82

Which of the following elements of financial statements is the result of transactions, events, or circumstances that affect an enterprise during a period of time?
A. Assets.
B. Liabilities.
C. Equity.
D. Comprehensive income

Back 82

D. Comprehensive income

Front 83

The assumption that allows the merging of a parent company and its subsidiaries for financial reporting purposes is the:
A. going concern assumption.
B. economic entity assumption.
C. monetary unit assumption.
D. periodicity assumption

Back 83

B. economic entity assumption

Front 84

Which assumption makes the current – noncurrent classification of assets and liabilities on the balance sheet useful?
A. Going concern assumption.
B. Economic entity assumption.
C. Monetary unit assumption.
D. Periodicity assumption.

Back 84

A. Going concern assumption

Front 85

Which of the following is an important advantage of using cost over other possible valuations?
A. Reliability.
B. Relevance.
C. Comparable.
D. All of the above

Back 85

D. All of the above

Front 86

Nominal accounts are periodically closed.
A. True
B. False

Back 86

A. True

Front 87

Dividends are increased on the debit side.
A. True
B. False

Back 87

A. True

Front 88

Transactions are initially recorded in the general ledger.
A. True
B. False

Back 88

B. False

Front 89

When an item of expense is paid and recorded in advance, it is normally called an accrued expense.
A. True
B. False

Back 89

B. False

Front 90

In a periodic inventory system, purchases and sales are recorded directly in the inventory account as the purchase and sales occur.
A. True
B. False

Back 90

B. False

Front 91

Revenue, equity and liability accounts have normal credit balances.
A. True
B. False

Back 91

A. True

Front 92

When an item of revenue is collected and recorded in advance, it is normally called a prepaid revenue.
A. True
B. False

Back 92

B. False

Front 93

The book value of an asset is cost less salvage value.
A. True
B. False

Back 93

B. False

Front 94

Depreciation and amortization allocate the cost of a long-term assets to the periods which benefit from their use.
A. True
B. False

Back 94

A. True

Front 95

The revenue recognition principle requires that bad debts be estimated and expensed in the period of the sale.
A. True
B. False

Back 95

B. False

Front 96

Since non-U.S. markets are not affected by the Sarbanes Oxley Act (SOX), internal controls will not be discussed as part of the convergence efforts of the FASB and IASB.
A. True
B. False

Back 96

B. False

Front 97

In a double entry system every transaction affects:
A. only one account.
B. at least two accounts.
C. three or more accounts.
D. only two accounts

Back 97

B. at least two accounts

Front 98

In a proprietorship, the Capital account takes the place of all of the following corporation accounts except:
A. Common Stock.
B. Additional Paid in Capital.
C. Retained Earnings.
D. Dividends

Back 98

D. Dividends

Front 99

Which of the following is a real account?
A. Common Stock.
B. Dividends.
C. Sales.
D. Depreciation Expense

Back 99

A. Common Stock

Front 100

Which of the following steps in the accounting cycle is not optional?
A. Work sheet.
B. Reversing entries.
C. Adjusted trial balance.
D. Post closing trial balance

Back 100

C. Adjusted trial balance

Front 101

Journal entries are listed in:
A. numerical sequence.
B. alphabetical sequence.
C. chronological sequence.
D. random sequence

Back 101

C. chronological sequence

Front 102

Which of the following errors would cause a trial balance to not balance?
A. Not journalizing a transaction.
B. Not posting a journal entry.
C. Posting a journal entry twice.
D. Recording a transaction with several errors that are not offsetting.

Back 102

D. Recording a transaction with several errors that are not offsetting

Front 103

Adjusting entries can be classified as either:
A. accruals or reversals
B. prepayments or accruals.
C. real or nominal.
D. internal or external.

Back 103

B. prepayments or accruals

Front 104

The difference between the cost of any depreciable asset and its related account, Accumulated Depreciation is referred to as the asset's:
A. book value.
B. fair value.
C. market value.
D. real value.

Back 104

A. book value

Front 105

Unearned revenues are classified as:
A. assets.
B. liabilities.
C. revenues.
D. stockholders' equity

Back 105

B. liabilities.

Front 106

A perpetual inventory system does not contain which of the following accounts?
A. Merchandise inventory.
B. Cost of goods sold.
C. Purchases.
D. Sales Revenue

Back 106

C. Purchases

Front 107

The party to whom a check is made out is called the _______________________.

Back 107

payee

Front 108

The amount that the bank charges a depositor for handling checks and collections is
called a(n) _______________________.

Back 108

service charge

Front 109

The method used to transfer title of a check is known as a(n) ___________________.

Back 109

endorsement

Front 110

Varieties of coins and currency are called _______________________.

Back 110

denominations

Front 111

Checks issued by the depositor that have been paid by the bank and included with
the bank statement are called _______________________.

Back 111

canceled checks

Front 112

An endorsement that prevents further circulation of a check is called a(n)

Back 112

restrictive endorsement

Front 113

The party who writes the check is called the

Back 113

drawer

Front 114

On a bank reconciliation, the balance of the Cash account in the general ledger is
called the

Back 114

ledger balance of cash

Front 115

A deposit not recorded on the bank statement because the deposit was made between
the bank’s cut-off date and the time the statement is received is called a(n)

Back 115

deposit in transit

Front 116

The _______________________ is a cash fund used to handle transactions where
customers pay cash for goods and services

Back 116

change fund