第一章自学练习题

Self Study

I. Choose the best answer for each question below.

1. What is the time period assumption?

A) Companies should recognize revenue in the accounting period in which it is

earned.

B) Companies should match expenses with revenues.

C) The economic life of a business can be divided into artificial time periods.

D) The fiscal year should correspond with the calendar year.

2. An interim period is generally ______.

A) less than one year

B) more than one year

C) more than one year but less than the life of the company

D) the life of the company

3. Which principle dictates that efforts (expenses) be recorded with accomplishments

(revenues)?

A) Matching principle.

B) Cost principle.

C) Periodicity principle.

D) Revenue recognition principle.

4. The objectivity principle of accounting ______.

A) maintains that each organization or section of an organization stands apart from

other organizations and individuals

B) ensures that accounting records and statements are based on the most reliable

data available

C) holds that the entity will remain in operation for the foreseeable future

D) enables accountants to ignore the effect of inflation in the accounting records

5. The stable-monetary-unit concept of accounting ______.

A) maintains that each organization or section of an organization stands apart from

other organizations and individuals

B) ensures that accounting records and statements are based on the most reliable

data available

C) holds that the entity will remain in operation for the foreseeable future

D) enables accountants to ignore the effect of inflation in the accounting records

6. The going-concern concept of accounting ______.

A) maintains that each organization or section of an organization stands apart from

other organizations and individuals

B) ensures that accounting records and statements are based on the most reliable

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data available

C) holds that the entity will remain in operation for the foreseeable future

D) enables accountants to ignore the effect of inflation in the accounting records

7. The principle which states that assets acquired by the business should be recorded at

their actual price is the ______.

A) objectivity principle

B) stable dollar principle

C) cost principle

D) reliability principle

8. The CEO of a business owns a residence in Phoenix. The company the CEO works

for owns a residence in Tucson used for strategic planning meetings by its executives.

Which of these properties is considered assets of the business?

A) The Phoenix residence only.

B) The Tucson residence only.

C) Both the Phoenix and Tucson residences.

D) Neither the Phoenix nor Tucson residences.

9. Generally accepted accounting principles are ______.

A) a set of standards and rules that are recognized as a general guide for financial

reporting

B) usually established by tax bureau

C) the guidelines used to resolve ethical dilemmas

D) fundamental truths that can be derived from the laws of nature

10. There are two methods used to account for transactions. These methods are ______.

A) cash and deferral

B) cash and accrual

C) accrual and deferral

D) deferral and prepaid

11. 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.

12. Financial statements are ______.

A) reports issued by outside consultants who are hired to analyze key operations of

the business

B) reports created by management that states it is responsible for the acts of the

corporation

C) standard documents that tell us how well a business is performing and where it

stands in financial terms

D) standard documents issued by outside consultants who are hired to analyze key

operations of the business in financial terms

13. Which of the following best describes a liability?

A) Liabilities are a form of paid-in capital.

B) Liabilities are future economic benefits to which a company is entitled.

C) Liabilities are accounts receivable of the corporation.

D) Liabilities are economic obligations to creditors to be paid at some future date

by the corporation.

14. The owners’ interest in the assets of a corporation is known as ______.

A) long-term assets

B) stockholders’ equity

C) operating expenses

D) common stock

15. Net income is computed as ______.

A) revenues – expenses

B) revenues + expenses

C) revenues – expenses + dividends

D) revenues – expenses – dividends

16. The accounting equation can be stated as ______.

A) Assets + Liabilities = Stockholders’ equity

B) Assets = Liabilities + Stockholders’ equity

C) Assets = Liabilities - Stockholders’ equity

D) Assets + Stockholders’ equity = Liabilities

17. An investor wishing to assess a company’s financial position at the end of the period

would probably examine ______.

A) the statement of cash flows

B) the income statement

C) the balance sheet

D) the statement of retained earnings

18. Which of the following statements regarding accounts is false?

A) An asset is increased by a debit and decreased by a credit.

B) Dividends are increased by credits and decreased by debits.

C) A liability is decreased by a debit and increased by a credit.

D) Revenue is increased by a credit and an expense is increased by a debit.

19. Double-entry accounting means that each transaction ______.

A) is recorded in both the journal and in the ledger

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B) increases at least one account and decreases at least one account

C) affects both an income statement account and a balance sheet account

D) debits at least one account and credits at least one account

20. 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

II. Fill in the blanks with the proper words.

1. ________________________are the principal means through which financial

information is communicated to those outside an enterprise.

2. The cash basis of accounting recognizes revenues and expenses only when _____is

received or paid.

3. Under the _______ basis of accounting, the accountant recognizes the impact of a

business transaction on an entity when the transaction occurs, whether or not

cash is

received or paid.

4. Financial accounting information must meet certain standards of relevance and

_______.

5. _____________________provides a reference point for developing and adopting

accounting standards in countries.

6. A soundly developed conceptual framework should enable the standards-setters to

issue more useful and consistent ________ over time.

7. Accounting ___________ is the process of determining the monetary amounts at

which the elements of the financial statements are to be recognized and carried in the

financial statements.

III. True or False questions.

1. The stable monetary unit concept means that the type of currency used for the

financial statements is not expected to change. ( )

2. The objectivity principle states that assets and services should be recorded at their

actual cost, since cost is a reliable measure to use in financial accounting. ( )

3. Using accrual accounting, revenues are not recorded until the cash for the revenue is

received. ( )

4. Accrual accounting is more complete and complex than cash accounting. ( )

5. The matching principle requires the identification of liabilities and matching them

with the assets used to pay them. ( )

6. Under the revenue principle, businesses should record revenue when it is earned

regardless of

when payment is received from the customer. ( )

7. The application of the matching principle results in the recognition of net income or

net loss. ( )

8. Accrual accounting provides some ethical challenges that cash accounting avoids.

( )

9. The historical cost principle applies even when a firm is not a going concern. ( )

10. There are no exceptions to the revenue recognition rule that revenue is only

recognized at the time of sale. ( )

IV. Case

Relevance and reliability are the two primary qualities that make accounting

information useful for decision making. Subject to constraints imposed by cost and

materiality, increased relevance and increased reliability are the characteristics that make

information a more desirable commodity—that is, one useful in making decisions. If

either of those qualities is completely missing, the information will not be useful. Though,

ideally, the choice of an accounting alternative should produce information that is both

more reliable and more relevant, it may be necessary to sacrifice some of one quality for a

gain in another.

Questions:

1. Is the following statement true or false?

The pervasive criterion of accounting information is decision usefulness. ( )

2. The primary qualities of accounting information are ______.

A) comparability and consistency

B) relevance and consistency

C) comparability and reliability

D) reliability and relevance

3. 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

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V. Supplementary reading.

Deferrals and Accruals

At the end of accounting period, the business reports its financial statements. Before

the preparation, some accounts must be adjusted to update. Accounting adjustments fall

into two basic categories: deferrals and accruals.

A deferral is an adjustment for which the business paid or received cash in advance.

Prepaid rent, prepaid insurance and all other prepaid expenses require deferral adjustments.

Depreciation is the most common long-term deferral. This kind of deferrals is deferred

expenses. As to the expired part of the cost, a certain expense account is debited and

prepaid asset account is credited.

There are also deferral adjustments for liabilities, such as unearned revenue. This

earning process requires an adjustment at the end of each accounting period. The

adjustment decreases the liability and increases the revenue for the amount of revenue

earned. Publishers of newspaper sell subscriptions and collect cash in advance. This kind

of deferrals is deferred revenue. As to the expired part of the liability, a certain revenue

account is credited and liability account is debited.

An accrual is the opposite of a deferral. For an accrued expense, the business records

an expense before paying cash. For accrued revenue, it records the revenue before

collecting cash. The term accrued expense refers to a liability that arises from an expense

that has not yet been paid. For example, companies don’t accrue tax expenses daily or

weekly until the end of month when tax return is prepared for tax payment in the

following month. Adjusting entry should include a debit to expense account and a credit to

liability account.

Businesses often earn revenues before they receive the cash. A revenue that has been

earned but not yet collected is called an accrued revenue. Adjusting entry includes a debit

to asset account and a credit to revenue account.

Notes:

deferral 递延项目

accrual 应计项目

depreciation 折旧

adjusting entry 调整分录

Self-examination:

1. Indicate whether the resulting adjustment will be a deferral or an accrual. The first

item is completed as an example.

Adjusting entry Type

Insurance paid in advance expired during the month. Deferral

Estimated the monthly utilities bill and recorded the expense.

Unearned service revenue had been earned by the end of the month.

Recorded the monthly depreciation on the office furniture.

Recorded salaries owed to employees at the end of the month but not paid until

early next month.

Recorded interest earned on a note receivable but not yet collected.

2. Multiple-choice questions.

(1) An accrual refers to an event ______.

A) where the expense or revenue is recorded after the cash settlement

B) where the liability is recorded after the cash settlement

C) where the expense or revenue is recorded before the cash settlement

D) where the asset is recorded after the cash settlement

(2) The term deferral refers to an event ______.

A) where the recognition of an expense or revenue is recorded before the cash is

paid or received

B) where the liability for an expense is recorded after the expense is actually

incurred

C) where the liability for an expense is recorded before the expense is actually

incurred

D) where the recognition of an expense or revenue is recorded after the cash is

paid or received

Keys

I. 1. C 2. A 3. A 4. B 5. D 6. C 7. C 8. B 9. A 10. B 11. B 12. C 13.

D 14. B 15. A 16. B 17. C 18. B 19. D 20. D

II. 1. Financial statements 2. cash 3. accrual 4. reliability 5. Conceptual framework

6. standards 7. measurement

III. 1. F 2. F 3. F 4. T 5. F 6. T 7. T 8. T 9. F 10. F

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IV. 1. T 2. D 3. D

V. 1.

2. (1) C (2) D

Adjusting entry Type

Insurance paid in advance expired during the month. Deferral

Estimated the monthly utilities bill and recorded the expense. Accrual

Unearned service revenue had been earned by the end of the month. Deferral

Recorded the monthly depreciation on the office furniture. Deferral

Recorded salaries owed to employees at the end of the month but not to be Accrual

paid until early next month.

Recorded interest earned on a note receivable but not yet collected. Accrual