Exam Practice Questions with Answers for Accounting Principles 2
Internal users of accounting information - Answers ...
external users of accounting information - Answers Investors, creditors, employees, labor unions,
customers, suppliers, government regulatory agencies, financial intermediaries
financial accounting - Answers Provides relevant financial information to various external users.
managerial accounting - Answers deals with the concepts and methods used to provide information to
an organization's internal users
GAAP - Answers set of both broad and specific guidelines that companies should follow when measuring
and reporting the information in their financial statements and related notes
SEC - Answers responsible for setting accounting and reporting standards for companies whose
securities are publicly traded
FASB - Answers the current private sector body that has been delegated the task of setting accounting
standards.
IASB - Answers objectives are to develop a single set of high-quality understandable global accounting
standards, to promote the use of those standards, and to bring about the convergence of national
accounting standards and international accounting standards
IFRS - Answers developed by the IASB and used by more than 100 countries
SOX - Answers law provides for the regulation of the key players in the financial reporting process
Initial market transactions - Answers involves issuance of stocks and bonds by the corporation
Secondary market transactions - Answers involves the transfer of stocks and bonds between individuals
and institutions
Maltec Corporation has started placing its quarterly financial statements on its web page, thereby
reducing by 10 days the time to get information to investors and creditors. The qualitative concept
improved is: - Answers Timeliness
Timeliness - Answers information that is available to users early enough to allow its use in the decision
process
Consistency - Answers permits valid comparisons between different periods
Faithful representation - Answers exists when there is agreement between a measure or description and
the phenomenon it purports to represent
Comparability - Answers the ability to help users see similarities and differences among events and
conditions
, Astro Turf Company recognizes an expense, cost of goods sold, in the period the product is
manufactured. - Answers The matching principle
Cloud Drug Company owns a patent that it purchased three years ago for $2 million. The controller
recently revalued the patent to its approximate market value of $8 million. - Answers The historical cost
(original transaction value) principle
Philips Company pays the monthly mortgage on the home of its president, Larry Crosswhite, and charges
the expenditure to miscellaneous expense. - Answers The economic entity assumption
The economic entity assumption - Answers of an entity be kept separated from activities of its owner
The matching principle - Answers expenses are recognized in the same period as the related revenues
The historical cost principle - Answers original transaction value
Liability - Answers Obligation to transfer cash or other resources as a result of a past transaction.
distribution to owners - Answers Dividends paid by a corporation to its shareholders.
revenue - Answers Inflow of an asset from providing a good or service.
Assets, liabilities and equity - Answers The financial position of a company.
Comprehensive income - Answers Increase in equity during a period from nonowner transactions.
Gain - Answers Increase in equity from peripheral or incidental transaction.
Loss - Answers Sale of an asset used in the operations of a business for less than the asset's book value.
Equity - Answers The owners' residual interest in the assets of a company.
Asset - Answers An item owned by the company representing probable future benefits.
Net income - Answers Revenues plus gains less expenses and losses.
Investment by owner - Answers An owner's contribution of cash to a corporation in exchange for
ownership shares of stock.
Expense - Answers Outflow of an asset related to the production of revenue.
Economic entity assumption - Answers The enterprise is separate from its owners and other entities.
Periodicity - Answers A common denominator is the dollar.
Historical cost principle - Answers The entity will continue indefinitely.
Materiality - Answers Record expenses in the period the related revenue is recognized.
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