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INTERMEDIATE ACCOUNTING EXAM QUESTIONS WITH CORRECT ANSWERS
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INTERMEDIATE ACCOUNTING EXAM QUESTIONS WITH CORRECT ANSWERS
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INTERMEDIATE ACCOUNTING EXAMQUESTIONS WITH CORRECT ANSWERS
1. Summary of learning objectives
Identify the major financial statements and other means of financial reporting - answer-
companies most frequently provide (l) the balance sheet, (2) the income statement, (3)
the statement of cash flows, and (4) the statement of owners' or stockholders' equity.
Financial accounting - answer-the accounting process that culminates in the preparation
of financial reports for use by both internal and external parties. (p. 4).
Financial statements - answer-the principal means through which a company
communicates its financial information. These statements reflect the collection,
tabulation, and final summarization of the accounting data. The statements most
frequently provided are (1) the balance sheet, (2) the income statement, (3) the
statement of cash flows, and (4) the statement of owners' or stockholders' equity. Note
disclosures are an integral part of a company's financial statements. (p. 4).
Financial reporting - answer-reporting of financial information other than in formal
financial statements. Examples include the president's letter or supplementary
schedules in the corporate annual report, prospectuses, reports filed with government
agencies, news releases, management's forecasts, and social or environmental impact
statements. (p. 4).
2. Summary of learning objectives
Explain how accounting assists in the efficient use of scarce resources. - answer-
accounting provides reliable, relevant, and timely information to managers, investors,
and creditors to allow resource allocation to the most efficient enterprises. Accounting
also provides measurements of efficiency (profitability) and financial soundness.
3. Summary of learning objectives
Identify the objective of financial reporting. - answer-he objective of general-purpose
financial reporting is to provide financial information about the reporting entity that is
useful to present and potential equity investors, lenders, and other creditors in decisions
about providing resources to the entity through equity investments and loans or corms
of credit. Information that is decision-useful to investors may also be helpful to ther
users of financial reporting who are not investors.
Objective of financial reporting - answer-goal for financial accounting and reporting,
established by the accounting profession, which is to provide information about the
reporting entity that is useful to present and potential to equity investors, lenders, and
other creditors in decisions about providing resources to the entity. (p. 5).
, General-purpose financial statements - answer-provide financial reporting information to
a wide variety of users at the least cost. (p. 5).
Entity perspective - answer-the view that companies are distinct and separate from their
owners (present shareholders). (p. 6).
Decision-usefulness - answer-approach that requires that financial reporting be useful to
investors by helping them assess (1) the company's ability to generate net cash inflows
and (2) management's ability to protect and enhance the capital providers' investments.
(p. 6).
Accrual-basis accounting - answer-accounting approach, in which a company records
events that change its financial statements in the periods in which the events occur,
rather than only in the periods in which it receives or pays cash. Thus, a company
recognizes revenues when it earns them rather than when it receives cash, and it
recognizes expenses when it incurs them rather than when it pays them. (p. 7).
4. Summary of learning objectives
Explain the need for accounting standards. - answer-the accounting profession has
atmpted to develop a set of standards that is generally accepted and universally
practiced. Readers of financial statements would have to familiarize themselves with
every company's peculiar accounting and reporting practices. As a result, it would be
alm.ost lmpossible to prepare statements that could be compared.
Generally accepted accounting principles (gaap) - answer-the common set of
accounting standards and procedures, for which either an authoritative accounting rule-
making body has established a principle of reporting in a given area, or over time, a
given practice has been accepted as appropriate because of its universal application.
(p. 7).
5. Summary of learning objectives
Identify the major policy-setting bodies and their role in the standard-setting process. -
answer-the securities and exchange commission (sec) is a federal agency that has the
broad powers to prescribe, in whatever detail it desires, the accounting standards to be
employed by companles that fall within its jurisdiction. The american institute of certified
public accountants (aicpa) issued standards through its committee on accounting
procedure and accounting principles board. The financial accounting standards board
(fasb) establishes and improves standards of financial accounting and reporting for the
guidance and education of the public.
Securities and exchange commission (sec) - answer-federal agency established to help
develop and standardize financial information presented to stockholders. It administers
the securities exchange act of 1934 and several other acts. Most companies that issue
securities to the public are required to file audited financial statements with the sec. The
sec also has broad powers to prescribe the accounting practices and standards to be
employed by companies that fall within its jurisdiction. (p. 8).
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