Multiple-Choice Exercises

1. Which of the following is not a benefit derived from the conceptual framework?

a. Supports the objective of providing information useful for making business and economic decisions.

b. Provides a logical structure to aid in the understanding of complex accounting standards.

c. Provides specific guidance on how transactions should be recorded.

d. Supports the development of a consistent set of accounting standards.

2. Which of the following is not a characteristic of useful information?

a. Conservatism

b. Relevance    

c. Faithful representation

d. Comparability

3. Information that provides feedback about prior expectations is:

                 Relevant               Faithfully Represented

a.                     Yes                                          Yes

b.                     No                                           Yes

c.                     Yes                                          No

d.                     No                                            No

4. Relevant information possesses this quality:

           Freedom from                     Error Predictive Value

a.                     Yes                                          Yes

b.                     No                                           Yes

c.                     Yes                                          No

d.                     No                                           No

5. Which of the following is not an assumption that underlies accounting?

a. Economic entity

b. Historical cost         

c. Time-period

d. Continuity (going concern)

6. Which principle requires that expenses be recorded and reported in the same period as the revenue that it helped generate?

a. Historical cost

b. Revenue recognition           

c. Conservatism

d. Matching

7. Taylor Company recently purchased a piece of equipment for $2,000 which will be paid within 30 days after delivery. At what point would the event be recorded in Taylor’s accounting system?

a. When Taylor signs the agreement with the seller.

b. When Taylor receives an invoice (a bill) from the seller.

c. When Taylor receives the asset from the seller.

d. When Taylor pays $2,000 cash to the seller.