Multiple Choice: Accounting Concepts Select the correct answer for each of the following:

An accounting entity:

a. Almost never consists of more than one legal entity.

b. Is always the same as the legal entity.

c. Is ignored if the business is run as a partnership and only financial statements for the partners are prepared.

d. Frequently includes more than one legal entity.
One of the reasons historical costs are used in valuing assets for financial statement purposes is:

a. They are more easily verified than current market values.

b. Except in unusual cases, they generally represent the current market values of the assets at the time a balance sheet is prepared.

c. They make the accounting process easier.

d. Most companies do not wish to disclose the actual value of their assets.

Materiality means:

a. An asset is of value to the company.

b. Two competent individuals may interpret the results differently.

c. An item of information is important enough to influence a decision.

d. Two companies must report similar events in the same manner.

e. All of the above.
The going-concern concept assumes:

a. The company can sell its assets at the reported amounts.

b. The company will continue in business for a period not in excess of ten years.

c. The company will continue in business indefinitely.

d. The company has sufficient cash reserves to support it into the indefinite future.
Select the correct answer for each of the following:
1. The matching concept refers to:

a. Adding together similar types of assets and liabilities when preparing a balance sheet.

b. Including all the assets and liabilities in the balance sheet.

c. Reporting costs in the income statement in the same period in which benefits obtained from those costs are reported.

d. Adding together similar types of revenues and expenses when preparing the income statement.
Under the concept of conservatism:

a. Assets are recorded as expenses at the time of purchase.

b. Liabilities are not recognized until paid.
The lowest possible value is always assigned to assets.

d. When alternative valuations are possible, the lower value is assigned to an asset.
When preparing a balance sheet and faced with the choice of two different values to assign, the concept of conservatism could lead to:

a. Assigning the lower value, both for assets and liabilities.

b. Assigning the higher value, both for assets and liabilities.

c. Assigning the higher value for assets and the lower value for liabilities.

d. Assigning the lower value for assets and the higher value for liabilities.
In the balance sheet, the valuation of most assets is based on:

a. Current cost.

b. Historical cost.

c. Net realizable value.

d. Market value.
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