1. Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is:

a. relevance.

b. reliability.

c. understandability.

d. materiality.

2. Which of the following is not a major challenge facing the accounting profession:

a. Nonfinancial measurements

b. Accounting for hard assets.

c. Timeliness.

d. Forward-looking information.

3. The underlying theme of the conceptual framework is:

a. decision usefulness.

b. understandability.

c. reliability.

d. comparability.

4. The two primary qualities that make accounting information useful for decision making are:

a. comparability and consistency.

b. materiality and timeliness.

c. relevance and reliability.

d. reliability and comparability.

5. Information is neutral if it:

a. provides benefits which are at least equal to the costs of its preparation.

b. can be compared with similar information about an enterprise at other points in time.

c. would have no impact on a decision maker.

d. is free from bias toward a predetermined result.

6. The major elements of the income statement are:

a. revenue, cost of goods sold, selling expenses, and general expense.

b. operating section, non-operating section, discontinued operations, and cumulative effect.

c. revenues, expenses, gains, and losses.

d. revenues, irregular items, and general expenses.

7. The income statement provides investors and creditors with information to predict all of the following except the:

a. amount of future cash flows.

b. sources of future cash flows.

c. timing of future cash flows.

d. uncertainty of future cash flows.

8. In order to be classified as an extraordinary item in the income statement, an event or transaction should be:

a. unusual in nature, infrequent, and material in amount.

b. unusual in nature and infrequent, but it need not be material.

c. infrequent and material in amount, but it need not be unusual in nature.

d. unusual in nature and material, but it need not be infrequent.

9. Which of the following is a change in accounting principle?

a. a change in the estimated service life of machinery

b. a change from FIFO to LIFO

c. a change from straight-line to double-declining-balance

d. a change from FIFO to LIFO and a change from straight-line to double-declining-balance

10. For Mortenson Company, the following information is available:

Cost of goods sold$ 60,000	Income tax expense 6,000
Dividend revenue2,500	Operating expenses 23,000
Sales 100,000

In Mortensons multiple-step income statement, gross profit:

a. should not be reported

b. should be reported at $13,500.

c. should be reported at $40,000.

d. should be reported at $42,500.