) Answer the following T/F and multiple choice questions in the area provided.

1. The continuity assumption holds that a business will carry on indefinitely.

True False

2. The going concern principal does not apply if a company is expected to be liquidated in the next 24 months. True False

3. The sales manager of a firm has the use of a blue company-owned automobile to use to visit potential customers. The sales manager also owns her own identical car except that it is red. The manager paid for the red car with funds earned from her employment as sales manager. The firm will report the cost of the blue auto in its balance sheet, but not the red auto. This is an example of: A. Reliability B. Matching C. Separate entity D. Going concern E. None of these answers are correct.

4. Accounting information is considered to be relevant when it A. can be depended on to represent the economic conditions and events that it is intended to represent. B. is capable of making a difference to a decision-maker. C. is understandable by reasonably informed users of accounting information. D. is verifiable and neutral.

5. A large international corporation immediately expenses the $50 cost of a small item of office equipment. This is an example of: A. reliability. B. conservatism. C. materiality. D. an accounting error.