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Class problems: Chapter 3

Multiple choice

Circle the letter of the best answer for each of the following questions.

1.

Which of the following is not considered a component of generally accepted accounting principles?

a.

FASB Implementation Guides.

b.

Widely recognized industry practices.

c.

Articles published in CPA journals.

d.

AICPA Accounting Interpretations.

2.

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting

Principles Board (APB), is

a.

The FASB issues exposure drafts of proposed standards.

b.

All members of the FASB are fully remunerated, serve full time, and are independent of any companies or

institutions.

c.

All members of the FASB possess extensive experience in financial reporting.

d.

A majority of the members of the FASB are CPAs drawn from public practice.

3.

The passage of a new FASB Accounting Standards Update requires the support of

a.

Seven Board members.

b.

Three Board members.

c.

Four Board members.

d.

Five Board members.

4.

Which of the following is a fundamental quality of useful accounting information?

a.

Comparability.

b.

Relevance.

c.

Neutrality.

d.

Materiality.

5.

Which of the following is an ingredient of faithful representation?

a.

Predictive value.

b.

Materiality.

c.

Neutrality.

d.

Confirmatory value.

6.

Which of the following elements of financial statements is not a component of comprehensive income?

a.

Revenues

b.

Distributions to owners

c.

Losses

d.

Expenses

7.

Which of the following errors will cause an imbalance in the trial balance?

a.

Omission of a transaction in the journal.

b.

Posting an entire journal entry twice to the ledger.

c.

Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable.

d.

Listing the balance of an account with a debit balance in the credit column of the trial balance.

8.

An adjusting entry should never include a:

a.

Debit to an expense account and a credit to a liability account.

b.

Debit to an expense account and a credit to a revenue account.

c.

Debit to a liability account and a credit to revenue account.

d.

Debit to a revenue account and a credit to a liability account.

9.

The failure to properly record an adjusting entry to accrue a revenue item will result in an

a.

Understatement of revenues and an understatement of liabilities.

b.

Overstatement of revenues and an overstatement of liabilities.

c.

Overstatement of revenues and an overstatement of assets.

d.

Understatement of revenues and an understatement of assets.

10.

An accrued expense can best be described as an amount

a.

Paid and currently matched with earnings.

b.

Paid and not currently matched with earnings.

c.

Not paid and not currently matched with earnings.

d.

Not paid and currently matched with earnings.

11.

An adjusted trial balance

a.

Is prepared after the financial statements are completed.

b.

Proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have

been made.

c.

Is a required financial statement under generally accepted accounting principles.

d.

Cannot be used to prepare financial statements.

12.

A reversing entry should not be made for an:

a.

Accrued expense adjustment.

b.

Accrued revenue adjustment.

c.

Prepaid expense adjustment when the original debit was to an asset account.

d.

Prepaid expense adjustment when the original debit was to an expense account.

Answer 1

1	Articles published in CPA journals.
2	All members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
3	Four Board members.
4	Relevance.
5	Neutrality
6	Distributions to owners
7	Listing the balance of an account with a debit balance in the credit column of the trial balance.
8	Debit to an expense account and a credit to a revenue account.
9	understatement of revenues and an understatement of assets.
10	Not paid and currently matched with earnings.
11	Proves the equality of the debit balances and credit balances of ledger accounts after all adjustments havebeen made.
12	Prepaid expense adjustment when the original debit was to an expense account.