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Accounting: What the Numbers Mean, 5/e

David H. Marshall, Millikin University
Wayne W. McManus, International College of the Cayman Islands
Daniel F. Viele, Webster University

Financial Statements and Accounting Concepts/Principles

Multiple Choice Quiz

Please answer all questions


1	Which of the following is not a correct expression of the accounting equation?
		A)	Assets - Liabilities = Owners' Equity
		B)	Net Assets = Liabilities + Equities
		C)	Assets = Equities
		D)	Assets = Liabilities + Owners' Equity
		E)	Net Assets = Owners' Equities


2	The owners' equity section of a balance sheet contains two major components:
		A)	Common Stock and Additional Paid-in Capital
		B)	Paid-in Capital and Retained Earnings
		C)	Common Stock and Retained Earnings
		D)	Net Income and Dividends
		E)	Additional Paid-in Capital and Net Income


3	The principle stating that all expenses incurred while earning revenues should beidentified with the revenues when they are earned, and reported for the same time period is the:
		A)	cost principle.
		B)	revenue principle.
		C)	expense principle.
		D)	matching principle.
		E)	timing principle.


4	Which of these is not a limitation of financial statements?
		A)	Qualitative data are not reflected in financial statements.
		B)	Market values of assets are not generally reported.
		C)	Estimates are commonly used and are sometimes inaccurate.
		D)	It may be difficult to compare firms in the same industry because they often use different accounting methods.
		E)	All of the above are limitations of financial statements.


5	The balance sheet is sometimes referred to as the:
		A)	Statement of Financial Position.
		B)	Statement of Assets and Liabilities.
		C)	Statement of Changes in Financial Position.
		D)	Statement of Current Affairs
		E)	none of the above


6	The time frame associated with a balance sheet is:
		A)	a point in time in the past.
		B)	a one-year past period of time.
		C)	a single date in the future.
		D)	a function of the information included in it.
		E)	a two-year comparative period of time.


7	The distinction between a current asset and other assets:
		A)	is based on how long the asset has been owned.
		B)	is based on amounts that will be paid to other entities within a year.
		C)	is based on the ability to determine the current fair market value of the asset.
		D)	is based upon whether the asset is tangible or intangible.
		E)	is based on when the asset is expected to be converted to cash, or used to benefit the entity.


8	The purpose of the income statement is to show the:
		A)	change in the fair market value of the assets from the prior income statement.
		B)	market value per share of stock at the date of the statement.
		C)	revenues collected during the period covered by the statement.
		D)	net income or net loss for the period covered by the statement
		E)	all of the above.


9	The going concern concept refers to a presumption that:
		A)	the entity will be profitable in the coming year.
		B)	the entity will not be involved in a merger within a year.
		C)	the entity will continue to operate in the foreseeable future.
		D)	top management of the entity will not change in the coming year.
		E)	none of the above.


10	The principle of consistency means that:
		A)	the accounting methods used by an entity never change.
		B)	the same accounting methods are used by all firms in an industry.
		C)	the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.
		D)	there are no alternative methods of accounting for the same transaction.
		E)	the balance sheet must always balance.

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