Test Bank For Intermediate Accounting 2nd Edition By
Michelle L. Hanlon; Leslie Hodder; Karen K. Nelson; Darren
Roulstone; Amie L. Dragoo 9781618533357 ALL Chapters .
1) Which party involved in the financial reporting process provides assurance that the financial
statements prepared by management fairly present the financial position and performance of the
company? - ANSWER: External auditors
2) Which of the following types of information would be categorized as financial information?
A) Asset values governed by accounting standards
B) Footnote disclosures in annual reports
C) Auditor's report
D) all of the above - ANSWER: D
What group or organization both protects investors and oversees the accounting standard-setting
process in the United States? - ANSWER: United States Security and Exchange Commission
4) Which of the following statements correctly identifies accounting standard setters?
A) The AICPA promulgates accounting standards in the U.S. and the IFRS issues international
accounting standards.
B) The AICPA promulgates accounting standards in the U.S. and the IASB issues international
accounting standards.
C) The FASB promulgates accounting standards in the U.S. and the IFRS issues international
accounting standards.
D) The FASB promulgates accounting standards in the U.S. and the IASB issues international
accounting standards. - ANSWER: D: The FASB promulgates accounting standards in the U.S. and the
IASB issues international accounting standards.
What is the definition of fair value? - ANSWER: The amount at which an asset could be bought or sold
in a current transaction between willing parties.
________ indicates whether financial information depicts an economic event in a way that is
complete, neutral, and free from error. - ANSWER: Faithful Representation
Under U.S. GAAP, ________ is an example of a period-of-time element and appears on the ________.
- ANSWER: sales revenue; income statement
The process of reporting an economic event in the financial statements is known as ________. -
ANSWER: recognition
Shadow's Cleaning Service provides weekly cleaning services for $41 per week. In January, they
collected payments from 60 customers for 3 months (12 weeks) of service each. For the month of
January, they will recognize ________ of revenue under the cash basis, and ________ under the
accrual basis. - ANSWER: $29,520; $9,840
If a company is facing a bankruptcy from which it is quite doubtful that the firm may ever recover,
which underlying assumption would not be valid?
A) going concern concept
B) periodicity assumption
C) economic entity concept
D) monetary unit assumption - ANSWER: A) going concern concept
Which underlying assumption presumes that the owner's personal residence should not be included
as an asset on the company balance sheet? - ANSWER: economic entity concept
, Which attribute of a fundamental characteristic makes explicit the assumption of the full disclosure
principle? - ANSWER: completeness
________ occurs when managers manipulate financial information and misrepresent the firm's
financial position and performance. - ANSWER: Earnings management
An attitude that includes a questioning mind and a critical assessment of audit evidence is known as
________. - ANSWER: professional skepticism
Which of the following situations might influence management to intentionally bias estimates for the
financial statements and impede the use of good judgment?
A) Earnings are on track to surpass analysts' forecasts.
B) Management's bonuses are tied to net income.
C) Employees work for commission.
D) All of the above - ANSWER: B) Management's bonuses are tied to net income.
Caesar Company needs to purchase a new delivery truck. Rather than taking the time to research
which truck would best fit the company's needs, the manager calls his friend to ask which truck he
would recommend. The manager is exhibiting ________. - ANSWER: availability bias
Bill Smith is on assignment for his first audit, when he runs into an accounting practice he's never
dealt with before. Rather than asking a more experienced colleague for advice, Bill decides he knows
enough to handle it. After all, he passed the CPA exam, didn't he? Bill is exhibiting ________. -
ANSWER: overconfidence bias
Airlines Insider is a well-respected publication for the airline industry. The publication prescribes a
certain accounting treatment which differs from what is indicated in the Codification. How should this
be handled? - ANSWER: Follow the treatment discussed in the Codification.
Liacouras Corp. had beginning of year Retained Earnings of $550,000. During 2018, the company had
declared dividends of $24,000, and earned net income of $78,000. What was the balance of Liacouras
Corp's Retained Earnings at the end of the year? - ANSWER: $604,000
What is the effect on the accounting equation when a company receives payment when it provides
services to a customer?
A) Assets increase; liabilities decrease
B) Assets decrease; equity decreases
C) Assets increase; revenues increase
D) Assets decrease; revenues increase - ANSWER: C) Assets increase; revenues increase
On its unadjusted trial balance, Paley Company reported $1,800 of supplies. A physical count of
supplies in the supply room finds that supplies on hand at the end of the year were $250. What is the
necessary adjusting journal entry? - ANSWER: Supplies Expense 1,550 DR
Supplies 1,550 CR
Accounting Standards Codification - ANSWER: the single source of GAAP in the United States and
includes all pronouncements issued by any of the standard-setting bodies that have not been
superseded. Often referred to as the Codification.
asset/liability (balance sheet) approach - ANSWER: is an approach to developing accounting standards
that bases the reporting decision on whether the economic resource is received and it meets the
definition of an asset or a liability.
bright-line tests - ANSWER: Bright-line tests are tests that require meeting a pre-established
numerical threshold.
Michelle L. Hanlon; Leslie Hodder; Karen K. Nelson; Darren
Roulstone; Amie L. Dragoo 9781618533357 ALL Chapters .
1) Which party involved in the financial reporting process provides assurance that the financial
statements prepared by management fairly present the financial position and performance of the
company? - ANSWER: External auditors
2) Which of the following types of information would be categorized as financial information?
A) Asset values governed by accounting standards
B) Footnote disclosures in annual reports
C) Auditor's report
D) all of the above - ANSWER: D
What group or organization both protects investors and oversees the accounting standard-setting
process in the United States? - ANSWER: United States Security and Exchange Commission
4) Which of the following statements correctly identifies accounting standard setters?
A) The AICPA promulgates accounting standards in the U.S. and the IFRS issues international
accounting standards.
B) The AICPA promulgates accounting standards in the U.S. and the IASB issues international
accounting standards.
C) The FASB promulgates accounting standards in the U.S. and the IFRS issues international
accounting standards.
D) The FASB promulgates accounting standards in the U.S. and the IASB issues international
accounting standards. - ANSWER: D: The FASB promulgates accounting standards in the U.S. and the
IASB issues international accounting standards.
What is the definition of fair value? - ANSWER: The amount at which an asset could be bought or sold
in a current transaction between willing parties.
________ indicates whether financial information depicts an economic event in a way that is
complete, neutral, and free from error. - ANSWER: Faithful Representation
Under U.S. GAAP, ________ is an example of a period-of-time element and appears on the ________.
- ANSWER: sales revenue; income statement
The process of reporting an economic event in the financial statements is known as ________. -
ANSWER: recognition
Shadow's Cleaning Service provides weekly cleaning services for $41 per week. In January, they
collected payments from 60 customers for 3 months (12 weeks) of service each. For the month of
January, they will recognize ________ of revenue under the cash basis, and ________ under the
accrual basis. - ANSWER: $29,520; $9,840
If a company is facing a bankruptcy from which it is quite doubtful that the firm may ever recover,
which underlying assumption would not be valid?
A) going concern concept
B) periodicity assumption
C) economic entity concept
D) monetary unit assumption - ANSWER: A) going concern concept
Which underlying assumption presumes that the owner's personal residence should not be included
as an asset on the company balance sheet? - ANSWER: economic entity concept
, Which attribute of a fundamental characteristic makes explicit the assumption of the full disclosure
principle? - ANSWER: completeness
________ occurs when managers manipulate financial information and misrepresent the firm's
financial position and performance. - ANSWER: Earnings management
An attitude that includes a questioning mind and a critical assessment of audit evidence is known as
________. - ANSWER: professional skepticism
Which of the following situations might influence management to intentionally bias estimates for the
financial statements and impede the use of good judgment?
A) Earnings are on track to surpass analysts' forecasts.
B) Management's bonuses are tied to net income.
C) Employees work for commission.
D) All of the above - ANSWER: B) Management's bonuses are tied to net income.
Caesar Company needs to purchase a new delivery truck. Rather than taking the time to research
which truck would best fit the company's needs, the manager calls his friend to ask which truck he
would recommend. The manager is exhibiting ________. - ANSWER: availability bias
Bill Smith is on assignment for his first audit, when he runs into an accounting practice he's never
dealt with before. Rather than asking a more experienced colleague for advice, Bill decides he knows
enough to handle it. After all, he passed the CPA exam, didn't he? Bill is exhibiting ________. -
ANSWER: overconfidence bias
Airlines Insider is a well-respected publication for the airline industry. The publication prescribes a
certain accounting treatment which differs from what is indicated in the Codification. How should this
be handled? - ANSWER: Follow the treatment discussed in the Codification.
Liacouras Corp. had beginning of year Retained Earnings of $550,000. During 2018, the company had
declared dividends of $24,000, and earned net income of $78,000. What was the balance of Liacouras
Corp's Retained Earnings at the end of the year? - ANSWER: $604,000
What is the effect on the accounting equation when a company receives payment when it provides
services to a customer?
A) Assets increase; liabilities decrease
B) Assets decrease; equity decreases
C) Assets increase; revenues increase
D) Assets decrease; revenues increase - ANSWER: C) Assets increase; revenues increase
On its unadjusted trial balance, Paley Company reported $1,800 of supplies. A physical count of
supplies in the supply room finds that supplies on hand at the end of the year were $250. What is the
necessary adjusting journal entry? - ANSWER: Supplies Expense 1,550 DR
Supplies 1,550 CR
Accounting Standards Codification - ANSWER: the single source of GAAP in the United States and
includes all pronouncements issued by any of the standard-setting bodies that have not been
superseded. Often referred to as the Codification.
asset/liability (balance sheet) approach - ANSWER: is an approach to developing accounting standards
that bases the reporting decision on whether the economic resource is received and it meets the
definition of an asset or a liability.
bright-line tests - ANSWER: Bright-line tests are tests that require meeting a pre-established
numerical threshold.
