1.

Application of the full disclosure principle

a. Is demonstrated by the use of supplementary information explaining the effects of
financing arrangements
b. Is theoretically desirable but not practical because the costs of complete
disclosure exceed the benefits
c. Is violated when important financial information is buried in the notes to the
financial statements
d. Requires that the financial statements be consistent and comparable
2. Which of the following is a benefit of providing financial information?
a. Improved allocation of resources
b. Potential litigation
c. Auditing
d. Disclosure to competition
3. A journal entry to record expenses out of the petty cash fun shall be dones
a. Upon replenishment
b. Upon disbursement
c. At the end of the period
d. Whenever the entity wishes
4. The full disclosure principle, as adopted by the accounting profession, is best described
by which of the following?
a. Disclosure of any financial facts signify ant enough to influence the judgement of
an informed leader
b. All information related to an entitys business and operating objectives is required
to be disclosed in the financial statements
c. Information about each account balance appearing in the financial statements is to
be included in the notes to the financial statements
d. Enough information should be disclosed in the financial statements so a person
wishing to invest in the shares of the company can make a profitable decision
5. The income statement information would help in which of the following tasks?
a. Estimate future cash flows
b. Evaluate the liquidity of a company
c. Evaluate the solvency of a company
d. Estimate future financial flexibility
6. When inventory is misstated, its presentation lacks:
a. Faithful representation
b. Relevance
c. Comparability
d. All of the above
7. The statement of financial position
a. Omits many items that are of financial value
b. Makes very limited use of judgements and estimates
c. Uses fair value for most assets and liabilities
d. All of the above
8. Statement of financial position information is useful for all of the following except
a. Determining free cash flows
b. Assessing a companys risk
 c. Evaluating a companys liquidity
d. Evaluating a companys financial flexibility
9. According to PAS 1, a required format for the presentation of a statement of financial
position is
a. Not prescribed by guidance is provided in the standard for a suitable format
b. Not prescribed and no guidance is provided in the standard
c. Prescribed by the standard
d. Not prescribed by the standard but details are found in the corporations act
10. The disclosure of accounting policies is important to financial statement readers in
determining
a. whether accounting policies are consistently applied from year-to-year
b. net income for the year
c. the value of obsolete items included in ending inventory
d. whether the working capital position is adequate for future operations
11. Which is incorrect regarding an income statement?
a. An entity may present the components of profit or loss as a part of a single
statement of comprehensive income
b. An entity may present the components of profit or loss in a separate income
statement
c. When prepared, an income statement must be immediately before the statement of
comprehensive income
d. When a separate income statement is prepared, it is not considered a part of a
complete set of financial statements
12. If annual major repairs made in the first quarter and paid for in the second quarter clearly
benefit the entire year, when should they be expensed?
a. In full in the first quarter
b. In full in the second quarter
c. An allocated portion in each quarter for the year
d. All expenses affecting more than one quarter should be recognized in the last year
of the fiscal year
13. Which of the following methods of determining bad debt expense does not properly
match expense and revenue?
a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts with an amount derived from a percentage of accounts
receivable under the allowance method.
c. Charging bad debts with an amount derived from aging accounts receivable under
the allowance method.
d. Charging bad debts as accounts are written off as uncollectible.
14. Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale,
depending upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor by
the owner of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in
collecting the receivables.
 d. The financing cost (interest expense) should be recognized ratably over the
collection period of the receivables.
15.
I. When using a perpetual inventory system, freight charges on goods purchased are
debited to Freight-In.
II. If a supplier ships goods f.o.b. destination, title passes to the buyer when the
supplier delivers the goods to the common carrier.
III. If ending inventory is understated, then net income is understated.
IV. If both purchases and ending inventory are overstated by the same amount, net
income is not affected.
a. All are true
b. All are false
c. Two are true
d. Three are true
16.
I. Freight charges on goods purchased are considered a period cost and therefore are not
part of the cost of the inventory.
II. Purchase Discounts Lost is a financial expense and is reported in the other expenses
and losses section of the income statement.
III. The cost flow assumption adopted must be consistent with the physical movement of
the goods.
IV. In all cases when FIFO is used, the cost of goods sold would be the same whether a
perpetual or periodic system is used.
V. The change in the LIFO Reserve from one period to the next is recorded as an
adjustment to Cost of Goods Sold.
VI. Many companies use LIFO for both tax and internal reporting purposes.
a. All are true
b. All are false
c. Three are true
d. Four are true
17.
I. Depreciation is a means of cost allocation, not a matter of valuation.
II. Depreciation is based on the decline in the fair market value of the asset.
III. Depreciation, depletion, and amortization all involve the allocation of the cost of a
long-lived asset to expense.
IV. The cost of an asset less its salvage value is its depreciation base.
V. The three factors involved in the depreciation process are the depreciation base, the
useful life, and the risk of obsolescence.
VI. Inadequacy is the replacement of one asset with another more efficient and
economical asset.
a. Two are true
b. Three are true
c. Four are true
d. Five are true
18.
I. Savings accounts are usually classified as cash on the balance sheet.
 II. Certificates of deposit are usually classified as cash on the balance sheet
III. Companies include postdated checks and petty cash funds as cash.
IV. Cash equivalents are investments with original maturities of six months or less.
a. None are true
b. Two are false
c. Three are true
d. One is true
19.
I. Bank overdrafts are always offset against the cash account in the balance sheet.
II. Short-term, highly liquid investments may be included with cash on the balance
sheet.
III. All claims held against customers and others for money, goods, or services are
reported as current assets.
IV. Trade receivables include notes receivable and advances to officers and
employees.
a. All are true
b. All are false
c. Two are true
d. Three are true
20.
I. The percentage-of-receivables approach of estimating uncollectible accounts
emphasizes matching over valuation of accounts receivable.
II. The percentage-of-sales method results in a more accurate valuation of
receivables on the balance sheet.
III. Savings accounts are usually classified as cash on the balance sheet.
IV. Certificates of deposit are usually classified as cash on the balance sheet
a. All are false
b. All are true
c. One is false
d. One is true