Part 1: Multiple Choice (25 questions @ 3 pts ea. Suggested time 50 minutes)

Use a scantron to fill in the letter corresponding to the “best” answer.

1. Which of the following statements is NOT an objective of financial reporting?
a. Provide information that is useful in investment and credit decisions.
b. Provide information about enterprise resources, claims to those resources, and changes to them.
c. Provide information on the liquidation value of an enterprise.
d. Provide information that is useful in assessing cash flow prospects.

2. Accrual accounting is used because
a. cash flows are considered less important.
b. it provides a better indication of ability to generate cash flows than the cash basis.
c. it recognizes revenues when cash is received and expenses when cash is paid.
d. it recognizes revenues when earned and expenses when cash is paid.

3. The body that has the power to prescribe the accounting practices and standards to be employed by publicly traded companies is the
a. FASB.
b. AICPA.
c. SEC.
d. APB.

4. What would NOT be an advantage of having all countries adopt and follow the same accounting standards?
a. Consistency.
b. Comparability.
c. Lower financial statement preparation costs for multinational entities.
d. Lower cost of raising debt or equity capital across national borders.

5. According to the conceptual framework, which of the following is a primary characteristic of useful accounting information?
a. Comparability.
b. Relevance.
c. Consistency.
d. Materiality.

6. In January 2010, ABC Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. The president objected to showing this information in a footnote to the December 31, 2009 financial statements because she claims the sale took place after December 31, 2009.