ACT-212 Second Semester 1439-1440 8) Which basic assumption may not be followed when a firm in bankruptcy reports financial results? a. Economic entity assumption. b. Going concem assumption. c. Periodicity assumption. d. Monetary unit assumption. 9) Under current GAAP, inflation is ignored in accounting due to the a. economic entity assumption. b. going concern assumption. c. monetary unit assumption. d. periodicity assumption. 10) The economic entity assumption a. is inapplicable to unincorporated businesses. b. recognizes the legal aspects of business organizations. c. requires periodic income measurement. d. is applicable to all forms of business organizations. 11) Valuing assets at their liquidation values rather than their cost is inconsistent with the a. periodicity assumption. b. matching principle. c. materiality constraint. d. historical cost principle. 12) Revenue is generally recognized when realized or realizable and earned. This statement describes the a. consistency characteristic. b. matching principle. c. revenue recognition principle.. d. relevance characteristic. 13) Application of the full disclosure principle a. is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. b. is violated when important financial information is buried in the notes to the financial statements. c. is demonstrated by the use of supplementary information presenting the effects of changing prices. d. requires that the financial statements be consistent and comparable. 14) When is revenue generally recognized? a. When cash is received. b. When the warranty expires. c. When production is completed. d. When the sale occurs. 15) Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles? a. President's letter to shareholders. b. Balance sheet. c. Income statement. d. Notes to financial statements. ACT-212 Second Semester 1439-1440 16) What is the general approach as to when product costs are recognized as expenses? a. In the period when the expenses are paid. b. In the period when the expenses are incurred. c. In the period when the vendor invoice is received. d. In the period when the related revenue is recognized. 17) Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting? a. Economic entity. b. Going concern. c. Historical cost. d. Full disclosure. 18) Recognition of expense related to amortization of an intangible asset illustrates which principle of accounting? a. Expense recognition. b. Full disclosure. c. Revenue recognition. d. Historical cost. 19) Which accounting assumption or principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet? a. Going concern. b. Monetary unit. c. Historical cost. d. Full disclosure. 20) Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price? a. Full disclosure. b. Going concern. c. Historical cost. d. Matching. 21) Which assumption or principle requires that all information significant enough to affect a decision of reasonably informed users should be reported in the financial statements? a. Matching. b. Going concern. c. Historical cost. d. Full disclosure. 22) A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle? a. Revenue recognition. b. Going concern. c. Historical cost. d. Monetary unit. 23) Which of the following are benefits of providing financial information? a. Potential litigation. b. Auditing. c. Disclosure to competition. d. Improved allocation of resources