Full Test Bank Introduction Chapter 1 2nd Edition

Chapter 1: Introduction

Test Bank

Type: multiple choice question

Title: Chapter 01 Question 01

1) Which one of the following statements most accurately describes the fundamental qualitative characteristic of relevance?

a. Information that not only represents relevant economic phenomena but also faithfully represents the substance of the phenomena that it purports to represent.

Heading reference: What qualities should accounting information possess?

b. Information that is comparable over time.

Heading reference: What qualities should accounting information possess?

c. Information that is capable of making a difference in the decisions made by users.

Heading reference: What qualities should accounting information possess?

d. Information that is available to users in time for it to be capable of influencing their decisions.

Heading reference: What qualities should accounting information possess?

Type: multiple response question

Title: Chapter 01 Question 02

2) Relevant information:

Please select all that apply.

Heading reference: What qualities should accounting information possess?

a. May be predictive

b. Must be complete, neutral and free from error

c. Can assist users in making predictions about the future

d. May be confirmatory

Type: multiple choice question

Title: Chapter 01 Question 03

3) Which one of the following is not a description of the fundamental qualitative characteristic of relevance?

a. Information that may assist users to assess the accuracy of past predictions.

Heading reference: What qualities should accounting information possess?

b. Information that is capable of making a difference in the decisions made by users.

Heading reference: What qualities should accounting information possess?

c. Information that may be predictive.

Heading reference: What qualities should accounting information possess?

d. Information that must be verifiable.

Heading reference: What qualities should accounting information possess?

Type: true-false

Title: Chapter 01 Question 04

4) Financial information that is understandable must possess the characteristic of simplicity.

a. True

Heading reference: What qualities should accounting information possess?

b. False

Heading reference: What qualities should accounting information possess?

Type: true-false

Title: Chapter 01 Question 05

5) Information is material by size only.

a. True

Heading reference: Materiality

b. False

Type: multiple choice question

Title: Chapter 01 Question 06

6) Which one of the following statements is not a description of the fundamental qualitative characteristic of faithful representation?

a. Information presented must not only represent relevant economic phenomena (transactions and events), but it must also faithfully represent the substance of the phenomena that it purports to represent.

Heading reference: What qualities should accounting information possess?

b. Information presented should be verifiable.

Heading reference: What qualities should accounting information possess?

c. Information presented should be complete, neutral and free from error.

Heading reference: What qualities should accounting information possess?

d. Information presented does not have to be perfectly accurate in order to provide a faithful representation.

Heading reference: What qualities should accounting information possess?

Type: multiple response question

Title: Chapter 01 Question 07

7) Comparability requires that:

Please select all that apply.

Heading reference: What qualities should accounting information possess?

a. Information should be comparable over time.

b. Information should be comparable with similar information about other entities for the same reporting period and with similar information about the same entity for other reporting periods in order to enhance its usefulness.

c. Information should be presented consistently.

d. Information about economic phenomena should be presented in a uniform way.

Type: multiple choice question

Title: Chapter 01 Question 08

8) Which one of the following statements does not describe verifiability?

a. Verifiability provides users with assurance that information is faithfully presented and reports the economic phenomena it purports to represent.

Heading reference: What qualities should accounting information possess?

b. Verifiable iinformation is complete, neutral and free from error.

Heading reference: What qualities should accounting information possess?

c. The accuracy of information can be verified by observation or re-calculation.

Heading reference: What qualities should accounting information possess?

d. External auditors will undertake testing to prove to themselves that the information presented is accurate in all major respects.

Heading reference: What qualities should accounting information possess?

Type: true-false

Title: Chapter 01 Question 09

9) Old information is not useful in making decisions.

a. True

Heading reference: The role of accounting information in business decision making

b. False

Heading reference: The role of accounting information in business decision making

Type: multiple choice question

Title: Chapter 01 Question 10

10) Which one of the following statements is not true?

a. Information should only be presented if the costs of obtaining that information exceed the benefits of providing it.

Heading reference: The role of accounting information in business decision making

b. Information is material if omitting it or misstating it could influence decisions that … users … make on the basis of financial information about a specific reporting entity.

Heading reference: The role of accounting information in business decision making

c. To help users understand information presented, that information should be classified, characterized and presented clearly.

Heading reference: The role of accounting information in business decision making

d. Where information is not comparable, similarities and differences will not be readily apparent.

Heading reference: The role of accounting information in business decision making

Type: multiple choice question

Title: Chapter 01 Question 11

11) Information whose omission or misstatement could influence decisions that users make on the basis of financial information about a specific reporting entity defines which characteristic of accounting information?

a. Comparability

Heading reference: What qualities should accounting information possess?

b. Verifiability

Heading reference: What qualities should accounting information possess?

c. Cost-benefit

Heading reference: What qualities should accounting information possess?

d. Materiality

Heading reference: What qualities should accounting information possess?

Type: multiple response question

Title: Chapter 01 Question 12

12) Perfectly faithful representation of economic phenomena in words and numbers requires that the information presented must be:

Please select all that apply.

Heading reference: What qualities should accounting information possess?

a. Free from error

b. Neutral

c. Timely

d. Complete

Type: true-false

Title: Chapter 01 Question 13

13) The characteristics of materiality and comparability are both entity-specific.

a. True

Heading reference: What qualities should accounting information possess, Materiality

b. False

Heading reference: What qualities should accounting information possess, Materiality

Type: multiple choice question

Title: Chapter 01 Question 14

14) Which one of the following statements does not describe management accounting?

a. Management accounting information is concerned with reporting outcomes of past events to users external to the organization.

Heading reference: Accounting branch 2: cost and management accounting

b. Management accounting is concerned with reporting accounting and cost information to users within an organization.

Heading reference: Accounting branch 2: cost and management accounting

c. Management accounting information is used to plan levels of production and activity in the future.

Heading reference: Accounting branch 2: cost and management accounting

d. Management accounting information is mostly concerned with the present and the future.

Heading reference: Accounting branch 2: cost and management accounting

Type: multiple choice question

Title: Chapter 01 Question 15

15) Financial accounting is:

a. The reporting of past information to users within the organization.

Heading reference: Accounting branch 1: financial accounting

b. The reporting of present and future information to users within the organization.

Heading reference: Accounting branch 1: financial accounting

c. The reporting of present and future information to users outside the organization.

Heading reference: Accounting branch 1: financial accounting

d. The reporting of past information to users outside the organization.

Heading reference: Accounting branch 1: financial accounting

Type: multiple response question

Title: Chapter 01 Question 16

16) Financial accounting: please select all that apply.

Heading reference: Accounting branch 1: financial accounting

a. Reports on past events.

b. Focuses on the costs of products and services.

c. Is used to plan levels of production and activity.

d. Reports to users outside the organization.

Type: multiple response question

Title: Chapter 01 Question 17

17) Cost and management accounting: please select all that apply.

Heading reference: Accounting branch 2: cost and management accounting

a. Focuses on the present and future.

b. Presents information to users outside the organization.

c. Helps managers to decide which products to produce and sell.

d. Uses reports on the results of past plans to improve operations in the future.

Type: multiple choice question

Title: Chapter 01 Question 18

18) A lender using a set of published financial statements would be most interested in:

a. The entity’s ability to generate cash from which to pay interest.

Heading reference: Accounting branch 1: financial accounting

b. The entity’s ability to generate cash from which to pay dividends.

Heading reference: Accounting branch 1: financial accounting

c. The entity’s ability to generate cash from which to pay bonuses.

Heading reference: Accounting branch 1: financial accounting

d. The entity’s ability to generate cash from which to pay taxation due on profits.

Heading reference: Accounting branch 1: financial accounting

Type: multiple choice question

Title: Chapter 01 Question 19

19) Which group of users of financial statements would be most interested in information relating to retirement benefit schemes?

a. Shareholders

Heading reference: Accounting branch 1: financial accounting

b. Lenders

Heading reference: Accounting branch 1: financial accounting

c. Employees

Heading reference: Accounting branch 1: financial accounting

d. Customers

Heading reference: Accounting branch 1: financial accounting

Type: multiple choice question

Title: Chapter 01 Question 20

20) Details of the length of time it takes an organization to pay for goods received would be of most interest to which financial statements user group?

a. Customers

Heading reference: Accounting branch 1: financial accounting

b. Employees

Heading reference: Accounting branch 1: financial accounting

c. Shareholders

Heading reference: Accounting branch 1: financial accounting

d. Suppliers

Heading reference: Accounting branch 1: financial accounting

Type: multiple choice question

Title: Chapter 01 Question 21

21) Which one of the following is not a limitation of accounting information?

a. Accounting information does not place a monetary value on the external effects of its operations on the environment.

Heading reference: The limitations of accounting information

b. Accounting information does not place a monetary value on the skills and knowledge base of an entity.

Heading reference: The limitations of accounting information

c. Accounting information does not consider the quality of performance.

Heading reference: The limitations of accounting information

d. Accounting information does not include information whose costs outweigh the benefit of providing it.

Heading reference: Cost v. Benefit, The limitations of accounting information

Type: multiple response question

Title: Chapter 01 Question 22

22) Accounting information fails to: Please select all that apply.

Heading reference: The limitations of accounting information

a. Present information on social damage caused by an entity.

b. Measure the skills and knowledge base of organizations.

c. Exclude subjective valuations from financial statements.

d. Provide measures of the quality of organizational performance.

Type: multiple choice question

Title: Chapter 01 Question 23

23) Which one of the following statements does not describe accountability?

a. Accounting information reporting on past actions is a stewardship report.

Heading reference: Control, accounting and accountability

b. Accounting information reporting on the current cost and selling prices of products.

Heading reference: Control, accounting and accountability

c. Representatives reporting on their actions to those people who have placed them in positions of power.

Heading reference: Control, accounting and accountability

d. Accounting information provided so that individuals and organizations can render an account of what they have done with the resources entrusted to them.

Heading reference: Control, accounting and accountability

Type: multiple choice question

Title: Chapter 01 Question 24

24) Which one of the following statements is not correct?

a. The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.

Heading reference: Accounting branch 1: financial accounting

b. While financial accounting presents information about what has happened in the past, management accounting is very much concerned with both the present and the future and how accounting information can be used for short-term decision making and longer-term planning.

Heading reference: Accounting branch 1: financial accounting, Accounting branch 2: cost and management accounting

c. Understandability assumes that readers of financial reports have a reasonable knowledge of business and economic events in order to make sense of what they are presented with.

Heading reference: What qualities should accounting information possess, Materiality

d. Accounting summarizes narrative data relating to past events and presents this data as information to managers and other interested parties as a basis for both decision making and control purposes.

Heading reference: What is accounting?

Type: multiple choice question

Title: Chapter 01 Question 25

25) Which one of the following statements is correct?

a. The IASB states in its Conceptual Framework for Financial Reporting that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, other creditors, regulators and members of the public in making decisions relating to providing resources to the entity.

Heading reference: The International Accounting Standards Board (IASB)

b. Information should only be presented if the benefits of providing this information outweigh the costs of obtaining it.

Heading reference: Cost v. benefit

c. Comparability means consistency.

Heading reference: What qualities should accounting information possess, Materiality

d. Items in financial statements are material only by nature.

Heading reference: Materiality

Type: multiple choice question

Title: Chapter 01 Question 26

26) Which one of the following statements is not correct?

a. The more accurate past predictions of profits have been, the less likely it is that users will be able to rely on current predictions of future profits.

Heading reference: What qualities should accounting information possess, Materiality

b. All users of accounting information will be interested in the cash generating capabilities of an entity.

Heading reference: Accounting branch 1: financial accounting

c. Financial information must not only represent relevant economic phenomena (transactions and events), but it must also faithfully represent the substance of the phenomena that it purports to represent.

Heading reference: What qualities should accounting information possess, Materiality

d. Accounting information provides a mechanism through which to control outcomes and activities.

Heading refererence: Control, accounting and accountability

Type: multiple response question

Title: Chapter 01 Question 27

27) Which of the following statements are true? Please select all that apply.

Heading reference: What is accounting?, What qualities should accounting information possess?, The limitations of accounting information, Control, accounting and accountability

a. Accounting data is presented in the form of numbers.

b. Relevant financial information is capable of making a difference in the decisions made by users.

c. Accounting provides measures with which to assess the quality of an organization’s performance.

d. Stewards are entrusted with and look after resources for the benefit of other parties.

Type: true-false

Title: Chapter 01 Question 28

28) The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to a wide range of users in making decisions relating to providing resources to the entity. Those decisions include buying, selling or holding equity and debt instruments and providing or settling loans and other forms of credit.

a. True

Heading reference: Accounting branch 1: financial accounting

b. False

Heading reference: Accounting branch 1: financial accounting

Type: true-false

Title: Chapter 01 Question 29

29) Financial information can be material by nature, magnitude or both.

a. True

Heading reference: Materiality

b. False

Heading reference: Materiality

Type: true-false

Title: Chapter 01 Question 30

30) All limited liability companies can issue shares to the public.

a. True

Heading reference: Public limited and private limited companies

b. False

Heading reference: Public limited and private limited companies

Type: true-false

Title: Chapter 01 Question 31

31) Sole traders are the only form of business organisation that faces unlimited liability for the debts incurred by the business.

a. True

Heading reference: Sole traders

b. False

Heading reference: Sole traders

Type: multiple response question

Title: Chapter 01 Question 32

32) Which of the following statements describe sole traders? Please select all that apply.

Heading reference: Sole traders

a. Separate legal identity.

b. Non-complex operations.

c. All business debts are debts of the owner.

d. One person is in charge of operations.

Type: multiple choice question

Title: Chapter 01 Question 33

33) Which one of the following is not a characteristic of limited liability companies?

a. Profits are not distributed to shareholders as drawings.

Heading reference: Limited companies

b. Separate legal identity.

Heading reference: Limited companies

c. Annual reports must be prepared and presented to shareholders.

Heading reference: Limited companies

d. There is no separation of share ownership and management.

Heading reference: Limited companies

Type: true-false

Title: Chapter 01 Question 34

34) The usefulness of information is enhanced only if it can be compared with similar information about the same entity for other reporting periods.

a. True

Heading reference: What qualities should accounting information possess?

b. False

Heading reference: What qualities should accounting information possess?

Type: multiple response question

Title: Chapter 01 Question 35

35) Which of the following statements describe partnerships? Please select all that apply.

Heading reference: Partnerships

a. Two or more individuals managing a business together.

b. Joint and several liability for partnership debts.

c. Legal formalities are required before trading in a partnership can commence.

d. Sharing of both profits and losses from partnership operations.

Type: multiple choice question

Title: Chapter 01 Question 36

36) Which one of the following statements applies to both private limited companies and public limited companies?

a. Governed by the Companies Act 2006.

Heading reference: Limited companies

b. Must comply with corporate governance codes.

Heading reference: Limited companies

c. Have their shares listed on recognised stock exchanges..

Heading reference: Limited companies

d. Must use the designation plc.

Heading reference: Limited companies

Type: true-false

Title: Chapter 01 Question 37

37) The accuracy of information is verified by recalculation.

a. True

Heading reference: What qualities should accounting information possess?

b. False

Heading reference: What qualities should accounting information possess?

Type: multiple response question

Title: Chapter 01 Question 38

38) Which of the following are enhancing qualitative characteristics of financial information?

Please select all that apply.

Heading reference: What qualities should accounting information possess?

a. Relevance

b. Understandability

c. Timeliness

d. Verifiability

Type: true-false

Title: Chapter 01 Question 39

39) Materiality is not an enhancing qualitative characteristic of financial information.

a. True

Heading reference: What qualities should accounting information possess?

b. False

Heading reference: What qualities should accounting information possess?

Type: true-false

Title: Chapter 01 Question 40

40) For information to be truly comparable, it must be presented in exactly the same way by all organisations. .

a. True

Heading reference: What qualities should accounting information possess?

b. False

Heading reference: What qualities should accounting information possess?