Accounting Online Program Accounting Principles 5

Question 1

Which of the following would be a violation of the economic entity assumption?

Accepted Answer

Recording the owner's mortgage payment as a business expense

Answer

Recording the owner's personal mortgage as a business expense mixes personal and business finances, violating the economic entity assumption.

Question 2

Which accounting principle most directly prevents companies from delaying the recognition of obvious losses?

Accepted Answer

Conservatism principle

Answer

The conservatism principle requires that losses be recognized as soon as they are probable, preventing the artificial inflation of reported earnings.

Question 3

For information to be faithfully represented, it must be complete, neutral, and:

Accepted Answer

Free from error

Answer

Faithful representation under the FASB framework requires financial information to be complete, neutral, and free from material error.

Question 4

A law firm records legal service revenue when the case is won and the fee is collectible, not when cash arrives. This is an example of:

Accepted Answer

Accrual accounting and revenue recognition

Answer

Recognizing revenue when earned (case won, fee collectible) rather than when collected is the core of accrual accounting and the revenue recognition principle.

Question 5

Which of the following represents a going concern issue that would require disclosure?

Accepted Answer

A company has substantial debt maturing within 12 months with no financing plan

Answer

Substantial debt due soon with no refinancing plan raises serious doubt about the entity's ability to continue operating, requiring going concern disclosure.

Accounting Online Program Practice Test

Accounting Online Program Practice Test

Accounting Online Program Accounting Principles 5