CPA Exam Review questions and answers
Managerial Accounting deals with _____ accounting, while Financial Accounting deals with _____. Correct Answer:
... [Show More] Internal; External
True or False:
Managerial accounting must follow GAAP. Correct Answer: False; Internal accounting so it does not have to follow GAAP.
The assumption that a company or other entity will be able to continue operating for a time that is sufficient to carry out its commitments and obligations. Correct Answer: Going Concern
The assumption that a company's business cycle can be broken into periods (i.e. one year, one quarter, etc.) Correct Answer: Periodicity
Accounting is reported as units of currency (i.e. dollars and cents); not indexed for inflation Correct Answer: Monetary Unit
An accounting principle that allows the accountant to keep business separate from personal (excludes legal) Correct Answer: Economic Entity
What is the general rule for capitalization of Research & Development costs? Correct Answer: You can't capitalize R&D
True or False:
You accrue a contingency deemed to be reasonably possible Correct Answer: False: you accrue contingencies deemed to be probable.
FASB ASC includes guidance for the _____. Correct Answer: SEC
Accounting information that enables comparing a company's reporting of one accounting period to another. Correct Answer: Consistency
Principle that requires companies to match expenses with related revenues Correct Answer: Matching
What the company actually does vs. what the company says it does. Correct Answer: Substance over form
FASB conceptual framework says that for financial reporting to be useful it must ______. Correct Answer: Provide information useful for making business and investment decisions.
Materiality and Relevance are both defined by: Correct Answer: What influences or makes a difference to a decision maker
Principle that states that the cost of providing financial information must not outweigh the benefits of that information to the users Correct Answer: Cost-benefit
Information is verifiable, objective and you can depend on it Correct Answer: Reliability
The concept that financial statements be produced that accurately reflect the condition of a company Correct Answer: Faithful Representation
What does the income statement show Correct Answer: Profits of the company
A probable, future economic benefit obtained or controlled from a past transaction Correct Answer: Asset
Asset Valuation accounts are what type of an account? Correct Answer: Adjunct Account
Adjunct Accounts do what? Correct Answer: Adjust add to the asset or liability (change the value of the account)
An obligation due and payable and you believe you will satisfy it in one year or less. Correct Answer: Current liability
Risk that is not on the balance sheet Correct Answer: Off-Balance sheet risk
The amount of cash or its equivalent that would have to be paid to replace X. Correct Answer: Replacement Cost
The amount of cash or its equivalent that would be received to obtain X. Correct Answer: Current market value or Fair Value
The amount originally paid for X. Correct Answer: Historical Cost
The amount that you expect to collect. Correct Answer: Net Realizable Value
A market in which individuals have perfect information and perfect competition. Correct Answer: Perfect Market
A market with the greatest volume and level of activity for an orderly transaction to occur. Correct Answer: Principal Market
A market in which entities can easily buy and sell financial securities. Correct Answer: Common Market
A market with the price that maximizes the amount that would be received for an asset or minimizes the amount that would be paid to transfer a liability Correct Answer: Most Advantageous Market
Characteristics of Market participants in an orderly transaction Correct Answer: A willing buyer and a willing seller, with reasonable knowledge of relevant facts.
Gross Profit Formula Correct Answer: Net Sales - Cost of Goods Sold = Gross Profit
All income from non-owner sources Correct Answer: Comprehensive Income
What is Included in Net Income? Correct Answer: 1. Revenues
2. Expenses
3. Gains (Realized)
4. Losses (Realized)
What is included in Other Comprehensive Income? Correct Answer: 1. Unrealized Gains & Losses
2. Pension Fund Adjustments
3. Hedging Activities
4. Foreign Currency Translation Adjustment
Enterprises are encouraged to report major classes of gross cash receipts and gross cash payments and their arithmetic sum (preferred by GAAP; less common) Correct Answer: Direct Method
Calculates the net cash flow from operating activities by adjusting ne [Show Less]