Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
42) For each of the following characteristics of a business organization, state whether it applies to a sole
proprietorship (SP), partnership (P) or a corporation (C). There may be more than one correct answer for
a characteristic.
Business organization
characteristic
Entity(ies) to which the
characteristic applies -
SP, P, C
Separate legal entity
Owner(s) are personally liable
for the business's debts
Separate taxable entity
One owner
44) Briefly discuss each of the following corporate characteristics.
A. Government regulation
B. Limited liability of stockholders
C. Continuous life and transferability of ownership
45) Briefly discuss each of the following corporate characteristics.
A. Corporate taxation
B. Separate legal entity
C. No mutual agency
46) List and briefly discuss four features that distinguish a corporation from other types of business
organizations.
47) Mason Company purchased land for $30,000. The president of Mason Company believes that the
land is actually worth $35,000. The land can be recorded at $35,000.
48) Since cost is a reliable measure, the cost principle holds that the accounting records should continue
reporting an asset at its historical cost over its useful life.
49) According to the ________, acquired assets should be recorded at the amount actually paid rather
than at the estimated market value.
A) going concern assumption
B) economic entity concept
C) cost principle
D) monetary unit assumption
50) Lisa Smith decided to start her CPA practice as a professional corporation, Smith CPA, PC. The
corporation purchased an office building for $35,000. The real estate agent said the building was worth
$50,000 in the current market. The corporation recorded the building as a $50,000 asset because Lisa
believes that is the real value of the building. Which of the following concepts or principles of accounting
is being violated?
A) cost principle
B) economic entity assumption
C) monetary unit assumption
D) going concern assumption
51) Beverly Dalton incorporated her CPA practice in 2013. At that time, the corporation purchased land
for $29,000. The December 31, 2019 market value of the land is $85,000. On the December 31, 2019 balance
sheet, this asset should be reported at ________ under U.S. GAAP and at ________ under international
reporting standards.
A) $29,000; $29,000
B) $85,000; $85,000
C) $29,000; $85,000
D) $85,000; $29,000
52) Thirty years ago, Citywide Grocery Corporation purchased a building for its grocery store for $30,000.
Based on inflation estimates, the amount of the building has been adjusted in the accounting records. The
building is now reported at $75,000 in Citywide's financial statements. Which of the following concepts or
principles of accounting is being violated?
A) going concern assumption
B) revenue realization concept
C) economic entity assumption
D) cost principle
53) Ten years ago a corporation purchased a building for $160,000. At that time, the corporation felt that
the building was worth $185,000. The current market value of the building is $430,000. The building has
been assessed at $405,000 for property tax purposes. At which amount should the corporation record the
building in its accounting records?
A) $160,000
B) $185,000
C) $405,000
D) $430,000
54) A business purchases a building for $250,000. The current market value is $375,000. The tax
assessment value is $325,000. At what value should the building be recorded, and which accounting
principle supports your answer?
55) Under the going concern principle, accountants must provide proof that the business will remain in
operations long enough to use existing resources for their intended purpose.
56) Under the going concern principle, accountants assume that the business will remain in operations
long enough to use existing resources for their intended purpose.
57) As per the ________, the entity will remain in operation for the foreseeable future.
A) economic entity concept
B) monetary unit assumption
C) going concern assumption
D) cost principle
58) Accountants assume that the dollar's purchasing power is stable.
59) In the United States, transactions are recorded in dollars because the dollar's purchasing power does
not change over time.
60) Lawton Corporation records business transactions in dollars and disregards changes in the value of a
dollar over time. Which of the following accounting assumptions does this represent?
A) economic entity assumption
B) going concern assumption
C) accounting period assumption
D) monetary unit assumption
61) Regarding the monetary unit assumption, which of the following statements is correct?
A) This assumption requires that the items on the financial statements be measured at their current
market value.
B) Accountants assume that the dollar's purchasing power is stable.
C) The value of a dollar does not change over time.
D) During periods of inflation, a dollar will purchase more.
62) Stuart Allen Corporation manufactures computer hardware. The president of the corporation bought
a new car as a gift for his daughter and paid for it using cash from the business. Since the corporation
paid for the car, it was recorded in its books as an asset. Which of the following concepts or principles of
accounting did the corporation violate?
A) monetary unit assumption
B) economic entity assumption
C) cost principle
D) going concern assumption
63) Under U.S. GAAP, the monetary unit assumption states that transactions are recorded in dollars.
What is the basis for this assumption?
64) Provide the definition of each of the following accounting assumptions.
Assumption
Definition
Monetary Unit
Economic Entity
Assumption or Principle
Definition
Monetary Unit
The assumption that requires the items
on the financial statements to be
measured in terms of a monetary unit.
The dollar's purchasing power is
assumed to be stable.
Economic Entity
An organization that stands apart as a
separate economic unit. The business is
separate from the owners.
65) Provide the definition of each of the following accounting assumptions or principles.
Assumption or Principle
Definition
Going Concern Assumption
Cost Principle
Assumption or Principle
Definition
Going Concern Assumption
This assumption assumes that the entity
will remain in operation for the
foreseeable future.
Cost Principle
This principle states that the acquired
assets and services should be recorded
at their actual cost.
Diff: 2
LO: 1-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Cost Principle, Going Concern Assumption
66) International Financial Reporting Standards (IFRS) is the main U.S. accounting rule book and is
currently created and governed by the Financial Accounting Standards Board.
67) The Securities and Exchange Commission allows U.S. businesses to choose whether they follow U.S.
GAAP or International Financial Reporting Standards.
68) International Financial Reporting Standards are comparatively more specific and more rule-based
than U.S. GAAP.
69) International Financial Reporting Standards (IFRS) allows periodic revaluation of certain assets and
liabilities to restate them to market value.
