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CPA Exam Review questions and answers

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CPA Exam Review questions and answers Managerial Accounting deals with _____ accounting, while Financial Accounting deals with _____. Correct Answer: Internal; External True or False: Manager... ial 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 More]

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