Chapter 1—Financial accounting MULTIPLE CHOICE 1. Which of the following statements is true regarding economic events? a. The signing of a service contract is an example of an external event that is recorded in the accounting records b. Every event which affects an entity can be identified from a source document c. All internal and external events must be measured with sufficient reliability. d. External events involve exchanges between an entity and another entity outside the company ANS: D PTS: 1 DIF: 2 OBJ: 1-1 NAT: | AACSB Communication | APO-06-Recording transactions 2. Which of the following underlying assumptions of the conceptual framework is the reason the dollar is used in the preparation of financial statements? a. Economic entity b. Continuity c. Time-period d. Monetary unit ANS: D PTS: 1 DIF: 1 OBJ: 1-1 NAT: | AACSB Communication | APO-02-GAAP 3. Which of the following is an assumption made in the preparation of financial statements? a. Financial statements are prepared for a specific entity that is distinct from the entity's owners b. The current market value is assumed to be less relevant than the original cost paid c. The preparation of financial statements for a specific time period assumes that the statement of financial position covers a designated period of time d. Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit ANS: A PTS: 1 DIF: 2 OBJ: 1-1 NAT: | AACSB Communication | APO-02-GAAP 4. The time period assumption is necessary because: a. inflation exists and causes confusing swings in financial st