question

The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. T/F

answer

T

question

Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow. T/F

answer

F

question

The FASB is currently the public-sector organization responsible for setting accounting standards in the United States. T/F

answer

F

question

The FASB's due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed. T/F

answer

T

question

Accounting for stock-based compensation is an area in which the FASB has received little political interference. T/F

answer

F

question

The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States. T/F

answer

T

question

A rules-based approach to standard-setting stresses professional judgment as opposed to following a list of rules. T/F

answer

F

question

Under federal securities laws, the SEC has the authority to set accounting standards in the United States. T/F

answer

T

question

The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors. T/F

answer

F

question

Auditors play an important role in the resource allocation process by adding credibility to financial statements. T/F

answer

T

question

The purpose of the conceptual framework is to provide a structure and framework for a consistent set of GAAP. T/F

answer

T

question

In the United States the conceptual framework indicates GAAP when a more specific accounting standard does not apply. T/F

answer

F

question

Materiality can be affected by the dollar amount of an item, the nature of the item, or both. T/F

answer

T

question

According to the FASB's Statements of Financial Accounting Concepts, conservatism is a desired qualitative characteristic of accounting information. T/F

answer

F

question

Equity is a residual amount representing the owner's interest in the assets of the business. T/F

answer

T

question

Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing operations. T/F

answer

T

question

Gains or losses result, respectively, from the disposition of business assets for greater than, or less than, their book values. T/F

answer

T

question

Comprehensive income is another term for net income. T/F

answer

F

question

The FASB's conceptual framework lists relevance and timeliness as the two fundamental qualitative characteristics of decision useful information. T/F

answer

F

question

The monetary unit assumption requires that items in financial statements be measured in a particular monetary unit. T/F

answer

T

question

Determining fair value by calculating the present value of future cash flows is a level 1 type of input. T/F

answer

F

question

The FASB's framework for measuring fair value doesn't change the situations in which fair value is used under current GAAP. T/F

answer

T

question

The revenue/expense approach emphasizes determining the appropriate amounts of revenue and expense in each reporting period. T/F

answer

T

question

The asset/liability approach emphasizes matching to determine what assets and liabilities should be reflected on the balance sheet. T/F

answer

F

question

In IFRS, the conceptual framework indicates appropriate accounting when a more specific accounting standard does not apply. T/F

answer

T

question

The funding of the standard-setting bodies that promulgate IFRS is as independent as that underlying U.S. GAAP. T/F

answer

F

question

External decision makers would not look primarily to financial accounting information to assist them in making decisions on: A. Granting credit. B. Capital budgeting. C. Selecting stocks. D. Mergers and acquisitions.

answer

B

question

Corporations issue their shares to the investing public in the: Primary market Secondary market a. Yes Yes b. No Yes c. Yes No d. No No

answer

C

question

The primary focus for financial accounting information is to provide information useful for: Investing decisions Credit decisions a. Yes Yes b. Yes No c. No Yes d. No No

answer

A

question

Which of the following groups is not among the external users for whom financial statements are prepared? A. Customers. B. Suppliers. C. Employees. D. Customers, suppliers, and employees are all external users of financial statements.

answer

D

question

Which of the following is not true about net operating cash flow? A. It is the difference between cash receipts and cash disbursements from providing goods and services. B. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows. C. Over short periods, it may not be indicative of long-run cash-generating ability. D. It is easy to understand and all information required to measure it is factual.

answer

B

question

Which of the following groups is not among financial intermediaries? A. Mutual fund managers. B. Financial analysts. C. CPAs. D. Credit rating organizations.

answer

C

question

Which of the following was the first private-sector entity that set accounting standards in the United States? A. Accounting Principles Board. B. Committee on Accounting Procedure. C. Financial Accounting Standards Board. D. AICPA.

answer

B

question

Which of the following does not apply to secondary markets? A. Transactions are important to the efficient allocation of resources in our economy. B. New resources are provided when shares of stock are sold by the corporation to the initial owners. C. Transactions help to establish market prices for additional shares that may be issued in the future. D. Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others.

answer

B

question

Porite Company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Porite's practice is an example of: A. Cash basis accounting. B. Accrual accounting. C. The matching principle. D. Economic entity.

answer

B

question

Which of the following is not a potential benefit of accrual accounting, compared to cash-basis accounting? A. Timeliness. B. Better reflecting economic activity. C. Periodicity. D. Better matching of revenues and expenses.

answer

C

question

In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of: A. Conservatism. B. The matching principle. C. Realization principle. D. Economic entity.

answer

B

question

GAAP is an abbreviation for: A. Generally authorized accounting procedures. B. Generally applied accounting procedures. C. Generally accepted auditing practices. D. Generally accepted accounting principles.

answer

D

question

The FASB issues accounting standards in the form of: A. Accounting Research Bulletins. B. Accounting Standards Updates. C. Financial Accounting Standards. D. Financial Technical Bulletins.

answer

B

question

Pronouncements issued by the Committee on Accounting Procedures: A. Dealt with specific accounting and reporting problems. B. Were based on exposure drafts and public comment letters. C. Originated from congressional studies and SEC directives. D. Were the outcome of research studies and a theoretical framework.

answer

A

question

The FASB's standard-setting process includes, in the correct order: A. Exposure draft, research, discussion paper, Accounting Standards Update. B. Research, exposure draft, discussion paper, Accounting Standards Update. C. Research, discussion paper, exposure draft, Accounting Standards Update. D. Discussion paper, research, exposure draft, Accounting Standards Update.

answer

C

question

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act: A. Changed the entity responsible for setting auditing standards. B. Increased corporate executive responsibility for financial statements. C. Limited nonaudit services that can be performed by auditors for audit clients. D. Changed the entity responsible for setting accounting standards.

answer

D

question

CPAs are licensed by: A. The AICPA. B. The SEC. C. The federal government. D. State governments.

answer

D

question

Which of the following has the statutory authority to set accounting standards in the United States? A. FASB. B. IRS. C. SEC. D. AICPA.

answer

C

question

When a registrant company submits its annual filing to the SEC, it uses: A. Form 10-A. B. Form 10-K. C. Form 10-Q. D. Form S-1.

answer

B

question

The most likely important flaw leading to the demise of the APB was the perceived lack of: A. Confidence. B. Competence. C. Independence. D. Importance.

answer

C

question

Accounting standard-setting has been characterized as: A. A political process. B. Using the scientific method. C. Pure deductive reasoning. D. Pure inductive reasoning.

answer

A

question

The International Accounting Standards Board: A. Was the predecessor to the IASC. B. Can overrule the FASB when their policies disagree. C. Promotes the use of high-quality, understandable global accounting standards. D. Has its headquarters in Geneva.

answer

C

question

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002? A. Corporate executive accountability. B. Auditor rotation. C. Retention of work papers. D. All of these are provisions of the Act.

answer

D

question

The primary professional organization for those accountants working in the industry is the: A. AAA. B. AICPA. C. IIA. D. IMA.

answer

D

question

In the Norwalk Agreement, the FASB and IASB pledged to: A. Combine their organizations to form the BUSYB. B. Make progress on specific MOU projects. C. Achieve convergence by the year 2015. D. Remove existing differences between their standards.

answer

D

question

Which of the following is not a concern expressed by the SEC regarding IFRS adoption by the U.S.? A. Need for the U.S. to have strong influence on the standard-setting process and ensure that standards meet U.S. needs. B. The language barriers associated with cooperation among many countries in developing IFRS. C. The high costs to companies of converting to IFRS. D. The fact that many laws, regulations and private contracts reference U.S. GAAP.

answer

B

question

The most political issue in the FASB's most recent deliberations and amendments to GAAP on business combinations was: A. The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination. B. The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the combination. C. The unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination. D. The unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.

answer

A

question

The primary historical reason for the FASB reversing its positions when political pressures occur is: A. The cost of gathering data was prohibitive. B. The difficulties in measurement were too great. C. They have no authority in such situations. D. The SEC did not support the FASB position.

answer

D

question

The most recent example of the political process at work in standard-setting is the heated debate that occurred on the issue of: A. Pension plan accounting. B. Accounting for postretirement benefits other than pensions. C. Accounting for business combinations. D. Accounting for stock-based compensation.

answer

C

question

Independent auditors express an opinion on the: A. Fairness of financial statements. B. Accuracy of financial statements. C. Soundness of a company's future. D. Quality of a company's management.

answer

A

question

The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of: A. An ethical dilemma. B. An accounting theory issue. C. A technical accounting issue. D. An auditor's responsibility to inform the SEC.

answer

A

question

One of the elements that many believe distinguishes a profession from other occupations is the acceptance of responsibility by its members for the interests of those it serves, which is often articulated in: A. Its conceptual framework. B. Its code of ethics. C. Federal laws. D. State laws.

answer

B

question

SFAC 8 of the conceptual framework focuses on: A. Objective and qualitative characteristics. B. Presentation and disclosure. C. Recognition and measurement. D. Elements of financial statements.

answer

A

question

The FASB's conceptual framework's qualitative characteristics of accounting information include: A. Historical cost. B. Realization. C. Faithful representation. D. Full disclosure.

answer

C

question

The FASB's conceptual framework's qualitative characteristics of accounting information include: A. Full disclosure. B. Relevance. C. Going concern. D. Historical cost.

answer

B

question

The conceptual framework's qualitative characteristic of relevance includes: A. Predictive value. B. Verifiability. C. Completeness. D. Neutrality.

answer

A

question

The conceptual framework's qualitative characteristic of faithful representation includes: A. Predictive value. B. Neutrality. C. Confirmatory value. D. Timeliness.

answer

B

question

SFAC No.5 focuses on: A. Objectives of financial reporting. B. Qualitative characteristics of accounting information. C. Recognition and measurement concepts in accounting. D. Elements of financial statements.

answer

C

question

A firm's comprehensive income always: A. Is the same as its net income. B. Is greater than its net income. C. Is less than its net income. D. Could be greater than or less than net income.

answer

D

question

Net income equals: A. Assets minus liabilities. B. Revenues minus cost of goods sold. C. Revenues minus expenses. D. Cash receipts minus cash payments.

answer

C

question

Enhancing qualitative characteristics of accounting information include each of the following except: A. Timeliness. B. Materiality. C. Comparability. D. Verifiability.

answer

B

question

The enhancing qualitative characteristic of understandability means that information should be understood by: A. Those who are experts in the interpretation of financial information. B. Those who have a reasonable understanding of business and economic activities. C. Financial analysts. D. CPAs.

answer

B

question

Fundamental qualitative characteristics of accounting information are: A. Relevance and comparability. B. Comparability and consistency. C. Faithful representation and relevance. D. Neutrality and consistency.

answer

C

question

Enhancing qualitative characteristics of accounting information include: A. Relevance and comparability. B. Comparability and timeliness. C. Understandability and relevance. D. Neutrality and consistency.

answer

B

question

Gains are: A. Inflows from selling a product or service to a customer. B. Increases in equity resulting from transfers of assets to the company from owners. C. Increases in equity from peripheral transactions of an entity. D. None of these is correct.

answer

C

question

When there is agreement between a measure or description and the phenomenon it purports to represent, information possesses which characteristic? A. Verifiability. B. Predictive value. C. Faithful representation. D. Timeliness.

answer

C

question

Surefeet Corporation changed its inventory valuation method. Which characteristic is jeopardized by this change? A. Comparability. B. Representational faithfulness. C. Consistency. D. Feedback value.

answer

C

question

Elements of financial statements do not include: A. Monetary unit. B. Investments by owners. C. Comprehensive income. D. Losses.

answer

A

question

The primary objective of financial accounting information is to provide useful information to: A. Management. B. Capital providers. C. Regulators. D. Academicians.

answer

B

question

Of the following, the most important objective for financial reporting is to provide information useful for: A. Making decisions. B. Determining taxable income. C. Providing accountability. D. Increasing future profits.

answer

A

question

A constraint on qualitative characteristics of accounting information is: A. Timeliness. B. Going concern. C. Neutrality. D. Cost-effectiveness.

answer

D

question

According to the conceptual framework, verifiability implies: A. Legal evidence. B. Logic. C. Consensus. D. Legal verdict.

answer

C

question

Maltec Corporation has started placing its quarterly financial statements on its web page, thereby reducing by 10 days the time to get information to investors and creditors. The qualitative concept improved is: A. Comparability. B. Consistency. C. Timeliness. D. Faithful representation.

answer

C

question

Recognizing expected losses immediately, but deferring expected gains, is an example of: A. Materiality. B. Conservatism. C. Cost-effectiveness. D. Timeliness.

answer

B

question

Change in equity from nonowner sources is: A. Comprehensive income. B. Revenues. C. Expenses. D. Gains and losses.

answer

A

question

Which of the following Statements of Financial Accounting Concepts defines the 10 elements of financial statements? A. SFAC 4. B. SFAC 3. C. SFAC 5. D. SFAC 6.

answer

D

question

Primecoat Corporation could disseminate its annual financial statements two days earlier if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is: A. Timeliness. B. Materiality. C. Relevance. D. Cost-effectiveness.

answer

D

question

Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The concept demonstrated is: A. Comparability. B. Faithful representation. C. Cost-effectiveness. D. Materiality.

answer

D

question

Four different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is: A. Reliability. B. Comparability. C. Completeness. D. Verifiability.

answer

D

question

An important argument in support of historical cost information is: A. Relevance. B. Predictive quality for future cash flows. C. Materiality D. Verifiability

answer

D

question

The conceptual framework's recognition and measurement concepts recognize which one of the following as an assumption? A. Going concern. B. Historical cost. C. Full disclosure. D. Realization.

answer

A

question

The assumption that in the absence of contrary information a business entity will continue indefinitely is the: A. Periodicity assumption. B. Entity assumption. C. Going concern assumption. D. Historical cost assumption.

answer

C

question

If a company has declared bankruptcy, its financial statements likely violate: A. The fair value measurement approach. B. The present value measurement approach. C. The stable monetary unit assumption. D. The going concern assumption.

answer

D

question

Which of the following is typically characterized as a principle, rather than an assumption? A. Periodicity. B. Monetary unit. C. Conservatism. D. Full disclosure.

answer

D

question

93. Which of the following is not an identified valuation technique in GAAP regarding fair value measurement? A. Cost approach. B. Market approach. C. Cost-benefit approach. D. Income approach.

answer

C

question

Disclosure notes to a company's financial statements: A. Are relatively unimportant facts that don't belong in the basic financial statements. B. Document the source of financial statement facts, like literary footnotes. C. Are an integral part of a company's financial statements. D. Are irrelevant facts that are immaterial in amount.

answer

C

question

A cause-and-effect relationship is implicit in the: A. Realization principle. B. Historical cost principle. C. Matching principle. D. Going concern assumption.

answer

C

question

The full disclosure principle requires a balance between: A. Comparability and consistency. B. Relevance and cost-effectiveness. C. Reliability and neutrality. D. Timeliness and predictive value.

answer

B

question

The recognition of which of the following expenses exemplifies the application of matching expenses with the revenues they produced? A. President's salary. B. Research and development. C. Cost of goods sold. D. Advertising.

answer

C

question

Land was acquired in 2016 for a future building site at a cost of $40,000. The assessed valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. The land should be reported in the financial statements at: A. $40,000. B. $27,000. C. $46,000. D. $48,000.

answer

A

question

Revenue should not be recognized until: A. The seller has transferred goods or services to a customer. B. Contracts have been signed and payment has been received. C. Work has been performed and customer has been billed. D. Collection has been made and warrantees have expired.

answer

A

question

100. Which of the following best demonstrates the full disclosure principle? A. The multi-step income statement. B. The auditors' report. C. The company's tax return. D. Disclosure notes to financial statements.

answer

D

question

The matching principle is: A. A valuation method. B. An expense recognition accounting principle. C. A cash basis reporting principle. D. An asset classification procedure.

answer

B

question

Which of the following best describes the additional information that companies use to meet the requirements of full disclosure in financial statements? A. Parenthetical comments or modifying comments placed on the face of the financial statements. B. Disclosure notes conveying additional insights about company operations, accounting principles, contractual agreements, and pending litigation. C. Supplemental schedules and tables that report more detailed information than is shown in the primary financial statements. D. Comments on the face of the financial statements, and schedules, tables, and narrative disclosures in notes to the financial statements.

answer

D

question

Ford Motor Company purchases services from suppliers on account and sells its products to distributors on short-term credit. As a result, do each of these events affect net income faster than they affect net operating cash flows? Purchase Services Sell Products a. Yes Yes b. Yes No c. No Yes d. No No

answer

A

question

The revenue/expense approach emphasizes: A. Recognition of revenues. B. Recognition of expenses. C. The income statement. D. All of these are correct.

answer

D

question

The asset/liability approach emphasizes: A. Whether amounts on the balance sheet meet the definitions of assets and liabilities. B. A close relation between the balance sheet and the statement of cash flows. C. The distinction between net assets and gross assets. D. All of these are correct.

answer

A

question

Under IFRS, the role of the conceptual framework: A. Primarily involves guiding standard setters to make sure that standards are consistent with each other. B. Includes serving as a guide for practitioners when a specific standard does not apply. C. Is less important than in U.S. GAAP. D. Has resulted primarily from a convergence with U.S. GAAP.

answer

B

question

Under IFRS, the conceptual framework: A. Emphasizes the overarching concept of the financial statements providing a "true and fair representation" of the company. B. Is not designed to provide guidance to standard setters, but rather only to practitioners. C. Is not designed to provide guidance to practitioners, but rather only to standard setters. D. Specifies a set of rules that determine what constitutes a true IFRS standard.

answer

A

question

1. Predictive value 2. Relevance 3. Distribution to owners 4. Confirmatory value 5. Timeliness Information is useful in projecting cash flows. Pertinent to the decision at hand. Information is available prior to the decision. Decrease in equity due to transfers to owners. Information confirms expectations.

answer

1 2 5 3 4

question

1. Gain 2. Materiality 3. Completeness 4. Comprehensive income 5. Faithful representation Along with relevance, a fundamental decision-specific quality. Results if an asset is sold for more than book value. Contains all information necessary for faithful representation. The change in equity from nonowner transactions. Concerns the decision-making impact of both the amount and nature of an item.

answer

5 1 3 4 2

question

1. Neutrality 2. Comparability 3. Cosistency 4. Cost-effectiveness 5. Recognition Important in analysis between firms. Accounting information should be unbiased. The decision to include an amount in the financial statements. Applying the same accounting practices over time. Considers the value of using information relative to cost of providing it.

answer

2 1 5 3 4

question

1. Monetary unit assumption 2. Verifiability 3. Economic entity assumption 4. Going concern assumption 5. Periodicity assumption Implies consensus among different observers. Assumes all transactions can be identified with a particular entity. Assumes an entity will continue to operate indefinitely. Requires reporting the financial life of an entity in discrete time frames. Ignores the possibility of inflation.

answer

2 3 4 5 1

question

1. Historical cost 2. Materiality 3. Revenue recognition 4. Full disclosure 5. Present value Basis of measurement for fixed assets. Discounts future cash flows. Occurs when goods or services are transferred to the customer. Reporting of all information that could affect decisions. Application of GAAP sometimes avoided under this constraint.

answer

1 5 3 4 2

question

1. Financial Accounting Standards Board 2. Accounting Principles Board 3. Conservatism 4. AICPA 5. Securities and Exchange Commission Undermines representational faithfulness by being inconsistent with neutrality. It established GAAP before the FASB. Its EITF Issues are GAAP when entered in the Accounting Standards Codification. It has the authority to set U.S. accounting standards. It is the national organization for CPAs in the United States.

answer

3 2 1 5 4

question

1. Expenses 2. Equity 3. Distributions to owners 4. Investments by owners 5. Liabilities Net assets. Outflows of resources to generate revenues. Cash dividends. Claims of creditors against the assets of a business. Transfers of resources in exchange for common and preferred stock.

answer

2 1 3 5 4

question

1. Losses 2. Assets 3. Revenues 4. Comprehensive income 5. Gains Net outflows from peripheral transactions. Increases in equity from the sale of goods and/or services. Results if an asset is sold for more than book value. All changes in equity except owner transactions. Probable future economic benefits controlled by an entity.

answer

1 3 5 4 2

question

1. SEC 2. FASB 3. IASB 4. AICPA 5. EITF 6. PCAOB 7. IMA 8. IASC 9. APB 10. FAF Establishes auditing standards in the U.S for public companies. Primary national organization of accountants working in industry. Sets accounting standards in the United States. Provides timely responses to financial reporting issues. The FASB's parent organization. Parent organization of the IASB. FASB's predecessor. Regulates the financial reporting for public companies. National organization of certified public accountants. Sets global accounting standards.

answer

6 7 2 5 10 8 9 1 4 3

question

Establishes auditing standards in the U.S for public companies. Primary national organization of accountants working in industry. Sets accounting standards in the United States. Provides timely responses to financial reporting issues. The FASB's parent organization. Parent organization of the IASB. FASB's predecessor. Regulates the financial reporting for public companies. National organization of certified public accountants. Sets global accounting standards.

answer

66,000

question

Alpaca Corporation had revenues of $200,000 in its first year of operations. The company has not collected on $20,000 of its sales and still owes $25,000 on $70,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $15,000 in salaries. Owners invested $20,000 in the business and $20,000 was borrowed on a five-year note. The company paid $2,000 in interest that was the amount owed for the year, and paid $6,000 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%. Compute the cash balance at the end of the first year for Alpaca Corporation.

answer

108,000

question

Tri Fecta, a partnership, had revenues of $360,000 in its first year of operations. The partnership has not collected on $35,000 of its sales and still owes $40,000 on $150,000 of merchandise it purchased. There was no inventory on hand at the end of the year. The partnership paid $25,000 in salaries. The partners invested $40,000 in the business and $25,000 was borrowed on a five-year note. The partnership paid $3,000 in interest that was the amount owed for the year and paid $8,000 for a two-year insurance policy on the first day of business. Compute net income for the first year for Tri Fecta.

answer

178,000

question

Tri Fecta, a partnership, had revenues of $360,000 in its first year of operations. The partnership has not collected on $35,000 of its sales and still owes $40,000 on $150,000 of merchandise it purchased. There was no inventory on hand at the end of the year. The partnership paid $25,000 in salaries. The partners invested $40,000 in the business and $25,000 was borrowed on a five-year note. The partnership paid $3,000 in interest that was the amount owed for the year and paid $8,000 for a two-year insurance policy on the first day of business. Compute the cash balance at the end of the first year for Tri Fecta.

answer

244,000

question

The following information ($ in millions) comes from a recent annual report of Amazon.com Inc.: Net sales $10,711 Total assets 4,363 End of year balance in cash 1,022 Total stockholders' equity 431 Gross profit (Sales - Cost of Sales) 2,456 Net increase in cash for the year 9 Operating expenses 2,067 Net operating cash flow 702 Other income (expense), net (12) Compute Amazon's balance in cash at the beginning of the year.

answer

1,013

question

The following information ($ in millions) comes from a recent annual report of Amazon.com Inc.: Net sales $10,711 Total assets 4,363 End of year balance in cash 1,022 Total stockholders' equity 431 Gross profit (Sales - Cost of Sales) 2,456 Net increase in cash for the year 9 Operating expenses 2,067 Net operating cash flow 702 Other income (expense), net (12) Compute Amazon's total liabilities at the end of the year.

answer

3,932

question

The following information ($ in millions) comes from a recent annual report of Amazon.com Inc.: Net sales $10,711 Total assets 4,363 End of year balance in cash 1,022 Total stockholders' equity 431 Gross profit (Sales - Cost of Sales) 2,456 Net increase in cash for the year 9 Operating expenses 2,067 Net operating cash flow 702 Other income (expense), net (12) Compute Amazon's cost of goods sold for the year.

answer

8,255

question

The following information ($ in millions) comes from a recent annual report of Amazon.com Inc.: Net sales $10,711 Total assets 4,363 End of year balance in cash 1,022 Total stockholders' equity 431 Gross profit (Sales - Cost of Sales) 2,456 Net increase in cash for the year 9 Operating expenses 2,067 Net operating cash flow 702 Other income (expense), net (12) Compute the income before income tax for Amazon.

answer

377

question

The following information ($ in millions) comes from a recent annual report of Amazon.com Inc.: Net sales $10,711 Total assets 4,363 End of year balance in cash 1,022 Total stockholders' equity 431 Gross profit (Sales - Cost of Sales) 2,456 Net increase in cash for the year 9 Operating expenses 2,067 Net operating cash flow 702 Other income (expense), net (12) Compare net income (loss) for the year to net cash flow from operating activities. Why are these amounts different? Briefly explain.

answer

These amounts are different because of the differences between cash and accrual accounting. As opposed to cash flows from operations, net income includes both revenues and expenses the timing of which differs from the timing of certain cash receipts and payments. Examples would be credit sales in which the revenues are recorded before the collection of cash and cost of goods sold in which the expense often is recorded later than the cash payment to the supplier for the merchandise.

question

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. Cantor Corporation's accountant increased the book value of a patent from its original cost of $1 million to its recently appraised value of $6 million.

answer

Disagree. This is a violation of the historical cost (original transaction value) principle.

question

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. Stanton Corporation paid for the personal travel of its chief financial officer and charged travel expense.

answer

Disagree. This is a violation of the economic entity assumption.

question

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. At the end of its 2016 fiscal year, Dower, Inc., received an order from a customer for $60,000. The merchandise will ship early in 2017. Because the sale was made to a long-time customer and the invoice was paid in 2016, the controller recorded the sale in 2016.

answer

Disagree. The seller has not satisfied its obligation to deliver goods.

question

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. In the middle of its 2016 fiscal year, Sanguinetti Inc., paid $12,000 to its insurance company for one-year comprehensive insurance coverage. Sanguinetti recorded the entire expenditure as an expense in 2016.

answer

Disagree. This is a violation of matching principle.

question

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. The Churchill Pharmaceutical Company included a note in its financial statements that described a pending lawsuit against the company.

answer

Agree. The company is conforming to the full disclosure principle.

question

For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer. The Daily Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statements for internal use but disseminates to external users only the annual financial statements.

answer

Disagree. This is a violation of the periodicity assumption.

question

Identify or define the following terms: economic entity, going concern.

answer

Economic entity: All economic events can be identified with a particular economic entity. Going concern: In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely.

question

List the four financial statements most frequently provided to external users.

answer

Balance sheet, Income statement, Statement of cash flows, Statement of shareholders' equity

question

Explain and show an example of how the FASB's conceptual framework is needed in formulating standards on controversial topics.

answer

In order to provide consistency, a conceptual framework (a map clearly defining beliefs or structure) must be provided. This is the foundation for a strong, logical, and fair system. For example, in debating accounting for stock-based compensation, the FASB's conceptual framework explains the rationale for treating stock options as an expense. By relating the accounting for such compensation to the purpose of financial statements and their qualitative characteristics, the FASB can defend its positions without the bias inherent in such controversial issues.

question

What is the SEC and how is it involved with accounting standard-setting?

answer

The Securities and Exchange Commission is a federal agency that has the authority to set accounting standards. However, the SEC has always delegated the task to a private-sector body, such as the current FASB.

question

What is the EITF and what is its purpose?

answer

The Emerging Issues Task Force (EITF) acts as a filter for the FASB. It includes 15 individuals from public accounting and private industry along with a representative from the FASB and an SEC observer. The task force focuses on emerging issues and attempts to reach a consensus, speeding up the standard-setting process.

question

Accounting standard-setting has been characterized as a political process. Discuss this proposition giving an example

answer

Changes in GAAP can have significant differential effects on companies, investors, creditors, and other interest groups. The FASB must gauge the economic consequences of a change in accounting standards. The process by which financial accounting standards are created includes public comment and sometimes hearings. Ultimately, a vote must be taken to pass a proposed change in GAAP. Accounting for stock-based compensations (options) and postretirement health care benefits are examples where accounting practices have been affected by political influences on GAAP.

question

What are the key provisions of the Public Company Accounting Reform and Investor Protection (Sarbanes-Oxley) Act of 2002?

answer

The Act requires the regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for auditors and securities analysts, and requires that companies document and assess their internal controls. It also requires auditors to express an opinion on management's assessment of internal controls, and the auditors must also express their own opinion on company internal controls.

question

With respect to the financial statements, what is the value of an audit?

answer

Outside auditors add credibility to financial statements, increasing the confidence of capital market participants who rely on financial statements in making investment and credit decisions and recommendations.

question

What provisions did the Public Company Accounting Reform and Investor Protection (Sarbanes-Oxley) Act of 2002 make for performance of nonaudit services by an audit firm?

answer

The law makes it unlawful for the auditors of public companies to perform a variety of nonaudit services for audit clients. Prohibited services include bookkeeping, internal audit outsourcing, appraisal or valuation services, and various other consulting services. Other nonaudit services, including tax services, require preapproval by the audit committee of the company being audited.

question

Briefly describe how materiality is featured in the conceptual framework.

answer

Materiality—Information is material if it can have an effect on a decision made by a user. Thus, materiality is an aspect of relevance. If an item is not material, GAAP need not be followed. For example, if a large corporation purchased a water cooler for one of its common areas for $120, the amount could be expensed rather than recorded as an asset even though the cooler will be useful for several years. Materiality is a judgment call. Materiality is concerned with both the dollar amount of an item and/or the nature of an item. It would probably be material if Microsoft received $1,000,000 in bribes from a Chinese company for its technology. A $1,000,000 write-off of old equipment would probably be immaterial for Microsoft.

question

Give an example of a violation of the stable monetary unit assumption. How would it affect the quality of financial statement information?

answer

If a country experiences severe inflation, this would violate the assumption that dollar amounts are constantly valued. This would limit the usefulness of adding numbers in financial statements, because (for instance) costs at different times are not comparable without adjusting for changes in purchasing power.

question

Identify or define the following terms: periodicity, monetary unit.

answer

Periodicity—The life of a company can be divided into artificial periods to provide timely information to external users. Monetary unit—In the United States, financial statement elements should be measured in terms of the U.S. dollar. It assumes that the value of a dollar is stable over time.

question

Identify or define the following term: historical cost.

answer

Historical cost—A measurement attribute under which asset and liability measurements are based on the amount given or received in an exchange transaction.

question

How does GAAP define fair value?

answer

Fair value is defined as the price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

question

Over time, accounting standards have developed to reflect changes in the business world as well as changes in our ability to account for such changes. Using the example of marking assets and liabilities to their fair value, explain why you would expect accounting standards to change.

answer

Historically, financial accounting relied on transaction amounts (historical cost) as the fundamental measurement approach for reporting assets and liabilities. As markets have matured, it is more relevant and feasible to report some assets and liabilities at their fair values, particularly if such items have a ready market that is active.

question

List and briefly describe the five measurement attributes used commonly in current GAAP.

answer

a. Historical cost: the amount given or received in an exchange transaction. b. Net realizable value: the amount of cash into which an asset is expected to be converted in the ordinary course of business. c. Current cost: the cost that would be incurred to purchase or reproduce an asset. d. Present value: the sum of future cash flows discounted for the time value of money. e. Fair value: the price that would be received to sell assets or transfer liabilities in an orderly market transaction.

question

List and briefly describe the three levels of inputs described in the fair-value measurement hierarchy.

answer

a. Quoted market prices in active markets for identical assets or liabilities. b. Inputs other than quoted prices that can be observed for the asset or liability. These inputs include quoted prices for similar assets or liabilities in active or inactive markets and inputs that are derived principally from or corroborated by market data that can be observed. c. Inputs that cannot be observed that reflect the entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

question

Contrast the asset/liability and revenue/expense approaches to accounting standard setting

answer

Under the revenue/expense approach, we emphasize principles for recognizing revenues and expenses, with some assets and liabilities recognized as necessary to make the balance sheet reconcile with the income statement. Much of our accounting for revenues and expenses follows this revenue/expense approach. Under the asset/liability approach, on the other hand, we first recognize and measure the assets and liabilities that exist at a balance sheet date and, secondly, recognize and measure the revenues, expenses, gains and losses needed to account for the changes in these assets and liabilities from the previous measurement date. Therefore, we should try to recognize and measure assets and liabilities appropriately, and as a result will also capture their inflows and outflows in a manner that provides relevant and representationally faithful information about revenues and expenses.

question

Contrast the role of the conceptual framework in U.S. GAAP and IFRS

answer

The conceptual frameworks in U.S. GAAP and IFRS are very similar and are converging even more with ongoing efforts by the FASB and IASB. However, in U.S. GAAP, the conceptual framework primarily provides guidance to standard setters to help them develop high-quality standards. In IFRS the conceptual framework guides standard setting, but in addition it is supposed to provide a basis for practitioners to make accounting judgments when another IFRS standard does not apply. Also, IFRS emphasizes the overarching concept of the financial statements providing a "true and fair representation" of the company. U.S. GAAP does not include a similar requirement, but U.S. auditing standards require this consideration.

ACC 311 CH 1 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards