question

What is the conceptual framework intended to establish? A. The meaning of "present fairly in accordance with Generally Accepted Accounting Principles." B. Generally Accepted Accounting Principles in financial reporting by business enterprises. C. The objectives and concepts for use in developing standards of financial accounting and reporting. D. The hierarchy of sources of Generally Accepted Accounting Principles.

answer

C

question

According to the conceptual framework, the objectives of financial reporting for business enterprises are based on: A. The need for conservatism. B. Generally Accepted Accounting Principles. C. The needs of the users of the information. D. Reporting on management's stewardship.

answer

C

question

According to the FASB conceptual framework, which of the following is not an enhancing qualitative characteristic? A. Comparability. B. Verifiability. C. Timeliness. D. Confirmatory value.

answer

D

question

Under Statement of Financial Accounting Concepts (SFAC) 8, predictive value is an ingredient of the fundamental quality of A. Verifiability. B. Representational faithfulness. C. Relevance. D. Reliability.

answer

C

question

Under Statement of Financial Accounting Concepts (SFAC) 8, which of the following relates to both relevance and faithful representation? A. Completeness. B. Predictive value. C. Timeliness. D. Neutrality.

answer

C

question

According to the FASB Conceptual Framework, what does the concept of faithful representation in financial reporting include? A. Precision. B. Neutrality. C. Effectiveness. D. Certainty.

answer

B

question

Under Statements of Financial Accounting Concepts, comprehensive income includes which of the following?

answer

Gains and GM

question

According to the conceptual framework, the process of reporting an item in the financial statements of an entity is: A. Allocation. B. Matching. C. Realization. D. Recognition.

answer

D

question

Which of the following is an example of the expense recognition principle of associating cause and effect? A. Sales commissions. B. Depreciation of fixed assets. C. Officers' salaries. D. Allocation of insurance cost.

answer

A

question

Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of: A. Substance over form. B. Going concern. C. Matching. D. Consistency.

answer

C

question

According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of: A. Representational faithfulness. B. Relevance. C. Consistency. D. Cost-benefit.

answer

D

question

Dividends

answer

Distributions to owners

question

Interest receivable

answer

assets

question

Issuance of preferred stock

answer

investments by owners

question

prepaid insurance

answer

assets

question

amortization

answer

expenses

question

cost of goods sold

answer

expenses

question

accounts payable

answer

liabilities

question

cash

answer

assets

question

equipment

answer

assets

question

gain on sale of equipment

answer

gains

question

Target Corporation prepares its financial statements in U.S. dollars.

answer

monetary unit

question

The financial statements of General Motors combine all of the activities of its subsidiaries.

answer

economic entity

question

Office Depot records depreciation on its equipment over their estimated useful lifes.

answer

going concern

question

It purchased 5,000 shares of Microsoft stock, which trades on the NASDAQ.

answer

level 1

question

The company purchased 500 shares of Anthony Technical Company, a start-up company. TravelCo used an internally developed model to evaluate the amount of the investment.

answer

level 3

question

It invested $10,000 in utility bonds of a small neighboring community. Although these bonds do not trade on an active market, their value closely tracks movements in U.S. Treasury bonds.

answer

level 2

question

In developing accounting standards, the FASB attempts to determine that each proposed pronouncement will fill a significant need and that the costs imposed to meet the rule are justified in relation to overall benefits of the resulting information. What accounting assumption, principle, or constraint is being illustrated?

answer

cost constraint

question

In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities. T or F

answer

T

question

The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability. T or F

answer

F

question

Verifiability is solely an enhancing characteristic for faithful representation. T or F

answer

F

question

Relevant information only has predictive value, confirmatory value, or both. T or F

answer

F

question

Comparability pertains to the reporting of information in a similar manner for different companies as well as a company reporting under the same accounting policies over time. T or F

answer

T

question

Information that is a faithful representation is characterized as having predictive or confirmatory value. T or F

answer

F

question

Sprull Inc. switches from FIFO to average-cost to FIFO over a 2-year period. Which qualitative characteristic of accounting information is not followed?

answer

consistency

question

Assume that the profession permits the savings and loan industry to defer losses on investments it sells because immediate recognition of the loss may have adverse economic consequences on the industry. Which qualitative characteristic of accounting information is not followed?

answer

neutrality

question

The chairman of the SEC at one time noted, "If it becomes accepted or expected that accounting principles are determined or modified in order to secure purposes other than economic measurement, we assume a grave risk that confidence in the credibility of our financial information system will be undermined." Which qualitative characteristic of accounting information should ensure that such a situation will not occur?

answer

neutrality

question

What are the two fundamental qualities that make accounting information useful for decision-making?

answer

relevance and faithful representation

question

Davidson Inc. does not issue its first-quarter report until after the second quarter's results are reported. Which qualitative characteristic of accounting is not followed?

answer

timeliness

question

Identify the pervasive constraint developed in the conceptual framework.

answer

cost

question

Predictive value is an ingredient of which of the two fundamental qualities that make accounting information useful for decision-making purposes?

answer

relevance

question

Rubin Company is the only company in its industry to depreciate its plant assets on a straight-line basis. Which qualitative characteristic of accounting information may not be followed?

answer

comparability

question

What is the quality of information that enables users to confirm or correct prior expectations?

answer

confirmatory value

question

Murray Company has attempted to determine the replacement cost of its inventory. Three different appraisers arrive at substantially different amounts for this value. The president, nevertheless, decides to report the middle value for external reporting purposes. Which qualitative characteristic of information is lacking in these data?

answer

verfiability

question

Polley Co. has reported a positive trend in earnings over the last 4 years. In the current year, it reduces its bad debt allowance to ensure another positive earnings year. The impact of this adjustment is equal to 2% of net income. Is this material?

answer

yes

question

Linsmeier Co. expenses all capital equipment under $18,000 on the basis that it is immaterial. The company has followed this practice for a number of years. Is this material?

answer

no

question

Carnall Co. has a gain of $3.1 million on the sale of plant assets and a $3.3 million loss on the sale of investments. It decides to net the gain and loss because the net effect is considered immaterial. Carnall's income for the current year was $10 million. Is this material?

answer

no

question

Intangible assets are capitalized and amortized over periods benefited.

answer

expense recognition principle

question

Repair tools with purchase prices below $1,000 are expensed when purchased.

answer

materiality

question

Brokerage firms use fair value for purposes of valuing investments.

answer

measurement fair value principle

question

Each enterprise is kept as a unit distinct from its owner or owners.

answer

economic entity

question

All significant post-balance-sheet events are reported.

answer

full disclosure principle

question

Fair value changes of fixed assets are not recognized in the accounting records.

answer

measurement historical cost principle

question

Supplemental information is presented so that investors will not be misled.

answer

full disclosure principle

question

Revenue is recorded at point of sale.

answer

revenue recognition principle

question

All important aspects of bond indentures are presented in financial statements.

answer

full disclosure principle

question

Rationale for accrual accounting.

answer

expense recognition and revenue recognition

question

The use of consolidated statements is justified.

answer

economic entity

question

Reporting must be done at defined time intervals.

answer

periodicity principle

question

An allowance for doubtful accounts is established.

answer

measurement fair value principle

question

Goodwill is recorded only at time of purchase.

answer

measurement historical cost principle

question

A company charges its sales commission costs to expense.

answer

expense recognition principle

question

To be _______ accounting info must be capable of making a difference in a decision

answer

relevant

question

Information is _______ if omitting it or misstating it could influence decisions that users make in the basis of information

answer

material

question

Faithful representation consists of

answer

completeness, neutrality, free from error

question

Enhancing qualities consist of

answer

comparability, verifiability, timeliness, understandability

question

company that keeps its activity separate from its owners and other businesses

answer

economic entity

question

company to last long enough to fulfill objectives and commitments

answer

going concern

question

money is the common denominator

answer

monetary unit

question

company can divide its economic activities into time periods

answer

periodicity

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