Chapter 2 Practice Questions – Flashcards
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Which of the following statements about the IASB and FASB conceptual frameworks is NOT correct? (A)The IASB conceptual framework does not identify the element comprehensive income. (B)The existing IASB and FASB conceptual frameworks are organized in similar ways. (C)The FASB and IASB agree that the objective of financial reporting is to provide useful information to investors and creditors. (D)IFRS does not allow use of fair value as a measurement basis.
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D
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Which of the following statements is false? (A)The monetary unit assumption is used under IFRS. (B)Under IFRS, companies may use fair value for property, plant, and equipment. (C)The FASB and IASB are working on a joint conceptual framework project. (D)Under IFRS, there are the same number of financial statement elements as in GAAP.
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D
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Companies that use IFRS: (A)must report all their assets on the statement of financial position (balance sheet) at fair value. (B)may report property, plant, and equipment and natural resources at fair value. (C)may refer to a concept statement on estimating fair values when market data are not available. (D)may only use historical cost as the measurement basis in financial reporting.
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B
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The issues that the FASB and IASB must address in developing a common conceptual framework include all of the following EXCEPT: (A)should the characteristic of relevance be traded-off in favor of information that is verifiable? (B)should a single measurement method such as historical cost be used? (C)should the common framework lead to standards that are principles-based or rules-based? (D)should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making?
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D
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With respect to the converged FASB/IASB conceptual framework: (A)work is being conducted on the framework as a whole, and it will not be issued until all parts are completed. (B)work on the framework has a higher priority than projects on revenue and leases. (C)work is being conducted on the framework in phases, and completed parts will be issued as completed. (D)the framework will not address measurement issues.
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C
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(True/False): In order to justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal the costs associated with it.
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False
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(True/False): Prudence or conservatism means when in doubt, choose the solution that will be least likely to overstate liabilities or expenses.
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False
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The IASB and the FASB are working on a joint project that has an objective of developing a conceptual framework that leads to standards that are: (A)principle-based and rigid in nature. (B)principle-based and internally consistent. (C)rule-based and internally consistent. (D)rule-based and flexible in nature.
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B
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In the first stage of creating conceptual framework, the IASB and the FASB agreed on the objective of financial reporting and a common set of desired _________. (A)quantitative characteristics (B)qualitative characteristics (C)rule-based characteristics (D)characteristics of GAAP
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B
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Which of the following is an element of financial statements identified under IFRS? (A)Losses (B)Comprehensive income (C)Investment by owners (D)Equity
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D
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Under IFRS, a decrease in economic benefit that results in a decrease in equity is termed as a(an): (A) Comprehensive loss (B) Expense (C) Distributions to owners (D) Loss of economic benefit
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B
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Phase D of convergence project addresses the _______. (A)elements and recognition (B)monetary unit assumption (C)reporting entity (D)periodicity assumption
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C
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Which of the following is NOT a benefit associated with the FASB Conceptual Framework Project? (A)A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting. (B)A coherent set of accounting standards and rules should result. (C)Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. (D)Practical problems should be more quickly solvable by reference to an existing conceptual framework.
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C
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In the conceptual framework for financial reporting, what provides "the why" - the purpose of accounting? (A)Qualitative characteristics of accounting information (B)Objective of financial reporting (C)Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints (D)Elements of financial statements
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B
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The underlying theme of the conceptual framework is: (A) faithful representation. (B) comparability. (C) decision usefulness. (D) understandability.
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C
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The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except: (A)potential equity investors. (B)potential lenders. (C)all of these answers are correct. (D)present investors.
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C
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What is the primary objective of financial reporting as indicated in the conceptual framework? (A)Provide information about those investing in the entity. (B)All of these answer choices are correct. (C)Provide information that is useful to those making investing and credit decisions. (D)Provide information that is useful to management.
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C
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If the LIFO inventory method was used last period, it should be used for the current and following periods because of: (A)verifiability. (B)comparability. (C)materiality. (D)timeliness.
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B
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What is the following is a characteristic describing the primary quality of relevance? (A)Verifiability. (B)Predictive value. (C)Materiality. (D)Understandability.
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B
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Which of the following is a fundamental quality of useful accounting information? (A)Materiality (B)Comparability (C)Relevance (D)Neutrality
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C
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Which of the following is a primary quality of useful accounting information? (A)Comparability (B)Consistency (C)Faithful representation (D)Conservatism
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C
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What is meant by comparability when discussing financial accounting information? (A)Information has predictive or confirmatory value. (B)Information is reasonably free from error. (C)Information that is measured and reported in a similar fashion across companies. (D)Information is timely.
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C
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Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles? (A)President's letter to shareholders. (B)Notes to financial statements. (C)Balance sheet. (D)Income statement.
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A
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What is the general approach as to when product costs are recognized as expenses? (A)In the period when the expenses are incurred. (B)In the period when the expenses are paid. (C)In the period when the related revenue is recognized. (D)In the period when the vendor invoice is received.
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C
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Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting? (A)Historical cost. (B)Full disclosure. (C)Economic entity. (D)Going concern.
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A
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Recognition of expense related to amortization of an intangible asset illustrates which principle of accounting? (A)Expense recognition. (B)Historical cost. (C)Revenue recognition. (D)Full disclosure.
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A
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When should an expenditure be recorded as an asset rather than an expense? (A)Never. (B)Always. (C)If the amount is material. (D)When future benefit exists.
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D
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What are the 4 basic assumptions that underlie the financial accounting structure?
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1) economic entity 2) going concern 3) monetary unit 4) periodicity
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Which accounting assumption OR principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet? (A)Monetary unit. (B)Historical cost. (C)Full disclosure. (D)Going concern.
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B
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Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price? (A) Historical cost. (B) Full disclosure. (C) Going concern (D) Expense recognition.
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B
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Which assumption or principle requires that all information significant enough to affect a decision of reasonably informed users should be reported in the financial statements? (A)Historical cost. (B)Full disclosure. (C)Matching. (D)Going concern.
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B
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A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle? (A)Revenue recognition. (B)Going concern. (C)Historical cost. (D)Monetary unit.
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C
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Which of the following is a constraint in presenting financial information? (A)Full disclosure. (B)Cost-benefit relationship. (C)Relevance. (D)Consistency.
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B
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All of the following represent costs of providing financial information except (A)accessing capital. (B)preparing. (C)disseminating. (D)auditing.
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A
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Which of the following is a benefit of providing financial information? (A)Auditing. (B)Potential litigation. (C)Disclosure to competition. (D)Improved allocation of resources.
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D
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Where is materiality not used in providing financial information? (A)Determining what items to include in the financial statements. (B)Applying the revenue recognition principle. (C)Applying the going concern assumption. (D)Determining the level of disclosure.
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C
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What are the 4 basic principles of accounting?
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(1) measurement (2) revenue recognition (3) expense recognition (4) full disclosure
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What is prudence or conservatism? (A)When in doubt, recognizing the option that is least likely to overstate assets and income. (B)Recognizing the option that is least likely to overstate assets and income. (C)Understating assets and net income. (D)Recognizing revenue when earned and realized.
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A
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Expensing the cost of copy paper when the paper is acquired is an example of which constraint? (A)industry practices. (B)expense recognition. (C)materiality. (D)conservatism.
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C
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Which of the following statements concerning the cost-benefit relationship is not true? (A) Management should not be required to provide forecasted financial information. (B) If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use. (C) Management should not be required to report information that would significantly harm the company's competitive position. (D) Business reporting should exclude information outside of management's expertise.
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B
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Which of the following relates to both relevance and faithful representation? (A)predictive value (B)materiality (C)neutrality (D)None of these
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D
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Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the (A)materiality quality. (B)expense recognition principle. (C)historical cost principle. (D)consistency characteristic.
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A
