question

A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time

answer

True

question

A conceptual framework is a coherent system of concepts that flow from an objective

answer

True

question

The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards

answer

False

question

The IASB has issued a conceptual framework and has agreed to develop a common conceptual framework with the FASB

answer

True

question

Although the FASB has developed a conceptual framework, no Statements of Financial Accounting Concepts have been issued to da

answer

False

question

The objective of financial reporting is the foundation of the conceptual framework

answer

True

question

Users of financial statements are assumed to need no knowledge of business and financial accounting matters to understand information contained in financial statements

answer

False

question

Relevance and faithful representation are the two primary qualities that make accounting information useful for decision making

answer

True

question

The idea of consistency does not mean that companies cannot switch from one accounting method to another

answer

True

question

Timeliness and neutrality are two ingredients of relevance

answer

False

question

Verifiability and predictive value are two ingredients of faithful representation

answer

False

question

Revenues, gains, and distributions to owners all increase equity

answer

False

question

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners

answer

True

question

The historical cost principle would be of limited usefulness if not for the going concern assumption

answer

True

question

The economic entity assumption means that economic activity can be identified with a particular legal entity

answer

False

question

The expense recognition principle states that debits must equal credits in each transaction

answer

False

question

Revenues are recognized in the accounting period in which the performance obligation is satisfied

answer

True

question

Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements

answer

True

question

In order to justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal the costs associated with it

answer

False

question

Prudence or conservatism means when in doubt, choose the solution that will be least likely to overstate liabilities or expenses

answer

False

question

Generally accepted accounting principles

answer

derive their credibility and authority from general recognition and acceptance by the accounting profession

question

A soundly developed conceptual framework of concepts and objectives should

answer

*increase financial statement users' understanding of and confidence in financial reporting. *enhance comparability among companies' financial statements. *allow new and emerging practical problems to be more quickly solved(all correct)

question

Which of the following is not true concerning a conceptual framework in accounting

answer

It should be based on fundamental truths that are derived from the laws of nature

question

What is a purpose of having a conceptual framework

answer

To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards

question

Which of the following is not a benefit associated with the FASB Conceptual Framework Project

answer

Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply

question

In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting

answer

Objective of financial reporting

question

The underlying theme of the conceptual framework is

answer

decision usefulness

question

The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except

answer

*potential equity investors. *potential lenders. *present investors(all correct)

question

What is the primary objective of financial reporting as indicated in the conceptual framework

answer

Provide information that is useful to those making investing and credit decisions

question

If the LIFO inventory method was used last period, it should be used for the current and following periods because of

answer

comparability

question

What is the following is a characteristic describing the primary quality of relevance

answer

Predictive value

question

Which of the following is a fundamental quality of useful accounting information

answer

Relevance

question

Which of the following is a primary quality of useful accounting information

answer

Faithful representation

question

What is meant by comparability when discussing financial accounting information

answer

Information that is measured and reported in a similar fashion across companies

question

What is meant by consistency when discussing financial accounting information

answer

Information that is measured and reported in a similar fashion across points in time

question

Which of the following is an ingredient of relevance

answer

Materiality

question

Which of the following is an ingredient of faithful representation

answer

Neutrality

question

Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information

answer

Consistency

question

Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information

answer

Timeliness

question

What is the quality of information that is capable of making a difference in a decision

answer

Relevance

question

Neutrality is an ingredient of which fundamental quality of information

answer

Faithful representation

question

If the FIFO inventory method was used last period, it should be used for the current and following periods because of

answer

consistency

question

The pervasive criterion by which accounting information can be judged is that of

answer

decision usefulness

question

The two fundamental qualities that make accounting information useful for decision making are

answer

relevance and faithful representation

question

Accounting information is considered to be relevant when it

answer

is capable of making a difference in a decision

question

The quality of information that means the numbers and descriptions match what really existed or happened is

answer

faithful representation

question

Which of the following does not relate to relevance

answer

*Materiality *Predictive value *Confirmatory value(all correct)

question

According to Statement of Financial Accounting Concepts No. 2, materiality is an ingredient of the fundamental quality of

answer

Relevance-Yes Faithful Representation-No

question

According to Statement of Financial Accounting Concepts No. 2, completeness is an ingredient of the fundamental quality of

answer

Relevance-No Faithful Representation-Yes

question

According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the fundamental quality of

answer

Relevance-No Faithful Representation-Yes

question

Neutrality means that information

answer

cannot favor one set of interested parties over another

question

The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is

answer

verifiability

question

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of

answer

Relevance-Yes Faithful Representation-No

question

Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of

answer

Faithful Representation-Yes Relevance-No

question

Financial information demonstrates consistency when

answer

*firms in the same industry use different accounting methods to account for the same type of transaction. *a company changes its estimate of the salvage value of a fixed asset. *a company fails to adjust its financial statements for changes in the value of the measuring unit(all incorrect)

question

Financial information exhibits the characteristic of consistency when

answer

a company applies the same accounting treatment to similar events, from period to period

question

Information about different companies and about different periods of the same company can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives

answer

Comparability-Companies Consistency-Periods

question

When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of

answer

*relevance. *faithful representation. *consistency(all incorrect)

question

The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners'

answer

*transfers of assets to the entity. *rendering services to the entity. *satisfaction of liabilities of the entity(all correct)

question

In classifying the elements of financial statements, the primary distinction between revenues and gains is

answer

the nature of the activities that gave rise to the transactions involved

question

A decrease in net assets arising from peripheral or incidental transactions is called a(n)

answer

loss

question

One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to

answer

*revenues minus expenses plus gains minus losses. *revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners. *revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities(all incorrect)

question

Which of the following elements of financial statements is not a component of comprehensive income

answer

Distributions to owners

question

The calculation of comprehensive income includes which of the following

answer

Operating Income-Yes Distributions to Owners-No

question

According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time

answer

Expenses

question

According to the FASB Conceptual Framework, the elementsassets, liabilities, and equitydescribe amounts of resources and claims to resources at/during a

answer

Moment in Time-Yes Period of Time-No

question

Which of the following is not a basic element of financial statements

answer

Balance sheet

question

Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement

answer

Equity

question

Issuance of common stock for cash affects which basic element of financial statements

answer

Equity

question

Which basic element of financial statements arises from peripheral or incidental transactions

answer

Gains

question

Which of the following is not a basic assumption underlying the financial accounting structure

answer

Historical cost assumption

question

Which basic assumption is illustrated when a firm reports financial results on an annual basis

answer

Periodicity assumption

question

Which basic assumption may not be followed when a firm in bankruptcy reports financial results

answer

Going concern assumption

question

Which accounting assumption or principle is being violated if a company provides financial reports only when it introduces a new product

answer

Periodicity

question

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy

answer

Monetary unit assumption

question

During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of

answer

Relevance-No Periodicity-Yes

question

Under current GAAP, inflation is ignored in accounting due to the

answer

monetary unit assumption

question

The economic entity assumption

answer

is applicable to all forms of business organizations

question

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the

answer

economic entity assumption

question

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept

answer

Periodicity assumption

question

What accounting concept justifies the usage of depreciation and amortization policies

answer

Going concern assumption

question

The assumption that a company will not be sold or liquidated in the near future is known as the

answer

*economic entity assumption. *monetary unit assumption. *periodicity assumption(all incorrect)

question

Which of the following is an implication of the going concern assumption

answer

*The historical cost principle is credible. *Depreciation and amortization policies are justifiable and appropriate. *The current-noncurrent classification of assets and liabilities is justifiable and significant(all correct)

question

Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more

answer

verifiable

question

Valuing assets at their liquidation values rather than their cost is inconsistent with the

answer

historical cost principle

question

Revenue is recognized in the accounting period in which the performance obligation is satisfied. This statement describes the

answer

revenue recognition principle

question

Generally, revenue from sales should be recognized at a point when

answer

*management decides it is appropriate to do so. *the product is available for sale to the ultimate consumer. *the entire amount receivable has been collected from the customer and there remains no further warranty liability(all incorrect)

question

Revenue generally should be recognized

answer

when the performance obligation is satisfied

question

The measurement principle includes the

answer

historical cost principle and the fair value principle

question

Which of the following is commonly referred to as the matching principle

answer

Expense recognition principle

question

Product costs include each of the following except

answer

officer's salaries

question

The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the

answer

expense recognition principle

question

The accounting principle of expense recognition is best demonstrated by

answer

associating effort (expense) with accomplishment (revenue)

question

Which of the following serves as the justification for the periodic recording of depreciation expense

answer

Systematic and rational allocation of cost over the periods benefited

question

Application of the full disclosure principle

answer

is demonstrated by the use of supplementary information explaining the effects of financing arrangements

question

Which of the following is an argument against using historical cost in accounting

answer

Fair values are more relevant

question

When is revenue generally recognized

answer

When the company satisfies the performance obligation

question

Which of the following is a component of the revenue recognition principle

answer

Recognition occurs when the performance obligation is satisfied

question

A company has a performance obligation when it agrees to

answer

perform a service or sell a product to a customer

question

Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles

answer

President's letter to shareholders

question

What is the general approach as to when product costs are recognized as expenses

answer

In the period when the related revenue is recognized

question

Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting

answer

Historical cost

question

Recognition of expense related to amortization of an intangible asset illustrates which principle of accounting

answer

Expense recognition

question

When should an expenditure be recorded as an asset rather than an expense

answer

When future benefit exists

question

Which accounting assumption or principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet

answer

Historical cost

question

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

answer

Full disclosure

question

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

answer

Full disclosure

question

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

answer

Historical cost

question

Which of the following is a constraint in presenting financial information

answer

Cost-benefit relationship

question

All of the following represent costs of providing financial information except

answer

accessing capital

question

Which of the following is a benefit of providing financial information

answer

Improved allocation of resources

question

Where is materiality not used in providing financial information

answer

Applying the going concern assumption

question

What is prudence or conservatism

answer

When in doubt, recognizing the option that is least likely to overstate assets and income

question

Expensing the cost of copy paper when the paper is acquired is an example

answer

materiality

question

Which of the following statements concerning the cost-benefit relationship is not true

answer

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

question

Which of the following relates to both relevance and faithful representation

answer

Cost constraint

question

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

answer

materiality quality

question

Which of the following statements about materiality is correct

answer

*An item must make a difference or it need not be disclosed. *Materiality is a matter of relative size or importance. *An item is material if its inclusion or omission would influence or change the judgment of a reasonable person(all correct)

question

Which of the following is considered a pervasive constraint by Statement of Financial Accounting Concepts No. 8

answer

Cost-constraint

question

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as

answer

prudence or conservatism

question

The second level of the conceptual framework includes each of the following except

answer

principles

question

Trade-offs between the characteristics that make information useful may be necessary or beneficial. Issuance of interim financial statements is an example of a trade-off between

answer

relevance and faithful representation

question

Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between

answer

timeliness and verifiability

question

In matters of doubt and great uncertainty, accounting issues should be resolved by choosing the alternative that has the least favorable effect on net income, assets, and owners' equity. This guidance comes from

answer

prudence or conservatism

question

According to the FASB's conceptual framework, predictive value is an ingredient of

answer

Relevance-Yes Faithful Representation-No

question

According to the FASB's conceptual framework, which of the following relates to both relevance and faithful representation

answer

Comparability- Yes Neutrality-Yes

question

The FASB's conceptual framework classifies gains and losses based on whether they are related to an entity's major ongoing or central operations. These gains or losses may be classified as

answer

Nonoperating-Yes Operating-Yes

question

According to the FASB's conceptual framework, earnings

answer

excludes certain gains and losses that are included in comprehensive income

question

According to the FASB's conceptual framework, comprehensive income includes which of the following

answer

Operating Income-Yes Investments by Owners-No

question

According to the FASB's conceptual framework, the calculation of comprehensive income includes which of the following

answer

Income from Continuing Operations-Yes Distributions to Owners-No

question

According to the FASB's conceptual framework, comprehensive income includes which of the following

answer

Gross Margin-Yes Operating Income-Yes

question

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

answer

Gains-Yes Gross Margin-Yes

question

Which of the following is an application of the principle of rational and systematic allocation

answer

Amortization of intangible assets

question

All payments less than $25 are expensed as incurred. (Do not use conservatism.)

answer

Materiality characteristic

question

The company employs the same inventory valuation method from period to period

answer

Consistency characteristic

question

A patent is capitalized and amortized over the periods benefited

answer

Expense recognition principle or going concern assumption

question

Assuming that dollars today will buy as much as ten years ago

answer

Monetary unit assumption

question

Rent paid in advance is recorded as prepaid rent

answer

Expense recognition principle or going concern assumption

question

Financial statements are prepared each year

answer

Periodicity assumption

question

All significant post-balance sheet events are reported

answer

Full disclosure principle

question

Personal transactions of the proprietor are distinguished from business transactions

answer

Economic entity assumption

question

Stable-dollar assumption (do not use historical cost principle)

answer

Monetary unit assumption

question

The performance obligation is satisfied

answer

Revenue recognition principle

question

Numbers and descriptions match what really existed or happened

answer

Faithful representation characteristic

question

Yearly financial reports

answer

Periodicity assumption

question

Accruals and deferrals in adjusting and closing process. (Do not use going concern.)

answer

Expense recognition principle

question

Useful standard measuring unit for business transactions

answer

Monetary unit assumption

question

Notes as part of necessary information to a fair presentation

answer

Full disclosure principle

question

Affairs of the business distinguished from those of its owners

answer

Economic entity assumption

question

Company assumed to have a long life

answer

Going concern assumption

question

Valuing assets at amounts originally paid for them

answer

Historical cost principle

question

Application of the same accounting principles as in the preceding year

answer

Consistency characteristic

question

Summarizing significant accounting policies

answer

Full disclosure principle

question

Presentation of timely information with predictive and confirmatory value

answer

Relevance characteristic

question

The IASB and the FASB are working on a joint project to develop a common conceptual framework

answer

True

question

Under IFRS, expenses include losses that are not the result of ordinary activities

answer

True

question

Under IFRS, it is mandatory to report property, plant, and equipment at historical cost

answer

False

question

The number of financial statement elements in the IFRS conceptual framework is equal to those in GAAP

answer

False

question

The existing conceptual frameworks underlying GAAP and IFRS are very similar

answer

True

question

It is unlikely that the basic concepts related to the existing conceptual framework will change

answer

True

question

The IASB is considering a proposal to provide expanded guidance on estimating fair values

answer

True

question

GAAP has a concept statement to guide estimation of fair values when market-related data is not available

answer

True

question

The monetary unit assumption is a part of GAAP, but not IFRS

answer

False

question

A company incorporated in Japan uses the dollar as its unit of measurement

answer

False

question

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

answer

principle-based and internally consistent

question

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 _________.

answer

qualitative characteristics

question

Which of the following is an element of financial statements identified under IFRS

answer

Equity

question

Under IFRS, a decrease in economic benefit that results in a decrease in equity is termed as a(an

answer

Expense

question

Phase D of convergence project addresses the _______.

answer

reporting entity

Intermediate Accounting 15th editon Chapter 2 – Flashcards

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