question

t/f the fasb has taken the conceptual framework to a higher level than the IASB

answer

false

question

t/f US GAAP and IFRS set forth the same objective of financial reporting in their respective conceptual frameworks

answer

true

question

t/f the conceptual framework indicates that the primary users of financial information are investors, lenders and managers

answer

false

question

t/f the conceptual framework indicates that the primary users of financial information are the investors, lenders and other creditors

answer

true

question

t/f publicly traded US companies are required to comply with IFRS

answer

false

question

t/f the FASB's decisions are often based on an investor's need to form an opinion about a company's future cash flows

answer

true

question

what is the primary challenge for financial reporting?

answer

to stay relevent to the needs of investors, lenders and creditors

question

the conceptual framework assists with

answer

the development of a set of standards which ensure that financial reports meet the needs of investors and creditors

question

which of the following types of information is not a focus of the primary objective of financial reporting

answer

information that helps an investor form an opinion about a company's future cash flows

question

the primary purpose of financial reporting is to provide information that is useful to a companies _____?

answer

suppliers

question

which of the following is not considered to be a primary user of financial information which financial reporting standards are designed?

answer

regulator

question

who are the primary users of financial information? discuss how fasb and iasb take them into account

answer

primary users are investors lenders and other creditors that cannot demand information from the entity. When making decisions regarding the conceptual frameworks, the boards consider the needs of these groups to have access to relevant information when assessing the financial health of a company and in forming opinions about the state of the company.

question

Ronaldo Woods is a student getting his degree in business administration. He does not like his accounting class very much, and doesn't understand why he needs to study accounting — stating "I'm never going to be an accountant — why do I need to know this?" Explain to Ronaldo why it is important for business students to learn about accounting and give examples.

answer

should include discussion on accountability and transparency. Other points could be the need to talk intelligently with their accountant, to know which gauges to watch (and be able to understand their meaning and consequence), and be able to identify economic events that could impact the company. (If open book exam, they could reference the interview with Paul Pacter from Section 2.2.)

question

t/f currently the FASB and IASB have two separate conceptual frameworks which are partially converged

answer

true

question

t/f a purpose of the conceptual framework is to override accounting standards

answer

false

question

t/f the conceptual framework defines the objective of financial reporting as providing financial information that is useful in making decisiosn about resource allocation

answer

true

question

t/f a key relationship among the conceptual framework components is the direct effect of financial reporting standards on the elements of the financial statement

answer

false

question

t/f a key relationship among the conceptual framework components is the impact the objective of financial reporting has on the qualitative characteristics that are considered to make accounting information useful

answer

true

question

t/f a purpose of IASB's conceptual framework is to assist preparers, auditors and users of financial statements

answer

true

question

a purpose of FASB's conceptual framework is to assist preparers auditors and users of financial statements

answer

false

question

_______ are identical under US GAAP and IFRS

answer

objective and qualitative characteristics

question

which of the following is not a purpose of FASB's conceptual framework

answer

ovverride existing accounting standards

question

when developing new standards, the standard setters must first determine_____?

answer

if the proposed standard meets the objective of financial reporting

question

when developing a new proposed accounting standard, after FASB has determined that the proposed standard meets the objective of financial reporting, the enxt step in the developmental process is to

answer

consider whether the proposed standard possesses the qualitative characteristics that make accounting information useful

question

the primary purpose of the conceptual framework is to provide guidance too

answer

standard setters (The framework provides some guidance to preparers and auditors, but the best answer would be C, standard setters, as it provides them the most guidance with development of standards. )

question

which of the following best characterizes the current situation concerning revisions to the conceptual framework?

answer

the FASB and the IASB are working independently on their conceptual framework

question

in the conceptual framework, what are the two types of qualitative characteristics of financial reporting?

answer

fundamental and enhancing

question

in the conceptual framework, what are the two types of elements of financial reporting

answer

recognition and measurement

question

the IASB and FASB share the goal that standards will be based on an agreed set of fundamental_______?

answer

concepts

question

all of the following are primary components of the conceptual framework for financial reporting except

answer

standards

question

what is the purpose of the conceptual framework

answer

the purpose of the conceptual framework is to establish objectives and fundamental concepts that are the basis for developing and revising financial accounting and reporting standards

question

discuss how standard setters use the conceptual framework in developing new standards

answer

standard setters will determine if the proposed standard meets the objective of financial reporting, establish that the information provided by the new standard possesses qualitative characteristics that make accounting information usefule, consider the elements of the financial statements affected and the recognition and measurement concept use to support the new standard, weigh constraints such as the cost and benefit of issuing the new standard which may deter requiring the new standard

question

list three active phases in the FASB conceptual framework project

answer

objective and qualitative characteristics, measurement, presentation and disclosure

question

List the three primary components of the conceptual framework for financial reporting and the two subcomponents of each component.

answer

qualitative, made of fundamental and enhancing characteristics. Elements, made of point-in-time and period of time. Principles, made of recognition and measurement.

question

t/f the two types of qualitative characteristics are fundamental characteristics and elective characteristics

answer

false

question

t/f the role of qualitative characteristics in the conceptual framework is to increase the decision of usefulness of financial information

answer

true

question

t/f information exhibits the characteristics of faithful representation if it is complete, neutral and free from errors

answer

true

question

t/f information is relevant if it reliably depicts the substance of an economic event

answer

false

question

t/f information has predictive value if it provides feedback about prior evaluations

answer

false

question

t/f information that is not material is never relevant

answer

true

question

t/f verifiability is a characteristic of faithful representation

answer

false

question

t/f relevance is an enhancing characteristic of financial information

answer

false

question

t/f information that is not accurate can be considered faithfully representative

answer

true

question

t/f materialty cannot always be expressed quantitatively but sometimes requires judgement

answer

true

question

the two fundamental characteristics of financial information are

answer

faithful representation and relevance

question

the most important characteristic of accounting information is whether it is

answer

free from error

question

_______ characteristics distinguish useful financial information from information that is not useful

answer

fundamental

question

what are the attributes of relevant information?

answer

materiality, predictive value, and confirmatory value

question

which of the following is not a characteristic of relevance

answer

free from error

question

_______ indicates whether financial information depicts an economic event in a way that is complete, neutral and free from error

answer

faithful representation

question

which of the following is a characteristic of faithful representation

answer

complete

question

the attribute ______ relates to the information that is relevant

answer

predictive value

question

all of the following are enhancing characteristics except

answer

consistency

question

_________means that a group of reasonably informed financial statement users are able to reach a consensus decision that reported information is a faithful representation of an underlying economic event.

answer

verifiability

question

Financial statements should provide all financial information that is relevant and faithfully representative within the limitations of the ________ constraint.

answer

cost

question

baxter company issues its annual financial reports within one month of the end of the year. This is an example of which enhancing quality of accounting information?

answer

timeliness

question

TLR Studio reported earnings per share of $2.11. This surpassed the average analyst forecast of $2.06. This information has ________ to users of financial information.

answer

confirmatory value

question

Poseidon Corp is aware that a large portion of receivables may become uncollectible because the customer is in talks for bankruptcy. By choosing not to disclose this information, the information provided in the statements ________.

answer

does not faithfully represent the firms financial position

question

25) Black Gold Gem Co omitted the fact that a mine has been depleted ahead of estimates. Because of this omission, the financial information provided to users ________.

answer

is not free from error, does not faithfully represent the firms financial position.

question

Do you agree or disagree with the following statement: "Financial statements that are free from error are accurate." Explain your answer.

answer

A financial statement that is free from error is not the same thing as an accurate statement. The nature of accrual accounting is one that relies on estimates; therefore, when saying information reported is free from error, it is really referring to the process used to generate the financial statements being error-free. The amounts reported may be different than the actual amounts in accounts that rely on estimates.

question

What is the cost constraint and how does it affect financial reporting?

answer

standard setters should compare the cost of requiring information to the benefits derived from presenting this information . Standard setters consider costs for both financial statement reporters and users. To be reported, accounting information not only must be relevant and faithfully represented but it also must pass an economic test by satisfying the cost constraint.

question

Caesar & Company is planning a major expansion, and is in negotiations with their bank for a loan. The bank requested that Caesar & Co provide them with financial statements as soon as possible after the end of the year. Caesar & Co has several suppliers that are slow to submit invoices, so they are considering making estimates for the amounts associated with those liabilities in order to expedite the preparation of the financial statements for the bank. Discuss the qualitative characteristics that they need to consider.

answer

This will be a trade-off between verifiability and timeliness. By estimating the amounts for the liabilities, the statements will be less verifiable — because the associated invoices will not be available. However, this will allow them to prepare the statements quickly — and timeliness stipulates that financial information is available to users early enough to assist with decision making.

question

t/f US GAAP and IFRS identify the same three period of time elements

answer

false

question

t/f US GAAP and IFRS identify the same three point in time elements

answer

t/f

question

t/f elements are categorized by whether they are relevant or faithfully representative

answer

false

question

t/f according to IFRS, point in time elements include assets, liabilities and equity

answer

true

question

t/f according to IFRS, period of time elements include income expenses performance and transactions with owners

answer

false

question

t/f comprehensive income is the residual interest in the assets of an entity that remains after deducting its liabilities

answer

false

question

t/f according to US gaap, period of time elements include investments by owners, revenues, comprehensive income and others

answer

true

question

t/f IFRS does not treat transactions with owners as separate elements

answer

true

question

t/f the IFRS element capital maintenance is identical to the GAAP element comprehensive income

answer

false

question

t/f according to IFRS there are two types of capital maintenance adjustments: financial and physical

answer

true

question

under US GAAP, comprehensive income includes which of the following

answer

Investments by owners: No Operating Income: Yes

question

what is the term that describes the building blocks of the financial statements?

answer

elements

question

______ elements appear on the balance sheet

answer

point in time

question

under US GAAP, _____ is an example of a period of time element and appears on the _________

answer

sales revenue, income statement

question

IFRS and US GAAP both identify assets as

answer

point in time elements

question

US GAAP identifies _____ point in time elements

answer

three

question

US GAAP identifies ______ period in time elements

answer

seven

question

IFRS identifies ____ point in time elements

answer

three

question

IFRS identifies _____ period in time elements

answer

four

question

changes in equity that result from the company's central business operations are

answer

revenues and expenses

question

which of the following terms describe probably future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

answer

asset

question

__________ includes all changes in equity during a period except those resulting from transactions with owners

answer

comprehensive income

question

which element of the financial statements results from peripheral or incidental transactions

answer

gains

question

which of the following statements is not true about distributions of owners

answer

distributions to owners are included in other comprehensive income

question

the primary distinction between expenses and losses is ____?

answer

the nature of the activities that bring about the transactions

question

IFRS element performance refers to

answer

profit

question

The IFRS element income relates to which US GAAP element

answer

revenues and gains

question

the IFRS element expenses encompasses which US GAAP elements

answer

losses and expenses

question

_____ are restatements or revaluations of reported amounts of assets and liabilities that companies usually report in comprehensive income

answer

Capital and Maintenance

question

_______ are restatements or revaluations of reported amounts of assets and liabilities that companies usually report in comprehensive income

answer

Capital maintenance adjustments

question

Under the concept of ____, capital is regarded in terms of the productive capacity of a company

answer

physical capital maintenance

question

financial capital maintenance refers to the concept that capital is viewed in terms of

answer

the monetary investment in the company

question

What is the relationship between the point in time elements and the period of time elements

answer

the period of time elements provide a way to describe how the point in time elements change during the accounting period

question

what is equity and how does it change during a period of time

answer

equity is the residual interest in the asset of an entity that remains after deducting its liabilities. it changes when there are investments by the owners, distributions to the owners, increases or decreases in comprehensive income

question

Explain comprehensive income in terms of other elements of the financial statements.

answer

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. That is, comprehensive income includes revenues, expenses, gains, and losses, and all other changes to equity not resulting from transactions with the owners.

question

t/f The FASB and IASB are converged in general recognition principles

answer

False

question

t/f recognition is the process of reporting an economic event in the financial statements

answer

true

question

t/f the cost constraint means that an item is not recognized in the financial statements unless omission would significantly influence the judgment of an informed user

answer

false

question

t/f the major difference between cash and accrual accounting is the timing of revnue and expense recognition

answer

true

question

t/f revenues are considered earned when a company exchanges a good or service for a cash or claims cash

answer

false

question

t/f firms change the value of an asset or a liability when expected future cash flows change

answer

true

question

t/f current cost is the amount of cash received in exchange for an asset less the direct costs of disposal

answer

false

question

t/f US GAAAP does not allow companies to prepare financial statements using a cash-basis system

answer

true

question

t/f quoted prices in active markets are the measure of fair value that is neither the most observable nor the least observable

answer

false

question

t/f unobservable values cannot be used to report fair value in the financial statements

answer

False

question

which of the following is not an underlying principle of accrual accounting

answer

monetary unit

question

the process of reporting an economic event in the financial statements is known as

answer

recognition

question

which is not one of the four general recognition criteria under US GAAP

answer

material

question

under IFRS which of the following is not a criteria for recognizing items in the financial statements

answer

the item is relevant

question

A fortune 500-company purchases a new clock whcih is expected last for five years for 35$. according to the materiality threshold, this would be treated as an ____ in the accounting record

answer

expense

question

Under US GAAP, it would need ot be disclosed that smith company is under investigation for bribery charges because of

answer

materiality

question

under IFRS, Which of the following is considered to be a measure of current cost

answer

present value of future cash flows

question

under US GAAP what is a condition for revenue to be realized or realizable

answer

cash or fixed claims to cash are received, the company receives the right to bill with expectation of payment

question

Under US GAAP revenues are considered _____ when the seller has accomplished what it must do to be entitled to the revenues

answer

earned

question

IFRS includes all of the following bases of measurement except

answer

current cost

question

under IFRS income recognized simultaneously with

answer

increases in assets and decreases in laibilities

question

which of the following is not an approach to determine when to report an expense

answer

net realizable value

question

US GAAP identifies ___ measurements bases used in financial reporting and IFRS identifies ______

answer

five, four

question

the _____ cost is the amount of cash that a firm paid to acquire an asset, whereas ____ is the amount the firm would pay fi the asset were purchased today

answer

historical, current cost

question

____ is the amount of cash that the firm actually paid to acquire an asset

answer

historical cost

question

when the buyer and seller are unrelated and independent, the transaction is considered to be

answer

an arms length transaction

question

whe deciding how to measure fair value of an asset or liability there is sometimes a trade off between

answer

relevance and faithful representation

question

_______ accounting measures cash receipts and disbursements leaving out economic activity

answer

cash basis

question

____ accounting measures non cash transactions

answer

accrual

question

31) Purrfect Pets, Inc. provides animal daycare for $25 per day. Customers buy three month packages, which provide 15 days of care per month. In January they received cash payments from 10 customers. For the month of January, they will recognize ________ of revenue under the cash basis, and ________ of revenue under the accrual basis.

answer

11250, 3750

question

32) Purrfect Pets, Inc. provides animal daycare for $25 per day. Customers buy three month packages, which provide 15 days of care per month. In January, they received cash payments from 10 customers. For the month of February, they will recognize ________ of revenue under the cash basis, and ________ of revenue under the accrual basis.

answer

0, 3750

question

33) Shadow's Cleaning Service provides weekly cleaning services for $40 per week. In January, they collected payments from 50 customers for 3 months (12 weeks) of service each. For the month of January they will recognize ________ of revenue under the cash basis, and ________ under the accrual basis.

answer

24000, 8000

question

34) Shadow's Cleaning Service provides weekly cleaning services for $40 per week. In January, they collected payments from 50 customers for 3 months (12 weeks) of service each. For the month of February they will recognize ________ of revenue under the cash basis, and ________ under the accrual basis.

answer

0, 8000

question

35) TNT Inc charges $125 per month for a storage unit. In the first quarter of the year, they collected $6,125. Ten customers pre-paid for three months rental in January, seven customers pre-paid for two months rental in February, and five customers paid for one month in March. Using the cash basis of accounting, TNT will recognize ________ in revenue for January and ________ using the accrual basis.

answer

3750, 1250

question

36) TNT Inc charges $125 per month for a storage unit. In the first quarter of the year, they collected $6,125. Ten customers pre-paid for three months rental in January, seven customers pre-paid for two months rental in February, and five customers paid for one month in March. Using the cash basis of accounting, TNT will recognize ________ in revenue for February and ________ using the accrual basis.

answer

1750, 2125

question

37) TNT Inc charges $125 per month for a storage unit. In the first quarter of the year, they collected $6,125. Ten customers pre-paid for three months rental in January, seven customers pre-paid for two months rental in February, and five customers paid for one month in March. Using the cash basis of accounting, TNT will recognize ________ in revenue for March and ________ using the accrual basis.

answer

625, 2750

question

38) Angelo's charges $200 per month for catering services. In the first quarter of the year, they collected $14,000. Fifteen customers pre-paid for three months of catering beginning in January, ten customers pre-paid for two months of catering beginning in February, and five customers paid for one month of catering in March. Using the cash basis of accounting, Angelo's will recognize ________ in revenue for January and ________ using the accrual basis.

answer

9000, 3000

question

39) Angelo's charges $200 per month for catering services. In the first quarter of the year, they collected $14,000. Fifteen customers pre-paid for three months of catering beginning in January, ten customers pre-paid for two months of catering beginning in February, and five customers paid for one month of catering in March. Using the cash basis of accounting, Angelo's will recognize ________ in revenue for February and ________ using the accrual basis.

answer

4000, 5000

question

40) Angelo's charges $200 per month for catering services. In the first quarter of the year they collected $14,000. Fifteen customers pre-paid for three months of catering beginning in January, ten customers pre-paid for two months of catering beginning in February, and five customers paid for one month of catering in March. Using the cash basis of accounting, Angelo's will recognize ________ in revenue for January and ________ using the accrual basis.

answer

1000, 6000

question

Identify the three main approaches to expense recognition under U.S. GAAP — provide examples of each. How does IFRS expense recognition principles differ?

answer

match expense to the related revenue, to expense it in the period incurred, or to systematically allocate the expense over periods of use. . An example of matching the expense to the revenue would be matching the cost of goods sold expense to the related revenue recognized when the inventory is sold. Expensing in the period incurred would be recording supplies expense during the period that they were consumed. Depreciating a piece of equipment over its useful life is an example of systematic allocation. While U.S. GAAP focuses on determining the period when an expense is recognized, IFRS focuses on what expenses are recognized during a period. Specifically, IFRS recognizes all decreases in future economic benefits related to a decrease in an asset or an increase in a liability if can be reliably measured. Thus, the matching principle is not explicitly described as an expense recognition principle because it is subsumed under the other IFRS criteria.

question

45) What drives the measurement and timing of revenue recognition?

answer

companies should recognize revenue to record the transfer of control of goods or services that reflects the consideration to which the company expects to be entitled. this occurs when a company satisfies its performance obligations specified in the contract with a customer

question

t/f like US GAAP, IFRS directly addresses the going concern concept

answer

false

question

t/f the going concern concept justifies accounting practices such as depreciation

answer

true

question

t/f the going concern concept is explicitly stated in the IFRS conceptual framework but not in the US GAAP conceptual framework

answer

true

question

t/f the periodicity assumption stipulates that the entity wil continue to operate for an indefinite period of time

answer

False

question

t/f the economic entity concept stiplates that an entity will measure and report economic activities in monetary units

answer

False

question

which of the following is not an underlying assumption in financial reporting

answer

reliability concept

question

a company reports financial results each year. which underlying assumption is illustrated by this example

answer

periodicity assumption

question

the ______ justifies the use of depreciation on buildings

answer

going concern concept

question

the _____ ignores inflation

answer

monetary unit assumption

question

if a company is facing bankruptcy which underlying assumption would not be valid

answer

going concern concept

question

classificiation of assets into current and long term illustrates which assumption

answer

going concern concept

question

the ____ justifies the use of accrual accounting

answer

going concern concept

question

which underlying assumption is violated if the owners personal residence is included on the company balance sheet

answer

economic entity concept

question

the _____ stipulates that an entity measure and report its economic activities in dollars

answer

monetary unit assumption

question

which fundamental characteristic makes explicit the assumption fo the full disclosure principle

answer

completeness

question

recording online sales transactions in bitcoin currency is a violation of

answer

the monetary unit assumption

question

the economic entity concept

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

answer

economic entity concept

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