Question 1

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

Accepted Answer

A)  Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints 
B)  Qualitative characteristics of accounting information 
C)  Elements of financial statements 
D)  Objective of financial reporting 
A)  Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints 
B)  Qualitative characteristics of accounting information 
C)  Elements of financial statements 
D)  Objective of financial reporting

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The existing conceptual frameworks underlying GAAP and IFRS are very similar.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  verifiability and faithful representation. 
B)  faithful representation and comparability. 
C)  timeliness and verifiability. 
D)  neutrality and consistency. 
A)  verifiability and faithful representation. 
B)  faithful representation and comparability. 
C)  timeliness and verifiability. 
D)  neutrality and consistency.

Question 6

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

Accepted Answer

A)  capital expenditure. 
B)  cost. 
C)  loss. 
D)  expense. 
A)  capital expenditure. 
B)  cost. 
C)  loss. 
D)  expense.

Question 7

Application of the full disclosure principle

Accepted Answer

A)  is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. 
B)  is violated when important financial information is buried in the notes to the financial statements. 
C)  is demonstrated by the use of supplementary information explaining the effects of financing arrangements. 
D)  requires that the financial statements be consistent and comparable. 
A)  is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. 
B)  is violated when important financial information is buried in the notes to the financial statements. 
C)  is demonstrated by the use of supplementary information explaining the effects of financing arrangements. 
D)  requires that the financial statements be consistent and comparable.

Question 8

Historical cost principle.
Cost as a basis of accounting for assets has been severely criticized. What defense can you build for cost as the basis for financial accounting?

Accepted Answer

Cost is definite and verifiable and not

Question 9

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

Accepted Answer

A)  Comparability. 
B)  Relevance. 
C)  Neutrality. 
D)  Materiality. 
A)  Comparability. 
B)  Relevance. 
C)  Neutrality. 
D)  Materiality.

Question 10

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

Accepted Answer

A)  economic entity assumption. 
B)  relevance characteristic. 
C)  comparability characteristic. 
D)  neutrality characteristic. 
A)  economic entity assumption. 
B)  relevance characteristic. 
C)  comparability characteristic. 
D)  neutrality characteristic.

Question 11

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

Accepted Answer

A)  Economic entity. 
B)  Going concern. 
C)  Historical cost. 
D)  Full disclosure. 
A)  Economic entity. 
B)  Going concern. 
C)  Historical cost. 
D)  Full disclosure.

Question 12

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

Accepted Answer

The answer of According to Statement of Financial Accounting Concepts...

Question 13

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

Accepted Answer

A)  Revenue recognition principle 
B)  Measurement principle 
C)  Expense recognition principle 
D)  Full disclosure principle 
A)  Revenue recognition principle 
B)  Measurement principle 
C)  Expense recognition principle 
D)  Full disclosure principle

Question 14

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

Accepted Answer

The answer of According to the FASB's conceptual framework, comprehensive...

Question 15

Which of the following is a benefit of providing financial information?

Accepted Answer

A)  Potential litigation. 
B)  Auditing. 
C)  Disclosure to competition. 
D)  Improved allocation of resources. 
A)  Potential litigation. 
B)  Auditing. 
C)  Disclosure to competition. 
D)  Improved allocation of resources.

Question 16

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?

Accepted Answer

A)  Full disclosure. 
B)  Going concern. 
C)  Historical cost. 
D)  Expense recognition. 
A)  Full disclosure. 
B)  Going concern. 
C)  Historical cost. 
D)  Expense recognition.

Question 17

What is a purpose of having a conceptual framework?

Accepted Answer

A)  To enable the profession to more quickly solve emerging practical . 
B)  To provide a foundation from which to build more useful standards. 
C)  Neither a nor B 
D)  To enable the profession to more quickly solve emerging practical and to provide a foundation from which to build more useful standards. 
A)  To enable the profession to more quickly solve emerging practical . 
B)  To provide a foundation from which to build more useful standards. 
C)  Neither a nor B 
D)  To enable the profession to more quickly solve emerging practical and to provide a foundation from which to build more useful standards.

Question 18

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

Accepted Answer

The answer of Under Statements of Financial Accounting Concepts, comprehensive...

Question 19

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

Accepted Answer

The answer of According to Statement of Financial Accounting Concepts...

Question 20

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

Accepted Answer

A)  Never. 
B)  Always. 
C)  If the amount is material. 
D)  When future benefit exists. 
A)  Never. 
B)  Always. 
C)  If the amount is material. 
D)  When future benefit exists.

Exam 2: Conceptual Framework for Financial Reporting

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

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

The existing conceptual frameworks underlying GAAP and IFRS are very similar.

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

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

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

Application of the full disclosure principle

Historical cost principle. Cost as a basis of accounting for assets has been severely criticized. What defense can you build for cost as the basis for financial accounting?

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

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

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

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

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

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

Which of the following is a benefit of providing financial information?

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?

What is a purpose of having a conceptual framework?

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

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

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

Financial Accounting and Accounting Standards

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

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