Question 1

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

Accepted Answer

A)  the materiality of the amounts involved. 
B)  the likelihood that the transactions involved will recur in the future. 
C)  the nature of the activities that gave rise to the transactions involved. 
D)  the costs versus the benefits of the alternative methods of disclosing the transactions involved. 
A)  the materiality of the amounts involved. 
B)  the likelihood that the transactions involved will recur in the future. 
C)  the nature of the activities that gave rise to the transactions involved. 
D)  the costs versus the benefits of the alternative methods of disclosing the transactions involved.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  management decides it is appropriate to do so. 
B)  the product is available for sale to the ultimate consumer. 
C)  the entire amount receivable has been collected from the customer and there remains no further warranty liability. 
D)  None of these answer choices are correct. 
A)  management decides it is appropriate to do so. 
B)  the product is available for sale to the ultimate consumer. 
C)  the entire amount receivable has been collected from the customer and there remains no further warranty liability. 
D)  None of these answer choices are correct.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Accounting information is considered to be relevant when it

Accepted Answer

A)  can be depended on to represent the economic conditions and events that it is intended to represent. 
B)  is capable of making a difference in a decision. 
C)  is understandable by reasonably informed users of accounting information. 
D)  is verifiable and neutral. 
A)  can be depended on to represent the economic conditions and events that it is intended to represent. 
B)  is capable of making a difference in a decision. 
C)  is understandable by reasonably informed users of accounting information. 
D)  is verifiable and neutral.

Question 7

Which of the following is an ingredient of faithful representation?

Accepted Answer

A)  Predictive value. 
B)  Materiality. 
C)  Neutrality. 
D)  Confirmatory value. 
A)  Predictive value. 
B)  Materiality. 
C)  Neutrality. 
D)  Confirmatory value.

Question 8

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

Accepted Answer

A)  transfers of assets to the entity. 
B)  rendering services to the entity. 
C)  satisfaction of liabilities of the entity. 
D)  All of these answer choices are correct. 
A)  transfers of assets to the entity. 
B)  rendering services to the entity. 
C)  satisfaction of liabilities of the entity. 
D)  All of these answer choices are correct.

Question 9

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 10

Basic assumptions.
Briefly explain the four basic assumptions that underlie financial accounting.

Accepted Answer

1. The economic entity assumption states

Question 11

Which of the following statements about materiality is correct?

Accepted Answer

A)  An item must make a difference or it need not be disclosed. 
B)  Materiality is a matter of relative size or importance. 
C)  An item is material if its inclusion or omission would influence or change the judgment of a reasonable person. 
D)  All of these answers are correct. 
A)  An item must make a difference or it need not be disclosed. 
B)  Materiality is a matter of relative size or importance. 
C)  An item is material if its inclusion or omission would influence or change the judgment of a reasonable person. 
D)  All of these answers are correct.

Question 12

Neutrality is an ingredient of which fundamental quality of information?

Accepted Answer

A)  Faithful representation. 
B)  Comparability. 
C)  Relevance. 
D)  Understandability. 
A)  Faithful representation. 
B)  Comparability. 
C)  Relevance. 
D)  Understandability.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Qualitative Characteristics.
Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information.
Instructions.

(a) Describe briefly the following characteristics of useful accounting information.
(1) Relevance 
(2) Faithful representation
(3) Understandability
(4) Comparability
 (5) Consistency
(b) For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other.
(1) Relevance and faithful representation.
(2) Relevance and consistency. 
(3) Comparability and consistency.
(4) Relevance and understandability.
(c) What criterion should be used to evaluate trade-offs between information characteristics?

Accepted Answer

(a) 
(1) Relevance is one of the two fun

Question 15

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

Accepted Answer

A)  relevance. 
B)  faithful representation. 
C)  consistency. 
D)  None of these answer choices are correct. 
A)  relevance. 
B)  faithful representation. 
C)  consistency. 
D)  None of these answer choices are correct.

Question 16

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

Accepted Answer

The answer of During the lifetime of an entity accountants...

Question 17

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

Accepted Answer

A)  In the period when the expenses are paid. 
B)  In the period when the expenses are incurred. 
C)  In the period when the vendor invoice is received. 
D)  In the period when the related revenue is recognized. 
A)  In the period when the expenses are paid. 
B)  In the period when the expenses are incurred. 
C)  In the period when the vendor invoice is received. 
D)  In the period when the related revenue is recognized.

Question 18

Accounting concepts-fill in the blanks.Fill in the blanks below with the accounting principle, assumption, or related item that best completes the sentence.1. ________________________ and _______________________ are the two fundamental qualities that make accounting information useful for decision making."
2. Information that helps users confirm or correct prior expectations has ____________________________________."
3. ________________________ enables users to identify the real similarities and differences in economic events between companies.
4. _________________ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
5. Information is _______________________ if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information.
6. The ________________________ characteristic requires that the same accounting method be used from one accounting period to the next, unless it becomes evident that an alternative method will bring about a better description of a firm's financial situation.
7. ____________________ means when in doubt, choose the solution that will be least likely to overstate income and assets.
8. Providing information that is of sufficient importance to influence the judgement and decisions of an informed user is referred to as _______________________.
9. Corporations must prepare accounting reports at least yearly due to the _______________ assumption.
10. _________________ occurs when the performance obligation is satisfied.

Accepted Answer

1. Relevance; faithful representation 
2

Question 19

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

Accepted Answer

A)  Monetary unit assumption. 
B)  Periodicity assumption. 
C)  Going-concern assumption. 
D)  Economic entity assumption. 
A)  Monetary unit assumption. 
B)  Periodicity assumption. 
C)  Going-concern assumption. 
D)  Economic entity assumption.

Question 20

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?

Accepted Answer

A)  Revenue recognition. 
B)  Going concern. 
C)  Historical cost. 
D)  Monetary unit. 
A)  Revenue recognition. 
B)  Going concern. 
C)  Historical cost. 
D)  Monetary unit.

Exam 2: Conceptual Framework for Financial Reporting

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

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

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

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

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

Accounting information is considered to be relevant when it

Which of the following is an ingredient of faithful representation?

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

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

Basic assumptions. Briefly explain the four basic assumptions that underlie financial accounting.

Which of the following statements about materiality is correct?

Neutrality is an ingredient of which fundamental quality of information?

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

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

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

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

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

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?

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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