Deck 4: Income Measurement and the Objectives of Financial Reporting

Question 1

Dan's Discount Furniture Warehouse sells furniture with the policy, "No money down, pay monthly over 2 years." A large portion of Dan's customers default before the two years have passed, and Dan repossesses the furniture.As a result Dan does not recognize revenue when they deliver the furniture.Which of the revenue recognition criteria prevents Dan from recognizing the revenue when sold?

A)The risks and rewards of ownership have transferred to the buyer.
B)The amount of revenue can be reasonably measured.
C)The costs required to earn the revenue can be reasonably measured.
D)Collection of payment is reasonably assured.

Answer 1

D

Question 2

Which of the following is not a criterion for revenue recognition?

A)Significant risks and rewards of ownership have been transferred
B)The amount of revenue can be reasonably measured.
C)The costs required to earn the revenue can be reasonably measured.
D)Collection of payment has occurred.

Answer 2

D

Question 3

Schumacher Restorations specializes in restoring antique cars.Normally the company requires the customer to pay a deposit before proceeding with the restoration; the balance is due when the car is returned to the client.The car is not returned if the amount is not paid.Sometimes the cars are stored, for a fee, for the winter months before being returned to the client.When should Schumacher recognize the revenue from the restorations?

A)When the order is placed.
B)When the job is complete.
C)When the car is delivered.
D)When the cash is collected.

Answer 3

B

Question 4

Schumacher Restorations specializes in restoring antique cars.Normally the company requires the customer to pay a deposit before proceeding with the restoration; the balance is due when the car is returned to the client.The car is not returned if the amount is not paid.Sometimes the cars are stored, for a fee, for the winter months before being returned to the client.When should Schumacher recognize the revenue from storage fees?

A)When the winter season is over.
B)Gradually on a month by month basis.
C)When the car is delivered.
D)When the cash is collected.

Question 5

The University of Vancouver offers summer courses from May to August.Students must register and pay in March for the summer courses they will take.The university has a March 31st fiscal year-end and does not recognize the revenue from the summer courses until the new fiscal year.Which revenue recognition criterion prevents them from recognizing the revenue in March?

A)The collectability of the amount is uncertain.
B)The amount of revenue cannot be reasonably measured.
C)The costs required to earn the revenue cannot be reasonably measured.
D)The university has not done most or all of what it has to do in order to earn the revenue.

Question 6

Schumacher Restorations specializes in restoring antique cars.Normally the company requires the customer to pay a deposit before proceeding with the restoration.Schumacher records the customer deposit as revenue when received.Recording it at this time violates which revenue recognition criterion?

A)The seller has performed most of what is necessary in order to be entitled to payment.
B)The amount of revenue can be reasonably estimated.
C)The costs required to earn the revenue can be reasonably measured.
D)Collection of payment is reasonably assured.

Question 7

Gosse Limited produces lawnmowers, which are sold mainly in hardware stores located in Western Canada.The company manufactures the lawnmowers and then sells them to wholesalers who distribute them to the various hardware stores.The mowers cost $80 to manufacture and are sold for $100 to the wholesalers.Gosse's credit terms require payment within 30 days, and the company has never had a problem with collection.When should Gosse recognize revenue?

A)When the wholesaler places an order.
B)When the lawnmowers are manufactured.
C)When the lawnmowers are shipped to the wholesaler.
D)When the cash is collected.

Question 8

Which of the following best describes the gradual approach to revenue recognition?

A)The revenue is recognized over time as the project progresses.
B)The revenue is recognized over time after the project has been completed.
C)The revenue is recognized at one instant in the earnings process.
D)The revenue is recognized over time as payment is received.

Question 9

How does IFRS determine if "significant risks and rewards of ownership have been transferred" for revenue recognition?

A)Most of the time, it is when the goods have been physically transferred to the buyer.
B)The seller has completed 100% of what it's supposed to do to be entitled to payment.
C)The payment has been received.
D)There is no more work to be performed on, or costs to be incurred for, the product.

Question 10

Which of the following is not a criterion for revenue recognition?

A)The opportunity for return has passed.
B)The amount of revenue can be reasonably measured.
C)The costs required to earn the revenue can be reasonably measured.
D)Collection of payment is probable.

Question 11

Which of the following is an example of a business that would use the critical-event method of revenue recognition?

A)A company that builds bridges.
B)A company that provides five-year service contracts for IT (Information Technology).
C)A retail clothing store.
D)A bank that provides long-term loans.

Question 12

What is the problem with the critical-event approach to revenue recognition?

A)It ignores the continuous nature of the revenue-earnings process.
B)It requires the company to determine how much revenue should be recognized at each stage.
C)It requires the firm to have collected all the money before revenue is recognized.
D)It ignores the need to estimate the expenses on an on-going basis.

Question 13

Which of the five revenue recognition criteria is based on the matching concept?

A)Significant risks and rewards of ownership have transferred.
B)The amount of revenue can be reasonably measured
C)The costs of earning the revenue can be reasonably measured.
D)Collection of payment is probable.

Question 14

Which of the following best describes the critical-event approach to revenue recognition?

A)The revenue is recognized over time up to the point of the critical event.
B)The revenue is recognized over time after the critical event.
C)The revenue is recognized at one instant in the earnings process.
D)The revenue is recognized at several points during the earnings process.

Question 15

Most companies that sell goods on credit recognize the related revenue even though there is a chance some customers may not pay in full.What allows them to do that?

A)They violate the revenue recognition criteria.
B)They record an expense that is an estimate of the amount not expected to be collected.
C)They record the revenue as unearned revenue.
D)They record an expense that is an estimate of providing repairs on the product.Companies record an estimate of bad debt expense each year.

Question 16

When revenue is recognized, an income statement account for revenue is credited.Which of the following accounts would not normally be debited?

A)Cash
B)Accounts receivable
C)Unearned revenue
D)Capital stock

Question 17

Campus Computers sells computers and provides internet access to students.The average computer system purchased is $2,500, and for an additional $100, students get wireless access on campus for the year.Wireless access purchased alone costs $180.At the time of sale of a computer with internet access, how much revenue should Campus Computers recognize?

A)None, unless payment has been received.
B)$2,500
C)$2,600
D)$2,680

Question 18

Campus Computers sells computers and provides internet access to students.The average computer system purchased is $2,500, and for an additional $100, students get wireless access on campus for the year.Wireless access purchased alone costs $180.At the time of sale of a computer with internet access, how much unearned revenue should Campus Computers recognize?

A)None
B)$100
C)$180
D)$2600

Question 19

Which of the following is an example of a business that would use the gradual approach of revenue recognition?

A)A company that builds bridges.
B)A bank that provides a short-term loan.
C)A retail clothing store.
D)An airline that sells tickets for airline travel.

Question 20

Even if the critical event selected by company satisfies the five revenue recognition criteria there can sometimes be uncertain.During such situations consideration must be given to which of the following?

A)The critical event selected should provide reasonable and fair representation of the entity's activities.
B)The critical event selected should be the earliest point possible in the company's earning's process.
C)The critical event selected should be the latest point possible in the company's earning's process.
D)The critical event selected should provide the most conservative representation possible.

Question 21

Beaver Dam Builders Inc.has collected the following information about a dam it is building: costs to date $300,000, estimated total costs $1,200,000, estimated total revenues $1,600,000.If Beaver Dam uses the zero-profit method to recognize revenue, how much revenue related to the project have they recognized to date?

A)None
B)$300,000
C)$400,000
D)$1,600,000

Question 22

Unearned revenue arises when which of the revenue recognition criteria has not been satisfied?

A)Performance has not occurred.
B)The amount of revenue cannot be reasonably estimated.
C)The costs required to earn the revenue cannot be reasonably measured.
D)Collection of payment is not assured.

Question 23

What is the major advantage of the percentage-of-completion method compared with the cost- recovery method of revenue recognition?

A)Percentage-of-completion gives a more realistic indication of a firm's economic activity.
B)Percentage-of-completion allows managers some latitude in deciding how much revenue and expenses to report each period.
C)Percentage-of-completion produces more reliable financial statements.
D)Percentage-of-completion is the more conservative method.

Question 24

Marlene, a fine arts student, makes gift cards from her artwork.She has made an arrangement with a local bookstore that the bookstore will carry her cards for her but only pay her when they are sold.The bookstore will keep 10% of the proceeds from the sale.This is an example of which of the following?

A)An installment sale
B)A consignment sale
C)The performance revenue recognition criterion.
D)The collectability revenue recognition criterion.

Question 25

Beaver Dam Builders Inc.has collected the following information about a dam it is building: costs to date $300,000, estimated total costs $1,200,000, estimated total revenues $1,600,000.If Beaver Dam uses the percentage-of-completion method to recognize revenue, how much revenue related to the project have they recognized to date?

A)$300,000
B)$400,000
C)$1,200,000
D)$1,600,000

Question 26

Beaver Dam Builders Inc.(BDBI) has collected the following information about a dam it is building: costs to date $300,000, estimated total costs $1,200,000, estimated total revenues $1,600,000.If BDBI has collected $200,000 to date uses the cost-recovery method to recognize revenue, how much gross profit (loss) related to the project have they recognized to date?

A)($300,000)
B)$0
C)$100,000
D)$400,000

Question 27

Because IFRS allows managers flexibility in determining accounting choices, the biggest challenge for accountants and other financial professionals is:

A)Persuade managers to make the most conservative accounting choices.
B)Knowing when to allow managers to choose aggressive accounting policies.
C)Ensuring that managers make choices with the interests of the stakeholders in mind.
D)Ensuring that managers make choices with their own self interests in mind.

Question 28

Which of the following statements about the flexibility of IFRS is not correct?

A)Flexibility is required because economic activities are complex.
B)Flexibility means that any interpretation of the rules is correct.
C)Flexibility requires judgment on the part of the preparers
D)Flexibility can apply within an industry, and across industries.

Question 29

Tekniks sells electronic products, such as televisions and stereo components.Each product is sold with a two-year warranty.During this period, Tekniks will provide parts and labour for repairs at no cost to the customer.Due to the highly competitive nature of the business, the warranty program has resulted in an increase of 20% in sales.Similar warranty programs at competitors sell for $200 to $500. How should Tekniks recognize revenues from their sales?

A)Recognize the revenues from the sale when the customer takes possession of the product
B)Recognize the revenues from the sale of the product when the customer takes possession of it, and the revenues from the warranty program at the end of the two-year period
C)Recognize the revenues from the sale of the product when the customer takes possession of it, and the revenues from the warranty program evenly over the two-year period
D)Wait until the end of the two-year warranty period before recognizing any revenues

Question 30

Pont Bridges Corp.had signed a contract to build a new bridge for $5,000,000.Initially their estimated total costs were $4,400,000.During the first year, they realized their costs were going to be greater than originally estimated.They now expect total costs to be $5,500,000, but they cannot change the contract price.If Pont uses the cost-recovery method to recognize revenue, how much gross profit (loss) related to the project should they recognize in the first year?

A)($500,000)
B)($400,000)
C)$0
D)$600,000

Question 31

Café Star's manager has decided that for the Christmas season, the Café will sell coffee mugs together with a 250g bag of coffee as gift ideas.The mugs normally sell for $4.95 and the price of the coffee is $8.00.However, the bundled gifts will sell for $9.95. If Café Star's manager wants to calculate the level of profit on the mugs, what amount will he allocate as revenue for the mugs?

A)$8.00
B)$6.15
C)$3.80
D)$9.95

Question 32

Beaver Dam Builders Inc.has collected the following information about a dam it is building: costs to date $300,000, estimated total costs $1,200,000, estimated total revenues $1,600,000.If Beaver Dam uses the percentage-of-completion method to recognize revenue, how much gross profit related to the project have they recognized to date?

A)None
B)$100,000
C)$300,000
D)$400,000

Question 33

What information is necessary to use the percentage-of-completion method?

A)Only an estimate of the total costs.
B)An estimate of the total costs and the actual costs to date.
C)The actual costs to date and an estimate of the total revenues.
D)The actual costs to date and an estimate of the total costs and total revenues.

Question 34

Pont Bridges Corp.had signed a contract to build a new bridge for $5,000,000.Initially their estimated total costs were $4,400,000.During the first year, they realized their costs were going to be greater than originally estimated.They now expect total costs to be $5,500,000, but they cannot change the contract price.If Pont uses the percentage-of-completion method to recognize revenue, how much gross profit (loss) related to the project should they recognize in the first year?

A)($500,000)
B)($400,000)
C)$0
D)$480,000

Question 35

Café Star's manager has decided that for the Christmas season, the Café will sell coffee mugs together with a 250g bag of coffee as gift ideas.The mugs normally sell for $4.95 and the price of the coffee is $8.00.However, the bundled gifts will sell for $9.95. If Café Star's manager wants to calculate the level of profit on the coffee, what amount will he allocate as revenue for the coffee?

A)$8.00
B)$6.15
C)$9.95
D)Zero

Question 36

Beaver Dam Builders Inc.(BDBI) has collected the following information about a dam it is building: costs to date $300,000, estimated total costs $1,200,000, estimated total revenues $1,600,000.If BDBI has collected $200,000 to date uses the cost-recovery method to recognize revenue, how much revenue related to the project have they recognized to date?

A)($300,000)
B)$0
C)$200,000
D)$400,000

Question 37

Assume that there are two identical companies carrying out identical three-year projects.If one company uses the percentage-of-completion method and the other uses the cost-recovery method, in the first year will their gross profit and current ratios be the same or different? $\begin{array} { l l } \text { Aross Profit } & \text { Current Ratio } \\\text { A. same } & \text { same } \\\text { B. same } & \text { different } \\\text { C. different } & \text { same } \\\text { D. different } & \text { different }\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 38

IFRS allows managers considerable discretion when determining the point at which revenue should be recognized.This type of flexibility is appropriate primarily because:

A)managers do not like rules.
B)different countries have different standards for economic activities and they do not want to change them.
C)managers need to consider their own self-interests when choosing accounting policies.
D)economic activities are too complex for precisely defining accounting rules that suit every situation.

Question 39

Montreal Machinery (MM) produces and sells computer-controlled machines that monitor and control the temperature and humidity in the production of candies.After they deliver and install the product they spend a month adjusting it to the customer's needs and environment and training their staff.They also provide a two-year warranty on the machines.When would be an appropriate time for MM to recognize the revenue from the sale of a machine?

A)On delivery to the customer if they can estimate the cost of the warranty.
B)After the month installation period.
C)After the two-year warranty has expired.
D)After the month installation period, if they can estimate the cost of the warranty.

Question 40

Which of the following statements about recognizing gains and losses on capital assets in the financial statements is true?

A)Unrealized gains and losses are never recognized.
B)Unrealized gains are never recognized, but unrealized losses are always recognized.
C)Unrealized gains are always recognized and unrealized losses are sometimes recognized.
D)Unrealized gains are never recognized and unrealized losses are sometimes recognized.

Question 41

Books for Africa is a not-for-profit organization that collects used books and ships them to schools and villages in Africa.They have no government support and try to raise most of their funds from wealthy individuals.Which of the following would be an objective of Books for Africa's financial reporting?

A)Performance evaluation
B)Minimum compliance
C)Income smoothing
D)Tax minimization

Question 42

What are costs that are expensed when incurred called?

A)Incurred costs
B)Accrued costs
C)Period costs
D)Product costs

Question 43

Magic Tubs uses a process of covering old bathtubs and showers with acrylic inserts.Luxurious Baths has a licence granted by Magic Tubs to be the exclusive provider of the technology developed by Magic Tubs.Magic Tubs also lent Luxurious Baths money to help start-up their business.Luxurious Baths must send a copy of their financial statements to Magic Tubs every month.What is the most likely objective of Luxurious Baths' financial statements?

A)Performance evaluation
B)Cash flow prediction
C)Contract compliance
D)Tax minimization

Question 44

What are costs that are expensed when the revenue they helped generate is recognized called?

A)Allocated costs
B)Accrued costs
C)Period costs
D)Product costs

Question 45

Barry Bay runs a small contracting business that he operates as a corporation.He never had to borrow money, and he is the only shareholder.What is most likely to be the objective when preparing his financial statements?

A)Performance evaluation
B)Cash flow prediction
C)Income smoothing
D)Tax minimization

Question 46

When the people who provide the money to a business are different from the people who manage the business, which financial reporting objective becomes important?

A)Stewardship
B)Minimum compliance
C)Income smoothing
D)Tax minimization

Question 47

The accounting principle of matching expenses to revenues meets which of the following objectives of the financial statements?

A)The objective of maximizing income.
B)The objective of measuring cash flow.
C)The objective of income tax minimization.
D)The objective of measuring economic activity.

Question 48

A company sold $10 million of electronics equipment during 2012.The cost of the goods sold was $5.4 million.They estimate that the warranty costs are normally 1.5% of sales and the company normally has difficulty in collecting 2% of its sales.What amount should they record as expenses related to those sales in 2012?

A)$5.4 million
B)$5.55 million
C)$5.6 million
D)$5.75 million

Question 49

A wealthy individual, wanting to make a large donation, is comparing two charities to determine which one spends a smaller portion of the funds they raise on administration.Which of the following would be one of their objectives of the charities' financial reporting?

A)Performance evaluation
B)Minimum compliance
C)Income smoothing
D)Management evaluation

Question 50

Which of the following is not a cost that normally needs to be estimated for revenue to be recognized?

A)Bad debt expense
B)Cost of goods sold
C)Warranty expense
D)Cost of returns

Question 51

Kingsway purchased a piece of land in 2009 for $60,000.At the end of 2011 the land was appraised and valued at $100,000.In 2012 the company sold the land for $125,000.What should the company report on its 2012 income statement?

A)A gain of $25,000
B)A gain of $40,000
C)A gain of $65,000
D)A gain of $125,000

Question 52

Little Flowers Day Care operates as a parent-run organization.A group of parents meets monthly to review expenditures, both recent and forthcoming.They also set the fees, which are reviewed annually.As a non-profit group they do not pay taxes.What is most likely the objective when they prepare their financial statements?

A)Performance evaluation
B)Cash flow prediction
C)Income smoothing
D)Tax minimization

Question 53

The Gibsons have recently hired a professional manager to manage their family's business enterprise.Which of the following would be one of their objectives of financial reporting?

A)Performance evaluation
B)Minimum compliance
C)Income smoothing
D)Management evaluation

Question 54

Which of the following is not a potential objective of financial reporting?

A)Stewardship
B)Income smoothing
C)Contract compliance
D)GAAP

Question 55

In a fast food restaurant which of the following is a period cost?

A)The cost of the meat.
B)The cost of the drink dispenser.
C)The cost of hydro for the month.
D)The cost of cups.

Question 56

Bala Ltd.had a piece of land on its books at its original cost of $400,000.During the year they sold it for $650,000.How would the sale of the land be presented on the income statement? $\begin{array}{ll}\text { A) Gross profit on land } & \$ 250,000 \\\text { B) Revenue from land sale } & \$ 650,000 \\\text { C) Gain on sale of land } & \$ 250,000 \\\text { D) Disposal of land } & \$ 400,000\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 57

Queensway purchased a piece of land in 2009 for $60,000.At the end of 2011 the land was appraised and valued at $100,000.In 2012 the company sold the land for $90,000.What should the company report on its 2012 income statement?

A)A loss of $10,000
B)A gain of $30,000
C)A gain of $40,000
D)A gain of $90,000

Question 58

In a fast food restaurant which of the following is a product cost?

A)The manager's salary.
B)The cashier's wages.
C)The cost of the meat.
D)The cost of rent for the month.

Question 59

Through their choice of revenue recognition policies, management can do all of the following except?

A)Minimize the payment of taxes.
B)Smooth out spikes in income.
C)Smooth out the collection of cash.
D)Increase the manager's bonus by earnings management.

Question 60

A company sold $10 million of electronics equipment during 2012.They estimate that the warranty costs are normally 1.5% of sales and the company normally has difficulty in collecting 2% of its sales.What amount should they record as revenue in 2012?

A)$9.65 million
B)$9.80 million
C)$9.85 million
D)$10 million

Question 61

Which of the following might be considered as a Big Bath technique?

A)Increasing the estimate of the useful life of some capital assets.
B)Waiting until next year to recognize expenses related to closing a plant at the end of this year.
C)Writing down the value of an intangible asset which they are amortizing over 20 years.
D)Recording the deposits received on future sales as revenue when received.

Question 62

Why would management manage earnings to decrease income?

A)The manager's bonus plan is based on reported earnings.
B)They need to meet the terms of a debt agreement.
C)To avoid attracting competitors to the industry.
D)To influence the stock price if the company is planning on going public.

Question 63

When might a company use a Big Bath?

A)When they have had several successful years of operation and are about to issue shares.
B)When they are going to the bank to increase their borrowing limit.
C)When there has been a change in the major shareholder of the company.
D)When new management has been hired to "turn the company around."

Question 64

Which of the following is not a reason that management might be tempted to manage earnings to increase income?

A)To increase the likelihood of receiving a loan.
B)To increase the likelihood of receiving a government grant.
C)To meet the terms of a debt agreement.
D)To influence the stakeholders' perceptions.

Question 65

Why would a company adopt a minimum compliance financial reporting objective?

A)The managers' bonus plan is based on reported earnings.
B)They need to meet the terms of a debt agreement.
C)To avoid attracting competitors to the industry.
D)They do not want to provide information to competitors.

Question 66

Nappanee Inc.has a provision in its loan from the local bank that it must maintain a current ratio above 1.75.Which of the following would be one of their objectives of financial reporting?

A)Performance evaluation
B)Monitoring contract compliance
C)Income smoothing
D)Stewardship

Question 67

Which of the main objectives of financial reporting requires more information than is available in financial statements prepared according to IFRS?

A)Management evaluation
B)Cash flow prediction
C)Tax minimization
D)Income smoothing

Question 68

Which of the following best describes earnings management?

A)Selecting accounting polices not acceptable under GAAP or IFRS.
B)Reporting activities that did not occur.
C)Choosing accounting policies that satisfy the objectives of the managers.
D)Maintaining the policies that the major stakeholder prefers.

Question 69

When solving an accounting alternative choice problem, you should prepare a framework for the analysis.Which of the following is not part of that framework?

A)Identifying the personal objectives of management.
B)Identifying the users and uses of accounting information.
C)Identifying the objectives of financial reporting.
D)Identifying the constraints that can limit or eliminate the choices.

Question 70

The Laugh-Out-Loud festival is a popular two-week summer festival in Laneville.The festival has been operating successfully for four years, and this year they are applying for a provincial grant in order to offer more activities at the festival.Which one of the following earnings management techniques might Laugh-Out-Loud be using?

A)Managing earnings to increase income.
B)Managing earnings to decrease income.
C)Managing earnings to smooth income.
D)Taking a Big Bath.

Question 71

If a manager selects an accounting policy to ensure that the company does not violate the debt-to-equity ratio requirement of its bank loan, which of the following would be their objective of financial reporting?

A)Minimum compliance
B)Management evaluation
C)Cash flow prediction
D)Earnings management

Question 72

Why would management manage earnings to smooth income?

A)To make the company appear less risky to investors.
B)To influence stakeholder's perceptions about how well the entity is performing.
C)To convince workers to accept lower wage settlements.
D)To increase the EPS of a public company.

Question 73

The Robert's Resort chain of hotels needs to renegotiate the union contract with the powerful Hotel Workers of Canada Union every other year.Although the hotels in the chain are all successful, labour costs are a major expense for the business, and management wants to ensure that the company remains profitable.Which one of the following earnings management techniques might the Robert's Resort management be using?

A)Managing earnings to increase income.
B)Managing earnings to decrease income.
C)Managing earnings to smooth income.
D)Taking a Big Bath.

Question 74

If you were to ask the management to justify the accounting choice they made, how would they prefer to justify it?

A)Based on the reporting objectives.
B)Based on the facts and constraints.
C)Based on the facts and the objectives.
D)Based on the constraints.

Question 75

Petawawa Producers Inc.has been experiencing declining sales and earnings for the past three years.The Board of Directors have replaced the top management team in hope of turning the company around, and the new managers will be paid a bonus based on how quickly they can reverse the trend.Which one of the following earnings management techniques might the new management be using?

A)Managing earnings to increase income.
B)Managing earnings to decrease income.
C)Managing earnings to smooth income.
D)Taking a Big Bath.

Question 76

The professional soccer team in Rinaldo is trying to get the local government to exempt the stadium from property taxes.They claim that other teams in the league do not pay property taxes and it is causing them to lose money.Which one of the following earnings management techniques might the soccer team be using?

A)Managing earnings to increase income.
B)Managing earnings to decrease income.
C)Managing earnings to smooth income.
D)Taking a Big Bath.

Question 77

Which of the following best describes a minimum compliance objective?

A)The company selects accounting policies to minimize earnings.
B)The company reports the minimum amount of information necessary to comply with legislation.
C)The company selects accounting policies to comply with contracts or loan agreements.
D)The company reports to the minimum number of stakeholders possible.

Question 78

Which of the following statements is true concerning accounting choices?

A)Management always gets to select the alternative that best meets their objective.
B)Management always uses objectives to solve their accounting choice problems.
C)To be an acceptable recommendation based on facts, the alternative must also have been acceptable in meeting objectives and constraints.
D)To be an acceptable recommendation based on objectives, the alternative must also have been acceptable given the constraints and facts.

Question 79

Which are the three factors that affect the accounting choices made by management?

A)Constraints, facts, GAAP, IFRS
B)Constraints, facts, objectives
C)IFRS, facts, legislation
D)Facts, objectives, legislation

Question 80

Which of the following statements about accounting estimates is true?

A)Accounting estimates are disclosed in the notes to the financial statements.
B)Acceptable accounting estimates are covered by GAAP.
C)Accounting estimates are necessary because economic events and transactions are not known with certainty.
D)Accounting estimates do not have a significant impact on reported earnings.