Deck 11: Financial Reporting Concepts

Question 1

The conceptual framework ensures that there is a consistent and coherent set of accounting standards

Answer 1

True

Question 2

If an item is immaterial in amount generally accepted accounting principles need not be followed.

Answer 2

True

Question 3

The formula for recognizing gross profit under the percentage-of-completion method is: total revenue on the job less actual costs incurred in the period.

Answer 3

False

Question 4

Full disclosure dictates that circumstances and events that make a difference to financial statement users be disclosed.

Question 5

Assets are reported on the Balance Sheet at their replacement cost.

Question 6

The cost constraint requires that information needs to be disclosed even when the cost of preparing it exceeds the benefit to the users of the financial statements.

Question 7

The average user of financial information is assumed to have a reasonable understanding of accounting concepts and procedures, as well as of general business and economic conditions.

Question 8

It is an underlying assumption that financial statements are prepared as if the company is a going concern and it will continue to operate for the foreseeable future.

Question 9

Under ASPE conservatism is recognized as a qualitative characteristic of financial information while conservatism has been eliminated under IFRS.

Question 10

The conceptual framework does not include:

A) qualitative characteristics of accounting information.
B) operating guidelines.
C) elements of financial statements.
D) recognition and measurement criteria.

Question 11

Faithful representation is one of the necessary characteristics of accounting information. The following terms are related to faithful representation except for:

A) Accounting information is complete.
B) Accounting information provides a basis for forecasts.
C) Accounting information is neutral.
D) Accounting information is free from material error.

Question 12

Revenue from the sale of goods should be recognized when certain criteria have been satisfied. The criteria include all of the following except:

A) risks and rewards of ownership have been transferred to the buyer.
B) the cash has been received.
C) the amount of the revenue can be reliably measured.
D) costs relating to the sale of goods can be reliably measured.

Question 13

The assumption that a company will continue to operate long enough to carry out its existing objectives and commitments is known as:

A) going concern.
B) economic entity.
C) accrual accounting.
D) full disclosure.

Question 14

For each of the following independent situations, identify the assumption or concept or constraint that has been violated, if any. State what the company should have done.
-ABC Company bought equipment from a company that was bankrupt. ABC paid $50,000 for the equipment, even though it had a market value of $65,000. ABC recorded the purchase with a debit of $65,000 to Equipment, a credit of $50,000 to Cash, and a credit of $15,000 to the owner's capital account.

Question 15

For each of the following independent situations, identify the assumption or concept or constraint that has been violated, if any. State what the company should have done.
-Baker Company decided not to include any information in their financial statements about a pending product liability suit, even though the company would likely go bankrupt as a result of an unfavourable ruling.

Question 16

For each of the following independent situations, identify the assumption or concept or constraint that has been violated, if any. State what the company should have done.
-Cooper Company decided not to record any revenue for credit sales made in the last two weeks of December, since the customers would not be paying until the middle of January. January 1 is the start of a new fiscal year.

Question 17

For each of the following independent situations, identify the assumption or concept or constraint that has been violated, if any. State what the company should have done.
-Dawson Company bought a piece of equipment for $85, and immediately expensed it even though it will last for two years. Dawson has annual revenues of $65 million.

Question 18

For each of the following independent situations, identify the assumption or concept or constraint that has been violated, if any. State what the company should have done.
-Ellen, the proprietor of Ellen's Fine Fabrics, takes money from the cash register to buy groceries for her family. She records the transaction with a debit to Miscellaneous Expense and a credit to Cash.

Question 19

When is an item generally recognized in the financial statements?