Deck 5: Income Concepts

Question 1

One of the basic features of financing accounting is the

A)Direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact
B)Direct measurement of economic resources and obligations and changes in them in terms of money
C)Direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact
D)Direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact

Answer 1

B

Question 2

The definition of the economic concept of income is usually attributed to which of the following economists?

A)J.R.Hicks
B)Paul Samuelson
C)Ben Bernanke
D)Adam Smith

Answer 2

A

Question 3

Conventionally accountants measure income

A)By applying a value added concept
B)By using a transactions approach
C)As a change in the value of owners' equity
D)As a change in the purchasing power of owners' equity

Answer 3

B

Question 4

Which of the following is an argument against using historical cost in accounting?

A)Fair values are more relevant.
B)Historical costs are based on an exchange transaction.
C)Historical costs are reliable.
D)Fair values are subjective

Question 5

One concept of income suggests that income be measured by determining the net change over time in the discounted present value of net cash flow expected to be received by the firm.Under this concept of income,which of the following,ignoring income taxes would not affect the amount of income for a period?

A)Providing services to outsiders and investments of the funds received
B)Production of goods or services not yet sold not yet delivered to customers or clients.
C)Windfall gains and losses due to external causes.
D)The method used to depreciate property,plant and equipment.

Question 6

The term revenue recognition conventionally refers to

A)The process of identifying transactions to be recorded as revenue in an accounting period.
B)The process of measuring and relating revenue and expenses of an enterprise for an accounting period.
C)The earning process that gives rise to revenue realization.
D)The process of identifying those transactions that result in an inflow of assets from customers.

Question 7

Income is equal to the difference between the present value of the net assets at the end of the period and their present value at the beginning of the period,excluding the effects of investments by owners and distributions to owners is the definition of which of the following current value concepts?

A)Replacement cost
B)Selling price
C)Exit value
D)Discounted present value

Question 8

Which of the following is not a criteria outlined in SEC Staff Accounting Bulletin No.101 for the recognition of revenue?

A)Persuasive evidence of an arrangement exists.
B)Delivery has not occurred.
C)The vendor's fee is fixed or determinable.
D)Collectability is probable.

Question 9

The cost to replace assets with similar assets in a similar condition is the definition of which of the following current value concepts?

A)Replacement cost
B)Selling price
C)Exit value
D)Discounted present value

Question 10

Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur.This explanation pertains to

A)Disclosure
B)Accrual accounting
C)Materiality
D)The matching concept

Question 11

In the transactions approach to income determination,income is measured by subtracting the expenses resulting from specific transactions during the period from revenues of the period also resulting from transactions.Under a strict transactions approach to income measurement,which of the following would not be considered a transaction?

A)Sale of goods on account at 20 percent markup
B)Exchange of inventory at a regular selling price for equipment
C)Adjustment of inventory in lower of cost or market inventory valuations when market is below cost.
D)Payment of salaries

Question 12

Which of the following is not a concept of income identified by Bedford?

A)Psychic
B)Real
C)Investment
D)Money

Question 13

The principal disadvantage of using the percentage of completion method of recognizing revenue from long-term contracts is that it

A)Is unacceptable for income tax purposes
B)May require that intraperiod tax allocation procedures be used
C)Gives results bases upon estimates that may be subject to considerable uncertainty
D)Is likely to assign a small amount of revenue to a period during which much revenue was actually earned

Question 14

Each asset-inventory,plant,equipment,and so on-would be valued based on the selling price that would be realized if the firm chose to dispose of it is the definition of which of the following current value concepts?

A)Replacement cost
B)Entry price
C)Exit value
D)Discounted present value

Question 15

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as

A)the nocturne of conservatism.
B)the materiality constraint.
C)the substance over form principle.
D)the industry practices constraint.

Question 16

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting.This statement is an example of the concept of

A)Conservatism
B)Completeness
C)Neutrality
D)Representational faithfulness

Question 17

The installment method of recognizing revenue is not acceptable for financial reporting if

A)The collectability of the sales price is reasonably assured
B)The installment period is less than 12 months
C)The method is applied to only a portion of the total
D)Collection expenses can be reasonably predicted

Question 18

Which of the following is not an approach to determining current value?

A)Replacement cost
B)Thrift value
C)Selling price
D)Discounting present value

Question 19

Under what condition is it proper to recognize revenues prior to the sale of the merchandise?

A)When the ultimate sale of the goods is at an assured sales price
B)When the revenue is to be reported as an installment sale
C)When the concept of internal consistency of amounts of revenue)must be complied with
D)When management has a long-established policy to do so

Question 20

Arid Lands,Inc.is engaged in extensive exploration for water in the Caprock Desert.If upon discovery of water the corporation does not recognize any revenue from water sales until the sales exceed the costs of exploration,the basis of revenue recognition being employed is the

A)Production basis
B)Cash or collection)basis
C)Sales or accrual)basis
D)Sunk cost or cost recovery)basis

Question 21

Discuss the matching concept.

Question 22

Discuss the differences between the economic and accounting concepts of income.

Question 23

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges,is the definition of which of the following earnings management techniques?

A)Taking a bath
B)Creative acquisition accounting
C)Creasing "cookie jar" reserves
D)Abusing the materiality concept

Question 24

Deliberately recording errors or ignoring mistakes in the financial statements under the assumption that their impact is not significant,is the definition of which of the following earnings management techniques?

A)Taking a bath
B)Creative acquisition accounting
C)Creasing "cookie jar" reserves
D)Abusing the materiality concept

Question 25

Which of the following accounting theorists called of conservatism the most influential principle of valuation in accounting?

A)Henry Sweeney
B)Robert Sprouse
C)Robert Sterling
D)Edgar Edwards

Question 26

Discuss the difference between financial capital maintenance and physical capital maintenance.

Question 27

Discuss the four types of income defined by Edwards and Bell.

Question 28

The one-time overstatement of restructuring charges to reduce assets,which reduces future expenses,is the definition of which of the following earnings management techniques?

A)Taking a bath
B)Creative acquisition accounting
C)Creasing "cookie jar" reserves
D)Abusing the materiality concept