Question 1

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

Accepted Answer

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. B

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

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.

Accepted Answer

The Revenue Recognition Criteria has been violated. The sales revenue for the last two weeks of December should have been recorded in December.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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 6

The conceptual framework does not include:

Accepted Answer

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

Question 7

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.

Accepted Answer

The answer of For each of the following independent situations,...

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

When is an item generally recognized in the financial statements?

Accepted Answer

The answer of When is an item generally recognized in...

Question 11

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.

Accepted Answer

The answer of For each of the following independent situations,...

Question 12

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.

Accepted Answer

The answer of For each of the following independent situations,...

Question 13

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.

Accepted Answer

A) True 
 B)False

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.
-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.

Accepted Answer

The answer of For each of the following independent situations,...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Exam 11: Financial Reporting Concepts

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

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

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

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

The conceptual framework does not include:

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

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

When is an item generally recognized in the financial statements?

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.

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

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.

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.

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

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.