Accounting 301 Ch. 2
Reliability
According to GAAP, verifiability is an ingredient of reliability
Objectives
The first part of the conceptual framework project had to do with
recording realized revenue when it is earned
The principle of revenue recognition results in
Relevance and faithful representation
What are the two primary qualities of the overall qualitative characteristic of useful accounting information?
Entity
Which one of the following assumptions or principles most logically supports the preparation of a single set of consolidated financial statements that combines the financial information of several wholly owned but separately identifiable businesses?
Cause and effect Systematic and rational allocation Immediate consumption
Which principles may a company use to determine which expenses to recognize in a particular period?
timeliness
Which qualitative characteristic is an ingredient of relevance
Neutrality
Which qualitative characteristic is an ingredient of reliability?
Recognized
______ an item must meet the definition of an element; be measurable; be relevant; and, be representationally faithful.
Cost Constraint
means the FASB must have reasonable assurance that the costs of implementing a standard will not exceed the benefits
To the period in which they occur rather than to when the cash receipts or payments occur.
Accrual accounting relates the financial effects of a company's transactions
to the period in which they occur rather than to when the cash receipts or payments occurs
Accrual accounting relates the financial effects of a company's transactions
Information helps users form expectations about the future Information provides feedback to confirm or correct prior predictions and expectations
Characteristics of relevant accounting information include:
7
How many Statements of Financial Accounting Concepts have been issued?
False
Management discussion and analysis would be included in the supplementary information to the financial statements
where there is a fixed selling price, and there are no limitations on the amount that can be sold
Revenue may be recognized by an entity at the completion of production during an accounting period
benefits that justify the costs and materiality
Similar to the constraints in the FASB's qualitative characteristics, the joint IASB/FASB boards have identified two constraints including
materiality
Solon Corporation has adopted the policy of charging to expense at the time of purchase all assets having a cost of less than $100, regardless of the life expectancy of the asset. This policy is most closely related to the
macroeconomic statistics
The AICPA's Special Committee on Financial Reporting issued a report on a model for business reporting. The "Financial Reporting" sources of information used in external decision making outlined in the model included all of the following except
$1,250,000
The city of Fairbanks sold land for its appraised value to the Big Oil Company on June 1, 2010, that originally cost the city $1,000,000. On June 1, 2010, the land was appraised at a value of $1,250,000, and on December 31, 2010, the land's value was estimated to be $1,400,000. On Big Oil Company's balance sheet at December 31, 2010, the land should be valued at
Balance sheet
The financial statement that would be most useful in evaluating a company's financial flexibility
independent analysis of the financial data
The framework for the model of business reporting includes all of the following except
a comprehensive reconsideration of all concepts underlying financial reporting would not be an efficient use of their time
The goal of the boards of the IASB and FASB is to develop a joint conceptual framework project that is both complete and internally consistent. However, as a limitation the boards concluded that
Comparability verifiability timeliness materiality
The joint IASB and FASB boards identified several "enhancing" decision useful characteristics of financial information including
relevance faithful representation enhancing characteristics
The joint IASB/FASB qualitative characteristics Exposure Draft identifies a logical order in which to evaluate the qualities.
financial magnitude of the item
The materiality of an item of financial information refers to the likelihood that its omission or misstatement would affect the judgments of those relying on that information. This concept most closely relates to the
make projections value companies assess the likelihood of loan repayments
The model for business reporting is designed to fit the decision processes of users to
Going concern
The state legislature is currently debating a bill that, if passed, would require the Sandiken Company to go out of business. Which of the following principles or assumptions related to the preparation of Sandiken's financial statements is most directly affected by this impending vote of the legislature?
representational faithfulness and neutrality
The use of the historical cost principle is justified because the resulting information has the primary quality ingredients of
Predictive value confirmatory value
To be relevant an earnings report is expected to have:
Mixed Attribute Model
To measure assets, liabilities, revenues, expenses, and other elements of the financial statements with the most relevant and faithful measurement available
Decision Usefulness
What is the ultimate objective of accounting information
The Statement of Financial Accounting Concepts is the primary source of GAAP for accountants
Which of the following statements is not true with regard to the benefits derived from the FASB's conceptual framework of accounting?
It is the ability of a company to take effective actions to change the amounts and timing of cash flows
Which of the following statements regarding financial flexibility is true?
The user has no need for the information The amount is too small to make a difference
A company may decided not to disclose certain information because:
Not necessarily violating either the income tax laws or GAAP
A company that uses accounting methods in preparing its tax returns that differ from the accounting methods used to prepare its financial statements is
Conservatism
A practical approach to avoid misleading investors, lenders and other creditors when valuations are uncertain
comprehensive income
A primary focus of financial reporting about a company's performance during an accounting period is information related to the company's
May prevent a company from recognizing assets that represent future economic benefits
A violation of the going concern assumption
to provide information that is useful to present to a potential investors, creditors and other users in making rational investment, credit, and similar decisions
According to GAAP, which is not a specific objective?
relevance and faithful representation
According to the FASB hierarchy of fundamental qualitative characteristics, the two primary qualities that make accounting information useful
relevance and reliability
According to the FASB hierarchy of qualitative characteristics, the two primary qualities making accounting information useful are
at the point of sale
According to the recognition criteria established for revenue, revenue is normally recognized
Conservatism
Accruing net losses on obsolete inventory is an example of the accounting concept of?
Timeliness
All of the following items are classified as accounting assumptions and conventions except for
Accrued
An expense that has been incurred but not paid
balance sheet and statement on cash flows
Distributions that are paid to owners would affect both the
associating cash flows
Expenses are recognized and matched against revenues on the basis of three principles. Which of the following is not one of these principles?
Assess the return a company has earned on its economic resources and form expectations about its future performance
External stakeholders use information about a company's comprehensive income and it's components to:
when the company is entitled to its benefits
FASB suggests that the revenues are considered to be earned
Distinct from Separately
For corporations the reporting entity _______ the common equity shareholders who own the company. In sole proprietorships, the transactions and events of the business are reported ______ the proprietor's personal transactions.
during production
For fixed-price construction contracts that require more than one accounting period to complete and for which the costs can be reasonably estimated, revenue should be recognized
outlines of internal control procedures
GAAP emphasizes the importance of full disclosure by management including all of the following enhancements except
the installment method
If collectibility of the revenue is highly uncertain, an appropriate method that should be used to recognize revenue would be
internal management
In its "Objectives of Financial Reporting by Business Enterprises" the FASB identified a variety of primary users including all of the following except
timeliness
In order to be relevant, accounting information should have
a user-specific quality
In the FASB hierarchy of qualitative characteristics, understandability is acharacteristic that is
Well management satisfies responsibilities to efficiently and effectively use resources
Information about a company's financial performance helps users to understand how:
examining cash flows for the current period
Information about comprehensive income is useful to external users for all of the following purposes except
2 only
Information that would be useful to existing and potential investors in making decisions about buying, selling, or holding equity instruments is specifically covered by which of the following? 1. Conceptual Framework 2. Objective: Useful Information for Expected Returns to Investors, Lenders, and Other Creditors 3. Accounting Standards Codification
Objective: Useful information about Net Cash Inflows to the Company
Information that would be useful to existing and potential investors to help them assess the amount, timing, and uncertainty of the prospects for future net cash inflows to the company is specifically covered by which of the following?
a company changed its bad debt expense estimate from 1% to 2%
Intracompany comparability would be violated if
historical cost principle
Of the following reporting assumptions or reporting principles, the one most widely criticized is the
relevance and faithful representation
One of the differences between the IASB/FASB joint conceptual framework and the FASB conceptual framework is that while the FASB identifies relevance and reliability as the primary decision-specific qualities, the tentative joint framework identifies the fundamental qualitative characteristics to be
Capital providers equity investors lenders
Primary user groups of financial information
Bias associated with financial measurements can be reduced
Representational faithfulness is a relationship between the reported accounting measurements or descriptions and the economic resources, obligations, and the transactions and events causing changes in these items. This is important because the
the relevance and usefulness of financial reports
The AICPA's Special Committee on Financial Reporting issued a report on a model for business reporting that addresses concerns about
current financial statements do not present sufficient information to investors to make effective decisions
The CFA's Comprehensive Business Reporting Model argues that certain key weaknesses in the current financial reporting model exist. The weaknesses include all of the following except
Ensure that CPAs act ethically in discharging their stewardship role
The Conceptual Framework is expected to do all of the following except:
provide information useful in the decisions made by external users
The FASB and IASB concluded that most general objective of financial reporting is to
provide information useful in the decisions made by external users
The FASB concluded that the most general objective of financial reporting is to
Financial reporting Project
The FASB divided its conceptual framework activities into several projects. Which of the following was not one of those projects?
comprehensive income its components
The FASB has determined that the primary focus of financial reporting about entity's performance is information on
a theoretical foundation for
The FASB's Conceptual Framework establishes _______ establishing consistent, high-quality financial accounting standards
inancial information about a company that is useful to external users in making decisions in their capacity as capital providers
The IASB and FASB boards have agreed that the objective of general purpose financial reporting is to provide
be general purpose be useful in assessing a company's future cash flows provide information on an accrual basis
The IASB and FASB joint boards feel that financial reporting should
How financial reports should be displayed
The accounting projects portion of the FASB's conceptual framework project deals with all of the following except
which accounting elements should be reported and how they should be measured
The accounting projects portion of the FASB's conceptual framework project deals with
Material
The characteristic of faithful representation of accounting information does not include:
Accrual Accounting
The objective to appropriately measure financial position and financial performance each period
benefits greater than costs and materiality
Two constraints mentioned by GAAP on qualitative characteristics are
Notes to explain the methods and estimates the company used. Required supplementary information
Under GAAP, the financial statements should include:
Historical Cost
Under current GAAP, most resources of a business entity are to be valued in its financial statements at
matching principle
Using an allowance method of accounting to recognize uncollectible accounts receivable is an application of which accounting convention?
a systematic and rational allocation method
Using the straight-line method to amortize patents is an application of expense recognition using
neutrality
What is a characteristic of faithful representation
To provide information that is useful in making decisions about providing resources to the entity
What is the most general objective of financial reporting?
both a return of and a return on investment of capital
When investors and creditors make investment and credit decisions, they need information to assist them in assessing future cash receipts. Their focus is on assessing the potential of generating
timeliness
Which characteristic enhances decision-useful information
Verifiability
Which characteristic states that accounting information should be supported by sufficient evidence to allow two or more qualified individuals to arrive at similar measures and conclusions
Understandability
Which is not one of the four recognition criteria identified by the FASB?
Comparability and consistency
Which of the following are considered secondary characteristics of accounting information?
provide information about a company's economic resources, obligations, and owner's equity
Which of the following is a specific objective of financial reporting?
A $25,000 illegal bribe by an executive of the company to a foreign official was not separately disclosed in the annual report.
Which of the following items would most likely be a violation of the materiality constraint?
Recognition
Which of the following means the process of formally recording and reporting an item in the financial statements of a company
reliability
Which of the following qualitative characteristics may have to be sacrificed in order to achieve timeliness
monetary unit, entity, going concern, and realization-recognition
Which of the following sets includes only accounting assumptions and conventions?
Haley sold a piece of land for $500,000
Which of the following transactions would be reported in the cash flows from investing activities section in the statement of cash flows for the Haleem Company?
liquidity
Which of the following types of information was specifically identified by the FASB as being useful in assessing the amounts, timing, and uncertainty of a company's future cash flows?
Consistency of accounting information
applies accounting methods in a similar manner from period to period
Comparability of accounting information
identifies and explains the similarities and differences between two or more sets of economic facts
