Accounting 3300 Chapter 2 M/C

Which of the following relates to both relevance and faithful representation? a.) Cost constraint b.) Predictive value c.) Verifiability d.) Neutrality

A

According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the fundamental quality of Relevance Faithful Representation a.) Yes Yes b.) No Yes c.) Yes No d.) No No

B

According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time? a.) Assets. b.) Expenses. c.) Equity. d.) Liabilities.

B

Accounting information is considered to be relevant when it a.) can be depended on to represent the economic conditions and events that it is intended to represent. b.) is capable of making a difference in a decision. c.) is understandable by reasonably informed users of accounting information. d.) is verifiable and neutral.

B

Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information? a.) Comparability. b.) Timeliness. c.) Understandability. d.) Verifiability.

B

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept? a.) Cost constraint b.) Periodicity assumption c.) Conservatism constraint d.) Expense recognition principle

B

Financial information exhibits the characteristic of consistency when a.) expenses are reported as charges against revenue in the period in which they are paid. b.) a company applies the same accounting treatment to similar events, from period to period. c.) extraordinary gains and losses are not included on the income statement. d.) accounting procedures are adopted which give a consistent rate of net income.

B

Information about different companies and about different periods of the same company can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives? Comparability Consistency a.) Companies Companies b.) Companies Periods c.) Periods Companies d.) Periods Periods

B

Product costs include each of the following except a.) overhead. b.) officer's salaries. c.) material. d.) labor.

B

The accounting principle of expense recognition is best demonstrated by a.) not recognizing any expense unless some revenue is realized. b.) associating effort (expense) with accomplishment (revenue). c.) recognizing prepaid rent received as revenue. d.) establishing an Appropriation for Contingencies account.

B

The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the a.) consistency characteristic. b.) expense recognition principle. c.) materiality quality. d.) revenue recognition principle.

B

The quality of information that means the numbers and descriptions match what really existed or happened is a.) relevance. b.) faithful representation. c.) completeness. d.) neutrality.

B

What is prudence or conservatism? a.) Understating assets and net income. b.) When in doubt, recognizing the option that is least likely to overstate assets and income. c.) Recognizing the option that is least likely to overstate assets and income. d.) Recognizing revenue when earned and realized.

B

Which accounting assumption or principle is being violated if a company provides financial reports only when it introduces a new product? a.) Economic entity. b.) Periodicity. c.) Revenue recognition. d.) Full disclosure.

B

Which basic assumption may not be followed when a firm in bankruptcy reports financial results? a.) Economic entity assumption. b.) Going concern assumption. c.) Periodicity assumption. d.) Monetary unit assumption.

B

Which of the following elements of financial statements is not a component of comprehensive income? a.) Revenues b.) Distributions to owners c.) Losses d.) Expenses

B

Which of the following is a component of the revenue recognition principle? a.) Cash is received and the amount is material. b.) Recognition occurs when the performance obligation is satisfied. c.) Production is complete and there is an active market for the product. d.) Cash is realized or realizable and production is complete.

B

Which of the following is a fundamental quality of useful accounting information? a.) Comparability. b.) Relevance. c.) Neutrality. d.) Materiality.

B

Which of the following is not a basic element of financial statements? a.) Assets. b.) Balance sheet. c.) Losses. d.) Revenue.

B

Which of the following serves as the justification for the periodic recording of depreciation expense? a.) Association of efforts (expense) with accomplishments (revenue) b.) Systematic and rational allocation of cost over the periods benefited c.) Immediate recognition of an expense d.) Minimization of income tax liability

B

In classifying the elements of financial statements, the primary distinction between revenues and gains is a.) the materiality of the amounts involved. b.) the likelihood that the transactions involved will recur in the future. c.) the nature of the activities that gave rise to the transactions involved. d.) the costs versus the benefits of the alternative methods of disclosing the transactions involved.

C

Not adjusting the amounts reported in the financial statements for inflation is an example of which basic principle of accounting? a.) Economic entity. b.) Going concern. c.) Historical cost. d.) Full disclosure.

C

Revenue is recognized in the accounting period in which the performance obligation is satisfied. This statement describes the a.) consistency characteristic. b.) expense recognition principle. c.) revenue recognition principle. d.) relevance characteristic.

C

The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is a.) relevance. b.) faithful representation. c.) verifiability. d.) neutrality.

C

The two fundamental qualities that make accounting information useful for decision making are a.) comparability and timeliness. b.) materiality and neutrality. c.) relevance and faithful representation. d.) faithful representation and comparability.

C

Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of Faithful Representation Relevance a.) Yes Yes b.) No Yes c.) Yes No d.) No No

C

Under current GAAP, inflation is ignored in accounting due to the a.) economic entity assumption. b.) going concern assumption. c.) monetary unit assumption. d.) periodicity assumption.

C

What is meant by comparability when discussing financial accounting information? a.) Information has predictive or confirmatory value. b.) Information is reasonably free from error. c.) Information that is measured and reported in a similar fashion across companies. d.) Information is timely.

C

Where is materiality not used in providing financial information? a.) Applying the revenue recognition principle. b.) Determining what items to include in the financial statements. c.) Applying the going concern assumption. d.) Determining the level of disclosure.

C

Which accounting assumption or principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet? a.) Going concern. b.) Monetary unit. c.) Historical cost. d.) Full disclosure.

C

Which basic assumption is illustrated when a firm reports financial results on an annual basis? a.) Economic entity assumption. b.) Going concern assumption. c.) Periodicity assumption. d.) Monetary unit assumption.

C

Which basic element of financial statements arises from peripheral or incidental transactions? a.) Assets. b.) Liabilities. c.) Gains. d.) Expenses.

C

Which of the following is a primary quality of useful accounting information? a.) Conservatism. b.) Comparability. c.) Faithful representation. d.) Consistency.

C

Which of the following is an ingredient of faithful representation? a.) Predictive value. b.) Materiality. c.) Neutrality. d.) Confirmatory value.

C

Which of the following is commonly referred to as the matching principle? a.) Revenue recognition principle b.) Measurement principle c.) Expense recognition principle d.) Full disclosure principle

C

Which of the following is not true concerning a conceptual framework in accounting? a.) It should be a basis for standard-setting. b.) It should allow practical problems to be solved more quickly by reference to it. c.) It should be based on fundamental truths that are derived from the laws of nature. d.) All of these answer choices are true.

C

A soundly developed conceptual framework of concepts and objectives should a.) increase financial statement users' understanding of and confidence in financial reporting. b.) enhance comparability among companies' financial statements. c.) allow new and emerging practical problems to be more quickly solved. d.) All of these answer choices are correct.

D

According to Statement of Financial Accounting Concepts No. 2, completeness is an ingredient of the fundamental quality of Relevance Faithful Representation a.) Yes No b.) Yes Yes c.) No No d.) No Yes

D

Financial information demonstrates consistency when a.) firms in the same industry use different accounting methods to account for the same type of transaction. b.) a company changes its estimate of the salvage value of a fixed asset. c.) a company fails to adjust its financial statements for changes in the value of the measuring unit. d.) None of these answer choices are correct.

D

Generally, revenue from sales should be recognized at a point when a.) management decides it is appropriate to do so. b.) the product is available for sale to the ultimate consumer. c.) the entire amount receivable has been collected from the customer and there remains no further warranty liability. d.) None of these answer choices are correct.

D

If the FIFO inventory method was used last period, it should be used for the current and following periods because of a.) relevance. b.) neutrality. c.) understandability. d.) consistency.

D

In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting? a.) Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints b.) Qualitative characteristics of accounting information c.) Elements of financial statements d.) Objective of financial reporting

D

Issuance of common stock for cash affects which basic element of financial statements? a.) Revenues. b.) Losses. c.) Liabilities. d.) Equity.

D

Neutrality means that information a.) provides benefits which are at least equal to the costs of its preparation. b.) can be compared with similar information about an enterprise at other points in time. c.) would have no impact on a decision maker. d.) cannot favor one set of interested parties over another.

D

One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to a.) revenues minus expenses plus gains minus losses. b.) revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners. c.) revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities. d.) None of these answer choices are correct.

D

Revenue generally should be recognized a.) at the end of production. b.) at the time of cash collection. c.) when realized. d.) when the performance obligation is satisfied.

D

The assumption that a company will not be sold or liquidated in the near future is known as the a.) economic entity assumption. b.) monetary unit assumption. c.) periodicity assumption. d.) None of these answer choices are correct.

D

The calculation of comprehensive income includes which of the following? Operating Income Distributions to Owners a.) Yes Yes b.) No No c.) No Yes d.) Yes No

D

The economic entity assumption a.) is inapplicable to unincorporated businesses. b.) recognizes the legal aspects of business organizations. c.) requires periodic income measurement. d.) is applicable to all forms of business organizations.

D

The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners' a.) transfers of assets to the entity. b.) rendering services to the entity. c.) satisfaction of liabilities of the entity. d.) All of these answer choices are correct.

D

The measurement principle includes the a.) fair value principle only. b.) historical cost principle only. c.) revenue recognition principle and expense recognition principle. d.) historical cost principle and the fair value principle.

D

The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except a.) potential equity investors. b.) potential lenders. c.) present investors. d.) All of these answers are correct.

D

Valuing assets at their liquidation values rather than their cost is inconsistent with the a.) periodicity assumption. b.) expense recognition principle. c.) materiality constraint. d.) historical cost principle.

D

What is a purpose of having a conceptual framework? a.) To enable the profession to more quickly solve emerging practical problems. b.) To provide a foundation from which to build more useful standards. c.) Neither a nor b. d.) To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.

D

What is the general approach as to when product costs are recognized as expenses? a.) In the period when the expenses are paid. b.) In the period when the expenses are incurred. c.) In the period when the vendor invoice is received. d.) In the period when the related revenue is recognized.

D

What is the quality of information that is capable of making a difference in a decision? a.) Faithful representation. b.) Materiality. c.) Timeliness. d.) Relevance.

D

When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of a.) relevance. b.) faithful representation. c.) consistency. d.) None of these answer choices are correct.

D

When is revenue generally recognized? a.) When cash is received. b.) When the warranty expires. c.) When production is completed. d.) When the company satisfies the performance obligation.

D

When should an expenditure be recorded as an asset rather than an expense? a.) Never. b.) Always. c.) If the amount is material. d.) When future benefit exists.

D

Which assumption or principle requires that all information significant enough to affect a decision of reasonably informed users should be reported in the financial statements? a.) Matching. b.) Going concern. c.) Historical cost. d.) Full disclosure.

D

Which of the following does not relate to relevance? a.) Materiality b.) Predictive value c.) Confirmatory value d.) All of these answer choices relate to relevance.

D

Which of the following is a benefit of providing financial information? a.) Potential litigation. b.) Auditing. c.) Disclosure to competition. d.) Improved allocation of resources.

D

Which of the following is an implication of the going concern assumption? a.) The historical cost principle is credible. b.) Depreciation and amortization policies are justifiable and appropriate. c.) The current-noncurrent classification of assets and liabilities is justifiable and significant. d.) All of these.

D

Which of the following is an ingredient of relevance? a.) Verifiability. b.) Neutrality. c.) Timeliness. d.) Materiality.

D

Which of the following is considered a pervasive constraint by Statement of Financial Accounting Concepts No. 8? a.) Conservatism b.) Timeliness c.) Verifiability d.) Cost-constraint

D

Which of the following is not a basic assumption underlying the financial accounting structure? a.) Economic entity assumption. b.) Going concern assumption. c.) Periodicity assumption. d.) Historical cost assumption.

D

Which of the following is not a benefit associated with the FASB Conceptual Framework Project? a.) A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting. b.) Practical problems should be more quickly solvable by reference to an existing conceptual framework. c.) A coherent set of accounting standards and rules should result. d.) Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

D

Which of the following statements about materiality is correct? a.) An item must make a difference or it need not be disclosed. b.) Materiality is a matter of relative size or importance. c.) An item is material if its inclusion or omission would influence or change the judgment of a reasonable person. d.) All of these answers are correct.

D

Which of the following statements concerning the cost-benefit relationship is not true? a.) Business reporting should exclude information outside of management's expertise. b.) Management should not be required to report information that would significantly harm the company's competitive position. c.) Management should not be required to provide forecasted financial information. d.) If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.

D

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of Relevance Faithful Representation a.) Yes No b.) Yes Yes c.) No No d.) No Yes

A

According to the FASB Conceptual Framework, the elements- assets, liabilities, and equity-describe amounts of resources and claims to resources at/during a Moment in Time / Period of Time a.) Yes / No b.) Yes / Yes c.) No / Yes d.) No / No

A

Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information? a.) Consistency. b.) Verifiability. c.) Timeliness. d.) Comparability.

A

Expensing the cost of copy paper when the paper is acquired is an example a.) materiality. b.) expense recognition. c.) conservatism. d.) industry practices.

A

If the LIFO inventory method was used last period, it should be used for the current and following periods because of a.) comparability. b.) materiality. c.) timeliness. d.) verifiability.

A

Neutrality is an ingredient of which fundamental quality of information? a.) Faithful representation. b.) Comparability. c.) Relevance. d.) Understandability.

A

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the a.) economic entity assumption. b.) relevance characteristic. c.) comparability characteristic. d.) neutrality characteristic.

A

Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more a.) verifiable. b.) relevant. c.) indicative of the entity's purchasing power. d.) conservative.

A

Recognition of expense related to amortization of an intangible asset illustrates which principle of accounting? a.) Expense recognition. b.) Full disclosure. c.) Revenue recognition. d.) Historical cost.

A

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.) prudence or conservatism. b.) the materiality concept. c.) the substance over form principle. d.) the industry practices concept.

A

The pervasive criterion by which accounting information can be judged is that of a.) decision usefulness. b.) freedom from bias. c.) timeliness. d.) comparability.

A

The underlying theme of the conceptual framework is a.) decision usefulness. b.) understandability. c.) faithful representation. d.) comparability.

A

What accounting concept justifies the usage of depreciation and amortization policies? a.) Going concern assumption b.) Fair value principle c.) Full disclosure principle d.) Monetary unit assumption

A

What is meant by consistency when discussing financial accounting information? a.) Information that is measured and reported in a similar fashion across points in time. b.) Information is timely. c.) Information is measured similarly across the industry. d.) Information is verifiable.

A

What is the following is a characteristic describing the primary quality of relevance? a.) Predictive value. b.) Materiality. c.) Verifiability. d.) Understandability.

A

What is the primary objective of financial reporting as indicated in the conceptual framework? a.) Provide information that is useful to those making investing and credit decisions. b.) Provide information that is useful to management. c.) Provide information about those investing in the entity. d.) All of these answer choices are correct.

A

Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price? a.) Full disclosure. b.) Going concern. c.) Historical cost. d.) Expense recognition.

A

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? a.) Monetary unit assumption. b.) Periodicity assumption. c.) Going-concern assumption. d.) Economic entity assumption.

A

Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement? a.) Equity. b.) Revenue. c.) Gains. d.) Expenses.

A

Which of the following is a constraint in presenting financial information? a.) Cost-benefit relationship. b.) Full disclosure. c.) Relevance. d.) Consistency.

A

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.

A

Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles? a.) President's letter to shareholders. b.) Balance sheet. c.) Income statement. d.) Notes to financial statements.

A

=All of the following represent costs of providing financial information except a.) preparing. b.) disseminating. c.) accessing capital. d.) auditing.

C

A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle? a.) Revenue recognition. b.) Going concern. c.) Historical cost. d.) Monetary unit.

C

A company has a performance obligation when it agrees to a.) perform a service for a customer and receives cash payment. b.) sell a product to a customer after receiving payment. c.) perform a service or sell a product to a customer. d.) None of the answer choices are correct.

C

A decrease in net assets arising from peripheral or incidental transactions is called a(n) a.) capital expenditure. b.) cost. c.) loss. d.) expense.

C

According to Statement of Financial Accounting Concepts No. 2, materiality is an ingredient of the fundamental quality of Relevance Faithful Representation a.) Yes Yes b.) No Yes c.) Yes No d.) No No

C

Application of the full disclosure principle a.) is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. b.) is violated when important financial information is buried in the notes to the financial statements. c.) is demonstrated by the use of supplementary information explaining the effects of financing arrangements. d.) requires that the financial statements be consistent and comparable.

C

Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the a.) consistency characteristic. b.) expense recognition principle. c.) materiality quality. d.) historical cost principle.

C

During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of Relevance / Periodicity a.) No / No b.) Yes / No c.) No / Yes d.) Yes / Yes

C

Generally accepted accounting principles a.) are fundamental truths or axioms that can be derived from laws of nature. b.) derive their authority from legal court proceedings. c.) derive their credibility and authority from general recognition and acceptance by the accounting profession. d.) have been specified in detail in the FASB conceptual framework.

C