Ch. 2 T/F
A conceptual framework underlying financial accounting is necessary because future accounting practice problems can be solved by reference to the conceptual framework and a formal standardsetting body will not be necessary.
False
Accounting theory is developed without consideration of the environment within which it exists.
False
Adherence to the concept of consistency requires that the same accounting principles be applied to similar transactions for a minimum of five years before any change in principle is adopted.
False
If Company A wishes to acquire an asset owned by Company B, the cost principle would require Company A to record the asset at the original cost to Company B.
False
Period costs such as officer salaries and administrative expenses attach to the product and are carried into future periods if the revenue from the product is recognized in subsequent periods.
False
The economic entity assumption is useful only when the entity referred to is a profitseeking business enterprise.
False
The notes to financial statements generally summarize the items presented in the main body of the statements.
False
The three elements—assets, liabilities, and equity—describe transactions, events, and circumstances that affect an enterprise during a period of time.
False
Use of a sound conceptual framework in the development of accounting principles will make financial statements of all entities comparable because alternative accounting methods for similar transactions will be eliminated.
False
When an amount is determined by the accountant to be immaterial in relation to other amounts reported in the financial statements, that amount may be deleted from the financial statements.
False
A conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements.
True
Generally, confirmation of a sale to independent interests is used to indicate the point at which revenue is recognized.
True
Information that has been measured and reported in a similar manner for different enterprises is considered comparable.
True
Recognition of revenue when cash is collected is appropriate only when it is impossible to establish the revenue figure at the time of sale because of the uncertainty of collection.
True
Relevance and reliability are the two primary qualities that make accounting information useful for decision making.
True
The basis for determining whether an item is material is based on both quantitative and qualitative factors.
True
The difficulty in applying the cost constraint is that the costs and especially the benefits are not always evident or measurable.
True
The fact that equity represents an ownership interest and a residual claim against the net assets of an enterprise means that in the event of liquidation, creditors have a priority over owners in the distribution of assets.
True
The full disclosure principle states that information should be provided when it is of sufficient importance to influence the judgment and decisions of an informed user.
True
The goingconcern assumption is generally applicable in most business situations unless liquidation appears imminent.
True
The monetary unit assumption means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.
True
The periodicity assumption is a result of the demands of various financial statement user groups for timely reporting of financial information.
True
To be relevant, accounting information must be capable of making a difference in a decision.
True
Under the expense recognition principle, it is possible to have an expense reported on the income statement in one period and the cash payment for that expense reported in another period.
True
