IA1 - Self Assesment question

The conceptual framework for financial reporting consists of how many levels?

3 the Why The Bridge The How ch02

In addition to the report and account forms of a balance sheet, which of the following is a less common way to present the balance sheet? A format that uses current assets and current liabilities to calculate working capital. B A format that uses current assets and current liabilities to calculate future cash flows. C A format that uses total assets and total liabilities to calculate working capital. You got it wrong : D A format that uses total liabilities and total owners' equity to calculate net assets.

A A format that uses current assets and current liabilities to calculate working capital.

Accounting information that is complete, free from error, and neutral is A : a faithful representation. B : relevant. C : comparable. D : timely.

A : a faithful representation.

When a company has a performance obligation, what does it agree to do? A : To perform a service or sell a product to a customer. B : None of the answer choices are correct. C : To perform a service for a customer and receives cash payment. D : To sell a product to a customer after receiving payment.

A : To perform a service or sell a product to a customer.

Discontinued operations of a component of a business is listed as a separate element in the income statement. A : True B : False

A : True

Despite objections, why is the historical cost principle still widely supported for financial reporting? A It is an objectively determinable amount. B It is a good measure of current value. C It facilitates comparisons between years. D It takes into account price-level adjusted information.

A It is an objectively determinable amount.

A contract is an agreement between two parties that creates enforceable rights or obligations. Entry field with correct answer True False

A contract is an agreement between two parties that creates enforceable rights or obligations.

Which of the following statements about the conceptual framework is correct? Entry field with correct answer It is a coherent system of concepts that flow from an objective. It should allow the accounting profession to quickly solve new and emerging practical problems. It increases financial statement users' understanding of and confidence in financial reporting. All of these answer choices are correct.

All of these answer choices are correct. ch02

Current assets are higher under the report form compared to the account form of the balance sheet, but total assets are equal under both forms. A : True B : False

B : False

How much information is enough for an accountant to comply with the full disclosure principle? A : All information that might be of interest to an owner of a business enterprise. B : Information that is of sufficient importance to influence the judgment and decisions of an informed user. C : Information sufficient to permit most persons coming in contact with the statements to reach an accurate decision about the financial condition of the enterprise. D : Information sufficient for a person without any knowledge of accounting to understand the statements.

B : Information that is of sufficient importance to influence the judgment and decisions of an informed user.

The accountants at Rojas Textiles are preparing the balance sheet, but they are not using the standard account form or report form. What is the most likely reason for this? A : They want to report common stock market values on the balance sheet. B : They want to report working capital on the balance sheet. C : They want to report future cash flows on the balance sheet. D : They want to report net income on the balance sheet.

B : They want to report working capital on the balance sheet.

The fair value principle states that A : measurements based on fair value increase the objectivity in financial reporting. B : fair value is a market-based measure. C : GAAP requires the use of fair value for financial assets and financial liabilities. D : fair value is generally less relevant than historical cost.

B : fair value is a market-based measure.

Selling expenses make up a A section of sales relating to net income and net loss. B subsection of expenses resulting from the company's efforts to generate sales. C section discussing the type of expenses incurred from the selling process. D subsection discussing the composition of the cost of goods sold to make sales.

B subsection of expenses resulting from the company's efforts to generate sales.

Both GAAP and IFRS are increasing the use of fair value to report assets, but at this point GAAP has adopted it more broadly. T F

Both GAAP and IFRS are increasing the use of fair value to report assets, but at this point IFRS has adopted it more broadly.

Which of the following defines an economic entity in accounting? A : A division within a business enterprise B : A business enterprise C : All of the choices are correct D : An individual

C : All of the choices are correct

The fundamental quality of faithful representation is violated in which of the following situations? A : Financial statements were issued one year late. B : All of the choices violate faithful representation. C : Financial statements included buildings with a carrying amount estimated by management. D : The management report refers to new discoveries and inventions made, but the financial statements never report the results.

C : Financial statements included buildings with a carrying amount estimated by management.

The primary quality of relevance includes which of the following characteristics? A : verifiability B : sustainability C : Materiality D : understandability

C : Materiality

Q 2.22: How many basic principles of accounting are part of the conceptual framework? A : two B : three C : four D : five

C : four (1) measurement, (2) revenue recognition, (3) expense recognition, and (4) full disclosure.

Michelle is preparing her company's income statement and balance sheet. This information will be used by a bank to determine if they want to provide a loan to the company. By preparing these documents, Michelle is A : defining the basic elements of financial statements. B : describing the basic assumptions of accounting. C : meeting the objective of financial reporting. D : identifying qualitative characteristics of accounting information.

C : meeting the objective of financial reporting.

Which of the following is generally true at initial acquisition? A : Historical cost is more than fair value B : Historical cost is less than fair value. C : Historical cost is equal to fair value. D : Historical cost and fair value diverge often.

C : Historical cost is equal to fair value.

Presenting information about a company's resources on the balance sheet helps companies meet the objective of A : financial accounting. B : working capital. C : financial reporting. D : gaining investors.

C : financial reporting.

Which of the following does the single-step income statement emphasize? A : the various components of income from continuing operations B : the gross profit figure C : total revenues and total expenses D : operating and non-operating expenses

C : total revenues and total expenses

Which of the following is true of the single-step income statement? A Both interest revenue and rental revenue are reported as other revenues and gains. B Expenses are classified by functions, such as merchandising, selling and administration. C It contains just two groupings existing of revenues and expenses. D An income from operations figure is presented.

C It contains just two groupings existing of revenues and expenses.

working capital?

Current assets less current liabilities.

When should revenue from sales be recognized? You got it wrong : A When the entire amount receivable has been collected from the customer and there remains no further warranty liability. B When the product is available for sale to the ultimate consumer. C When management decides it is appropriate to do so. This is correct answer : D None of these answer choices are correct.

D None of these answer choices are correct.

: In terms of the long run, trends in expenses are more meaningful than trends in A net cash flow. You got it wrong : B revenues. C sales. D disbursements.

D disbursements.

Young Textiles is preparing their first public stock offering. In order to do so, they must file an application and financial paperwork with the SEC. Although the out-of-pocket costs of the application are $5.6 million, they know that they will gain $70 million from the sale of their stock. This is an example of A : the completeness of financial information. B : the predictive value of financial information. C : a summary of comprehensive income. D : the cost-benefit relationship.

D : the cost-benefit relationship.

Which of the following is NOT a section within the multiple-step income statement? A : income from operations B : income tax C : discontinued operations D : irregular items

D irregular items

Samantha is classifying her company's equity and debt securities. Which major difference does Samantha need to remember as she performs her analysis?

Equity securities can be classified as trading securities but not as held-to-maturity securities, whereas debt securities can be classified as either.

Which of the following is an element that describes amounts of resources or claims to resources at a moment in time? Investments by owners. Comprehensive income. Equity. Gains.

Equity. ch02

For information to be relevant, it must have both predictive value and confirmatory value. Entry field with correct answer True False

Example - For information to be relevant, it needs to have predictive value or confirmatory value or both. True ch02

Which of the following statements is true regarding the convergence project by the FASB and IASB? Entry field with incorrect answer The IASB framework makes two assumptions. The FASB framework discusses accrual accounting and identifies it as an assumption. The converged framework will be a series of documents, similar to the two conceptual frameworks that presently exist. The existing conceptual frameworks underlying U.S. GAAP and IFRS are quite dissimilar, but once they are converged there will be unanimity.

Expantion - The IASB framework makes two assumptions - accrual basis and going concern. The converged framework will be a single document, the existing frameworks are very similar, and while the FASB framework discusses accrual accounting, it does not identify it as an assumption. The IASB framework makes two assumptions. ch02

Enhancing qualities of accounting information include all of the following except: Entry field with correct answer comparability. timeliness. neutrality. understandability.

Explanation - The enhancing qualities of accounting information include comparability, verifiability, timeliness, and understandability. Neutrality CH02

Enhancing qualities of accounting information include: Entry field with correct answer relevance and faithful representation. comparability and verifiability. relevance and consistency. comparability and materiality.

Explanation - The enhancing qualities of accounting information include comparability, verifiability, timeliness, and understandability. comparability and verifiability. ch02

Which of the following is not among the ingredients of the fundamental quality of faithful representation? Entry field with incorrect answer materiality completetess. freedom from error. neutrality.

Explanation - The ingredients of faithful representation include completeness, neutrality, and freedom from error. Materiality ch02

An increase in net assets arising from peripheral or incidental transactions is called a(n) Entry field with correct answer investment by owners. gain. revenue. asset.

Explanation ~ An increase in net assets from peripheral or incidental transactions is called a gain. Gain

The change in net assets during a period from transactions and other events and circumstances from non-owner sources is called Entry field with correct answer net income. gains. comprehensive income. revenues.

Explantion ~ Comprehensive income is the change in net assets during a period from transactions and other events and circumstances from non-owner sources. comprehensive income.

In order to be relevant, financial information must have Entry field with incorrect answer confirmatory or predictive value. freedom from error. neutrality. comparability.

Explantion. Relevant information has predictive value or confirmatory value (or both), and is material. confirmatory or predictive value

Which of the following statements about the fair value principle is true? Entry field with correct answer Measurements based on fair value increase the objectivity in financial reporting. Fair value is generally less relevant than historical cost. GAAP requires the use of fair value for financial assets and financial liabilities. Fair value is a market-based measure.

Fair value is more relevant, more subjective, and GAAP gives companies the option of using fair value for financial assets and financial liabilities. Fair value is a market-based measure.

Which assumption makes the current - noncurrent classification of assets and liabilities on the balance sheet useful? Going concern assumption. Economic entity assumption. Monetary unit assumption. Periodicity assumption.

Going concern assumption ch02

Which of the following statements about the IASB and FASB conceptual frameworks is not correct? Entry field with correct answer The IASB conceptual framework does not identify the element comprehensive income. The existing IASB and FASB conceptual frameworks are organized in similar ways. The FASB and IASB agree that the objective of financial reporting is to provide useful information to investors and creditors. IFRS does not allow use of fair value as a measurement basis.

IFRS does not allow use of fair value as a measurement basis. ch02

Under current GAAP, inflation is ignored in accounting due to the monetary unit assumption. consistency. materiality. the going concern assumption.

Inflation is ignored under the monetary unit assumption. the monetary unit assumption.

Which of the following is true of the application of the full disclosure principle? This is correct answer : A It is demonstrated by the use of supplementary information explaining the effects of financing arrangements. B It is violated when important financial information is buried in the notes to the financial statements. C It is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. You got it wrong : D It requires that the financial statements be consistent and comparable.

It is demonstrated by the use of supplementary information explaining the effects of financing arrangements.

The difficulty in cost-benefit analysis is that the benefits are usually evident and easily measurable, while the costs are not always evident or measurable. Entry field with correct answer True False

The difficulty in cost-benefit analysis is that the costs and especially the benefits are not always evident or measurable. False

The existing conceptual frameworks underlying IFRS and GAAP are strikingly different and the FASB and IASB will likely change many aspects of each of the frameworks in order to create a common conceptual framework. Entry field with correct answer True False

The existing conceptual frameworks underlying IFRS and GAAP are very similar and there is no need to change many aspects of the existing frameworks. false

Depreciation and amortization policies are justifiable and appropriate because of the: Entry field with incorrect answer monetary unit assumption. periodicity assumption. economic entity assumption. going concern assumption.

The going concern assumption is the justification for depreciation and amortization. going concern assumption.

Which of the following statements is false? Entry field with incorrect answer The monetary unit assumption is used under IFRS. Under IFRS, companies may use fair value for property, plant, and equipment. The FASB and IASB are working on a joint conceptual framework project. Under IFRS, there are the same number of financial statement elements as in GAAP.

The monetary unit assumption is used under IFRS. ch02

The periodicity assumption specifies that the most appropriate time periods for financial reporting are weekly, bi-monthly, and yearly. Entry field with correct answer True False

The periodicity assumption suggests that the economic life of a business can be divided into artificial time periods such as a month, quarter or year. False

The accountants at Blair Software are very careful about complying with GAAP. How will this impact the format of their balance sheet? A : They will always list liabilities and stockholders' equity at the top of the first page, with assets either at the bottom of the first page or top of the second page. B : They will always list assets at the top of the first page, with liabilities and stockholders' equity either at the bottom of the first page or top of the second page. C : They will always list assets at the top of the first page and liabilities and stockholders' equity at the bottom of the first page. D : They will always list assets at the top of the first page and liabilities and stockholders' equity at the top of the second page.

They will always list assets at the top of the first page, with liabilities and stockholders' equity either at the bottom of the first page or top of the second page.

formulas are used to calculate the net assets of a business?

Total assets minus total liabilities.

Which of the following measurements is considered the most subjective? Unobservable inputs. Inputs that are observable either directly or through corroboration with observable data. Observable inputs that reflect quoted prices for identical assets or liabilities. Historical cost.

Unobservable inputs. ch02

An implicit assumption of financial reporting is that Entry field with correct answer Users need reasonable knowledge of business and financial accounting matters. Financial statement preparers provide tutorials and other aids within the body of the financial statements to ensure users can comprehend the information presented. Companies must know how competent their investors and creditors are, and then tailor their financial reporting to that level of competency. Companies can assume that financial statement users are CPAs or business people.

Users need reasonable knowledge of business and financial accounting matters. ch02

Generally, revenues are recognized when the: Entry field with correct answer performance obligation is satisfied. product is produced. all of these answer choices are correct. cash is received.

When a company satisfies the performance obligation to perform services or sell a product, revenue is recognized. performance obligation is satisfied.

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

a- all of these answer choices are correct. ch02

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

derive their credibility and authority from general recognition and acceptance by the accounting profession. ch02

In the conceptual framework for financial reporting, what provides "the how" - the implementation of accounting? Entry field with correct answer Qualitative characteristics of accounting information. Objective of financial reporting. Measurement and recognition concepts such as assumptions, principles, and constraints. Elements of financial statements.

explanation - The "how" or the implementation of accounting is provided through the recognition, measurement, and disclosure concepts. Measurement and recognition concepts such as assumptions, principles, and constraints. ch02

The first level of the conceptual framework is the recognition, measurement, and disclosure concepts. Entry field with correct answer True False

false ch02

Enhancing qualities include all of the following except Entry field with correct answer timeliness. comparability. verifiability. materiality.

materiality. ch02

Companies that use IFRS: Entry field with correct answer must report all their assets on the statement of financial position (balance sheet) at fair value. may report property, plant, and equipment and natural resources at fair value. may refer to a concept statement on estimating fair values when market data are not available. may only use historical cost as the measurement basis in financial reporting.

may report property, plant, and equipment and natural resources at fair value. ch02

The issues that the FASB and IASB must address in developing a common conceptual framework include all of the following except: Entry field with correct answer should the characteristic of relevance be traded-off in favor of information that is verifiable? should a single measurement method such as historical cost be used? should the common framework lead to standards that are principles-based or rules-based? should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making?

should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making? ch02

With respect to the converged FASB/IASB conceptual framework: Entry field with correct answer work is being conducted on the framework as a whole, and it will not be issued until all parts are completed. work on the framework has a higher priority than projects on revenue and leases. work is being conducted on the framework in phases, and completed parts will be issued as completed. the framework will not address measurement issues.

work is being conducted on the framework in phases, and completed parts will be issued as completed. ch02