Accounting 3304 Exam 1

A company issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?

Timeliness

Allowing firms to estimate rather than physically count inventory at quarterly periods is an example of a trade-off between

Timeliness and verifiability

True or false? Although the FASB has developed a conceptual framework no statements of financial accounting have been issued to date.

False

True or false. Timeliness and neutrality are two ingredients of relevance.

False

Issuance of common stock for cash affects which basic element of financial statements?

Equity

Recognizing expenses not when a company pays wages, but when the work actually contributes to revenue in in accordance with the

Expense recognition principle

The most significant current source of generally accepted accounting principles is the

FASB

Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of

Faithful representation

According to Statement of Financial Accounting Concepts No. 8, neutrality is an ingredient of the fundamental quality(ies) of:

Faithful representation, not relevance

What accounting concept justifies the usage of depreciation and amortization policies?

Going concern assumption

Which basic assumption may not be followed when a firm in bankruptcy reports financial results?

Going concern assumption

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?

Historical cost

The measurement principle includes the

Historical cost principle and the fair value principle

What is meant by consistency when discussing financial accounting information?

Information presented by a company applies the same accounting treatment to similar events, from period to period

The economic entity assumption

Is applicable to all forms of business organizations

The accounting principle of expense recognition is best demonstrated by

Matching effort (expense) with accomplishment (revenue).

Expensing the cost of copy paper when the paper is acquired is an example

Materiality

Expensing the cost of a wastebasket with an estimated useful life of 10 years when purchased is an example of the application of the

Materiality quality

According to the FASB's conceptual framework, what does the concept of faithful representation include?

Neutrality

The calculation of comprehensive income includes

Operating income not distribution to owners

A company has a performance obligation when it agrees to

Perform a service or sell a product to a customer

Which of the following is a component of the revenue recognition principle?

Recognition occurs when the performance obligation is satisfied

Trade-offs between the characteristics that make information useful may be necessary or beneficial. Issuance of interim financial statements is an example of a trade-off between

Relevance and faithful representation

In classifying the elements of financial statements, the primary distinction between revenues and gains is

The nature of the actives that gave rise to the transactions involved

True or false. Relevance and faithful representation are the two fundamental qualities that make accounting information useful for decision making.

True

True or false. The idea of consistency does not mean that companies cannot switch from one accounting method to another.

True

True or false? A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time.

True

Revenue generally should be recognized

When the performance obligation is satisfied

Which of the following relates to both relevance and faithful representation? a. cost constraint b. predictive value c. verifiability d. neutrality

a. cost constraint

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. equity

Which of the following is not a basic element of financial statements? a. assets b. balance sheet c. losses d. revenue

b. balance sheet

Which of the following is not true concerning a conceptual framework in accounting? a. it should be the 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. it should be based on fundamental truths that are derived from the laws of nature

What is due process in the context of standard setting at the FASB? a. FASB operates in full view of the public. b. public hearings are held on proposed accounting standards. c. interested parties can make their views known. d. all of the above.

d. all of the above

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 the statements are correct

d. all of the statements are correct

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. all of these

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 are correct

d. all of these are correct

Which of the following is a source of pressure that may influence the accounting standard setting process? a. congress. b. lobbyist. c. CPA firms d. all statements are correct

d. all statements are correct

Which of the following is related to an effective capital allocation? a. promoting productivity. b. encouraging innovation. c. providing an efficient market for buying and selling securities d. all statements are correct

d. all statements are correct

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. he 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. none of these answer choices are correct

The financial statements most frequently provided include all of the following except the a. balance sheet b. income statement c. statement of cash flows d. statement of retained earnings

d. statement of retained earnings