Gleim Quiz 1 - 310
According to the FASB's conceptual framework, a department store ordinarily recognizes revenue when Customers receive merchandise. Payment is received from customers. Merchandise to be held for resale is received from suppliers. Preparation of merchandise for resale has been completed.
a
Which of the following characteristics means that information is reasonably free from error and bias? Predictive value. Relevance. Faithful representation. Consistency
c
To be relevant, financial information should have which of the following? Confirmatory value. Costs and benefits. Understandability. Neutrality.
a
Which of the following statements about FASB procedures for promulgation of accounting pronouncements is false? Official pronouncements require a unanimous vote for approval. A task force of experts defines specific problems. The FASB must hold public meetings. An exposure draft of a proposed pronouncement of the board must have been released for public comment.
a
Which of the following is a true statement about the objective of general-purpose financial reporting? Financial reporting directly measures management performance. The objective applies only to information that is useful for investment professionals. The information provided relates to the entity's economic resources and claims. Financial reporting is ordinarily focused on industries rather than individual entities.
c
The SEC has affirmed that it will recognize which of the following entities as an accounting standard-setter for filings under the securities laws? The AICPA. The FASB. The GASB. The IASB.
b
Based on 8% interest compounded annually from day of deposit to day of withdrawal, what is the present value today of $4,000 to be received 6 years from today? Present Value of $1 Periods Discounted at 8% per Period 1 .926 2 .857 3 .794 4 .735 5 .681 $4,000 × 0.794 × 2. Cannot be determined from the information given. $4,000 × 0.926 × 6. $4,000 × 0.681 × 0.926.
d
Comprehensive income is best defined as Total revenues minus total expenses. The change in net assets for the period excluding owner transactions. Net income excluding discontinued operations. The change in net assets for the period including contributions by owners and distributions to owners.
b
How are amendments incorporated into the FASB Accounting Standards Codification? By publishing a statement of financial accounting standards. By releasing an accounting standards update. By issuing an exposure draft. By producing a discussion paper.
b
Murray is planning a project that will cost $22,000. The annual cash inflow, net of income taxes, will be $5,000 a year for 7 years. The present value of $1 at 12% is as follows: Period Present Value of $1 at 12% 1 .893 2 .797 3 .712 4 .636 5 .567 6 .507 7 .452 Using a rate of return of 12%, what is the present value of the cash flow generated by this project? $22,600 $22,820 $35,000 $34,180
b
On January 1 of the current year, Lean Co. made an investment of $10,000. The following is the present value of $1.00 discounted at a 10% interest rate: Present value of $1.00 Periods discounted at 10% 1 .909 2 .826 3 .751 What amount of cash will Lean accumulate in 2 years? $27,002 $12,107 $12,000 $16,250
b
On September 1, Year 1, an entity purchased a new machine that it does not have to pay for until September 1, Year 3. The total payment on September 1, Year 3, will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine will be the total payment multiplied by what time value of money factor? Future amount of annuity of $1. Present value of $1. Present value of annuity of $1. Future amount of $1.
b
According to the FASB's conceptual framework, the quality of information that enables users to identify similarities in and differences between two sets of economic phenomena is Neutrality. Matching. Comparability. Conservatism.
c
Jarvis wants to invest equal semiannual payments in order to have $10,000 at the end of 20 years. Assuming that Jarvis will earn interest at an annual rate of 6% compounded semi-annually, how would the periodic payment be calculated? $10,000 divided by the present value of an ordinary annuity of 40 payments of $1 each at an interest rate of 3% per period. The future amount of an ordinary annuity of 20 payments of $1 each at an interest rate of 6% per period divided into $10,000. $10,000 divided by the future amount of an ordinary annuity of 40 payments of $1 each at an interest rate of 3% per period. The present value of an ordinary annuity of 40 payments of $1 each at an interest rate of 3% per period divided by $10,000.
c
On March 15, Year 1, Kathleen Corp. adopted a plan to accumulate $1,000,000 by September 1, Year 5. Kathleen plans to make 4 equal annual deposits to a fund that will earn interest at 10% compounded annually. Kathleen made the first deposit on September 1, Year 1. Future value and future amount factors are as follows: Future value of $1 at 10% for 4 periods 1.46 Future amount of ordinary annuity of $1 at 10% for 4 periods 4.64 Future amount of annuity in advance of $1 at 10% for 4 periods 5.11 Kathleen should make 4 annual deposits (rounded) of $684,930 $215,500 $195,700 $250,000
c
The FASB makes changes to the Accounting Standards Codification by issuing Statements of Financial Accounting Standards. Emerging Issues Task Force Releases. Accounting Standards Updates. Staff Technical Bulletins.
c
Which of the following is considered a pervasive constraint by the FASB's conceptual framework? Verifiability. Timeliness. Cost. Conservatism.
c
Which of the following statements best describes an operating procedure for issuing a new Accounting Standards Update? The Emerging Issues Task Force must approve a discussion paper before it is disseminated to the public. A new FASB statement can be rescinded by a majority vote of the AICPA membership. A new update is issued only after a majority vote by the members of the FASB. The Exposure Draft is modified per public opinion before issuing a Discussion Paper.
c
On January 15, Year 5, Carr Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, Year 9, at an estimated cost of $2 million. Carr plans to make 4 equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, Year 5. Future value factors are as follows: Future value of 1 at 10% for 5 periods 1.61 Future value of ordinary annuity of 1 at 10% for 4 periods 4.64 Future value of annuity in advance of 1 at 10% for 4 periods 5.11 Carr should make 4 annual deposits (rounded) of $500,000 $431,000 $320,000 $391,400
d
Other than SEC pronouncements, which of the following accounting pronouncements applicable to nongovernmental entities is recognized by the FASB as the most authoritative? AICPA Statements of Position. FASB Statement of Financial Accounting Concepts. FASB Technical Bulletins. The FASB's Accounting Standards Codification.
d
Regarding financial accounting for public companies, the role of the Securities and Exchange Commission (SEC) as currently practiced is to Develop and promulgate most generally accepted accounting principles. Regulate financial disclosures for corporate, state, and municipal reporting. Make rules and regulations regarding filings with the SEC but not to regulate annual or quarterly reports to shareholders. Make rules and regulations pertaining more to disclosure of financial information than to the establishment of accounting recognition and measurement principles.
d
The FASB's due process for setting accounting standards includes which of the following procedures? The FASB obtains approval from the International Accounting Standards Board in setting its agenda. The FASB's Emerging Issues Task Force ratifies amendments to the Accounting Standards Codification. The FASB delegates topics to the Financial Accounting Foundation for research and reporting. The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft.
d
The financial statement that provides a summary of the firm's operations for a period of time is the Statement of retained earnings. Statement of shareholders' equity. Statement of financial position. Income statement.
d
The financial statements included in the annual report to the shareholders are least useful to which one of the following? Stockbrokers. Competing businesses. Bankers preparing to lend money. Managers in charge of operating activities.
d
According to the FASB conceptual framework, which of the following correctly pairs a fundamental qualitative characteristic of useful financial information with one of its aspects? Relevance and materiality. Faithful representation and predictive value. Relevance and neutrality. Faithful representation and confirmatory value.
a
Under SFAC 8, the ability, through consensus among measurers, to ensure that information represents what it purports to represent is an example of the concept of Predictive value. Comparability. Verifiability. Relevance.
c
Under the FASB Accounting Standards Codification, updates to GAAP are made as Accounting Statements of Position. Exposure Drafts. Accounting Standard Updates. Statements of Financial Accounting Standards.
c
According to Statements of Financial Accounting Concepts, predictive value relates to Faithful Relevance Representation No No Yes Yes Yes No No Yes
c
According to the FASB's conceptual framework, neutrality relates to Faithful Representation Relevance Yes No No Yes No No Yes Yes
a
According to the FASB's conceptual framework, the objective of general-purpose financial reporting is most likely based on The needs of the users of the information. The need for conservatism. Generally accepted accounting principles. Reporting on how well management has discharged its responsibilities.
a
According to the FASB's conceptual framework, which of the following most likely does not violate the concept of faithful representation? Report data on segments having the same expected risks and growth rates to analysts estimating future profits. Management reports to shareholders regularly refer to new projects undertaken, but the financial statements never report project results. Financial statements were issued 9 months late. Financial statements included property with a carrying amount increased to management's estimate of market value.
a
All of the following are defined as elements of an income statement except Shareholders' equity. Expenses. Revenues. Gains and losses.
a
An accrued expense can best be described as an amount Not paid and currently matched with earnings. Paid and not currently matched with earnings. Not paid and not currently matched with earnings. Paid and currently matched with earnings.
a
On January 1 of the current year, Lean Co. made an investment of $10,000. The following is the present value of $1.00 discounted at a 10% interest rate: Present value of $1.00 Periods discounted at 10% 1 .909 2 .826 3 .751 What amount of cash will Lean accumulate in 2 years? $12,107 $27,002 $12,000 $16,250
a
On July 1, Goblette Company sold some machinery to another company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required 5 equal annual payments with the first payment due on July 1, the date of sale. What present value concept is appropriate for this situation? Present value of an annuity due of $1 for 5 periods. Present value of an ordinary annuity of $1 for 5 periods. Future amount of $1 for 5 periods. Future amount of an annuity due of $1 for 5 periods.
a
On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type. Present value of $1 at 14% for 4 periods 0.59 Future amount of $1 at 14% for 4 periods 1.69 Present value of an ordinary annuity of $1 at 14% for 4 periods 2.91 Ahmed should record the acquisition cost of the franchise on July 1, Year 4, at $196,400 $174,400 $270,400 $240,000
a
One of the elements of financial statements is comprehensive income. Comprehensive income for a period excludes changes in equity resulting from which of the following? Dividends paid to shareholders. Unrealized loss on available-for-sale debt securities. Prior-period error correction. Loss from discontinued operations.
a
What is the purpose of reporting comprehensive income? To summarize all changes in equity from nonowner sources. To reconcile the difference between net income and cash flows provided from operating activities. To provide information for each segment of the business. To provide a consolidation of the income of the firm's segments.
a
Which of the following statements about the development of U.S. accounting standards is false? Pronouncements of the FASB's predecessor bodies remain in force until amended or superseded by the FASB. The Financial Accounting Foundation oversees the FASB. The FASB exercises rulemaking authority delegated by the SEC. The Financial Accounting Standards Advisory Council (FASAC) evaluates the FASB's performance.
a
Which of the following bodies has the original authority to set accounting standards for publicly traded companies in the U.S.? The Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC). The American Institute of Certified Public Accountants (AICPA). The International Accounting Standards Board (IASB).
b
According to the FASB's conceptual framework, an entity's revenue may result from a(n) Increase in a liability from incidental transactions. Decrease in a liability from primary operations. Increase in an asset from incidental transactions. Decrease in an asset from primary operations.
b
According to the FASB's conceptual framework, for financial reporting to be useful, it must Be understandable to those who have a limited knowledge of business activities. Provide information useful for making business and investment decisions. Directly measure the value of the entity being reported on. Be in accordance with generally accepted accounting principles.
b
According to the conceptual framework, the most basic objective of financial reporting is to convey information About the liquidity and solvency of a company. That enables users to make decisions about a company. About the future cash flows of a company. About the economic resources and obligations of a company.
b
All of the following support the objective of financial reporting except providing information that Is useful for making investment and credit decisions. Helps management evaluate alternative projects. Helps investors and creditors predict future cash flows. Concerns enterprise resources and claims to those resources.
b
Arpco, Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative? FASB Accounting Standards Updates. The Accounting Standards Codification. FASB Statements of Financial Accounting Standards. FASB Statements of Financial Accounting Concepts.
b
On December 30 of the current year, Azrael, Inc., purchased a machine from Abiss Corp. in exchange for a noninterest-bearing note requiring 8 payments of $20,000. The first payment was made on December 30, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows: Present Value of Present Value of Ordinary Annuity Annuity in Advance Period of $1 at 11% of $1 at 11% 7 4.712 5.231 8 5.146 5.712 On Azrael's current year December 31 balance sheet, the note payable to Abiss was $104,620 $94,240 $102,920 $114,240
b
The FASB Accounting Standards Codification Expanded the GAAP hierarchy. Is the single authoritative source of U.S. GAAP other than SEC pronouncements. Includes guidance on state and local governmental accounting. Increases the risk of noncompliance with GAAP.
b
Which of the following assets or transactions is an element of comprehensive income? Distributions to owners. Deferred revenue. Investments by owners. Sales revenue.
d
Which of the following is true regarding the comparison of managerial and financial accounting? Managerial accounting has a past focus, and financial accounting has a future focus. Managerial accounting need not follow generally accepted accounting principles (GAAP), while financial accounting must follow them. The emphasis on managerial accounting is relevance, and the emphasis on financial accounting is timeliness. Managerial accounting is generally more precise.
b
Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization? Reliability. Neutrality. Timeliness. Relevance.
d
According to the FASB's conceptual framework, recognition is the process of formally incorporating an element into the financial statements of an entity. Recognition criteria include all of the following except Relevance. Measurability with sufficient reliability. Decision usefulness. Definitions of elements of financial statements.
c
According to the FASB's conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called Comparability. Representational faithfulness. Predictive value. Confirmatory value.
c
According to the FASB's conceptual framework, the two fundamental qualitative characteristics that make accounting information useful for decision making are Consistency and comparability. Neutrality and completeness. Relevance and faithful representation. Fairness and precision.
c
According to the FASB's conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of Cost. Representational faithfulness. Relevance. Consistency.a
c
According to the FASB's conceptual framework, what does the concept of faithful representation in financial reporting include? Predictive value. Perfect accuracy. Neutrality. Certainty.
c
Which of the following characteristics relates to both accounting relevance and faithful representation? Verifiability. Comparability. Timeliness. All of the answers are correct.
d
According to the FASB's conceptual framework, which of the following best describes the distinction between expenses and losses? Losses are reported net of related tax effect, and expenses are not. Losses are material, and expenses are immaterial. Losses result from peripheral or incidental transactions, and expenses result from ongoing major or central operations of the entity. Losses are decreases in net assets, and expenses are not.
c
According to the FASB's conceptual framework, which of the following enhances information that is relevant and faithfully represented? Confirmatory value. Materiality. Comparability. Neutrality.
c
Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to The matching concept. Disclosure. Accrual accounting. Materiality.
c
What are the Statements of Financial Accounting Concepts intended to establish? The meaning of "present fairly in accordance with generally accepted accounting principles." Generally accepted accounting principles in financial reporting by business enterprises. The objectives and concepts for use in developing standards of financial accounting and reporting. The hierarchy of sources of generally accepted accounting principles.
c
What is the purpose of information presented in notes to the financial statements? To present management's responses to auditor comments. To provide recognition of amounts not included in the totals of the financial statements. To provide disclosures required by generally accepted accounting principles. To correct improper presentation in the financial statements.
c
Which basis of accounting is most likely to provide the best assessment of an entity's past and future ability to generate net cash inflows? Cash basis of accounting. Modified cash basis of accounting. Accrual basis of accounting. Tax basis of accounting.
c
Which of the following accounting concepts states that an accounting transaction should be supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially similar measures and conclusions? Stable monetary unit. Matching. Verifiability. Periodicity.
c
Within the context of the qualitative characteristics of accounting information, which of the following is a fundamental qualitative characteristic? Feedback value. Timeliness. Relevance. Comparability.
c
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification? A proposed accounting research bulletin. A proposed statement of position. A proposed staff accounting bulletin. A proposed accounting standards update.
d
Which of the following is included in the FASB Accounting Standards Codification? Governmental accounting standards. All SEC guidance. Guidance for special purpose frameworks. U.S. GAAP for nongovernmental entities.
d
Which of the following is least likely to be accomplished by providing general-purpose financial information useful for making decisions about providing resources to an entity? To provide information about management's performance. To provide information about changes in an entity's economic resources and claims to them. To provide information to help investors and creditors assess the amount, timing, and uncertainty of prospective net cash inflows to the entity. To provide sufficient information to determine the value of the entity.
d
According to the FASB's conceptual framework, recognition is the process of formally incorporating an element into the financial statements of an entity. Recognition criteria include all of the following except Measurability with sufficient reliability. Relevance. Definitions of elements of financial statements. Decision usefulness.
d
According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is Matching. Realization. Allocation. Recognition.
d
According to the FASB's conceptual framework, which of the following decreases shareholder equity? Issuance of stock. Acquisition of assets in a cash transaction. Investments by owners. Distributions to owners.
d
According to the FASB's conceptual framework, which of the following is an essential characteristic of a liability? Liabilities must be legally enforceable. The identity of the recipient entity must be known to the obligated entity before the time of settlement. Liabilities must require the obligated entity to pay cash to a recipient entity. Liabilities are obligations resulting from previous transactions or events.
d
According to the FASB's conceptual framework, which of the following is an essential characteristic of an asset? An asset is obtained at a cost. An asset is tangible. The claims to an asset's benefits are legally enforceable. An asset provides future benefits.
d
According to the FASB's conceptual framework, which of the following is not an element describing transactions, events, and circumstances during intervals of time? Distributions to owners. Comprehensive income. Investments by owners. Rational allocation procedures.
d
Chambers Company bought Machine 1 on March 5, Year 1, for $5,000 cash. The estimated salvage was $200 and the estimated life was 11 years. On March 5, Year 2, the company learned that it could purchase a different machine for $8,000 cash. It would save the company an estimated $250 per year. The new machine would have no estimated salvage and an estimated life of 10 years. The company could sell Machine 1 for $3,000 on March 5, Year 2. Ignoring income taxes, which of the following calculations would best assist the company in deciding whether to purchase the new machine? (Present value of an annuity of $250) - $8,000. (Present value of an annuity of $250) + $3,000 - $8,000 - $5,000. (Present value of an annuity of $250) + $3,000 - $8,000 - $4,800. (Present value of an annuity of $250) + $3,000 - $8,000.
d
Each of the following statements is correct regarding the Financial Accounting Standards Board except It is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants. It provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial reports. It establishes accounting concepts and standards for financial accounting and reporting and provides guidance on implementation of standards. It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
d
Financial information is most likely to be verifiable when an accounting transaction occurs that Furthers the objectives of the entity. Is promptly recorded in a fixed amount of monetary units. Allocates revenues or expense items in a rational and systematic manner. Involves an arm's-length transaction between two independent parties.
d
General purpose external financial reporting of a corporation focuses primarily on the needs of which of the following users? Regulatory and taxing authorities. The board of directors of the corporation. The management of the corporation. Investors and creditors and their advisors.
d
Harry Rawlings wants to withdraw $10,000 (including principal) from an investment fund at the end of each year for 5 years. How should he compute his required initial investment at the beginning of the first year if the fund earns 6% compounded annually? $10,000 times the amount of an annuity of $1 at 6% at the end of each year for 5 years. $10,000 divided by the amount of an annuity of $1 at 6% at the end of each year for 5 years. $10,000 divided by the present value of an annuity of $1 at 6% at the end of each year for 5 years. $10,000 times the present value of an annuity of $1 at 6% at the end of each year for 5 years.
d
Materiality and relevance are both defined by Quantitative criteria set by the Financial Accounting Standards Board. The perceived benefits to be denied that exceed the perceived costs associated with it. The consistency in the application of methods over time. What influences or makes a difference to a decision maker.
d
The principal benefit of a single set of global financial reporting standards is Minimization of the amount of professional judgment required to implement them. The convergence of global financial reporting standards. Simplified enforcement for local and national regulatory bodies. Increased ease of capital flow.
d
What is the primary objective of financial reporting? To provide economic information that is comprehensible to all users. To provide forecasts for future cash flows and financial performance. To provide management with an accurate evaluation of their financial performance. To provide information that is useful for economic decision making.
d