Set 1

According to the FASB conceptual framework, predictive value is an ingredient of: Relevance Faithful Representation A. Yes No B. No No C. Yes Yes D. No Yes

A. Yes - No - Predictive value is an ingredient of relevance, but not of faithful representation

The FASB amends the Accounting Standards Codification through the issuance of: A. Accounting Standards Updates B. Staff Accounting Bulletins. C. Technical Bulletins D. Statements of Financial Accounting Standards

Accounting Standards Updates: - The FASB updates the Accounting Standards Codification (ASC) for new U.S. GAAP issued by the FASB, and for any changes to existing GAAP, with Accounting Standards Updates.

Changes to existing authoritative GAAP for nonissuer, nongovernmental entities are communicated by the Financial Accounting Standards Board though the issuance of: A. Exposure Drafts B. Accounting Standards Updates C. Concept Statements D. Statements of Financial Accounting Standards

Accounting Standards Updates: - When the FASB announces a change to existing authoritative GAAP, it is done though an Accounting Standards Update, which details the specific changes/updates made to the Accounting Standards Codification

According to the FASB conceptual framework, which of the following is an essential characteristic of an asset? A. An asset is obtained at a cost B. The claims to an asset's benefits are legally enforceable C. An asset provides future benefits D. An asset is tangible

An asset provides future benefits Rule: According to the FASB conceptual framework, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

How are amendments incorporated in the FASB Accounting Standards Codification? A. By releasing an Accounting Standards Update B. By issuing an exposure draft C. By producing a discussion paper D. By publishing a statement of financial accounting standards

By releasing an Accounting Standards Update - Any change to the Codification must be made though the issuance of an Accounting Standards Update. This is required when a new accounting standard is established or if there is a change to an existing accounting standard.

According to the FASB conceptual Framework, completeness is an ingredient of: Relevance Faithful Representation A. No No B. Yes No C. Yes Yes D. No Yes

D. Completeness is an ingredient of faithful representation. Other ingredients of faithful representation include neutrality and freedom from error. Incorrect: The ingredients of relevance are predictive value, confirming value, and materiality

Which of the following characteristics means that information is reasonably free from error and bias? A. Predictive Value B. Consistency C. Faithful Representation D. Relevance

Faithful Representation - requires the financial information to be complete, neutral and free from error Incorrect: - Predictive value is a component of relevant information. Information has predictive value if it can be used to predict future outcomes - Consistency is the use of the same method among periods or among entities, and helps achieve comparability, which is an enhancing characteristic For financial information to be relevant, it must have predictive value and/or confirming value and must be material

According to the FASB conceptual framework, useful information must exhibit the fundamental qualitative characteristics of: A. Understandability and timeliness B. Faithful representation and relevance C. Neutrality and verifiability D. Neutrality and verifiability

Faithful Representation and relevance: - The fundamental qualitative characteristics of useful financial information are relevance and faithful representation

According to the FASB conceptual framework, neutrality is an ingredient of: A. Timeliness B. Relevance C. Faithful Representation D. Comparability

Faithful Representation: - Neutrality, which is freedom from bias in selection or presentation

Under a royalty agreement with another company, Wand Co. will pay royalties for the assignment of a patent for three years. The royalties paid should be reported as expense: A. At the date the royalty agreement began B. In the period incurred C. At the date the royalty agreement expired D. in the period paid

In the period incurred - Royalties paid should be reported as expense in the period incurred

Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis? A. Economic entity B. Monetary unit C. Periodicity D. Going concern

Monetary unit: - monetary unit assumption means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurements and analysis

According to the FASB conceptual framework, what does the concept of faithful representation include? A. Neutrality B. Materiality C. Effectiveness D. Certainty

Neutrality: - the concept of faithful representation includes neutrality, completeness and freedom from error.

According to the FASB conceptual framework, the quality of information that helps forecast future outcomes is: A. Neutrality B. Confirming Value C. Representational faithfulness D. Predictive Value

Predictive Value - The quality of information that helps users forecast future outcomes is predictive value. Forecasting is predicting.

According to the FASB conceptual framework, to be relevant, information should have which of the following? A. Neutrality B. Predictive Value C. Completeness D. Verifiability

Predictive Value: - To be relevant, information should have predictive value and/or confirming value and must be material Neutrality and completeness is a component of faithful representation

According to the FASB conceptual framework, the process of reporting an item in he financial statements of an entity is: A. Matching B. Recognition C. Realization D. Allocation

Recognition: - is the process of recording an item in the financial statements of an entity. SFAC 5 para. 6

According to the FASB conceptual framework, the primary users of financial reports include all of the following, except: A. Creditors B. Lenders C. Investors D. Regulators

Regulators: - The FASB conceptual framework indicates that regulators are not considered to be primary users

Users of financial statements frequently rely upon the data displayed in the financial statements to predict future financial outcomes. Financial accounting concepts refer to the characteristic of accounting information that provides predictive value to users as the quality of: A. Faithful Representation B. Understandability C. Relevance D. Comparability

Relevance: - The fundamental qualitative characteristic of useful accounting information described by the term "relevance" contemplates predictive value, confirming value and materiality

Which of the following is not defined in FASB Statement of Financial Accounting Concepts number 7 as one of the five elements of present value (or economic value) measurement used to establish the value of assets or liabilities using cash flow information? A. Estimate of Future Cash Flow B. Timing Variations of Future Cash Flows C. Time Value of Money D. Risk Tolerance of Management

Risk Tolerance of Management: - The risk tolerance of management is not defined by SFAC #7 as an element of present value measurement used to establish the value of assets or liabilities using cash flows. SFAC defines the following elements value measurement: The Price for bearing Uncertainty Expectations about Timing Variations of Future Cash Flows Other Factors (e.g., Liquidity issues and market imperfections). Time value of Money (The Risk-free rate of interest) Estimate of Future Cash Flow

Which of the following defines equity as it relates to a business entity? A. Total revenues less total expenses B. Net revenues C. Total Assets and liabilities D. Total Assets less total liabilities

The basic accounting equation states that Assets = Liabilities + Stockholders' Equity. This equation can be rearranged such that Stockholders' Equity = Assets - Liabilities. By definition, equity is the residual interest in the assets of a company that remains after deducting its liabilities.

The objectives of financial reporting stem from which of the following sources? A. Reporting on management's consistency B. Reporting on management's stewardship C. The need for conservatism D. The needs of the external users of the information

The needs of the external users of the information - Per SFAC No. 8 (Conceptual Framework for Financial Reporting), Chapter 1 (The objective of General Purpose Financial Reporting), the objective of financial reporting is to provide financial information that is useful to the primary users of financial reports. The primary users are external users, such as creditors, lenders and investors