The Financial Reporting Environment

(1.1) During the lifetime of an entity, accountants produce financial statements at arbitrary moments in time in accordance with which accounting concept? A. Verifiability B. Periodicity C. Conservatism D. Matching

B

(1.2) Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation permits to: A. Disclosure B. Accrual accounting C. Materiality D. The matching concept

B

(1.3) According to the FASB's conceptual framework, neutrality relates to: A. Faithful Representation and Relevance B. Faithful Representation C. Relevance D. Neither Faithful Representation or Relevance

B

(1.3) According to the FASB's conceptual framework, the quality of information that helps users increase the likelihood or correctly forecasting the outcome of past or present events is called? A. Confirmatory value B. Predictive value C. Representational faithfulness D. Comparability

B

(1.3) According to the FASB's conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of: A. Consistency B. Cost C. Relevance D. Representation faithfulness

B

Under SFAC 8, the ability, through consensus among measures, to ensure that information represents what it purports to represent is an example of the concept of: A. Relevance B. Verifiability C. Comparability D. Predictive value

B

(1.1) Reporting inventory at the lower of cost or market (LCM) is a departure from the accounting principle of: A. Historical cost B. Consistency C. Conservatism D. Full Disclosure

A

(1.3) According to Statements of Financial Accounting Concepts, predictive value relates to: A. Relevance B. Relevance and Faithful Representation C. Faithful Representation D. Neither of the above

A

(1.3) According to the FASB conceptual framework, which of the following correctly pairs a fundamental qualitative characteristics of useful financial information with one of its aspects? A. Relevance and materiality B. Relevance and neutrality C. Faithful representation and predictive value D. Faithful representation and confirmatory value

A

(1.3) According to the FASB's conceptual framework, which of the following enhances information that is relevant and faithfully represented? A. Comparability B. Confirmatory value C. Neutrality D. Materiality

A

(1.3) Financial information is most likely to be verifiable when an accounting transaction occurs that: A. Involves an arm's-lengths transactions between two independent interests B. Furthers the objectives of the entity C. Is promptly recorded in a fixed amount of monetary units D. Allocations revenues or expense items in a rational and systematic manner

A

(1.3) Which of the following is considered a pervasive constraint by the FASB's conceptual framework? A. Cost B. Conservatism C. Timeliness D. Verifiability

A

(1.5) According to the FASB's conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same of equivalent assets were acquired currently. What is the name of the reporting concept? A. Replacement cost B. Current market value C. Historical cost D. Net realizable value

A

(1.5) Some costs cannot be directly related to particular revenues but are incurred to obtain benefits that are exhausted in the period in which the costs are incurred. An example of such a cost is: A. Salespersons' monthly salaries B. Salepersons' commissions C. Transportation to customers D. Prepaid insurance

A

(1.5) What is the purpose of information presented in notes to the financial statements? A. To provide disclosures required by generally accepted accounting principles B. To correct improper presentation in the financial statements C. To provide recognition of amounts not included in the totals of the financial statements D. To present management's responses to auditor comments

A

(1.5) Which of the following is an application of the principle of systematic and rational allocation? A. Amortization of intangible assets B. Sales commissions C. Research and development costs D. Officers' salaries

A

(1.9) On July 1, Year 2, a company decided to adopt IFRS. The company's first IFRS reporting period is as of and for the year ended December 31, Year 2. The company will present 1 year comparative information. What is the company's date of transition to IFRS?

A

(1.3) According to the FASB's conceptual framework, which of the following most likely does not violate the concept of faithful representation? A. Financial statements were issued 9 months late B. Report data on segments having the same expected risks and growth rates to analysts estimating future profits C. Financial statements include property with a carrying amount increased to management's estimate of market value D. Management reports to shareholders regularly refer to new projects undertaken, but the financial statements never report project results

B

(1.3) To be relevant, financial information should have which of the following? A. Neutrality B. Confirmatory Value C. Understandability D. Costs and Benefits

B

(1.3) 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? A. Matching B. Verifiability C. Periodicity D. Stable monetary unit

B

(1.4) According to the FASB's conceptual framework, asset valuation accounts are: A. Assets B. Neither assets nor liabilities C. Part of equity D. Liabilities

B

(1.4) Consolidated financial statements are prepared when a parent-subsidiary relationship exists in recognition of the accounting concept of: A. Materiality B. Entity C. Verifiability D. Going concern

B

(1.4) Under SFAC No. 6 Elements of Financial Statements, interrelated elements of financial statements include: A. Distribution to Owners and Notes to Financial Statements B. Distribution to Owners C. Notes to Financial Statements D. None of the above

B

(1.5) A patent, purchased in Year 1 and amortized over a 15-year life, was determined to be worthless in Year 6. The write-off of the asset in Year 6 is an application of which of the following principles? A. Associating cause and effect B. Immediate recognition C. Systematic and rational allocation D. Objectivity

B

(1.5) According to the FASB conceptual framework, which of the following statements conforms to the realization concept? A. Equipment depreciation was assigned to a production department and then to product unit costs B. Depreciated equipment was sold in exchange for a note receivable C. Cash was collected on accounts receivable D. Product unit costs were assigned to cost of goods sold when the units were sold

B

(1.5) Under a royalty agreement with another entity, a company will receive royalties with the assignment of a patent for 3 years. The royalties received should be reported as revenue: A. At the date of the royalty agreement B. In the period earned C. In the period received D. Evenly over the life of the royalty agreement

B

(1.5) Which of the following is an example of the expense recognition principle of associating cause and effect? A. Allocation of insurance cost B. Sales commissions C. Depreciation of fixed assets D. Officers' salaries

B

(1.7) 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. A proposed statement of position B. A proposed accounting standard update C. A proposed accounting research bulletin D. A proposed staff accounting bulletin

B

(1.9) A company's first IFRS reporting period is for the year ended December 31, Year 2. While preparing the Year 2 statement of financial position, management identified an error in which a $90k loss accrual was not recorded: $40k of the loss accrual related to a Year 1 event, and $50k related to a Year 2 event. What amount of loss accrual should the company report in its December 31 Year 1, IFRS statement of financial position? A. $0 B. $40k C. $50k D. $90k

B

(1.9) Under IFRS, which of the following is the first step within the hierarchy of guidance to which management refers, and whose applicability it considers, when selecting accounting policies? A. Consider the most recent pronouncements of other standard-setting bodies to the extent that do not conflict with the IFRS or the IASB Framework B. Apply a standard from IFRS if it specifically relates to the transaction, other event, or condition C. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the IASB Framework D. Apply the requirements in IFRS dealing with similar and related issues

B

(1.1) Constructions of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of: A. Accounting entity B. Consistency C. Going concern D. Substance over form

C

(1.1) What are the Statements of Financial Accounting Concepts intended to establish? A. Generally accepted accounting principles in financial reporting by business enterprises. B. The meaning of "present fairly in accordance with generally accepted accounting principles." C. The objectives and concepts for use in developing standards of financial accounting and reporting D. The hierarchy of sources of generally accepted accounting principles

C

(1.4) The FASB's conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income? A. NI - Financial Capital CI - Physical capital B. NI - Physical Capital CI - Physical capital C. NI - Financial Capital CI - Financial capital D. NI - Physical Capital CI - Financial capital

C

(1.5) Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of: A. Consistency B. Going-concern C. Matching D. Substance over form

C

(1.5) Which of the following is not a basis for the immediate recognition of a cost during a period? A. The cost provides no discernible future benfit B. The cost recorded in a prior period no longer produces discernible benefits C. The federal income tax savings using the immediate write-off method exceed the savings obtained by allocating the cost to several periods D. Allocation of the cost on the basis of association with revenue or among several accounting periods is considered to serve no useful purpose

C

(1.5) Which of the following is not a theoretical basis for the allocation of expenses? A. Systematic allocation B. Cause and effect C. Profit maximization D. Immediate recognition

C

(1.5) Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles? A. To reduct the federal income tax liability B. To aid management in the decision-making process C. To match the costs of production with revenues as earned D. To adhere to the accounting concept of conservatism

C

(1.6) Each of the following would be considered a Level 2 observable input that could be used to determine an asset or liability's fair value except: A. Quoted prices for identical assets and liabilities in markets that are not active B. Quoted prices for similar assets and liabilities in markets that are active C. Internally generated cash flow projections for a related asset or liabilty D. Interest rates that are observable at commonly quoted intervals

C

(1.6) Which of the following items would best enable Driver Co. to determine whether the fair value of its investment in Favre Corp. is properly stated in the balance sheet? A. Discounted cash flow of Favre's operations B. Quoted market prices available from a business broker for a similar asset C. Quoted market prices on a stock exchange for an identical asset D. Historical performance and return on Driver's investment in Favre

C

(1.2) According to the FASB's conceptual framework, the objective of general-purpose financial reporting is most likely based on: A. Generally accepted accounting principles B. Reporting on how well management has discharged its responsibilities C. The need for conservatism D. The needs of the users of the information

D

(1.3) According to the FASB's conceptual framework, what does the concept of faithful representation in financial reporting include? A. Predictive value B. Certainty C. Perfect accuracy D. Neutrality

D

(1.3) The concept of consistency is sacrificed in accounting for which of the following income statement items? A. Discontinue operations B. Loss on disposal of a component of an entity C. Gain from bargain purchase D. Change in accounting principle when the cumulative effect on any prior period is not known

D

(1.3) Which of the following characteristics relates to both accounting relevance and faithful representation? A. Verifiability B. Timeliness C. Comparability D. All of the answers are correct

D

(1.4) According to the FASB's conceptual framework, an entity's revenue may result from a(n): A. Decrease in an asset from primary operations B. Increase in an asset from incidental transactions C. Increase in a liability from incidental transactions D. Decrease in a liability from primary operations

D

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

D

(1.5) For $50 a month, Rawl Co. visits its customers' premises and performs insect control services. If customers experience problems between regularly scheduled visits, Rawl makes service calls at no additional charge. Instead of paying monthly, customers may pay an annual fee of $540 in advance. For a customer who pays the annual fee in advance, Rawl should recognize the related revenue: A. When the cash is collected B. At the end of the fiscal year C. At the end of the contract year after all of the services have been performed D. Evenly over the contract year as the services are performed

D

(1.7) Arpco, Inc, a for-profit provider of healthcare services, recently purchases two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative? A. FASB Accounting Standards Updates B. FASB Statements of Financial Accounting Concepts C. FASB Statements of Financial Accounting Standards D. The Accounting Standards Codification

D

(1.8) Which of the following statements is correct concerning corporations subject to the reporting requirements of the Securities Exchange Act of 1934? A. The annual report (Form 10-K) need not include audited financial statements B. The annual report (Form 10-K) must be filed with the SEC within 20 days of the end of the corporation's fiscal year C. A quarterly report (Form 10-Q) need only be filed with the SEC by those corporations that are also subject to the registration requirements of the Securities Act of 1933 D. A report (Form 8-K) must be filed with the SEC after a materially important event occurs

D