Final Exam Study 2

c. Ensure that CPAs act ethically in discharging their stewardship role.

The Conceptual Framework is expected to do all of the following except: a. Increase users' understanding of and confidence in financial reporting. b. Provide a frame of reference for auditors for resolving accounting questions in situations where a standard does not exist. c. Ensure that CPAs act ethically in discharging their stewardship role. d. Enhance financial statement comparability across firms and over time.

Accruing net losses on obsolete inventory is an example of the accounting concept of: a. Conservatism b. Consistency c. Materiality d. Historical cost

a. Conservatism

A company may decide not to disclose certain information because: The user has no need for the information. The amount is too small to make a difference. a. I and II. b. II only. c. I only. d. Neither I nor II.

a. I and II.

Information that would be useful to existing and potential investors to help them assess the amount, timing, and uncertainty of the prospects for future net cash inflows to the company is specifically covered by which of the following? I. Conceptual Framework II. Objective: Useful Information for Expected Returns to Investors, Lenders, and Other Creditors III. Objective: Useful Information about Net Cash Inflows to the Company a. III only. b. II only. c. II and III only. d. I, II, and III.

a. III only.

Which of the following is an incorrect pairing of the term and its definition? a. Liquidity - the ability of a company to produce goods and services for customers. b. Return on investment - a measure of overall company performance. c. Risk - the uncertainty or unpredictability of the future results of a company. d. Financial flexibility - the ability of a company to adapt to change.

a. Liquidity - the ability of a company to produce goods and services for customers.

Under the Statement of Financial Accounting Concepts No. 6, which of the following means the process of formally recording and reporting an item in the financial statements of a company? a. Recognition b. Verification c. Realization d. Allocation

a. Recognition

Conservatism is: a. A principle of accounting. b. A practical approach to avoid misleading investors, lenders and other creditors when valuations are uncertain. c. Desirable. d. All of the choices are correct.

b. A practical approach to avoid misleading investors, lenders and other creditors when valuations are uncertain.

External stakeholders use information about a company's comprehensive income and its components to: a. Show how a company obtains and spends cash for its operating, investing, and financing activities, including cash dividends and other distributions of company resources to owners. b. Assess the return a company has earned on its economic resources and form expectations about its future performance. c. Identify the company's resources, its obligations, its financial strengths and weaknesses and to assess its liquidity and solvency. d. All of the choices are correct.

b. Assess the return a company has earned on its economic resources and form expectations about its future performance.

Which of the following is considered a constraint on useful information by Statement of Financial Accounting Concepts No. 8? a. Timeliness b. Benefits > costs c. Conservatism d. Verifiability

b. Benefits > costs

Which of the following is an incorrect pairing of an enhancing characteristic and its definition? a. Understandability - accounting information should be comprehensible to users who have a reasonable knowledge of business and economic activities and who are willing to study the information carefully. b. Comparability - accounting methods and procedures are applied in the same manner from period to period. c. Verifiability - different knowledgeable and independent observers can reach consensus that a particular representation is faithful. d. Timely - information is available to decision makers when they make their decisions.

b. Comparability - accounting methods and procedures are applied in the same manner from period to period.

Which of the following measurement attributes are used in order to provide financial statement users with the most relevant and faithfully represented measures of companies' resources, obligations, and financial performance? Net realizable value. Fair value. Future value of future cash flows. a. I and III only. b. I and II only. c. I, II, and III. d. II and III only.

b. I and II only.

Under GAAP, the financial statements should include: Notes to explain the methods and estimates the company used. Required supplementary information. a. Neither I nor II. b. I and II. c. I only. d. II only.

b. I and II.

Characteristics of relevant accounting information include: Information helps users form expectations about the future. Information is not biased, slanted, emphasized, or otherwise manipulated to achieve a predetermined result. Information provides feedback to confirm or correct prior predictions and expectations. a. II and III only. b. I and III only. c. I, II, and III. d. I and II only.

b. I and III only.

The FASB's and IASB's joint project to develop a common Conceptual Framework is essential for developing high-quality standards that are I. Internally consistent II. Precise III. Internationally converged a. I, II, and III. b. I and III only. c. II and III only. d. I and II only.

b. I and III only.

A violation of the going concern assumption: May prevent a company from recognizing assets that represent future economic benefits. Would occur if a company is expected to operate for the foreseeable future. a. I and II. b. I only. c. II only. d. Neither I nor II.

b. I only.

Information that would be useful to existing and potential investors in making decisions about buying, selling, or holding equity instruments is specifically covered by which of the following? I. Conceptual Framework II. Objective: Useful Information for Expected Returns to Investors, Lenders, and Other Creditors III. Accounting Standards Codification a. I only. b. II only. c. III only. d. I, II, and III.

b. II only.

An accrued expense is an expense: a. Incurred and paid b. Incurred but not paid c. Paid but not incurred d. Not reasonably estimable

b. Incurred but not paid

The FASB and IASB project to develop a joint Conceptual Framework a. Is complete. b. Is on hold. c. Has been abandoned due to inability to make progress. d. Is ongoing with major progress expected this year.

b. Is on hold.

What is the most general objective of financial reporting? a. To provide information for managers to make decisions about how to use and acquire the entity's resources. b. To provide information that is useful in making decisions about providing resources to the entity. c. To provide customized financial information for creditors and investors. d. All of the choices are correct.

b. To provide information that is useful in making decisions about providing resources to the entity.

A patent purchased in 2016 and being amortized over a 10-year life was determined to be worthless in 2019. The write-off of the asset in 2019 is an example of which of the following expense recognition principles? a. Associating cause and effect b. Objectivity c. Immediate consumption d. Systematic and rational allocation

c. Immediate consumption

The characteristics of faithful representation of accounting information include all of the following except: a. Free from error. b. Neutral. c. Material. d. Complete.

c. Material.

Under the Statement of Financial Accounting Concepts No. 8, which of the following enhances decision-useful information? a. Neutrality b. Materiality c. Timeliness d. Confirmatory value

c. Timeliness

Which characteristic states that accounting information should be supported by sufficient evidence to allow two or more qualified individuals to arrive at similar measures and conclusions? a. Periodicity b. Monetary unit c. Verifiability d. Matching

c. Verifiability

The period-of-time assumption: a. Uses an annual reporting period that is called the accounting period or fiscal year. b. Requires the accountant to measure the assets, liabilities and owners' equity on the balance sheet as of the last day of each period. c. Requires the accountant to measure the financial performance of the corporation during each period. d. All of the choices are correct.

d. All of the choices are correct.

Which of the following principles may a company use to determine which expenses to recognize in a particular period? a. Cause and effect. b. Immediate consumption. c. Systematic and rational allocation. d. All of the choices are correct.

d. All of the choices are correct.

The valuation of a promise to receive cash in the future at present value on the financial statements of a company is valid because of the accounting concept of: a. Entity b. Neutrality c. Materiality d. Going concern

d. Going concern

The information provided by financial reporting pertains to: a. Individual companies and industries, rather than to the economy as a whole or to members of society as consumers. b. Individual companies, industries, and the economy as a whole, rather than to members of society as consumers. c. Individual companies and the economy as a whole, rather than to industries or to members of society as consumers. d. Individual companies, rather than to industries or the economy as a whole or to members of society as consumers.

d. Individual companies, rather than to industries or the economy as a whole or to members of society as consumers.

The cost constraint: a. Means that the company should not incur costs in generating the information. b. Means that users should pay for financial information in order to offset the costs incurred by the company to generate the information. c. Means that the company must incur all the costs of generating the information and enjoys all the benefits of providing the information. d. Means the FASB must have reasonable assurance that the costs of implementing a standard will not exceed the benefits.

d. Means the FASB must have reasonable assurance that the costs of implementing a standard will not exceed the benefits.

What are the two primary qualities of the overall qualitative characteristic of useful accounting information? a. Confirmatory value and faithful representation. b. Predictive value and relevance. c. Free from error and confirmatory value. d. Relevance and faithful representation.

d. Relevance and faithful representation.