ACCT 3111 Ch 2 WileyPlus

ACCT 3111 Ch 2 WileyPlus

derive their credibility and authority from general recognition and acceptance by the accounting profession.
Generally accepted accounting principles
all of these answers are correct
A soundly developed conceptual framework of concepts and objectives should

A) increase financial statement users’ understanding of and confidence in financial reporting.

B) enhance comparability among companies’ financial statements.

C) allow new and emerging practical problems to be more quickly solved.

D) all of these answer choices are correct.

To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.
What is a purpose of having a conceptual framework?
Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.
Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

A) Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

B) Practical problems should be more quickly solvable by reference to an existing conceptual framework.

C) A coherent set of accounting standards and rules should result.

D)A conceptual framework should increase financial statement users’ understanding of and confidence in financial reporting.

decision usefulness.
The underlying theme of the conceptual framework is
all of these answers are correct.
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 answers are correct.

to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers
The objective of general-purpose financial reporting is?
Predictive value.
Which of the following is a characteristic describing the fundamental quality of relevance?
Faithful representation
Which of the following is a fundamental quality of useful accounting information?
Information is measured and reported in a similar fashion across companies.
What is meant by comparability when discussing financial accounting information?
Information presented by a company applies the same accounting treatment to similar events, from period to period.
What is meant by consistency when discussing financial accounting information?
Materiality
Which of the following is an ingredient of relevance?
Neutrality
Which of the following is an ingredient of faithful representation?
Timeliness
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?
Relevance
What is the quality of information that is capable of making a difference in a decision?
relevance and faithful representation.
The two fundamental qualities that make accounting information useful for decision making are
is capable of making a difference in a decision.
Accounting information is considered to be relevant when it
All of these answer choices relate to relevance
Which of the following does not relate to relevance?

A) Materiality.
B) Predictive value.
C) Confirmatory value.
D) All of these answer choices relate to relevance

cannot be selected to favor one set of interested parties over another.
Neutrality means that information
verifiability
The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is
Relevance: YES
Faithful Representation: NO
According to Statement of Financial Accounting Concepts No. 8, predictive value is an ingredient of the fundamental quality(ies) of:
Faithful Representation: YES
Relevance: NO
Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of
the nature of the activities that gave rise to the transactions involved.
In classifying the elements of financial statements, the primary distinction between revenues and gains is
Distributions to owners
Which of the following elements of financial statements is not a component of comprehensive income?

A) Expenses
B) Losses
C) Revenues
D) Distributions to owners

Expenses
According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time?
Moment in Time: YES
Period of Time: NO
According to the FASB Conceptual Framework, the elements-assets, liabilities, and equity-describe amounts of resources and claims to resources at/during a
Balance sheet
Which of the following is not a basic element of financial statements?

A) Assets
B) Balance sheet
C) Losses
D) Revenue

Equity
Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement?
Historical cost assumption
Which of the following is not a basic assumption underlying the financial accounting structure?

A) Historical cost assumption
B) Economic entity assumption
C) Going concern assumption
D)Periodicity assumption

Periodicity assumption
Which basic assumption is illustrated when a firm reports financial results on an annual basis?
Going concern assumption
Which basic assumption may not be followed when a firm in bankruptcy reports financial results?

A) Monetary unit assumption
B) Economic entity assumption
C) Going concern assumption
D)Periodicity assumption

Monetary unit assumption
Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?
economic entity assumption.
Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the
verifiable
Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more
revenue recognition principle.
Revenue is recognized in the accounting period in which the performance obligation is satisfied. This statement describes the
when the performance obligation is satisfied.
Revenue generally should be recognized
expense recognition principle.
Recognizing expenses not when a company pays wages, but when the work actually contributes to revenue in in accordance with the
Systematic and rational allocation of cost over the periods benefited
Which of the following serves as the justification for the periodic recording of depreciation expense?

A) Systematic and rational allocation of cost over the periods benefited.

B) Minimization of income tax liability.

C) Immediate recognition of an expense.

D) Association of efforts (expense) with accomplishments (revenue).

Application of the full disclosure principle
is demonstrated by the use of supplementary information explaining the effects of financing arrangements.
President’s letter to shareholders.
Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles?

A) Income statement.
B) Notes to financial statements.
C) President’s letter to shareholders.
D) Balance sheet.

Full disclosure.
Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company’s stock price?
where it would not make a difference in the actions of a decision maker.
Materiality is used in all of the following situations of providing financial information, except

A) where it would not make a difference in the actions of a decision maker.

B) where it would impact the judgment of a reasonable person.

C) where an amount is of relative large size and importance.

D) where omission of the information would result in bias.

principles.
The second level of the conceptual framework includes each of the following except:

A) principles.
B) enhancing qualities.
C) elements.
D) fundamental qualities.

Relevance: YES
Faithful Representation: NO
According to the FASB’s conceptual framework, predictive value is an ingredient of

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