Deck 2: Conceptual Framework for Financial Reporting

Question 1

Verifiability and predictive value are two ingredients of faithful representation.

Answer 1

False

Question 2

Users of financial statements are assumed to need no knowledge of business and financial accounting matters to understand information contained in financial statements.

Answer 2

False

Question 3

The objective of financial reporting is the foundation of the conceptual framework.

Answer 3

True

Question 4

Timeliness and neutrality are two ingredients of relevance.

Question 5

In order to justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal the costs associated with it.

Question 6

The IASB has issued a conceptual framework and has agreed to develop a common conceptual framework with the FASB.

Question 7

The expense recognition principle states that debits must equal credits in each transaction.

Question 8

The historical cost principle would be of limited usefulness if not for the going concern assumption.

Question 9

The economic entity assumption means that economic activity can be identified with a particular legal entity.

Question 10

A conceptual framework is a coherent system of concepts that flow from an objective.

Question 11

Revenues are recognized in the accounting period in which the performance obligation is satisfied.

Question 12

Revenues, gains, and distributions to owners all increase equity.

Question 13

The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards.

Question 14

Although the FASB has developed a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.

Question 15

Relevance and faithful representation are the two primary qualities that make accounting information useful for decision making.

Question 16

Prudence or conservatism means when in doubt, choose the solution that will be least likely to overstate liabilities or expenses.

Question 17

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Question 18

The idea of consistency does not mean that companies cannot switch from one accounting method to another.

Question 19

A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time.

Question 20

Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements.

Question 21

What is the quality of information that is capable of making a difference in a decision?

A) Faithful representation.
B) Materiality.
C) Timeliness.
D) Relevance.

Question 22

Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?

A) Comparability.
B) Timeliness.
C) Understandability.
D) Verifiability.

Question 23

Which of the following is a primary quality of useful accounting information?

A) Conservatism.
B) Comparability.
C) Faithful representation.
D) Consistency.

Question 24

The underlying theme of the conceptual framework is

A) decision usefulness.
B) understandability.
C) faithful representation.
D) comparability.

Question 25

Which of the following is an ingredient of relevance?

A) Verifiability.
B) Neutrality.
C) Timeliness.
D) Materiality.

Question 26

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.

Question 27

What is a purpose of having a conceptual framework?

A) To enable the profession to more quickly solve emerging practical .
B)
B) To provide a foundation from which to build more useful standards.
C) Neither a nor
D) To enable the profession to more quickly solve emerging practical and to provide a foundation from which to build more useful standards.

Question 28

What is meant by comparability when discussing financial accounting information?

A) Information has predictive or confirmatory value.
B) Information is reasonably free from error.
C) Information that is measured and reported in a similar fashion across companies.
D) Information is timely.

Question 29

Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

A) A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting.
B) Practical should be more quickly solvable by reference to an existing conceptual framework.
C) A coherent set of accounting standards and rules should result.
D) Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

Question 30

Which of the following is a fundamental quality of useful accounting information?

A) Comparability.
B) Relevance.
C) Neutrality.
D) Materiality.

Question 31

Which of the following is not true concerning a conceptual framework in accounting?

A) It should be a basis for standard-setting.
B) It should allow practical to be solved more quickly by reference to it.
C) It should be based on fundamental truths that are derived from the laws of nature.
D) All of these answer choices are true.

Question 32

If the LIFO inventory method was used last period, it should be used for the current and following periods because of

A) comparability.
B) materiality.
C) timeliness.
D) verifiability.

Question 33

What is meant by consistency when discussing financial accounting information?

A) Information that is measured and reported in a similar fashion across points in time.
B) Information is timely.
C) Information is measured similarly across the industry.
D) Information is verifiable.

Question 34

What is the following is a characteristic describing the primary quality of relevance?

A) Predictive value.
B) Materiality.
C) Verifiability.
D) Understandability.

Question 35

What is the primary objective of financial reporting as indicated in the conceptual framework?

A) Provide information that is useful to those making investing and credit decisions.
B) Provide information that is useful to management.
C) Provide information about those investing in the entity.
D) All of these answer choices are correct.

Question 36

Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information?

A) Consistency.
B) Verifiability.
C) Timeliness.
D) Comparability.

Question 37

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 to be more quickly solved.
D) All of these answer choices are correct.

Question 38

Which of the following is an ingredient of faithful representation?

A) Predictive value.
B) Materiality.
C) Neutrality.
D) Confirmatory value.

Question 39

In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting?

A) Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
B) Qualitative characteristics of accounting information
C) Elements of financial statements
D) Objective of financial reporting

Question 40

Generally accepted accounting principles

A) are fundamental truths or axioms that can be derived from laws of nature.
B) derive their authority from legal court proceedings.
C) derive their credibility and authority from general recognition and acceptance by the accounting profession.
D) have been specified in detail in the FASB conceptual framework.

Question 41

Accounting information is considered to be relevant when it

A) can be depended on to represent the economic conditions and events that it is intended to represent.
B) is capable of making a difference in a decision.
C) is understandable by reasonably informed users of accounting information.
D) is verifiable and neutral.

Question 42

The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is

A) relevance.
B) faithful representation.
C) verifiability.
D) neutrality.

Question 43

According to Statement of Financial Accounting Concepts No. 2, completeness is an ingredient of the fundamental quality of

Question 44

According to Statement of Financial Accounting Concepts No. 2, materiality is an ingredient of the fundamental quality of

Question 45

If the FIFO inventory method was used last period, it should be used for the current and following periods because of

A) relevance.
B) neutrality.
C) understandability.
D) consistency.

Question 46

In classifying the elements of financial statements, the primary distinction between revenues and gains is

A) the materiality of the amounts involved.
B) the likelihood that the transactions involved will recur in the future.
C) the nature of the activities that gave rise to the transactions involved.
D) the costs versus the benefits of the alternative methods of disclosing the transactions involved.

Question 47

The two fundamental qualities that make accounting information useful for decision making are

A) comparability and timeliness.
B) materiality and neutrality.
C) relevance and faithful representation.
D) faithful representation and comparability.

Question 48

Information about different companies and about different periods of the same company can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?

Question 49

The quality of information that means the numbers and descriptions match what really existed or happened is

A) relevance.
B) faithful representation.
C) completeness.
D) neutrality.

Question 50

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of

Question 51

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.

Question 52

The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners'

A) transfers of assets to the entity.
B) rendering services to the entity.
C) satisfaction of liabilities of the entity.
D) All of these answer choices are correct.

Question 53

Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of

Question 54

According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the fundamental quality of

Question 55

When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of

A) relevance.
B) faithful representation.
C) consistency.
D) None of these answer choices are correct.

Question 56

Financial information exhibits the characteristic of consistency when

A) expenses are reported as charges against revenue in the period in which they are paid.
B) a company applies the same accounting treatment to similar events, from period to period.
C) extraordinary gains and losses are not included on the income statement.
D) accounting procedures are adopted which give a consistent rate of net income.

Question 57

Neutrality means that information

A) provides benefits which are at least equal to the costs of its preparation.
B) can be compared with similar information about an enterprise at other points in time.
C) would have no impact on a decision maker.
D) cannot favor one set of interested parties over another.

Question 58

Financial information demonstrates consistency when

A) firms in the same industry use different accounting methods to account for the same type of transaction.
B) a company changes its estimate of the salvage value of a fixed asset.
C) a company fails to adjust its financial statements for changes in the value of the measuring unit.
D) None of these answer choices are correct.

Question 59

The pervasive criterion by which accounting information can be judged is that of

A) decision usefulness.
B) freedom from bias.
C) timeliness.
D) comparability.

Question 60

Neutrality is an ingredient of which fundamental quality of information?

A) Faithful representation.
B) Comparability.
C) Relevance.
D) Understandability.

Question 61

Which basic assumption may not be followed when a firm in bankruptcy reports financial results?

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

Question 62

During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of

Question 63

Which of the following is not a basic element of financial statements?

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

Question 64

Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement?

A) Equity.
B) Revenue.
C) Gains.
D) Expenses.

Question 65

A decrease in net assets arising from peripheral or incidental transactions is called a(n)

A) capital expenditure.
B) cost.
C) loss.
D) expense.

Question 66

Which of the following elements of financial statements is not a component of comprehensive income?

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

Question 67

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the

A) economic entity assumption.
B) relevance characteristic.
C) comparability characteristic.
D) neutrality characteristic.

Question 68

During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?

A) Cost constraint
B) Periodicity assumption
C) Conservatism constraint
D) Expense recognition principle

Question 69

Which basic element of financial statements arises from peripheral or incidental transactions?

A) Assets.
B) Liabilities.
C) Gains.
D) Expenses.

Question 70

Issuance of common stock for cash affects which basic element of financial statements?

A) Revenues.
B) Losses.
C) Liabilities.
D) Equity.

Question 71

Under current GAAP, inflation is ignored in accounting due to the

A) economic entity assumption.
B) going concern assumption.
C) monetary unit assumption.
D) periodicity assumption.

Question 72

Which accounting assumption or principle is being violated if a company provides financial reports only when it introduces a new product?

A) Economic entity.
B) Periodicity.
C) Revenue recognition.
D) Full disclosure.

Question 73

One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to

A) revenues minus expenses plus gains minus losses.
B) revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners.
C) revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities.
D) None of these answer choices are correct.

Question 74

The calculation of comprehensive income includes which of the following?

Question 75

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?

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

Question 76

Which of the following is not a basic assumption underlying the financial accounting structure?

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

Question 77

According to the FASB Conceptual Framework, the elements-assets, liabilities, and equity-describe amounts of resources and claims to resources at/during a

Question 78

Which basic assumption is illustrated when a firm reports financial results on an annual basis?

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

Question 79

According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time?

A) Assets.
B) Expenses.
C) Equity.
D) Liabilities.

Question 80

The economic entity assumption

A) is inapplicable to unincorporated businesses.
B) recognizes the legal aspects of business organizations.
C) requires periodic income measurement.
D) is applicable to all forms of business organizations.