Question 1

The conceptual framework ensures that there is a consistent and coherent set of accounting standards

Accepted Answer

The conceptual framework provides the underlying principles and guidelines that help in the development of consistent and coherent accounting standards.

Question 2

If an item is immaterial in amount generally accepted accounting principles need not be followed.

Accepted Answer

If an item is immaterial, it does not significantly impact financial statements, so strict adherence to GAAP is not necessary.

Question 3

The formula for recognizing gross profit under the percentage-of-completion method is: total revenue on the job less actual costs incurred in the period.

Accepted Answer

The gross profit under the percentage-of-completion method is recognized based on the percentage of the project completed, which involves calculating the total estimated revenue and costs, and then recognizing revenue and gross profit proportionally as the project progresses.

Question 4

Full disclosure dictates that circumstances and events that make a difference to financial statement users be disclosed.

Accepted Answer

Full disclosure principle requires that all relevant information that could impact users' understanding of financial statements be included.

Question 5

Assets are reported on the Balance Sheet at their replacement cost.

Accepted Answer

Assets are typically reported on the Balance Sheet at their historical cost, not their replacement cost.

Question 6

The cost constraint requires that information needs to be disclosed even when the cost of preparing it exceeds the benefit to the users of the financial statements.

Accepted Answer

The cost constraint in financial reporting suggests that information should only be disclosed if the benefits of providing that information outweigh the costs of doing so.

Question 7

The average user of financial information is assumed to have a reasonable understanding of accounting concepts and procedures, as well as of general business and economic conditions.

Accepted Answer

The assumption is based on the concept of "reasonable assurance" in financial reporting, which presumes that users have a basic understanding of accounting and business to interpret financial information effectively.

Question 8

It is an underlying assumption that financial statements are prepared as if the company is a going concern and it will continue to operate for the foreseeable future.

Accepted Answer

The going concern assumption is a fundamental principle in accounting, implying that a company will continue its operations and not liquidate in the near future, affecting how financial statements are prepared.

Question 9

Under ASPE conservatism is recognized as a qualitative characteristic of financial information while conservatism has been eliminated under IFRS.

Accepted Answer

Under ASPE (Accounting Standards for Private Enterprises), conservatism is considered a qualitative characteristic, whereas IFRS (International Financial Reporting Standards) has moved away from conservatism, focusing instead on neutrality and faithful representation.

Question 10

The conceptual framework does not include:&#10;A) qualitative characteristics of accounting information.&#10;B) operating guidelines.&#10;C) elements of financial statements.&#10;D) recognition and measurement criteria.

Accepted Answer

The conceptual framework does not include operating guidelines; it focuses on the qualitative characteristics, elements of financial statements, and recognition and measurement criteria.

Question 11

Faithful representation is one of the necessary characteristics of accounting information. The following terms are related to faithful representation except for:&#10;A) Accounting information is complete.&#10;B) Accounting information provides a basis for forecasts.&#10;C) Accounting information is neutral.&#10;D) Accounting information is free from material error.

Accepted Answer

The answer of Faithful representation is one of the necessary...

Question 12

Revenue from the sale of goods should be recognized when certain criteria have been satisfied. The criteria include all of the following except:&#10;A) risks and rewards of ownership have been transferred to the buyer.&#10;B) the cash has been received.&#10;C) the amount of the revenue can be reliably measured.&#10;D) costs relating to the sale of goods can be reliably measured.

Accepted Answer

The answer of Revenue from the sale of goods should...

Question 13

The assumption that a company will continue to operate long enough to carry out its existing objectives and commitments is known as:&#10;A) going concern.&#10;B) economic entity.&#10;C) accrual accounting.&#10;D) full disclosure.

Accepted Answer

The answer of The assumption that a company will continue...

Question 14

For each of the following independent situations, identify the assumption or concept or constraint that has been violated, if any. State what the company should have done.
-ABC Company bought equipment from a company that was bankrupt. ABC paid $50,000 for the equipment, even though it had a market value of $65,000. ABC recorded the purchase with a debit of $65,000 to Equipment, a credit of $50,000 to Cash, and a credit of $15,000 to the owner's capital account.

Accepted Answer