Deck 17: Synthesis and Extensions

Question 1

If firms expect to receive cash more than one year after the time of recognizing revenue, they measure revenues at the present value of the amount of cash they expect to receive.

Answer 1

True

Question 2

Shareholders' equity reflects changes in the residual interest of owners from transactions involving capital stock and from earnings activities independent of when cash flows in or out of a firm.

Answer 2

True

Question 3

An employer must recognize changes in the funded status of a defined benefit retirement plan on its balance sheet each period and recognize these changes immediately in net income.

Answer 3

False

Question 4

The current FASB's financial reporting objectives identify current and potential investors and creditors as the principal users of financial reports.

Question 5

Firms account for changes in accounting principles required by a new reporting standard in accordance with the guidance specified in the standard.

Question 6

The capital, or finance, lease method treats leases equivalent to installment purchases or sales, where the lessee borrows funds from the lessor to purchase the asset and the lessor recognizes profit at the time of sale.

Question 7

Firms may use the allowance method to account for estimated sales discounts, returns, and allowances, as well as for warranties.

Question 8

Firms must amortize the difference between the issue price and the face value as an adjustment to interest expense over the life of the bonds.

Question 9

Firms often acquire derivative instruments to hedge interest rate, exchange rate, commodity price, and other risks.

Question 10

An entity should derecognize (remove from the balance sheet) an asset that it no longer controls.

Question 11

Firms report many financial liabilities as the present value of the amount payable, except
that firms can ignore discounting for liabilities due within one year.

Question 12

Authoritative guidance classifies gains and losses from the remeasurement of certain assets and liabilities as either net income or other comprehensive income.

Question 13

Firms cannot apply the fair value option to derivatives.

Question 14

Firms can currently apply the fair value option to capital leases.

Question 15

Both U.S.GAAP and IFRS often refer to ownership of a majority of the voting stock of another entity as indicating control, unless evidence indicates that the majority owner cannot exercise control.

Question 16

Firms may not issue equity interests with different rights, such as one class of common stock with 10 votes per share and another class of common stock with one vote per share.

Question 17

The current FASB's financial reporting objectives states that the principal purpose of financial reports is to provide information to make investment and credit decisions.

Question 18

The concept of a reporting entity pertains to a group of entities pursuing a common business purpose under the control of one of the entities in the group.

Question 19

The write-off of a particular customer's account that becomes uncollectible involves a debit to Allowance for Uncollectibles and a credit to Accounts Receivable.

Question 20

One of the characteristics of a fair value measurement is that the measurement does embody a minimum probability for recognition.

Question 21

Publicly held firms that apply U.S.GAAP or IFRS must show earnings per common share data in the body of the income statement.

Question 22

The FASB and IASB are working jointly to develop a revised, coordinated set of financial
reporting objectives.They envision that the proposed reporting objectives would also specify that firms should prepare financial reports from the perspective of its owners or a particular class of owners (proprietary perspective).

Question 23

U.S.GAAP permits firms to remeasure property, plant, and equipment upward for increases in fair value under certain conditions.

Question 24

IFRS permits firms to remeasure property, plant, and equipment upward for increases in fair value under certain conditions.

Question 25

U.S.GAAP and IFRS require firms to account for correction of errors, regardless of whether they are material or not, by retrospectively restating net income of prior periods and adjusting the beginning balance in Retained Earnings for the current period.

Question 26

Accrual accounting requires frequent, ongoing changes in estimates.

Question 27

If practical, firms account for voluntary changes in accounting principles, such as from a LIFO to a FIFO cost-flow assumption for inventories, by retrospectively restating net income of prior periods and adjusting the beginning balance in Retained Earnings of the current period.

Question 28

The FASB and the IASB are reconsidering the definition of an asset and the criteria for
asset recognition.

Question 29

Firms account for changes in estimates, such as for depreciable lives, uncollectible accounts, or warranty cost, prospectively, in current and future periods' earnings.

Question 30

Ideally, financial reporting standards should flow from and be consistent with the financial reporting objectives, qualitative characteristics of accounting information, and elements of financial statements that comprise the FASB's and the IASB's conceptual frameworks.

Question 31

Recent changes in the financial reporting environment include which of the following?

A)The adoption or planned adoption of IFRS, or standards based on IFRS, for financial reporting in over 100 countries.
B)The willingness of the Securities and Exchange Commission in the United States to permit non-U.S.firms that list and trade their securities in the United States to report using IFRS without a reconciliation to U.S.GAAP.
C)The requirement to measure certain assets and liabilities at fair value instead of acquisition cost, and in some cases, to include the changes in fair value in net income instead of other comprehensive income.
D)The codification of U.S.GAAP into a single body of literature.
E)all of the above

Question 32

U.S.GAAP and IFRS do not require firms to disclose the fair value of long-term notes and bonds in notes to the financial statements.

Question 33

IFRS defines market as net realizable value, the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs to make the sale.

Question 34

Firms account for material errors in previously issued financial statements by retrospectively restating net income of prior periods and adjusting the beginning balance in Retained Earnings of the current period.

Question 35

Under U.S.GAAP, a discontinued operation is a component of an entity, comprising operations and cash flows that clearly differ from the rest of the entity, both operationally and for financial reporting. Segments, divisions, subsidiaries, and groups of assets can qualify as a component of an entity.

Question 36

U.S.GAAP and IFRS require firms to recognize as an expense the cost of retirement benefits when the employees receive payments or other benefits during retirement not while employees work.

Question 37

U.S.GAAP and IFRS require firms to treat some or all expenditures made to internally develop brand names, customer lists, new technologies, and other intangibles as expenses in the period of the expenditure.

Question 38

U.S.GAAP and IFRS require firms to retrospectively apply any changes in accounting principle by recalculating the income for prior periods under the new accounting principle, if it at all feasible.

Question 39

The FASB and IASB are working jointly to develop a revised, coordinated set of financial
reporting objectives.

Question 40

Investors often apply multiples to earnings per common share and book value per common share in deciding on a reasonable market price for a firm's shares.

Question 41

The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting information.The FASB's conceptual framework sets forth the qualitative characteristic of _____ that refers to information that can make a difference in a resource allocation decision by helping users to form predictions about the outcomes of future events and to confirm or correct prior information or expectations.Receiving information in a timely manner (referred to as timeliness) so that it can influence decisions is an aspect of this qualitative characteristic

A)relevance
B)reliability
C)comparability
D)materiality
E)understandability

Question 42

The FASB's conceptual framework defines a(n) _____ as inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

A)assets
B)liabilities
C)equities
D)revenues
E)expenses

Question 43

The FASB's conceptual framework includes which of the following as financial reporting objectives?

A)Provide information useful for making rational investment and credit decisions.
B)Provide information to help current and potential investors and creditors assess the amount, timing, and uncertainty of future cash flows.
C)Provide information about the economic resources of a firm and the claims on those resources.
D)Provide information about a firm's operating performance during a period.
E)all of the above

Question 44

The FASB's conceptual framework includes which of the following as financial reporting objectives?

A)Provide information about how an enterprise obtains and uses cash.
B)Provide information about how management has discharged its stewardship responsibility to owners.
C)Provide information about the economic resources of a firm and the claims on those resources.
D)Provide information that includes explanations and interpretations to help users understand the financial information provided.
E)all of the above

Question 45

The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting information.The FASB's conceptual framework sets forth the qualitative characteristic of _____ that refers to the faithfulness with which accounting information represents what it purports to represent and the extent to which the information is both verifiable by independent measurers and neutral with respect to the interest of a particular user group.

A)relevance
B)reliability
C)comparability
D)materiality
E)understandability

Question 46

The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting information.The FASB's conceptual framework sets forth the qualitative characteristic of _____ that refers to financial reporting that treats similar items the same way and different items differently.Consistency refers to financial reporting that treats an item the same way over time.

A)relevance
B)reliability
C)comparability
D)materiality
E)understandability

Question 47

The FASB's conceptual framework for financial reporting objectives identify _____as the principal users of financial reports.

A)current and potential investors, only
B)management, only
C)current and potential employees, only
D)the Federal, State, and Local governments, only
E)current and potential investors and creditors

Question 48

The FASB's conceptual framework does not include which of the following as financial reporting objectives?

A)Provide information useful for making rational investment and credit decisions.
B)Provide information to help current and potential investors and creditors assess the amount, timing, and uncertainty of past cash flows.
C)Provide information about the economic resources of a firm and the claims on those resources.
D)Provide information about a firm's operating performance during a period.
E)Provide information about how an enterprise obtains and uses cash.

Question 49

Which of the following is not true concerning conceptual frameworks?

A)The FASB, but not the IASB, relies on a conceptual framework to guide their standard-setting decisions.
B)The conceptual framework is not a rigorous set of principles from which standard setters can logically deduce appropriate financial reporting standards.
C)The purpose of a conceptual framework is to guide standard-setting decisions in order to enhance the quality and consistency of those decisions.
D)The FASB and the IASB have separately developed their conceptual frameworks, and those frameworks are similar.
E)The FASB and the IASB are currently working to develop a common conceptual framework for financial reporting.

Question 50

The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting information.The FASB's conceptual framework sets forth the qualitative characteristic of _____ envisions that the nature of the information is relevant and that its effect is large enough to influence a decision. As standard setters make decisions about financial reporting standards, they consider the costs and benefits of those standards.They assess whether the benefits to users of financial reports from a particular financial reporting requirement exceed the costs of providing the information.

A)relevance
B)reliability
C)comparability
D)materiality
E)understandability

Question 51

The FASB's conceptual framework defines a(n) _____ as a probable future sacrifice of economic resources arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

A)asset
B)liability
C)equity
D)revenue
E)expense

Question 52

The definition of an asset excludes

A)expected benefits related to rights under executory contracts.
B)mere exchanges of promises.
C)contingent assets.
D)all of the above.
E)none of the above.

Question 53

The FASB's conceptual framework does not include which of the following as financial reporting objectives?

A)Provide information useful for making suboptimal investment and credit decisions.
B)Provide information to help current and potential investors and creditors assess the amount, timing, and uncertainty of future cash flows.
C)Provide information about the economic resources of a firm's customers and the claims on those resources.
D)Provide information about a firm's operating performance during a period.
E)Provide information about how an enterprise obtains and uses cash.

Question 54

The FASB's conceptual framework for financial reporting objectives identify _____as the principal users of financial reports.

A)current investors, only
B)potential investors, only
C)current creditors, only
D)potential creditors, only
E)current and potential investors and creditors

Question 55

The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting information.The IASB's conceptual framework sets forth the qualitative characteristic of _____ which refers to the attribute that users of financial reports will perceive the significance of a reported item to their decisions.Such perception involves comprehending the economic effects of a firm's actions and the measurement and reporting of those economic effects in the financial reports.

A)relevance
B)reliability
C)comparability
D)materiality
E)understandability

Question 56

The FASB's conceptual framework defines a(n) _____ as a probable future economic benefit obtained or controlled by a particular entity as a result of a past transaction or event.

A)asset
B)liability
C)equity
D)revenue
E)expense

Question 57

The FASB's conceptual framework does not include which of the following as financial reporting objectives?

A)Provide information useful for making suboptimal investment and credit decisions.
B)Provide information to help current and potential investors and creditors assess the amount, timing, and uncertainty of future cash flows.
C)Provide information about the economic resources of a firm and the claims on those resources.
D)Provide information about a firm's operating performance during a period.
E)Provide information about how an enterprise's lenders obtains and use cash.

Question 58

The FASB's conceptual framework for financial reporting objectives identify the provision of information to make _____ as the principal purpose of financial reports.

A)investment decisions, only
B)credit decisions, only
C)employment decisions
D)management decisions
E)investment and credit decisions

Question 59

The FASB's conceptual framework does not include which of the following as financial reporting objectives?

A)Provide information useful for making irrational investment and credit decisions.
B)Provide information to help current and potential investors and creditors assess the amount, timing, and uncertainty of past cash flows.
C)Provide information about the economic resources of a firm's customers and the claims on those resources.
D)Provide information about a firm's expected operating performance during the next period.
E)all of the above

Question 60

The FASB's conceptual framework does not include which of the following as financial reporting objectives?

A)Provide information useful for making rational investment and credit decisions.
B)Provide information to help current and potential investors and creditors assess the amount, timing, and uncertainty of future cash flows.
C)Provide information about the economic resources of a firm and the claims on those resources.
D)Provide information about a firm's expected operating performance during the next period.
E)Provide information about how an enterprise obtains and uses cash.

Question 61

If firms expect to receive cash more than one year after the time of recognizing revenue, they measure revenues at the

A)future value of the amount of cash they expect to receive.
B)present value of the amount of cash they expect to receive.
C)fair value.
D)aggregate total of the amount of cash they expect to receive.
E)net realizable value.

Question 62

Equity, or shareholders' equity for a corporation,

A)is the residual interest of owners in the assets of an entity, after subtracting liabilities.
B)includes assets exchanged by owners in return for an ownership interest.
C)includes net assets generated by earnings activities in excess of net assets distributed to owners as dividends.
D)is reduced by repurchases by the firm of its ownership interests.
E)all of the above.

Question 63

Which of the following is/are true?

A)Firms report accounts receivable they expect to collect within one year at the amount of cash the firms expect to receive.
B)Both U.S.GAAP and IFRS require firms with significant uncollectible accounts receivable to estimate the amount of uncollectible accounts related to a particular period's sales and recognize that amount as bad debt expense in the same period as the related revenues.
C)Firms typically use a contra account to accounts receivable, such as Allowance for Uncollectibles, to reflect the amount of accounts receivable they do not expect to collect.
D)The entry to recognize estimated uncollectible amounts involves a debit to Bad Debt Expense and a credit to Allowance for Uncollectibles.
E)all of the above

Question 64

Which of the following is not true?

A)Gains (losses) are increases (decreases) in net assets from peripheral or incidental transactions of an entity and from other transactions and events affecting the entity except those that result from revenues (expenses) or investments by (distributions to) owners.
B)Firms usually report gains and losses from sales of assets or settlements of liabilities at the present value of future cash flows; that is, equal to the difference between the net asset received and the carrying value of the asset sold or between the net asset given and the carrying value of the liability settled.
C)Gains and losses may arise from the remeasurement of assets and liabilities.
D)Firms realize gains and losses when they sell or exchange assets or settle liabilities in market transactions.
E)Firms recognize gains and losses when those items enter the measurement of net income or other comprehensive income.

Question 65

Which of the following is/are true?

A)Comprehensive income equals the net amount of revenues, expenses, gains, and losses during an accounting period.
B)Authoritative guidance classifies revenues and expenses arising from a firm's core business as components of net income.
C)Net income includes gains and losses from sales or exchanges of assets or settlements of liabilities related incidentally or peripherally to the firm's core business.
D)Authoritative guidance classifies gains and losses from the remeasurement of certain assets and liabilities as either net income or other comprehensive income.
E)all of the above

Question 66

Which of the following is not true regarding shareholders' equity for a corporation?

A)Shareholders' equity is the residual interest of owners in the assets of an entity, after subtracting liabilities.
B)Shareholders' equity includes assets exchanged by owners in return for an ownership interest.
C)Shareholders' equity includes net assets generated by earnings activities in excess of net assets distributed to owners as dividends.
D)Shareholders' equity is increased by repurchases by the firm of its ownership interests.
E)all of the above.

Question 67

The criteria for recognition of a liability include which of the following?

A)The obligation represents a present obligation, not a potential future commitment or intent.
B)The obligation exists as a result of a past transaction or exchange, called the obligating event.
C)The obligation requires the probable future sacrifice of an economic resource that the firm has little or no discretion to avoid.
D)The obligation has a relevant measurement attribute that the firm can quantify with sufficient reliability.
E)all of the above

Question 68

Firms do not recognize certain obligations that are uncertain as to amount or timing or both as liabilities, unless those items meet a probability threshold and have a reliable measurement attribute.U.S.GAAP refers to these as _____, such as the possible obligation under an unsettled lawsuit.

A)contingent liabilities
B)unrealized contingencies
C)realized contingencies
D)unrecognized contingencies
E)recognized contingencies

Question 69

Which of the following is not true?

A)Gains (losses) are increases (decreases) in net assets from peripheral or incidental transactions of an entity and from other transactions and events affecting the entity except those that result from revenues (expenses) or investments by (distributions to) owners.
B)Firms usually report gains and losses from sales of assets or settlements of liabilities at a net amount; that is, equal to the difference between the net asset received and the carrying value of the asset sold or between the net asset given and the carrying value of the liability settled.
C)Gains and losses may arise from the remeasurement of assets and liabilities.
D)Firms realize gains and losses when they sell or exchange assets or settle liabilities in market transactions.
E)Firms realize gains and losses when those items enter the measurement of net income or other comprehensive income.

Question 70

Which of the following is not true?

A)Gains (losses) are increases (decreases) in assets from peripheral or incidental transactions of an entity and from other transactions and events affecting the entity except those that result from revenues (expenses) or investments by (distributions to) owners.
B) Firms usually report gains and losses from sales of assets or settlements of liabilities at a net amount; that is, equal to the difference between the net asset received and the carrying value of the asset sold or between the net asset given and the carrying value of the liability settled.
C)Gains and losses may arise from the remeasurement of assets and liabilities.
D)Firms realize gains and losses when they sell or exchange assets or settle liabilities in market transactions.
E)Firms recognize gains and losses when those items enter the measurement of net income or other comprehensive income.

Question 71

Which of the following is not true?

A)Gains (losses) are increases (decreases) in net assets from peripheral or incidental transactions of an entity and from other transactions and events affecting the entity except those that result from revenues (expenses) or investments by (distributions to) owners.
B)Firms usually report gains and losses from sales of assets or settlements of liabilities at a net amount; that is, equal to the difference between the net asset received and the carrying value of the asset sold or between the net asset given and the carrying value of the liability settled.
C)Gains and losses never arise from the remeasurement of assets and liabilities.
D)Firms realize gains and losses when they sell or exchange assets or settle liabilities in market transactions.
E)Firms recognize gains and losses when those items enter the measurement of net income or other comprehensive income.

Question 72

The concept of _____ includes both the power, or capacity, to direct the strategic, operating, investing, and financing activities of another entity, and the ability to benefit from increases in the value of the other entity and to incur losses from decreases in value.

A)ownership
B)management
C)significant influence
D)control
E)state governance

Question 73

The criteria for recognition of a liability does not include which of the following?

A)The obligation represents a present obligation.
B)The obligation exists as a result of a past transaction or exchange, called the obligating event.
C)The obligation requires the probable future sacrifice of an economic resource that the firm has little or no discretion to avoid.
D)The obligation has a relevant measurement attribute that the firm can quantify with sufficient reliability.
E)The obligation represents a potential future commitment or intent.

Question 74

Which of the following is not true?

A)Gains (losses) are increases (decreases) in net assets from peripheral or incidental transactions of an entity and from other transactions and events affecting the entity except those that result from revenues (expenses) or investments by (distributions to) owners.
B)Firms usually report gains and losses from sales of assets or settlements of liabilities at a net amount; that is, equal to the difference between the net asset received and the carrying value of the asset sold or between the net asset given and the carrying value of the liability settled.
C)Gains and losses may arise from the remeasurement of assets and liabilities.
D)Firms recognize gains and losses when they sell or exchange assets or settle liabilities in market transactions.
E)Firms recognize gains and losses when those items enter the measurement of net income or other comprehensive income.

Question 75

Which of the following is not true?

A)Accrual accounting measures the effects of transactions and events in the periods when they occur.
B)Cash-basis accounting recognizes only cash receipts and disbursements.
C)Under accrual accounting, firms recognize revenues when an arrangement satisfies the revenue recognition criteria, increasing net assets but not necessarily cash at the time of revenue recognition.
D)Under accrual accounting, firms recognize expenses when an arrangement satisfies the expense recognition criteria, decreasing net assets but not necessarily cash at the time of expense recognition.
E)Accrual accounting often uses the amount of cash received or paid in some period to measure the amount of revenues and expenses recognized during the current period, and the timing of revenue and expense recognition coincides with the timing of cash receipts and disbursements.

Question 76

Firms recognize revenue

A)when they have completed an earnings process or performed most or all of their obligations to customers, usually the delivery of a product or service.
B)when they have received cash or a receivable capable of sufficiently reliable measurement.
C)using the percentage-of-completion method when the firms sell products under long-term contracts, such as construction companies.
D)using the completed contract method [U.S.GAAP, only] when firms cannot reasonably estimate revenues and costs.
E)all of the above

Question 77

Which of the following is not true? Firms recognize revenue

A)when they have completed an earnings process or performed most or all of their obligations to customers, usually the delivery of a product or service.
B)when they have received cash.
C)using the percentage-of-completion method when the firms sell products under long-term contracts, such as construction companies.
D)using the completed contract method [U.S.GAAP, only] when firms cannot reasonably estimate revenues and costs.
E)using a variant of the cost-recovery method [IFRS, only] when firms cannot reasonably estimate revenues and costs.

Question 78

Firms do not recognize certain obligations that are uncertain as to amount or timing or both as liabilities, unless those items meet a probability threshold and have a reliable measurement attribute.IFRS refers to these as _____, such as the possible obligation under an unsettled lawsuit.

A)contingent liabilities
B)unrealized contingencies
C)realized contingencies
D)unrecognized contingencies
E)recognized contingencies

Question 79

Accumulated Other Comprehensive Income

A)is a shareholders' equity account that acts for other comprehensive income the way retained earnings acts for net income.
B)equals net income plus other comprehensive income.
C)includes gains and losses from sales or exchanges of assets or settlements of liabilities related incidentally or peripherally to the firm's core business.
D)Firms close amounts in net income for a period to Accumulated Other Comprehensive Income at the end of the period.
E)all of the above

Question 80

Firms recognize revenue, or income, under the following condition(s)

A)completion of the earnings process, only.
B)receipt of assets from the customer, only.
C)completion of the earnings process and receipt of assets from the customer.
D)receipt of cash from the customer, only.
E)commencement of the earnings process, only.