Question 1

An example of a judgment in accounting for product warranties is ________.
A)the items sold that are subject to warranty coverage
B)whether a product warranty should be for one year or two years
C)the cost of a specific replacement part
D)the amount of warranty expense to be accrued as a percent of sales

Accepted Answer

The judgment in accounting for product warranties is determining the amount of warranty expense to be accrued as a percent of sales, which involves estimating the cost of potential future warranty claims based on historical experience and industry standards. The other options are not related to this specific judgment.

Question 2

IFRS requires that companies disclose information about assumptions and estimates made at the end of the reporting period.

Accepted Answer

According to IFRS, companies are required to disclose information about assumptions and estimates made at the end of the reporting period in the notes to the financial statements. This is necessary to provide users of financial statements with a better understanding of the financial results and the risks and uncertainties that affect the company's business operations.

Question 3

Which of the following is most likely based on an assumption?
A)how to record petty cash transactions
B)decision for which method of depreciation to use
C)the balance in the cash account
D)the value of the Accounts Payable account

Accepted Answer

The decision for which method of depreciation to use is most likely based on an assumption since it involves predicting the future useful life of an asset and estimating its salvage value, both of which may not always be accurate. The other options, such as recording petty cash transactions, the balance in the cash account or the value of the Accounts Payable account, are factual and do not involve assumptions.

Question 4

Your classmate,Marla Smith,tells you that she likes accounting because it provides a clear cut set of methods and rules to follow.As a result it should be an easy job to get the hang of.Explain to her why accountants frequently need to use their judgment.Give specific examples.

Accepted Answer

The answer of Your classmate,Marla Smith,tells you that she likes...

Question 5

Which account balance is least likely to be based on an estimate?
A)Accounts Receivable
B)Property,Plant,and Equipment
C)Accounts Payable
D)Contingent Liabilities

Accepted Answer

Accounts Payable is typically based on actual invoices received and is not usually estimated, unlike the other options which often involve estimates.

Question 6

Management is afforded a certain amount of latitude and must exercise judgment when selecting accounting methods.Discuss why this could be problematic for users of financial statements.Provide examples.

Accepted Answer

The answer of Management is afforded a certain amount of...

Question 7

The footnote outlining the portfolio of accounting choices is one of the first footnotes in the financial statements.

Accepted Answer

The answer of The footnote outlining the portfolio of accounting...

Question 8

When accountants use judgment to interpret standards it often detracts from the usefulness of the financial statements.

Accepted Answer

The answer of When accountants use judgment to interpret standards...

Question 9

Accountants must often use judgment when deciding when to recognize revenue.

Accepted Answer

Accountants must use professional judgment to determine when to recognize revenue based on accounting standards, company policies, and other factors. This is because revenue recognition can impact a company's financial statements and performance metrics, and therefore it is important to ensure that it is recorded accurately and in accordance with applicable accounting principles.

Question 10

IFRS and U.S.GAAP have the same disclosure requirements regarding the estimates made at the end of the accounting period.

Accepted Answer

The answer of IFRS and U.S.GAAP have the same disclosure...

Question 11

The process by which an accountant reaches a decision in situations with multiple alternatives is referred to as ________.
A)earnings management
B)GAAP
C)judgment
D)financial reporting

Accepted Answer

The process of making a decision in situations with multiple alternatives involves judgment on the part of the accountant. While GAAP and financial reporting are important considerations in the decision-making process, they do not refer specifically to the process of making a decision. Earnings management is not a valid answer as it refers to manipulating financial results to meet certain goals, rather than making a decision in a situation with multiple alternatives.

Question 12

Accountants use judgment when ________.
A)researching and interpreting standards
B)recognizing and contemplating standards
C)estimating and recording economic events
D)all of the above

Accepted Answer

Accountants use judgment when researching and interpreting standards, recognizing and contemplating standards, and estimating and recording economic events. Therefore, all of the above options are correct.

Question 13

In practice,accountants frequently use ________ to prepare and audit financial statements.
A)clear-cut methods
B)judgment
C)strict rules
D)imagination

Accepted Answer

While there are some strict rules and clear-cut methods in accounting, these can only take one so far. There are often situations where accountants must use their professional judgment and make subjective decisions. Imagination is not typically used in preparing and auditing financial statements.

Question 14

Which of the following is most likely based on an assumption?
A)accounting for an investment
B)accounting for sales tax
C)accounting for land
D)both A & C

Accepted Answer

The answer of Which of the following is most likely...

Question 15

Accounting judgment occurs when managers manipulate financial information and misrepresent the firm's financial position.

Accepted Answer

The answer of Accounting judgment occurs when managers manipulate financial...

Question 16

________ occurs when managers manipulate financial information and misrepresent the firm's financial position and performance.
A)Earnings management
B)GAAP
C)Judgment
D)Decision-making

Accepted Answer

Earnings management is the deliberate manipulation of financial information. This is done to misrepresent a company's financial position and performance. It is usually done to meet certain financial targets, such as earnings per share (EPS) or to show a more favorable financial position to investors and stakeholders.

Question 17

Very few amounts reported on the financial statements are based upon assumptions.

Accepted Answer

Many amounts reported on the financial statements, such as estimates for bad debts, depreciation, and inventory valuations, are based on assumptions made by the company.

Question 18

An example of a judgment in accounting for Accounts Receivable is ________.
A)the percentage of credit sales that may be uncollectible
B)the amount a customer paid during the previous month
C)the decision whether to extend credit to a new customer
D)the percentage that may be deducted to calculate a sales discount

Accepted Answer

The percentage of credit sales that may be uncollectible is an example of a judgment in accounting for Accounts Receivable as it involves estimating the portion of Accounts Receivable that may not be collected from customers who were sold goods or services on credit. This estimation is necessary to reflect the true value of Accounts Receivable on the balance sheet.

Question 19

Earnings management occurs when managers manipulate financial information and misrepresent the firm's financial position.

Accepted Answer

Earnings management involves manipulating financial data in order to misrepresent a company's financial situation. This may be done for a variety of reasons, such as meeting earnings expectations, achieving desired stock prices, or obtaining financing.

Question 20

Financial statement users rely on accounting policies footnote information to compare a company to other firms in the same industry.

Accepted Answer

Accounting policies footnote information provides details on how a company records and reports its financial information, which is important for users to compare the company's financial performance and position to other companies in the same industry. Therefore, the statement is true.

Quiz 3: Judgment and Applied Financial Accounting Research

An example of a judgment in accounting for product warranties is ________.

IFRS requires that companies disclose information about assumptions and estimates made at the end of the reporting period.

Which of the following is most likely based on an assumption?

Your classmate,Marla Smith,tells you that she likes accounting because it provides a clear cut set of methods and rules to follow.As a result it should be an easy job to get the hang of.Explain to her why accountants frequently need to use their judgment.Give specific examples.

Which account balance is least likely to be based on an estimate?

Management is afforded a certain amount of latitude and must exercise judgment when selecting accounting methods.Discuss why this could be problematic for users of financial statements.Provide examples.

The footnote outlining the portfolio of accounting choices is one of the first footnotes in the financial statements.

When accountants use judgment to interpret standards it often detracts from the usefulness of the financial statements.

Accountants must often use judgment when deciding when to recognize revenue.

IFRS and U.S.GAAP have the same disclosure requirements regarding the estimates made at the end of the accounting period.

The process by which an accountant reaches a decision in situations with multiple alternatives is referred to as ________.

Accountants use judgment when ________.

In practice,accountants frequently use ________ to prepare and audit financial statements.

Which of the following is most likely based on an assumption?

Accounting judgment occurs when managers manipulate financial information and misrepresent the firm's financial position.

________ occurs when managers manipulate financial information and misrepresent the firm's financial position and performance.

Very few amounts reported on the financial statements are based upon assumptions.

An example of a judgment in accounting for Accounts Receivable is ________.

Earnings management occurs when managers manipulate financial information and misrepresent the firm's financial position.

Financial statement users rely on accounting policies footnote information to compare a company to other firms in the same industry.