Question 1

The accounting projects portion of the FASB's conceptual framework project deals with all of the following except

Accepted Answer

The accounting projects portion of the FASB's conceptual framework project mainly deals with the recognition, measurement, and reporting of accounting elements such as assets, liabilities, equity, revenues, and expenses. The display of financial reports is not a major concern of this project.

Question 2

How many Statements of Financial Accounting Concepts have been issued?

Accepted Answer

The Financial Accounting Standards Board (FASB) has issued a total of 7 Statements of Financial Accounting Concepts (SFACs). These concepts serve as a foundation for the development of accounting standards and provide a framework for resolving accounting issues.

Question 3

The FASB concluded that the most general objective of financial reporting is to

Accepted Answer

The FASB has stated that the primary objective of financial reporting is to provide information that is useful to those making decisions outside the company, such as investors, creditors, and other stakeholders. While financial reporting may also meet internal needs, this is not the primary objective. Additionally, financial reporting provides information about more than just earnings or cash flows, as it aims to provide a comprehensive view of a company's financial position and performance.

Question 4

Which of the following statements is not true with regard to the benefits derived from the FASB's conceptual framework of accounting?

Accepted Answer

While the Statements of Financial Accounting Concepts is an important resource for the FASB in establishing standards, it is not the primary source of GAAP for accountants. GAAP is primarily derived from authoritative pronouncements issued by the FASB and other standard-setting bodies.

Question 5

Accrual accounting relates the financial effects of a company's transactions

Accepted Answer

Accrual accounting records revenue and expenses in the period in which they occur, rather than when cash is received or paid. This provides a more accurate picture of a company's financial performance and allows for better forecasting and decision-making. Choices A, C, and D are partially correct but do not fully capture the purpose of accrual accounting. Matching nonoperating events to the balance sheet is one aspect of accrual accounting, properly reflecting revenue impact is another aspect, and the statement of cash flows is a separate financial statement that presents information about a company's cash inflows and outflows.

Question 6

GAAP emphasizes the importance of full disclosure by management including all of the following enhancements except

Accepted Answer

GAAP (Generally Accepted Accounting Principles) focuses on ensuring that financial statements are transparent and provide a true and fair view of the company's financial position. This includes providing explanations to enhance understanding of major transactions, interpretations of the effects of dividing continuous operations into accounting periods, and explanations of underlying assumptions and methods used. However, outlining internal control procedures in use is not a requirement under GAAP for financial statement disclosures. Internal control procedures are more related to the company's operational and compliance aspects, and while they are important for the overall governance and risk management of the company, they are not typically disclosed in financial statements under GAAP.

Question 7

Which qualitative characteristic is an ingredient of relevance?

Accepted Answer

Timeliness is an ingredient of relevance as it refers to information being available in a timely manner to be relevant to users' decision-making. The other qualitative characteristics listed have different focuses - verifiability is about the ability to check the accuracy of information, neutrality refers to avoiding bias, and representational faithfulness is about accurately representing the phenomena being depicted.

Question 8

A primary focus of financial reporting about a company's performance during an accounting period is information related to the company's

Accepted Answer

The answer of A primary focus of financial reporting about...

Question 9

The first part of the conceptual framework project had to do with

Accepted Answer

The first part of the conceptual framework project dealt with objectives, specifically the objectives of financial reporting. This foundational aspect sets the stage for the rest of the framework by defining the purpose and goals of financial reporting.

Question 10

According to the FASB hierarchy of qualitative characteristics, the two primary qualities making accounting information useful are

Accepted Answer

The FASB hierarchy of qualitative characteristics identifies relevance and reliability as the two primary qualities that make accounting information useful. Relevant information is capable of making a difference in decisions, while reliable information is trustworthy and can be depended upon. Other qualities in the hierarchy include comparability, consistency, verifiability, timeliness, and understandability, but relevance and reliability are considered the most important.

Question 11

The FASB divided its conceptual framework activities into several projects.Which of the following was not one of those projects?

Accepted Answer

The answer of The FASB divided its conceptual framework activities...

Question 12

Which of the following is a specific objective of financial reporting?

Accepted Answer

The answer of Which of the following is a specific...

Question 13

Information about comprehensive income is useful to external users for all of the following purposes except

Accepted Answer

Comprehensive income does not provide information about cash flows for the current period. It includes non-cash items such as unrealized gains and losses on investments or changes in pension plans. However, external users can use comprehensive income to evaluate management's performance, predict future income, and assess the risk of lending to the company.

Question 14

The FASB has determined that the primary focus of financial reporting about an entity's performance is information on

Accepted Answer

Comprehensive income and its components are the primary focus of financial reporting about an entity's performance as determined by the FASB, as they provide a complete view of the financial results and changes in financial position of an entity.

Question 15

In its "Objectives of Financial Reporting by Business Enterprises" the FASB identified a variety of primary users including all of the following except

Accepted Answer

The primary users identified by the FASB in its "Objectives of Financial Reporting by Business Enterprises" include investors, creditors, and security analysts, but do not specifically list internal management as a primary user. Internal management uses financial information for operational and strategic purposes, but the FASB's objectives focus on external users of financial reports.

Question 16

According to GAAP, which is not a specific objective?

Accepted Answer

The objective of providing information that is useful to present to potential investors, creditors, and other users is a general objective of financial reporting, not a specific objective according to GAAP.

Question 17

Which of the following statements regarding financial flexibility is true?

Accepted Answer

Financial flexibility refers to the ability of a company to take effective actions to change the amounts and timing of cash flows, such as raising capital or selling assets. Options A, B, and D do not accurately reflect the concept of financial flexibility.

Question 18

When investors and creditors make investment and credit decisions, they need information to assist them in assessing future cash receipts.Their focus is on assessing the potential of generating

Accepted Answer

Both a return of and a return on investment of capital are important factors that investors and creditors consider when making investment and credit decisions. A return of investment of capital refers to the repayment of the initial investment, while a return on investment of capital involves generating income or profit on the investment. Both of these factors are necessary to assess the potential profitability and sustainability of an investment.

Question 19

The accounting projects portion of the FASB's conceptual framework project deals with

Accepted Answer

The accounting projects portion of the FASB's conceptual framework project is concerned with determining which accounting elements (assets, liabilities, equity, revenues, and expenses) should be reported in financial statements and how they should be measured. This is important because it sets the foundation for the development of accounting standards and guidelines. The other options (B, C, and D) are not entirely incorrect, but they are not the main focus of the accounting projects portion of the conceptual framework project.

Question 20

Which of the following types of information was specifically identified by the FASB as being useful in assessing the amounts, timing, and uncertainty of a company's future cash flows?

Accepted Answer

The FASB has specifically identified liquidity information as being helpful in assessing a company's future cash flows. This includes information on the availability and management of cash and other liquid resources. Return on investment, financial capability, and credit standing may also be important factors to consider, but they were not specifically identified by the FASB in this context.

Quiz 2: Financial Reporting: Its Conceptual Framework