Question Details

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

 
a.	provide information useful in the decisions made by external users 	

 
b.	provide information about an entity's cash flows 	

 
c.	meet the needs of internal users 	

 
d.	provide information about an entity's earnings



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

 
a.	examining cash flows for the current period 	

 
b.	assessing the risk of lending to the company 	

 
c.	predicting future income 	

 
d.	evaluating management's performance



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

 
a.	so that the impact of every transaction is reflected in the statement of cash flows 	

 
b.	to the period in which they occur rather than to when the cash receipts or payment occurs 	

 
c.	so that the revenue impact of every transaction in a period is properly reflected in the income statement 	

 
d.	so that the costs of nonoperating events are matched to the balance sheet in the period impacted



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?

 
a.	credit standing 	

 
b.	financial capability 	

 
c.	return of investment 	

 
d.	liquidity 	

Both answerers are right

Representational faithfulness is a relationship between the reported accounting measurements or descriptions and the economic resources, obligations, and the transactions and events causing changes in these items. This is important because the

 a. validity of accounting data is an important economic resource   b. accounting information is relevant for all decisions   c. financial information is faithfully reported in the accounting records   d. bias associated with financial measurements can be reduced  
Two constraints mentioned by GAAP on qualitative characteristics are

 a. understandability and decision usefulness   b. relevance and reliability   c. benefits greater than costs and materiality   d. comparability and consistency  
Which of the following items would most likely be a violation of the materiality constraint?

 a. A company having reported total assets of $20,000,000 immediately expensed the purchase of 20 pencil sharpeners that have an estimated useful life of three years.   b. A $25,000 illegal bribe by an executive of the company to a foreign official was not separately disclosed in the annual report.   c. A company did not separately report an unusual gain of $50,000. Its income from operations was $5,000,000.   d. A $5,000 expenditure to improve a building that originally cost $5,000,000 was immediately expensed.   Check this answer again 
Intracompany comparability would be violated if

 a. a company changed its bad debts expense estimate from one percent to two percent   b. a bank did not classify its assets as current assets and noncurrent assets   c. a company expenses all expenditures of less than $500 even if the expenditures result in probable future economic benefit   d. a company used LIFO as its inventory cost method while other companies in the same industry used FIFO  
The materiality of an item of financial information refers to the likelihood that its omission or misstatement would affect the judgments of those relying on that information. This concept most closely relates to the

 a. verifiability of the item   b. financial magnitude of the item   c. feedback value of the item   d. neutrality of the item Check it again 

Which is not one of the four recognition criteria identified by the FASB?

 a. meets the definition of an element   b. measurable   c. understandable   d. reliable   
The city of Fairbanks sold land for its appraised value to the Big Oil Company on June 1, 2010, that originally cost the city $1,000,000. On June 1, 2010, the land was appraised at a value of $1,250,000, and on December 31, 2010, the land's value was estimated to be $1,400,000. On Big Oil Company's balance sheet at December 31, 2010, the land should be valued at

 a. $1,400,000   b. $1,250,000   c. $1,000,000   d. $ 0   
According to the recognition criteria established for revenue, revenue is normally recognized

 a. at the point of sale   b. during production   c. at the completion of production   d. when the cash is received from the customer  
If collectibility of the revenue is highly uncertain, an appropriate method that should be used to recognize revenue would be

 a. at the point of sale   b. the installment method   c. the percentage-of-completion method   d. the proportional performance method  
Using an allowance method of accounting to recognize uncollectible accounts receivable is an application of which accounting convention?

 a. matching principle   b. period of time   c. historical cost   d. revenue recognition  
The state legislature is currently debating a bill that, if passed, would require the Sandiken Company to go out of business. Which of the following principles or assumptions related to the preparation of Sandiken's financial statements is most directly affected by this impending vote of the legislature?

 a. verifiability principle   b. entity concept  (Answer Should be checked again) c. going concern   d. materiality concept  
Under current GAAP, most resources of a business entity are to be valued in its financial statements at

 a. historical cost   b. a value that is most relevant to the needs of users of the financial statements   c. current appraisal values   d. the current cost of replacing the resource  Solon Corporation has adopted the policy of charging to expense at the time of purchase all assets having a cost of less than $100, regardless of the life expectancy of the asset. This policy is most closely related to the

 a. verifiability principle   b. materiality principle   c. period-of-time assumption   d. historical cost principle  
A company that uses accounting methods in preparing its tax returns that differ from the accounting methods used to prepare its financial statements is

 a. probably guilty of tax evasion   b. in violation of the consistency principle  (Check it again) c. in violation of the relevance assumption   d. not necessarily violating either the income tax laws or generally accepted accounting principles  
Which one of the following assumptions or principles most logically supports the preparation of a single set of consolidated financial statements that combines the financial information of several wholly owned but separately identifiable businesses?

 a. industry practices   b. materiality   c. entity   d. historical cost  



Expenses are recognized and matched against revenues on the basis of three principles. Which of the following is not one of these principles?

 a. immediate recognition   b. associating cash flows   c. associating cause and effect   d. systematic and rational allocation   
Which of the following transactions would be reported in the cash flows from investing activities section in the statement of cash flows for the Haleem Company?

 
a.	Haleem issued common stock for $800,000 to investors. 	

 
b.	Haleem paid a cash dividend to its stockholders. 	

 
c.	Haleem borrowed $2,000,000. 	

 
d.	Haleem sold a piece of land for $500,000. 	



Distributions that are paid to owners would affect both the

 
a.	income statement and statement of changes in equity 	

 
b.	balance sheet and statement of cash flows 	

 
c.	income statement and statement of cash flows 	

 
d.	balance sheet and income statement



Similar to the constraints in the FASB's qualitative characteristics, the joint IASB/FASB boards have identified two constraints including

 
a.	benefits that justify the costs and materiality 	

 
b.	objectivity and materiality 	

 
c.	benefits that justify the costs and consistency 	

 
d.	consistency and materiality



The joint IASB and FASB boards identified several "enhancing" characteristic of financial information including

 
a.	materiality, verifiability, timeliness, and understandability 	

 
b.	comparability, verifiability, timeliness, and understandability 	

 
c.	comparability, relevance, timeliness, and understandability 	

 
d.	comparability, verifiability, timeliness, and materiality



One of the differences between the IASB/FASB joint conceptual framework and the FASB conceptual framework is that while the FASB identifies relevance and reliability as the primary decision-specific qualities, the tentative joint framework identifies the fundamental qualitative characteristics to be

 
a.	relevance and completeness 	

 
b.	relevance and faithful representation 	

 
c.	reliability and faithful representation 	

 
d.	reliability and completeness 	



The IASB and FASB joint boards feel that financial reporting should

 
a.	provide information on an accrual basis 	

 
b.	be general purpose 	

 
c.	be useful in assessing a company's future cash flows 	

 
d.	all of these are true



The IASB and FASB boards have agreed that the objective of general purpose financial reporting is to provide

 
a.	mainly cash flow information about a company that is useful to external users in making decisions in their capacity as capital providers 	

 
b.	financial information about a company that is useful to government regulators in making decisions in their capacity as capital markets monitors 	

 
c.	financial information about a company that is useful to external users in making decisions in their capacity as capital providers 	

 
d.	financial information about a company that is useful to internal users in making decisions in their capacity as capital custodians



Which qualitative characteristic is an ingredient of relevance?

 
a.	neutrality 	

 
b.	representational faithfulness 	

 
c.	predictive value 	

 
d.	verifiability



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

 
a.	relevance and faithful representation 	
(check it again)

 
b.	predictive value and feedback value 	

 
c.	verifiability and neutrality 	

 
d.	understandability and decision usefulness 	



Which qualitative characteristic is an ingredient of faithful representation?

 
a.	confirmatory value 	

 
b.	completeness 	
(check it again)
 
c.	timeliness 	

 
d.	predictive value



Which qualitative characteristic is an ingredient of faithful representation?

 
a.	confirmatory value 	

 
b.	completeness 	
(check it again)
 
c.	timeliness 	

 
d.	predictive value 	



According to GAAP, verifiability is

 
a.	comparability 	

 
b.	representational faithfulness 	

 
c.	an enhancing qualitative characteristic 	

 
d.	relevance

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