Acct-303 Chapter 2

Front 1

What is the first level of the conceptual framework?

Back 1

Objectives of financial reporting

Front 2

What are the 3 components of Relevance?

Back 2

1) Feedback value
2) Predictive value
3) Timeliness

Front 3

When are expenses recognized?

Back 3

When the work or product actually makes its contribution to revenue

Front 4

Increases in equity from peripheral or incidental transactions:

Back 4

Gains

Front 5

In providing information with the qualitative characteristics that make it useful, two overriding constraints that must be considered are:

Back 5

The cost-benefit relationship and materiality

Front 6

Depreciation and amortization policies are justifiable and appropriate because of the _____.

Back 6

Going concern assumption

Front 7

Anything under _____ is generally considered not material.

Back 7

5% of net income

Front 8

What are the secondary qualities of accounting information?

Back 8

Comparability and consistency

Front 9

The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods:

Back 9

Periodicity assumption

Front 10

When should revenue be recognized?

Back 10

At the time of the sale

Front 11

Providing information that is of sufficient importance to influence the judgment and decisions of an informed user is required by the:

Back 11

Full disclosure principle

Front 12

Which constraint states, when in doubt, choose the solution that will be least likely to overstate assets and net income?

Back 12

Conservatism

Front 13

TRUE/FALSE:

There are no exceptions to the revenue recognition rule that revenue is only recognized at the time of sale.

Back 13

False

In certain circumstances revenue may be recognized during production, at the end of production or after the sale once cash is received.

Front 14

For information to be _____, it needs to have predictive value, feedback value, and be timely.

Back 14

Relevant

Front 15

TRUE/FALSE:

Information that has been measured and reported in a similar manner for different enterprises is considered comparable.

Back 15

True

Front 16

Assumption which suggests that the economic life of a business can be divided into artificial time periods such as a month, quarter or year:

Back 16

Periodicity assumption

Front 17

The conceptual framework contains how many Statements of Financial Accounting Concepts that related to financial reporting for business enterprises?

Back 17

6

Front 18

Which assumption makes the current – noncurrent classification of assets and liabilities on the balance sheet useful?

Back 18

Going concern assumption

Front 19

Which level of the conceptual framework is devoted to recognition and measurement concepts?

Back 19

Third level

Front 20

The assumption that allows the merging of a parent company and its subsidiaries for financial reporting purposes is the:

Back 20

Economic entity assumption

Front 21

What are the primary qualities of accounting information?

Back 21

Relevance and reliability

Front 22

The conceptual framework for financial reporting consists of how many levels?

Back 22

3

Front 23

What are the 3 components of reliability?

Back 23

1) Neutrality
2) Representational faithfulness
3) Verifiability

Front 24

What are the 4 constraints of financial reporting?

Back 24

1) cost-benefit
2) materiality
3) industry practice
4) conservatism

Front 25

Determining which alternative provides the most useful information for decision-making purposes:

Back 25

Decision usefulness

Front 26

What are the 3 levels of the conceptual framework?

Back 26

1st Level = Basic Objective

2nd Level = Qualitative Characteristics and Basic Elements

3rd Level = Recognition and Measurement Concepts

Front 27

Identify the element or elements associated:

Increases ownership interest.

Back 27

-Investment by owners
-Comprehensive income

Front 28

According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on?

Back 28

The needs of the users of the information

Front 29

What are the 4 qualitative characteristics?

Back 29

1) Relevance
2) Reliability
3) Comparability
4) Consistency

Front 30

Identify the element or elements associated:

Arises from peripheral or incidental transactions.

Back 30

-Gains
-Losses

Front 31

Identify the element or elements associated:

Declares and pays cash dividends to owners.

Back 31

Distribution to owners

Front 32

When a company applies the same accounting treatment to similar events from period to period:

Back 32

Consistency

Front 33

Identify the element or elements associated:

Obligation to transfer resources arising from a past transaction.

Back 33

Liabilities

Front 34

To be _____, accounting information must be capable of making a difference in a decision.

Back 34

Relevant

Front 35

Identify the element or elements associated:

Increases in net assets in a period from nonowner sources.

Back 35

Comprehensive income

Front 36

Identify the element or elements associated:

Items characterized by future economic benefit.

Back 36

Assets

Front 37

Third level assumption that the company is to last long enough to fulfill its objectives and commitments:

Back 37

Going concern

Front 38

According to the FASB conceptual framework, an entity’s revenue may result from:

Back 38

A decrease in a liability from primary operations

Front 39

Identify the element or elements associated:

Decreases assets by purchasing the company’s own stock.

Back 39

Distribution to owners

Front 40

Identify the element or elements associated:

Changes in equity during the period, except those from investments by owners and distributions to owners.

Back 40

Comprehensive income

Front 41

Third level assumption that money is the common denominator:

Back 41

Monetary unit

Front 42

Identify the element or elements associated:

Equals increase in net assets during the year, after adding distributions to owners and subtracting investments by owners.

Back 42

Comprehensive income

Front 43

Identify the element or elements associated:

Residual interest in the net assets of the enterprise.

Back 43

Equity

Front 44

Third level assumption that the company keeps its activity separate from its owners and other businesses:

Back 44

Economic entity

Front 45

Identify the element or elements associated:

Increases assets through sale of product.

Back 45

Revenue

Front 46

Identify the element or elements associated:

Arises from income statement activities that constitute the entity’s ongoing major or central operations.

Back 46

-Revenue
-Expenses

Front 47

Identify the assumption:

Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation.

Back 47

Monetary unit

Front 48

Providing information that is of sufficient importance to influence the judgment and decisions of an informed user:

Back 48

Full disclosure

Front 49

Third level assumption that the company can divide its economic activities into time periods:

Back 49

Periodicity

Front 50

The price, established by the exchange transaction:

Back 50

Historical cost

Front 51

The economic activities of Identify the assumption:

General Electric and its subsidiaries are merged for accounting and reporting purposes.

Back 51

Economic entity

Front 52

States that efforts (expenses) should be matched with accomplishments(revenues) whenever it is reasonable and practicable to do so.

Back 52

Matching principle

Front 53

Identify the assumption:

Walgreen Co. reports current and noncurrent classifications in its balance sheet.

Back 53

Going concern

Front 54

Revenue recognition generally occurs when:

Back 54

1) When realized/realizable
2) When earned

EXCEPTIONS:
1) During Production
2) At End of Production
3) Upon Receipt of Cash

Front 55

Identify the assumption:

The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.

Back 55

Periodicity

Front 56

What is more useful than the historical cost principle?

Back 56

Fair value information

Front 57

Full disclosure is provided through what 3 things?

Back 57

Provided through:

1) financial statements
2) notes to the financial statements
3) supplementary information

Front 58

Identify the constraint:

Wildcat Company does not disclose any information in the notes to the financial statements unless the value of the information to users exceeds the expense of gathering it.

Back 58

Cost-benefit

Front 59

When in doubt, choose the solution that will be least likely to overstate assets and income:

Back 59

Conservatism

Front 60

Identify the principle:

Yahoo, Inc. recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue.

Back 60

Matching principle

Front 61

An item is considered _____ if its inclusion or omission would influence or change the judgment of a reasonable person.

Back 61

Material

Front 62

Identify the constraint:

Zip’s Farms, Inc. reports agricultural crops on its balance sheet at market value.

Back 62

Industry practice

Front 63

Identify the principle:

Norfolk Southern Corporation reports revenue in its income statement when it is earned instead of when the cash is collected.

Back 63

Revenue recognition principle

Front 64

Identify the constraint:

Crimson Tide Corporation does not accrue a contingent lawsuit gain of $650,000.

Back 64

Conservatism

Front 65

The peculiar nature of some industries and business concerns sometimes requires departure from basic accounting theory:

Back 65

Industry practice

Front 66

Identify the principle:

Oracle Corporation reports information about pending lawsuits in the notes to its financial statements.

Back 66

Full disclosure principle

Front 67

Identify the constraint:

Sun Devil Corporation expenses the cost of wastebaskets in the year they are acquired.

Back 67

Materiality

Front 68

The cost of providing some information must be weighed against the benefits that can be derived from using it:

Back 68

Cost-benefit

Front 69

Identify the principle:

Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair market value is greater.

Back 69

Historical cost principle