term1 Definition1term2 Definition2term3 Definition3
Please sign in to your Google account to access your documents:
According to the FASB and IASB conceptual frameworks, the primary users of financial reports include all of the following, except:
a.
Lenders.
b.
Regulators.
c.
Investors.
d.
Creditors.
Explanation
Choice "b" is correct. The FASB and IASB conceptual frameworks indicates that regulators are not considered to be primary users.
Choice "c" is incorrect. Investors are primary users.
Choice "d" is incorrect. Creditors are primary users.
Choice "a" is incorrect. Lenders are primary users.
According to the FASB and IASB conceptual frameworks, useful information must exhibit the fundamental qualitative characteristics of:
Understandability and timeliness.
Comparability and materiality.
Neutrality and verifiability.
Faithful representation and relevance.
Choice "d" is correct. The fundamental qualitative characteristics of useful financial information are relevance and faithful representation.
Choice "b" is incorrect. Comparability is an enhancing qualitative characteristic. Materiality is a component of relevance, in addition to predictive value and confirming value.
Choice "a" is incorrect. Understandability and timeliness are enhancing qualitative characteristics of useful financial information.
Choice "c" is incorrect. Verifiability is an enhancing qualitative characteristic. Neutrality is a component of faithful representation.
What is the underlying concept governing the recording of gain contingencies?
Conservatism.
Consistency.
Relevance.
Reliability.
Choice "a" is correct. Gain contingencies should not be recognized prior to realization as a prudent reaction to the uncertainty surrounding the realization of the gain as reflected in the convention of conservatism.
Choice "c" is incorrect. Overall, the qualities of information apply equally to all accounting information, not just gain contingencies. Relevance is a primary quality of information, which dictates that any information relative to the entity should be reported if it might be useful to the third party user (that is the information is timely with predictive and feedback value).
Choice "b" is incorrect. Overall, the qualities of information apply equally to all accounting information, not just gain contingencies. This includes consistency, an element of comparability, the secondary quality of information, which specifies that, when a choice of accounting principles has been made, the same principle be used in accounting for subsequent years' transactions.
Choice "d" is incorrect. Overall, the qualities of information apply equally to all accounting information, not just gain contingencies. This includes reliability, a primary quality, which requires that information be verifiable, neutral, and representationally faithful.
According to the FASB conceptual framework, which of the following attributes would not be used to measure inventory?
Net realizable value.
Replacement cost.
Present value of future cash flows.
Historical cost.
Choice "c" is correct. The present value of future cash flows is used to measure long-term receivables or payables, not inventory, because inventory is a short-term asset, which has more immediate cash flows. SFAC 5 para. 67
Choice "d" is incorrect. Historical cost can be used to measure inventory because it is a relevant and reliable measurement attribute of current assets such as inventory.
Choice "b" is incorrect. Replacement (or current) cost can be used to measure inventory because it is a relevant and reliable measurement attribute of current assets such as inventory.
Choice "a" is incorrect. Net realizable value can be used to measure inventory because it is a relevant and reliable measurement attribute of current assets such as inventory.
According to the FASB and IASB conceptual frameworks, the objective of general purpose financial reporting is to:
Comply with generally accepted accounting principles.
Provide financial information that is useful to primary users.
Report on how effectively and efficiently management has used the entity's resources.
Comply with the need for conservatism.
Choice "b" is correct. The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to the primary users of general purpose financial reports in making decisions about providing resources to the reporting entity.
Choice "a" is incorrect. Generally accepted accounting principles are derived from and based on the objective of financial reporting, not the other way around.
Choice "c" is incorrect. Information concerning how effectively and efficiently management has discharged its responsibility to use the entity's resources is only one aspect of the information financial reporting is intended to provide.
Choice "d" is incorrect. Conservatism is not the objective of financial reporting, although it is an underlying concept.
According to the FASB and IASB conceptual frameworks, completeness is an ingredient of:
a. Relevance
b. Faithful Representation
(COMPLETEly neutral is free from error)
What is the underlying concept that supports the immediate recognition of a contingent loss?
Substance over form.
Matching.
Choice "b" is correct. Conservatism is a prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situations are adequately considered. Recognition of a contingent loss is the recording of an amount representing uncertainty and risk in a business situation.
Choice "c" is incorrect. The substance over form concept presumes that the transaction form may not dictate the accounting treatment.
Choice "a" is incorrect. Consistency is conformity from period to period with unchanging policies and procedures.
Choice "d" is incorrect. The matching principle dictates that expenses be matched with the related revenues generated or the time period in which the expense is incurred and known. SFAS #5 cites matching as the one concept supporting the immediate recognition of a contingent loss, but it is not the primary underlying concept.
According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:
Recognition.
Realization.
Allocation.
Choice "a" is correct. Recognition is the process of recording an item in the financial statements of an entity. SFAC 5 para. 6
Choice "d" is incorrect. Allocation is the accounting process of assigning or distributing an amount according to a plan or a formula. SFAC 6 para. 142
Choice "c" is incorrect. Matching of costs and revenues is simultaneous or combined recognition of the revenues and expenses that result directly and jointly from the same transactions or other events. SFAC 6 para. 146
Choice "b" is incorrect. Realization is the process of converting noncash resources and rights into money. SFAC 6 para. 143
Financial information provided in general purpose financial reports does not include information about:
The resources of the entity.
How effectively and efficiently the entity's governing board has discharged its responsibility to use the entity's resources.
How effectively and efficiently the entity's shareholders' have discharged their responsibility to use the entity's resources.
The claims against the entity.
Choice "c" is correct. Shareholders do not have a responsibility (or a right) to use the entity's resources.
Choices "a", "d", and "b" are incorrect. Financial information provided in general purpose financial reports should include information about the resources of the entity, the claims against the entity, and how effectively and efficiently the entity's management and governing board have discharged their responsibilities to use the entity's resources.
According to the FASB conceptual framework, which of the following statements conforms to the realization concept?
Depreciated equipment was sold in exchange for a note receivable.
Cash was collected on accounts receivable.
Product unit costs were assigned to cost of goods sold when the units were sold.
Equipment depreciation was assigned to a production department and then to product unit costs.
Choice "a" is correct. Revenues and gains are realized when assets are exchanged for cash or claims to cash. SFAC 5 para. 83.
Choice "d" is incorrect. Assigning depreciation in a production department is an example of allocating overhead. There is no realization associated with the assignment.
Choice "b" is incorrect. The realization concept is integral to accounting for revenues and expenses and is not connected to collection of receivables.
Choice "c" is incorrect. Assignment of overhead costs to products and thus to cost of goods sold is an example of matching. There is no realization associated with this assignment.
Need help typing ? See our FAQ (opens in new window)
Please sign in to create this set. We'll bring you back here when you are done.
Discard Changes Sign in
Please sign in to add to folders.
Sign in
Don't have an account? Sign Up »
You have created 2 folders. Please upgrade to Cram Premium to create hundreds of folders!