ACCT 301 Exam 1 | Questions and Answers

ACCT 301 Exam 1 | Questions and Answers Which of the following is not a benefit associated with the FASB Conceptual Framework Project? a. A conceptual framework should increase financial statement users' understanding ...

ACCT 301 Exam 1 | Questions and Answers Which of the following is not a benefit associated with the FASB Conceptual Framework Project? a. A conceptual framework should increase financial statement users' understanding of and confidence in financial reporting. b. Practical problems should be more quickly solvable by reference to an existing conceptual framework. c. A coherent set of accounting standards and rules should result. d. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply. Generally accepted accounting principles a. are fundamental truths or axioms that can be derived from laws of nature. b. derive their authority from legal court proceedings. c. derive their credibility and authority from general recognition and acceptance by the accounting profession. d. have been specified in detail in the FASB conceptual framework. A soundly developed conceptual framework of concepts and objectives should a. increase financial statement users' understanding of and confidence in financial reporting. b. enhance comparability among companies' financial statements. c. allow new and emerging practical problems to be more quickly solved. d. All of these answer choices are correct. What is a purpose of having a conceptual framework? a. To make sure that economic activity can be identified with a particular legal entity. b. To segregate activities among different companies. c. To provide comparable information for different companies. d. To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards. Which of the following is not true concerning a conceptual framework in accounting? a. It should be a basis for standard-setting. b. It should allow practical problems to be solved more quickly by reference to it. c. It should be based on fundamental truths that are derived from the laws of nature. d. All of these answer choices are true. In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting? a. Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints b. Qualitative characteristics of accounting information c. Elements of financial statements d. Objective of financial reporting The underlying theme of the conceptual framework is a. decision usefulness. b. understandability. c. faithful representation. d. comparability. The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except a. potential equity investors. b. potential lenders. c. present investors. d. All of these answers are correct. The objective of general-purpose financial reporting is? a. to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers b. to provide companies with the option to select information that favors one set of interested parties over another c. to provide users with financial information that implies total freedom from error. d. to provide a metric for financial information used to determine when the boundary between two or more entities should be disregarded and the entities considered to be a licensing arrangement. If the LIFO inventory method was used last period, it should be used for the current and following periods because of a. consistency. b. materiality. c. timeliness. d. verifiability. Which of the following is a characteristic describing the fundamental quality of relevance? a. Predictive value. b. Neutrality. c. Verifiability. d. Understandability Which of the following is a fundamental quality of useful accounting information? a. Comparability b. Relevance c. Neutrality d. Materiality Which of the following is a fundamental quality of useful accounting information? a. Conservatism b. Comparability c. Faithful representation d. Consistency What is meant by comparability when discussing financial accounting information? a. Information has predictive or confirmatory value. b. Information is reasonably free from error. c. Information is measured and reported in a similar fashion across companies. d. Information is timely. What is meant by consistency when discussing financial accounting information? a. Information presented by a company applies the same accounting treatment to similar events, from period to period. b. Information is timely. c. Information is classified, characterized, and presented clearly and concisely. d. Information is verifiable. Which of the following is an ingredient of relevance? a. Completeness b. Neutrality c. Timeliness d. Materiality Which of the following is an ingredient of faithful representation? a. Predictive value b. Materiality c. Neutrality d. Confirmatory value Changing the method of inventory valuation should be reported in the financial statements because of which qualitative characteristic of accounting information? a. Consistency b. Verifiability c. Timeliness d. Comparability A company issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information? a. Comparability b. Timeliness c. Understandability d. Verifiability What is the quality of information that is capable of making a difference in a decision? a. Faithful representation b. Materiality c. Timeliness d. Relevance Neutrality is an ingredient of which fundamental quality of information? a. Faithful representation b. Comparability c. Relevance d. Understandability If the FIFO inventory method was used last period, it should be used for the current and following periods because of a. relevance. b. neutrality. c. understandability. d. consistency. The pervasive criterion by which accounting information can be judged is that of a. decision usefulness. b. freedom from bias. c. timeliness. d. comparability The two fundamental qualities that make accounting information useful for decision making are a. comparability and timeliness. b. materiality and neutrality. c. relevance and faithful representation. d. faithful representation and comparability. Accounting information is considered to be relevant when it a. can be depended on to represent the economic conditions and events that it is intended to represent. b. is capable of making a difference in a decision. c. is understandable by reasonably informed users of accounting information. d. is verifiable and neutral. The quality of information that means the numbers and descriptions match what really existed or happened is a. relevance. b. faithful representation. c. completeness. d. neutrality. Which of the following does not relate to relevance? a. Materiality b. Predictive value c. Confirmatory value d. All of these answer choices relate to relevance. According to Statement of Financial Accounting Concepts No. 8, materiality is an ingredient of the fundamental quality(ies) of: Relevance Faithful Representation a. Yes Yes b. No Yes c. Yes No d. No No According to Statement of Financial Accounting Concepts No. 8, completeness is an ingredient of the fundamental quality(ies) of: Relevance Faithful Representation a. Yes No b. Yes Yes c. No No d. No Yes According to Statement of Financial Accounting Concepts No. 8, neutrality is an ingredient of the fundamental quality(ies) of: Relevance Faithful Representation a. Yes Yes b. No Yes c. Yes No d. No No Neutrality means that information a. provides benefits which are at least equal to the costs of its preparation. b. can be compared with similar information about an enterprise at other points in time. c. would have no impact on a decision maker. d. cannot favor one set of interested parties over another The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is a. relevance. b. faithful representation. c. verifiability. d. neutrality. According to Statement of Financial Accounting Concepts No. 8, predictive value is an ingredient of the fundamental quality(ies) of: Relevance Faithful Representation a. Yes No b. Yes Yes c. No No d. No Yes Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of Faithful Representation Relevance a. Yes Yes b. No Yes c. Yes No d. No No Financial information demonstrates consistency when a. firms in the same industry use different accounting methods to account for the same type of transaction. b. a company changes its estimate of the salvage value of a fixed asset. c. a company fails to adjust its financial statements for changes in the value of the measuring unit. d. None of these answer choices are correct. Financial information exhibits the characteristic of consistency when a. expenses are reported as charges against revenue in the period in which they are paid. b. a company applies the same accounting treatment to similar events, from period to period. c. extraordinary gains and losses are not included on the income statement. d. accounting procedures are adopted which give a consistent rate of net income. Information about different companies and about different periods of the same company can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives? Comparability Consistency a. Companies Companies b. Companies Periods c. Periods Companies d. Periods Periods When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of a. relevance. b. faithful representation. c. consistency. d. None of these answer choices are correct. The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners' a. transfers of assets to the entity. b. rendering services to the entity. c. satisfaction of liabilities of the entity. d. All of these answer choices are correct. In classifying the elements of financial statements, the primary distinction between revenues and gains is a. the materiality of the amounts involved. b. the likelihood that the transactions involved will recur in the future. c. the nature of the activities that gave rise to the transactions involved. d. the costs versus the benefits of the alternative methods of disclosing the transactions involved. A decrease in net assets arising from peripheral or incidental transactions is called a(n) a. capital expenditure. b. cost. c. loss. d. expense. One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to a. revenues minus expenses plus gains minus losses. b. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners. c. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities. d. None of these answer choices are correct. Which of the following elements of financial statements is not a component of comprehensive income? a. Revenues b. Distributions to owners c. Losses d. Expenses The calculation of comprehensive income includes which of the following? Operating Income Distributions to Owners a. Yes Yes b. No No c. No Yes d. Yes No According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time? a. Assets. b. Expenses. c. Equity. d. Liabilities. According to the FASB Conceptual Framework, the elementsassets, liabilities, and equitydescribe amounts of resources and claims to resources at/during a Moment in Time Period of Time a. Yes No b. Yes Yes c. No Yes d. No No Which of the following is not a basic element of financial statements? a. Assets b. Balance sheet c. Losses d. Revenue Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement? a. Equity b. Revenue c. Gains d. Expenses Issuance of common stock for cash affects which basic element of financial statements? a. Revenues b. Losses c. Liabilities d. Equity Which of these basic elements of financial statements arises from peripheral or incidental transactions? a. Assets b. Liabilities c. Gains d. Expenses Which of the following is not a basic assumption underlying the financial accounting structure? a. Economic entity assumption