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Exam 2: Conceptual Framework for Financial Reporting

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Question 51

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Which of the following statements about materiality is correct?

A) An item must make a difference or it need not be disclosed.
B) Materiality is a matter of relative size or importance.
C) An item is material if its inclusion or omission would influence or change the judgment of a reasonable person.
D) All of these answers are correct.

E) B) and C)
F) A) and D)

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Question 52

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Neutrality is an ingredient of which fundamental quality of information?

A) Faithful representation.
B) Comparability.
C) Relevance.
D) Understandability.

E) None of the above
F) C) and D)

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Question 53

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Which of the following is an ingredient of faithful representation?

The expense recognition principle states that debits must equal credits in each transaction.

What is the general approach as to when product costs are recognized as expenses?

According to the FASB's conceptual framework, comprehensive income includes which of the following?

A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the difference as a gain. The write-up would represent a violation of which accounting assumption or principle?

Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?

Generally, revenue from sales should be recognized at a point when

Qualitative Characteristics. Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information. Instructions. (a) Describe briefly the following characteristics of useful accounting information. (1) Relevance (2) Faithful representation (3) Understandability (4) Comparability (5) Consistency (b) For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other. (1) Relevance and faithful representation. (2) Relevance and consistency. (3) Comparability and consistency. (4) Relevance and understandability. (c) What criterion should be used to evaluate trade-offs between information characteristics?

Accounting concepts-fill in the blanks.Fill in the blanks below with the accounting principle, assumption, or related item that best completes the sentence.1. ________________________ and _______________________ are the two fundamental qualities that make accounting information useful for decision making." 2. Information that helps users confirm or correct prior expectations has ____________________________________." 3. ________________________ enables users to identify the real similarities and differences in economic events between companies. 4. _________________ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 5. Information is _______________________ if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information. 6. The ________________________ characteristic requires that the same accounting method be used from one accounting period to the next, unless it becomes evident that an alternative method will bring about a better description of a firm's financial situation. 7. ____________________ means when in doubt, choose the solution that will be least likely to overstate income and assets. 8. Providing information that is of sufficient importance to influence the judgement and decisions of an informed user is referred to as _______________________. 9. Corporations must prepare accounting reports at least yearly due to the _______________ assumption. 10. _________________ occurs when the performance obligation is satisfied.

Basic assumptions. Briefly explain the four basic assumptions that underlie financial accounting.

The objective of financial reporting is the foundation of the conceptual framework.

When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of

Accounting information is considered to be relevant when it

During the lifetime of an entity accountants produce financial statements at artificial points in time in accordance with the concept of

Under IFRS, expenses include losses that are not the result of ordinary activities.

In classifying the elements of financial statements, the primary distinction between revenues and gains is

The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners'

It is unlikely that the basic concepts related to the existing conceptual framework will change.