Chapter 2 Flashcards

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.

In the conceptual framework for financial reporting, what provides "the why"--the goals and purposes of accounting?
A.
Measurement and recognition concepts such as assumptions, principles, and constraints
B.
Qualitative characteristics of accounting information
C.
Elements of financial statements
D.
Objective of financial reporting

Enhancing qualities include all of the following except
A.
timeliness
B.
comparability.
C.
verifiability.
D.
materiality.

In order to be relevant, financial information must have all of the following ingredients of fundamental qualities except
A.
be free from error.
B.
have predictive value.
C.
be material.
D.
have confirmatory value.

A decrease in net assets arising from peripheral or incidental transactions is called a(n)
A.
capital expenditure.
B.
cost.
C.
loss.
D.
expense.

Under current GAAP, inflation is ignored in accounting due to the
A.
economic entity assumption.
B.
going concern assumption.
C.
monetary unit assumption.
D.
periodicity assumption.

Revenue is generally recognized when realized or realizable and earned. This statement describes the
A.
completeness characteristic.
B.
matching principle.
C.
revenue recognition principle.
D.
relevance characteristic.

Which of the following statements concerning the cost-benefit relationship is not true?
A.
Business reporting should exclude information outside of management's expertise.
B.
Management should not be required to report information that would significantly harm the company's competitive position.
C.
Management should not be required to provide forecasted financial information.
D.
If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.

Which of the following is/are 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 are true.

Which level of the conceptual framework is devoted to recognition and measurement concepts?
A.
4th
B.
3rd
C.
2nd
D.
1st

The underlying theme of the conceptual framework is
A.
decision usefulness.
B.
understandability.
C.
reliability.
D.
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.

One of the elements of financial statements is comprehensive income. As described in Statement of FinancialAccounting 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.

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the
A.
economic entity assumption.
B.
relevance characteristic.
C.
comparability characteristic.
D.
neutrality characteristic.

"When products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash" is a definition of
A.
allocated revenue.
B.
realized revenue.
C.
realizable revenue.
D.
earned revenue.

Expensing the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of applying the
A.
consistency characteristic.
B.
expense recognition principle.
C.
materiality quality.
D.
historical cost principle.

All of the following statements about the conceptual framework are correct except it:
A.
is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
B.
prescribes the nature, function, and limits of financial accounting and financial statements.
C.
increases financial statement users' understanding of and confidence in financial reporting.
D.
All of these options are correct.

The first level of the conceptual framework is the:
A.
elements of financial statements.
B.
objective of financial reporting.
C.
qualitative characteristics of accounting information.
D.
recognition and measurement concepts.

Which of the following is an ingredient of the fundamental quality of faithful representation?
A.
freedom from error.
B.
predictive value.
C.
materiality.
D.
confirmatory value.

All of the following are ingredients of relevance except:
A.
feedback value.
B.
predictive value.
C.
materiality.
D.
neutrality.

Enhancing qualities of accounting information include:
A.
comparability and verifiability.
B.
cost/benefits and materiality.
C.
relevance and faithful representation.
D.
completeness and neutrality.

Which of the following statements about comprehensive income is incorrect?
A.
It is more inclusive than the traditional notion of net income.
B.
Unrealized holding gains on available-for-sale securities are included in comprehensive income.
C.
It includes all changes in equity during a period except net income.
D.
Changes in equity of an entity during a period from transactions and other events from nonowner sources are included in comprehensive income.

Increases in equity from peripheral or incidental transactions of an entity are:
A.
expenses.
B.
gains.
C.
investments by owners.
D.
revenues.

Depreciation and amortization policies are justifiable and appropriate because of the:
A.
economic entity assumption.
B.
going concern assumption.
C.
monetary unit assumption.
D.
periodicity assumption.

The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods is the:
A.
economic entity assumption.
B.
going concern assumption.
C.
monetary unit assumption.
D.
periodicity assumption.

Generally, revenue should be recognized:
A.
during production.
B.
at the end of production.
C.
at the time of sale.
D.
at the time cash is received.

Generally, expenses are recognized when the:
A.
wages are paid.
B.
work is performed.
C.
product is produced.
D.
work or product actually makes its contribution to revenue.