Question 1

The peculiar nature of some industries and concerns sometimes requires departure from basic theory.

Accepted Answer

A) True 
 B)False

Question 2

Although many objections have been raised about the historical cost principle, it is still widely supported for financial reporting because it

Accepted Answer

A)   is an objectively determinable amount.
B)   is a good measure of current value.
C)   facilitates comparisons between years.
D)   takes into account price-level adjusted information.E) All of the above
F) A) and B)

Question 3

The notes to financial statements generally summarize the items presented in the main body of the statements.

Accepted Answer

A) True 
 B)False

Question 4

The concept referred to by the matching principle is that

Accepted Answer

A)   current liabilities have the same period of existence as the current assets.
B)   all cash disbursements for a period be matched to cash receipts for the period.
C)   net income should be reported on a quarterly basis.
D)   where possible the expenses to be included in the income statement were incurred to produce the revenues.E) A) and B)
F) A) and C)

Question 5

Which of the following violates the concept of reliability?

Accepted Answer

A)   The management report refers to new discoveries and inventions made, but the financial statements never report the results.
B)   Financial statements included goodwill with a carrying amount estimated by management.
C)   Financial statements were issued one year late.
D)   An interim report is not issued even though it would provide feedback on past performance.E) None of the above
F) B) and D)

Question 6

According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of

Accepted Answer

C

Question 7

Comprehensive income as characterized in SFAC No. 6 includes all changes in equity during a period except

Accepted Answer

A)   sale of assets other than inventory.
B)   those resulting from investments by or distribution to owners.
C)   sales to a particular entity where ultimate payment by the entity is doubtful.
D)   those resulting from revenue generated by a totally owned subsidiary.E) A) and B)
F) None of the above

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The fact that equity represents an ownership interest and a residual claim against the net assets of an enterprise means that in the event of liquidation, creditors have a priority over owners in the distribution of assets.

Accepted Answer

A) True 
 B)False

Question 10

Accounting theory is developed without consideration of the environment within which it exists.

Accepted Answer

A) True 
 B)False

Question 11

In complying with the full disclosure principle, an accountant must determine the amount of disclosure necessary. How much disclosure is enough?

Accepted Answer

A)   Information sufficient for a person without any knowledge of accounting to understand the statements.
B)   All information that might be of interest to an owner of a business enterprise.
C)   Information that is of sufficient importance to influence the judgment and decisions of an informed user.
D)   Information sufficient to permit most persons coming in contact with the statements to reach an accurate decision about the financial condition of the enterprise.E) A) and B)
F) A) and C) C

Question 12

Use of a sound conceptual framework in the development of accounting principles will make financial statements of all entities comparable because alternative accounting methods for similar transactions will be eliminated.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an incorrect statement regarding the matching principle?

Accepted Answer

A)   Expenses are recognized when they make a contribution to revenue.
B)   Costs are never charged to the current period as an expense simply because no connection with revenue can be determined.
C)   In recognizing expenses, accountants attempt to follow the approach of let the expense follow the revenue.
D)   If no direct connection appears between costs and revenues, but the costs benefit future years, an allocation of cost on some systematic and rational basis might be appropriate.E) None of the above
F) B) and C) B

Question 14

The periodicity assumption is a result of the demands of various financial statement user groups for timely reporting of financial information.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

Accepted Answer

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.E) B) and D)
F) All of the above

Question 16

Under the matching principle, it is possible to have an expense reported on the income statement in one period and the cash payment for that expense reported in another period.

Accepted Answer

A) True 
 B)False

Question 17

The economic entity assumption in accounting is best reflected by which of the following statements?

Accepted Answer

A)   When a parent and subsidiary company are merged for accounting and reporting purposes, the economic entity assumption is violated.
B)   The best way to truly measure the results of enterprise activity is to measure them at the time the enterprise is liquidated.
C)   The activity of a business enterprise can be kept separate and distinct from its owners and any other business unit.
D)   A business enterprise is in business to enhance the economic well being of its owners.E) C) and D)
F) A) and D)

Question 18

According to the FASB's conceptual framework, predictive value is an ingredient of

Accepted Answer

The answer of According to the FASB's conceptual framework, predictive...

Question 19

According to Statement of Financial Accounting Concepts No. 2, verifiability is an ingredient of the primary quality of

Accepted Answer

The answer of According to Statement of Financial Accounting Concepts...

Question 20

Under the revenue recognition principle, revenue is generally recognized when the earning process is virtually complete and

Accepted Answer

A)   an exchange transaction has occurred.
B)   the merchandise has been ordered.
C)   all expenses have been identified.
D)   the accounting process is virtually complete.E) A) and B)
F) A) and C)

Exam 2: Conceptual Framework Underlying Financial Accounting

The peculiar nature of some industries and concerns sometimes requires departure from basic theory.

Correct AnswerverifiedShow Answer

Although many objections have been raised about the historical cost principle, it is still widely supported for financial reporting because it

Correct AnswerverifiedShow Answer

The notes to financial statements generally summarize the items presented in the main body of the statements.

Correct AnswerverifiedShow Answer

The concept referred to by the matching principle is that

Correct AnswerverifiedShow Answer

Which of the following violates the concept of reliability?

Correct AnswerverifiedShow Answer

According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of

Correct AnswerverifiedC

Comprehensive income as characterized in SFAC No. 6 includes all changes in equity during a period except

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The fact that equity represents an ownership interest and a residual claim against the net assets of an enterprise means that in the event of liquidation, creditors have a priority over owners in the distribution of assets.

Correct AnswerverifiedShow Answer

Accounting theory is developed without consideration of the environment within which it exists.

Correct AnswerverifiedShow Answer

In complying with the full disclosure principle, an accountant must determine the amount of disclosure necessary. How much disclosure is enough?

Correct AnswerverifiedC

Use of a sound conceptual framework in the development of accounting principles will make financial statements of all entities comparable because alternative accounting methods for similar transactions will be eliminated.

Correct AnswerverifiedShow Answer

Which of the following is an incorrect statement regarding the matching principle?

Correct AnswerverifiedB

The periodicity assumption is a result of the demands of various financial statement user groups for timely reporting of financial information.

Correct AnswerverifiedShow Answer

Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

Correct AnswerverifiedShow Answer

Under the matching principle, it is possible to have an expense reported on the income statement in one period and the cash payment for that expense reported in another period.

Correct AnswerverifiedShow Answer

The economic entity assumption in accounting is best reflected by which of the following statements?

Correct AnswerverifiedShow Answer

According to the FASB's conceptual framework, predictive value is an ingredient of

Correct AnswerverifiedShow Answer

According to Statement of Financial Accounting Concepts No. 2, verifiability is an ingredient of the primary quality of

Correct AnswerverifiedShow Answer

Under the revenue recognition principle, revenue is generally recognized when the earning process is virtually complete and

Correct AnswerverifiedShow Answer

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C

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C

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B

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