70) The enhancing qualitative characteristic of understandability means that information should
be understood by:
A) Those who are experts in the interpretation of financial information.
B) Those who have a reasonable understanding of business and economic activities.
C) Financial analysts.
D) CPAs.
71) Fundamental qualitative characteristics of accounting information are:
A) Relevance and comparability.
B) Comparability and consistency.
C) Faithful representation and relevance.
D) Neutrality and consistency.
72) Enhancing qualitative characteristics of accounting information include:
A) Relevance and comparability.
B) Comparability and timeliness.
C) Understandability and relevance.
D) Neutrality and consistency.
73) Gains are:
A) Inflows from selling a product or service to a customer.
B) Increases in equity resulting from transfers of assets to the company from owners.
C) Increases in equity from peripheral transactions of an entity.
D) None of these answer choices are correct.
74) When there is agreement between a measure or description and the phenomenon it purports
to represent, information possesses which characteristic?
A) Verifiability.
B) Predictive value.
C) Faithful representation.
D) Timeliness.
75) Surefeet Corporation changed its inventory valuation method. Which characteristic is
jeopardized by this change?
A) Comparability.
B) Representational faithfulness.
C) Consistency.
D) Feedback value.
76) Elements of financial statements do not include:
A) Monetary unit.
B) Investments by owners.
C) Comprehensive income.
D) Losses.
77) The primary objective of financial accounting information is to provide useful information
to:
A) Management.
B) Capital providers.
C) Regulators.
D) Academicians.
78) Of the following, the most important objective for financial reporting is to provide
information useful for:
A) Making decisions.
B) Determining taxable income.
C) Providing accountability.
D) Increasing future profits.
79) A constraint on qualitative characteristics of accounting information is:
A) Timeliness.
B) Going concern.
C) Neutrality.
D) Cost-effectiveness.
80) According to the conceptual framework, verifiability implies:
A) Legal evidence.
B) Logic.
C) Consensus.
D) Legal verdict.
81) Maltec Corporation has started placing its quarterly financial statements on its web page,
thereby reducing by 10 days the time to get information to investors and creditors. The
qualitative concept improved is:
A) Comparability.
B) Consistency.
C) Timeliness.
D) Faithful representation.
82) Recognizing expected losses immediately, but deferring expected gains, is an example of:
A) Materiality.
B) Conservatism.
C) Cost-effectiveness.
D) Timeliness.
83) Change in equity from nonowner sources is:
A) Comprehensive income.
B) Revenues.
C) Expenses.
D) Gains and losses.
84) Which of the following Statements of Financial Accounting Concepts defines the 10
elements of financial statements?
A) SFAC 4.
B) SFAC 3.
C) SFAC 5.
D) SFAC 6.
85) Primecoat Corporation could disseminate its annual financial statements two days earlier if it
shifted substantial human resources from other operations to the annual report project.
Management decided the value of the earlier report was not worth the added commitment of
resources. The concept demonstrated is:
A) Timeliness.
B) Materiality.
C) Relevance.
D) Cost-effectiveness.
86) Mega Loan Company has very stringent credit requirements and, accordingly, has negligible
losses from uncollectible accounts. The company’s independent accountants did not protest
when, contrary to GAAP, the company recorded bad debt expense only when specific accounts
were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The
concept demonstrated is:
A) Comparability.
B) Faithful representation.
C) Cost-effectiveness.
D) Materiality.
87) Four different competent accountants independently agree on the amount and method of
reporting an economic event. The concept demonstrated is:
A) Reliability.
B) Comparability.
C) Completeness.
D) Verifiability.
88) An important argument in support of historical cost information is:
A) Relevance.
B) Predictive quality for future cash flows.
C) Materiality.
D) Verifiability.
89) The conceptual framework’s recognition and measurement concepts recognize which one of
the following as an assumption?
A) Going concern.
B) Historical cost.
C) Full disclosure.
D) Realization.
90) The assumption that in the absence of contrary information a business entity will continue
indefinitely is the:
A) Periodicity assumption.
B) Entity assumption.
C) Going concern assumption.
D) Historical cost assumption.
91) If a company has declared bankruptcy, its financial statements likely violate:
A) The fair value measurement approach.
B) The present value measurement approach.
C) The stable monetary unit assumption.
D) The going concern assumption.
92) Which of the following is typically characterized as a principle, rather than an assumption?
A) Periodicity.
B) Monetary unit.
C) Conservatism.
D) Full disclosure.
93) Which of the following is not an identified valuation technique in GAAP regarding fair
value measurement?
A) Cost approach.
B) Market approach.
C) Cost-benefit approach.
D) Income approach.
94) Disclosure notes to a company’s financial statements:
A) Are relatively unimportant facts that don’t belong in the basic financial statements.
B) Document the source of financial statement facts, like literary footnotes.
C) Are an integral part of a company’s financial statements.
D) Are irrelevant facts that are immaterial in amount.
95) A cause-and-effect relationship is implicit in:
A) Realization.
B) Historical cost.
C) Matching.
D) The going concern assumption.
96) The full disclosure principle requires a balance between:
A) Comparability and consistency.
B) Relevance and cost-effectiveness.
C) Reliability and neutrality.
D) Timeliness and predictive value.
97) The recognition of which of the following expenses exemplifies the application of matching
expenses with the revenues they produced?
A) President’s salary.
B) Research and development.
C) Cost of goods sold.
D) Advertising.
98) Land was acquired in 2018 for a future building site at a cost of $40,000. The assessed
valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a
recent firm offer for the land was for a cash payment of $46,000. The land should be reported in
the financial statements at:
A) $40,000.
B) $27,000.
C) $46,000.
D) $48,000.
99) Revenue should not be recognized until:
A) The seller has transferred goods or services to a customer.
B) Contracts have been signed and payment has been received.
C) Work has been performed and customer has been billed.
D) Collection has been made and warrantees have expired.
100) Which of the following best demonstrates the full disclosure principle?
A) The multi-step income statement.
B) The auditors’ report.
C) The company’s tax return.
D) Disclosure notes to financial statements.
101) The matching principle is:
A) A valuation method.
B) An expense recognition accounting principle.
C) A cash basis reporting principle.
D) An asset classification procedure.
102) Which of the following best describes the additional information that companies use to
meet the requirements of full disclosure in financial statements?
A) Parenthetical comments or modifying comments placed on the face of the financial
statements.
B) Disclosure notes conveying additional insights about company operations, accounting
principles, contractual agreements, and pending litigation.
C) Supplemental schedules and tables that report more detailed information than is shown in the
primary financial statements.
D) Comments on the face of the financial statements, and schedules, tables, and narrative
disclosures in notes to the financial statements.
103) Ford Motor Company purchases services from suppliers on account and sells its products to
distributors on short-term credit. As a result, do each of these events affect net income faster than
they affect net operating cash flows?
Purchase Services
Sell Products
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No
A) Option a.
B) Option b.
C) Option c.
D) Option d.
104) The revenue/expense approach emphasizes:
A) Recognition of revenues.
B) Recognition of expenses.
C) The income statement.
D) All of these answer choices are correct.
105) The asset/liability approach emphasizes:
A) Whether amounts on the balance sheet meet the definitions of assets and liabilities.
B) A close relation between the balance sheet and the statement of cash flows.
C) The distinction between net assets and gross assets.
D) All of these answer choices are correct.
106) Under IFRS, the role of the conceptual framework:
A) Primarily involves guiding standard setters to make sure that standards are consistent with
each other.
B) Includes serving as a guide for practitioners when a specific standard does not apply.
C) Is less important than in U.S. GAAP.
D) Has resulted primarily from a convergence with U.S. GAAP.
107) Under IFRS, the conceptual framework:
A) Emphasizes the overarching concept of the financial statements providing a “true and fair
representation” of the company.
B) Is not designed to provide guidance to standard setters, but rather only to practitioners.
C) Is not designed to provide guidance to practitioners, but rather only to standard setters.
D) Specifies a set of rules that determine what constitutes a true IFRS standard.
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Pertinent to the decision at hand.
B) Information is available prior to the decision.
C) Information confirms expectations.
D) Decrease in equity due to transfers to owners.
E) Information is useful in projecting cash flows.
108) Predictive value
109) Relevance
110) Timeliness
111) Distribution to owners
112) Confirmatory value
Difficulty: 2 Medium
Topic: Conceptual framework―Purpose; Concepts―Qualitative characteristics; Concepts―Elements of financial statements;
GAAP―Underlying assumptions
Learning Objective: 01-06, 01-07, 01-08
Bloom’s: Understand
AACSB: Reflective Thinking
Accessible/AICPA: BB Critical thinking; FN Measurement
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) The change in equity from nonowner transactions.
B) Contains all information necessary for faithful representation.
C) Along with relevance, a fundamental decision-specific quality.
D) Results if an asset is sold for more than book value.
E) Concerns the decision-making impact of both the amount and nature of an item.
113) Gain
114) Materiality
115) Completeness
116) Comprehensive income
117) Faithful representation
Difficulty: 2 Medium
Topic: Conceptual framework―Purpose; Concepts―Qualitative characteristics; Concepts―Elements of financial statements;
Learning Objective: 01-06, 01-07
Bloom’s: Understand
AACSB: Reflective Thinking
Accessible/AICPA: BB Critical thinking; FN Measurement
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) The decision to include an amount in the financial statements.
B) Accounting information should be unbiased.
C) Considers the value of using information relative to cost of providing it.
D) Important in analysis between firms.
E) Applying the same accounting practices over time.
118) Neutrality
119) Comparability
120) Consistency
121) Cost-effectiveness
122) Recognition
Difficulty: 2 Medium
Topic: Conceptual framework―Purpose; Concepts―Qualitative characteristics; Concepts―Recognition – Measurement –
Disclosure
Learning Objective: 01-06, 01-07, 01-09
Bloom’s: Understand
AACSB: Reflective Thinking
Accessible/AICPA: BB Critical thinking; FN Measurement
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Implies consensus among different observers.
B) Assumes an entity will continue to operate indefinitely.
C) Ignores the possibility of inflation.
D) Assumes all transactions can be identified with a particular entity.
E) Requires reporting the financial life of an entity in discrete time frames.
123) Monetary unit assumption
124) Verifiability
125) Economic entity assumption
126) Going concern assumption
127) Periodicity assumption
Difficulty: 2 Medium
Topic: Concepts―Qualitative characteristics; GAAP―Underlying assumptions
Learning Objective: 01-07, 01-08
Bloom’s: Understand
AACSB: Reflective Thinking
Accessible/AICPA: BB Critical thinking; FN Measurement
Listed below are five terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) Basis of measurement for fixed assets.
B) Reporting of all information that could affect decisions.
C) Occurs when goods or services are transferred to the customer.
D) Discounts future cash flows.
E) Application of GAAP sometimes avoided under this constraint.
128) Historical cost
129) Materiality
130) Revenue recognition
131) Full disclosure
132) Present value
Difficulty: 2 Medium
Topic: Conceptual framework―Purpose; Concepts―Qualitative characteristics; Concepts―Recognition – Measurement –
Disclosure
Learning Objective: 01-06, 01-07, 01-09
Bloom’s: Understand
AACSB: Reflective Thinking
Accessible/AICPA: BB Critical thinking; FN Measurement