Chapter 17: Synthesis and Extensions Key
1. The current FASB’s financial reporting objectives identify current and potential investors and creditors as the
principal users of financial reports.
2. Authoritative guidance classifies gains and losses from the remeasurement of certain assets and liabilities as
either net income or other comprehensive income.
3. Firms account for changes in accounting principles required by a new reporting standard in accordance with
the guidance specified in the standard.
4. The current FASB’s financial reporting objectives states that the principal purpose of financial reports is to
provide information to make investment and credit decisions.
5. An entity should derecognize (remove from the balance sheet) an asset that it no longer controls.
6. Firms report many financial liabilities as the present value of the amount payable, except
that firms can ignore discounting for liabilities due within one year.
7. Firms may not issue equity interests with different rights, such as one class of common stock with 10 votes
per share and another class of common stock with one vote per share.
8. One of the characteristics of a fair value measurement is that the measurement does embody a minimum
probability for recognition.
9. If firms expect to receive cash more than one year after the time of recognizing revenue, they measure
revenues at the present value of the amount of cash they expect to receive.
10. Firms must amortize the difference between the issue price and the face value as an adjustment to interest
expense over the life of the bonds.
11. Firms can currently apply the fair value option to capital leases.
12. Firms often acquire derivative instruments to hedge interest rate, exchange rate, commodity price, and other
risks.
13. Firms cannot apply the fair value option to derivatives.
14. An employer must recognize changes in the funded status of a defined benefit retirement plan on its balance
sheet each period and recognize these changes immediately in net income.
15. The capital, or finance, lease method treats leases equivalent to installment purchases or sales, where the
lessee borrows funds from the lessor to purchase the asset and the lessor recognizes profit at the time of sale.
16. Shareholders’ equity reflects changes in the residual interest of owners from transactions involving capital
stock and from earnings activities independent of when cash flows in or out of a firm.
17. The concept of a reporting entity pertains to a group of entities pursuing a common business purpose under
the control of one of the entities in the group.
18. The write-off of a particular customer’s account that becomes uncollectible involves a debit to Allowance
for Uncollectibles and a credit to Accounts Receivable.
19. Firms may use the allowance method to account for estimated sales discounts, returns, and allowances, as
well as for warranties.
20. Both U.S. GAAP and IFRS often refer to ownership of a majority of the voting stock of another entity as
indicating control, unless evidence indicates that the majority owner cannot exercise control.
21. The FASB and IASB are working jointly to develop a revised, coordinated set of financial
reporting objectives.
22. The FASB and IASB are working jointly to develop a revised, coordinated set of financial
reporting objectives. They envision that the proposed reporting objectives would also specify that firms should
prepare financial reports from the perspective of its owners or a particular class of owners (proprietary
perspective).
23. The FASB and the IASB are reconsidering the definition of an asset and the criteria for
asset recognition.
24. Ideally, financial reporting standards should flow from and be consistent with the financial reporting
objectives, qualitative characteristics of accounting information, and elements of financial statements that
comprise the FASB’s and the IASB’s conceptual frameworks.
25. IFRS defines market as net realizable value, the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated costs to make the sale.
26. IFRS permits firms to remeasure property, plant, and equipment upward for increases in fair value under
certain conditions.
27. U.S. GAAP permits firms to remeasure property, plant, and equipment upward for increases in fair value
under certain conditions.
28. U.S. GAAP and IFRS require firms to treat some or all expenditures made to internally develop brand
names, customer lists, new technologies, and other intangibles as expenses in the period of the expenditure.
29. U.S. GAAP and IFRS do not require firms to disclose the fair value of long-term notes and bonds in notes
to the financial statements.
30. U.S. GAAP and IFRS require firms to recognize as an expense the cost of retirement benefits when the
employees receive payments or other benefits during retirement not while employees work.
31. Firms account for changes in estimates, such as for depreciable lives, uncollectible accounts, or warranty
cost, prospectively, in current and future periods’ earnings.
32. Firms account for material errors in previously issued financial statements by retrospectively restating net
income of prior periods and adjusting the beginning balance in Retained Earnings of the current period.
33. If practical, firms account for voluntary changes in accounting principles, such as from a LIFO to a FIFO
cost-flow assumption for inventories, by retrospectively restating net income of prior periods and adjusting the
beginning balance in Retained Earnings of the current period.
34. Under U.S. GAAP, a discontinued operation is a component of an entity, comprising operations and cash
flows that clearly differ from the rest of the entity, both operationally and for financial reporting. Segments,
divisions, subsidiaries, and groups of assets can qualify as a component of an entity.
35. U.S. GAAP and IFRS require firms to retrospectively apply any changes in accounting principle by
recalculating the income for prior periods under the new accounting principle, if it at all feasible.
36. Publicly held firms that apply U.S. GAAP or IFRS must show earnings per common share data in the body
of the income statement.
37. Investors often apply multiples to earnings per common share and book value per common share in deciding
on a reasonable market price for a firm’s shares.
38. U.S. GAAP and IFRS require firms to account for correction of errors, regardless of whether they are
material or not, by retrospectively restating net income of prior periods and adjusting the beginning balance in
Retained Earnings for the current period.
39. Accrual accounting requires frequent, ongoing changes in estimates.
40. Recent changes in the financial reporting environment include which of the following?
41. The FASB’s conceptual framework includes which of the following as financial reporting objectives?
42. The FASB’s conceptual framework includes which of the following as financial reporting objectives?
43. The FASB’s conceptual framework does not include which of the following as financial reporting
objectives?
44. The FASB’s conceptual framework does not include which of the following as financial reporting
objectives?
45. The FASB’s conceptual framework does not include which of the following as financial reporting
objectives?
46. The FASB’s conceptual framework does not include which of the following as financial reporting
objectives?
47. The FASB’s conceptual framework does not include which of the following as financial reporting
objectives?
48. The FASB’s conceptual framework for financial reporting objectives identify _____as the principal users of
financial reports.
49. The FASB’s conceptual framework for financial reporting objectives identify the provision of information
to make _____ as the principal purpose of financial reports.
50. The FASB’s conceptual framework for financial reporting objectives identify _____as the principal users of
financial reports.
51. Which of the following is not true concerning conceptual frameworks?
52. The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting
information. The FASB’s conceptual framework sets forth the qualitative characteristic of _____ that refers to
information that can make a difference in a resource allocation decision by helping users to form predictions
about the outcomes of future events and to confirm or correct prior information or expectations. Receiving
information in a timely manner (referred to as timeliness) so that it can influence decisions is an aspect of this
qualitative characteristic
53. The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting
information. The FASB’s conceptual framework sets forth the qualitative characteristic of _____ that refers to
the faithfulness with which accounting information represents what it purports to represent and the extent to
which the information is both verifiable by independent measurers and neutral with respect to the interest of a
particular user group.
54. The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting
information. The FASB’s conceptual framework sets forth the qualitative characteristic of _____ that refers to
financial reporting that treats similar items the same way and different items differently. Consistency refers to
financial reporting that treats an item the same way over time.
55. The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting
information. The FASB’s conceptual framework sets forth the qualitative characteristic of _____ envisions that
the nature of the information is relevant and that its effect is large enough to influence a decision. As standard
setters make decisions about financial reporting standards, they consider the costs and benefits of those
standards. They assess whether the benefits to users of financial reports from a particular financial reporting
requirement exceed the costs of providing the information.
56. The qualitative characteristics describe the attributes that enhance the usefulness of financial reporting
information. The IASB’s conceptual framework sets forth the qualitative characteristic of _____ which refers to
the attribute that users of financial reports will perceive the significance of a reported item to their decisions.
Such perception involves comprehending the economic effects of a firm’s actions and the measurement and
reporting of those economic effects in the financial reports.
57. The FASB’s conceptual framework defines a(n) _____ as a probable future economic benefit obtained or
controlled by a particular entity as a result of a past transaction or event.
58. The FASB’s conceptual framework defines a(n) _____ as a probable future sacrifice of economic resources
arising from present obligations of a particular entity to transfer assets or provide services to other entities in the
future as a result of past transactions or events.
59. The FASB’s conceptual framework defines a(n) _____ as inflows or other enhancements of assets of an
entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities
that constitute the entity’s ongoing major or central operations.
60. The definition of an asset excludes
61. Firms do not recognize certain obligations that are uncertain as to amount or timing or both as liabilities,
unless those items meet a probability threshold and have a reliable measurement attribute. U.S. GAAP refers to
these as _____, such as the possible obligation under an unsettled lawsuit.
62. Firms do not recognize certain obligations that are uncertain as to amount or timing or both as liabilities,
unless those items meet a probability threshold and have a reliable measurement attribute. IFRS refers to these
as _____, such as the possible obligation under an unsettled lawsuit.
63. The criteria for recognition of a liability include which of the following?
64. The criteria for recognition of a liability does not include which of the following?
65. Equity, or shareholders’ equity for a corporation,
66. Which of the following is not true regarding shareholders’ equity for a corporation?
67. Firms recognize revenue, or income, under the following condition(s)
68. If firms expect to receive cash more than one year after the time of recognizing revenue, they measure
revenues at the
69. Which of the following is not true?
70. Which of the following is not true?
71. Which of the following is not true?
72. Which of the following is not true?
73. Which of the following is not true?
74. Which of the following is/are true?
75. Accumulated Other Comprehensive Income
76. Which of the following is not true?
77. The concept of _____ includes both the power, or capacity, to direct the strategic, operating, investing, and
financing activities of another entity, and the ability to benefit from increases in the value of the other entity and
to incur losses from decreases in value.
78. Which of the following is not true? Firms recognize revenue
79. Firms recognize revenue
80. Which of the following is/are true?
81. Which of the following is not true?
82. Which of the following is/are true?
83. Which of the following is not true?
84. U.S. GAAP permits firms to measure the cost of goods sold and the amount of ending inventories for a
period using the
85. Firms initially record property, plant, and equipment, sometimes referred to as fixed assets, at acquisition
cost, the cash paid or the fair value of other consideration given in exchange for the asset. Which of the
following is/are true?
86. Firms initially record property, plant, and equipment, sometimes referred to as fixed assets, at acquisition
cost, the cash paid or the fair value of other consideration given in exchange for the asset. Which of the
following is not true?
87. Which of the following is/are true?
88. Which of the following is not true?
89. Which of the following is not true?
90. Which of the following is not true?
91. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is true?
92. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?
93. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?
94. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?
95. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?
96. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?
97. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?
98. Firms account for leases using either the operating lease method or the capital (finance) lease method.
Which of the following is not true?