1A - Conceptual Framework and Standard-Setting for Business and Nonbusiness Entities Flashcards
On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third-quarter interim financial statements for the three months ended September 30?
$0
$15,000
$75,000
$95,000
Under FASB ASC 270-10-45-4, interim financial reports should be based on the principles, practices, and policies used in the preparation of the last annual report.
Property taxes ($60,000 x 3/12) $15,000 Major repairs ($240,000 x 3/9) _80,000_ Total $95,000
Which of the following is not an item that is required to be disclosed about reportable segments’ profit or loss (assuming that the item was included in the determination of profit or loss)?
Interest expense
Revenues from transactions with other operating segments of the same enterprise
Depreciation, depletion, and amortization expense
Rent expense
Rent Expense
FASB ASC 280-10-50-22 specifically lists the following as requiring disclosure:
- Revenues from external customers
- Revenues from transactions with other operating segments of the same enterprise
- Interest revenue
- Interest expense
- Depreciation, depletion, and amortization expense
- Unusual items as described in FASB ASC 225-20
- Equity in the net income of investees accounted for by the equity method
- Income tax expense or benefit
- Significant noncash items other than depreciation, depletion, and amortization expense
Revenues
Below is required to be disclosed about reportable segments’ profit or loss
- Revenues from ___ customers
- Revenues from transactions with other operating segments of the same enterprise
- ___ revenue
- ___expense
- ___, depletion, and amortization expense
- Unusual items as described in FASB ASC 225-20
- Equity in the net income of investees accounted for by the equity method
- Income tax expense or benefit
- Significant noncash items other than depreciation, depletion, and amortization expense
External
Interest
Interest
Depreciation
An operating segment, under FASB ASC 280-10-50-1, must have all of the following characteristics, except:
discrete information about that part of the enterprise is available.
engages in activities that may earn revenues and incur expenses.
separate legal standing as a sole proprietorship, partnership, corporation, or corporate joint venture.
its operating results are regularly reviewed by the chief operating decision maker.
separate legal standing as a sole proprietorship, partnership, corporation, or corporate joint venture.
An important dimension of FASB ASC 280-10-50-1 is the notion of operating segments, which are defined as components of a business enterprise:
- that engage in business activities from which the enterprise may earn revenues and incur expenses (including transactions with other segments),
- whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resource allocation and to assess performance, and
- for which discrete financial information is available.
SFAC 4 indicates that financial reporting by nonbusiness organizations should provide information useful to present and potential resource providers (e.g., creditors, suppliers, employees, donors, taxpayers) and meet which of the following objectives?
Financial reporting should include explanations and interpretations to help users understand financial information provided.
All of the answer choices are correct.
Financial reporting should provide information about the performance of an organization during a period. Periodic measurement of the changes in the amount and nature of the net resources of a nonbusiness organization and information about the service efforts and accomplishments of an organization together represent the information most useful in assessing its performance.
Financial reporting should provide information about how an organization obtains and spends cash or other liquid resources, about its borrowings and repayment of borrowings, and about other factors that may affect an organization’s liquidity.
All of the answer choices are correct.
According to the FASB conceptual framework, which of the following correctly pairs a primary qualitative characteristic of accounting information with one of its components?
Relevance and neutrality
Relevance and free from error
Faithful representation and completeness
Faithful representation and materiality
Faithful representation and completeness
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?
A proposed accounting research bulletin
A proposed staff accounting bulletin
A proposed statement of position
A proposed accounting standards update
A proposed accounting standards update.
The process for issuing a new accounting standards update includes the following steps:
- The FASB identifies a financial reporting issue.
- The FASB Chairman adds a project to the technical agenda.
- Public meetings are held.
- An exposure draft (proposed accounting standards update) is issued.
- A public roundtable is held.
- The FASB staff collects and analyzes all comments and the FASB redeliberates the proposed standard at public meetings.
- The FASB issues an Accounting Standards Update. It becomes part of the Accounting Standards Codification.
According to the FASB’s conceptual framework, the objectives of financial reporting for business enterprises are based on:
the need for conservatism.
reporting on management’s stewardship.
the needs of the users of the information.
generally accepted accounting principles.
the needs of the users of the information.
The process for issuing a new accounting standards update includes the following steps:
- The __ identifies a financial reporting issue.
- The FASB Chairman adds a project to the _____.
- __ meetings are held.
- An __ draft (proposed accounting standards update) is issued.
- A public ___ is held.
- The ___ staff collects and analyzes all comments and the FASB redeliberates the proposed standard at public meetings.
- The FASB issues an ___. It becomes part of the Accounting Standards Codification.
FASB
technical agenda
Public
exposure
roundtable
FASB
Accounting Standards Update
___ are the primary qualitative characteristics of accounting information. The components of relevance are predictive value, confirmatory value, and materiality. The characteristics of faithful representation are completeness, neutrality, and being free from error
Relevance and faithful representation
Changes to existing authoritative GAAP for nonissuer, nongovernmental entities are communicated by the Financial Accounting Standards Board through the issuance of:
Exposure Drafts.
Accounting Standards Updates.
Concepts Statements.
Statements of Financial Accounting Standards.
Accounting Standards Updates.
____update the FASB’s Accounting Standards Codification (ASC), present finalized changes, and provide the bases for conclusions surrounding changes in the Codification.
Accounting Standards Updates
According to the FASB conceptual framework, for financial reporting to be useful, it must:
provide information useful for making business and investment decisions.
be understandable to those who have a limited knowledge of business activities.
directly measure the value of the entity being reported on.
be in accordance with generally accepted accounting principles.
provide information useful for making business and investment decisions.
In general, an enterprise preparing interim financial statements should:
disregard permanent decreases in the market value of its inventory.
defer recognition of seasonal revenue.
use the same accounting principles followed in preparing its latest annual financial statements.
allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.
use the same accounting principles followed in preparing its latest annual financial statements.
Because the standards generally treat interim periods as “integral parts” of the annual reporting periods, not as discrete periods or separate reporting periods, companies are required to use the same accounting principles for interim periods that they follow in preparing their annual financial statements.
In the process of setting accounting standards in the United States, how does the FASB respond when they receive significant, negative feedback regarding an Exposure Draft of a new accounting standard?
They contact those with negative views and seek to persuade them to change their views regarding the Exposure Draft.
They seek the help of the U.S. Congress to pass a law requiring the implementation of standard proposed in the Exposure Draft.
They inform the SEC of the negative feedback and turn the project over to the SEC.
They evaluate the feedback and consider how to revise the Exposure Draft.
They evaluate the feedback and consider how to revise the Exposure Draft.
When the Financial Accounting Standards Board (FASB) receives ___ feedback about an Exposure Draft, due process requires that they consider the ___ feedback and consider whether or not they should revise the Exposure Draft based upon the feedback.
Negative
Bard Co., a calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20,000 for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter?
$6,000
$5,000
$7,500
$3,500
Income tax expense for the second quarter is the total income for quarters one and two times the effective rate, less the income tax expense recorded at the end of the first quarter.
Income before tax expense (10,000 + 20,000) $30,000
Tax rate x 0.25
Total expense for second quarter $ 7,500
Less: Expense reported 1st quarter (1,500)
Income tax expense, 2nd quarter $ 6,000
ASB ASC 270-10-45-1 concluded that interim financial reporting should be viewed primarily in which of the following ways?
As reporting for an integral part of an annual period
As useful only if activity is spread evenly throughout the year
As reporting under a comprehensive basis of accounting other than GAAP
As if the interim period were an annual accounting period
As reporting for an integral part of an annual period
The Financial Accounting Standards Board in FASB ASC 270-10-45-1 noted that “each interim period should be viewed primarily as an integral part of an ___period.”
Annual
During the first quarter of the calendar year, Worth Co. had income before taxes of $100,000 and its effective income tax rate was 15%. Worth’s effective annual income tax rate for the previous year was 30%. Worth expects that its effective annual income tax rate for the current year will be 25%. The statutory tax rate for the current year is 35%. In its first-quarter interim income statement, what amount of income tax expense should Worth report?
$15,000
$35,000
$25,000
$30,000
An estimate of the effective tax rate expected for the annual period is made at the end of each interim period. This rate is used in providing for income taxes on a current year-to-date basis.
Worth should use its expected rate of 25%: $100,000 × 0.25 = $25,000.
Generally accepted accounting principles are:
the basic concepts underlying financial accounting and reporting.
pronouncements of the Financial Accounting Standards Board.
established principles that rarely change.
guidelines that accountants may choose to follow.
the basic concepts underlying financial accounting and reporting.
Which of the following statements best describes an operating procedure for issuing a new Financial Accounting Standards Board (FASB) Accounting Standards Update?
A new FASB update can be rescinded by a majority vote of the AICPA membership.
The exposure draft is modified per public opinion before issuing the discussion memorandum.
An update is issued only after a majority vote by the members of the FASB.
The emerging issues task force must approve a discussion memorandum before it is disseminated to the public.
An update is issued only after a majority vote by the members of the FASB.
What is the appropriate characterization of the net assets of a nongovernmental not-for-profit organization?
Equity interest
Residual interest
Ownership interest
Donor’s interest
Residual interest
Net assets of a nongovernment not-for-profit are defined to be the __ ___in the assets of the entity that remains after deducting its liabilities. In a business enterprise, its equity represents the ownership interest, but not for a nongovernmental not-for-profit.
residual interest
Within the context of the qualitative characteristics of accounting information, which of the following is a fundamental qualitative characteristic?
Timeliness
Feedback value
Comparability
Relevance
Relevance
The fundamental qualitative characteristics of accounting information are ___and ___representation.
relevance
faithful
According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:
matching.
allocation.
recognition.
realization.
recognition.
__ is the process of formally recording or incorporating an item into the financial statements of an entity as an asset, liability, revenue, expense, or the like.”
Reconignition
Reporting inventory at the lower of cost or market is a departure from the accounting principle of:
consistency.
full disclosure.
historical cost.
conservatism.
historical cost.
Financial accounting is primarily based on the__principle which specifies that assets be recorded and carried at their historical acquisition cost
historical cost
According to the FASB conceptual framework, which of the following does not relate to both relevance and faithful representation?
Timeliness
Comparability
Verifiability
Confirmatory value
Confirmatory value
____, ___, ___and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented.”
Comparability, verifiability, timeliness,
What is the primary objective of financial reporting?
To provide forecasts for future cash flows and financial performance
To provide management with an accurate evaluation of their financial performance
To provide economic information that is comprehensible to all users
To provide information that is useful for economic decision making
To provide forecasts for future cash flows and financial performance
SFAC 5 states that one of the characteristics of ___ ____is to provide financial information (not managerial or economic) that is useful to decision making
financial statements
According to the FASB conceptual framework, which of the following is not an essential characteristic of a revenue?
Revenues can result from major or central operations.
Revenues are inflows or other enhancements of assets.
Revenues can result from delivering or producing goods or rendering services.
Revenues can result from peripheral or incidental transactions.
Revenues can result from peripheral or incidental transactions.
SFAC 6, Elements of Financial Statements, defines ___as “inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.”
Revenues
How are amendments incorporated into the FASB Accounting Standards Codification?
By publishing a statement of financial accounting standards
By producing a discussion paper
By issuing an exposure draft
By releasing an accounting standards update
By releasing an accounting standards update
The FASB has established procedures for developing accounting standards; the last step in the process is for the FASB to issue an ___ ___ ____describing the amendment(s) to the Accounting Standards Codification.
Th Accounting Standards Update
Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of:
substance over form.
consistency.
going concern
matching.
matching.
__ is recording expenses and expired costs necessary to generate revenue in the same period as the revenue.
Matching
What is the purpose of SFAC 4 as stated in that concepts statement?
All of the answer choices are correct.
To provide the methods for preparing financial statements for nonbusiness entities
To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities
To provide detailed accounting and reporting standards for nonbusiness entities
To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities
Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis?
Economic entity
Monetary unit
Periodicity
Going concern
Monetary unit
The four assumptions that underlie GAAP are the____
economic entity assumption, the going concern assumption, the periodicity assumption, and the monetary unit assumption
The SEC’s rulemaking procedures identified on their website include which of the following steps?
Commission deliberation
Rule adoption
Issue identification
None of the answer choices are correct.
Rule adoption
A corporation issues quarterly interim financial statements and uses the lower of cost or market method to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements?
Only the cost method of valuation should be used.
Gains from valuations in previous interim periods should be fully recognized.
Inventory losses generally should be recognized in the interim statements.
Temporary market declines should be recognized in the interim statements.
Inventory losses generally should be recognized in the interim statements.
If___ recognized in early interim periods are recovered in the same year, such recoveries are recognized as ___ in the appropriate interim periods
losses
gains
Which of the following statements is true?
None of the answer choices are correct.
GAAP applicable to nonbusiness organizations differ significantly from those applicable to business enterprises.
GAAP applicable to nonbusiness organizations differ significantly from those applicable to business enterprises and among the various types of nonbusiness organizations.
Applicable GAAP differ significantly among the various types of nonbusiness organizations.
GAAP applicable to nonbusiness organizations differ significantly from those applicable to business enterprises and among the various types of nonbusiness organizations.
According to the FASB conceptual framework, which of the following situations violates the concept of reliability?
Financial statements include property with a carrying amount increased to management’s estimate of market value.
Financial statements are issued nine months late.
Data on segments having the same expected risks and growth rates are reported to analysts estimating future profits.
Management reports to stockholders regularly refer to new projects undertaken, but the financial statements never report project results.
Financial statements include property with a carrying amount increased to management’s estimate of market value.
The ___ is supposed to embody “a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements.”
conceptual framework
The basic accounting principle that states that income or loss is determined by a process of associating realized revenues with those expenses necessary to generate them is the principle of:
going concern.
revenue realization.
disclosure.
matching principle.
matching principle.
The basic accounting principle that states that income or loss is determined by a process of associating realized revenues with those expenses necessary to generate them is the ___.
matching principle
How are discontinued operations that occur at midyear initially reported?
Included in net income and disclosed in the notes to the year-end financial statements
Disclosed only in the notes to the year-end financial statements
Disclosed only in the notes to interim financial statements
Included in net income and disclosed in the notes to interim financial statements
Included in net income and disclosed in the notes to interim financial statements
Discontinued operations should be reported separately, net-of-tax, on the ___statement for the interim period. Disclosure in the notes to the interim statements is required.
income
Which of the following accounting pronouncements is the most authoritative?
FASB Technical Bulletins
FASB Statement of Financial Accounting Concepts (SFAC)
AICPA Statement of Position
FASB Accounting Standards Codification
FASB Accounting Standards Codification
Under FASB ASC 105-10, effective for financial statements issued for interim and annual periods ending after September 15, 2009, the ___ is the single source of authoritative GAAP recognized by the Financial Accounting Standards Board (FASB) to be applied by nongovernmental entities.
Accounting Standards Codification (ASC)
According to the FASB conceptual framework, which of the following is not an essential characteristic of a liability?
Arising from a present obligation
Requires future transfer of assets
Based on a past event
Probable future sacrifice of economic benefits
Requires future transfer of assets
SFAC 6, Elements of Financial Statements, defines a ___as a “probable future sacrifice of economic benefits 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.”
liability
The FASB amends the Accounting Standards Codification through the issuance of:
Statements of Financial Accounting Standards.
Staff Accounting Bulletins.
Accounting Standards Updates.
Technical Bulletins.
Accounting Standards Updates.
The FASB’s primary functions are to study current issues and generate new accounting standards, which are maintained in the ____.
Accounting Standards Codification.
The basic accounting principle that states that an entity is assumed to have a life that is indefinite is the principle of:
continuity.
consistency.
separate entity.
periodicity.
The FASB’s primary functions are to study current issues and generate new accounting standards, which are maintained in the
continuity.
The basic accounting principle that states that an entity is assumed to have a life that is indefinite or at least sufficiently long for it to accomplish its objectives and fulfill its legal obligations is the principle of___ or ____
continuity
going concern
What types of rules are generally issued by the SEC?
The SEC does not issue rules.
The SEC issues U.S. GAAP.
None of the answer choices are correct.
The SEC issues Financial Reporting Releases that usually agree with U.S. GAAP.
The SEC issues Financial Reporting Releases that usually agree with U.S. GAAP.
The SEC does issue its own rules in the form of_____, which generally agree with U.S. GAAP.
Financial Reporting Releases
During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about:
both enterprise performance and management performance.
management performance but not directly provide information about enterprise performance.
enterprise performance but not directly provide information about management performance.
neither enterprise performance nor management performance.
enterprise performance but not directly provide information about management performance.
Financial statements provide direct information about enterprise performance because the primary focus of the statements is to provide information about the financial performance of that ___by providing information about earnings.
enterprise
Conceptually, interim financial statements can be described as emphasizing:
relevance over comparability.
timeliness over faithful representation.
faithful representation over relevance.
comparability over neutrality.
timeliness over faithful representation.
Each of the following statements is correct regarding the Financial Accounting Standards Board, except:
it provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial reports.
it establishes accounting concepts and standards for financial accounting and reporting, and provides guidance on implementation of standards.
it develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
it is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants.
it develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
The FASB does or does not develop principles or attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.
does
Accrual accounting involves accruals and deferrals. Which of the following best describes accruals and deferrals?
Accruals are concerned with expected future cash receipts and payments, while deferrals are concerned with past cash receipts and payments.
Accruals are concerned with past cash receipts and payments, while deferrals are concerned with expected future cash receipts and payments.
Both accruals and deferrals are concerned with expected future cash receipts and payments.
Both accruals and deferrals are concerned with past cash receipts and payments.
Accruals are concerned with expected future cash receipts and payments, while deferrals are concerned with past cash receipts and payments
The basic accounting principle that states that the economic activity that underlies financial statements must be substantive in fact and presented without bias is the principle of:
disclosure.
continuity.
consistency.
objectivity
objectivity.
The basic accounting principle that states that the economic activity that underlies financial statements must be substantive in fact and presented without bias is the principle of ____.
objectivity
According to SFAC 8.3, neutrality is an ingredient of:
relevance.
neither faithful representation nor relevance.
both faithful representation and relevance.
faithful representation.
faithful representation.
To be a perfectly faithful representation, a depiction would have three characteristics. It would be ____, ___ and ___
complete, neutral and free from error
Financial statements serve as:
the primary source for financial information about the entity to the primary users since information cannot be provided directly to these users.
the only source of financial information for those outside the entity.
the principal tool for managing the entity.
a “snapshot” in time of the financial condition of the entity.
the primary source for financial information about the entity to the primary users since information cannot be provided directly to these users.
Financial statements serve as the ___, not the only, means for communicating financial information to those outside the entity.
primary
Which of the following statements most correctly describes the SEC’s standard-setting authority?
The SEC deals only with exports.
The SEC generates U.S. GAAP.
The SEC has the authority to establish accounting standards, but it has generally deferred to the FASB to generate U.S. GAAP.
None of the answer choices are correct.
The SEC has the authority to establish accounting standards, but it has generally deferred to the FASB to generate U.S. GAAP.
_____ is a governmental entity created to protect the interest of investors by ensuring full and adequate disclosure by publicly traded companies
The Securities and Exchange Commission (SEC)
Arpco, Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative?
FASB Statements of Financial Accounting Concepts
FASB Accounting Standards Codification
FASB Statements of Financial Accounting Standards
AICPA Statements of Position
FASB Accounting Standards Codification
The FASB’s due process for setting accounting standards includes which of the following procedures?
The FASB obtains approval from the International Accounting Standards Board (IASB) in setting its agenda.
The FASB’s Emerging Issues Task Force ratifies amendments to the Accounting Standards Codification.
The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft.
The FASB delegates topics to the Financial Accounting Foundation (FAF) for research and reporting.
The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft
The FASB has established the following procedures for developing accounting standards:
-
-
-
-
-
-
- Identify a financial reporting issue
- Deliberate the identified issue at public meetings
- Issue an Exposure Draft (ED)
- Hold a public roundtable/forum on issues identified via the ED
- Revise the ED if necessary
- Issue an Accounting Standard Update
According to the FASB’s conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:
relevance.
cost-benefit.
faithful representation.
comparability.
cost-benefit.
The objectives of financial reporting stem from which of the following sources?
Reporting on management’s consistency
Reporting on management’s stewardship
The need for conservatism
The needs of the external users of the information
The needs of the external users of the information
The general purpose of financial statements is to design and provide information to the primary ____users since information cannot be provided directly to these users.
external
To be relevant, information should have which of the following?
Confirmatory value
Verifiability
Understandability
Costs and benefits
Confirmatory value
Financial information is capable of making a difference in decisions if it has predictive value, ___value, or both
confirmatory
A nongovernmental not-for-profit organization may report on which of the following basis and remain in compliance with generally accepted accounting principles (GAAP)?
Modified cash
Accrual
Cash
Modified accrual
Accrual
According to the FASB conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called:
predictive value.
reliability.
representational faithfulness.
feedback value.
predictive value.
financial information has ____ value if it can be used as an input to processes employed by users to predict future outcomes
predictive
Wilson Corp. experienced a $50,000 decline in the market value of its inventory in the first quarter of its fiscal year. Wilson had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceeded the previous decline by $10,000. Wilson’s inventory did not experience any other declines in market value during the fiscal year. What amounts of loss and/or gain should Wilson report in its interim financial statements for the first and third quarters?
First quarter: $0; Third quarter: $0
First quarter: $50,000 loss; Third quarter: $50,000 gain
First quarter: $0; Third quarter: $10,000 gain
First quarter: $50,000 loss; Third quarter: $60,000 gain
First quarter: $0; Third quarter: $0
FASB states that companies should view interim periods as an integral part of the annual reporting period. Therefore, ___in inventory that are temporary need not be reported in interim periods
declines
What are the Statements of Financial Accounting Concepts intended to establish?
The objectives and fundamental concepts that will be the basis for development of financial accounting and reporting guidance.
The meaning of “present fairly in accordance with applicable financial reporting framework”
The hierarchy of sources of generally accepted accounting principles
Generally accepted accounting principles in financial reporting by business enterprises
The objectives and fundamental concepts that will be the basis for development of financial accounting and reporting guidance.
Concepts Statements are intended to establish the ____ and ___concepts that will be the basis for development of financial accounting and reporting guidance
objectives and fundamental
Which of the following characteristics means that information is reasonably free from error and bias?
Predictive value
Consistency
Relevance
Faithful representation
Faithful representation
The primary qualitative characteristics of accounting information are faithful ___and ___
representation
relevance
According to the FASB conceptual framework, which of the following is an essential characteristic of an asset?
The claims to an asset’s benefits are legally enforceable.
An asset is obtained at a cost.
An asset is tangible.
An asset provides future benefits.
An asset provides future benefits.
An asset has three essential characteristics :
acquired at a cost and they may be tangible, exchangeable, or legally enforceable
For interim financial reporting, a company’s income tax provision for the second quarter of 20X1 should be determined using the:
statutory tax rate for 20X1.
effective tax rate expected to be applicable for the second quarter of 20X1.
effective tax rate expected to be applicable for the full year of 20X1 as estimated at the end of the second quarter of 20X1.
effective tax rate expected to be applicable for the full year of 20X1 as estimated at the end of the first quarter of 20X1.
effective tax rate expected to be applicable for the full year of 20X1 as estimated at the end of the second quarter of 20X1.
For interim financial reporting:
at the end of each interim period an estimate should be made of the expected ____ ____ applicable to the full fiscal year and
this rate should be used to develop the ___ ____ provision for the affected interim period.
- tax rate
- income tax
According to the FASB’s conceptual framework, asset valuation accounts are:
liabilities.
assets.
part of stockholders’ equity.
neither assets nor liabilities.
neither assets nor liabilities.
A valuation account is neither an __nor a liability.
asset
Materiality and relevance are both defined by:
the consistency in the application of methods over time.
quantitative criteria set by the Financial Accounting Standards Board.
what influences or makes a difference to a decision maker.
the perceived benefits to be denied that exceed the perceived costs associated with it.
what influences or makes a difference to a decision maker.
According to the FASB conceptual framework, an entity’s revenue may result from:
a decrease in an asset from primary operations.
a decrease in a liability from primary operations.
an increase in an asset from incidental transactions.
an increase in a liability from incidental transactions.
a decrease in a liability from primary operations.
Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization?
Reliability
Timeliness
Neutrality
Relevance
Relevance
The Securities and Exchange Commission was created under which of the following acts?
The 1933 Securities Act
The 1934 Securities Exchange Act
The Tax Equity and Fiscal Responsibility Act
Both the 1933 Securities Act and 1934 Securities Exchange Act
The 1934 Securities Exchange Act
According to the FASB conceptual framework, what does the concept of faithful representation in financial reporting include?
Precision
Neutrality
Certainty
Effectiveness
Neutrality
The University of Tulsa, a private institution, is required to report under the standards of which of the following bodies?
Primarily GASB
None of the above
Primarily APB
Primarily FASB
Primarily FASB
a private university is not required to report under the standards of GASB. GASB standards only apply to entities belonging to a ___entity.
governmental
Which of the following items is (are) reported net of tax?
Unusual or infrequent gains and losses classified as “other revenue and expense”
The amount of the difference between cost of goods sold caused by a change in the current year from the average cost method to the FIFO method
The additional amount of bad debts expense reported due to an increase in the percentage used to estimate bad debts expense this year
Discontinued operations
Discontinued operations
Only one of the items listed is reported net of tax in the income statement: ____ ____
discontinued operations
The FASB’s conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?
Financial capital is applied to both currently reported net income and comprehensive income.
Physical capital is applied to currently reported net income; financial capital is applied to comprehensive income.
Physical capital is applied to both currently reported net income and comprehensive income.
Financial capital is applied to currently reported net income; physical capital is applied to comprehensive income
Financial capital is applied to both currently reported net income and comprehensive income.
Elements of Financial Statements, contains the following definitions:
Capital maintenance concept, Financial capital concept, Physical capital concept
According to the FASB conceptual framework, predictive value is an ingredient of:
faithful representation.
neither faithful representation nor relevance.
relevance.
both faithful representation and relevance.
relevance.
Qualitative Characteristics of Useful Financial Information,” identifies predictive value and confirmatory value as components of ___.
relevance
According to the FASB conceptual framework, which of the following is not an essential characteristic of an expense?
Expenses can result from delivering or producing goods or rendering services.
Expenses can result from major or central operations.
Expenses are inflows or other enhancements of assets.
Expenses can result from the incurrence of a liability.
Expenses are inflows or other enhancements of assets.
An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter the inventory’s market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting, the dollar amount of net inventory should:
decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.
decrease in the first quarter by the amount of the market price decline and not be affected in the third quarter.
not be affected in either the first quarter or the third quarter.
decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery.
decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.
Which of the following statements about accounting standard setting in the United States is true?
While the FASB is primarily responsible for setting accounting standards in the United States, the SEC is primarily responsible for enforcing the standards.
The FASB and the SEC are both deeply involved in the day-to-day process of setting accounting standards.
The FASB and SEC must seek approval of the U.S. Congress before a new accounting standard can be approved.
While the SEC is primarily responsible for setting accounting standards in the United States, the FASB is primarily responsible for enforcing the standards.
While the FASB is primarily responsible for setting accounting standards in the United States, the SEC is primarily responsible for enforcing the standards.
SFAC 4 suggests what performance indicators for nonbusiness organizations?
Net income
Information about service efforts and accomplishments
Information about the nature and relationship between inflows and outflows of resources
Information about both the nature and relationship between inflows and outflows and service efforts and accomplishments
Information about both the nature and relationship between inflows and outflows and service efforts and accomplishments
According to the FASB conceptual framework, which of the following is not an essential characteristic of a gain?
They can result from peripheral or incidental transactions.
There is an increase in net assets.
They can result from revenues or investment by owners.
They can result from all other transactions and other events and circumstances affecting an entity.
They can result from revenues or investment by owners.
__ is the “increase in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners.”
gains
During the first quarter of the current year, Tech Co. had income before taxes of $200,000, and its effective income tax rate was 15%. Tech’s previous-year effective annual income tax rate was 30%, but Tech expects its current-year effective annual income tax rate to be 25%. In its first-quarter interim income statement, what amount of income tax expense should Tech report?
$30,000
$0
$60,000
$50,000
The current-year effective annual tax rate is used for interim reports:
- $200,000 × 0.25 = $50,000
According to the FASB conceptual framework, which of the following correctly pairs a primary qualitative characteristic of accounting information with one of its components?
Faithful representation and feedback value
Relevance and verifiability
Faithful representation and predictive value
Relevance and predictive value
Relevance and predictive value
The components of relevance are predictive value, confirmatory value, and ____
materiality
cording to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?
Current cost
Net realizable value
Current market value
Historical cost
Current cost
Five different attributes of assets (and liabilities) are used in present practice:
- Historical cost (historical proceeds)
- Current cost
- Current market value
- Net realizable (settlement) value
- Present (or discounted) value of future cash flows
When a CPA is applying the enhancing qualitative characteristics of useful financial information, it is important for the CPA to remember that:
the enhancing qualitative characteristics could compensate for unfaithful representation.
applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.
cost is a secondary consideration when applying the enhancing qualitative characteristics.
each of the four enhancing qualitative characteristics should be given equal priority.
SUBMIT
applying the enhancing qualitative characteristics is an iterative process that does not follow a prescribed order.
Enhancing qualitative characteristics enhance the usefulness of information that is relevant and __stated
faithfully
On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third-quarter interim financial statements for the three months ended September 30?
$0
$95,000
$15,000
$75,000
Property taxes ($60,000 x 3/12) $15,000 Major repairs ($240,000 x 3/9) 80,000 Total $95,000
