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ACC124 > CFAS - CHAPTER 6 > Flashcards

CFAS - CHAPTER 6 Flashcards

1
Q

It is the process of capturing for inclusion in the financial statements an item that meets the definition of the elements of financial statements.

a. Recognition
b. Measurement
c. Classifying
d. Derecognition

A

a. Recognition

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2
Q

An item is recognized in the financial statements if

a. It is probable that economic benefits will flow to or from the entity.
b. It meets the definition of an asset, liability, equity, income and expense.
c. The entity has ownership of such item.
d. It is probable that economic benefits will flow to or from the entity and that the cost can be measured reliably.

A

b. It meets the definition of an asset, liability, equity, income and expense.

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3
Q

Recognition of an element is appropriate when information results in

a. Relevance
b. Faithful representation
c. Both relevance and faithful representation
d. Neither relevance nor faithful representation

A

c. Both relevance and faithful representation

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4
Q

It is the removal of all or part of a recognized asset or liability from the statement of financial position.

a. Writeoff
b. Derecognition
c. Extinguishment
d. Retirement

A

b. Derecognition

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5
Q

Derecognition normally occurs when

a. An item no longer meets the definition of an asset or a liability.
b. The entity loses control of the asset.
c. The entity no longer has a present obligation for the liability.
d. Under all of these circumstances.

A

d. Under all of these circumstances.

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6
Q

Generally, revenue is recognized

a. At the point of sale.
b. When cause and effect are associated.
c. At the point of cash collection.
d. At appropriate points throughout the operating cycle.

A

a. At the point of sale.

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7
Q

Which of the following is not an accepted basis for recognition of revenue?

a. Passage of time
b. Performance of service
c. Completion of percentage of a project
d. Upon signing of contract

A

d. Upon signing of contract

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8
Q

Revenue from sale of goods is recognized

a. When the customer order is received.
b. When the customer order is accompanied by a check.
c. Only if the transaction will create an account receivable.
d. When the title to the goods changes.

A

d. When the title to the goods changes.

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9
Q

Which of the following practices may not be an acceptable deviation from recognizing revenue at the point of sale?

a. Upon receipt of cash
b. During production
c. Upon receipt of order
d. End of production

A

c. Upon receipt of order

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10
Q

Which of the following represents the least desirable choice for the recognition of revenue?

a. Recognition of revenue during production
b. Recognition of revenue when a sale occurs
c. Recognition of revenue when cash is collected
d. Recognition of revenue when production is completed

A

c. Recognition of revenue when cash is collected

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11
Q

Revenue recognition conventionally refers to

a. The process of identifying transactions to be recorded as revenue in an accounting period.

b. The process of measuring and relating revenue and expenses during a period.

c. The earning process which gives rise to revenue
realization.

d. The process of identifying those transactions that result in an inflow of assets to the entity.

A

a. The process of identifying transactions to be recorded as revenue in an accounting period.

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12
Q

Which means the process of converting noncash resources into cash or claims to cash?

a. Allocation
b. Collection
c. Recognition
d. Realization

A

d. Realization

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13
Q

Gains on assets unsold are identified by the term

a. Unrecorded
b. Unrealized
c. Unrecognized
d. Unallocated

A

b. Unrealized

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14
Q

The term recognized is synonymous with the term

a. Recorded
b. Realized
c. Matched
d. Allocated

A

a. Recorded

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15
Q

Which statement conforms to the realization concept?

a. Depreciation was assigned to product unit cost
b. Equipment was sold in exchange for a note receivable
c. Cash was collected on accounts receivable
d. Product unit costs were assigned to cost of goods sold

A

b. Equipment was sold in exchange for a note receivable

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16
Q

Which of the following is not a theoretical basis for the allocation of expense?

a. Immediate recognition
b. Systematic and rational allocation
c. Cause and effect association
d. Profit maximization

A

d. Profit maximization

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17
Q

Costs that can be reasonably associated with specific revenue but not with specific product should be

a. Expensed in the period incurred
b. Allocated to the specific product based on the best estimate of the product processing time
c. Expensed in the period in which the related revenue is recognized
d. Capitalized and then amortized over a reasonable period

A

c. Expensed in the period in which the related revenue is recognized

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18
Q

Which of the following is an example of the cause and effect association principle?

a. Sales commission
b. Allocation of insurance cost
c. Depreciation of property, plant and equipment
d. Officers’ salaries

A

a. Sales commission

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18
Q

Which of the following is an application of the systematic and rational allocation principle?

a. Doubtful accounts
b. Research and development cost
c. Warranty cost
d. Amortization of intangible asset

A

d. Amortization of intangible asset

18
Q

Which of the following would be matched with current revenue on a basis other than association of cause and effect?

a. Goodwill
b. Cost of goods sold
c. Sales commission
d. Warranty cost

A

a. Goodwill

18
Q

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized?

a. To reduce the income tax liability
b. To aid management in the decision-making process
c. To match the cost of production with revenue
d. To adhere to the accounting concept of conservatism

A

c. To match the cost of production with revenue

18
Q

Which principle best describes the rationale for matching depreciation with revenue?

a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition

A

b. Systematic and rational allocation

18
Q

Which of the following should be expensed under the principle of systematic and rational allocation?

a. Salesmen’s monthly salaries
b. Insurance premiums
c. Transportation to customers
d. Electricity to light office building

A

b. Insurance premiums

19
Q

The writeoff of a worthless patent is an example of which of the following principles?

a. Associating cause and effect
b. Immediate recognition
c. Systematic and rational allocation
d. Objectivity

A

b. Immediate recognition

20
Q

What is an example of cost that cannot be directly related to particular revenue but incurred to obtain benefits that are exhausted in the period when the cost is incurred?

a. Sales commissions
b. Sales salaries
c. Freight in
d. Prepaid insurance

A

b. Sales salaries

21
Q

The matching principle is best demonstrated by

a. Not recognizing any expense unless some revenue is realized
b. Associating effort with accomplishment
c. Recognizing prepaid rent received as revenue
d. Establishing an appropriation for contingency

A

b. Associating effort with accomplishment

22
Q

Bad debt expense is recognized according to which expense recognition principle?

a. Direct matching
b. Immediate recognition
c. Systematic and rational allocation
d. Critical event recognition

A

a. Direct matching

23
Q

What is the general approach as to when product costs are recognized as expenses?

a. In the period when the expenses are paid.
b. In the period when the expenses are incurred.
c. In the period when the vendor invoice is received.
d. In the period when the related revenue is recognized.

A

d. In the period when the related revenue is recognized.

24
Q

When should an expenditure be recorded as an asset rather than an expense?

a. Never
b. Always
c. If the amount is material
d. When there is a right that has the potential to produce economic benefit

A

d. When there is a right that has the potential to produce economic benefit

25
Q

Which accounting principle is being observed when an accountant charges to expense a cost that contributed to revenue during a period?

a. Revenue realization
b. Matching
c. Monetary unit
d. Conservatism

A

b. Matching

26
Q

Which is not acceptable for recognition of expense?

a. Systematic and rational allocation
b. Direct matching
c. Immediate recognition
d. Cash disbursement

A

d. Cash disbursement

27
Q

A cause and effect relationship is implicit in the

a. Realization principle
b. Historical cost principle
c. Matching principle
d. Going concern assumption

A

c. Matching principle

28
Q

An example of direct matching would be

a. Depreciation expense
b. Office salaries expense
c. Direct labor costs incurred to produce inventory sold
d. Advertising expense

A

c. Direct labor costs incurred to produce inventory sold

29
Q

Which category is subject to immediate recognition?

a. Utilities expense for the production line
b. Repairs and maintenance expense incurred on production equipment of a manufacturer
c. The salary of the production foreman
d. The salary of the entity president

A

d. The salary of the entity president

30
Q

Which principle best describes the rationale for distribution and administrative expenses?

a. Direct matching
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition

A

c. Immediate recognition

31
Q

Which statement is true about current value?

a. Fair value of an asset is the price that would be received to sell an asset in an orderly transaction.

b. Value in use is the present value of the cash flows expected to be derived from an asset.

c. Fulfillment value is the present value of the cash expected for the payment of liability.

d. All of these statements are true about current value.

A

d. All of these statements are true about current value.

32
Q

The measurement bases include

a. Historical cost
b. Current value
c. Assessed value
d. Historical cost and current value

A

d. Historical cost and current value

33
Q

Current value includes

a. Fair value and present value
b. Fair value and current cost
c. Current cost and value in use
d. Fair value, value in use and current cost

A

d. Fair value, value in use and current cost

34
Q

Which measurement attribute is not currently used?

a. Present value
b. Fair value
c. Current cost
d. Inflation adjusted cost

A

d. Inflation adjusted cost

35
Q

Which term best describes the amount that represents the immediate purchase cost of an asset?

a. Historical cost
b. Realizable value
c. Present value
d. Current cost

A

d. Current cost

36
Q

Asset measurements in financial statements

a. Are confined to historical cost
b. Are confined to historical cost and current cost
c. Reflect several financial attributes
d. Do not reflect output value

A

c. Reflect several financial attributes

37
Q

Which of the following should be considered a current value measure?

a. Replacement cost and exit value
b. Replacement cost and discounted cash flow
c. Exit value and discounted cash flow
d. Replacement cost, exit value and discounted cash flow

A

d. Replacement cost, exit value and discounted cash flow

38
Q

The primary measurement basis is

a. Historical cost
b. Fair value
c. Value in use
d. Current cost

A

a. Historical cost

39
Q

Which measurement basis is currently used in financial statements?

a. Present value
b. Present value and settlement value
c. Settlement value and fair value
d. Present value, settlement value and fair value

A

d. Present value, settlement value and fair value

40
Q

Which measurement attribute is the most relevant?

a. Present value
b. Exit value
c. Current cost
d. Historical cost

A

a. Present value

ACC124 (23 decks)

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