Chapter 1

Question 1

Capital Markets

Answer 1

All investor and creditors

Question 2

Accrual Accounting

Answer 2

Measures income according to the entity’s accomplishments and resource sacrifices during the period from transactions related to providing goods and services to customers, regardless of when cash is received or paid.

Question 3

Hierarchy of Standard Setting Authority

Answer 3

Congress
SEC
Private Sector
CAP, APB, FASB

Question 4

Fundamental Qualitative Characteristics

Answer 4

Relevance, Faithful Representation

Question 5

Relevance

Answer 5

Predictive Value
Confirmatory Value
Material

Question 6

Predictive Value

Answer 6

Confirmation of investor expectations about future cash-generating ability

Question 7

Confirmatory Value

Answer 7

Confirmation of investor expectations about future cash-generating ability

Question 8

Material

Answer 8

Has quantitative/ qualitative characteristics that make it matter for decision-making

Question 9

Faithful Representation

Answer 9

Agreement between a measure or description and the phenomenon it purports to represent ( complete, neutral , free from error )

Question 10

Complete

Answer 10

Includes all information necessary for faithful represent

Question 11

Neutral

Answer 11

It is free from bias.

Question 12

Free From Error

Answer 12

Contains no errors or omissions used in the report

Question 13

Applying this to deal with errors

Answer 13

Conservatism

Question 14

Conservatism

Answer 14

Requires greater verification for good news than for bad news

Question 15

Economic Entity Assumption

Answer 15

Presumes that economic events can be identified specifically with an economic entity

Question 16

Going Concern Assumption

Answer 16

In absence of information, that a business entity will continue to operate indefinitely

Question 17

Periodicity Assumption

Answer 17

Allows the life of a company to be divided into artificial time periods to provide information

Question 18

Monetary Unity Assumption

Answer 18

Requires that used the dollar in the united states without adjusting it for inflation

Question 19

An item is recongnized in the basic financial statements when it meets

Answer 19

Definition
Measurability
Relevance
Reliabiltiy

Question 20

Definition

Answer 20

An item meets the definition of an element in the financial statement

Question 21

Measurability

Answer 21

Item has relevant attribute neasurable with sufficent reliability

Question 22

Relevance

Answer 22

Information about it is capable of making a difference in user decisions.

Question 23

Reliability

Answer 23

IS representationally faithful, verifiable, and neutral

Question 24

Revenue Recognition

Answer 24

Revenue is typically recognized when a critical event has occurred, when a product or service has been delivered to a customer, and the dollar amount is easily measurable to the company.

Question 25

Expense Recognition

Answer 25

Expenses should be recognized in the same period as the revenues to which they relate. If this were not the case, expenses would likely be recognized as incurred, which might predate or follow the period in which the related amount of revenue is recognized.

Question 26

5 measurement attributes

Answer 26

Historical Cost Net Realizable Value Current Cost Present ( discounted) value of future cash flows Fair Value

Question 27

Historical Cost

Answer 27

The amount given or received in the original exchange transaction.

Question 28

Net Realizable Value

Answer 28

The estimated selling price in the ordinary course of business, minus the cost of completion ( inventory sold at 10,000 but transporting cost 2000, so NRV is 8000)

Question 29

Current Cost

Answer 29

The current cost of an asset that would incurred to purchase or reproduce the asset - Operate in inflationary Economics

Question 30

Present Value

Answer 30

Bases measurement on future cash flows discounted for the time value of money

Question 31

Fair Value

Answer 31

Based on measurements on the price thst would be received to sell assets or transfer liabilities to market participants. -used normally, especially for PPE

Question 32

Full Disclosure Principle

Answer 32

Requires that a company discloses anything that will affect their financial statements

Question 33

Quick Ratio ( Acid Test)

Answer 33

Assets that are readily available to pay current liabilities ( Quick Assets/ Current Liabilities)

Question 34

Quick Assets

Answer 34

Cash+ Short Term Investments ( 3 months) and accounts receivable

Question 35

Current Ratio

Answer 35

Current Assets/Current Liabilities How can they pay back their obligations

Question 36

Liquidicity Ratios

Answer 36

Current Ratio and Acid Test

Question 37

Solvency Ratios

Answer 37

Debt to Equity Ratio Times Interest Earned Ratio Return on Equity

Question 38

Debt to Equity Ratio

Answer 38

Compares Resources provided by creditors with resources provided by owners ( Total liabilities/ Shareholder's Equity)

Question 39

Times Interest Earned Ratio

Answer 39

EBIT Income/ interest expense