Conceptual Framework

Question 1

Primary objectives of financial statements (6 total)

Answer 1

1.Provide information to investors, lenders and other creditors
2.Provide information about the entity’s economic resources and or
3. changes in those resources
4&5. Financial performance reflected by:
Accrual accounting
Cash Flow
6. Changes in economic resources NOT resulting from financial performance (stock)

Question 2

Primary Qualitative Characteristics that make financial information USEFUL

Answer 2

Relevance (PC)
- AND-Material
Faithful Representation (FENCe)

Question 3

Primary Qualitative Characteristic:

Relevance consists of?

Answer 3

PC
Predictive Value - Helps decision makers predict future
Confirmatory Value - Feedback, or confirms prior results
-Or Both-
Info must be Material

Question 4

Primary Qualitative Characteristic:

Faithful Representation consists of?

Answer 4

FENCe
Free from Error
Neutrality - without bias
Completeness - users can understand info

Question 5

Enhancing Qualitative Characteristics consists of?

Answer 5

CUT like a V
Comparability - Consistent acct principles
Understandability - presenting info clearly
Timeliness - Info available timely manner
Verifiability - dif sources agree on amt

Question 6

One pervasive constraint that overrides usefulness of information?

Answer 6

Cost/Benefit - Cost of obtaining info shouldn’t exceed the benefit

Question 7

A full set of financial statements includes:

Answer 7

Statement of position (Balance Sheet)
Statement of earnings Financial and Comprehensive Income (Income Statement)
Statement of Cash Flows
Statement of Changes in Owners Equity

Question 8

What is an Asset?

Answer 8

An economic Resource that has a probable future benefit, one can obtain the benefit, and the transaction creating the benefits already occurred

Question 9

What is a liability?

Answer 9

An economic obligation in which one needs to use or transfer an asset, it can be avoided and the transaction already occurred

Question 10

What is Equity or Net Assets?

Answer 10

Assets left over after deducting liabilities

Question 11

Equity consists of what 3 elements?

Answer 11

Contributions/investments by owners
Distributions to owners
Comprehensive income

Question 12

Items that affect comprehensive income but not net income are (4) [DENT]

Answer 12

DENT

• Derivative cash flow hedges
• Excess adjustment of pension PBO or FV of plan assets at YE
• Net unrealized gains or losses on “available for sale securities”
• Translation adjustments for foreign currency

Question 13

4 Elements of Comprehensive income

Answer 13

Revenues
Expenses
Gains
Losses

Question 14

Ways to measure in monetary terms

Answer 14

Historical Cost
Replacement Cost
Fair Market Value
Net Realizable Value
Present Value

Question 15

3 valuation techniques for measuring an item at fair market value [MIC]

Answer 15

Market Approach
Income Approach
Cost Approach

Question 16

6 steps of applying fair value measurement

Answer 16

1. Identify the asset or liability to be measured
2. Determine the principle or most advantageous market (highest and best use)
3. Determine the valuation premise (in-use or in-exchange)
4. Determine the appropriate valuation technique (Market,income,cost approach)
5. Obtain inputs for valuation (Level 1,2,or3)
6. Calculate the fair value of the assets

Question 17

Under accrual accounting revenue or gains are recognized when:

Answer 17

Earned - items delivered

Realized or realizable - cash collected or will be collected

Question 18

Based on revenue recognition a revenue is recognized when:

Answer 18

A binding contract exists
Services rendered or delivery has occurred
Fixed or determinable price exists
Collection is reasonable assured

Question 19

Expenses or losses incurred when

Answer 19

Cause and effect (COGS)
Systemic and rational allocation (Depreciation)
Immediate recognition (General & Admin exp)

Question 20

To comply with disclosure requirements related to risk a company should disclose:

Answer 20

nature of its operations
Use of estimates
Certain significant estimates
Vulnerability to certain kinds of concentrations