Conceptual Framework

Question 1

What are the TWO PRIMARY qualitative characteristics of Accounting Information?

Answer 1

Relevance and Faithful Representation

Question 2

What are the ENHANCING qualitative characteristics of accounting information?

Answer 2

There are four ENHANCING characteristics:

1. Comparability
2. Verifiability
3. Timeliness
4. Understandability

Question 3

What are the 3 things included in RELEVANCE (which is one of the PRIMARY qualitative characteristics of accounting information).

Answer 3

The 3 sub-components of RELEVANCE are:

a. Predictive value
b. Confirmatory value
c. Materiality

Question 4

What are the 3 things included in Faithful Representation (which is one of the PRIMARY qualitative characteristics of accounting information).

Answer 4

The 3 sub-components of Faithful representation are:

a. Completeness
b. Neutrality
c. Free from error

Question 5

Which characteristic of accounting information primarily allows users of financial statements to generate predictions about an organization?

Answer 5

RELEVANCE - sub component predictive value

Question 6

Conceptually, interim financial statements can be described as emphasizing:

Answer 6

Timeliness over faithful representation

*Because interim is more estimate based reasonable in a timely fashion > exact information here

Question 7

According to the conceptual framework, the objectives of financial reporting for business enterprises are based on

Answer 7

The needs of the USERS of the information

Question 8

Which characteristic relates to both accounting relevance and faithful representation?

Answer 8

Comparability; because info must be relevant and reliable to be comparable.

Question 9

On December 31, 2002, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 2002, the net realizable value of the equipment was below historical cost.

What is the appropriate measurement basis for equipment included in Brooks’ December 31, 2002, Balance Sheet?

Answer 9

Net realizable value

Since going concern assumption is no longer relevant (the firm is closing) the only relevant amounts are what can be received on sale of the assets.

Question 10

Reporting inventory at the lower of cost or market is a departure from the accounting principle of:

Answer 10

Historical Cost

Question 11

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of:

Answer 11

Economic entity

Question 12

According to the conceptual framework, the process of reporting an item in the financial statements of an entity is:

Answer 12

Recognition