F1 - Accounting standard and conceptual framework.

Question 1

What is the underlying concept governing the recording of gain contingencies?

Answer 1

Conservatism.
Gain contingencies should not be recognized prior to realization as a prudent reaction to the uncertainty surrounding the realization of the gain as reflected in the convention of conservatism.

Question 2

According to the FASB conceptual framework, which would not be used to measure inventory?

Answer 2

Present value of future cash flows. The present value of future cash flows is used to measure long-term receivables or payables, because inventory is a short-term asset, which has more immediate cash flows. SFAC 5 para. 67

Question 3

What are the 3 elements of faithful (reliable) representation?

Answer 3

Completeness is an ingredient of faithful representation. Other ingredients include neutrality and freedom from error.

Question 4

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

Answer 4

Recognition is the process of recording an item in the financial statements of an entity. SFAC 5 para. 6

Question 5

Financial information provided in general purpose financial reports does not include information about:

Answer 5

Financial information provided in general purpose financial reports should include information about the resources of the entity, the claims against the entity, and how effectively and efficiently the entity’s management and governing board have discharged their responsibilities to use the entity’s resources.

Question 6

According to the FASB conceptual framework, which statements conforms to the realization concept?

Answer 6

Revenues and gains are realized when assets are exchanged for cash or claims to cash. Depreciated equipment was sold in exchange for a note receivable.

Question 7

According to the FASB and IASB conceptual frameworks, which of the following is an enhancing qualitative characteristic?

Answer 7

Timeliness, understandability, comparability and verifiability are characteristics that enhance the usefulness of information that is relevant and faithfully represented.

Question 8

A U.S. public company needs guidance in accounting for reporting a complex derivative transaction that it entered into with a European subsidiary. This company is most likely to find the appropriate guidance in the:

Answer 8

The FASB Accounting Standards Codification is the single source of U.S. GAAP. U.S. public companies are required to follow U.S. GAAP.