F1 M1 Standards and Conceptual Framework

Question 1

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

Answer 1

Recognition (SFAC 5)

Question 2

Financial information provided in general purpose financial reports does not include information about
A. The claims against the entity.
B. How effectively and efficiently the entity’s governing board has discharged its responsibility to use the entity’s resources.
C. How effectively and efficiently the entity’s shareholders’ have discharged their responsibility to use the entity’s resources.
D. The resources of the entity.

Answer 2

C. Shareholders do not have a responsibility (or a right) to use the entity’s resources.

Question 3

SFAC defines the 5 elements of present value. They are:

Answer 3

The Price for Bearing Uncertainty
Expectations about Timing Variations of Future Cash Flows
Other Factors (e.g., Liquidity Issues and Market Imperfections)
Time Value of Money (the Risk-free Rate of Interest)
Estimate of Future Cash Flow

Question 4

Public companies must follow _____ for external financial reporting purposes.

Answer 4

GAAP

Question 5

Which of the following characteristics enhances relevance and faithful representation?
A. Timeliness
B. Predictive value
C. Materiality
D. Neutrality

Answer 5

A

Question 6

The ____ means that money is the common denominator for economic activity and provides and appropriate basis for accounting measurements and analysis.

Answer 6

Monetary unit

Question 7

____ is defined as the amount of cash or its equivalent that would be paid to acquire or replace an asset currently.

Answer 7

Replacement cost

Question 8

According to the FASB and IASB conceptual frameworks, to be relevant, information should have which of the following?
A. Completeness
B. Predictive value
C. Neutrality
D. Verifiability

Answer 8

B

Question 9

According to the FASB and IASB conceptual frameworks, neutrality is an ingredient of
A. Comparability
B. Relevance
C. Faithful representation
D. Timeliness

Answer 9

Faithful Representation

Question 10

What is the most authoritative source of US GAAP?

Answer 10

FASB Accounting Standards Codification

Question 11

Financial accounting concepts refer to the characteristic of accounting information that provides predictive value to users as the quality of:
A. Understandability
B. Relevance
C. Comparability
D. Faithful Representation

Answer 11

B

Question 12

Materiality is a component of what fundamental qualitative characteristic?

Answer 12

Relevance

Question 13

On Dec 31, Brooks Co. decided to end operations and dispose of its assets within 3 months. At Dec 31, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks' Dec 31 balance sheet?
A. Current replacement cost
B. Net realizable value
C. Historical cost
D. Current reproduction cost

Answer 13

B, because of the decision to end operations quickly and dispose of assets.

Question 14

According to the FASB conceptual framework, which of the following is an essential characteristic of an asset?
A. The claims to an asset’s benefits are legally enforceable.
B. And asset is obtained at a cost.
C. An asset is tangible.
D. An asset provides future benefits.

Answer 14

D

Question 15

According to the FASB conceptual framework, an entity’s revenue may result from:
A. An increase in an asset from incidental transactions
B. A decrease in a liability from primary operations
C. A decrease in an asset from primary operations
D. An increase in a liability from incidental transactions

Answer 15

B

Revenues are inflows or other enhancements of assets and/or settlements (decreases) in liabilities resulting from the entity’s ongoing MAJOR operations, not from incidental operations.

Question 16

Under a royalty agreement with another company, Wand Co. will pay royalties for the assignment of a patent for 3 years. The royalties paid should be reported as expense:
A. In the period paid
B. At the date the agreement expired
C. At the date the agreement began
D. In the period incurred

Answer 16

D

Question 17

What is the primary objective of financial reporting?

Answer 17

To provide information that is useful for economic decision making.