Framework Overview & Statements

Question 1

Standard setting body in the United States…

Answer 1

Financial Accounting Standards Board (FASB)

Question 2

The federal government agency that administers the securities laws of the U.S…

Answer 2

Securities and Exchange Commission (SEC)

Question 3

The national professional organization for practicing CPAs

Answer 3

American Institute of Certified Public Accountants (AICPA)

Question 4

Appoints the members of the FASB and its advisory councils, ensures adequate funding for the FASB and exercises oversight over the FASB

Answer 4

Financial Accounting Foundation (FAF)

Question 5

Establishes financial accounting standards for business entities

Answer 5

FASB

Question 6

Provides guidance on major policy issues, project priorities & the formation of task forces

Answer 6

Financial Accounting Standards Advisory Council (FASAC)

Question 7

In reference to proposed accounting standards, the term “negative economic consequences” includes:

Answer 7

The inability to raise capital

Question 8

What is the primary protection for investors against fraudulent financial reporting by corporations?

Answer 8

The requirement that financial statements be audited

Question 9

What group currently writes GAAP?

Answer 9

FASB

Question 10

What is the role of the Financial Accounting Foundation?

Answer 10

The FAF exercises oversight of the FASB, appoints members of the FASB & ensures funding.

Question 11

What is the role of the Financial Accounting Advisory Council (FASAC)?

Answer 11

The FASAC provides guidance on major political issues, project priorities, & the formation of task forces

Question 12

How do user groups influence the outcome of FASB standards?

Answer 12

Users influence standards by providing input during the due process procedure

Question 13

What are the final 3 steps in the standard setting process?

Answer 13

1. Evaluate research & comments from interested parties & issue an exposure draft
2. Solicit additional comments
3. Finalize new accounting guidance & issue Accounting Standards Update (ASU)

Question 14

In analyzing a company’s financial statements, which financial statement would a potential investor use primarily to assess the company’s liquidity & financial flexibility?

Answer 14

Balance sheet

Question 15

The rules of financial reporting for business enterprises. “Accounting Standards”

Answer 15

Generally Accepted Accounting Principles (GAAP)

Question 16

The cash basis of accounting overstates income by the net increase during the accounting period of the

Answer 16

Accrued expenses payable

Question 17

Increases in net assets from incidental or peripheral transactions affecting an entity

Answer 17

Gains

Question 18

The process of converting noncash resources and rights into cash or claims to cash

Answer 18

Realization

Question 19

Enhancing qualitative characteristic of relevance AND faithful representation

Answer 19

Comparability

Question 20

The process of fomally recording an item in the financial statements of an entity after it has met existing criteria and been subject to cost-benefit constraints and materiality thresholds

Answer 20

Recognition

Question 21

All changes in net assets of an entity during a period except those resulting from investments by owners and distributions to owners

Answer 21

Comprehensive Income

Question 22

Inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing operations

Answer 22

Revenues

Question 23

The amount of cash, or its equivalent, that could be obtained by selling an asset in orderly liquidation

Answer 23

Current Market Value

Question 24

The quality of information that helps users to increase the likelihood of correctly forecasting the outcome of past or present events

Answer 24

Predictive Value

Question 25

A performance measure concerned primarily with cash-to-cash cycles

Answer 25

Earnings

Question 26

Valuation method for Long-term receivables

Answer 26

Present value of future cash flows

Question 27

Valuation method for Available for sale securitites

Answer 27

Current market value

Question 28

Valuation method for Equipment

Answer 28

Historical cost or historical proceeds

Question 29

Valuation method for Warranty obligations

Answer 29

Net realizable value or settlement rate

Question 30

Valuation method for Short-term payables

Answer 30

Historical cost or historical proceeds

Question 31

Valuation method for Accounts receivable

Answer 31

Net realizable value or settlement rate

Question 32

Valuation method for Bonds payable, due in 10 years

Answer 32

Present value of future cash flows

Question 33

Valuation method for Trading securities

Answer 33

Current market value

Question 34

What are the seven key components of the general purpose external financial report?

Answer 34

1. Income Statement;
2. Balance Sheet;
3. Statement of Cash Flows;
4. Statement of Retained Earnings;
5. Statement of Comprehensive Income;
6. Footnote Disclosures;
7. Auditor’s Opinion.

Question 35

What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?

Answer 35

1. Other comprehensive basis of accounting;
2. Cash basis;
3. Income tax basis;
4. Regulatory accounting principles.

Question 36

The Statement of Comprehensive Income includes:

Answer 36

1. Net Income (or loss)
2. Unrealized gains or losses on available-for-sale securities
3. Adjustments in the calculation of the pension liability
4. Foreign currency translation adjustments
5. Deferrals of certain gains or losses on hedge accounting