Question 1

Which of the following distinguishes the personal transactions of business owners from business transactions?

Accepted Answer

A)  Unit-of-measure assumption 
B)  Full-disclosure principle 
C)  Materiality constraint 
D)  Separate entity assumption 
A)  Unit-of-measure assumption 
B)  Full-disclosure principle 
C)  Materiality constraint 
D)  Separate entity assumption D

Question 2

Explain how the continuity assumption and the historical cost principle are related.

Accepted Answer

Expenses, a component of earnings, are measured in terms of the historical cost of resources (assets) consumed or used in producing revenue because, under the continuity assumption, there is no assumption that the assets used in operations will be sold. Using historical cost allows an evaluation of how management created value with the assets entrusted to them, measured at the actual cost of those resources. Thus, income reflects the excess of revenues over the historical cost, rather than market value, of the resources used.
An alternative approach to earnings measurement, not supported by the continuity assumption, would employ market values of revenues and costs (expenses) to determine an "opportunity" cost measure of earnings.
The continuity assumption also supports the inclusion of certain costs in assets used in operations, as opposed to immediate expensing of those costs, even though there is no expectation that such costs will be recouped on sale of the asset. The value of such operational assets is derived through use, rather than from sale, under the continuity assumption. Specific examples include installation costs of equipment, and many prepaid assets such as prepaid rent. In the latter example, if the firm were not a going concern, prepaid rent would not represent an asset beyond the liquidation date.

Question 3

"Substance over form" effectively refers to Representational Faithfulness in the conceptual framework.

Accepted Answer

A) True 
 B)False  True

Question 4

At times, reliability must be sacrificed in order to enhance the relevance of accounting information.

Accepted Answer

A) True 
 B)False

Question 5

The objective of financial reporting is:

Accepted Answer

A)  To provide the market value of a firm at a point in time. 
B)  To provide the total market value of its common stock. 
C)  To provide information useful for decision making by investors and creditors. 
D)  To require all companies to comply with GAAP. 
A)  To provide the market value of a firm at a point in time. 
B)  To provide the total market value of its common stock. 
C)  To provide information useful for decision making by investors and creditors. 
D)  To require all companies to comply with GAAP.

Question 6

Certain costs of doing business are capitalized when incurred and then amortized over subsequent accounting periods to:

Accepted Answer

A)  aid management in decision-making. 
B)  match the costs incurred with revenues earned. 
C)  conform to the conservatism constraint. 
D)  conform to the comparability characteristic. 
E)  reduce the income tax. 
A)  aid management in decision-making. 
B)  match the costs incurred with revenues earned. 
C)  conform to the conservatism constraint. 
D)  conform to the comparability characteristic. 
E)  reduce the income tax.

Question 7

The going concern principal does not apply if a company is expected to be liquidated in the next 24 months.

Accepted Answer

A) True 
 B)False

Question 8

Revenues must ultimately lead to cash flows in order to be recognized.

Accepted Answer

A) True 
 B)False

Question 9

Valuing assets at their liquidation values rather than their cost is inconsistent with the

Accepted Answer

A)  time period assumption. 
B)  matching principle. 
C)  materiality constraint. 
D)  historical cost principle. 
A)  time period assumption. 
B)  matching principle. 
C)  materiality constraint. 
D)  historical cost principle.

Question 10

Stratford decided in October of the current fiscal year to start a massive advertising campaign to enhance the marketability of its product. In November, the company paid $750,000 for advertising time on a major radio chain to advertise its product during the next 12 months. The chief accountant expensed the $750,000 in the current fiscal year on the basis that "once the money was spent, it could never be recovered from the radio chain".
State whether or not you agree with the accounting treatment given to this disbursement and support your opinion with principles discussed in the chapter on the Criteria for Accounting Choices.

Accepted Answer

This treatment violates the matching pri

Question 11

Comparability is an enhancing quality under IFRS and ASPE.

Accepted Answer

A) True 
 B)False

Question 12

A mining company with global operations sets up a mining operation in Northern Quebec. Five years later, the mine is completely depleted and the area abandoned. The company has an excellent track record, both with respect to its corporate citizenship and environmental responsibility, having always restored all mining sites to their original state, regardless of any contractual obligations.
However, the company did not restore the land on its Northern Quebec mining site, citing recent cash flow issues and the absence of any written agreement to do so with the Quebec government.
The Quebec government then decides to sue the company, for damages to its land.
Do you think the Quebec government has a strong case here? Why or why not?

Accepted Answer

While there is no legal obligation for t

Question 13

Under ASPE, capital maintenance can be said to be achieved if a company has maintained or increased its productive capacity.

Accepted Answer

A) True 
 B)False

Question 14

Revenue is recognized when

Accepted Answer

A)  It is collected in cash 
B)  Service is rendered 
C)  Service is rendered and collection is probable 
D)  The contract is signed 
E)  When the customer places the order 
A)  It is collected in cash 
B)  Service is rendered 
C)  Service is rendered and collection is probable 
D)  The contract is signed 
E)  When the customer places the order

Question 15

The nominal dollar capital maintenance approach adjusts for the replacement cost of the assets when reporting earnings.

Accepted Answer

A) True 
 B)False

Question 16

To Recording periodic depreciation on assets such as buildings or machinery is an application of the matching principle.

Accepted Answer

A) True 
 B)False

Question 17

The separate entity assumption applies only to legally separate entities such as corporations; it does not apply to proprietorships or other unincorporated businesses.

Accepted Answer

A) True 
 B)False

Question 18

No revenue whatsoever from the performance of a service can be recognized until all of the service has been performed.

Accepted Answer

A) True 
 B)False

Question 19

Materiality is one of the underlying constraints in the application of the IFRS conceptual framework.

Accepted Answer

A) True 
 B)False

Question 20

The matching concept

Accepted Answer

A)  Requires that a debit is matched or posted for every credit 
B)  Treats all costs as being directly related to revenue generation 
C)  Treats all costs as expenses 
D)  Is the name applied to the process of associating expenses with revenues 
A)  Requires that a debit is matched or posted for every credit 
B)  Treats all costs as being directly related to revenue generation 
C)  Treats all costs as expenses 
D)  Is the name applied to the process of associating expenses with revenues

Which of the following distinguishes the personal transactions of business owners from business transactions?

Explain how the continuity assumption and the historical cost principle are related.

"Substance over form" effectively refers to Representational Faithfulness in the conceptual framework.

At times, reliability must be sacrificed in order to enhance the relevance of accounting information.

The objective of financial reporting is:

Certain costs of doing business are capitalized when incurred and then amortized over subsequent accounting periods to:

The going concern principal does not apply if a company is expected to be liquidated in the next 24 months.

Revenues must ultimately lead to cash flows in order to be recognized.

Valuing assets at their liquidation values rather than their cost is inconsistent with the

Comparability is an enhancing quality under IFRS and ASPE.

Under ASPE, capital maintenance can be said to be achieved if a company has maintained or increased its productive capacity.

Revenue is recognized when

The nominal dollar capital maintenance approach adjusts for the replacement cost of the assets when reporting earnings.

To Recording periodic depreciation on assets such as buildings or machinery is an application of the matching principle.

The separate entity assumption applies only to legally separate entities such as corporations; it does not apply to proprietorships or other unincorporated businesses.

No revenue whatsoever from the performance of a service can be recognized until all of the service has been performed.

Materiality is one of the underlying constraints in the application of the IFRS conceptual framework.

The matching concept

The Framework for Financial Reporting

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters

Exam 2: Accounting Judgements

Which of the following distinguishes the personal transactions of business owners from business transactions?

Explain how the continuity assumption and the historical cost principle are related.

"Substance over form" effectively refers to Representational Faithfulness in the conceptual framework.

At times, reliability must be sacrificed in order to enhance the relevance of accounting information.

The objective of financial reporting is:

Certain costs of doing business are capitalized when incurred and then amortized over subsequent accounting periods to:

The going concern principal does not apply if a company is expected to be liquidated in the next 24 months.

Revenues must ultimately lead to cash flows in order to be recognized.

Valuing assets at their liquidation values rather than their cost is inconsistent with the

Comparability is an enhancing quality under IFRS and ASPE.

Under ASPE, capital maintenance can be said to be achieved if a company has maintained or increased its productive capacity.

Revenue is recognized when

The nominal dollar capital maintenance approach adjusts for the replacement cost of the assets when reporting earnings.

To Recording periodic depreciation on assets such as buildings or machinery is an application of the matching principle.

The separate entity assumption applies only to legally separate entities such as corporations; it does not apply to proprietorships or other unincorporated businesses.

No revenue whatsoever from the performance of a service can be recognized until all of the service has been performed.

Materiality is one of the underlying constraints in the application of the IFRS conceptual framework.

The matching concept

The Framework for Financial Reporting

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters