Question 1

Distributions that are paid to owners would affect both the

Accepted Answer

A)  balance sheet and statement of cash flows
B)  balance sheet and income statement
C)  income statement and statement of changes in equity
D)  income statement and statement of cash flows A

Question 2

Similar to the constraints in the FASB's qualitative characteristics, the joint IASB/FASB boards have identified two constraints including

Accepted Answer

A)  benefits that justify the costs and consistency
B)  benefits that justify the costs and materiality
C)  consistency and materiality
D)  objectivity and materiality B

Question 3

Information about comprehensive income is useful to external users for all of the following purposes except

Accepted Answer

A)  evaluating management's performance
B)  examining cash flows for the current period
C)  predicting future income
D)  assessing the risk of lending to the company B

Question 4

Presented below are five inappropriate accounting procedures that are being used by the Devin Corporation.
 a. On the yerr-end balance sheet, DevinCorporation reported its inventory at market value, which was greater than cost. As a result of this proce chue, a gain was recogrized on the company's income statement.

b. Mrs. Devin, the president of the company, purchased an aut omobile for her son using the company's money. The company's accountant recorded the expenditure as salaries expense.

Devin Carporation reported income from operations of $ \$ 5,000,000 $ for the current year. During the year, Devin settled and paid a $ \$ 5,000,000 $ class action lawsut against the company resulting from damages incurred from the sale of defective products. The settlementwas reported as a miscellane ous expense with no footnotes provided.

d. Devin Corporation is going to issue additional common stock next year. In order to improve its income, the company switched from the LIFO inventory cost flow method to FIFO. The company did not disclose the accounting change. Comparative finencial statements were prepared.

e.The company made $ \$ 3,000,000 $ of expenditures to expand a building that originally cost $ \$ 5,000,000 $. The expenditures are expected to benefit operations over the building s remaining useful life of ten years. The expencitureswere expensed as maintenance. Required:
For each of the above items, list the accounting assumption(s), convention(s), or principle(s)that is (are)being violated.

Accepted Answer

The answer of Presented below are five inappropriate accounting procedures...

Question 5

The joint IASB/FASB qualitative characteristics Exposure Draft identifies a logical order in which to evaluate the qualities.That order (first, second, third)is

Accepted Answer

A)  faithful representation, relevance, enhancing characteristics
B)  relevance, enhancing characteristics, faithful representation
C)  relevance, faithful representation, enhancing characteristics
D)  enhancing characteristics, relevance, faithful representation

Question 6

Using the straight-line method to amortize patents is an application of expense recognition using

Accepted Answer

A)  association of cause and effect
B)  a systematic and rational allocation method
C)  immediate recognition
D)  the percentage-of-completion method

Question 7

The task of developing the conceptual framework was so enormous that the FASB had to divide it into several projects.
Required:
Identify each of the projects by name and provide a brief description of their results.

Accepted Answer

The answer of The task of developing the conceptual framework...

Question 8

Representational faithfulness is a relationship between the reported accounting measurements or descriptions and the economic resources, obligations, and the transactions and events causing changes in these items.This is important because the

Accepted Answer

A)  bias associated with financial measurements can be reduced
B)  validity of accounting data is an important economic resource
C)  accounting information is relevant for all decisions
D)  financial information is faithfully reported in the accounting records

Question 9

A list of statements follows:
 a.$\underline{\quad\quad}$on$\underline{\quad\quad}$ provides a measure of overall company performance.
b.$\underline{\quad\quad}$is the uncertainty or umpredictability of the future results of a company.
c.$\underline{\quad\quad}$is the ability of a company to take effective actions to change the amounts and timing of cash flows.
d.$\underline{\quad\quad}$ is the term used to describe how quickly a company can convert its assetsinto cash to pay a liability.
e.$\underline{\quad\quad}$refers to the ability of a company to maint ain a given physical level of operations
 Required:
Fill in the words necessary to complete the statements.

Accepted Answer

The answer of A list of statements follows:
 a.$\underline{\quad\quad}$on$\underline{\quad\quad}$ provides...

Question 10

Accrual accounting relates the financial effects of a company's transactions

Accepted Answer

A)  so that the costs of nonoperating events are matched to the balance sheet in the period impacted
B)  to the period in which they occur rather than to when the cash receipts or payment occurs
C)  so that the revenue impact of every transaction in a period is properly reflected in the income statement
D)  so that the impact of every transaction is reflected in the statement of cash flows

Question 11

The IASB/FASB tentative joint conceptual framework includes two "fundamental qualitative characteristics" that must be present for financial reporting information to be useful.
Required:
Name and describe the two joint conceptual framework fundamental characteristics.

Accepted Answer

The answer of The IASB/FASB tentative joint conceptual framework includes...

Question 12

Match between columns
                        Premises: The company signs a contract to produce four machines according to the customer's specifications. On the date of the contract, the customer pays one half of the total contract price, and the company records the cash receipt as a sale. The machines will be manufactured and delivered during the next year.
The company delayed issuing its annual financial statements in order to include a large sale expected early in the next year.
The market value of the company's inventory declined sharply. The president, optimistically predicting a rise in value, insisted that the inventory be reported at its historical cost.
The market value of the company's large inventory rose sharply. The inventory was reported on the balance sheet at current market value.
Although the company can estimate its uncollectible accounts receivable, it does not recognize the bad debts expense until it determines that an account receivable is uncollectible.

Accepted Answer

The Answer of full disclosure and historical cost and revenue is...

Question 13

The FASB divided its conceptual framework activities into several projects.Which of the following was not one of those projects?

Accepted Answer

A)  objectives project
B)  qualitative characteristics project
C)  financial reporting project
D)  accounting project

Question 14

Which qualitative characteristic is an ingredient of relevance?

Accepted Answer

A)  verifiability
B)  timeliness
C)  neutrality
D)  representational faithfulness

Question 15

The CFA's Comprehensive Business Reporting Model argues that certain key weaknesses in the current financial reporting model exist.The weaknesses include all of the following except

Accepted Answer

A)  current financial statements are not presented in a structure that is useful to investors
B)  current financial statements do not present sufficient information to enable investors to make effective decisions.
C)  current financial statements contain inaccurate measurements
D)  investors must resort to estimates and best guesses to generate the information they need

Question 16

Two constraints mentioned by GAAP on qualitative characteristics are

Accepted Answer

A)  understandability and decision usefulness
B)  comparability and consistency
C)  relevance and reliability
D)  benefits greater than costs and materiality

Question 17

The accounting projects portion of the FASB's conceptual framework project deals with

Accepted Answer

A)  which accounting elements should be reported and how they should be measured
B)  which accounting elements should be reported and where the information should be reported
C)  how the accounting elements should be measured and how information should be displayed in financial reports
D)  when accounting elements should be recognized and how information should be displayed in financial reports

Question 18

The joint IASB and FASB boards identified several "enhancing" characteristic of financial information including

Accepted Answer

A)  comparability, verifiability, timeliness, and understandability
B)  materiality, verifiability, timeliness, and understandability
C)  comparability, verifiability, timeliness, and materiality
D)  comparability, relevance, timeliness, and understandability

Question 19

FASB suggests that revenues are considered to be earned

Accepted Answer

A)  at a date subsequent to the point of sale
B)  throughout the earnings process
C)  when the company is entitled to its benefits
D)  when cash is received

Question 20

According to GAAP, which is not a specific objective?

Accepted Answer

A)  to provide information about an enterprise's cash flows
B)  to provide information that is useful to present to potential investors, creditors, and other users in making rational investment, credit, and similar decisions
C)  to provide information about an enterprise's comprehensive income and its components
D)  to provide information about an enterprise's economic resources, obligations, and owners' equity

Exam 2: Financial Reporting: Its Conceptual Framework