Which of the following is a true statement about the objective of general purpose financial reporting:
A) fin reporting is ordinarily focused on industries rather than individual entities
B) the obj applies only to information that is useful for investmen
D is correct
The info reported relates to the entity's economic resources and claims to them and to changes in those resources and claims
Which of the following bodies has the original authority to set accounting standards for publicly traded companies in the u.ss:
A) the securities and exchange commission
B) the American institute of certified public accountants
C) the financial standards
A)
The sec establishes rules for financial reporting by publicly traded companies in the u.s. The sec in turn delegated the authority for detailed rule making to the financial accounting standards board
Arpco inc, a for profit provider of healthcare services recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative.
D)
The fasbs accounting standards codification and sec pronouncements are the only sources of authoritative financial accounting guidance for nongovernmental entities in the u.s. All other sources of guidance are nonauthoritative
The principal benefit of s single set of global financial reporting standards is
A) the harmonization of world financial reporting
B) increased capital flow
C) simplified enforcement for local and national regulatory bodies
D) minimization of the amount o
B)
The principal advantage of s single set of global financial reporting standards is that multinational companies do not have to rewrite their financial statements in the local financial reporting framework to their trade their stock on the local exchang
Which of the following obj of financial reporting is applicable to business entities not to governmentL entities. Provide information to
A) assist in public accountability
B) assist in evaluating operating results
C) assist in assessing services provided
D)
Current and potential investors and creditors of a business entity want to assess their likelihood of receiving cash from dividends or interest or from the proceeds from the sale,redemption , or maturity of securities or loans
Which of the following is not a characteristic of the government reporting environment?
A) interpersonal equity
B) balance sheet equity
C) legally binding equity
D)accountability
...
Economic entity assumption
The reporting entity is separately identified for the purpose of economic and financial accountability.the the economic affairs of owners and managers are kept separate from those of the reporting entity. Also,the legal entity and the economic entity are
Going concern ( business continuity) assumption
Unless stated otherwise ,nevertheless business is assumed to be s going concern that will continue operating indefinitely. It is assumed that the entity will not be liquidated in the near future.
Monetary unit ( unit of money) assumption
Accounting records are kept in terms of money. The changing purchasing power of the monetary unit is assumed not to be significant
Periodicity ( time period) assumption
Economic activity can be divided into district time periods.1 this assumption requires reporting estimates in the financial statements. It sacrifices Some degree of faithful representation of information for increased relevance.
Conservatism constraint
The conservatism constraint is a response to uncertainty. When alternative accounting methods are appropriate, the one having the less favorable effect on net income and total assets is preferable.
- however conservatism doesn't permit understatement of t
What is the underlying concept governing the generally accepted accounting principles pertaining to recording gain contingencies?
A) conservatism
B) relevance
C) consistency
D) faithful representation
A)
Under the conservatism constraint when alternative methods are appropriate,the. One having the less favorable effect in net income and total assets is preferable. However conservatism does not permit a deliberate understatement of tots assets and net i
Fundamental qualitative characteristics
Relevance- information is relevant if it can make a. Difference in user decisions.
Must have : predictive value
Confirmatory value
Materiality
A) information has predictive value if it can be used as an input in a predictive process
B) information has confirmatory value with respect to prior evaluations if it provides feedback that confirms or changes (corrects ) them
C) predictive value and con
Fundamental qualitative characteristics
- faithful representation- useful information faithfully represents economic events
A perfectly faithful representation has the following characteristic:
1) completeness - containing what is needed for user understanding
2) neutrality- unbiased in its selections and presentation
3) freedom from error
B)a representation is free from error
Enhancing qualitative characteristics-enhance the usefulness of relevant and faithfully represented information
1) comparability
2 verifiability
3) timeliness
4)understandability
Comparability-information should be comparable with similar info for a) other entities b) the same entity for another period or date. Allows users to understand similarities and differences.
Verifiability- information is verifiable ( directly or indirectl
Under sfac 8, the ability , through consensus among measures, to ensure that information represents what it purports to represent is an example of the concept of
A) relevance
B) verifiability
C) comparability
D) predictive value
B)
Verifiability is qualitative characteristic that enhances relevance and faithful representation. Information is verifiable (directly or indirectly) if knowledgeable and independent observers can reach a consensus that is faithfully represented
According to the fasbs conceptual framework, asset valuations accounts are considered:
A) assets
B) neither assets nor liabilities
C) part of equity
D) liabilities
B)
Asset valuation accounts are separate items sometimes found in the financial statements that reduce or increase the carrying amount of the asset. The conceptual framework considers asset valuation accounts to be part of the related asset account .they
Recognition criteria- 4 criteria apply
1) item must meet the definition of an element of the financial statements
2) it must have a relevant attribute measurable with sufficient reliability
3) the information must be relevant. It must be capable of making a difference in user decisions
4) the
Revenue recognition
Revenues and gains are measured by the exchange prices of the assets or liabilities involved. According to the revenue recognition principle revenues and gains are recognized when 1) realized or realizable and 2) earned
The necessary elements or present value measurement .
A measurement based on present value should reflect uncertainties so that variations in risks are incorporated
1) estimates of future cash flows
2) expected variability of their amount and timing
3) the time value of money ( risk free interest rate)
4) the price of uncertainty inherent in an asset or lisbility
5) other factors such as liquidity or market imperfect
Form 10-k
-annual report to the sec
A) 60 days of the last day of the fiscal year by large accelerated filers( 700 million or more)
B) 75 days by accelerated filers (75-700)
C) 90 days by nonaccelerated filers( less than 75)
A) it is certified by an independent accountant and signed by the following:
1) principal executive ,financial ,and accounting officers
2) majority of the board of directors
B) presented with the basic info package
Form 10-Q
Quarterly report to the sec
A) must be filed within 40 days of the last of the first three fiscal quarters by large accelerated filers (700 million or more) and accelerated filers ( 75 -700 million)
B) 45 days by nonaccelerated filers (less than
1) interim financial information must be viewed not audited by an independent accountant
2) an entity required to file form10k must file form 10q for each of the first 3 quarters
3) also required are changes during the quarter . Following are examples:
A)
The MD&A section of an annual report:
A) includes the company presidents letter
B) covers three financial suspects of the firms business: liquidity capital resources and results of operations
C) is a technical analysis of past results and a defense of tho
B)
The MD&A section is included in sec filings. It addresses in a no quantified manner the prospects of a company
Equity
The residual interest in assets of an entity after subtracting liabilities.in a business entity equity is the ownership interest.
Amortization
Is a form of allocation.it decreases an amount
By periodic payments or write downs .it involves reducing a liability recorded as a result of a cash receipt (payment) by recognizing revenues (exp) thus amortization is a allocation process for deferrals
Comprehensive income
The change in equity during s period from transactions and other events and circumstances from nonowner sources
It includes changes inequit duringa period except those resulting from investments by owners and distribution to owners
Expenses
The use of assets or incurrence of liabilities by an entity's major or central operations
Outflows or other uses of assets or incurrences of la
Liabilities from either delivering or producing changes in equity goods b) providing services c) other activiti
Dividends
The decreases in equity resulting from transfers by the entity to owners
Biological industries inc an issuer purchased manufacturing equipment I exchange for a 15 year note receivable .biological expects the installation and setup of the equipment to require 6 months . However,payments on the note begin immediately. Which sect
Fasb sac 835-20-05-01
This subtopic establishes standards of financial accounting and reporting for capitalizing interest cost as a part of the historical cost of acquiring certain assets. The historical cost acquiring certain assets includes thecosts nec
General purpose financial reporting
Entity resources,claims to resources,and changes in them
Investment and credit decisions
The objective is to report financial information that is useful making decisons about providing economic resources to the reporting entity.
Primary users are current
Not for profits
Assessing mgmt stewardship and performance
Assessing services provided
Factors that may affect a organizations liquidity
Governmental entities
Public accounting
A reporting objective of governmental entity is to assist in public accountability
Current market value
The relevant attribute used to measure assets expected to be sold at below their carrying amount
Is used to measure marketable securities
Those held by investment companies or assets expected to be sold at below their carrying cost
Net realizable value
The relevant attribute used to measure short term receivables and inventories
It its the cash or equivalent expected to be received for asset in the due course of business's minus the costs of completion and sale
Historical cost
The relevant attribute for plant assets and most inventories
It is the cash or equivalent actually paid for an asset and it is ordinarily adjusted subsequently for amortization or allocation
Replacement cost
The relevant attribute defines as the cash or equivalent that would be paid for a current acquisition of the same or an equivalent asset
It's used to measure certain inventories,
Measured at market when it is lower than historical cost
Present value
The relevant attribute that incorporates time value of money concepts
The most relevant method of measurement
Used for long term receivables and payables
Regulation s-k
Governs disclosures for annual reports
Including many that are nonfinancial
Regulation s-x
Governs reporting of Financial statement
Including notes and schedules
Form 10-k
Annual report to sec
Contains MD&A
Contains audited financial statements
Constraints
Include : cost pervasive,industry practices, and conservatism
Enhancing qualitative characteristics
Consists of fundamental characteristics: relevance and faithful representation and enhancing characteristics: comparability,verifiability,timeliness, and understandability
Consistency is a means of achieving comparability
Fundamental qualitative character
Consists of fundamental characteristics relevance and faithful representation and comparability,verifiability,timeliness,and understandability
Assumption
Includes economic entity's,going concern,monetary unit,and periodically
Relevance
Fundamental qualitative characteristics. Include relevance and faithful representation, relevant info has predictive value ,conformity value or both.
Material is a entity specific
Principal
Include historical cost, revenue recognition matching or full disclosure
The fasb due process for setting accounting standards includes which of the following:
A)the fasb delegates topics to the financial accounting foundation for research and reporting
B) the fasb can seek information about accounting and reporting issues by
B)
The fasb typically issues an exposure drat of the proposed accounting standards update and then requests that interested parties ( academic,businesses,accountants,regulators) provide feedback on the new standard. The fasb then reads the submissions and
Which of the following objectives of financial reporting is applicable to governmental entities? Provide information:
A) about economic resources,obligations,net resources,and changes in them
B)useful in making resource allocation decisions
C) useful in a
D)
Pro ding info for assessing service efforts and accomplishments is one of the objectives that serves to assist in evaluating the operating results of the government
What are the statements of financial accounting concepts intended to establish?
The objectives and concepts for use in developing standards of financial accounting and reporting.
The sfac do not establish accounting and reporting requirements.they are nonauthoritative guidance for nongovernmental entities. Sfacs describe the objectiv
Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?
To Match the costs of production with revenues as earned
- if costs benefit more than one accounting period ,they should be systematically and rationally allocated to all periods benefited.tbis is done by.capitalizing the costs and depreciating or amortiz
During the lifetime of an entity, accountants produce financial statements at arbitrary moments in time in accordance with which basic accounting concept:
A)verifiability
B) conservatism
C) matching
D) periodicity
D)
A basic feature of the financial accounting process is that information about the economic activities of the business should be issued at regular intervals .these time periods should be of equal length to facilitate comparability.they should also be of
The fasb conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income:
Currently reported net income- finance capital
Comprehensive income- financial capital
Some costs can't be directly related to particular revenues but are incurred to obtain benefits that are exhausted in the period in which the costs are incurred. An example of such a cost is?
Sales persons monthly salaries
- expenses should be recognized when's benefit has been consumed. The consumption of benefit may occur when 1) the expenses are matched with the revenues 2) they are allocated on a systematic and rational basis to the period
Under sfac no 6 elements of Financial statements interrelated elements of financial statements include?
Distributions to owners- yes
Notes to financial statements-no
Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to?
Accrual accounting
A basic feature of financial accounting is that it is an accrual system under which the determination of periodic earnings and financial position is dependent upon the measurement of all economic resources and obligations
Ande co estimate u collectible accounts expense using the ratio of past actual losses from u collectible accounts to last net credit sales,adjusted for anticipated conditions. The practice follows the accounting concept of
Matching
- matching bad debt exp with related revenues is an application of the matching principal.
True or false: the sec establishes GAaP for u.s. Issuers?
False
The fasb establishes GAaP. The sec enforces those principles by ensuring that issuers meet certain periodic reporting requirements
A major objection to the adoption of the IFrs is that small businesses must expend resources complying with burdensome regulations designed for large corporations?
False
In response to the objections that smaller firms lack the resources to implement a large,complex basis of accounting like Ifrs ,the iASBhas issued the 230 page IFRS for small and medium sized entities
According to the fasbs conceptual framework ,comprehensive income includes which of the following:
Gross margin
Operating income
Comprehensive income is the periodic change in equity of a business from nonowner sources. Accordingly comprehensive income is a broad concept that includes not only revenues, gains, and losses recognized in net income but also other mono owner changes in
Under IFRS , all of the following are conditions that must be met for recognizing revunue from a sale of goods,except:
A)Transaction costs can be reliably measured
B) the entity has received the full consideration from the sale
C) the amount of the transa
B) is not correct
A company has beginning net assets of $100,000 and ending net assets of $95,000. During the year, additional capital stock was sold for $8000, and dividends of $3000 were declared. Using the capital maintenance approach, the net income (loss) for the year
D
Change in assets -5000
Capital stock sold -8000
Dividends declared 3000
=-10000
All of the following support the objective of financial reporting except providing information that
A) concerns enterprises resources and claims to those resources
B)is useful for making investment and credit decisions
C) helps investors and creditors pre
D)
If the process of earning revenue extends across multiple fiscal years ,accrual accounting permits the recognition of revenue before the completion of the earning process.reasearch and cite the ASC section that describes the two bases on which the percent
fASB ASC : 605-35-25-52
25-52 income recognized shall be that percentage of estimated total income,either:
A) that incurred costs to date bear to estimate total costs after giving effect to estimates of costs to complete on most recent information
B) that
Economic entity
2)conservatism
3) revenue recognition
4) full disclosure
5)periodicity
6)industry practice
7)matching
8) going concern
9)monetary
10) historical
Assumption
2) constraints
3) principle
4) principle
5)assumption
6)constraints
7) principle
8) assumption
9) assumption
10) principle
Current assets
Cash and cash equivalents
Certain indiv trading,available for sale and held to