Intermediate Accounting 15th Edition By Donald E.-Kieso Test Bank

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Intermediate Accounting 15th Edition By Donald E.-Kieso Test Bank

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WITH ANSWERS
Intermediate Accounting 15th Edition By Donald E.-Kieso Test Bank

CHAPTER 2

 

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

 

IFRS questions are available at the end of this chapter.

 

TRUe-FALSeConceptual

Answer          No.      Description

T                 1.       Nature of conceptual framework.

T                 2.       Conceptual framework definition.

F                 3.       Levels of conceptual framework.

T                 4        International conceptual framework.

F                 5.       Statements of Financial Accounting Concepts.

T                 6.       Objective of financial reporting.

F                 7.       Financial statement users.

T                 8.       Relevance and faithful representation.

T                 9.       Consistency.

F               10.       Relevance.

F               11.       Faithful representation.

F               12.       Basic elements.

T               13.       Comprehensive income.

T               14.       Going concern assumption.

F               15.       Economic entity assumption.

F               16.       Expense recognition principle.

T               17.       Recognizable revenues.

T               18.       Supplementary information.

F               19.       Cost benefit trade-off.

F               20.       Conservatism.

 

Multiple ChoiceConceptual

Answer          No.      Description

c               21.       GAAP defined.

d               22.       Purpose of conceptual framework.

c               23.       Conceptual framework.

d               24.       Conceptual framework purpose.

d             S25.       Conceptual framework benefits.

d               26.       Objectives of financial reporting.

a               27.       Decision usefulness.

d               28.       General purpose of financial reporting.

a               29.       Primary objective of financial reporting.

a             P30.       Example of comparability.

a             S31.       Primary quality of relevance.

b               32.       Characteristic of accounting information.

c               33.       Characteristic of accounting information.

c               34.       Meaning of comparability.

a               35.       Meaning of consistency.

Multiple ChoiceConceptual  (cont.)

Answer          No.      Description

d               36.       Ingredient of relevance.

c               37.       Ingredient of reliability.

a               38.       Consistency characteristic.

b               39.       Primary quality of accounting information.

d               40.       Quality of relevance.

a               41.       Quality of reliability.

d               42.       Consistency quality.

a               43.       Decision-usefulness criterion.

c               44.       Primary qualities of accounting information.

b               45.       Definition of relevance.

b               46.       Definition of reliability.

d               47.       Relevance quality.

c               48.       Materiality characteristic.

d               49.       Completeness characteristic.

b               50.       Neutrality characteristic.

d               51.       Neutrality characteristic.

c               52.       Definition of verifiability.

a               53.       Quality of predictive value.

c               54.       Quality of free from error.

d               55.       Consistency.

b               56.       Consistency characteristic.

b               57.       Comparability and consistency.

d               58.       Comparability.

d               59.       Elements of financial statements.

c               60.       Distinction between revenues and gains.

c               61.       Definition of a loss.

d               62.       Definition of comprehensive income.

b               63.       Components of comprehensive income.

d             P64.       Comprehensive income.

b             S65.       Earnings vs. comprehensive income.

a             S66.       Reporting financial statement elements.

b               67        Basic element of financial statements.

a               68.       Basic element of financial statements.

d               69.       Basic element of financial statements.

c               70.       Definition of gains.

d               71.       Historical cost assumption.

c               72.       Periodicity assumption.

b               73        Going concern assumption.

b               74.       Periodicity assumption.

a             S75.       Monetary unit assumption.

c             S76.       Periodicity assumption.

c               77.       Monetary unit assumption.

d               78.       Economic entity assumption.

a               79.       Economic entity assumption.

b               80.       Periodicity assumption.

a               81.       Going concern assumption.

d               82.       Going concern assumption.

d               83.       Implications of going concern assumption.

a               84.       Historical cost principle.

Multiple ChoiceConceptual  (cont.)

Answer          No.      Description

d               85.       Historical cost principle.

c               86.       Revenue recognition principle.

d               87.       Revenue recognition principle.

d               88.       Revenue recognition principle.

d               89.       Measurement principle.

c               90.       Expense recognition principle.

b               91.       Product costs.

b               92.       Expense recognition principle.

b               93.       Expense recognition principle.

b               94.       Expense recognition.

c               95.       Full-disclosure principle.

a               96.       Argument against historical cost.

d               97.       Recognition of revenue.

b               98.       Revenue recognition principle.

c               99.       Definition of performance obligation.

a             100.       Required components of financial statements.

d             101.       Recognition of expenses.

c             102.       Historical cost principle.

a             103.       Expense recognition principle example.

d             104.       Recording expenditure as asset.

c             105.       Historical cost principle violation.

a             106.       Full disclosure principle violation.

d             107.       Full disclosure principle.

c             108.       Historical cost principle violation.

a             109.       Industry practice constraint.

c             110.       Costs of providing financial information.

d             111.       Benefits of providing financial information.

c             112.       Use of materiality.

b             113.       Definition of prudence/conservation.

a             114.       Example of materiality constraint.

d             115.       Constraints to limit the cost of reporting.

a             116.       Cost-benefit relationship.

c             117.       Materiality characteristic.

d             118.       Materiality.

d             119.       Pervasive constraints.

a             120.       Prudence or conservatism.

b             121.       Conceptual framework second level

a             122.       Trade-offs between characteristics of accounting information.

c             123.       Trade-offs between characteristics of accounting information.

c           P124.       Prudence or conservatism.


Multiple ChoiceCPA Adapted

Answer          No.      Description

a             125.       Quality of predictive value.

b             126.       Relevance and faithful representation.

b             127.       Classification of gains and losses.

b             128.       Earnings concept.

a             129.       Components of comprehensive income.

b             130.       Components of comprehensive income.

d             131.       Components of comprehensive income.

d             132.       Components of comprehensive income.

a             133.       Definition of recognition.

 

P Note: these questions also appear in the Problem-Solving Survival Guide.

S Note: these questions also appear in the Study Guide.

 

BRIEF EXERCISES

 

Item                             Description

BE2-134                      Qualitative characteristics.

BE2-135                      Accounting conceptsidentification.

BE2-136                      Accounting conceptsidentification.

 

Exercises

 Item               Description

E2-137            Accounting conceptsmatching.

E2-138            Accounting conceptsfill in the blanks.

E2-139            Basic assumptions.

E2-140            Historical cost principle.

E2-141            Matching concept.

 

 

 

CHAPTER LEARNING OBJECTIVES

 

  1. Describe the usefulness of a conceptual framework.

 

  1. Describe the FASBs efforts to construct a conceptual framework.

 

  1. Understand the objective of financial reporting.

 

  1. Identify the qualitative characteristics of accounting information.

 

  1. Define the basic elements of financial statements.

 

  1. Describe the basic assumptions of accounting.

 

  1. Explain the application of the basic principles of accounting.

 

  1. Describe the impact that the cost constraint has on reporting accounting information.

 

  1. Compare the conceptual frameworks underlying GAAP and IFRS.

 

 


SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS

 

Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
1. TF 21. MC 23. MC S25. MC            
2. TF 22. MC 24. MC 134. BE            
Learning Objective 2
3. TF 4. TF 5. TF 26. MC 94. E        
Learning Objective 3
6. TF 27. MC P29. MC                
7. TF 28. MC 134. BE                
Learning Objective 4
8. TF 32. MC 38. MC 44. MC 50. MC 56. MC 136. BE
9. TF 33. MC 39. MC 45. MC 51. MC 57. MC 137. E
10. TF 34. MC 40. MC 46. MC 52. MC 58. MC 138. E
11. TF 35. MC 41. MC 47. MC 53. MC 125. MC    
30. MC 36. MC 42. MC 48. MC 54. MC 126. MC    
31. MC 37. MC 43. MC 49. MC 55. MC 135. BE    
Learning Objective 5
12. TF 60. MC 63. MC S66. MC 69. MC 128. MC 131. MC
13. TF 61. MC P64. MC 67. MC 70. MC 129. MC 132. MC
59. MC 62. MC S65. MC 68. MC 127. MC 130. MC    
Learning Objective 6
14. TF 72. MC S75. MC 78. MC 81. MC 135. BE 140. E
15. TF 73. MC S76. MC 79. MC 82. MC 138. E    
71. MC 74. MC 77. MC 80. MC 83. MC 139. E    
Learning Objective 7
16. TF 87. MC 93. MC 99. MC 105. MC 136. BE    
17. TF 88. MC 94. MC 100. MC 106. MC 137. E    
18. TF 89. MC 95. MC 101. MC 107. MC 138. E    
84. MC 90. MC 96. MC 102. MC 108. MC 140. E    
85. MC 91. MC 97. MC 103. MC 133. MC 141. E    
86. MC 92. MC 98. MC 104. MC 135. BE        
Learning Objective 8
19. TF 110. MC 113. MC 116. MC 119. MC 122. MC 135. BE
20. TF 111. MC 114. MC 117. MC 120. MC 123. MC 136. BE
109. MC 112. MC 115. MC 118. MC 121. MC P124. MC    
                           
Learning Objective 9 IFRS Questions
1. TF 2. TF 3. TF 4. TF 5. TF 6. TF 7. TF
8. TF 9. TF 10. TF 11. MC 12. MC 13. MC 14. MC
15. MC 16. SA 17. SA                

 

Note:     TF = True-False       SA = Short Answer  BE = Brief Exercises

MC = Multiple Choice

E = Exercise


TRUE-FALSEConceptual

 

  1. A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time.

 

  1. A conceptual framework is a coherent system of concepts that flow from an objective.

 

  1. The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards.

 

  1. The IASB has issued a conceptual framework and has agreed to develop a common conceptual framework with the FASB.

 

  1. Although the FASB has developed a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.

 

  1. The objective of financial reporting is the foundation of the conceptual framework.

 

  1. Users of financial statements are assumed to need no knowledge of business and financial accounting matters to understand information contained in financial statements.

 

  1. Relevance and faithful representation are the two primary qualities that make accounting information useful for decision making.

 

  1. The idea of consistency does not mean that companies cannot switch from one accounting method to another.

 

  1. Timeliness and neutrality are two ingredients of relevance.

 

  1. Verifiability and predictive value are two ingredients of faithful representation.

 

  1. Revenues, gains, and distributions to owners all increase equity.

 

  1. Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

 

  1. The historical cost principle would be of limited usefulness if not for the going concern assumption.

 

  1. The economic entity assumption means that economic activity can be identified with a particular legal entity.

 

  1. The expense recognition principle states that debits must equal credits in each transaction.

 

  1. Revenues are recognized in the accounting period in which the performance obligation is satisfied.

 

  1. Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements.

 

  1. In order to justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal the costs associated with it.

 

  1. Prudence or conservatism means when in doubt, choose the solution that will be least likely to overstate liabilities or expenses.

 

 

True False AnswersConceptual

Item Ans. Item Ans. Item Ans. Item Ans.
1. T 6. T 11. F 16. F
2. T 7. F 12. F 17. T
3. F 8. T 13. T 18. T
4. T 9. T 14. T 19. F
5. F 10. F 15. F 20. F

 

 

MULTIPLE CHOICEConceptual

 

  1. Generally accepted accounting principles
  2. are fundamental truths or axioms that can be derived from laws of nature.
  3. derive their authority from legal court proceedings.
  4. derive their credibility and authority from general recognition and acceptance by the accounting profession.
  5. have been specified in detail in the FASB conceptual framework.

 

  1. A soundly developed conceptual framework of concepts and objectives should
  2. increase financial statement users understanding of and confidence in financial reporting.
  3. enhance comparability among companies financial statements.
  4. allow new and emerging practical problems to be more quickly solved.
  5. All of these answer choices are correct.

 

  1. Which of the following is not true concerning a conceptual framework in accounting?
  2. It should be a basis for standard-setting.
  3. It should allow practical problems to be solved more quickly by reference to it.
  4. It should be based on fundamental truths that are derived from the laws of nature.
  5. All of these answer choices are true.

 

  1. What is a purpose of having a conceptual framework?
  2. To enable the profession to more quickly solve emerging practical problems.
  3. To provide a foundation from which to build more useful standards.
  4. Neither a nor b.
  5. To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.

 

 

S25.     Which of the following is not a benefit associated with the FASB Conceptual Framework Project?

  1. A conceptual framework should increase financial statement users understanding of and confidence in financial reporting.
  2. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
  3. A coherent set of accounting standards and rules should result.
  4. Business entities will need far less assistance from accountants because the financial reporting process will be quite easy to apply.

 

  1. In the conceptual framework for financial reporting, what provides the whythe purpose of accounting?
  2. Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
  3. Qualitative characteristics of accounting information
  4. Elements of financial statements
  5. Objective of financial reporting

 

  1. The underlying theme of the conceptual framework is
  2. decision usefulness.
  3. understandability.
  4. faithful representation.
  5. comparability.

 

  1. The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except
  2. potential equity investors.
  3. potential lenders.
  4. present investors.
  5. All of these answers are correct.

 

  1. What is the primary objective of financial reporting as indicated in the conceptual framework?
  2. Provide information that is useful to those making investing and credit decisions.
  3. Provide information that is useful to management.
  4. Provide information about those investing in the entity.
  5. All of these answer choices are correct.

 

P30.     If the LIFO inventory method was used last period, it should be used for the current and following periods because of

  1. comparability.
  2. materiality.
  3. timeliness.
  4. verifiability.

 

 

 

S31.     What is the following is a characteristic describing the primary quality of relevance?

  1. Predictive value.
  2. Materiality.
  3. Verifiability.
  4. Understandability.

 

  1. Which of the following is a fundamental quality of useful accounting information?
  2. Comparability.
  3. Relevance.
  4. Neutrality.
  5. Materiality.

 

  1. Which of the following is a primary quality of useful accounting information?
  2. Conservatism.
  3. Comparability.
  4. Faithful representation.
  5. Consistency.

 

  1. What is meant by comparability when discussing financial accounting information?
  2. Information has predictive or confirmatory value.
  3. Information is reasonably free from error.
  4. Information that is measured and reported in a similar fashion across companies.
  5. Information is timely.

 

  1. What is meant by consistency when discussing financial accounting information?
  2. Information that is measured and reported in a similar fashion across points in time.
  3. Information is timely.
  4. Information is measured similarly across the industry.
  5. Information is verifiable.

 

  1. Which of the following is an ingredient of relevance?
  2. Verifiability.
  3. Neutrality.
  4. Timeliness.
  5. Materiality.

 

  1. Which of the following is an ingredient of faithful representation?
  2. Predictive value.
  3. Materiality.
  4. Neutrality.
  5. Confirmatory value.

 

  1. Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information?
  2. Consistency.
  3. Verifiability.
  4. Timeliness.
  5. Comparability.

 

  1. Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?
  2. Comparability.
  3. Timeliness.
  4. Understandability.
  5. Verifiability.

 

  1. What is the quality of information that is capable of making a difference in a decision?
  2. Faithful representation.
  3. Materiality.
  4. Timeliness.
  5. Relevance.

 

  1. Neutrality is an ingredient of which fundamental quality of information?
  2. Faithful representation.
  3. Comparability.
  4. Relevance.
  5. Understandability.

 

  1. If the FIFO inventory method was used last period, it should be used for the current and following periods because of
  2. relevance.
  3. neutrality.
  4. understandability.
  5. consistency.

 

  1. The pervasive criterion by which accounting information can be judged is that of
  2. decision usefulness.
  3. freedom from bias.
  4. timeliness.
  5. comparability.

 

  1. The two fundamental qualities that make accounting information useful for decision making are
  2. comparability and timeliness.
  3. materiality and neutrality.
  4. relevance and faithful representation.
  5. faithful representation and comparability.

 

  1. Accounting information is considered to be relevant when it
  2. can be depended on to represent the economic conditions and events that it is intended to represent.
  3. is capable of making a difference in a decision.
  4. is understandable by reasonably informed users of accounting information.
  5. is verifiable and neutral.

 

  1. The quality of information that means the numbers and descriptions match what really existed or happened is
  2. relevance.
  3. faithful representation.
  4. completeness.
  5. neutrality.

 

 

  1. Which of the following does not relate to relevance?
  2. Materiality
  3. Predictive value
  4. Confirmatory value
  5. All of these answer choices relate to relevance.

 

  1. According to Statement of Financial Accounting Concepts No. 2, materiality is an ingredient of the fundamental quality of

Relevance       Faithful Representation

  1. Yes                           Yes
  2. No                            Yes
  3. Yes                            No
  4. No                            No

 

  1. According to Statement of Financial Accounting Concepts No. 2, completeness is an ingredient of the fundamental quality of

Relevance       Faithful Representation

  1. Yes                            No
  2. Yes                           Yes
  3. No                            No
  4. No                            Yes

 

  1. According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the fundamental quality of

Relevance         Faithful Representation

  1. Yes                         Yes
  2. No                          Yes
  3. Yes                          No
  4. No                           No

 

  1. Neutrality means that information
  2. provides benefits which are at least equal to the costs of its preparation.
  3. can be compared with similar information about an enterprise at other points in time.
  4. would have no impact on a decision maker.
  5. cannot favor one set of interested parties over another.

 

  1. The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is
  2. relevance.
  3. faithful representation.
  4. verifiability.
  5. neutrality.

 

  1. According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of

Relevance       Faithful Representation

  1. Yes                          No
  2. Yes                         Yes
  3. No                           No
  4. No                          Yes

 

  1. Under Statement of Financial Accounting Concepts No. 2, free from error is an ingredient of the fundamental quality of

Faithful Representation         Relevance

  1. Yes                                  Yes
  2. No                                   Yes
  3. Yes                                   No
  4. No                                    No

 

  1. Financial information demonstrates consistency when
  2. firms in the same industry use different accounting methods to account for the same type of transaction.
  3. a company changes its estimate of the salvage value of a fixed asset.
  4. a company fails to adjust its financial statements for changes in the value of the measuring unit.
  5. None of these answer choices are correct.

 

  1. Financial information exhibits the characteristic of consistency when
  2. expenses are reported as charges against revenue in the period in which they are paid.
  3. a company applies the same accounting treatment to similar events, from period to period.
  4. extraordinary gains and losses are not included on the income statement.
  5. accounting procedures are adopted which give a consistent rate of net income.

 

  1. Information about different companies and about different periods of the same company can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?

Comparability         Consistency

  1. Companies            Companies
  2. Companies               Periods
  3. Periods               Companies
  4. Periods                  Periods

 

  1. When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of
  2. relevance.
  3. faithful representation.
  4. consistency.
  5. None of these answer choices are correct.

 

  1. The elements of financial statements include investments by owners. These are increases in an entitys net assets resulting from owners
  2. transfers of assets to the entity.
  3. rendering services to the entity.
  4. satisfaction of liabilities of the entity.
  5. All of these answer choices are correct.

 

  1. In classifying the elements of financial statements, the primary distinction between revenues and gains is
  2. the materiality of the amounts involved.
  3. the likelihood that the transactions involved will recur in the future.
  4. the nature of the activities that gave rise to the transactions involved.
  5. the costs versus the benefits of the alternative methods of disclosing the transactions involved.
  6. A decrease in net assets arising from peripheral or incidental transactions is called a(n)
  7. capital expenditure.
  8. cost.
  9. loss.
  10. expense.

 

  1. One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements, comprehensive income is equal to
  2. revenues minus expenses plus gains minus losses.
  3. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners.
  4. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities.
  5. None of these answer choices are correct.

 

  1. Which of the following elements of financial statements is not a component of comprehensive income?
  2. Revenues
  3. Distributions to owners
  4. Losses
  5. Expenses

 

P64.     The calculation of comprehensive income includes which of the following?

Operating Income       Distributions to Owners

  1. Yes                                          Yes
  2. No                                           No
  3. No                                           Yes
  4. Yes                                          No

 

S65.     According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time?

  1. Assets.
  2. Expenses.
  3. Equity.
  4. Liabilities.

 

S66.     According to the FASB Conceptual Framework, the elementsassets, liabilities, and equitydescribe amounts of resources and claims to resources at/during a

Moment in Time        Period of Time

  1. Yes                            No
  2. Yes                           Yes
  3. No                            Yes
  4. No                            No

 

  1. Which of the following is not a basic element of financial statements?
  2. Assets.
  3. Balance sheet.
  4. Losses.
  5. Revenue.

 

  1. Which of the following basic elements of financial statements is more associated with the balance sheet than the income statement?
  2. Equity.
  3. Revenue.
  4. Gains.
  5. Expenses.

 

  1. Issuance of common stock for cash affects which basic element of financial statements?
  2. Revenues.
  3. Losses.
  4. Liabilities.
  5. Equity.

 

  1. Which basic element of financial statements arises from peripheral or incidental transactions?
  2. Assets.
  3. Liabilities.
  4. Gains.
  5. Expenses.

 

  1. Which of the following is not a basic assumption underlying the financial accounting structure?
  2. Economic entity assumption.
  3. Going concern assumption.
  4. Periodicity assumption.
  5. Historical cost assumption.

 

  1. Which basic assumption is illustrated when a firm reports financial results on an annual basis?
  2. Economic entity assumption.
  3. Going concern assumption.
  4. Periodicity assumption.
  5. Monetary unit assumption.

 

  1. Which basic assumption may not be followed when a firm in bankruptcy reports financial results?
  2. Economic entity assumption.
  3. Going concern assumption.
  4. Periodicity assumption.
  5. Monetary unit assumption.

 

  1. Which accounting assumption or principle is being violated if a company provides financial reports only when it introduces a new product?
  2. Economic entity.
  3. Periodicity.
  4. Revenue recognition.
  5. Full disclosure.

 

 

S75.     Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?

  1. Monetary unit assumption.
  2. Periodicity assumption.
  3. Going-concern assumption.
  4. Economic entity assumption.

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