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Chapter 2
SKing
52
Accounting
02/11/2011

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Cards

Term
T or F
Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners
Definition
True
Term
T or F
Revenues, gains, and distributions to owners all increase equity.
Definition
False
Term
T or F
The conceptual framework for accounting has been discovered through empirical research.

Definition
False
Term
T or F
The expense recognition principle states that debits must equal credits in each transaction.
Definition
False
Term
T or F
The IASB has issued a conceptual framework that is broadly consistent with that of the United States.
Definition
True
Term
T or F
Users of financial statements are assumed to have no knowledge of business and financial accounting matters by financial statement preparers
Definition
False
Term
According to Statement of Financial Accounting Concepts No. 2, verifiability is an ingredient of the primary quality of
Definition
Relevance, No; Reliability, Yes
Term
According to the FASB conceptual framework, earnings
Definition
exclude certain gains and losses that are included in comprehensive income.
Term
All of the following represent costs of providing financial information except
Definition
accessing capital.
Term
During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?
Definition
Periodicity assumption
Term
A soundly developed conceptual framework of concepts and objectives should
Definition
A. increase financial statement users' understanding of and confidence in financial reporting.
B. enhance comparability among companies' financial statements.
C. allow new and emerging practical problems to be more quickly solved.
D. all of these.
Term
In classifying the elements of financial statements, the primary distinction between revenues and gains is
Definition
the nature of the activities that gave rise to the transactions involved.
Term
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
Definition
revenues minus expenses plus gains minus losses.
B. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners.
C. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities.
D. none of these.
Term
The accounting principle of matching is best demonstrated by
Definition
associating effort (expense) with accomplishment (revenue).
Term
The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the
Definition
conservatism constraint.
Term
The two primary qualities that make accounting information useful for decision making are
Definition
relevance and reliability
Term
Under current GAAP, inflation is ignored in accounting due to the
Definition
monetary unit assumption
Term
What is a primary objective of financial reporting as indicated in the conceptual framework?
Definition
provide information that is useful to those making investing and credit decisions.
Term
What is a purpose of having a conceptual framework?
Definition
To enable the profession to more quickly solve emerging practical problems.
B. To provide a foundation from which to build more useful standards.
Term
When should an expenditure be recorded as an asset rather than an expense
Definition
When future benefit exits
Term
Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price?
Definition
Full disclosure.
Term
Which of the following is not a basic element of financial statements?
Definition
Balance sheet.
Term
Which of the following is an implication of the going concern assumption?
Definition
The historical cost principle is credible.
B. Depreciation and amortization policies are justifiable and appropriate.
C. The current-noncurrent classification of assets and liabilities is justifiable and signify-cant.
D. All of these.
Term
Which of the following are the two components of the revenue recognition principle?
Definition
Recognition occurs when earned and realized or realizable.
Term
Which of the following statements concerning the cost-benefit relationship is not true?
Definition
If needed by financial statement users, management should gather information not included in the financial statements that would not otherwise be gathered for internal use.
Term
Which of the following is an ingredient of relevance?
Definition
Timeliness.
Term
T or F
Although the FASB intends to develop a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date.
Definition
False
Term
T or F
Relevance and reliability are the two primary qualities that make accounting information useful for decision making.

Definition
True
Term
T or F
The conceptual framework for accounting has been discovered through empirical research.
Definition
False
Term
T or F
The first level of the conceptual framework identifies the recognition and measurement concepts used in establishing accounting standards.
Definition
False
Term
T or F
The IASB has issued a conceptual framework that is broadly consistent with that of the United States.
Definition
True
Term
T or F
Users of financial statements are assumed to have no knowledge of business and financial accounting matters by financial statement preparers
Definition
False
Term
According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the primary quality of
Definition
Relevance, Yes; Reliability, No
Term
Accounting information is considered to be relevant when it
Definition
is capable of making a difference in a decision
Term
Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between
Definition
timeliness and verifiability.
Term
During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?
Definition
Periodicity assumption
Term
Financial information exhibits the characteristic of consistency when
Definition
accounting entities give accountable events the same accounting treatment from period to period
Term
Information about different entities and about different periods of the same entity can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?
Definition
Comparability, Entities; Consistency; Periods
Term
Issuance of common stock for cash affects which basic element of financial statements?
Definition
Equity.
Term
The accounting principle of matching is best demonstrated by

Definition
associating effort (expense) with accomplishment (revenue).
Term
The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the
Definition
matching principle.
Term
The two primary qualities that make accounting information useful for decision making are

Definition
relevance and reliability.
Term
Trade-offs between the characteristics that make information useful may be necessary or beneficial. Issuance of interim financial statements is an example of a trade-off between
Definition
relevance and reliability
Term
Under Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability?
Definition
Cost-benefit constraint
Term
What is a purpose of having a conceptual framework?



Definition
A. To enable the profession to more quickly solve emerging practical problems.
B. To provide a foundation from which to build more useful standards.
Term
When should an expenditure be recorded as an asset rather than an expense?

Definition
When future benefit exits.
Term
Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price?
Definition
Full disclosure.
Term
Which of the following (a-c) are not true concerning a conceptual framework in account-ing?
Definition
It should be based on fundamental truths that are derived from the laws of nature.
Term
Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?
Definition
Monetary unit assumption.
Term
Which of the following serves as the justification for the periodic recording of depreciation expense?
Definition
Systematic and rational allocation of cost over the periods benefited
Term
Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles?
Definition
President's letter to shareholders.
Term
Which of the following elements of financial statements is not a component of compre-hensive income?
Definition
Distributions to owners