CFAS - Chapter 6: Multiple Choice
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1.
a
It is the process of capturing for inclusion in the financial
statements an item that meets the definition of the elements
of financial statements
a. Recognition
b. Measurement
c. Classifying
d. Derecognition
2.
a
a
a
a. Passage of time
b. Performance of service
c. Completion of percentage of a project
d. Upon signing of contract
8.
a
a
9.
a
a
Bad debts expense is recognized according to which
expense recognition principle?
a. Direct matching
b. Immediate recognition
c. Systematic and rational allocation
d. Critical event recognition
10.
a
Which statement is true about current value?
Revenue recognition conventionally refers to
a. Fair value of an asset is the price that would be
received to sell an asset in an orderly transaction between
market participants at the measurement date.
b. Value in use is the present value of the cash flows
expected to be derived from the use and ultimate disposal
of an asset
c. Fulfillment value is the present value of the cash
expected to be transferred for the payment of liability
d. All of these statements are true about current value.
Which of the following represents the "least desirable"
choice for the recognition of revenue?
11.
b
Which of the following would be matched with current
revenue on a basis other than association of cause and
effect?
a. Goodwill
b. Cost of good sold
c. Sales commission
d. Warranty cost
The matching principle is best demonstrated by
a. Not recognizing any expense unless some revenue is
realized
b. Associated effort with accomplishment
c. Recognizing prepaid rent received as revenue
d. Establishing an appropriation for contingency
a. Recognition of revenue during production
b. Recognition of revenue when a sale occurs
c. Recognition of revenue when cash is collected
d. Recognition of revenue when production is completed
6.
Generally, revenue us recognized
a. At the point of sale
b. When cause and effect are associated
c. At the point of cash collection
d. At appropriate points throughout the operating cycle
a. The process of identifying transactions to be recorded as
revenue in an accounting period
b. The process of measuring and relating revenue and
expenses during a period.
c. The earning process which gives rise to revenue
realization
d. The process of identifying those transactions that result
in an inflow of assets to the entity
5.
Which of the following is not an accepted basis for
recognition of revenue?
The term "recognized" is synonymous with the term
a. Recorded
b. Realized
c. Matched
d. Allocated
4.
a
Which of the following is an example of the cause and
effect association principle?
a. Sales commission
b. Allocation of insurance cost
c. Depreciation of property, plant and equipment
d. Officers' salaries
3.
7.
12.
b
Which accounting principle is being observed when an
accountant charges to expense a cost that contributed to
revenue during a period?
a. Revenue realization
b. Matching
c. Monetary unit
d. Conservatism
13.
b
The writeoff of a worthless patent is an example of which
of the following principles?
19.
b
a. Association cause and effect
b. Immediate recognition
c. Systematic and rational allocation
d. Objectivity
14.
b
Which of the following should be expensed under the
principle of systematic and rational allocation?
a. Writeoff
b. Derecognition
c. Extinguishment
d. Retirement
20.
b
a. Salesman's monthly salaries
b. Insurance premiums
c. Transportation to customers
d. Electricity to light office building
15.
b
Which of the following principles best describe the
conceptual rationale for the method of matching
depreciation with revenue?
a. Association cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition
16.
b
17.
b
18.
b
21.
22.
b
or
c
Which statement conforms to the realization concept?
c
Costs that can be reasonably associated with specific
revenue but not with specific product should be
It is the amount of cash or cash equivalent that would
have to be paid if the same or an equivalent asset was
acquired currently
a. Historical Cost
b. Current Cost
c. Realizable value
d. Present Value
a. Depreciation was assigned to product unit cost
b. Equipment was sold in exchange for a note receivable
c. Cash was collected on accounts receivable
d. Product unit costs were assigned to cost of goods
sold
a. Expensed in the period incurred
b. Allocated to the specific product based on the best
estimate of the product processing should be
c. Expensed in the period in which the related revenue is
recognized
d. Capitalized and then amortized over a reasonable
23.
c
What is an example of cost that cannot be directly related
to particular revenue but incurred to obtain benefits that
are exhausted in the period when the cost in incurred?
a. Sales commissions
b. Sales salaries
c. Freight in
d. Prepaid insurance
Gains on assets unsold are identified, in a precise sense,
by the term
a. Unrecorded
b. Unrealized
c. Unrecognized
d. Unallocated
An item is recognized in the financial statements if
a. It is probable that economic benefits will flow to or
from the entity.
b. It meets the definition of an asset, liability, equity,
income and expense
c. The entity has ownership of such item
d. It is probable that economic benefits will flow to or
from the entity and that the cost can be measured
It is the removal of all or part of a recognized asset or
liability from the statement of financial position
Recogniton of an element is appropriate when
information result in
a. Relevance
b. Faithful representation
c. Both relevance and faithful representation
d. Neither relevance nor faithful representation
24.
c
Which principle best describes the rationale for matching
distribution costs and administrative expenses with
revenue of the current period?
a. Direct matching
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition
25.
c
An example of direct matching of an expense with revenue
would be
31.
d
a. An item no longger meets the definition of an asset or a
liability
b. The entity losses control of the asset
c. The entity no longer has a present obligation for the
liability
d. Under all of these circumstances
a. Depreciation expense
b. Office salaries expense
c. Direct labor costs incurred to produce inventory sold
during a period
d. Advertising expense
26.
c
A cause and effect relationship is implicit in the
32.
d
a. Realization principle
b. Historical cost principle
c. Matching principle
d. Going concern assumption
27.
c
Why are certain costs of doing business capitalized when
incurred and then depreciated or amortized over
subsequent accounting period?
c
Which of the following practices may not be an
acceptable deviation from recognizing revenue at the
point of sale?
33.
d
d
What is the general approach as to when "product costs"
are recognized as expense?
34.
d
d
When should an expenditure be recorded as an asset
rather than expense?
Which category of expenses is subject to immediate
recognition in the income statement?
a. Utilities expense for production line of a manufacturer
b. Repairs and maintenance expense incurred on
production in the income statement
c. The salary of the production foreman
d. The salary of the entity president
35.
d
a. In the period when the expenses are paid
b. In the period when the expenses are incurred
c. In the period when the vendor invoice is receive
d. In the period when the related revenue is recognized
30.
Normally, revenue is recognized
a. When the customer order is receive
b. When the customer order is accompanied by a check
c. Only of the transaction will create an account
receivable
d. When the title to the goods changes
a. Upon receipt of cash
b. During production
c. Upon receipt of order
d. End of production
29.
which of the following is not an acceptable basis for the
recognition of expense?
a. Systematic and rational allocation
b. Direct making
c. Immediate recognition
d. Cash disbursement
a. To reduce the income tax liability
b. To aid management in the decision-making process
c. To match the cost of production with revenue
d. To adhere to the accounting concept of conservatism
28.
Derecogntion normally occurs when
Which of the following in the most precise sense means
the process of converting noncash resources and rights
into cash or claims to cash?
a. Allocation
b. Collection
c. Recognition
d. Realization
36.
d
a. Never
b. Always
c. If the amount is material
d. When there is a right that has the potential to produce
economic benefit
Which of the following is not a theoretical basis for the
allocation of expense?
a. Immediate recognition
b. Systematic and rational allocation
c. Cause and effect association
d. Profit maximization
37.
d
The measurement bases include
a. Historical cost
b. Current cost
c. Assessed value
d. Historical cost and current value
38.
d
Current value includes
a Fair value and present value
b. Fair value and current cost
c. Current cost and present value
d. Fair value, present value and current cost
39.
d
Which measurement attributes is not currently used in practice?
a. Present value
b. Fair value
c. Current cost
d. Inflation adjusted cost
40.
d
Which of the following is an application of the systematic and rational allocation principle?
a. Doubtful accounts
b. Research and development cost
c. Warranty cost
d. Amortization of intangible asset