NAME____________________________________
REVIEW OF ACCOUNTING CONCEPTS
Written Assignment
Answer the following questions by placing the letter of the BEST response in the blank space to the
left of the question number.
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Which of the following is not an objective of financial reporting?
To provide information about economic resources, the claims to those resources, and the
changes in them.
To provide information that is helpful to investors and creditors and other users in
assessing the amounts, timing, and uncertainty of future cash flows.
To provide information that is useful to those making investment and credit decisions.
To provide information that is useful to the Internal Revenue Service in allocating the tax
burden to the business community.
What is meant by comparability when discussing financial accounting information?
Information has predictive or confirmatory value.
Information is reasonably free from error.
Information that is measured and reported in a similar fashion across companies.
Information is timely.
If the FIFO inventory method was used last period, it should be used for the current and
following periods because of
relevance.
neutrality.
understandability.
consistency.
The quality of information that means the numbers and descriptions match what really
existed or happened is
relevance.
faithful representation.
completeness.
neutrality.
Neutrality means that information
provides benefits which are at least equal to the costs of its preparation.
can be compared with similar information about an enterprise at other points in time.
would have no impact on a decision maker.
cannot favor one set of interested parties over another.
In classifying the elements of financial statements, the primary distinction between
revenues and gains is
the materiality of the amounts involved.
the likelihood that the transactions involved will recur in the future.
the nature of the activities that gave rise to the transactions involved.
the costs versus the benefits of the alternative methods of disclosing the transactions
involved.
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According to the FASB Conceptual Framework, the elementsassets, liabilities, and
equitydescribe amounts of resources and claims to resources at/during a
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Moment in Time
Yes
Yes
No
No
Period of Time
No
Yes
Yes
No
Which of the following basic accounting assumptions is threatened by the existence of
severe inflation in the economy?
Monetary unit assumption.
Periodicity assumption.
Going-concern assumption.
Economic entity assumption.
The economic entity assumption
is inapplicable to unincorporated businesses.
recognizes the legal aspects of business organizations.
requires periodic income measurement.
is applicable to all forms of business organizations.
What accounting concept justifies the usage of depreciation and amortization policies?
Going concern assumption
Fair value principle
Full disclosure principle
Monetary unit assumption
The accounting principle of expense recognition is best demonstrated by
not recognizing any expense unless some revenue is realized.
associating effort (expense) with accomplishment (revenue).
recognizing prepaid rent received as revenue.
establishing an Appropriation for Contingencies account.
Which accounting assumption or principle is being violated if a company reports its
corporate headquarter building at its fair value on the balance sheet?
Going concern.
Monetary unit.
Historical cost.
Full disclosure.
Expensing the cost of copy paper when the paper is acquired is an example of which
constraint?
Materiality.
Cost.
Conservatism.
Industry practices.
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According to the FASB's conceptual framework, the process of reporting an item in the
financial statements of an entity is
recognition.
realization.
allocation.
matching.
The footnotes to financial statements generally amplify or explain items presented in
the main body of the statements, therefore they are considered an essential part of the
“financial statement package.” This is an example of which concept?
Matching
Full disclosure
Consistency
Going concern
When should an expenditure be recorded as an asset rather than an expense?
Never.
Always.
If the amount is material.
When future benefit exits.
The FASB is beginning to require the adjustment of certain assets to fair market values on
the financial statements. These requirements are an application of which accounting
concept?
Periodic measurement
Matching
Relevance
Realization
Valuing assets at their liquidation values rather than their cost is inconsistent with the
periodicity assumption.
expense recognition principle.
materiality constraint.
historical cost principle.
Inflating expenses for the current period in order to improve future results would be a
violation of this concept.
Neutrality
Revenue recognition
Monetary measurement
Materiality
What is the general approach as to when product costs are recognized as expenses?
In the period when the expenses are paid.
In the period when the expenses are incurred.
In the period when the vendor invoice is received.
In the period when the related revenue is recognized.