Ch. 2 - Practice Multiple Choice Test PDF

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Chapter 2 Multiple Choice Practice Test 1. Generally accepted accounting principles A. are fundamental truths or axioms that can be derived from laws of nature. B. derive their authority from legal court proceedings. C. derive their credibility and authority from general recognition and acceptance by the accounting profession. D. have been specified in detail in the FASB conceptual framework.

2. The conceptual framework for financial reporting consists of how many levels? A. 1 B. 2 C. 3 D. 4

3. Statement of Financial Accounting Concepts are the primary documents issued by the FASB that establish new GAAP. A. True B. False

4. In the conceptual framework for financial reporting, what provides "the how" – the implementation of accounting? A. Measurement and recognition concepts such as assumptions, principles, and constraints. B. Qualitative characteristics of accounting information. C. Elements of financial statements. D. Objective of financial reporting.

5. The underlying theme of the conceptual framework is A. decision usefulness. B. understandability. C. reliability. D. comparability.

6. Predictive value and confirmatory value are two of the ingredients of relevance. A. True B. False

7. Which of the following is not among the ingredients of the fundamental quality of faithful representation? A. freedom from error. B. neutrality. C. materiality. D. completeness.

8. Enhancing qualities of accounting information include: A. comparability and verifiability. B. relevance and consistency. C. comparability and materiality. D. relevance and faithful representation.

9. Enhancing qualities of accounting information include all of the following except: A. comparability. B. understandability. C. neutrality. D. timeliness.

10. An ingredient of relevance is: A. freedom from error. B. neutrality. C. comparability. D. materiality.

11. The change in net assets during a period from transactions and other events and circumstances from non-owner sources is called A. net income. B. gains. C. comprehensive income. D. revenues.

12. An increase in net assets arising from peripheral or incidental transactions is called a(n) A. asset. B. revenue. C. gain. D. investment by owners.

13. Under current GAAP, inflation is ignored in accounting due to A. materiality. B. the going concern assumption. C. the monetary unit assumption. D. consistency.

14. The periodicity assumption specifies that the most appropriate time periods for financial reporting are weekly, bi-monthly, and yearly. A. True B. False

15. Depreciation and amortization policies are justifiable and appropriate because of the: A. economic entity assumption. B. going concern assumption. C. monetary unit assumption. D. periodicity assumption.

16. A contract is an agreement between two parties that creates enforceable rights or obligations. A. True B. False

17. Generally, revenues are recognized when the: A. cash is received. B. performance obligation is satisfied. C. product is produced. D. All of these answer choices are correct.

18. Which of the following statements about the fair value principle is true? A. Fair value is a market-based measure. B. Fair value is generally less relevant than historical cost. C. Measurements based on fair value increase the objectivity in financial reporting. D. GAAP requires the use of fair value for non-financial assets and liabilities.

19. The difficulty in cost-benefit analysis is that the benefits are usually evident and easily measurable, while the costs are not always evident or measurable. A. True B. False

20. Measurement relates to the time period that a specific transaction is recorded. A. True B. False

21. The FASB has increased the recognition and measurement of fair values in U.S. GAAP over time. A. True B. False

22. A conceptual framework is helpful and necessary for which of the following reasons? A. It allows the profession to quickly solve new and emerging issues. B. It enables standard setters to issue more useful and consistent pronouncements over time. C. It increases financial statement users' understanding of and confidence in financial reporting. D. All of these answer choices are correct.

23. Which level of the conceptual framework is devoted to elements of financial statements and the qualitative characteristics? A. 4th B. 3rd C. 2nd D. 1st

24. Which level of the conceptual framework is devoted to the “why” – the purpose of accounting? A. First. B. Second. C. Third. D. All three levels.

25. The conceptual framework was developed by the SEC to assist the FASB. A. True B. False

26. The objective of the conceptual framework is to provide financial information about the reporting entity primarily to company management and other internal users. A. True B. False

27. When a company's does not use the same accounting principle in the current period compared to the previous period, this is referred to as a lack of: A. confirmatory value. B. predictive value. C. faithful representation. D. consistency.

28. All of the following are ingredients of relevance except: A. feedback value. B. predictive value. C. materiality. D. neutrality.

29. Information that has been measured and reported in a similar manner for different enterprises is considered understandable. A. True B. False

30. Which of the following increases equity from non-owner sources: A. a revenue transaction. B. a gain. C. comprehensive income. D. All of the above.

31. All companies are required to have their financial statements audited by an independent auditor. A. True B. False

32. Which of the following elements of financial statements describes amounts of resources less claims against those resources at a moment in time? A. Investments by owners. B. Revenues. C. Equity. D. Comprehensive income.

33. Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the A. economic entity assumption. B. relevance characteristic. C. comparability characteristic. D. neutrality characteristic.

34. The assumption that implies that the economic activities of an enterprise can be identified with a particular unit of accountability is the: A. economic entity assumption. B. going concern assumption. C. timeliness assumption. D. periodicity assumption.

35. To be recognized in the main body of financial statements, an item should A. meet the definition of a basic element. B. be relevant and reliable. C. be measurable with sufficient certainty or consensus. D. All of these answer choices are correct.

36. The historical cost of a liability cannot be established, so companies use the present value of cash flows to value all liabilities. A. True B. False

37. With regard to fair value, which of the following measurements is considered the least subjective? A. Unobservable inputs. B. Inputs that are observable either directly or through corroboration with observable \ data. C. Observable inputs that reflect quoted prices for identical assets or liabilities. D. For purposes of fair value, all of the measures are considered equally subjective.

38. In order to justify requiring a particular measurement or disclosure, the costs perceived to be associated with it must exceed the benefits perceived to be associated with it. A. True B. False

Answer Key 1. C 2. C 3. B 4. A 5. A 6. A 7. C 8. A 9. C 10. D 11. C 12. C 13. C 14. B 15. B 16. A 17. B 18. A 19. B 20. B 21. A 22. D 23. C 24. A 25. B 26. B 27. D 28. D 29. B 30. D 31. B 32. C 33. A 34. A 35. D 36. B 37. C 38. B...