Conceptual Framework and Accounting Standards Chapter 2-7 Answer Sheet PDF

Preview

Summary

Download Conceptual Framework and Accounting Standards Chapter 2-7 Answer Sheet PDF

Description

GROUP CHAPTER 2 PROBLEM 2-1 Multiple Choice (IFRS) 1. Which statement is true about the Conceptual Framework for Financial Reporting? a. The Conceptual Framework is not a Standard. b. The Conceptual Framework describes the concepts for general purpose financial reporting. c. In case of conflict, the requirements of the IFRS prevail over the Conceptual Framework. d. All of these statements are true about the Conceptual Framework. 2. Which is not a purpose of the Revised Conceptual Framework? a. To assist the IASB to develop IFRS based on consistent concepts. b. To assist preparers to develop consistent accounting transaction or when Standard allows a choice of accounting policy. c. To assist all parties to understand and interpret the Standards. d. To assist regulatory agencies in issuing rules and regulations for a particular industry. 3. The scope of the Revised Conceptual Framework comprises how many chapters? a. Five b. Six c. Seven d. Eight 4. The Conceptual Framework provides the foundation for Standards that a. Contribute to transparency by enhancing international comparability and quality of financial information. b. Strengthen accountability of management. c. Contribute to economic efficiency by helping investors to identify opportunities and risks. d. All of these are the result of Standards developed based on consistent concepts. PROBLEM 2-2 Multiple Choice (IAA) 1. The enhancing qualitative characteristics of financial information are a. Comparability and understandability b. Verifiability and timeliness c. Comparability, understandability and verifiability d. Comparability, understandability, verifiability and timeliness 2. Financial information exhibits consistency when a. Accounting procedures b. Gains and losses are shown separately on the income statement. c. Accounting entities give similar events the same accounting treatment each period. d. Expenditures are reported as expenses.

3. When information about two different entities engaged in the same industry has been prepared and presented in similar manner, the information exhibits the enhancing qualitative characteristic of a. Relevance b. b. Faithful representation c. Consistency d. Expenditures are reported as expenses 4. The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement method is a. Relevance b. Understandability c. Verifiability d. Neutrality 5. Which concept of accounting holds that, to the maximum extent possible, financial statements shall be based on arm’s length transactions? a. Revenue realization b. Verifiability c. Monetary unit d. Matching 6. An entity issuing the annual financial reports within one month after the end of reporting period is an example of which enhancing quality of accounting information? a. Neutrality b. Timeliness c. Predictive value d. Representational faithfulness 7. Allowing entities to estimate rather than physically count inventory at interim periods is an example of a trade-off between a. Verifiability and comparability b. Timeliness and comparability c. Timeliness and verifiability d. Neutrality 8. Which qualitative characteristic of financial information requires that information should not be biased in favor of one group of users to the detriment of other? a. Relevance b. Free from error c. Completeness d. Neutrality 9. For information to be useful, the linkage between the users and the decisions made is a. Relevance b. Faithful representation c. Understandability d. Verifiability

10. Which statement is true in relation to the enhancing quality of understandability? a. Users have a reasonable knowledge of business and economic activities and review the information with reasonable diligence. b. Users are expected to have significant business knowledge. c. Financial statements shall exclude complex matters. d. Financial statements shall be free from material error. PROBLEM 2-3 Multiple Choice (IAA) 1. In the Conceptual Framework for Financial Reporting what provides the “why” of accounting? a. Measure and recognition concept b. Qualitative characteristic of accounting information c. Element of financial statement d. Objective of financial reporting 2. The underlying theme of the Conceptual Framework is a. Decision usefulness b. Understandability c. Timeliness d. Comparability 3. The object of financial reporting a. Is the foundation for the Conceptual Framework b. Includes the qualitative characteristics of useful information c. Is not found in the Conceptual Framework d. All of these are correct choices regarding the objective of financial reporting. 4. Which of the following is not a benefit associated with the Conceptual Framework? a. A Conceptual Framework should increase users’ understanding and confidence in financial reporting. b. Practical problems should be more quickly solvable. c. A coherent set of accounting standards should result. d. Business entities will need far less assistance from accountants. 5. Which statement is not true concerning the Conceptual Framework? a. The Conceptual Framework should be a basis for standard setting. b. The Conceptual Framework should allow practical problems to be solved more quickly. c. The Conceptual Framework should be based on fundamental truth derived from the law of nature. d. The Conceptual Framework should increase users’ understanding and confidence in financial reporting. Problem 2-4 Multiple Choice (ACP) 1. Users of financial reports include which of the following? a. Creditors b. Creditors and government agencies

c. Creditors and unions d. Creditors, government agencies, and unions 2. The primary users of financial information include. a. Existing and potential investors b. Existing and potential lenders and other creditors c. User group such as employees, customers, governments and their agencies, and the public d. Existing and potential investors, lenders, and other creditors 3. Which group is not among the external users for whom financial statements are prepared? a. Customers b. Suppliers c. Employees d. All of these are external users of financial statements 4. Which of the following is an internal user of financial information? a. Board of Directors b. Shareholder c. Holder of bonds d. Creditor with long-term contract 5. These users require information on risk and return provided by their investment. a. Investors b. Employees c. Lenders d. Customers 6. These users are interested in information about the profitability and stability of the entity in order to assess the ability of entity to provide remuneration, retirement benefits, and employment opportunities. a. Customers b. The public c. Governments and their agencies d. Employees 7. These are users interested in information that enables them to assess whether their loans, the related interest thereon, and other amounts owing to them will be paid when due. a. Lenders and other creditors b. Borrowers c. Trade creditors d. Owners 8. These users are interested in information about the continuance of entity, especially when they have a long-term involvement with or are dependent on the entity. a. Customers b. Employees

c. Trade unions d. Suppliers 9. These users are interested in information in order to regulate the activities of an entity, determine taxation policies and provide basis for national statistics. a. Governments and their agencies b. Major organization of users c. Bureau of Internal Revenue d. Department of Finance 10. These users need information on trends and recent developments where an entity makes a substantial contribution to the local economy providing employment and using local suppliers. a. The public b. Governments and their agencies c. Finance entities d. Private entities PROBLEM 2-5 Multiple Choice (IAA) 1. The overall objective of financial reporting is to provide information a. That is useful in decision making. b. About assets, liabilities and equity of an entity. c. About financial performance during a period. d. That allows owners to assess management performance. 2. The primary focus of financial reporting has been on meeting the needs of which of the following groups? a. Management b. Existing and potential investors, lenders and other creditors c. National taxing authorities d. Independent CPAs 3. The primary objective of financial reporting is to provide useful information to a. Management b. Capital providers c. Regulatory body d. Government 4. Which is an objective of financial reporting? a. To provide information that is useful in making investing and credit decisions. b. To provide information that is useful to management. c. To provide information about the potential users. d. To provide information about ways to solve internal and external conflict about the entity.

5. Which is an objective of financial reporting? a. To provide information that is useful to management in making decisions. b. To provide information that clearly portrays nonfinancial transactions.

c. To provide information that is useful to assess the amount, timing, and uncertainty of prospective cash receipts. d. To provide information that excludes claims against resources. 6. An a. b. c. d.

objective of financial reporting is to provide Information about the investors in the entity. Information about the liquidation value. Information that is useful in assessing cash flow prospects. Information that will attract new investors.

7. Assessing cash flow prospects is interpreted to mean a. Cash basis accounting is preferred over accrual basis. b. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of ability to generate favorable cash flows. c. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursements. d. All of the choices are correct regarding assessing cash flow prospects. 8. In measuring financial performance, accrual accounting is used because a. Cash flows are considered less important. b. It provides a better indication of ability to generate cash flows than cash basis. c. It recognizes revenue when cash is received. d. It is one of the implicit assumptions. 9. The most useful information in predicting future cash flows is a. Information about current cash flows b. Current earnings based on accrual accounting c. Information regarding the accounting policies used d. Information regarding the results obtained by using a wide variety of accounting policies 10. The accrual basis of accounting is most useful for a. Determining the amount of income tax liability. b. b. Predicting the short-term financial performance. a. c. Predicting the long-tern financial performance. e. Determining the amount of dividends to be declared. PROBLEM 2-6 Multiple Choice (AICPA Adapted) 1. The objective of financial reporting is based on a. The need for conservatism b. b. Reporting on management stewardship a. c. Generally accepted accounting principles f. The needs of the users of the information 2. Which statement is not true about financial reporting? a. Financial reporting shall provide information about entity resources, claims against those resources and changes in them.

b. b. Financial reporting shall not provide information useful in evaluating management stewardship. a. c. Financial reporting shall provide information useful in investment, credit and similar decision. g. Financial reporting shall provide information useful in assessing cash flow prospects. 3. Which of the following is not an objective of financial reporting? a. To provide information about an entity’s assets and claims against those assets. b. To provide information that is useful in assessing an entity’s sources and uses of cash. c. To provide information that is useful in lending and investing decisions. d. To provide information about the liquidation value of an entity. 4. Financial reporting pertains to information about a. Individual business entities, rather than to industries or an economy as a whole or to members of society as consumers. b. Business industries, rather than to individual entities or an economy as a whole or to members of society as consumers. c. Individual business entities, industries, and an economy as a whole, rather than to members of society as consumers. d. An economy as a whole and to members of society as consumers, rather than to individual entities or industries. 5. Under the Revised Conceptual Framework, during a period when an entity is under the direction of a particular management, financial reporting provides information about a. Entity performance and management performance b. Management performance but not entity performance c. Entity performance but not management performance d. Neither entity performance not management performance CHAPTER 3 PROBLEM 3-1 Multiple choice (IAA) 1. What are the attributes that make the information provided in the financial statement useful to the readers? a. Qualitative characteristics of financial information b. Quantitative characteristics of financial information c. Elements of financial statements d. Objectives of financial reporting 2. Qualitative characteristics a. Are considered either fundamental or enhancing. b. Contribute to the decision usefulness of financial reporting information. c. Distinguish better information from inferior information for decisionmaking purposes. d. All of the choices are correct. 3. The fundamental qualitative characteristics are

a. b. c. d.

Relevance and faithful representation Relevance, faithful representation and materiality Relevance and reliability Faithful representation and materiality

4. Accounting information is considered relevant when it a. Can be depended on to represent the economic conditions and events that it is intended to represent b. is capable of making a difference in a decision c. Is understandable by reasonably informed users of accounting information. d. Is verifiable and neutral. 5. The ingredients of relevant financial information are a. b. c. d.

Predictive Predictive Predictive Predictive

value and confirmatory value value, confirmatory value and timeliness value, confirmatory value and materiality value, confirmatory value, timeliness and materiality

6. What in the quality of information that gives assurance that it is reasonably free of error and bias? a. Relevance b. Faithful representation c. Verifiability d. Neutrality 7. Which of the following is the best description of “faithful representation” in relation to information in financial statements? a. Influence on the economic decisions of users b. Inclusion of a degree of caution c. Freedom from material error d. Comprehensibility to users 8. To achieve faithful representation, the financial statements a. Must have predictive and confirmatory value. b. Must be complete, neutral and reasonably free from error. c. Are understandable, comparable, verifiable and timely. d. Must possess all of these. 9. The financial accounting information is directed toward the common needs of users and is independent of presumptions about particular needs and desires of specific users. a. Relevance b. Verifiability c. Neutrality d. Completeness

10.In the event of conflict between the economic substance of a transaction and the legal form, the economic substance shall prevail. a. Form over substance b. Substance over form c. Relevance d. Completeness PROBLEM 3-2 Multiple choice (IAA) 1. The enhancing qualitative characteristics of financial information are a. Comparability and understandability b. Verifiability and timeliness c. Comparability understandability and verifiability d. Comparability, understandability, verifiability and timeliness 2. Financial information exhibits consistency when a. Accounting procedures are adopted which smooth net income and make results consistent between years. b. Gains and losses are shown separately on the income statement. c. Accounting entities give similar events the same accounting treatment each period. d. Expenditures are reported as expenses. 3. When information about two different entities engage in the same industry has been prepared and presented in similar manner, the information exhibits the enhancing qualitative characteristic of a. Relevance b. Faithful representation c. Consistency d. Comparability 4. The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement method is a. Relevance b. Understandability c. Verifiability d. Neutrality 5. Which concept of accounting holds that, to the maximum extent possible, financial statements shall be based on arm’s length transactions? a. Revenue realization b. Verifiability c. Monetary unit d. Matching 6. An entity issuing the annual financial reports within one month after the end of reporting period is an example of which enhancing quality of accounting information? a. Neutrality b. Timeliness

c. Predictive value d. Representational faithfulness 7. Allowing entities to estimate rather than physically count inventory at interim periods is an example of a trade-off between a. Verifiability and comparability b. Timeliness and comparability c. Timeliness and verifiability d. Neutrality and consistency 8. Which qualitative characteristic of financial information requires that information should not be binged in favor of one group of users to the detriment of others? a. Relevance b. Free from error c. Completeness d. Neutrality 9. For information to be useful, the linkage between the users and the decisions made is a. Relevance b. Faithful representation c. Understandability d. Verifiability 10.Which statement is true in relation to the enhancing quality of understandability? a. Users have a reasonable knowledge of business and economic activities and review the information with reasonable diligence b. Users are expected to have significant business knowledge. c. Financial statements shall exclude complex matters. d. Financial statements shall be free from material error. PROBLEM 3-3 Multiple Choice (IAA) 1. The overriding qualitative characteristics of accounting information is a. Relevance b. Understandability c. Faithful Representation d. Decision Usefulness 2. Which of the following terms best describes information that influences the economic decision of users? a. Reliable b. Prospective c. Relevant d. Understandable 3. What is the quality of information that enables users to better forecast future operations? a. Faithful Representation

b. Materiality c. Comparability d. Relevance 4. According to the Conceptual Framework, predictive value and confirmatory value are ingredients of a. Relevance b. Faithful Representation c. Understandability d. Comparability 5. Which term best describes information in financial statements that is neutral? a. Understandable b. Comparable c. Relevant d. Unbiased 6. What is meant by comparability when discussing financial accounting information? a. Information has predictive and confirmatory value. b. Information is reasonable free from error. c. Information is measured and reported in a similar fashion across entities. d. Information is timely. 7. What is meant by consistency when discussing financial accounting information? a. Information is measured and reported in a similar fashion across points in time. b. Information is timely. c. Information is measured similarly across the industry. d. Information is verifiable 8. Which is the following is not an enhancing qualitative characteristic? a. Understandability b. Profit-oriented c. Timeliness d. Comparability 9. Changing the method of inventory valuation should be reported in the financial statements under what enhancing quality accounting information? a. Understandability b. Verifiability c. Timeliness d. Comparability 10.When an entity applies the same accounting treatment to similar events from period to period, the entity is exhibiting which of the following qualities? a. Verifiability

b. Consistency c. Predictive Value d. All of the choices are not correct PROBLEM 3-4 Multiple choice (IAA) 1. When there is agreement between a measure or description and the phenomenon it purports to represent; the information p...