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80% (16 out of 20 correct)

Responses to questions are indicated by the

symbol.

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.
Correct! GAAP derives its credibility and authority from general recognition and
acceptance by the accounting profession.

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

1
2
3
4

Correct! There are 3 levels, the Why, the Bridge between levels 1 & 3, and the
How.

3. Which of the following statements is true regarding the convergence project by the
FASB and IASB?
A. The converged framework will be a series of documents, similar to the two
conceptual frameworks that presently exist.
B. The existing conceptual frameworks underlying U.S. GAAP and IFRS are quite
dissimilar, but once they are converged there will be unanimity.
The IASB framework makes two assumptions.
C.
D. The FASB framework discusses accrual accounting and identifies it as an
assumption.
Correct! The IASB framework makes two assumptions accrual basis and going
concern. The converged framework will be a single document, the existing
frameworks are very similar, and while the FASB framework discusses accrual

accounting, it does not identify it as an assumption.

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.
Elements of financial statements.
C.
Objective of financial reporting.
D.
Correct! The how or the implementation of accounting is provided through the
recognition, measurement, and disclosure concepts.

5. The underlying theme of the conceptual framework is


A.
B.
C.
D.

decision usefulness.
understandability.
reliability.
comparability.

Correct! Decision usefulness is the underlying theme of the conceptual framework.

6. For information to be relevant, it must have both predictive value and confirmatory
value.
True
False

A.
B.

Correct! For information to be relevant, it needs to have predictive value or


confirmatory value or both.

7. Which of the following is not among the ingredients of the fundamental quality of
faithful representation?
A.

freedom from error.

B.
C.
D.

neutrality.
materiality.
completeness.

Correct! The ingredients of faithful representation include completeness, neutrality,


and freedom from error.

8. Enhancing qualities of accounting information include:


A.
B.
C.
D.

comparability and verifiability.


relevance and consistency.
comparability and materiality.
relevance and faithful representation.

Correct! The enhancing qualities of accounting information include comparability,


verifiability, timeliness, and understandability.

9. Enhancing qualities of accounting information include all of the following except:


A.
B.
C.
D.

comparability.
understandability.
neutrality.
timeliness.

Correct! The enhancing qualities of accounting information include comparability,


verifiability, timeliness, and understandability.

10. In order to be relevant, financial information must have


freedom from error.
A.
neutrality.
B.
comparability.
C.
D.
confirmatory or predictive value.
Incorrect. Relevant information has predictive value or confirmatory value (or both),
and is material.

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

net income.
gains.
comprehensive income.
revenues.

Correct! Comprehensive income is the change in net assets during a period from
transactions and other events and circumstances from non-owner sources.

12. An increase in net assets arising from peripheral or incidental transactions is called
a(n)
A.
B.
C.
D.

asset.
revenue.
gain.
investment by owners.

Correct! An increase in net assets from peripheral or incidental transactions is called


a gain.

13. Under current GAAP, inflation is ignored in accounting due to


materiality.
A.
the going concern assumption.
B.
C.
the monetary unit assumption.
consistency.
D.
Incorrect. Inflation is ignored under the monetary unit assumption.

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

15. Depreciation and amortization policies are justifiable and appropriate because of the:
A.
B.
C.
D.

economic entity assumption.


going concern assumption.
monetary unit assumption.
periodicity assumption.

Correct! The going concern assumption is the justification for depreciation and
amortization.

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

17. Generally, revenues are recognized when the:


A.
B.
C.
D.

cash is received.
performance obligation is satisfied.
product is produced.
All of these answer choices are correct.

Correct! When a company satisfies the performance obligation to perform services or


sell a product, revenue is recognized.

18. Which of the following statements about the fair value principle is true?
Fair value is a market-based measure.
A.
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 financial assets and financial liabilities.

Correct! Fair value is more relevant, more subjective, and GAAP gives companies
the option of using fair value for financial assets and financial 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.
B.

True
False

Correct! The difficulty in cost-benefit analysis is that the costs and especially the
benefits are not always evident or measurable.

20. The existing conceptual frameworks underlying IFRS and GAAP are strikingly
different and the FASB and IASB will likely change many aspects of each of the
frameworks in order to create a common conceptual framework.
A.
B.

True
False

Correct! The existing conceptual frameworks underlying IFRS and GAAP are very
similar and there is no need to change many aspects of the existing frameworks.