4 - Conceptual Framework: Elements of Financial Statements

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1. An asset is recognized when d 7. The elements of financial position describe amounts of b

resources and claims against resources
a. it is probable that future economic benefit will flow to
the entity a. during a period of time
b. the cost or value of the asset can be measured b. at a moment in time
reliably c. both a and b
c. the entity obtains control of the rights associated with d. neither a and b
the asset
8. An example of direct matching of an expense with c
d. it is probable that future economic benefit will flow
revenue would be
to the entity and the cost or value of the asset can be
measured reliably
a. depreciation expense
2. Bad debt expense is recognized according to which a b. office salaries expense
expense recognition principle? c. direct labor costs incurred to produce inventory sold
during a period
a. direct matching d. advertising expense
b. immediate recognition
9. An expense is recognized immediately d
c. systematic and rational allocation
d. critical event recognition
a. when an expenditure produces no future economic
3. Costs that can be reasonably associated with specific c benefit
revenue but not with specific product should be b.when cost incurred ceases to qualify as an asset
c. when an expenditure produces future economic
a. expensed in the period incurred benefit
b. allocated to the specific product based on the best d. when an expenditure produces no future economic
estimate of the product processing time benefit and when cost incurred ceases to qualify as an
c. expensed in the period in which the related revenue asset
is recognized
10. An expense is recognized when c
d. capitalized and then amortized over a reasonable
period
a. it is probable that a decrease in future economic
4. A decrease in an asset arising from peripheral or c benefit has occurred
incidental transaction is called b. the decrease in future economic benefit can be
measured reliably
a. Capital expenditure c. it is probable that a decrease in future economic
b. Cost benefit has occurred and the decrease in future
c. Loss economic benefit can be measured reliably
d. Expense d. it is probable that an increase in future economic
benefit has occurred and the increase in future
5. The elements directly related to the measurement of a
economic benefit can be measured reliably
financial performance are
11. Financial statements portray the financial effects of d
a. income and expense transactions and other events by grouping them into
b. asset, liability and equity broad classes according to their economic
c. asset and liability characteristics. These broad classes are termed as
d. income, expense and equity
a. audit reports
6. The elements directly related to the measurement of a
b. financial reports
financial position are
c. notes to financial statements
d. elements of financial statements
a. asset, liability and equity
b. asset and liability 12. Gains on assets sold are identified, in a precise sense, b
c. income and expense by the term
d. asset, liability, equity, income and expense
a. unrecorded
b. unrealized
c. unrecognized
d. unallocated
13. Generally, revenue from sale of goods shall be d 18. It is a present obligation of an entity arising from past b
recognized at a point when events the settlement of which is expected to result in
an outflow from the entity of resources embodying
a. management decides it is appropriate to do so economic benefits
b. the product is available for sale to the ultimate
consumer a. asset
c. the entire amount receivable has been collected b. liability
from the customer c. equity
d. the entity has transferred to the buyer the significant d. exxpense
risks and rewards of ownership of the goods
19. It is a resource controlled by the entity as a result of a
14. Generally, revenue is recognized a past events and from which future economic benefits
are expected to flow to the entity
a. at the point of sale
b. when cause and effect are associated a. asset
c. at the point of cash collection b. liability
d. at appropriate points throughout the operating cycle c. equity
d. income
15. An income is recognized when a
20. It is proper to recognize revenue prior to the sale of d
a. it is probable that future economic benefit will flow merchandise when the revenue is reported
to the entity and that the economic benefit can be
measured reliably a. as an installment sale
b. it is possible that future economic benefit will flow to b. under the cost recovery method
the entity and that the economic benefit can be c. as an installment sale and under cost recovery
measured reliably method
c. the entity obtains control of the future economic d. none of these
benefit
21. It is the amount of cash or cash equivalent that would b
d. the future economic benefit can be measured
have to be paid if the same or an equivalent asset was
reliably
acquired currently
16. It is a decrease in economic benefit during the d
accounting period related to a decrease in asset or an a. Historical cost
increase in liability that results in decrease in equity b. Current cost
other than distribution to owners c. Realizable value
d. Present value
a. asset
22. It is the process of determining the monetary amounts a
b. liability
at which the elements of the financial statements are
c. income
recognized and carried in the financial statements
d. expenses
17. It is an increase in economic benefit during the c a. measurement
accounting period related to an increase in asset or a b. recognition
decrease in liability that results in increase in equity c. presentation
other than contribution from owners d. recording
23. It is the process of incorporating or reporting in the a
a. asset
statement of financial position or statement of
b. liability
comprehensive income an item that meets the
c. income
definition of an element of financial statements
d expenses
a. recognition
b. allocation
c. realization
d. summarization
24. It is the process that involves the simultaneous or a 30. The primary distinction between revenue and gain is c
combined recognition of revenue and expenses that
result directly from the same transactions and other a. the materiality of an amount
events b. the likelihood that the transaction will recur in the
future
a. matching of cost with revenue c. the nature of the activity that gives rise to the
b. matching of revenue with cost transaction
c. systematic and rational allocation d. the method of disclosing the transaction
d. immediate recognition
31. The recognition of an allowance for doubtful accounts c
25. It is the residual interest in the assets of the entity b is an application of
after deducting all of the liabilities
a. going concern assumption
a. income b. revenue recognition principle
b. equity c. matching principle
c. retained earnings d. materiality constraint
d. all of the above
32. Revenue from an artistic performance is recognized d
26. A liability is recognized when c once

a. it is probable that an outflow of economic benefit
will be required to settle the obligation
b. the amount of obligation can be measured reliably
c. it is probable that an outflow of economic benefit
will be required to settle the obligation and the amount
of obligation can be measured reliably
d. the entity obtains control of the obligation
27. The matching principle is best demonstrated by
a. not recognizing any expense unless some revenue is
realized
b. associating effort with accomplishment
c. recognizing prepaid rent received as revenue
d. establishing an appropriation for contingency
28. Normally, revenue is recognized
a. the audience register for the event online
b. the tickets for the concert are sold
c. cash has been received from the ticket sales
d. the event takes place
33. Revenue from sale of goods shall be recognized when b
all of the ff conditions have been satisfied, except
b a. the entity has transferred to the buyer the significant
risks and rewards of ownership of the goods
b. the entity retains either continuing managerial
involvement or effective control over the goods sold
c. the amount of revenue can be measured reliably
d. it is probable that economic benefits will flow to the
entity
d 34. Revenue may be recognized d

a. when the customer order is received a. at a point of sale

b. when the customer order is accompanied by a check b. during production
c. only if the transaction will create an account c. at the end of production
receivable d. all of the above
d. when the title of the goods changes
35. Revenue may result from d
29. An outflow of asset based on an activity that c
represents the major operations a. a decrease in an asset from primary operations
b. an increase in an asset from incidental transactions
a. loss c. an increase in a liability from incidental transactions
b. liability d. a decrease in liability from primary operations
c. expense
d. equity
36. The revenue principle states that revenue shall be a 42. What is an example of cost that cannot be directly b
recognized at a point when related to particular revenue but incurred to obtain
benefits that are exhausted in the period when the cost
a. an exchange transaction has occurred and the is incurred?
earning process is essentially complete
b. an order for shipment of merchandise has been a. sales commissions
received b. sales salaries
c. a contract between buyer and seller has been c. freight in
signed d. prepaid insurance
d. the seller has shipped merchandise under terms that
43. What is the general approach as to when product costs d
the customer need not pay until it is sold
are recognized as expenses?
37. The term "income" c
a. in the period when the expenses are paid
a. includes change in fair value of financial asset at fair b. in the period when the expenses are incurred
value through other comprehensive income c. in the period when the vendor invoice is received
b. includes foreign currency translation adjustment d. in the period when the related revenue is
c. includes gain resulting fro the sale of an asset in an recognized
arm's length transaction
44. When economic benefits are expected to arise over b
d. is the same as comprehensive income
several accounting periods and the association with
38. The term "recognized" is synonymous with the term a income can only be broadly or indirectly determined,
expenses are recognized on the basis of
a. recorded
b. realized a. cause and effect association
c. matched b. systematic and rational allocation
d. allocated c. immediate recognition
d. profit maximization
39. The term "revenue recognition" conventionally refers d
to 45. When should an entity use the installment method of c
revenue recognition?
a. the process of identifying transactions to be
recorded as revenue in an accounting period a. when collectibility of installment accounts
b. the process of measuring and relating revenue and receivable is reasonably predictable
expenses during a period b. when repossessions of merch on the installment plan
c. the earning process which gives rise to revenue may result in a future gain or loss
realization c. when there is no reasonable basis for estimating
d. the process of identifying those transactions that collectibility
result in an inflow of assets to the entity d. when collection expenses are deemed immaterial
40. This arises in the course of ordinary regular activities of b 46. When should an expenditure be recorded as an asset d
the entity and is referred to by a variety of different rather than an expense?
names including sales, fees, interest, dividends,
royalties and rent a. never
b. always
a. income c. if the amount is material
b. revenue d. when future benefit exists
c. profit
47. Which accounting principle is being observed when an b
d. gain
accountant charges to expense a cost that contributed
41. Under what condition is it proper to recognize revenue c to revenue during a period?
prior to the sale of the merchandise?
a. revenue realization
a. when the concept of consistency is complied with b. matching
b. when the revenue is to be reported as an installment c. monetary unit
sale d. conservatism
c. when the ultimate sale of the goods is at an assured
sale price
d. when management has a long-established policy
48. Which category of expenses is subject to
immediate recognition in the income
statement?
a. utilities expense for the production
line of a manufacturer
b. repairs and maintenance expense
incurred on production equipment of a
manufacturer
c. the salary of the production foreman
d. the salary of the entity president
49. Which 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
50. Which is an example of the cause and
effect association principle?
a. Sales commission
b. Allocation of insurance cost
c. Depreciation of PPE
d. Officers' salaries
51. Which 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
52. Which of the ff attributes is generally
considered to be the most relevant?
a. present value
b. current exit value
c. current cost
d. historical cost
53. Which of the ff best describes assets
recorded at the amount that represents
the immediate purchase cost of an
equivalent asset?
a. Historical cost
b. Realizable value
c. Present value
d. Current cost
d 54. Which of the ff conditions does not apply to the c
recognition of revenue from rendering of services?
a. the amount of revenue can be measured reliably
b. it is probable that payment for the services shall be
received by the entity
c. the significant risks and rewards of ownership have
been transferred to the buyer
d. the costs incurred for the transaction and the costs
to complete transaction can be measured reliably
55. Which of the ff in relation to income is true? a
d
a. Income encompasses both revenue and gain
b. Revenue encompasses both income and gain
c. Gain encompasses both revenue and income
d. Income encompasses revenue only
56. Which of the ff is incorrect in relation to the term c
"expense"?
a
a. all expenses and losses are expired costs but not all
expired costs are expenses
b. all expenses decrease owner's equity but not all
decreases in OE are expenses
c. expense is synonymous with expenditure
d. entities do not incur expensed per se but initially
acquire assets
d
57. Which of the ff is not an accepted basis for recognition d
of revenue?
a. passage of time
b. performance of service
c. completion of percentage of a project
d. upon signing of contract
a
58. Which of the ff represents the least desirable choice c
for the recognition of revenue?
a. during production
b. when a sale occurs
c. when cash is collected
d. when production is completed
a (according to
sir D.) / d 59. Which of the ff statements conforms to the realization b
(according to concept?
multiple
sources) 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
60. Which of the ff statements is incorrect concerning b 65. Which of the following may not be an acceptable c
recognition of revenue? deviation from recognizing revenue at the point of
sale?
a. revenue from rendering of services shall be
recognized by reference to the stage of completion of a. upon receipt of cash
the transaction at the end of the reporting period b. during production
b. interest revenue shall be recognized on a time c. upon receipt of order
proportion basis that does not take into account the d. end of production
effective yield on the asset
66. Which of the following measurement attributes is not d
c. royalty revenue shall be recognized on an accrual
currently used in practice?
basis in accordance with the substance of the relevant
agreement
a. present value
d. dividend revenue shall be recognized when the
b. net realizable value
shareholder's right to receive payment is established
c. current replacement cost
61. Which of the following criteria must not be satisfied c d. inflation-adjusted cost
before revenue from sale of goods shall be
67. Which of the following principles best describes the c
recognized?
rationale for matching distribution costs and
administrative expenses with revenue of the current
a. revenue can be reliably measured
period?
b. managerial control over the goods has been
relinquished
a. direct matching
c. ownership has been transferred to the buyer
b. systematic and rational allocation
d. significant risks and rewards of ownership have been
c. immediate recognition
transferred from the seller to the buyer
d. partial recognition
62. Which of the following in the most precise sense d
68. Which of the following statements describes the b
means the process of converting non cash resources
revenue recognition principle?
and rights into cash or claims to cash?
a. cash is received and the amount is material
a. allocation
b. it is probable that future economic benefit will flow
b. collection
to the entity and the amount can be measured reliably
c. recognition
c. production is complete and there is active market for
d. realization
the product
63. Which of the following is not an acceptable basis for d d. cash is realized and production is complete
the recognition of expense?
69. Which of the following terms best describes the b
amount of cash or cash equivalents that could currently
a. systematic and rational allocation
be obtained by selling an asset in an orderly disposal?
b. direct matching
c. immediate recognition
a. fair value
d. cash disbursement
b. realizable value
64. Which of the following is not a time when revenue may d c. residual value
be recognized? d. value in use
70. Which of the following would be matched with current a
a. at time of sale
revenue on a basis other than association of cause and
b. at receipt of cash
effect?
c. during production
d. all of the above are possible times of revenue
a. Goodwill
recognition
b. cost of goods sold
c. sales commission
d. warranty cost
71. Which principle best describes the conceptual rationale for the method of matching depreciation with revenue? b

a. associating cause and effect

b. systematic and rational allocation
c. immediate recognition
d. partial recognition
72. Which should be expensed under the principle of systematic and rational allocation? b

a. salesmen's monthly salaries

b. insurance premiums
c. transportation to customers
d. electricity to light office building
73. A wholesale bakery would normally recognize revenue when c

a. the product is available for sale to a customer

b. cash is received from the customer
c. goods are delivered to the customer
d. management chooses to do so
74. Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent c
accounting periods?

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
75. The writeoff of a worthless patent is an example of which of the ff? b

a. associating cause and effect

b. immediate recognition
c. systematic and rational allocation
d. objectivity