CFAS - Chapter 6: Multiple Choice

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1. a It is the process of capturing for inclusion in the financial 7. a Which of the following is not an accepted basis for
statements an item that meets the definition of the elements recognition of revenue?
of financial statements
a. Passage of time
a. Recognition b. Performance of service
b. Measurement c. Completion of percentage of a project
c. Classifying d. Upon signing of contract
d. Derecognition
8. a Generally, revenue us recognized
2. a Which of the following is an example of the cause and
effect association principle? a. At the point of sale
b. When cause and effect are associated
a. Sales commission c. At the point of cash collection
b. Allocation of insurance cost d. At appropriate points throughout the operating cycle
c. Depreciation of property, plant and equipment
9. a Bad debts expense is recognized according to which
d. Officers' salaries
expense recognition principle?
3. a The term "recognized" is synonymous with the term
a. Direct matching
a. Recorded b. Immediate recognition
b. Realized c. Systematic and rational allocation
c. Matched d. Critical event recognition
d. Allocated
10. a Which statement is true about current value?
4. a Revenue recognition conventionally refers to
a. Fair value of an asset is the price that would be
a. The process of identifying transactions to be recorded as received to sell an asset in an orderly transaction between
revenue in an accounting period market participants at the measurement date.
b. The process of measuring and relating revenue and b. Value in use is the present value of the cash flows
expenses during a period. expected to be derived from the use and ultimate disposal
c. The earning process which gives rise to revenue of an asset
realization c. Fulfillment value is the present value of the cash
d. The process of identifying those transactions that result expected to be transferred for the payment of liability
in an inflow of assets to the entity d. All of these statements are true about current value.
5. a Which of the following represents the "least desirable" 11. b The matching principle is best demonstrated by
choice for the recognition of revenue?
a. Not recognizing any expense unless some revenue is
a. Recognition of revenue during production realized
b. Recognition of revenue when a sale occurs b. Associated effort with accomplishment
c. Recognition of revenue when cash is collected c. Recognizing prepaid rent received as revenue
d. Recognition of revenue when production is completed d. Establishing an appropriation for contingency
6. a Which of the following would be matched with current 12. b Which accounting principle is being observed when an
revenue on a basis other than association of cause and accountant charges to expense a cost that contributed to
effect? revenue during a period?

a. Goodwill a. Revenue realization

b. Cost of good sold b. Matching
c. Sales commission c. Monetary unit
d. Warranty cost d. Conservatism
13. b The writeoff of a worthless patent is an example of which 19. b It is the removal of all or part of a recognized asset or
of the following principles? liability from the statement of financial position

a. Association cause and effect a. Writeoff

b. Immediate recognition b. Derecognition
c. Systematic and rational allocation c. Extinguishment
d. Objectivity d. Retirement
14. b Which of the following should be expensed under the 20. b Gains on assets unsold are identified, in a precise sense,
principle of systematic and rational allocation? by the term

a. Salesman's monthly salaries a. Unrecorded

b. Insurance premiums b. Unrealized
c. Transportation to customers c. Unrecognized
d. Electricity to light office building d. Unallocated
15. b Which of the following principles best describe the 21. b Which statement conforms to the realization concept?
conceptual rationale for the method of matching or
depreciation with revenue? c a. Depreciation was assigned to product unit cost
b. Equipment was sold in exchange for a note receivable
a. Association cause and effect c. Cash was collected on accounts receivable
b. Systematic and rational allocation d. Product unit costs were assigned to cost of goods
c. Immediate recognition sold
d. Partial recognition
22. c Costs that can be reasonably associated with specific
16. b An item is recognized in the financial statements if revenue but not with specific product should be

a. It is probable that economic benefits will flow to or a. Expensed in the period incurred
from the entity. b. Allocated to the specific product based on the best
b. It meets the definition of an asset, liability, equity, estimate of the product processing should be
income and expense c. Expensed in the period in which the related revenue is
c. The entity has ownership of such item recognized
d. It is probable that economic benefits will flow to or d. Capitalized and then amortized over a reasonable
from the entity and that the cost can be measured
23. c Recogniton of an element is appropriate when
17. b What is an example of cost that cannot be directly related information result in
to particular revenue but incurred to obtain benefits that
are exhausted in the period when the cost in incurred? a. Relevance
b. Faithful representation
a. Sales commissions c. Both relevance and faithful representation
b. Sales salaries d. Neither relevance nor faithful representation
c. Freight in
24. c Which principle best describes the rationale for matching
d. Prepaid insurance
distribution costs and administrative expenses with
18. b It is the amount of cash or cash equivalent that would revenue of the current period?
have to be paid if the same or an equivalent asset was
acquired currently a. Direct matching
b. Systematic and rational allocation
a. Historical Cost c. Immediate recognition
b. Current Cost d. Partial recognition
c. Realizable value
d. Present Value
25. c An example of direct matching of an expense with revenue 31. d Derecogntion normally occurs when
would be
a. An item no longger meets the definition of an asset or a
a. Depreciation expense liability
b. Office salaries expense b. The entity losses control of the asset
c. Direct labor costs incurred to produce inventory sold c. The entity no longer has a present obligation for the
during a period liability
d. Advertising expense d. Under all of these circumstances
26. c A cause and effect relationship is implicit in the 32. d which of the following is not an acceptable basis for the
recognition of expense?
a. Realization principle
b. Historical cost principle a. Systematic and rational allocation
c. Matching principle b. Direct making
d. Going concern assumption c. Immediate recognition
d. Cash disbursement
27. c Why are certain costs of doing business capitalized when
incurred and then depreciated or amortized over 33. d Normally, revenue is recognized
subsequent accounting period?
a. When the customer order is receive
a. To reduce the income tax liability b. When the customer order is accompanied by a check
b. To aid management in the decision-making process c. Only of the transaction will create an account
c. To match the cost of production with revenue receivable
d. To adhere to the accounting concept of conservatism d. When the title to the goods changes
28. c Which of the following practices may not be an 34. d Which category of expenses is subject to immediate
acceptable deviation from recognizing revenue at the recognition in the income statement?
point of sale?
a. Utilities expense for production line of a manufacturer
a. Upon receipt of cash b. Repairs and maintenance expense incurred on
b. During production production in the income statement
c. Upon receipt of order c. The salary of the production foreman
d. End of production d. The salary of the entity president
29. d What is the general approach as to when "product costs" 35. d Which of the following in the most precise sense means
are recognized as expense? the process of converting noncash resources and rights
into cash or claims to cash?
a. In the period when the expenses are paid
b. In the period when the expenses are incurred a. Allocation
c. In the period when the vendor invoice is receive b. Collection
d. In the period when the related revenue is recognized c. Recognition
d. Realization
30. d When should an expenditure be recorded as an asset
rather than expense? 36. d Which of the following is not a theoretical basis for the
allocation of expense?
a. Never
b. Always a. Immediate recognition
c. If the amount is material b. Systematic and rational allocation
d. When there is a right that has the potential to produce c. Cause and effect association
economic benefit d. Profit maximization
37. d The measurement bases include

a. Historical cost
b. Current cost
c. Assessed value
d. Historical cost and current value
38. d Current value includes

a Fair value and present value

b. Fair value and current cost
c. Current cost and present value
d. Fair value, present value and current cost
39. d Which measurement attributes is not currently used in practice?

a. Present value
b. Fair value
c. Current cost
d. Inflation adjusted cost
40. d Which of the following 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