QUESTION 6-17 Multiple Choice (Conceptual Framework)

1. It is the process of capturing for inclusion in the financial statements an item that meets
the definition of the elements.
a. Recognition
b. Measurement
c. Classifying
d. Derecognition

2. An item is recognized in the financial statements if

a. It is probable that economic benefits will flow to or from the entity.
b. It meets the definition of an asset, liability, equity, income and expense.
c. The entity has ownership of such item.
d. It is probable that economic benefits will flow to or from the entity and that the cost
can be measured reliably.

3. Recognition of an element is appropriate when information results in

a. Relevance
b. Faithful representation
c. Both relevance and faithful representation
d. Neither relevance nor faithful representation

4. It is the removal of all or part of a recognized asset or liability from the statement of
financial position.
a. Write off
b. Derecognition
c. Extinguishment
d. Retirement

5. Derecognition normally occurs when

a. An item no longer meets the definition of an asset or a liability.
b. The entity loses control of the asset.
c. The entity no longer has a present obligation of the liability.
d. Under all of these circumstances.

QUESTION 6-18 Multiple Choice (IAA)

1. Generally, revenue is recognized

a. At the point of sale.
 b. When cause and effect are associated.
c. At the point of cash collection.
d. At appropriate points throughout the operating cycle.
2. Which of the following is not an accepted basis for recognition of revenue?
a. Passage of time
b. Performance of service
c. Completion of percentage of a project
d. Upon signing of contract
3. Revenue from sale of goods is recognized
a. When the customer order is received.
b. When the customer order is accompanied by a check.
c. Only if the transaction will create an account receivable.
d. When the title to the goods changes.
4. Which of the following practices may not be an acceptable deviation from recognizing
revenue at the point of sale?
a. Upon receipt of cash
b. During production
c. Upon receipt of order
d. End of production
5. Which of the following represents the least desirable choice for the recognition of
revenue?
a. Recognition of revenue during production
b. Recognition of revenue when a sale occurs
c. Recognition of revenue when cash is collected
d. Recognition of revenue when production is completed
QUESTION 6-19 Multiple Choice (AICPA Adapted)

1. Revenue recognition conventionally refers to

a. The process of identifying transaction to ne recorded as revenue in an accounting

period.
b. The process of measuring and relating revenue and expenses during a period.
c. The earning process which gives rise to revenue realization.
d. The process of identifying those transactions that result in an inflow of assets to the
entity.
2. Which means the process of converting noncash resources into cash or claims to cash?
a. Allocation
b. Collection
c. Recognition
d. Realization
3. Gains on assets unsold are identified by the term
a. Unrecorded
b. Unrealized
c. Unrecognized
d. Unallocated
4. The term recognized is synonymous with the term
a. Recorded
b. Realized
c. Matched
d. Allocated
5. Which statement conforms to the realization concept?
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 cost were assigned to cost of good sold
QUESTION 6-20 Multiple Choice (AICPA Adapted)

1. Which of the following 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

2. Costs that can be reasonably associated with specific revenue but not with specific product
should be
a. Expensed in the period incurred
b. Allocated to the specific product based on the best estimate of the product processing
time
c. Expensed in the period in which the related revenue is recognized
d. Capitalized and then amortized over a reasonable period

3. Which of the following is an example of the cause and effect association principle?
a. Sales commission
b. Allocation of insurance cost
c. Depreciation of property, plant and equipment
d. Officers’ salaries

4. 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

5. Which of the following would be matched with current revenue on a basis other than
association of cause and effect?
a. Goodwill
b. Cost of good sold
c. Sales commission
d. Warranty cost

6. Why are certain costs of doing business capitalized when incurred and then depreciated or
amortized?
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
7. Which principle best describes the rationale for matching depreciation with revenue?
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Partial recognition

8. Which of the following should be expensed under the principle of systematic and rational
allocation?
a. Salesman’s monthly salaries
b. Insurance premiums
c. Transportation to customers
d. Electricity to lights office building

9. The write off of a worthless patent is an example of which of the following principles?
a. Associating cost and effect
b. Immediate recognition
c. Systematic and rational allocation
d. Objectivity

10. What is an example of cost that cannot be directly related to a particular revenue but incurred
to obtain benefits that are exhausted in the period when the cost is incurred?
a. Sales commission
b. Sales salaries
c. Freight in
d. Prepaid insurance
QUESTION 6-21 Multiple Choice (IAA)

1. 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

2. Bad debt expense is recognized according to which expense recognition principle?

a. Direct matching
b. Immediate recognition
c. Systematic and rational allocation
d. Critical event recognition

3. What is the general approach as to when product costs are recognized as expense?

a. In the period when the expenses are paid.

b. In the period when the expenses are incurred.
c. In the period when the vendor invoice is recognized.
d. In the period when the related revenue is recognized.

4. When should an expenditure be recorded as an asset rather than an expense?

a. Never
b. Always
c. If the amount is material
d. When there is a right that has the potential to produce economic benefit

5. Which accounting principle is being observed when an accountant charges to expense a cost
that contributed to revenue during a period?

a. Revenue Realization
b. Matching
c. Monetary Unit
d. Conservatism
6. Which is not acceptable for recognition expense?

a. Systematic and Rational Allocation

b. Direct Matching
 c. Immediate Recognition
d. Cash Disbursement

7. A cause and effect relationship is implicit in the

a. Realization Principle
b. Historical Cost Principle
c. Matching Principle
d. Going Concern Assumption

8. An example of direct matching would be

a. Depreciation Expense
b. Office Salaries Expense
c. Direct labor cost incurred to produce inventory sold
d. Advertising Expense

9. Which category is subject to immediate recognition?

a. Utilities expense for the production line

b. Repair and maintenance expense incurred on production equipment of a manufacturer
c. The salary of the production foreman
d. The salary of the entity president

10. Which principle best describes the rationale for distribution and administrative expenses?

a. Direct Matching
b. Systematic and Rational Allocation
c. Immediate Recognition
d. Partial Recognition
QUESTION 6-22 Multiple choice (Conceptual Framework)
 
1. Which Statement is true about current value?
a. Fair value of an asset is the price that would be received to sell an asset in an orderly
transaction.
b. Value in use is the present value of the cash flows expected to be derived from an
asset.
c. Fulfillment value is the present value of the cash expected for the payment of
liability.
d. All of these statements are true about current value.

2. The measurement bases include

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

3. Current value includes

a. Fair value and present value
b. Fair value and current cost
c. Current cost and value in use
d. Fair value, value in use and current cost

4. Which measurement attribute is not currently used?

a. Present value
b. Fair value
c. Current cost
d. Inflation adjusted cost

5. Which term best describes the amount that represents the immediate purchase cost of an
asset?
a. Historical cost
b. Realizable value
c. Present value
d. Current cost
QUESTION 6-23 Multiple choice (IAA)

1. Asset measurements in financial statements

a. Are confined to historical cost
b. Are confined to historical cost and current cost
c. Reflect several financial attributes
d. Do not reflect output value

2. Which of the following should be considered a current value measure?

a. Replacement cost and exit value
b. Replacement cost and discounted cash flow
c. Exit value and discounted cash flow
d. Replacement cost, exit value and discounted cash flow

3. The primary measurement basis is

a. Historical cost
b. Fair value
c. Value in use
d. Current cost

4. Which measurement basis is currently used in financial statements?

a. Present value
b. Present value and settlement value
c. Settlement value and fair value
d. Present value, settlement value and fair value

5. Which measurement attribute is the most relevant?

a. Present value
b. Exit value
c. Current cost
d. Historical cost