CHAPTER 2

CONCEPTUAL FRAMEWORK FOR FINANCIAL

REPORTING

IFRS concerns are accessible at the end of this chapter.

You are watching: What accounting concept justifies the usage of depreciation and amortization policies?

TRUE-FALSE—Conceptual

Answer No. Description

T 1. Nature of conceptual frame.T 2. Conceptual structure meaning.F 3. Levels of conceptual frame.T 4 Internationwide conceptual frame.F 5. Statements of Financial Accounting Concepts.T 6. Objective of financial reporting.F 7. Financial statement individuals.T 8. Relevance and faithful depiction.T 9. Consistency.F 10. Relevance.F 11. Faithful representation.F 12. Basic aspects.T 13. Comprehensive revenue.T 14. Going issue presumption.F 15. Economic entity presumption.F 16. Expense acknowledgment principle.T 17. Recognizable earnings.T 18. Supplementary information.F 19. Cost advantage trade-off.F 20. Conservatism.

MULTIPLE CHOICE—Conceptual

Answer No. Description

c 21. GAAP characterized.d 22. Purpose of conceptual framework.c 23. Conceptual structure.d 24. Conceptual structure function.d S25. Conceptual frame benefits.d 26. Objectives of financial reporting.a 27. Decision usefulness.d 28. General purpose of financial reporting.a 29. Primary objective of financial reporting.a P30. Example of comparability.a S31. Primary high quality of relevance.b 32. Characteristic of audit information.c 33. Characteristic of bookkeeping indevelopment.c 34. Meaning of comparcapability.a 35. Meaning of consistency.

Test Bank for Intermediate Accounting, Fifteenth Edition

MULTIPLE CHOICE—Conceptual (cont.)

Answer No. Description

d 36. Ingredient of relevance.c 37. Ingredient of reliability.a 38. Consistency characteristic.b 39. Primary high quality of accounting information.d 40. Quality of relevance.a 41. Quality of relicapability.d 42. Consistency top quality.a 43. Decision-usefulness criterion.c 44. Key characteristics of bookkeeping indevelopment.b 45. Definition of relevance.b 46. Definition of relicapability.d 47. Relevance top quality.c 48. Materiality characteristic.d 49. Completeness characteristic.b 50. Neutrality characteristic.d 51. Neutrality characteristic.c 52. Definition of verificapacity.a 53. Quality of predictive value.c 54. Quality of totally free from error.d 55. Consistency.b 56. Consistency characteristic.b 57. Comparcapability and consistency.d 58. Comparability.d 59. Elements of financial statements.c 60. Distinction in between earnings and gains.c 61. Definition of a loss.d 62. Definition of detailed income.b 63. Materials of comprehensive revenue.d P64. Comprehensive earnings.b S65. Earnings vs. comprehensive earnings.a S66. Reporting financial statement aspects.b 67 Basic facet of financial statements.a 68. Basic aspect of financial statements.d 69. Basic element of financial statements.c 70. Definition of gains.d 71. Historical cost presumption.c 72. Periodicity presumption.b 73 Going issue assumption.b 74. Periodicity assumption.a S75. Monetary unit assumption.c S76. Periodicity assumption.c 77. Monetary unit assumption.d 78. Economic entity presumption.a 79. Economic entity assumption.b 80. Periodicity presumption.a 81. Going problem assumption.d 82. Going worry assumption.d 83. Implications of going issue assumption.a 84. Historical cost principle.

2 - 2

Test Bank for Intermediate Accounting, Fifteenth Edition

MULTIPLE CHOICE—CPA Adapted

Answer No. Description

a 125. Quality of predictive value.b 126. Relevance and also faithful representation.b 127. Category of gains and losses.b 128. Earnings idea.a 129. Materials of detailed earnings.b 130. Components of thorough revenue.d 131. Materials of in-depth revenue.d 132. Components of detailed earnings.a 133. Definition of acknowledgment.

P Note: these questions additionally appear in the Problem-Solving Survival Guide.S Note: these concerns additionally show up in the Study Guide.

BRIEF EXERCISES

Item Description

BE2-134 Qualitative attributes.BE2-135 Accounting concepts—identification.BE2-136 Accounting concepts—identification.

EXERCISES

E2-137 Accounting concepts—corresponding.E2-138 Accounting concepts—fill in the blanks.E2-139 Basic assumptions.E2-140 Historical price principle.E2-141 Matching concept.

CHAPTER LEARNING OBJECTIVES

Describe the usefulness of a conceptual framework.

Describe the FASB’s initiatives to construct a theoretical structure.

Understand the objective of financial reporting.

Identify the qualitative characteristics of audit information.

Define the basic aspects of financial statements.

Describe the standard presumptions of bookkeeping.

Exsimple the application of the standard values of accountancy.

2 - 4

Conceptual Frameoccupational Underlying Financial Accounting

Describe the influence that the price constraint has on reporting accountancy indevelopment.

Compare the conceptual framefunctions underlying GAAP and also IFRS.

2 - 5

Conceptual Framework-related Underlying Financial Accounting

TRUE-FALSE—Conceptual

A soundly developed conceptual structure permits the FASB to issue more valuable and also consistent pronouncements over time.

A conceptual frame is a systematic system of concepts that flow from an objective.

The first level of the conceptual framework identifies the recognition, measurement, and disclocertain concepts used in establishing audit requirements.

The IASB has issued a theoretical framework and has agreed to construct a common conceptual structure through the FASB.

Although the FASB has arisen a theoretical structure, no Statements of Financial Accounting Concepts have actually been issued to date.

The objective of financial reporting is the structure of the conceptual frame.

Users of financial statements are assumed to need no expertise of company and also financial accountancy matters to understand also information included in financial statements.

Relevance and also faithful depiction are the two primary characteristics that make bookkeeping information beneficial for decision making.

The idea of consistency does not expect that suppliers cannot switch from one audit method to another.

Timeliness and also neutrality are 2 ingredients of relevance.

Verifiability and also predictive value are 2 ingredients of faithful representation.

Revenues, gains, and also distributions to owners all rise equity.

Comprehensive income contains all changes in equity during a period except those resultingfrom investments by owners and distributions to owners.

The historical price principle would certainly be of limited usefulness if not for the going concernpresumption.

The economic entity presumption implies that economic activity have the right to be identified through acertain legal entity.

The expense acknowledgment principle says that debits should equal credits in each transaction.

Revenues are known in the accountancy duration in which the performance obligation issatisfied.

Supplementary indevelopment might include details or amounts that current a differentperspective from that adopted in the financial statements.

2 - 7

Test Bank for Intermediate Accounting, Fifteenth Edition

In order to justify requiring a certain measurement or disclosure, the benefits to bederived from it must equal the prices connected through it.

Prudence or conservatism means as soon as in doubt, select the solution that will certainly be least likelyto overstate liabilities or costs.

True False Answers—Conceptual

Item Ans. Item Ans. Item Ans. Item Ans. 1. T 6. T 11. F 16. F 2. T 7. F 12. F 17. T 3. F 8. T 13. T 18. T 4. T 9. T 14. T 19. F 5. F 10. F 15. F 20. F

MULTIPLE CHOICE—Conceptual

Generally embraced bookkeeping principlesa. are basic 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 basic acknowledgment and acceptance by the accounting profession.d. have actually been specified in information in the FASB conceptual structure.

A soundly developed conceptual framework of principles and objectives shoulda. rise financial statement users" understanding of and also confidence in financial reporting.b. improve comparability among companies" financial statements.c. allow brand-new and arising handy problems to be more conveniently solved.d. All of these answer options are correct.

Which of the complying with is not true concerning a theoretical structure in accounting?a. It must be a basis for standard-setting.b. It need to enable useful problems to be addressed more conveniently by reference to it.c. It have to be based upon basic truths that are derived from the laws of nature.d. All of these answer selections are true.

What is a purpose of having a theoretical framework?a. To permit the profession to even more quickly resolve arising valuable problems.b. To provide a structure from which to build even more valuable standards.c. Neither a nor b.d. To permit the profession to even more quickly deal with emerging helpful difficulties and also to administer a foundation from which to build even more advantageous requirements.

2 - 8

Test Bank for Intermediate Accounting, Fifteenth Edition

S31. What is the following is a characteristic describing the primary quality of relevance? a. Predictive worth. b. Materiality. c. Verificapability. d. Understandcapability.

Which of the complying with is a fundamental high quality of beneficial accountancy information?a. Comparcapability.b. Relevance.c. Neutrality.d. Materiality.

Which of the following is a main high quality of helpful accounting information?a. Conservatism.b. Comparcapability.c. Faithful representation.d. Consistency.

What is intended by comparcapacity as soon as discussing financial bookkeeping information?a. Information has actually predictive or confirmatory value.b. Indevelopment is fairly free from error.c. Indevelopment that is measured and reported in a similar fashion throughout carriers.d. Information is timely.

What is supposed by consistency when discussing financial accountancy information?a. Indevelopment that is measured and reported in a comparable fashion throughout points in time.b. Indevelopment is timely.c. Indevelopment is measured similarly across the market.d. Indevelopment is verifiable.

Which of the following is an ingredient of relevance?a. Verifiability.b. Neutrality.c. Timeliness.d. Materiality.

Which of the following is an ingredient of faithful representation?a. Predictive value.b. Materiality.c. Neutrality.d. Confirmatory value.

Changing the method of inventory valuation have to be reported in the financial statementsunder what qualitative characteristic of audit information?a. Consistency.b. Verificapability.c. Timeliness.d. Comparability.

Company kind of A issuing its yearly financial reports within one month of the finish of the year isan example of which boosting quality of accounting information?a. Comparcapability.

2 - 10

Conceptual Framejob-related Underlying Financial Accounting

b. Timeliness.c. Understandability.d. Verifiability.

What is the high quality of information that is capable of making a distinction in a decision?a. Faithful representation.b. Materiality.c. Timeliness.d. Relevance.

Neutrality is an ingredient of which standard top quality of information?a. Faithful depiction.b. Comparcapacity.c. Relevance.d. Understandcapacity.

If the FIFO inventory technique was provided last duration, it need to be used for the current andfollowing periods because ofa. relevance.b. neutrality.c. understandcapacity.d. consistency.

The pervasive criterion through which accounting indevelopment can be judged is that ofa. decision usefulness.b. liberty from prejudice.c. timeliness.d. comparcapability.

The two fundamental attributes that make accountancy information useful for decisionmaking area. comparcapability and timeliness.b. materiality and neutrality.c. relevance and faithful depiction.d. faithful depiction and also comparability.

Accounting information is thought about to be relevant once ita. deserve to be depended on to reexisting the economic conditions and occasions that it is intended to reexisting.b. is capable of making a distinction in a decision.c. is understandable by fairly increated customers of accountancy indevelopment.d. is verifiable and neutral.

The quality of indevelopment that implies the numbers and also descriptions match what reallyexisted or occurred isa. relevance.b. faithful depiction.c. completeness.d. neutrality.

2 - 11

Conceptual Frameoccupational Underlying Financial Accounting

Under Statement of Financial Accounting Concepts No. 2, complimentary from error is an ingredientof the basic quality of Faithful Representation Relevancea. Yes Yesb. No Yesc. Yes Nod. No No

Financial information demonstprices consistency whena. firms in the exact same industry use different accountancy techniques to account for the very same form of transaction.b. a company transforms its estimate of the salvage value of a resolved ascollection.c. a company fails to readjust its financial statements for transforms in the worth of the measuring unit.d. Namong these answer selections are correct.

Financial information exhibits the characteristic of consistency whena. prices are reported as charges against revenue in the duration in which they are phelp.b. a agency applies the same accounting treatment to comparable occasions, from period to duration.c. extraplain gains and also losses are not consisted of on the earnings statement.d. accountancy measures are adopted which provide a regular price of net earnings.

Indevelopment about different service providers and also around various periods of the very same companydeserve to be prepared and also presented in a similar manner. Comparability and consistency areregarded which of these objectives? Comparcapability Consistencya. Companies Companiesb. Companies Periodsc. Periods Companiesd. Periods Periods

When information about 2 various enterprises has been prepared and also presented in acomparable manner, the indevelopment exhibits the characteristic ofa. relevance.b. faithful depiction.c. consistency.d. Namong these answer options are correct.

The facets of financial statements include investments by owners. These are increasesin an entity"s net assets resulting from owners"a. transfers of assets to the entity.b. rendering services to the entity.c. satisfaction of liabilities of the entity.d. All of these answer options are correct.

In classifying the aspects of financial statements, the primary distinction betweenearnings and also gains isa. the materiality of the amounts affiliated.b. the likelihood that the transactions connected will certainly recur in the future.c. the nature of the tasks that gave rise to the transactions connected.d. the costs versus the benefits of the different methods of disclosing the transactions associated.

2 - 13

Test Bank for Intermediate Accounting, Fifteenth Edition

A decrease in net assets emerging from peripheral or incidental transactions is dubbed a(n)a. funding expenditure.b. expense.c. loss.d. expense.

One of the facets of financial statements is comprehensive revenue. As defined inStatement of Financial Accounting Concepts No. 6, "Elements of Financial Statements,"detailed earnings is equal toa. earnings minus expenses plus gains minus losses.b. profits minus prices plus gains minus losses plus investments by owners minus distributions to owners.c. earnings minus costs plus gains minus losses plus investments by owners minus distributions to owners plus assets minus liabilities.d. None of these answer options are correct.

Which of the following aspects of financial statements is not a component ofcomprehensive income?a. Revenuesb. Distributions to ownersc. Lossesd. Expenses

P64. The calculation of in-depth revenue contains which of the following? Operating Income Distributions to Ownersa. Yes Yesb. No Noc. No Yesd. Yes No

S65. According to the FASB conceptual framework, which of the complying with facets describes transactions or events that impact a agency in the time of a period of time? a. Assets. b. Expenses. c. Equity. d. Liabilities.

S66. According to the FASB Conceptual Framejob-related, the elementsassets, liabilities, and also equitydefine amounts of sources and claims to resources at/in the time of a Moment in Time Period of Time a. Yes No b. Yes Yes c. No Yes d. No No

Which of the adhering to is not a straightforward element of financial statements?a. Assets.b. Balance sheet.c. Losses.d. Revenue.2 - 14

Test Bank for Intermediate Accounting, Fifteenth Edition

S75. Which of the following standard audit presumptions is endangered by the existence of severe inflation in the economy? a. Monetary unit presumption. b. Periodicity presumption. c. Going-problem presumption. d. Economic entity presumption.

S76. Throughout the life time of an entity accountants develop financial statements at man-made points in time in accordance through the idea of Relevance Periodicity a. No No b. Yes No c. No Yes d. Yes Yes

Under present GAAP, inflation is ignored in accounting because of thea. financial entity assumption.b. going worry presumption.c. financial unit assumption.d. periodicity assumption.

The economic entity assumptiona. is inapplicable to unintegrated businesses.b. recognizes the legal facets of business institutions.c. needs regular revenue measurement.d. is applicable to all creates of organization establishments.

Preparation of consolidated financial statements once a parent-subsidiary relationshipexists is an instance of thea. financial entity assumption.b. relevance characteristic.c. comparcapability characteristic.d. neutrality characteristic.

Throughout the lifetime of an entity, accountants create financial statements at arbitrarypoints in time in accordance through which basic accounting concept?a. Cost constraintb. Periodicity assumptionc. Conservatism constraintd. Expense recognition principle

What audit concept justifies the usage of depreciation and also amortization policies?a. Going issue assumptionb. Fair worth principlec. Full disclosure principled. Monetary unit assumption

2 - 16

Conceptual Framejob-related Underlying Financial Accounting

The presumption that a company will not be offered or liquidated in the close to future is knownas thea. financial entity presumption.b. financial unit assumption.c. periodicity assumption.d. Namong these answer selections are correct.

Which of the complying with is an implication of the going worry assumption?a. The historical cost principle is credible.b. Depreciation and amortization plans are justifiable and also correct.c. The current-nonexisting classification of assets and liabilities is justifiable and also significant.d. All of these.

Proponents of historical expense ordinarily keep that in comparikid via all other valuationchoices for general purpose financial reporting, statements all set making use of historicalcosts are morea. verifiable.b. pertinent.c. indicative of the entity"s purchasing power.d. conservative.

Valuing assets at their liquidation values quite than their expense is incontinual with thea. periodicity assumption.b. price acknowledgment principle.c. materiality constraint.d. historic cost principle.

Revenue is well-known in the audit duration in which the performance responsibility issatisfied. This statement defines thea. consistency characteristic.b. cost acknowledgment principle.c. revenue recognition principle.d. relevance characteristic.

Generally, revenue from sales have to be recognized at a point whena. monitoring decides it is appropriate to do so.b. the product is accessible for sale to the ultimate customer.c. the entire amount receivable has been built up from the customer and there remains no further warranty liability.d. None of these answer options are correct.

Revenue generally must be recognizeda. at the end of manufacturing.b. at the moment of cash collection.c. as soon as realized.d. as soon as the performance responsibility is satisfied.

2 - 17

Conceptual Framework Underlying Financial Accounting

Which of the following is an dispute against using historic price in accounting?a. Fair values are more pertinent.b. Historical prices are based upon an exadjust transaction.c. Historical expenses are trusted.d. Fair worths are subjective.

When is revenue primarily recognized?a. When cash is received.b. When the warranty expires.c. When manufacturing is completed.d. When the agency satisfies the performance obligation.

Which of the complying with is a component of the revenue acknowledgment principle?a. Cash is received and also the amount is product.b. Recognition occurs when the performance obligation is satisfied.c. Production is complete and there is an energetic market for the product.d. Cash is realized or realizable and also production is finish.

A company has actually a performance obligation when it agrees toa. percreate a business for a customer and receives cash payment.b. offer a product to a customer after receiving payment.c. perdevelop a company or offer a product to a customer.d. Namong the answer selections are correct.

Which of the complying with is not a forced component of financial statements ready inaccordance through mostly embraced bookkeeping principles?a. President"s letter to shareholders.b. Balance sheet.c. Income statement.d. Notes to financial statements.

What is the basic strategy regarding once product prices are known as expenses?a. In the duration once the costs are paid.b. In the duration when the expenses are incurred.c. In the duration when the vendor invoice is obtained.d. In the period when the connected revenue is recognized.

Not adjusting the quantities reported in the financial statements for inflation is an exampleof which basic principle of accounting?a. Economic entity.b. Going problem.c. Historical cost.d. Full disclocertain.

Recognition of expense concerned amortization of an intangible ascollection illustprices whichprinciple of accounting?a. Expense acknowledgment.b. Full disclosure.c. Revenue acknowledgment.d. Historical expense.

2 - 19

Test Bank for Intermediate Accounting, Fifteenth Edition

When need to an expenditure be tape-recorded as an ascollection quite than an expense?a. Never before.b. Almeans.c. If the amount is product.d. When future advantage exists.

Which bookkeeping presumption or principle is being violated if a firm reports itscorpoprice headquarter structure at its fair worth on the balance sheet?a. Going issue.b. Monetary unit.c. Historical price.d. Full disclosure.

Which accountancy assumption or principle is being violated if a agency is a party tomajor litigation that it may shed and also decides not to encompass the indevelopment in the financialstatements bereason it might have actually a negative affect on the company"s stock price?a. Full disclosure.b. Going problem.c. Historical price.d. Expense acknowledgment.

Which presumption or principle needs that all indevelopment substantial sufficient to impact adecision of fairly indeveloped users need to be reported in the financial statements?a. Matching.b. Going worry.c. Historical expense.d. Full disclocertain.

A company has actually a factory building that initially price the agency $250,000. The currentfair worth of the factory structure is $3 million. The president would certainly favor to report thedistinction as a gain. The write-up would recurrent a violation of which accountingpresumption or principle?a. Revenue recognition.b. Going worry.c. Historical expense.d. Monetary unit.

Which of the complying with is a constraint in presenting financial information?a. Cost-advantage connection.b. Full disclocertain.c. Relevance.d. Consistency.

See more: All Of The Following Are Symptoms Of Groupthink Except, Symptoms Of Groupthink

All of the following reexisting prices of providing financial indevelopment excepta. preparing.b. disseminating.c. accessing funding.d. auditing.