@PROFDOCDIGITALLIBRARIES
TEST BANK
Financial Accounting Theory (LATEST UPDATED VERSION)
(ANSWERS ARE AT THE END OF THIS DOCUMENT)
1. The objectives of financial reporting are based on
a. Generally accepted accounting principles
b. Reporting for regulators
c. The need for conservatism
d. The needs of the users of the information
2. The relevance of providing information in financial statements is subject to the constraint of
a. Comparability
b. Cost-benefit
c. Reliability
d. Faithful representation
3. Which of the following is an enhancing quality that relates to both relevance and faithful
representation?
a. Comparability
b. Confirmatory value
c. Predictive value
d. Freedom from error
4. What is the requirement for incorporating an item into the financial statements?
a. It meets the definition of relevance and faithful representation.
b. It meets the definition of an element and can be measured reliably
c. It satisfies the criteria of capital maintenance
d. It meets the requirement of comparability and consistency.
5. What is the purpose of reporting comprehensive income?
a. To report changes in equity due to transactions with owners.
b. To report a measure of overall entity performance.
c. To replace net income with a better measure.
d. To combine income from continuing operations with income from discontinued
operations.
6. When a full set of general-purpose financial statements are presented, comprehensive income
and its components should
a. Appear as a part of discontinued operations.
b. Be reported net of related income tax should effect, in total and individually.
c. Appear in a supplemental schedule in the notes to financial statements.
d. Be displayed in a financial statement that has the same prominence as other financial
statements.
7. Which is an acceptable method for reporting comprehensive income under IFRS?
a. One comprehensive income statement.
b. Two statements, an income statement and a comprehensive income statement.
c. In the statement of changes in equity.
d. One comprehensive income statement or two statements, an income statement and a
comprehensive income statement
, @PROFDOCDIGITALLIBRARIES
Page 2
9. Which of the following items would cause earnings to differ from comprehensive income?
a. Unrealized loss on investment classified as available for sale
b. Unrealized loss on investment classified as trading
c. Loss on exchange of similar asset
d. Loss on exchange of dissimilar asset
10. Which of the following statements conforms to the realization concept?
a. Equipment depreciation was assigned to a production department and then to product unit
cost.
b. Depreciated 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 when the units were sold.
11. What is the underlying concept that supports estimating a fixed asset impairment charge?
a. Substance over form
b. Consistency
c. Matching
d. Faithful representation
12. What is the concept that supports the issuance of interim reports?
a. Relevance
b. Materiality
c. Consistency
d. Faithful representation
13. Which of the following is an essential characteristic of an asset?
a. The claims to an asset’s benefits are legally enforceable.
b. An asset is tangible.
c. An asset is obtained at a cost.
d. An asset provides future benefits.
14. The installment method of accounting may be used if the
a. Collection period extends over more than twelve months.
b. Installments are due in different years.
c. Ultimate amount collectible is indeterminate.
d. Percentage of completion method is inappropriate.
15. Which statement best justifies the use of the cost recovery method of revenue recognition to
account for installment sales?
a. The sales contract provides that title to the equipment only passes to the purchaser when
all payments have been made.
b. No cash payments are due until one year from the date of sale.
c. Sales are subject to a high rate of return.
d. There is no reasonable basis for estimating collectibility.
16. Which of the following is not one of the criteria for revenue recognition for sale of goods?
a. The significant risk and rewards of ownership of goods are transferred.
b. Payment has been received.
TEST BANK
Financial Accounting Theory (LATEST UPDATED VERSION)
(ANSWERS ARE AT THE END OF THIS DOCUMENT)
1. The objectives of financial reporting are based on
a. Generally accepted accounting principles
b. Reporting for regulators
c. The need for conservatism
d. The needs of the users of the information
2. The relevance of providing information in financial statements is subject to the constraint of
a. Comparability
b. Cost-benefit
c. Reliability
d. Faithful representation
3. Which of the following is an enhancing quality that relates to both relevance and faithful
representation?
a. Comparability
b. Confirmatory value
c. Predictive value
d. Freedom from error
4. What is the requirement for incorporating an item into the financial statements?
a. It meets the definition of relevance and faithful representation.
b. It meets the definition of an element and can be measured reliably
c. It satisfies the criteria of capital maintenance
d. It meets the requirement of comparability and consistency.
5. What is the purpose of reporting comprehensive income?
a. To report changes in equity due to transactions with owners.
b. To report a measure of overall entity performance.
c. To replace net income with a better measure.
d. To combine income from continuing operations with income from discontinued
operations.
6. When a full set of general-purpose financial statements are presented, comprehensive income
and its components should
a. Appear as a part of discontinued operations.
b. Be reported net of related income tax should effect, in total and individually.
c. Appear in a supplemental schedule in the notes to financial statements.
d. Be displayed in a financial statement that has the same prominence as other financial
statements.
7. Which is an acceptable method for reporting comprehensive income under IFRS?
a. One comprehensive income statement.
b. Two statements, an income statement and a comprehensive income statement.
c. In the statement of changes in equity.
d. One comprehensive income statement or two statements, an income statement and a
comprehensive income statement
, @PROFDOCDIGITALLIBRARIES
Page 2
9. Which of the following items would cause earnings to differ from comprehensive income?
a. Unrealized loss on investment classified as available for sale
b. Unrealized loss on investment classified as trading
c. Loss on exchange of similar asset
d. Loss on exchange of dissimilar asset
10. Which of the following statements conforms to the realization concept?
a. Equipment depreciation was assigned to a production department and then to product unit
cost.
b. Depreciated 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 when the units were sold.
11. What is the underlying concept that supports estimating a fixed asset impairment charge?
a. Substance over form
b. Consistency
c. Matching
d. Faithful representation
12. What is the concept that supports the issuance of interim reports?
a. Relevance
b. Materiality
c. Consistency
d. Faithful representation
13. Which of the following is an essential characteristic of an asset?
a. The claims to an asset’s benefits are legally enforceable.
b. An asset is tangible.
c. An asset is obtained at a cost.
d. An asset provides future benefits.
14. The installment method of accounting may be used if the
a. Collection period extends over more than twelve months.
b. Installments are due in different years.
c. Ultimate amount collectible is indeterminate.
d. Percentage of completion method is inappropriate.
15. Which statement best justifies the use of the cost recovery method of revenue recognition to
account for installment sales?
a. The sales contract provides that title to the equipment only passes to the purchaser when
all payments have been made.
b. No cash payments are due until one year from the date of sale.
c. Sales are subject to a high rate of return.
d. There is no reasonable basis for estimating collectibility.
16. Which of the following is not one of the criteria for revenue recognition for sale of goods?
a. The significant risk and rewards of ownership of goods are transferred.
b. Payment has been received.
