Test Bank For Accounting Principles 7Th Canadian Edition Volume 2 By Jerry J. Weygandt

CHAPTER 9 LONG-LIVED ASSETS CHAPTER STUDY OBJECTIVES 1. Calculate the cost of property, plant, and equipment. The cost of property, plant, and equipment includes all costs that are necessary to acquire the asset and make it ready for its intended use. All costs that benefit future periods (that is, capital expenditures) are included in the cost of the asset. When applicable, cost also includes asset retirement costs. When multiple assets are purchased in one transaction, or when an asset has significant components, the cost is allocated to each individual asset or component using their relative fair values. 2. Apply depreciation methods to property, plant, and equipment. After acquisition, assets are accounted for using the cost model or the revaluation model. Depreciation is recorded and assets are carried at cost less accumulated depreciation. Depreciation is the allocation of the cost of a long-lived asset to expense over its useful life (its service life) in a rational and systematic way. Depreciation is not a process of valuation and it does not result in an accumulation of cash. There are three commonly used depreciation methods: Method Straight-line Diminishing- balance Units-of- production Effect on Annual Depreciation Constant amount Diminishing amount Varying amount Calculation (Cost − residual value) ÷ estimated useful life (in years) Carrying amount at beginning of year × diminishing-balance rate (Cost − residual value) ÷ total estimated units-of- production × actual activity during the year Each method results in the same amount of depreciation over the asset’s useful life. Depreciation expense for income tax purposes is called capital cost allowance (CCA). 3. Explain the factors that cause changes in periodic depreciation and calculate revised depreciation for property, plant, and equipment. A revision to depreciation will be required if there are (a) capital expenditures during the asset’s useful life; (b) impairments in the asset’s fair value; (c) changes in the asset’s fair value when using the revaluation model; and/or (d) changes in the appropriate depreciation method, estimated useful life, or residual value. An impairment loss must be recorded if the recoverable amount is less than the carrying amount. Revisions of periodic depreciation are made in present and future periods, not retroactively. The new annual depreciation is determined by using the depreciable amount (carrying amount less the revised residual value), and the remaining useful life, at the time of the revision. 4. Demonstrate how to account for property, plant, and equipment disposals. The accounting for the disposal of a piece of property, plant, or equipment through retirement or sale is as follows: (a) Update any unrecorded depreciation for partial periods since depreciation was last recorded. (b) Calculate the carrying amount (cost – accumulated depreciation). (c) Calculate any gain (proceeds > carrying amount) or loss (proceeds < carrying amount) on disposal. (d) Remove the asset and accumulated depreciation accounts at the date of disposal. Record the proceeds received and the gain or loss, if any. An exchange of assets is recorded as the purchase of a new asset and the sale of an old asset. The new asset is recorded at the fair value of the asset given up plus any cash paid (or less any cash received). The fair value of the asset given up is compared with its carrying amount to calculate the gain or loss. If the fair value of the new asset or the asset given up cannot be determined, the new long-lived asset is recorded at the carrying amount of the old asset that was given up, plus any cash paid (or less any cash received). 5. Record natural resource transactions and calculate depletion. The units-of-production method of depreciation is generally used for natural resources. The depreciable amount per unit is calculated by dividing the total depreciable amount by the number of units estimated to be in the resource. The depreciable amount per unit is multiplied by the number of units that have been extracted to determine the annual depreciation. The depreciation and any other costs to extract the resource are recorded as inventory until the resource is sold. At that time, the costs are transferred to cost of resource sold on the income statement. Revisions to depreciation will be required for capital expenditures during the asset’s useful life, for impairments, and for changes in the total estimated units of the resource. 6. Identify the basic accounting issues for intangible assets and goodwill. The accounting for tangible and intangible assets is much the same. Intangible assets are reported at cost, which includes all expenditures necessary to prepare the asset for its intended use. An intangible asset with a finite life is amortized over the shorter of its useful life and legal life, usually on a straight-line basis. The extent of the annual impairment tests depends on whether IFRS or ASPE is followed and whether the intangible asset had a finite or indefinite life. Intangible assets with indefinite lives and goodwill are not amortized and are tested at least annually for impairment. Impairment losses on goodwill are never reversed under both IFRS and ASPE. 7. Illustrate the reporting and analysis of long-lived assets. It is common for property, plant, and equipment, and natural resources to be combined in financial statements under the heading “property, plant, and equipment.” Intangible assets with finite and indefinite lives are sometimes combined under the heading “intangible assets” or are listed separately. Goodwill must be presented separately. Either on the balance sheet or in the notes, the cost of the major classes of long-lived assets is presented. Accumulated depreciation (if the asset is depreciable) and carrying amount must be disclosed either in the balance sheet or in the notes. The depreciation and amortization methods and rates, as well as the annual depreciation expense, must also be indicated. The company’s impairment policy and any impairment losses should be described and reported. Under IFRS, companies must include a reconciliation of the carrying amount at the beginning and end of the period for each class of long-lived assets and state whether the cost or revaluation model is used. The asset turnover ratio (net sales ÷ average total assets) is one measure that is used by companies to show how efficiently they are using their assets to generate sales revenue. A second ratio, return on assets (profit ÷ average total assets), calculates how profitable the company is in terms of using its assets to generate profit. Exercise 1 EXERCISES Rust Company was organized on January 1. During the first year of operations, the following expenditures and receipts were recorded in random order in the account, Land: 1. Cost of real estate purchased as a plant site (land and building)..................... 2. Legal fees paid at the time of the purchase of the real estate.......................... 3. Cost of demolishing building to make land suitable for construction of a new building.............................................................................................. 4. Architect's fees on building plans..................................................................... 5. Excavation costs for new building.................................................................... 6. Cost of filling and grading the land................................................................... 7. Insurance and taxes during construction of building......................................... 8. Cost of repairs to building under construction caused by a small fire............... 9. Interest paid during the year, of which $52,000 pertains to the construction period........................................................................................... 10. Full payment to building contractor................................................................... 11. Cost of parking lots and driveways................................................................... 12. Property taxes paid for the current year on the land......................................... Total Debits...................................................................................................... 13. Insurance proceeds for fire damage................................................................. 14. Proceeds from residual of demolished building................................................ Total Credits..................................................................................................... Instructions Debits $ 320,000 6,500 12,000 14,000 24,000 5,000 6,000 14,000 64,000 760,000 36,000 4,000 $1,265,500 Credits $10,000 3,500 $13,500 Analyze the above transactions using the columns below. Insert the number of each transaction in the item space and insert the amounts in the appropriate columns. Item Land Solution 1 (15 min.) Land Improvements Land Improvements Building Building $ 14,000 24,000 Other Other Account Title Account Title Item 1. 2. 3. 4. 5. Land $320,000 6,500 12,000 6. 5,000 7. 6,000 8. $ 14,000 9. 52,000 12,000 10. 760,000 11. $36,000 12. Expense 13. 14. Totals $340,000 $36,000 $856,000 Bloomcode: Analysis Difficulty: Medium Learning Objective: Calculate the cost of property, plant, Section Reference: Property, Plant, and Equipment CPA: Financial Reporting Exercise 2 Fire Loss Interest Expense (3,500) (10,000) $20,000 and equipment. Fire Loss Land Improvements 4,000 Property Tax Identify the following expenditures as capital expenditures or operating expenditures: 1. Replacement of worn out gears on factory machinery 2. Construction of a new wing on an office building 3. Painting the exterior of a building 4. Oil change on a company truck 5. Replacing a network server’s hard drive, this increases data storage capacity by ten times. No extension of useful life expected 6. Overhaul of a truck motor. One year extension in useful life is expected 7. Purchased a wastebasket, with an expected useful life of five years, at a cost of $10 8. Painting and lettering of a used truck upon acquisition of the truck Solution 2 (5 min.) 1. operating 2. capital 3. operating 4. operating 5. capital 6. capital 7. operating 8. capital Bloomcode: Comprehension Difficulty: Easy Learning Objective: Calculate the cost of property, plant, and equipment. Section Reference: Property, Plant, and Equipment CPA: Financial Reporting Exercise 3 Below are selected entries for Econi Co.: 1. The $60 cost of repairing a printer was charged to Computer Equipment. 2. The $5,000 cost of a major engine overhaul was debited to Repair Expense. The overhaul is expected to increase the operating efficiency of the truck. 3. The $6,000 closing costs associated with the acquisition of land were debited to Legal Expense. 4. A $600 charge for transportation costs on new equipment purchased was debited to Delivery Expense. 5. Freight cost incurred bringing a new piece of machinery to the plant site was charged to Machinery. Instructions For each entry below make a correcting entry if necessary. If the entry state "No entry required." Solution 3 (10 min.) 1. Repair Expense............................................................................. Computer Equipment.............................................................. 2. Truck.............................................................................................. Repair Expense...................................................................... 3. Land.............................................................................................. Legal Expense........................................................................ 4. Equipment..................................................................................... Delivery Expense.................................................................... 5. No entry required. Bloomcode: Analysis Difficulty: Easy Learning Objective: Calculate the cost of property, plant, and equipment. given is correct, then 60 60 5,000 5,000 6,000 6,000 600 600 Section Reference: Property, Plant, and Equipment CPA: Financial Reporting Exercise 4 Below are transactions for Oriel Company: 1. Purchased land for $900,000. 2. Paid $20,000 to demolish building located on land. 3. Paid $3,000 for building permit. 4. Paid $2,000 for architect fees. 5. Paid $3,000 for excavation costs. 6. Paid interest of $22,000 during construction of new building. 7. Paid $960,000 to complete the building. 8. Paid $30,000 to pave the parking lot. 9. Paid $4,000 for underground sprinkler. 10. Ordered new equipment, paid $30,000. 11. Paid$1,500toinstallandtestnewequipment. 12. Paid $250 to insure equipment for one year. 13. Paid $2,500 to paint office walls in the new building. 14. Paid $2,000 to repair equipment. 15. Purchased a truck for $25,000. 16. Paid $250 for truck license. 17. Paid $60 for oil change on new truck. 18. Paid $15,000 for fences around the new building. 19. Purchased two cash registers for $1,100 each. 20. Paid $2,200 for annual yard maintenance. Instructions a) Determine if each item should be capitalized (C) or expensed (E). b) Determine the balance in the land account and the building account. Solution CHAPTER 11 FINANCIAL REPORTING CONCEPTS CHAPTER STUDY OBJECTIVES 1. Explain the importance of having a conceptual framework of accounting, and list the key components. The conceptual framework ensures that there is a consistent and coherent set of accounting standards. Key components of the conceptual framework are the: (1) objective of financial reporting; (2) elements of the financial statements; (3) qualitative characteristics; (4) recognition and measurement concepts; and (5) foundational concepts, assumptions, and constraints. 2. Explain the objective of financial reporting, and define the elements of the financial statements. The objective of financial reporting is to provide useful information for investors and creditors in making decisions in their capacity as capital providers. The elements are assets, liabilities, equity, revenue, and expense. Each element has a specific definition. The definitions provide important guidance on when an element should be recognized. 3. Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. The fundamental qualitative characteristics are relevance and faithful representation. Financial information has relevance if it makes a difference in a decision. Materiality is an important component of relevance. An item is material when it is likely to influence the decision of a reasonably careful investor or creditor. Information is faithfully represented when it shows the economic reality and is complete, neutral, and free from material error. The enhancing qualitative characteristics are comparability, verifiability, timeliness, and understandability. Comparability enables users to identify the similarities and differences between companies. The consistent use of accounting policies from year to year is part of the comparability characteristic. Information is verifiable if two knowledgeable and independent people would generally agree that it faithfully represents the economic reality. Timeliness means that financial information is provided when it is still highly useful for decision making. Understandability enables reasonably informed users to interpret and comprehend the meaning of the information provided in the financial statements. 4. Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. General recognition criteria require that elements be recognized in the financial statements when it is probable that any economic benefit associated with the item will fl ow to or from the business and the item has a cost or value that can be measured or estimated with a reasonable amount of reliability. There are two approaches to revenue recognition: (1) contract-based and (2) earnings. The contract-based approach requires that revenue be recognized when promised goods or services are transferred and the amount reflects the consideration the business expects to receive. The earnings approach requires that revenue be recognized when the earnings process is complete, the risks and rewards of ownership have been transferred, and the amount can be reliably measured. Expenses are recognized when there is a decrease in an asset or increase in a liability, excluding transactions with owners, which result in a decrease in owners’ equity. Four measurements used in accounting are (1) historical cost, (2) current cost, (3) realizable value, and (4) present value. Incorrect application of the basic recognition and measurement concepts can lead to material misstatements in the financial statements. Incorrect application can be due to error or intentional misstatement. 5. Apply the foundational concepts, assumptions, and constraints of the conceptual framework to financial reporting situations. The foundational concepts, assumptions, and constraints form the bedrock of accounting and are used to achieve the objective of financial reporting. The reporting entity concept requires that accounting for a reporting entity’s activities be kept separate and distinct from the accounting for the activities of its owner and all other reporting entities. The going concern assumption assumes that the company will continue operating for the foreseeable future. The monetary unit concept means that money is the common denominator of economic activity. The periodicity concept guides businesses in dividing up their economic activities into distinct time periods. The cost constraint is a pervasive constraint that ensures the value of the information provided is greater than the cost of providing it. The full disclosure concept requires companies to fully disclose circumstances and events that make a difference to financial statement users.   TRUE-FALSE STATEMENTS 1. Not every country uses the same conceptual framework or set of accounting standards. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 2. IFRS will be the standard for all Canadian companies. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 3. Going forward, there will be two sets of accounting standards for Canadian for-profit companies. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 4. The conceptual framework will NOT be able to guide decisions about what to present in the financial statements. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 5. A conceptual framework ensures we have a coherent set of standards. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 6. The conceptual framework ensures that existing standards and practices are clear and consistent. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 7. Canadian and International standards are based on specific rules for accounting. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 8. Canadian accounting standards are based mainly on principles rather than rules because it is impossible to create a rule for every situation. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 9. Revenues are decreases in assets or increase in liabilities that result in a decrease in equity, other than those relating to contributions by owners. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 10. The elements of financial statements are the key ratios which a company will use to manage its business. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 11. The main objective of financial reporting is to provide useful information for decision making. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 12. The main users of financial reporting are the employees of a company. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 13. Capital providers are the main users of financial reporting. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 14. To make decisions about allocating capital, users look for information in the financial statements about a company’s ability to maintain relationships with key customers. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 15. Claims on economic resources are defined as assets. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 16. An error is considered to be a material error if the error in the accounting information could have an impact on an investor’s or creditor’s decision. Answer: True Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 17. Under IFRS, a company can NEVER change its accounting policies. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 18. In order for information to be useful in decision making, the information must demonstrate relevance and faithful representation. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 19. Accounting information has relevance if it makes a difference in a decision. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 20. Predictive value confirms or corrects prior expectations. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 21. Confirmatory value helps users forecast future events. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 22. Accounting information is complete if it includes all information necessary to show the economic reality of the transaction. Answer: True Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 23. Accounting information is neutral if it makes a difference in a decision. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 24. Comparability means that a company uses the same accounting principles and methods from year to year. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 25. Consistency occurs when companies with similar circumstances use the same accounting principles. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 26. Information is verifiable if two knowledgeable and independent people would generally agree that it faithfully represents the economic reality. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 27. Timeliness means that accounting information is provided when it is still highly useful for decision making. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 28. Understandability enables users to have timely information that is useful for decision makers. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 29. Understandability is greater when the information is classified, characterized, and presented clearly and concisely. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 30. The qualitative characteristic which should be first applied is that of relevance. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 31. The enhancing qualitative characteristics, such as comparability and timeliness must be applied first before the characteristic of relevance in order to provide the most usefulness to the decision makers. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 32. Full disclosure means that the financial statements must be accompanied by notes to the financial statements. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 33. Faithful representation means that accounting information reports on the economic reality of a transaction, NOT its legal form. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 34. In the year of a change in an accounting policy, the change and its impact must be disclosed in the notes to the financial statement. Answer: True Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 35. Relevance and faithful representation are the two fundamental characteristics that financial information must have in order to be considered useful. Answer: True Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 36. Using the contract-based approach to revenue recognition, the entity will record revenue at the amount that it expects to receive. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 37. Revenue recognition criteria states that revenue is recognized at the same time that a decrease in an asset is recognized or an increase in a liability is recognized for profit generating activities. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 38. One of the conditions of recognizing revenue from sales of goods is that costs relating to the sale of the goods can be reliably measured. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 39. If goods are shipped FOB destination then the selling company can recognize revenue when the goods are shipped. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 40. If goods are shipped FOB shipping point then the selling company CANNOT recognize the revenue until the goods are received at their destination. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 41. Revenue can be recognized before the service has been fully provided. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 42. One of the conditions that must be met for revenue to be recognized is that the amount of the revenue can be reliably measured. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 43. If a company provides refunds to customers for goods returned then revenue is recognized at the time of the return of the goods. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 44. When the percentage-of-completion method is used to recognize revenue, the amount of revenue recognized should NOT be based on the billings issued. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 45. Under the contract-based approach, a company can recognize revenue when it has transferred a promised good or service to a customer. Answer: True Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 46. The percent complete under the percentage-of-completion method may be calculated by dividing the cost incurred to date by the total estimated costs to complete. Answer: True Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 47. If the costs to completion can be reasonably estimated, the percentage-of-completion method can be used to recognize revenue. Answer: False Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 48. The expense-recognition criteria states that expenses are recognized when there is an increase in an asset or decrease in a liability, excluding transactions with owners. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 49. There is a direct association between cost of goods sold and sales revenue. Answer: True Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 50. If it is NOT possible to determine the future benefits arising from expenditure, then the costs will be capitalized. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 51. When an asset ceases to have future value it should be expensed. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 52. The cost model to report property, plant, and equipment is where the carrying value on the balance sheet is the fair value less accumulated depreciation. Answer: False Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 53. Fair value is the amount of cash expected to be collected if the asset is sold. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 54. Management bonuses based on profit may encourage management to overstate profits. Answer: True Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 55. When estimating amounts for accruals, it is NOT important that the estimate is supportable or verifiable because it is just an estimate. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 56. If a company is NOT a going concern, then its assets will be presented at their net realizable value. Answer: True Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the foundational concepts, assumptions, and constraints of the conceptual framework to financial reporting situations. Section Reference: Foundational Concepts, Assumptions, and Constraints CPA: Financial Reporting 57. If the company is a going concern, the classification of assets and liabilities as current and noncurrent would NOT matter. Answer: False Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the foundational concepts, assumptions, and constraints of the conceptual framework to financial reporting situations. Section Reference: Foundational Concepts, Assumptions, and Constraints CPA: Financial Reporting 58. It is an underlying assumption that financial statements are prepared as if the company is NOT a going concern. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the foundational concepts, assumptions, and constraints of the conceptual framework to financial reporting situations. Section Reference: Foundational Concepts, Assumptions, and Constraints CPA: Financial Reporting 59. The cost constraint exists to ensure that the value of the information is more than the cost of providing it. Answer: True Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the foundational concepts, assumptions, and constraints of the conceptual framework to financial reporting situations. Section Reference: Foundational Concepts, Assumptions, and Constraints CPA: Financial Reporting 60. An item is material when it is unlikely to influence the decision of a reasonably careful investor or creditor. Answer: False Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the foundational concepts, assumptions, and constraints of the conceptual framework to financial reporting situations. Section Reference: Foundational Concepts, Assumptions, and Constraints CPA: Financial Reporting  MULTIPLE CHOICE QUESTIONS 61. The conceptual framework of accounting a) ensures that existing standards and practices are clear and consistent. b) makes it possible to respond quickly to new issues. c) increases the usefulness of the financial information presented in financial reports. d) all of the above Answer: d Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 62. The conceptual framework does NOT include a) the objective of financial reporting. b) elements of financial statements. c) recognition and measurement criteria. d) specific standards to be followed in preparing financial statements. Answer: d Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 63. Canadian accountants rely on ______ to help them apply the conceptual framework to specific situations. a) the Canadian Business Corporations Act b) identifiable rules c) the rules of the Income Tax Act d) professional judgment Answer: d Bloomcode: Comprehension Difficulty: Medium Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 64. The organization that is working toward uniformity in accounting practices throughout the world is the a) World Bank. b) United Nations. c) International Accounting Standards Board. d) National Commission on Fraudulent Financial Reporting. Answer: c Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 65. Which statement below is NOT true? a) The conceptual framework includes specific rules for every situation. b) The conceptual framework ensures the existing standards and practices are clear and consistent. c) The conceptual framework provides guidance in responding to new issues and developing new standards. d) The conceptual framework increases financial statement users’ understanding of and confidence in the financial statements. Answer: a Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 66. Not every country uses the same conceptual framework. This lack of uniformity has arisen because a) there are not enough members in the professional body. b) no time is available to complete the framework. c) there are differences in legal and government systems. d) financial statements do not need to be comparable. Answer: c Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 67. Which of the following is a reason for the lack of uniformity in accounting standards between countries? a) differences in legal systems b) differences in the process for developing standards c) differences in government requirements d) all of the above Answer: d Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the importance of having a conceptual framework of accounting, and list the key components. Section Reference: The Conceptual Framework of Accounting CPA: Financial Reporting 68. Which one of the following is the main objective of financial reporting according to the conceptual framework? a) to provide information that will increase the value of the company b) to provide information in assessing future cash flows c) to provide information about the company’s capital providers d) to provide financial information that is useful to existing and potential investors and creditors in making decisions about a business Answer: d Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 69. The objective of financial reporting is to provide information that is mainly useful to a) governmental taxing bodies. b) employees and labour unions. c) investors and creditors. d) internal and external auditors. Answer: c Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 70. The overriding criterion in evaluating the accounting information to be presented is a) fairness. b) legality. c) management's goals. d) decision usefulness. Answer: d Bloomcode: Comprehension Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 71. Financial statements are designed to provide information about all of the following EXCEPT a) the economic resources, obligations, and equity of the entity. b) changes in economic resources, obligations, and equity of the entity. c) management performance evaluations. d) economic performance of the entity. Answer: c Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 72. In order to assess the financial performance of a company, the financial statements must a) be prepared on a monthly basis. b) provide information on management’s use of the company’s resources. c) be audited annually. d) provide information concerning changes in the company’s share price. Answer: b Bloomcode: Knowledge Difficulty: Medium Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 73. ______ play(s) a fundamental role in the efficient functioning of the economy by providing capital (cash) to businesses. a) Managers b) Employees c) Capital providers d) IASB Answer: c Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the objective of financial reporting, and define the elements of the financial statements. Section Reference: The Objective of Financial Reporting CPA: Financial Reporting 74. In the conceptual framework for IFRS, which one of the following is NOT a qualitative characteristic of useful accounting information? a) relevance b) faithful representation c) conservatism d) comparability Answer: c Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 75. In order for accounting information to be relevant, it must a) have very little cost. b) have predictive or confirmatory value. c) be comparable. d) be used by a lot of different firms. Answer: b Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 76. If accounting information has confirmatory value, it a) has been verified by external audit. b) is prepared on an annual basis. c) confirms or corrects prior expectations. d) is neutral in its representations. Answer: c Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 77. If accounting information has predictive value, it is useful in making predictions about a) the economic environment the company operates in. b) world events that impact the economy. c) future interest rates and foreign currency exchange rates. d) future events of a company. Answer: d Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 78. Relevant accounting information a) is information that has been audited. b) must be reported within one year. c) has been objectively determined. d) is information that is capable of making a difference in a decision. Answer: d Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 79. Which of the following is NOT a qualitative characteristic associated with faithful representation? a) complete b) comparability c) neutrality d) free from material error Answer: b Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 80. A company can change to a new accounting principle if management can justify that the new principle results in a) more relevant and faithful representation of the financial presentation in the statements. b) a higher profit. c) a lower profit for tax purposes. d) less likelihood of clerical errors. Answer: a Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 81. Which is NOT necessary to ensure that faithful representation is achieved? a) Accounting information is reported on cash basis. b) Accounting information is free from material error. c) Accounting information is complete. d) Accounting information is neutral. Answer: a Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 82. Which of the following statements is NOT true? a) Consistency means using the same accounting principles from year to year within a company. b) Faithful representation is the quality of information that gives assurance that all amounts reported are known with certainty. c) Relevant accounting information must be capable of making a difference in a decision. d) Accounting standards for private entities has four principal qualitative characteristics. Answer: b Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 83. Qualitative characteristics associated with relevant accounting information are a) consistency, faithful representation, and timeliness. b) predictive value, confirmatory value, and materiality. c) neutrality, predictive value, and reliability. d) going concern, cost principle, and materiality. Answer: b Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 84. An item is considered to be material if a) the assets would be larger than the liabilities. b) the information would change an investor’s mind. c) the company has a loss. d) the company has never paid a dividend. Answer: b Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 85. Accounting information is neutral if a) it is free from bias. b) the amount of assets equal the amount of liabilities. c) the trial balance balances. d) all of the information is present to show the economic reality of the transaction. Answer: a Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 86. The qualitative characteristics should be applied in which order? a) relevance, comparability, and then faithful representation b) faithful representation, relevance, and then comparability c) timeliness, faithful representation, and then comparability d) relevance, faithful representation, and then comparability Answer: d Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 87. The summary of significant accounting policies footnoted in the financial statements would NOT normally discuss a) depreciation methods. b) board of directors salaries. c) method of inventory costing. d) revenue recognition policies. Answer: b Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 88. Notes to the financial statements are required because the most important objective of financial reporting is to a) provide information to the taxing authorities. b) obtain uniformity with foreign countries. c) provide information useful for decision making. d) provide information about the board of directors. Answer: c Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 89. The information provided in the notes that accompany financial statements is required because of the a) cost principle. b) full disclosure principle. c) matching principle. d) revenue recognition principle. Answer: b Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 90. The level of disclosure contained in the notes to the financial statements is limited by the a) cost versus the benefit of providing the disclosures. b) accounting policies selected by the business. c) time period assumption. d) going concern assumption. Answer: a Bloomcode: Comprehension Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 91. Which of the following is an important component of relevance? a) materiality b) verifiability c) consistency d) comparability Answer: a Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 92. Information that is prepared free from bias is considered a) complete. b) neutral. c) comparable. d) verifiable. Answer: b Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 93. Information is understandable when it is understood by users a) who have a reasonable understanding of financial reporting. b) who have a reasonable knowledge of business and economic activities. c) because the information provided is classified, and presented clearly and concisely. d) all of the above Answer: d Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 94. In following the application of the qualitative characteristics, which characteristic would be immediately applied after the relevance characteristic? a) faithful representation b) comparability c) timeliness d) understandability Answer: a Bloomcode: Knowledge Difficulty: Easy Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 95. Under ASPE, the characteristic which ensures, that when preparing financial statements, accountants should choose the accounting treatment or estimate that will be least likely to overstate assets, revenues, and gains and the least likely to understate liabilities, expenses, and losses is a) conservatism. b) understandability. c) comparability. d) relevance. Answer: a Bloomcode: Knowledge Difficulty: Hard Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 96. Which of the following is a term that best describes the influence an item has on the decision of a reasonably careful investor or creditor? a) verifiability b) relevance c) understandability d) materiality Answer: d Bloomcode: Knowledge Difficulty: Medium Learning Objective: Apply the fundamental and enhancing qualitative characteristics of the conceptual framework to financial reporting situations. Section Reference: Qualitative Characteristics of Useful Financial Information CPA: Financial Reporting 97. The percentage-of-completion method a) is used in valuing inventories. b) is applicable for long-term construction projects. c) must be used by all companies. d) should only be used if reliable estimates of total costs are not available. Answer: b Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 98. Alton Construction signed a long-term construction contract to build a sports stadium for $50,000,000. During the current year, $10,000,000 in costs were incurred of an estimated total cost of $40,000,000 to build the stadium. The amount of gross profit to be recognized in the current year if the percentage-of-completion method is employed is a) $10,000,000. b) $8,000,000. c) $2,500,000. d) $12,500,000. Answer: c Difficulty: Hard Bloomcode: Application Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 99. Dumford Builders signed a long-term construction contract to build a shopping mall for $92,000,000. The total construction cost is estimated to be $80,000,000 and the firm plans to use the percentage-of-completion method during the construction period. During 2017, the total construction costs actually incurred amounted to $6,000,000. The amount of revenue to be recognized on the project in 2017 is a) $6,900,000. b) $9,600,000. c) $6,000,000. d) $15,000,000. Answer: a Difficulty: Medium Bloomcode: Application Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement Criteria CPA: Financial Reporting 100. Which revenue recognition method would most likely be used by a retailer? a) point of sale b) upon cash collection c) during production d) upon delivery Answer: a Bloomcode: Comprehension Difficulty: Easy Learning Objective: Apply the recognition and measurement criteria of the conceptual framework to financial reporting situations. Section Reference: Recognition and Measurement