Intermediate Accounting Exam #1 (ch.1-4) with Complete Solutions!

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of: Relevance: Faithful Representation: a. yes no b. yes yes c. no no d. no yes - ANSWER-a: yes; no Financial information exhibits the characteristic of consistency when: a. expenses are reposted as charges against revenue in the period in which they are paid b. companies apply the same accounting treatment to similar events, from period to period c. extraordinary gains and losses are not included on the income statement d. accounting procedures are adopted which give a consistent rate of net income - ANSWER-b. companies apply the same accounting treatment to similar events, from period to period In classifying the elements of financial statements, the primary distinction between revenues and gains is a. the materiality of the amounts involved b. the likelihood that the transactions involved will recur in the future c. the nature of the activities that gave rise to the transactions involved d. the costs verses the benefits of the alternative methods of disclosing the transactions involved - ANSWER-c. the nature of the activities that gave rise to the transactions involved Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy? a. monetary unit assumption b. periodicity assumption c. going-concern assumption d. economic entity assumption - ANSWER-a. monetary unit assumption What accounting concept justifies the usage of depreciation and amortization policies? a. going-concern assumption b. fair value principle c. full disclosure principle d. monetary unit assumption - ANSWER-a. going-concern assumption The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an app