INTERMEDIATE ACCOUNTING EXAM
QUESTIONS WITH VERIFIED ANSWERS
Objectives of Financial Reporting - Answer-Provide financial information about the
reporting entity that is useful to present and potential equity investors,
lenders, and other creditors in making decisions in their capacity as capital providers.
Entity Perspective - Answer-Companies viewed as separate and distinct from their
owners.
Decision-Usefulness - Answer-Investors are interested in assessing the company's
1) ability to generate net cash inflows and
2) management's ability to protect and enhance the capital providers' investments.
Three Organizations involved in Standard Settings for Accounting - Answer-Securities
and Exchange Commission (SEC).
American Institute of Certified Public Accountants (AICPA).
Financial Accounting Standards Board (FASB).
Conceptual Framework - Answer-1) To develop a coherent set of standards and rules.
2) To solve new and emerging practical problems.
A conceptual framework underlying financial accounting is important because it can
lead to consistent standards and it prescribes the nature, function, and limits of financial
accounting and financial statements. - Answer-True
A conceptual framework underlying financial accounting is necessary because future
accounting practice problems can be solved by reference to the conceptual framework
and a formal standard-setting body will not be necessary. - Answer-False
Three Levels of Conceptual Framework - Answer-First or Bottom Level = Basic
Objectives
Second or Middle Level = Qualitative Characteristics and Elements
Third or Top Level = Recognition, Measurement, and Disclosure Concepts
Objective (Lower Level) of Conceptual Framework - Answer-Provide information about
the reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in their capacity as capital providers.
2 Parts of the Second of Middle level of Conceptual Framework - Answer-Qualitative
Characteristics & Elements
2 Main Points of Qualitative Characteristics - Answer-1) Fundamental Qualities
2) Enhancing qualities
, Fundamental Qualities - Answer-Relevance & Faithful representation
Enhancing Qualities - Answer-1) Comparability
2) Verifiability
3) Timeliness
4) Understandability
Relevance - Answer-1) Predictive Value
2) Confirmatory Value
3) Materiality
Faithful Representation - Answer-1) Completeness
2) Neutrality
3) Free from error
Elements - Key Items - Answer-Assets
Liabilities
Equity
Investment by owners
Distribution to owners
Comprehensive income
Revenues
Expenses
Gains
Losses
Components of the Recognition, Measurement, and Disclosure Concepts (Third or Top
Level) - Answer-1) Assumptions
2) Principles
3) Constraints
Assumptions of Recognition, Measurement, and Disclosure - Answer-1) Economic
Entity
2) Going Concern
3) Monetary Unit
4) Periodicity
Principles of Recognition, Measurement, and Disclosure - Answer-1) Measurement
2) Revenue Recognition
3) Expense Recognition
4) Full Disclosure
Constraints of Recognition, Measurement, and Disclosure - Answer-Cost
QUESTIONS WITH VERIFIED ANSWERS
Objectives of Financial Reporting - Answer-Provide financial information about the
reporting entity that is useful to present and potential equity investors,
lenders, and other creditors in making decisions in their capacity as capital providers.
Entity Perspective - Answer-Companies viewed as separate and distinct from their
owners.
Decision-Usefulness - Answer-Investors are interested in assessing the company's
1) ability to generate net cash inflows and
2) management's ability to protect and enhance the capital providers' investments.
Three Organizations involved in Standard Settings for Accounting - Answer-Securities
and Exchange Commission (SEC).
American Institute of Certified Public Accountants (AICPA).
Financial Accounting Standards Board (FASB).
Conceptual Framework - Answer-1) To develop a coherent set of standards and rules.
2) To solve new and emerging practical problems.
A conceptual framework underlying financial accounting is important because it can
lead to consistent standards and it prescribes the nature, function, and limits of financial
accounting and financial statements. - Answer-True
A conceptual framework underlying financial accounting is necessary because future
accounting practice problems can be solved by reference to the conceptual framework
and a formal standard-setting body will not be necessary. - Answer-False
Three Levels of Conceptual Framework - Answer-First or Bottom Level = Basic
Objectives
Second or Middle Level = Qualitative Characteristics and Elements
Third or Top Level = Recognition, Measurement, and Disclosure Concepts
Objective (Lower Level) of Conceptual Framework - Answer-Provide information about
the reporting entity that is useful to present and potential equity investors, lenders, and
other creditors in their capacity as capital providers.
2 Parts of the Second of Middle level of Conceptual Framework - Answer-Qualitative
Characteristics & Elements
2 Main Points of Qualitative Characteristics - Answer-1) Fundamental Qualities
2) Enhancing qualities
, Fundamental Qualities - Answer-Relevance & Faithful representation
Enhancing Qualities - Answer-1) Comparability
2) Verifiability
3) Timeliness
4) Understandability
Relevance - Answer-1) Predictive Value
2) Confirmatory Value
3) Materiality
Faithful Representation - Answer-1) Completeness
2) Neutrality
3) Free from error
Elements - Key Items - Answer-Assets
Liabilities
Equity
Investment by owners
Distribution to owners
Comprehensive income
Revenues
Expenses
Gains
Losses
Components of the Recognition, Measurement, and Disclosure Concepts (Third or Top
Level) - Answer-1) Assumptions
2) Principles
3) Constraints
Assumptions of Recognition, Measurement, and Disclosure - Answer-1) Economic
Entity
2) Going Concern
3) Monetary Unit
4) Periodicity
Principles of Recognition, Measurement, and Disclosure - Answer-1) Measurement
2) Revenue Recognition
3) Expense Recognition
4) Full Disclosure
Constraints of Recognition, Measurement, and Disclosure - Answer-Cost
