RRRR
Intermediate Accounting (19th Edition) – Donald
7d 7d 7d 7d 7d
E. Kieso, Jerry J. Weygandt & Terry D. Warfield –
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Complete Test Bank (Chapters 1–23)
7d 7d 7d 7d 7d
,TEST BANK FOR 7d 7d
Intermediate Accounting, 19th Edition, by Donald E. Kieso, Jerry J. Weygandt and
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Terry D. Warfield
7d 7d 7d
Chapter 1-23 7d
CHAPTER 1 7d
THE ENVIRONMENT AND CONCEPTUAL FRAMEWORK OF FINANCIAL
7d 7d 7d 7d 7d 7d
REPORTING 7d
IFRS questions are available at the end of this chapter.
7d 7d 7d 7d 7d 7d 7d 7d 7d
TRUE-FALSE—Conceptual
1. Financial statements are the principal means through which a company communicates its
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
financial information to those outside it.
7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
2. Users of financial reports of a company use the information provided by these reports to
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
make capital allocation decisions.
7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
3. An effective process of capital allocation provides an efficient market for buying and
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
selling securities and obtaining and granting credit.
7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
4. Investors are interested in financial reporting because it provides information that is
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
useful for making decisions.
7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
5. Users of financial accounting statements have both coinciding and conflicting needs for
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
information of various types.
7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
6. Although the FASB has developed a conceptual framework, no Statements of Financial
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Accounting Concepts have been issued to date.
7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d1, 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
7. The passage of a new FASB Accounting Standards Update requires the support of five
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
of the seven board members.
7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
8. Statements of Financial Accounting Concepts set forth fundamental objectives and
7d 7d 7d 7d 7d 7d 7d 7d 7d
concepts that are used by the FASB in developing future standards of financial
7 d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
accounting and reporting.
7d 7d 7d
,19-2
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
9. The FASB‘s Codification creates a new set of GAAP.
7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
10. The objective of financial reporting is to report the plans made by a company to improve
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
the productivity of its employees.
7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
11. A soundly developed conceptual framework enables the FASB to issue more
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
useful and consistent pronouncements over time.
7 d 7 d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
12. A conceptual framework is a coherent system of concepts that flow from an objective.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
13. The first level of the conceptual framework identifies the recognition,
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
measurement, and disclosure concepts used in establishing accounting standards.
7 d 7 d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
14. The objective of financial reporting serves as the foundation of the conceptual framework.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
15. Users of financial statements are assumed to need no knowledge of business and
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
financial accounting matters to understand the information contained in financial
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
statements.
7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
16. Relevance 7 d and 7 d faithful representation are the two fundamental
7 d 7 d 7 d 7 d 7 d
7 qualities
d 7 d that 7 d make accounting information useful for decision-making.
7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
17. The idea of consistency does not mean that companies cannot switch from one
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
accounting method to another.
7d 7d 7d 7d
Ans: 7dT, 7dLO: 7d2, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone, 7dIMA:
7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
18. Timeliness and neutrality are two ingredients of relevance.
7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
19. Verifiability and predictive value are two ingredients of faithful representation.
7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
20. Revenues, gains, and distributions to owners all increase equity.
7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d C, 7 d Difficulty: 7 d Moderate, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Measurement
7 d Analysis 7 d and 7 d Interpretation, 7 d AICPA 7dPC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7dStatement 7dAnalysis, 7dIFRS: 7dNone
21. Comprehensive income includes all changes in equity during a period 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
7 except those resulting from investments by owners and distributions to owners.
d 7 d 7d 7d 7d 7d 7d 7d 7d 7d 7d
, 19-3
Ans: 7dT, 7dLO: 7d2, 7dBloom: 7dK, 7dDifficulty: 7dEasy, 7dMin: 7d1, 7dAACSB: 7 d Knowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dMeasurement 7dAnalysis 7dand
7dInterpretation, 7dAICPA 7 d PC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7d Statement 7dAnalysis, 7d IFRS: 7dNone
22. Accounting standards are now less likely to require the reporting or disclosure of fair
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
value information.
7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dPreparation, 7d IFRS: 7dNone
23. The second level of the conceptual framework provides the qualitative characteristics that
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
make accounting information useful and the elements of financial statements.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dT, 7dLO: 7d3, 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
24. The historical cost principle would be of limited usefulness if not for the
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
going concern assumption.
7 d 7 d 7d
Ans: 7dT, 7dLO: 7d3, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
25. The economic entity assumption means that economic activity can be
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
identified with a particular legal entity.
7 d 7 d 7 d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 3, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
26. The expense recognition principle states that debits must equal credits in each transaction.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dK, 7dDifficulty: 7dEasy, 7dMin: 7d1, 7dAACSB: 7 d Knowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dMeasurement 7dAnalysis 7dand
7dInterpretation, 7dAICPA 7 d PC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7d Statement 7dAnalysis, 7d IFRS: 7dNone
27. Revenues are recognized in the accounting period in which the performance obligation is
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
7 satisfied.
d
Ans: 7dT, 7dLO: 7d3 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dMeasurement 7dAnalysis 7dand
7dInterpretation, 7dAICPA 7 d PC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7d Statement 7dAnalysis, 7d IFRS: 7dNone
28. Supplementary 7 d information may include details or amounts that 7 d 7 d 7 d 7 d 7 d 7 d
7 present a
d 7 d 7 d different perspective from that adopted in the financial statements.
7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 3, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
29. To justify requiring a particular measurement or disclosure, the benefits to be derived
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
from it must equal the costs associated with it.
7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
30. In cost-benefit analysis, costs are generally more difficult to quantify than are benefits.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
31. GAAP is a product of careful logic or empirical findings and is not influenced
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
by political action.
7 d 7 d 7d
Ans: 7 d F, 7 d LO: 7 d 4 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
32. The Public Company Accounting Oversight Board has oversight and enforcement
7d 7d 7d 7d 7d 7d 7d 7d 7d
authority and establishes auditing and independence standards and rules.
7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 4, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
Intermediate Accounting (19th Edition) – Donald
7d 7d 7d 7d 7d
E. Kieso, Jerry J. Weygandt & Terry D. Warfield –
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Complete Test Bank (Chapters 1–23)
7d 7d 7d 7d 7d
,TEST BANK FOR 7d 7d
Intermediate Accounting, 19th Edition, by Donald E. Kieso, Jerry J. Weygandt and
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Terry D. Warfield
7d 7d 7d
Chapter 1-23 7d
CHAPTER 1 7d
THE ENVIRONMENT AND CONCEPTUAL FRAMEWORK OF FINANCIAL
7d 7d 7d 7d 7d 7d
REPORTING 7d
IFRS questions are available at the end of this chapter.
7d 7d 7d 7d 7d 7d 7d 7d 7d
TRUE-FALSE—Conceptual
1. Financial statements are the principal means through which a company communicates its
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
financial information to those outside it.
7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
2. Users of financial reports of a company use the information provided by these reports to
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
make capital allocation decisions.
7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
3. An effective process of capital allocation provides an efficient market for buying and
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
selling securities and obtaining and granting credit.
7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
4. Investors are interested in financial reporting because it provides information that is
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
useful for making decisions.
7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
5. Users of financial accounting statements have both coinciding and conflicting needs for
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
information of various types.
7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
6. Although the FASB has developed a conceptual framework, no Statements of Financial
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Accounting Concepts have been issued to date.
7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d1, 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
7. The passage of a new FASB Accounting Standards Update requires the support of five
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
of the seven board members.
7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
8. Statements of Financial Accounting Concepts set forth fundamental objectives and
7d 7d 7d 7d 7d 7d 7d 7d 7d
concepts that are used by the FASB in developing future standards of financial
7 d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
accounting and reporting.
7d 7d 7d
,19-2
Ans: 7 d T, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
9. The FASB‘s Codification creates a new set of GAAP.
7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
10. The objective of financial reporting is to report the plans made by a company to improve
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
the productivity of its employees.
7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 1, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
11. A soundly developed conceptual framework enables the FASB to issue more
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
useful and consistent pronouncements over time.
7 d 7 d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
12. A conceptual framework is a coherent system of concepts that flow from an objective.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
13. The first level of the conceptual framework identifies the recognition,
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
measurement, and disclosure concepts used in establishing accounting standards.
7 d 7 d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
14. The objective of financial reporting serves as the foundation of the conceptual framework.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
15. Users of financial statements are assumed to need no knowledge of business and
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
financial accounting matters to understand the information contained in financial
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
statements.
7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
16. Relevance 7 d and 7 d faithful representation are the two fundamental
7 d 7 d 7 d 7 d 7 d
7 qualities
d 7 d that 7 d make accounting information useful for decision-making.
7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
17. The idea of consistency does not mean that companies cannot switch from one
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
accounting method to another.
7d 7d 7d 7d
Ans: 7dT, 7dLO: 7d2, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone, 7dIMA:
7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
18. Timeliness and neutrality are two ingredients of relevance.
7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
19. Verifiability and predictive value are two ingredients of faithful representation.
7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
20. Revenues, gains, and distributions to owners all increase equity.
7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 2, 7 d Bloom: 7 d C, 7 d Difficulty: 7 d Moderate, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Measurement
7 d Analysis 7 d and 7 d Interpretation, 7 d AICPA 7dPC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7dStatement 7dAnalysis, 7dIFRS: 7dNone
21. Comprehensive income includes all changes in equity during a period 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
7 except those resulting from investments by owners and distributions to owners.
d 7 d 7d 7d 7d 7d 7d 7d 7d 7d 7d
, 19-3
Ans: 7dT, 7dLO: 7d2, 7dBloom: 7dK, 7dDifficulty: 7dEasy, 7dMin: 7d1, 7dAACSB: 7 d Knowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dMeasurement 7dAnalysis 7dand
7dInterpretation, 7dAICPA 7 d PC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7d Statement 7dAnalysis, 7d IFRS: 7dNone
22. Accounting standards are now less likely to require the reporting or disclosure of fair
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
value information.
7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dPreparation, 7d IFRS: 7dNone
23. The second level of the conceptual framework provides the qualitative characteristics that
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
make accounting information useful and the elements of financial statements.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dT, 7dLO: 7d3, 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
24. The historical cost principle would be of limited usefulness if not for the
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
going concern assumption.
7 d 7 d 7d
Ans: 7dT, 7dLO: 7d3, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
25. The economic entity assumption means that economic activity can be
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
identified with a particular legal entity.
7 d 7 d 7 d 7d 7d 7d
Ans: 7 d F, 7 d LO: 7 d 3, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
26. The expense recognition principle states that debits must equal credits in each transaction.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dK, 7dDifficulty: 7dEasy, 7dMin: 7d1, 7dAACSB: 7 d Knowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dMeasurement 7dAnalysis 7dand
7dInterpretation, 7dAICPA 7 d PC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7d Statement 7dAnalysis, 7d IFRS: 7dNone
27. Revenues are recognized in the accounting period in which the performance obligation is
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
7 satisfied.
d
Ans: 7dT, 7dLO: 7d3 7dBloom: 7dK, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dMeasurement 7dAnalysis 7dand
7dInterpretation, 7dAICPA 7 d PC: 7dNone, 7d IMA: 7dReporting 7d& 7dControl: 7d Financial 7d Statement 7dAnalysis, 7d IFRS: 7dNone
28. Supplementary 7 d information may include details or amounts that 7 d 7 d 7 d 7 d 7 d 7 d
7 present a
d 7 d 7 d different perspective from that adopted in the financial statements.
7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 3, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
29. To justify requiring a particular measurement or disclosure, the benefits to be derived
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
from it must equal the costs associated with it.
7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
30. In cost-benefit analysis, costs are generally more difficult to quantify than are benefits.
7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7dF, 7dLO: 7d3, 7dBloom: 7dC, 7dDifficulty: 7dModerate, 7dMin: 7d1, 7dAACSB: 7dKnowledge, 7dAICPA 7dBC: 7dNone, 7dAICPA 7dAC: 7dReporting, 7dAICPA 7dPC: 7dNone,
7dIMA: 7dReporting 7d& 7 d Control: 7d Financial 7dStatement 7dAnalysis, 7d IFRS: 7dNone
31. GAAP is a product of careful logic or empirical findings and is not influenced
7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d 7 d
by political action.
7 d 7 d 7d
Ans: 7 d F, 7 d LO: 7 d 4 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
32. The Public Company Accounting Oversight Board has oversight and enforcement
7d 7d 7d 7d 7d 7d 7d 7d 7d
authority and establishes auditing and independence standards and rules.
7d 7d 7d 7d 7d 7d 7d 7d 7d
Ans: 7 d T, 7 d LO: 7 d 4, 7 d Bloom: 7 d K, 7 d Difficulty: 7 d Easy, 7 d Min: 7 d 1, 7 d AACSB: 7 d Knowledge, 7 d AICPA 7 d BC: 7 d None, 7 d AICPA 7 d AC: 7 d Reporting, 7 d AICPA 7 d PC:
7 d None, 7 d IMA: 7 d Reporting 7 d & 7 d Control: 7dFinancial 7dStatement 7dPreparation, 7d IFRS: 7dNone
