51.A soundly developed conceptual framework of concepts and b.

Identifies recognition, measurement, and disclosure

objectives should concepts used in establishing and applying
a. increase financial statement users' understanding of accounting standards.
and confidence in financial reporting.
c. Provides the elements of financial statements.
b. enhance comparability among companies' financial
statements. d. Includes assumptions, principles, and constraints.
c. allow new and emerging practical problems to be
more quickly solved. 61. The objective of financial reporting in the International
d. all of these. Accounting Standards Board’s (IASB’s) Conceptual
Framework
52. Which of the following (a-c) are not true concerning a a. Is the foundation for the Framework.
conceptual framework in account-ing? b. Includes the qualitative characteristics that make
a. It should be a basis for standard-setting. accounting information useful.
b. It should allow practical problems to be solved more c. Is found on the third level of the Framework.
quickly by reference to it. d. All of the choices are correct regarding the objective
c. It should be based on fundamental truths that are
of financial reporting.
derived from the laws of nature.
d. All of the above (a-c) are true.
62. An implicit assumption of the International Accounting
53. What is a purpose of having a conceptual framework? Standards Board’s (IASB’s) Conceptual Framework is that
a. To enable the profession to more quickly solve a. Information must be decision-useful to all potential
emerging practical problems. users of financial reporting.
b. To provide a foundation from which to build more b. General-purpose financial reporting is the primary
useful standards. source of information for users of financial reporting.
c. Neither a nor b. c. Users need reasonable knowledge of business and
d. Both a and b. financial accounting matters to understand the
S information contained in financial statements.
54. Which of the following is not a benefit associated with the
FASB Conceptual Framework Project? d. All of the choices are correct.
a. A conceptual framework should increase financial
statement users' understanding of and confidence in 63. The overriding criterion by which accounting information
financial reporting. can be judged is that of
b. Practical problems should be more quickly solvable a. usefulness for decision making.
by reference to an existing conceptual framework. b. freedom from bias.
c. A coherent set of accounting standards and rules c. timeliness.
should result. d. comparability.
d. Business entities will need far less assistance from
accountants because the financial reporting process 64. Which of the following is a fundamental quality of useful
will be quite easy to apply. accounting information?
a. Comparability.
55. A soundly developed conceptual framework enables the b. Relevance.
International Accounting Standards Board (IASB) to c. Consistency.
I. Issue more useful and consistent d. Materiality.
pronouncements over time.
65. Which of the following is a fundamental quality of useful
II. More quickly solve new and emerging practical
accounting information?
problems by referencing basic theory. a. Conservatism.
a. I only. b. Comparability.
b. II only. c. Faithful representation.
c. Both I and II. d. Consistency.
d. Neither I nor II.
66. What is meant by comparability when discussing financial
56. In the conceptual framework for financial reporting, what accounting information?
provides "the why"--the goals and purposes of a. Information has predictive or feedback value.
accounting? b. Information is reasonably free from error.
a. Measurement and recognition concepts such as c. Information that is measured and reported in a similar
assumptions, principles, and constraints fashion across companies.
b. Qualitative characteristics of accounting information d. Information is timely.
c. Elements of financial statements
d. Objective of financial reporting 67. What is meant by consistency when discussing financial
accounting information?
57. The underlying theme of the conceptual framework is a. Information that is measured and reported in a similar
a. decision usefulness. fashion across points in time.
b. understandability. b. Information is timely.
c. reliability. c. Information is measured similarly across the industry.
d. comparability. d. Information is verifiable.

58. What is the objective of financial reporting as indicated in 68. Which of the following is an ingredient of relevance?
the conceptual framework? a. Completeness.
a. provide information that is useful to those making b. Representational faithfulness.
investing and credit decisions. c. Neutrality.
b. provide information that is useful to management. d. Predictive value.
c. provide information about those investing in the
entity. 69. Which of the following is an ingredient of faithful
d. All of the above. representation?
a. Predictive value.
59. The International Accounting Standards Board’s (IASB’s) b. Timeliness.
Conceptual Framework includes all of the following c. Neutrality.
except: d. Feedback value.
a. Objective of financial reporting. 70. Changing the method of inventory valuation should be
reported in the financial statements under what qualitative
b. Supplementary information
characteristic of accounting information?
c. Elements of financial statements. a. Understandability.
d. Qualitative characteristics of accounting information. b. Verifiability.
c. Timeliness.
60. The second level in the International Accounting d. Comparability.
Standards Board’s (IASB’s) Conceptual Framework
a. Identifies the objective of financial reporting.
71. Company A issuing its annual financial reports within one a. Are considered either fundamental or enhancing.
month of the end of the year is an example of which b. Contribute to the decision-usefulness of financial
enhancing quality of accounting information? reporting information.
a. Neutrality.
c. Distinguish better information from inferior
b. Timeliness.
c. Predictive value. information for decision-making purposes.
d. Representational faithfulness. d. All of the choices are correct.

72. What is the quality of information that enables users to 82. In the International Accounting Standards Board’s
better forecast future operations? (IASB’s) Conceptual Framework, an enhancing qualitative
a. Reliability. characteristic is
b. Materiality. a. Predictive value.
c. Comparability. b. Free from error.
d. Relevance. c. Timeliness.
d. Confirmatory value.
73. Which of the following ingredients of fundamental qualities
is part of faithful representation?
83. In the International Accounting Standards Board’s
a. Neutrality.
(IASB’s) Conceptual Framework, an ingredient of a
b. Productive value.
fundamental qualitative characteristic is
c. Confirmatory value.
a. Neutrality.
d. Timeliness.
b. Verifiability.
74. Decision makers vary widely in the types of decisions they c. Timeliness.
make, the methods of decision making they employ, the d. Understandability.
information they already possess or can obtain from other
sources, and their ability to process information. 84. In the International Accounting Standards Board’s
Consequently, for information to be useful there must be a (IASB’s) Conceptual Framework, a fundamental
linkage between these users and the decisions they make. qualitative characteristic is
This link is a. Materiality.
a. relevance. b. Faithful representation.
b. reliability.
c. Decision usefulness.
c. understandability.
d. materiality. d. Neutrality.

75. The two fundamental qualities that make accounting 85. To be a faithful representation as described by the
information useful for decision making are International Accounting Standards Board’s (IASB’s)
a. comparability and consistency. Conceptual Framework, information must be all of the
b. materiality and timeliness. following except:
c. relevance and faithful representation. a. Complete.
d. reliability and comparability. b. Free from error.
c. Confirmatory.
76. Accounting information is considered to be relevant when
d. Neutral.
it
a. can be depended on to represent the economic
conditions and events that it is intended to represent. 86. Enhancing qualities as described by the International
b. is capable of making a difference in a decision. Accounting Standards Board’s (IASB’s) Conceptual
c. is understandable by reasonably informed users of Framework, include all of the following except:
accounting information. a. Comparability.
d. is verifiable and neutral. b. Neutrality.
c. Understandability.
77. The quality of information that gives assurance that it is d. Verifiability.
reasonably free of error and bias
a. relevance. 87. Erin Company applies the same accounting treatment to
b. faithful representation. similar events from period to period. Erin Company is
c. verifiability. exhibiting which of the following qualities as described by
d. neutrality. the International Accounting Standards Board’s (IASB’s)
Conceptual Framework?
78. Financial information does not demonstrate consistency a. Verifiability.
when
b. Consistency.
a. firms in the same industry use different accounting
methods to account for the same type of transaction. c. Predictive value.
b. a company changes its estimate of the salvage value d. All of the choices are correct.
of a fixed asset.
S
c. a company fails to adjust its financial statements for 88. According to the IASB Conceptual Framework, the
changes in the value of the measuring unit. elementsassets, liabilities, and equitydescribe
d. none of these. amounts of resources and claims to resources at/during a

79. When information about two different enterprises has Moment in Time Period of Time
been prepared and presented in a similar manner, the a. Yes No
information exhibits the characteristic of b. Yes Yes
a. relevance. c. No Yes
b. reliability. d. No No
c. consistency.
d. none of these. 89. Which of the following is not a basic element of financial
statements?
80. The second level of the International Accounting a. Assets.
Standards Board’s (IASB’s) Conceptual Framework b. Statement of financial position.
a. provides conceptual building blocks that explain the c. Equity.
d. Income.
qualitative characteristics of accounting information.
b. defines the elements of financial statements. 90. Which of the following basic elements of financial
c. serves as a bridge between the “why” of accounting statements is not associated with the statement of
and the “how” of accounting. financial position?
d. all of the choices are correct. a. Income.
b. Equity.
81. In the International Accounting Standards Board’s c. Liability.
(IASB’s) Conceptual Framework, qualitative d. Asset.
characteristics
 91. Issuance of common stock for cash affects which basic a. economic entity assumption.
element of financial statements? b. relevance characteristic.
a. Revenues. c. comparability characteristic.
b. Losses. d. neutrality characteristic.
c. Liabilities.
d. Equity. 103. During the lifetime of an entity, accountants produce
financial statements at arbitrary points in time in
92. The International Accounting Standards Board (IASB) accordance with which basic accounting concept?
defines five interrelated elements of financial statements. a. Cost/benefit constraint
Which of the following is not one of those elements? b. Periodicity assumption
a. Asset. c. Materiality constraint
b. Income. d. Expense recognition principle
c. Equity.
104. The assumption that a business enterprise will not be sold
d. All of the choices are elements defined by the IASB.
or liquidated in the near future is known as the
a. economic entity assumption.
93. The International Accounting Standards Board (IASB) b. monetary unit assumption.
defines one of the 5 elements as follows: “the residual c. materiality assumption.
interest in the assets of the entity after deducting all its d. none of these.
liabilities” Which element matches this description?
a. Retained earnings. 105. Which of the following is an implication of the going
b. Income. concern assumption?
c. Equity. a. The historical cost principle is credible.
d. All of the choices match this definition. b. Depreciation and amortization policies are justifiable
and appropriate.
94. Which of the following is not a basic assumption c. The current-noncurrent classification of assets and
underlying the financial accounting structure? liabilities is justifiable and signify-cant.
a. Economic entity assumption. d. All of these.
b. Going concern assumption.
c. Periodicity assumption. 106.The basic assumptions of accounting used by the International
d. Historical cost assumption. Accounting Standards Board (IASB) include all of the
following except:
95. Which basic assumption is illustrated when a firm reports a. Going concern.
financial results on an annual basis? b. Periodicity.
a. Economic entity assumption. c. Accrual basis.
b. Going concern assumption. d. Materiality.
c. Periodicity assumption.
d. Monetary unit assumption. 107.The basic assumptions of accounting used by the International
Accounting Standards Board (IASB) include
96. Which basic assumption may not be followed when a firm a. Neutrality.
in bankruptcy reports financial results?
b. Periodicity.
a. Economic entity assumption.
b. Going concern assumption. c. Understandability.
c. Periodicity assumption. d. Materiality.
d. Monetary unit assumption.
108.The basic assumptions of accounting used by the International
97. Which accounting assumption or principle is being violated Accounting Standards Board (IASB) include
if a company provides financial reports in connection with a. Monetary unit.
a new product introduction? b. Decision usefulness
a. Economic entity.
c. Timeliness.
b. Periodicity.
c. Revenue recognition. d. All of the choices are basic assumptions of
d. Full disclosure. accounting.

S
98. Which of the following basic accounting assumptions is 109.Which of the following basic assumptions of accounting (used
threatened by the existence of severe inflation in the by the International Accounting Standards Board) makes
economy? depreciation and amortization policies justifiable and
a. Monetary unit assumption. appropriate?
b. Periodicity assumption. a. Periodicity.
c. Going-concern assumption. b. Decision usefulness
d. Economic entity assumption. c. Monetary unit.
S d. Going concern.
99. During the lifetime of an entity accountants produce
financial statements at artificial points in time in
accordance with the concept of 110. Proponents of historical cost ordinarily maintain that in
comparison with all other valuation alternatives for general
Objectivity Periodicity purpose financial reporting, statements prepared using
a. No No historical costs are more
b. Yes No a. verifiable.
c. No Yes b. relevant.
d. Yes Yes c. indicative of the entity's purchasing power.
d. conservative.
100. Under current IFRS, inflation is ignored in accounting due
to the 111. Valuing assets at their liquidation values rather than their
a. economic entity assumption. cost is inconsistent with the
b. going concern assumption. a. periodicity assumption.
c. monetary unit assumption. b. matching principle.
d. periodicity assumption. c. materiality constraint.
d. historical cost principle.
101. The economic entity assumption
a. is inapplicable to unincorporated businesses. 112. Revenue is generally recognized when a sale occurs. This
b. recognizes the legal aspects of business statement describes the
organizations. a. consistency characteristic.
c. requires periodic income measurement. b. matching principle.
d. is applicable to all forms of business organizations. c. revenue recognition principle.
d. relevance characteristic.
102. Preparation of consolidated financial statements when a 113. Generally, revenue from sales should be recognized at a
parent-subsidiary relationship exists is an example of the point when
 a. management decides it is appropriate to do so. d. Notes to financial statements.
b. the product is available for sale to the ultimate
consumer. 124. What is the general approach as to when product costs
c. the entire amount receivable has been collected from are recognized as expenses?
the customer and there remains no further warranty a. In the period when the expenses are paid.
liability. b. In the period when the expenses are incurred.
d. none of these. c. In the period when the vendor invoice is received.
d. In the period when the related revenue is recognized.
114. Revenue generally should be recognized
a. at the end of production. 125. Not adjusting the amounts reported in the financial
b. at the time of cash collection. statements for inflation is an example of which basic
c. when realized. principle of accounting?
d. when a sale occurs. a. Economic entity.
b. Going concern.
115. Which of the following is not a time when revenue may be c. Historical cost.
recognized? d. Full disclosure.
a. At time of sale
b. At receipt of cash 126. Recognition of expense related to amortization of an
c. During production intangible asset illustrates which principle of accounting?
d. All of these are possible times of revenue recognition. a. Expense recognition.
b. Full disclosure.
116. The Allowance for Doubtful Accounts, which appears as a c. Revenue recognition.
deduction from Accounts Receivable on a statement of d. Historical cost.
financial position and which is based on an estimate of bad
debts, is an application of the 127. When should an expenditure be recorded as an asset
a. consistency characteristic. rather than an expense?
b. expense recognition principle. a. Never.
c. materiality constraint. b. Always.
d. revenue recognition principle. c. If the amount is material.
d. When future benefit exits.
117. The accounting principle of expense recognition is best
demonstrated by 128.Which accounting assumption or principle is being violated if a
a. not recognizing any expense unless some revenue is company is a party to major litigation that it may lose and
realized. decides not to include the information in the financial
b. associating effort (expense) with accomplishment statements because it may have a negative impact on the
(revenue). company's stock price?
c. recognizing prepaid rent received as revenue. a. Full disclosure.
d. establishing an Appropriation for Contingencies b. Going concern.
account. c. Historical cost.
d. Matching.
118. Application of the full disclosure principle
a. is theoretically desirable but not practical because the 129. Which assumption or principle requires that all information
costs of complete disclosure exceed the benefits. significant enough to affect a decision of reasonably
b. is violated when important financial information is informed users should be reported in the financial
buried in the notes to the financial statements. statements?
c. is demonstrated by the use of supplementary a. Matching.
information presenting the effects of changing prices. b. Going concern.
d. requires that the financial statements be consistent c. Historical cost.
and comparable. d. Full disclosure.

119. Which of the following is an argument against using 130.The basic principles of accounting used by the International
historical cost in accounting? Accounting Standards Board include all of the following
a. Fair values are more relevant. except :
b. Historical costs are based on an exchange a. Measurement
transaction. b. Full disclosure
c. Historical costs are reliable. c. Revenue recognition
d. Fair values are subjective.
d. Going concern
120. When is revenue generally recognized?
a. When cash is received. 131.The International Accounting Standards Board has given
b. When the warranty expires. companies the option of using fair value to report all of the
c. When production is completed. following except:
d. When the sale occurs. a. Receivables
b. Investments
121. Which of the following are the two components of the c. Financial liabilities
revenue recognition principle? d. All of the choices can be valued at fair value.
a. Cash is received and the amount is material.
b. It is probable that future economic benefits will flow to 132.Under International Financial Reporting Standards (IFRS)
the company and it is possible to reliably measure the revenue may be recognized
amount. a. At the point of sale.
c. Production is complete and there is an active market
b. During production.
for the product.
d. Cash is realized or realizable and production is c. At the end of production.
complete. d. All of the choices may be acceptable for revenue
recognition under IFRS.
122. Which of the following practices may not be an acceptable
deviation from recognizing revenue at the point of sale? 133.Under International Financial Reporting Standards (IFRS)
a. Upon receipt of cash. _______ costs are charged off in the immediate period
b. During production. and ________ costs may be carried into future periods.
c. Upon receipt of order. a. Period; product.
d. End of production. b. Material; overhead.
c. Product; period.
123. Which of the following is not a required component of
financial statements prepared in accordance with d. Overhead; administrative.
generally accepted accounting principles?
a. President's letter to shareholders. 134.Under International Financial Reporting Standards (IFRS)
b. Statement of financial position. notes to the financial statements
c. Income statement. a. Must be quantifiable.
 b. Must qualify as an element. 144.The International Accounting Standards Board’s (IASB)
c. Amplify or explain items presented in the main body conceptual framework includes a cost-benefit constraint.
of the financial statements. Which of the following is true regarding this constraint?
a. Benefits are more difficult to quantify than costs.
d. All of the choices are correct regarding notes to the
b. The IASB seeks input on costs and benefits as part
financial statements.
of their due process.
c. Benefits to preparers may include access to capital
135.Under International Financial Reporting Standards (IFRS)
supplementary information at a lower cost.
a. May be information that is high in relevance but low d. All of the choices are correct.
in reliability.
b. May include explanations of uncertainties and 147.The International Accounting Standards Board’s (IASB)
conceptual framework includes which of the following
contingencies.
constraints?
c. May include descriptions of accounting policies and a. Prudence
methods. b. Conservatism
d. All of the choices are correct regarding c. Cost
supplementary information. d. All of the choices are constraints in the IASB’s
conceptual framework.
136. Which of the following is a constraint in presenting
financial information?
a. Materiality.
b. Full disclosure.
c. Relevance.
d. Consistency.

137. All of the following represent costs of providing financial

information except
a. preparing.
b. disseminating.
c. accessing capital.
d. auditing.

138. Which of the following are benefits of providing financial

information?
a. Potential litigation.
b. Auditing.
c. Disclosure to competition.
d. Improved allocation of resources.

139. Where is materiality not used in providing financial

information?
a. Applying the revenue recognition principle.
b. Determining what items to include in the financial
statements.
c. Applying the going concern assumption.
d. Determining the level of disclosure.

140. Expensing the cost of copy paper when the paper is

acquired is an example of which constraint?
a. Materiality.
b. Cost-benefit.
c. Conservatism.
d. Industry practices.

141. Charging off the cost of a wastebasket with an estimated

useful life of 10 years as an expense of the period when
purchased is an example of the application of the
a. consistency characteristic.
b. matching principle.
c. materiality constraint.
d. historical cost principle.

142. Which of the following statements about materiality is not

correct?
a. An item must make a difference or it need not be
disclosed.
b. Materiality is a matter of relative size or importance.
c. An item is material if its inclusion or omission would
influence or change the judgment of a reasonable
person.
d. All of these are correct statements about materiality.

143.The International Accounting Standards Board’s conceptual

framework includes a cost-benefit constraint. Which of the
following best describes the cost-benefit constraint?
a. The benefits of the information must be greater than
the costs of providing it.
b. Financial information should be free from cost to
users of the information.
c. Costs of providing financial information are not
always evident or measurable, but must be
considered.
d. All of the choices are correct.