Test Prep Test Prep Certifications FINANCIAL-ACCOUNTING-AND-REPORTING Questions & Answers

• Question 151:

  In Yew Co.'s 1992 annual report, Yew described its social awareness expenditures during the year as follows:

  "The Company contributed $250,000 in cash to youth and educational programs. The Company also gave $140,000 to health and human-service organizations, of which $80,000 was contributed by employees through payroll deductions. In addition, consistent with the Company's commitment to the environment, the Company spent $100,000 to redesign product packaging." What amount of the above should be included in Yew's income statement as charitable contributions expense?

  A. $310,000

  B. $390,000

  C. $410,000

  D. $490,000

  Correct Answer: A

  Choice "a" is correct. Charitable contributions include amounts the company gave to recognized charities. This includes:

  

  Note: Of the $140,000, employees gave $80,000, and the company $60,000. Redesigning packaging is not

  a contribution to a charity.

  Choice "b" is incorrect. The company gave only $60,000 of the $140,000. Employees gave $80,000.

  Choice "c" is incorrect. Redesigning packaging is not a contribution to a charity.

  Choice "d" is incorrect. The company gave only $60,000 of the $140,000. Employees gave $80,000.

  Redesigning packaging is not a contribution to a charity.

• Question 152:

  According to the FASB conceptual framework, which of the following relates to both relevance and reliability?

  A. Comparability.

  B. Feedback value.

  C. Verifiability.

  D. Timeliness.

  Correct Answer: A

  Choice "a" is correct. Comparability and consistency are secondary qualities of both relevance and

  reliability. SFAC 2 para. 111-122 Choice "b" is incorrect. Feedback value is a key characteristic of

  relevance only.

  Choice "c" is incorrect. Verifiability is a key characteristic of reliability only.

  Choice "d" is incorrect. Timeliness is a key characteristic of relevance only.

• Question 153:

  Which of the following is true regarding the comparison of managerial to financial accounting?

  A. Managerial accounting is generally more precise.

  B. Managerial accounting has a past focus and financial accounting has a future focus.

  C. The emphasis on managerial accounting is relevance and the emphasis on financial accounting is timeliness.

  D. Managerial accounting need not follow generally accepted accounting principles (GAAP) while financial accounting must follow them.

  Correct Answer: D

  Choice "d" is correct. Public companies must follow GAAP for (external) financial reporting purposes.

  GAAP need not be followed for (internal) managerial accounting purposes.

  Choice "a" is incorrect. Financial accounting is generally more precise.

  Choice "b" is incorrect. Managerial accounting has a future focus, while financial accounting focuses on

  reporting past results. Choice "c" is incorrect. The emphasis of financial accounting is providing useful

  information to financial statement users (including the characteristic of relevance), while the emphasis of

  managerial accounting is providing timely information to management decision makers.

• Question 154:

  According to the FASB conceptual framework, which of the following statements conforms to the realization concept?

  A. Equipment depreciation was assigned to a production department and then to product unit costs.

  B. Depreciated equipment was sold in exchange for a note receivable.

  C. Cash was collected on accounts receivable.

  D. Product unit costs were assigned to cost of goods sold when the units were sold.

  Correct Answer: B

  Choice "b" is correct. Revenues and gains are realized when assets are exchanged for cash or claims to cash. SFAC 5 para. 83. Choice "a" is incorrect. Assigning depreciation in a production department is an example of allocating overhead. There is no realization associated with the assignment. Choice "c" is incorrect. The realization concept is integral to accounting for revenues and expenses and is not connected to collection of receivables. Choice "d" is incorrect. Assignment of overhead costs to products and thus to cost of goods sold is an example of matching. There is no realization associated with this assignment.

• Question 155:

  What are the Statements of Financial Accounting Concepts intended to establish?

  A. Generally accepted accounting principles in financial reporting by business enterprises.

  B. The meaning of "Present fairly in accordance with generally accepted accounting principles."

  C. The objectives and concepts for use in developing standards of financial accounting and reporting.

  D. The hierarchy of sources of generally accepted accounting principles.

  Correct Answer: C

  Choice "c" is correct. Statements of Financial Accounting Concepts are intended to establish the objectives and concepts that the Financial Accounting Standards Board will use in developing standards of financial accounting and reporting. SFAC 1 para. 3 Choice "a" is incorrect. The Statements of Financial Accounting Concepts do not specify financial accounting standards prescribing accounting procedures or practices. SFAC 1 para. 3 Choice "b" is incorrect. Auditing standards develop the meaning of "Present fairly in accordance with generally accepted accounting principles." Choice "d" is incorrect. The hierarchy of sources of generally accepted accounting principles is determined by GAAP.

• Question 156:

  During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about:

  A. Both enterprise performance and management performance.

  B. Management performance but not directly provide information about enterprise performance.

  C. Enterprise performance but not directly provide information about management performance.

  D. Neither enterprise performance nor management performance.

  Correct Answer: C

  Choice "c" is correct. Financial reporting, and especially financial statements, usually cannot and do not separate management performance from enterprise performance. Financial reporting provides information about an enterprise during a period when it was under the direction of a particular management but does not directly provide information about that management's performance. SFAC 1 para. 53

• Question 157:

  According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:

  A. Allocation.

  B. Matching.

  C. Realization.

  D. Recognition.

  Correct Answer: D

  Choice "d" is correct. Recognition is the process of recording an item in the financial statements of an entity. SFAC 5 para. 6 Choice "a" is incorrect. Allocation is the accounting process of assigning or distributing an amount according to a plan or a formula. SFAC 6 para. 142 Choice "b" is incorrect. Matching of costs and revenues is simultaneous or combined recognition of the revenues and expenses that result directly and jointly from the same transactions or other events. SFAC 6 para. 146 Choice "c" is incorrect. Realization is the process of converting noncash resources and rights into money. SFAC 6 para. 143

• Question 158:

  In the hierarchy of generally accepted accounting principles, APB Opinions have the same authority as AICPA:

  A. Statements of Position.

  B. Industry Audit and Accounting Guides.

  C. Issues Papers.

  D. Accounting Research Bulletins.

  Correct Answer: D

  Choice "d" is correct. AICPA Accounting Research Bulletins, FASB Standards, FASB Interpretations, FASB Staff Positions, FASB Statement 133 Implementation Issues, and APB Opinions and Interpretations are the most authoritative sources of generally accepted accounting principles. Choice "a" is incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical Bulletins are secondary sources of generally accepted accounting principles. Choice "b" is incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical Bulletins are secondary sources of generally accepted accounting principles. Choice "c" is incorrect. AICPA Issues Papers and Practice Bulletins, FASB Concepts Statements, and other authoritative pronouncements are tertiary sources for generally accepted accounting principles.

• Question 159:

  What is the underlying concept that supports the immediate recognition of a contingent loss?

  A. Substance over form.

  B. Consistency.

  C. Matching.

  D. Conservatism.

  Correct Answer: D

  Choice "d" is correct. Conservatism is a prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situations are adequately considereD. Recognition of a contingent loss is the recording of an amount representing uncertainty and risk in a business situation. SFAC 2, SFAS 5 para. 82 Choice "a" is incorrect. The substance over form concept presumes that the transaction form may not dictate the accounting treatment. Choice "b" is incorrect. Consistency is conformity from period to period with unchanging policies and procedures. SFAC 2 Choice "c" is incorrect. The matching principle dictates that expenses be matched with the related revenues generated or the time period in which the expense is incurred and known. SFAS #5 cites matching as the one concept supporting the immediate recognition of a contingent loss, but it is not the primary underlying concept. SFAS 5 para. 76

• Question 160:

  According to the FASB conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:

  A. Consistency.

  B. Cost-benefit.

  C. Reliability.

  D. Representational faithfulness.

  Correct Answer: B

  Choice "b" is correct. The pervasive constraint on providing information in financial statements is that the cost should be outweighed by the benefit to be derived from providing the information. SFAC 1 para. 23, SFAC 2 para. 133 Choice "a" is incorrect. Consistency is an underlying concept for financial statements (and a secondary quality of accounting information), but it is not a constraint on providing information. SFAC 2 para. 120 Choice "c" is incorrect. Reliability is a primary quality of accounting information and an underlying concept for financial statements, but it is not a constraint on providing information. SFAC 2 para. 58 Choice "d" is incorrect. Representational faithfulness is an underlying concept for financial statements (as an element of reliability), but it is not a constraint on providing information. SFAC 2 para.