Elements of Financial Statements
Common stock represents which financial statement element?
Investments by Owners
What are the two fundamental qualities?
Faithful Representation and Relevance
Which of the following is NOT an Enhancing Quality?
a. Verifiability
b. Understandability
c. Accountability
d. Timeliness
c. Accountability
Which of the following is NOT one of the four basic assumptions that underlie the financial accounting structure?
a. Periodicity Assumption
b. Going Concern Assumption
c. Monetary Unit Assumption
d. Economic Measurement Assumption
d. Economic Measurement Assumption
What is Historical Cost?
a. Part of the Measurement principle
b. Part of the Revenue Recognition principle
c. Part of the Full Disclosure principle
d. Part of the Income Statement
a. Part of the Measurement principle
Which financial statement element is defined as the residual interest in the assets of an entity that remains after deducting its liabilities?
Equity
What are the three ingredients of Relevance?
Predictive value, Confirmatory value, Materiality
Complementary to the fundamental qualitative characteristics, what is the other qualitative characteristic for distinguishing information?
Enhancing Qualities
True or False? The Monetary Unit Assumption implies that a company can divide its economic activities into artificial time periods.
False. It should be the Periodicity Assumption
What is the Expense Recognition principle?
Matching expenses with revenues
Which of the following is NOT specified as one of the ten financial statement elements in FASB’s Conceptual Framework?
a. Gains
b. Distributions to owners
c. Retained earnings
d. Comprehensive income
c. Retained earnings
What are the three ingredients of Faithful Representation?
Completeness, Neutrality, Free from error
What enhancing quality helps a company make decisions, by expanding on information about transactions and events and providing supplemental details?
a. Comparability
b. Understandability
c. Consistency
d. Verifiability
b. Understandability
Which assumption is the reason the personal assets of a company’s owner are not included on the company’s balance sheet?
a. Economic Entity Assumption
b. Going Concern Assumption
c. Monetary Unit Assumption
d. Periodicity Assumption
a. Economic Entity Assumption
What is the Revenue Recognition principle?
Recognizing revenue when it is earned
Which three elements describe amounts of resources and claims to resources at a moment in time? These elements provide at any time the cumulative result of all changes.
Assets, Liabilities, Equity
What is the difference between the fundamental quality of relevance and its ingredient materiality?
Relevance is a broad concept, whereas materiality is entity-specific.
If comparability is to review similarities and differences between companies; Consistency is to ______.
review similarities and differences inside a company
Which assumption means that a company is stable and will remain stable enough to fulfill its obligations?
a. Periodicity Assumption
b. Monetary Unit Assumption
c. Going Concern Assumption
d. Economic Entity Assumption
c. Going Concern Assumption
What is the Full Disclosure principle?
All information that influences the decisions of informed investors should be disclosed.
Which two elements arise from peripheral or incidental transactions
Gains and Losses
A company’s financial statements do not present bonds payable that the company acquired one month before year-end. Which of the following is of most concern?
a. Understandability
b. Confirmatory value
c. Faithful representation
d. Timeliness
Faithful representation
Verifiability is ______.
a. When two or more independent parties use the same methods to obtain similar results.
b. The means of having all the information that is necessary.
c. Having all the complete information before making major decisions.
d. Being verified in the company or on social media.
a. When two or more independent parties use the same methods to obtain similar results.
Significant inflation or deflation of a product’s value can be ignored under which basic assumption?
a. Economic Entity Assumption
b. Monetary Unit Assumption
c. Periodicity Assumption
d. Going Concern Assumption
b. Monetary Unit Assumption
Is good disclosure a substitute for good accounting?
No, because good disclosure won’t fix the fact that your accounting is wrong.