cfas

• The best indication of an enterprise's present and continuing ability to generate favorable cash flows is information about enterprise earnings based on which of the following?

  Accrual accounting basic
• The information provided by financial reporting pertains to


  Individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
• Which of the following statements about accrual accounting is not correct?

  Accrual accounting is primarily concerned with the cash receipts and cash payments of an enterprise.
• The operating cycle of a business is that span of time that

  Runs from cash disbursements for items of inventory through their sale to the realization of cash from sale.
• The business reason usually given for a business to select a fiscal year different from the calendar year is


  The fiscal year-end is selected to coincide with the low points in sales, production, and inventories, which may occur at some period other than the calendar year-end.
• An objective of financial reporting is


  Providing information useful to investors, creditors, donors, and other users for decision making.
• A primary objective of external financial reporting is

  Provision of information that is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise.
• The objectives of financial reporting for business enterprises are based on

  The needs of the users of the information.
• Financial statement users with a direct economic interest in a specific business include


  Suppliers
• Which of the following is not a need of financial statement users?

  Stock exchanges need financial statements to set a firm's stock price.
• The primary purpose of the statement of financial position of a business enterprise is to reflect


  Items of value, debts, and net worth.
• Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to

  Accrual accounting
• Which of the following statements reflects the basic purpose of financial reporting?

  Investment and credit decisions often are based, at least in part, on evaluations of the past performance of an enterprise
• During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about

  Enterprise performance but not directly provide information about management performance.
• Qualitative Characteristics of Accounting Information, identifies the two primary qualities that make accounting information useful for decision making as

  Relevant and reliable
• Predictive value is an ingredient of


  Relevance - Yes

  Reliability - No
• Accounting information that enables decision makers to confirm or correct prior expectations is said to have

  Comparability
• Conceptually, interim financial statements can be described as emphasizing

  Timeliness over reliability
• Which of the following situations violates the concept of reliability?

  Financial statements included property with a carrying amount increased to management's estimate of market value.
• The ability through consensus among measures to ensure that information represents what it purports to represent is the definition of the concept of

  Verifiability
• The concept of verifiability is complied with when accounting transaction occurs that

  Involves an arm's length transaction between two independent interests.
• According to Statements of Financial Accounting Concepts, neutrality is an ingredient of

  Reliability - Yes

  Relevance - No
• When a company makes a change in accounting principle, prior-year financial statements are not generally restated to reflect the change. The Accounting Principles Board decided that this procedure would prevent a dilution of public confidence in financial statements but recognized that this procedure conflicts with the accounting concept of

  Comparability
• The concept of consistency is sacrificed in the accounting for which of the following income statement items?

  Cumulative effect of changes in accounting principle
• Materiality is one of the pervasive concepts discussed in SFAC 2. Which of the following statements is true with regard to materiality?

  The nature and magnitude of an item as well as the circumstances in which the judgment has to be made are integral aspects of a materiality judgment.
• An enterprise with total assets of 100,000,000 and net profit of 9,000,000 purchases staplers with an estimated life of 10 years for 1,000. In connection with the purchase, the company debits miscellaneous expense. This scenario is most closely associated with which of the following concepts or principles?

  Materiality and the balance between cost and benefit
• Continuation of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of

  Going concern
• A newly acquired plant asset is to be depreciated over its useful life. The rationale for this process is the


  Going concern assumption
• During the lifetime of a business enterprise, accountants produce financial statements at arbitrary moments in time in accordance with which basic accounting concept?

  Periodicity
• The measurement basis most often used to report a long-term payable representing a commitment to pay money at a determinable future date is

  Present value of future cash flows
• Reporting inventory at the lower of cost or market is a departure from the accounting principle of

  Historical cost
• The assets of a liquidating enterprise should be shown on the balance sheet at their

  Realizable value
• A development stage enterprise should use the same generally accepted accounting principles that apply to established operating enterprises for

  Revenue recognition - Yes

  Deferral of expenses - Yes
• Recognition is the process of formally incorporating an item into the financial statements of an entity as an asset, liability, revenue, or expense. Recognition criteria include all of the following except

  Relevance
• Revenues of an entity are usually measured by the exchange values of the assets and liabilities involved. Recognition of revenue does not occur until

  The revenue is realized and earned
• Which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?

  Unrealized holding loss on available-for-sale securities.
• Which of the following costs is most likely to be expensed immediately rather than recognized as an asset?

  Research
• Costs that can be reasonably associated with specific revenues but not with specific products should be

  Expensed in the period in which the related revenue is recognized
• When bad debt expense is estimated on the basis of the percentage of past actual losses from bad debts to past net credit sales, and this percentage is adjusted for anticipated conditions, the accounting concept of

  Matching is being followed
• Why are certain costs of doing business capitalized when incurred and then depreciation or amortized over subsequent accounting cycles?


  To match the costs of production with revenues as earned