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Chapter 2 MCQ’s

1. What is the ultimate objective of accounting information?

a. decision usefulness

b. faithful representation

c. predictive value

d. relevance

2. Which fundamental characteristic is an ingredient of faithful representation?

a. predictive value

b. neutrality

c. timeliness

d. confirmatory value

3. Which of the following items would most likely be a violation of the materiality constraint?

a. A $7,500,000 payment by an executive of the company to a foreign government to expedite a hostage release was not separately disclosed in the annual report.

b. A $2,000 expenditure to improve a building that originally cost $10,000,000 was immediately expensed.

c. A company did not separately report an unusual gain of $100,000. Its income from operations was $20,000,000.

d. A company having reported total assets of $50,000,000 immediately expensed the purchase of 20 pencil sharpeners that have an estimated useful life of three years.

4. Accounting information that is complete, neutral, and free from error is:

a. a faithful representation.

b. predictive.

c. consistent.

d. material.

5. Which one of the following assumptions or principles most logically supports the preparation of a single set of consolidated financial statements that combines the financial information of several wholly owned but separately identifiable businesses?

a. historical cost

b. reporting entity

c. industry practices

d. materiality

6. Which one of the following assumptions or principles most logically supports the preparation of a single set of consolidated financial statements that combines the financial information of several wholly owned but separately identifiable businesses?

a. historical cost

b. reporting entity

c. industry practices

d. materiality

7. In order to be relevant, accounting information should have

a. timeliness.

b. confirmatory value.

c. verifiability.

d. All of these choices are correct.

8. The FASB and IASB concluded that the most general objective of financial reporting is to

a. meet the needs of internal users.

b. provide information about an entity’s cash flows.

c. provide information useful in the decisions made by external users.

d. provide information about an entity’s earnings.

9. Which of the following items is included in FASB’s conceptual framework of accounting theory?

a. objectives of financial reporting

b. qualities of useful accounting information

c. fundamental principles and assumptions that guide financial accounting and reporting

d. All of these choices are included in the conceptual framework.

10. Which qualitative characteristic is an ingredient of relevance?

a. neutrality

b. materiality

c. understandability

d. representational faithfulness

11. Which qualitative characteristic is an ingredient of relevance?

a. neutrality

b. materiality

c. understandability

d. representational faithfulness

12. Accrual accounting measures and reports the financial effects of a company’s transactions

a. so that the costs of nonoperational events are matched to the balance sheet in the period impacted

b. to the period in which they occur rather than to when the cash receipts or payment occurs

c. so that the impact of every transaction is reflected in the statement of cash flows

d. so that the revenue impact of every transaction in a period is properly reflected in the income statement

13. According to the FASB hierarchy of fundamental qualitative characteristics, the two primary qualities making accounting information useful are

a. verifiability and neutrality.

b. predictive value and feedback value.

c. relevance and faithful representation.

d. understandability and decision usefulness.

14. What is the goal of FASB and IASB in the creation of the conceptual framework?

a. To develop standards that lead to financial reporting that provides clear, consistent information to capital providers.

b. To develop standards that are internally consistent.

c. To develop standards that are internationally converged.

d. All of these choices are correct.

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