Chapter 001 Environment and Theoretical Structure of Financial Accounting 1 The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises TRUE 2 Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow FALSE 3 The FASB is currently the public sector organization responsible for setting accounting standards in the U S FALSE 4 The Public Reform and Investor Protection Act of 2002 Sarbanes Oxley changed the entity responsible for setting auditing standards in the United States TRUE True False Questions AACSB Reflective thinking Blooms Knowledge Learning Objective 1 Level of Learning 1 AACSB Reflective thinking Blooms Comprehension Learning Objective 2 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 3 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 4 Level of Learning 1 1 1 Chapter 001 Environment and Theoretical Structure of Financial Accounting 5 A rules based approach to standard setting stresses professional judgment as opposed to following a list of rules FALSE 6 Under federal securities laws the SEC has the authority to set accounting standards in the U S TRUE 7 The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm s auditors FALSE 8 Auditors play an important role in the resource allocation process by adding credibility to financial statements TRUE AACSB Reflective thinking Blooms Knowledge Learning Objective 4 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 4 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Comprehension Learning Objective 6 Level of Learning 1 1 2 Chapter 001 Environment and Theoretical Structure of Financial Accounting 9 Materiality can be affected by the dollar amount of an item the nature of the item or both TRUE AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 10 Conservatism is a desired qualitative characteristic of accounting information FALSE 11 Equity is a residual amount representing the owner s interest in the assets of the business TRUE 12 Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity s ongoing operations TRUE 1 3 Chapter 001 Environment and Theoretical Structure of Financial Accounting 13 Gains or losses result respectively from the disposition of business assets for greater than or less than their book values TRUE AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 6 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 8 Level of Learning 1 AACSB Reflective thinking Blooms Knowledge Learning Objective 8 Level of Learning 1 14 Comprehensive income is another term for net income FALSE 15 Determining fair value by calculating the present value of future cash flows is a level 1 type of input FALSE 16 SFAC No 157 doesn t change the situations in which fair value is used under current GAAP TRUE 1 4 Chapter 001 Environment and Theoretical Structure of Financial Accounting Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase Essay Questions Terms A Comprehensive income B Distribution to owners C Feedback value D Gain E Materiality F Predictive value G Relevance H Reliability I Representational faithfulness J Timeliness 17 Information is useful in projecting cash flows F G AACSB Reflective thinking Blooms Comprehension 18 Pertinent to the decision at hand AACSB Reflective thinking Blooms Comprehension 1 5 Chapter 001 Environment and Theoretical Structure of Financial Accounting J B C 19 Information is available prior to the decision AACSB Reflective thinking Blooms Comprehension 20 Decrease in equity due to transfers to owners AACSB Reflective thinking Blooms Comprehension 21 Information confirms expectations AACSB Reflective thinking Blooms Comprehension 1 6 Chapter 001 Environment and Theoretical Structure of Financial Accounting Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase Terms A Comprehensive income B Distribution to owners C Feedback value D Gain E Materiality F Predictive value G Relevance H Reliability I Representational faithfulness J Timeliness H D I AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension 22 Along with relevance a primary decision specific quality 23 Results if an asset is sold for more than book value 24 Agreement between a measure and what it purports to represent 1 7 Chapter 001 Environment and Theoretical Structure of Financial Accounting 25 The change in equity from nonowner transactions 26 Concerns the decision making impact of both the amount and nature of an item Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms Match each phrase with the correct term with their phrases by placing the letter designating the best term in the space provided by the phrase AACSB Reflective thinking Blooms Comprehension AACSB Reflective thinking Blooms Comprehension Terms A Comparability B Consistency C Cost effectiveness D Economic entity assumption E Going concern assumption F Monetary unit assumption G Neutrality H Periodicity assumption I Recognition J Verifiability A E A 27 Important in analysis between firms AACSB Reflective thinking Blooms Comprehension 1 8 Chapter 001 Environment and Theoretical Structure of Financial Accounting 28 Accounting information should be unbiased 29 The process of including data in financial statements