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Chapter 001 Environment and Theoretical Structure of Financial AccountingTrue / False Questions1. The primary function of financial accounting is to provide relevant financial information toparties external to business enterprises. TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 1Level of Learning: 1 2.Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow.FALSEAACSB: Reflective thinkingBlooms: ComprehensionLearning Objective: 2Level of Learning: 1 3.The FASB is currently the public sector organization responsible for setting accounting standards in the U.S.FALSEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 3Level of Learning: 1 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AACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 4Level of Learning: 1 1-1Chapter 001 Environment and Theoretical Structure of Financial Accounting5.A rules-based approach to standard setting stresses professional judgment as opposed to following a list of rules.FALSEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 4Level of Learning: 1 6.Under federal securities laws, the SEC has the authority to set accounting standards in the U.S.TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 4Level of Learning: 1 7.The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors.FALSEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 8.Auditors play an important role in the resource allocation process by adding credibility to financial statements.TRUEAACSB: Reflective thinkingBlooms: ComprehensionLearning Objective: 6Level of Learning: 1 1-2Chapter 001 Environment and Theoretical Structure of Financial Accounting9.Materiality can be affected by the dollar amount of an item, the nature of the item, or both.TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 10.Conservatism is a desired qualitative characteristic of accounting information.FALSEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 11.Equity is a residual amount representing the owner's interest in the assets of the business.TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 12.Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing operations.TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 1-3Chapter 001 Environment and Theoretical Structure of Financial Accounting13.Gains or losses result, respectively, from the disposition of business assets for greater than, or less than, their book values.TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 14.Comprehensive income is another term for net income.FALSEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 6Level of Learning: 1 15.Determining fair value by calculating the present value of future cash flows is a level 1 type of input.FALSEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 8Level of Learning: 1 16.SFAC No. 157 doesn't change the situations in which fair value is used under current GAAP.TRUEAACSB: Reflective thinkingBlooms: KnowledgeLearning Objective: 8Level of Learning: 1 1-4Chapter 001 Environment and Theoretical Structure of Financial AccountingEssay Questions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 incomeB. Distribution to ownersC. Feedback valueD. GainE. MaterialityF. Predictive valueG. RelevanceH. ReliabilityI. Representational faithfulnessJ. Timeliness17.____Information is useful in projecting cash flows.FAACSB: Reflective thinkingBlooms: Comprehension 18.____Pertinent to the decision at hand.GAACSB: Reflective thinkingBlooms: Comprehension 1-5Chapter 001 Environment and Theoretical Structure of Financial Accounting19.____Information is available prior to the decision.JAACSB: Reflective thinkingBlooms: Comprehension 20.____Decrease in equity due to transfers to owners.BAACSB: Reflective thinkingBlooms: Comprehension 21.____Information confirms expectations.CAACSB: Reflective thinkingBlooms: Comprehension 1-6Chapter 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 incomeB. Distribution to ownersC. Feedback valueD. GainE. MaterialityF. Predictive valueG. RelevanceH. ReliabilityI. Representational faithfulnessJ. Timeliness22.____Along with relevance, a primary decision-specific quality.HAACSB: Reflective thinkingBlooms: Comprehension 23.____Results if an asset is sold for more than book value.DAACSB: Reflective thinkingBlooms: Comprehension 24.____Agreement between a measure and what it purports to represent.IAACSB: Reflective thinkingBlooms: Comprehension 1-7Chapter 001 Environment and Theoretical Structure of Financial Accounting25.____The change in equity from nonowner transactions.AAACSB: Reflective thinkingBlooms: Comprehension 26.____Concerns the decision making impact of both the amount and nature of an item.EAACSB: Reflective thinkingBlooms: Comprehension 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.Terms:A. ComparabilityB. ConsistencyC. Cost effectivenessD. Economic entity assumptionE. Going concern assumptionF. Monetary unit assumptionG. NeutralityH. Periodicity


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nova ACT 3050 - Study Guide

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