Test Bank For Intermediate Accounting, 11th Edition by David Spiceland, Mark Nelson, Wayne Thomas, Jennifer

Answer Key Test name: chapter 1 1) TERM PHRASE Term number that matches the phrase. 1. Predictive value Information is useful in 1 projecting cash flows. 2. Relevance Pertinent to the decision at 2 hand. 3. Distribution owners to Information is available prior to the decision. 5 4. Confirmatory value Decrease in equity due to transfers to owners. 3 5. Timeliness Information confirms 4 expectations. 2) TERM PHRASE Term number that matches the phrase. 1. Gain Along with relevance, a 5 fundamental decision-specific quality. 2. Materiality Results if an asset is sold for 1 more than book value. 3. Completeness Contains all information 3 necessary for faithful representation. 4. Comprehensive income The change in equity from nonowner transactions. 4 Version 1 3 5. Faithful representation 3) Concerns the decision-making 2 impact of both the amount and nature of an item. TERM PHRASE Term number that matches the phrase. 1. Neutrality Important in analysis between 2 firms. 2. Comparability Accounting information should 1 be unbiased. 3. Consistency The decision to include an 5 amount in the financial statements. 4. Cost-effectiveness Applying the same accounting 3 practices over time. 5. Recognition Considers the value of using 4 information relative to cost of providing it. 4) TERM PHRASE Term number that matches the phrase. 1. Monetary unit assumption Implies consensus among 2 different observers. 2. Verifiability Assumes all transactions can be 3 identified with a particular entity. 3. Economic entity assumption 4. Going concern assumption 5. Periodicity assumption 5) Assumes an entity will continue 4 to operate indefinitely. Requires reporting the 5 financial life of an entity in discrete time frames. Ignores the possibility of 1 inflation. TERM PHRASE Term number that matches 1. Historical cost Basis of measurement for fixed the phrase. 1 Version 1 4 assets. 2. Materiality Discounts future cash flows. 5 3. Revenue recognition Occurs when goods or services 3 are transferred to the customer. 4. Full disclosure Reporting of all information 4 that could affect decisions. 5. Present value Application of GAAP sometimes 2 avoided under this constraint. 6) TERM PHRASE Term number that matches the phrase. 1. Financial Accounting Standards Board 2. Accounting Principles Board Undermines representational 3 faithfulness by being inconsistent with neutrality. It established GAAP before the 2 FASB. 3. Conservatism Its EITF Issues are GAAP when 1 entered in the Accounting Standards Codification. 4. American Institute of CPAs (AICPA) 5. Securities and Exchange Commission 7) It has the authority to set U.S. 5 accounting standards. It is the national organization 4 for CPAs in the United States. owners 4. Investments by owners Claims of creditors against 5 the assets of a business. 5. Liabilities Transfers of resources in 4 exchange for common and preferred stock. TERM PHRASE Term number that matches the phrase. 1. Expenses Net assets. 2 2. Equity Outflows of resources generate revenues. to 1 3. Distributions to Cash dividends. 3 Version 1 5 8) TERM PHRASE Term number that matches the phrase. 1. Losses Net outflows from peripheral 1 transactions. 2. Assets Increases in equity from the 3 sale of goods and/or services. 3. Revenues Results if an asset is sold for 5 more than book value. 4. Comprehensive income All changes in equity except 4 owner transactions. 5. Gains Probable future economic 2 benefits controlled by an entity. 9) TERM PHRASE Term number that matches the phrase. 1. SEC Establishes auditing standards in 6 the U.S. for public companies. 2. FASB Primary national organization of 7 accountants working in industry. 3. IASB Sets accounting standards in the 2 United States. 4. AICPA Provides timely responses to 5 financial reporting issues. 5. EITF The FASB's parent organization. 10 6. PCAOB Advises the FASB. 8 7. IMA FASB's predecessor. 9 8. FASAC Regulates the financial reporting 1 for public companies. 9. APB National organization of certified 4 public accountants. 10. FAF Sets global accounting standards. 3 Version 1 6 10) These amounts are different because of the differences between cash and accrual accounting. As opposed to cash flows from operations, net income includes both revenues and expenses the timing of which differs from the timing of certain cash receipts and payments. Examples would be credit sales in which the revenues are recorded before the collection of cash and cost of goods sold in which the expense often is recorded later than the cash payment to the supplier for the merchandise. 11)1.Disagree. This is a violation of the historical cost (original transaction value) principle. 2.Disagree. This is a violation of the economic entity assumption. 3.Disagree. The seller has not satisfied its obligation to deliver goods. 4.Disagree. This is a violation of matching. 5.Agree. The company is conforming to the full disclosure principle. 6.Disagree. This is a violation of the periodicity assumption. 12)Economic entity: All economic events can be identified with a particular economic entity. Going concern: In the absence of information to the contrary, it is anticipated that a business entity will continue to operate indefinitely. 13)Balance sheet, Income statement, Statement of cash flows, Statement of shareholders' equity. 14)In order to provide consistency, a conceptual framework (a map clearly defining beliefs or structure) must be provided. This is the foundation for a strong, logical, and fair system. For example, in debating accounting for stock-based compensation, the FASB's conceptual framework explains the rationale for treating stock options as an expense. By relating the accounting for such compensation to the purpose of financial statements and their qualitative characteristics, the FASB can defend its positions without the bias inherent in such controversial issues. 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