Question 1

Both U.S.GAAP and IFRS require reporting that results in the more conservative measurement of earnings.

Accepted Answer

Both U.S. GAAP and IFRS prioritize the reliability and consistency of financial statements, which often leads to more conservative measurements of earnings.

Question 2

Which of the following is/are true?
A)Not all future benefits qualify as assets.
B)All assets provide future benefits.
C)Not all future benefits are assets.
D)Answers a, b, and c are correct.
E)None of these answer choices is correct.

Accepted Answer

All statements are correct. Not all future benefits qualify as assets because for something to be recognized as an asset, it must meet certain criteria such as identifiability, control, and the ability to generate future economic benefits. While all assets are indeed expected to provide future benefits, not every potential future benefit qualifies as an asset under accounting standards.

Question 3

Which of the following is a measurement attribute used in U.S.GAAP to measure inventories whose usefulness (typically, in terms of salability) to the firm has declined below the cost of the inventories?
A)Current Replacement Cost
B)Net Realizable Value
C)Fair Value
D)Present Value of Future Net Cash Flows
E)Acquisition cost

Accepted Answer

The answer of Which of the following is a measurement...

Question 4

The balance sheet perfectly describes both resources and financing (claims on those resources).

Accepted Answer

The balance sheet provides a snapshot of a company's financial position at a specific point in time, detailing its assets (resources) and liabilities and equity (claims on those resources), but it may not perfectly describe them due to estimations, accounting methods, and off-balance sheet items.

Question 5

The criteria for asset recognition include(s):
A)the firm owns or controls the right to use the item.
B)the right to use the item arises as a result of a past transaction or exchange.
C)the future benefit has a relevant measurement attribute that can be quantified with sufficient reliability.
D)Answers a, b and c are correct.
E)None of these answer choices is correct.

Accepted Answer

The criteria for asset recognition include all of the options presented in choices A, B, and C. Therefore, choice D is the correct answer. Choice E is incorrect, as the other options presented are all valid criteria for asset recognition.

Question 6

IFRS defines _____ as a current exchange value, which can mean either a current entry price or a current exit price.
A)Current Replacement Cost
B)Net Realizable Value
C)Fair Value
D)Present Value of Future Net Cash Flows
E)Acquisition cost

Accepted Answer

IFRS defines Fair Value as a current exchange value, which can mean either a current entry price or a current exit price. This means that it is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 7

What is a probable future economic benefit that a firm controls because of a past event or transaction?
A)asset
B)liability
C)shareholders' equity
D)revenue
E)expense

Accepted Answer

An asset represents a probable future economic benefit that a firm controls because of a past event or transaction. This future benefit may be in the form of increased cash inflows or reduced cash outflows. Examples of assets include property, plant, and equipment, inventory, and accounts receivable.

Question 8

In assessing the financial condition of a firm, an astute analyst recognizes that historical costs are reflected on the balance sheet and adjusts the reported numbers.

Accepted Answer

Historical costs are not always relevant to the current financial condition of a firm, so adjustments may be necessary to accurately evaluate its financial position.

Question 9

In IFRS, "probable" as recognition criterion for liabilities with uncertain amount and/or timing means "more likely than not"-approximately 51%.

Accepted Answer

"Probable" is defined in IFRS as "more likely than not," which means it is approximately 51% likely to occur. Therefore, option A is correct.

Question 10

_____ is the net cash (selling price less selling costs) that the firm would receive if it sold the asset today, in orderly fashion in an arm's-length transaction. It is an example of an exit value, because it reflects a price that the firm would receive in a transaction in which an asset leaves the firm.
A)Current Replacement Cost
B)Net Realizable Value
C)Fair Value
D)Present Value of Future Net Cash Flows
E)Acquisition cost

Accepted Answer

Net Realizable Value is the correct answer because it represents the amount of cash a company expects to receive from the sale of an asset, after deducting any costs associated with the sale. This aligns with the definition provided in the question.

Question 11

The _____ of an asset is the amount a firm would have to pay to obtain another asset with identical service potential; it is an entry value that reflects economic conditions at the measurement date.
A)Current Replacement Cost
B)Net Realizable Value
C)Fair Value
D)Present Value of Future Net Cash Flows.
E)Acquisition cost

Accepted Answer

Current Replacement Cost reflects the cost a firm would have to pay to obtain an identical asset with identical service potential. It is an entry value that reflects economic conditions at the measurement date.

Question 12

In the recognition criteria for liabilities with uncertain amount and/or timing, "probable" is used in U.S.GAAP to refer to a relatively high threshold of likelihood-a rule of thumb used in practice is approximately 80%.

Accepted Answer

This statement is correct. In U.S.GAAP, "probable" is used to refer to a relatively high threshold of likelihood, and a commonly used rule of thumb is that there is around an 80% likelihood that the liability will occur.

Question 13

Balance sheets based on U.S.GAAP and IFRS omit some items and measure others with bias, relative to measurements based on current economic conditions.

Accepted Answer

Balance sheets based on U.S. GAAP and IFRS may omit certain items and measure others with bias, resulting in differences from measurements based on current economic conditions. Such differences can lead to discrepancies in financial reporting and decision-making.

Question 14

Firms that use International Financial Reporting Standards (IFRS) may, but need not list their assets from least liquid to most liquid, with the same ordering used to list liabilities.

Accepted Answer

Under IFRS, firms have the option to present their assets and liabilities in order of liquidity, but it is not a requirement. This contrasts with other accounting standards that might mandate a specific order of presentation.

Question 15

Applying asset and liability definitions and recognition criteria under U.S.GAAP and IFRS results in the balance sheet including all economic benefits (resources) and obligations.

Accepted Answer

While both U.S. GAAP and IFRS aim to reflect economic reality in the balance sheet, there are instances where certain economic benefits and obligations may not meet the specific recognition criteria under these frameworks, leading to exclusions from the balance sheet.

Question 16

A balance sheet prepared according to U.S.GAAP lists assets from most liquid to least liquid, where liquid refers to the ease of converting the asset into cash.

Accepted Answer

This statement is true. The assets are generally listed in order of liquidity, with the most liquid assets, such as cash and short-term investments, listed first, followed by accounts receivable, inventory, and fixed assets.

Question 17

Which of the following terms describes the presumption that a firm will remain in operation long enough to carry out its current plans, and will, in the normal course of its operations, realize changes in the fair values of its assets either by using those assets or selling them?
A)going concern
B)relevance
C)reliability
D)recognition
E)realization

Accepted Answer

Going concern is the presumption that a firm will remain in operation long enough to carry out its current plans. This presumption is necessary for financial reporting because it allows the firm to measure and report changes in the fair value of its assets, either through use or sale, in the normal course of its operations. Relevance and reliability are also important accounting concepts, but they do not specifically relate to the going concern assumption. Recognition and realization are terms related to the measurement and recording of accounting transactions, but they do not address the assumption of continued operation.

Question 18

Under U.S.GAAP, assets and liabilities are listed on the balance sheet in order of decreasing liquidity, so the most liquid assets (liabilities) are shown first, under their respective categories.

Accepted Answer

Under U.S. GAAP, assets and liabilities are generally presented on the balance sheet in order of decreasing liquidity, with the most liquid assets (or liabilities) shown first within their respective categories.

Question 19

A balance sheet prepared according to U.S.GAAP lists liabilities starting with those that the firm will discharge soonest (the most current or closest to maturity liabilities) and ending with those that it will pay latest (the most noncurrent or distant to maturity liabilities).

Accepted Answer

This statement is true as per the U.S. GAAP guidelines for the preparation of a balance sheet. The liabilities are listed in the order of their maturity, with the most current or closest to maturity liabilities listed first and the most noncurrent or distant to maturity liabilities listed last.

Question 20

_____ is the amount that results from using an appropriate interest rate to discount one or more future cash flows to the present.It is the sum of the present values of the individual future cash inflows and outflows associated with an asset.It is not, in and of itself, a measurement attribute.Rather, it is a means of arriving at a measurement attribute.
A)Current Replacement Cost
B)Net Realizable Value
C)Fair Value
D)Present Value of Future Net Cash Flows
E)Acquisition cost

Accepted Answer

The definition describes the Present Value of Future Net Cash Flows, which is calculated by discounting the expected future cash flows using an appropriate interest rate to obtain their present values.

Quiz 4: Balance Sheet: Presenting and Analyzing Resources and Financing

Both U.S.GAAP and IFRS require reporting that results in the more conservative measurement of earnings.

Which of the following is/are true?

Which of the following is a measurement attribute used in U.S.GAAP to measure inventories whose usefulness (typically, in terms of salability) to the firm has declined below the cost of the inventories?

The balance sheet perfectly describes both resources and financing (claims on those resources).

The criteria for asset recognition include(s) :

IFRS defines _____ as a current exchange value, which can mean either a current entry price or a current exit price.

What is a probable future economic benefit that a firm controls because of a past event or transaction?