Question 1

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as
A) the doctrine of conservatism.
B) the materiality constraint.
C) the substance over form principle.
D) the industry practices constraint.

Accepted Answer

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the doctrine of conservatism. This principle helps to ensure that financial statements are not overstated, which could be misleading to stakeholders.

Question 2

Which of the following is not a criterion outlined in SEC Staff Accounting Bulletin No. 101 for the recognition of revenue? 
A)Persuasive evidence of an arrangement exists.
B) Delivery has not occurred.
C) The vendor's fee is fixed or determinable.
D) Collectability is probable.

Accepted Answer

The criterion "Delivery has not occurred" is not one of the criteria outlined in SEC Staff Accounting Bulletin No. 101 for the recognition of revenue. The four criteria outlined in the bulletin are: persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, collectability is probable, and delivery has occurred or services have been rendered.

Question 3

One of the basic features of financial accounting is the
A) Direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact
B) Direct measurement of economic resources and obligations and changes in them in terms of money
C) Direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact
D) Direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact

Accepted Answer

D

Question 4

Conventionally accountants measure income
A) By applying a value added concept
B) By using a transactions approach
C) As a change in the value of owners' equity
D) As a change in the purchasing power of owners' equity

Accepted Answer

Accountants typically measure income using a transaction approach, which involves recording the revenue and expenses that occurred during a specific time period. This approach focuses on the inflows and outflows of economic resources rather than changes in the value of owners' equity or the purchasing power of their equity.

Question 5

In the traditional transactions approach to income determination, income was measured by subtracting the expenses resulting from specific transactions during the period from revenues of the period also resulting from transactions. Under a strict transactions approach to income measurement, which of the following would not be considered a transaction?
A) Sale of goods on account at 20 percent markup
B) Exchange of inventory at a regular selling price for equipment
C) Adjustment of inventory in lower of cost or market inventory valuations when market is below cost.
D) Payment of salaries

Accepted Answer

Transactions involve exchanges between two parties where goods, services, or financial assets are transferred. Adjusting inventory values to reflect lower market prices (choice C) does not involve an exchange with another party, but rather an internal adjustment to the value of assets based on market conditions.

Question 6

Which of the following is not a concept of income identified by Bedford?
A) Psychic
B) Real
C) Investment
D) Money

Accepted Answer

Bedford identifies three concepts of income: real, psychic, and money income. Investment income is not one of the concepts identified by Bedford.

Question 7

Deliberately recording errors or ignoring mistakes in the financial statements under the assumption that their impact is not significant, is the definition of which of the following earnings management techniques? 
A)Taking a bath
B) Creative acquisition accounting
C) Creasing "cookie jar" reserves
D) Abusing the materiality concept

Accepted Answer

Abusing the materiality concept involves intentionally recording errors or disregarding mistakes in financial statements under the assumption that their impact on the overall financial picture is not significant enough to warrant correction or disclosure. This is considered an earnings management technique that can be used to manipulate perceived performance.

Question 8

Income is equal to the difference between the present value of the net assets at the end of the period and their present value at the beginning of the period, excluding the effects of investments by owners and distributions to owners is the definition of which of the following current value concepts? 
A) Replacement cost
B) Selling price
C) Exit value
D) Discounted present value

Accepted Answer

The definition given perfectly matches with the concept of Discounted present value, where income is calculated by considering the present value at the end of the period minus the present value at the beginning of the period, excluding investments and distributions by the owners. Thus, option D is the correct choice.

Question 9

The one-time overstatement of restructuring charges to reduce assets, which reduces future expenses, is the definition of which of the following earnings management techniques? 
A) Taking a bath
B) Creative acquisition accounting
C) Creasing "cookie jar" reserves
D) Abusing the materiality concept

Accepted Answer

The one-time overstatement of restructuring charges to reduce assets, which reduces future expenses, is known as "taking a bath." This technique involves deliberately overstating expenses in the current period to create a reserve for future expenses that can be drawn from in later periods, artificially boosting earnings in those periods. The other options (B, C, and D) do not fit this specific description.

Question 10

One concept of income suggests that income be measured by determining the net change over time in the discounted present value of net cash flow expected to be received by the firm. Under this concept of income, which of the following, ignoring income taxes would not affect the amount of income for a period?
A) Providing services to outsiders and investments of the funds received
B) Production of goods or services not yet sold not yet delivered to customers or clients.
C) Windfall gains and losses due to external causes.
D) The method used to depreciate property, plant and equipment.

Accepted Answer

The concept of income based on the net change in the discounted present value of expected net cash flows focuses on actual or expected cash transactions. Depreciation methods affect accounting income but do not directly impact cash flows, hence they would not affect the measurement of income under this concept.

Question 11

The principal disadvantage of using the percentage of completion method of recognizing revenue from long-term contracts is that it
A) Is unacceptable for income tax purposes
B) May require that intraperiod tax allocation procedures be used
C) Gives results bases upon estimates that may be subject to considerable uncertainty
D) Is likely to assign a small amount of revenue to a period during which much revenue was actually earned

Accepted Answer

The percentage of completion method requires estimates to be made regarding the costs and progress of the project, which can be subject to considerable uncertainty. This can result in inaccurate recognition of revenue, which is the main disadvantage of this method. Option A and B are incorrect as the percentage of completion method is acceptable for income tax purposes and does not necessarily require intraperiod tax allocation. Option D is also incorrect as the percentage of completion method is designed to recognize revenue in proportion to the actual progress made on the project, so a small amount of revenue would not be assigned to a period during which much revenue was actually earned.

Question 12

The term revenue recognition originally referred to
A) The process of identifying transactions to be recorded as revenue in an accounting period.
B) The process of measuring and relating revenue and expenses of an enterprise for an accounting period.
C) The earning process that gives rise to revenue realization.
D) The process of identifying those transactions that result in an inflow of assets from customers.

Accepted Answer

The answer of The term revenue recognition originally referred to
A)...

Question 13

Each asset-inventory, plant, equipment, and so on-would be valued based on the selling price that would be realized if the firm chose to dispose of it is the definition of which of the following current value concepts? 
A)Replacement cost
B) Entry price
C) Exit value
D) Discounted present value

Accepted Answer

The definition given in the question is for exit value, which represents the selling price that would be realized if the firm chose to dispose of the asset. Replacement cost relates to the cost of replacing an asset with another similar asset. Entry price represents the cost of acquiring an asset at the time of acquisition. Discounted present value is not relevant to this definition.

Question 14

Which of the following is not an approach to determining current value? 
A) Replacement cost
B) Thrift value
C) Selling price
D) Discounting present value

Accepted Answer

Replacement cost, selling price, and discounting present value are all approaches to determining current value. However, thrift value is not a commonly used approach in determining the current value of an asset.

Question 15

The definition of the economic concept of income is usually attributed to which of the following economists?
A) J. R. Hicks
B) Paul Samuelson
C) Ben Bernanke 
D) Adam Smith

Accepted Answer

J. R. Hicks is widely recognized as the economist who first defined the concept of income in his book "Value and Capital" published in 1939.

Question 16

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting. This statement is an example of the concept of
A) Conservatism
B) Completeness
C) Neutrality
D) Representational faithfulness

Accepted Answer

The statement mentions "uncertainty and risks," which suggests that the concept of conservatism is being referred to. Conservatism in financial reporting requires that uncertainties and risks be adequately considered, and that potential losses be recognized before potential gains.

Question 17

Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to
A) Disclosure
B) Accrual accounting
C) Materiality
D) The matching concept

Accepted Answer

Measuring economic resources and obligations and changes in them as they occur is an essential aspect of accrual accounting, which is used to determine periodic earnings and financial position.

Question 18

The cost to replace assets with similar assets in a similar condition is the definition of which of the following current value concepts? 
A)Replacement cost
B) Selling price
C) Exit value
D) Discounted present value

Accepted Answer

The definition given in the question aligns with the concept of replacement cost. This concept is used to determine the current value of an asset by considering the cost required to replace it with a similar asset in a similar condition at the present time.

Question 19

Which of the following accounting theorists called of conservatism the most influential principle of valuation in accounting? 
A)Henry Sweeney
B) Robert Sprouse
C) Robert Sterling
D) Edgar Edwards

Accepted Answer

The answer of Which of the following accounting theorists called...

Question 20

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges, is the definition of which of the following earnings management techniques? 
A)Taking a bath
B) Creative acquisition accounting
C) Creasing "cookie jar" reserves
D) Abusing the materiality concept

Accepted Answer

Creasing "cookie jar" reserves refers to the practice of companies deliberately setting aside large reserves in good financial periods that they can dip into during tougher times, in order to smooth out earnings. This technique involves overstating certain expenses or losses, such as sales returns or warranty costs, when the company is performing well financially. Then, in periods of lower performance, the company uses these overestimated reserves to offset actual expenses, thereby managing earnings to appear more stable over time.

Quiz 5: Income Concepts, Revenue Recognition, and Other Methods of Reporting

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as

Which of the following is not a criterion outlined in SEC Staff Accounting Bulletin No. 101 for the recognition of revenue?

One of the basic features of financial accounting is the

Conventionally accountants measure income

Which of the following is not a concept of income identified by Bedford?

Deliberately recording errors or ignoring mistakes in the financial statements under the assumption that their impact is not significant, is the definition of which of the following earnings management techniques?

The one-time overstatement of restructuring charges to reduce assets, which reduces future expenses, is the definition of which of the following earnings management techniques?

The principal disadvantage of using the percentage of completion method of recognizing revenue from long-term contracts is that it

The term revenue recognition originally referred to

Each asset-inventory, plant, equipment, and so on-would be valued based on the selling price that would be realized if the firm chose to dispose of it is the definition of which of the following current value concepts?

Which of the following is not an approach to determining current value?

The definition of the economic concept of income is usually attributed to which of the following economists?

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting. This statement is an example of the concept of

Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to

The cost to replace assets with similar assets in a similar condition is the definition of which of the following current value concepts?

Which of the following accounting theorists called of conservatism the most influential principle of valuation in accounting?

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges, is the definition of which of the following earnings management techniques?