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The FASB concluded that the most general objective of financial reporting is to a. provide information useful in the decisions made by external users b. provide information about an entity’s cash flows c. meet the needs of internal users d. provide information about an entity’s earnings Information about comprehensive income is useful to external users for all of the following purposes except a. examining cash flows for the current period b. assessing the risk of lending to the company c. predicting future income d. evaluating management’s performance Accrual accounting relates the financial effects of a company’s transactions a. so that the impact of every transaction is reflected in the statement of cash flows b. to the period in which they occur rather than to when the cash receipts or payment occurs c. so that the revenue impact of every transaction in a period is properly reflected in the income statement d. so that the costs of nonoperating events are matched to the balance sheet in the period impacted Which of the following types of information was specifically identified by the FASB as being useful in assessing the amounts, timing, and uncertainty of a company’s future cash flows? a. credit standing b. financial capability c. return of investment d. liquidity Both answerers are right Representational faithfulness is a relationship between the reported accounting measurements or descriptions and the economic resources, obligations, and the transactions and events causing changes in these items. This is important because the a. validity of accounting data is an important economic resource b. accounting information is relevant for all decisions c. financial information is faithfully reported in the accounting records d. bias associated with financial measurements can be reduced Two constraints mentioned by GAAP on qualitative characteristics are a. understandability and decision usefulness b. relevance and reliability c. benefits greater than costs and materiality d. comparability and consistency Which of the following items would most likely be a violation of the materiality constraint? a. A company having reported total assets of $20,000,000 immediately expensed the purchase of 20 pencil sharpeners that have an estimated useful life of three years. b. A $25,000 illegal bribe by an executive of the company to a foreign official was not separately disclosed in the annual report. c. A company did not separately report an unusual gain of $50,000. Its income from operations was $5,000,000. d. A $5,000 expenditure to improve a building that originally cost $5,000,000 was immediately expensed. Check this answer again Intracompany comparability would be violated if a. a company changed its bad debts expense estimate from one percent to two percent b. a bank did not classify its assets as current assets and noncurrent assets c. a company expenses all expenditures of less than $500 even if the expenditures result in probable future economic benefit d. a company used LIFO as its inventory cost method while other companies in the same industry used FIFO The materiality of an item of financial information refers to the likelihood that its omission or misstatement would affect the judgments of those relying on that information. This concept most closely relates to the a. verifiability of the item b. financial magnitude of the item c. feedback value of the item d. neutrality of the item Check it again Which is not one of the four recognition criteria identified by the FASB? a. meets the definition of an element b. measurable c. understandable d. reliable The city of Fairbanks sold land for its appraised value to the Big Oil Company on June 1, 2010, that originally cost the city $1,000,000. On June 1, 2010, the land was appraised at a value of $1,250,000, and on December 31, 2010, the l


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