ACCT 2313 D102 Financial Accounting
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Free ACCT 2313 D102 Financial Accounting Questions
One objective of financial reporting is to provide
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information about the investors in the business entity
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information about the liquidation values of the resources held by the enterprise
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information that is useful in assessing cash flow prospects.
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information that will attract new investors.
Explanation
Explanation:
A primary objective of financial reporting is to provide information that helps users, particularly investors and creditors, assess the amount, timing, and uncertainty of future cash flows. This information enables stakeholders to make informed decisions regarding investment, lending, and resource allocation. While knowing liquidation values or attracting new investors may be secondary considerations, the core purpose focuses on the decision-usefulness of financial information in evaluating future cash flow prospects.
Correct Answer:
information that is useful in assessing cash flow prospects
What role does the due process system play in the FASB's establishment of Accounting Standards Updates (ASUs) that shape GAAP?
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It ensures that standards are developed without any public input
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It allows for the consideration of the public's interests and the impact of standards
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It eliminates the influence of political factors in standard setting.
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It mandates that all standards must be approved by the SEC before implementation
Explanation
Explanation:
The due process system is central to the legitimacy and credibility of the FASB’s standard setting. It ensures that proposed changes to accounting standards are exposed to public review and comment, allowing stakeholders such as investors, preparers, auditors, and regulators to provide input. This process helps the FASB evaluate the potential impact of new standards on different groups and ensures that standards reflect the needs of users of financial statements. While the SEC has oversight authority, it does not directly approve each standard, and political factors may still influence the process. The key point is that due process allows for consideration of public interests and the broader impact on financial reporting.
Correct Answer:
It allows for the consideration of the public's interests and the impact of standards
According to the FASB conceptual framework, which of the following is not an enhancing qualitative characteristic?
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Timeliness
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Verifiability
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Comparability
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Confirmatory value
Explanation
Explanation:
The enhancing qualitative characteristics identified by the FASB conceptual framework are comparability, verifiability, timeliness, and understandability. These characteristics improve the usefulness of financial information that is already relevant and faithfully represented. Confirmatory value, on the other hand, is not an enhancing characteristic but rather a component of relevance. Information has confirmatory value when it provides feedback about previous evaluations, helping users assess past predictions or decisions.
Correct Answer:
Confirmatory value
Decreases in equity of a particular enterprise resulting from transfers to owners.
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Distributions by Owners
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Comprehensive Income
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Net Realizable Value
Explanation
Explanation:
Decreases in equity caused by transfers to owners occur when a company distributes assets, such as dividends or stock repurchases, back to its shareholders. This is formally referred to as "Distributions by Owners" in the FASB Conceptual Framework. It contrasts with comprehensive income, which refers to changes in equity from non-owner sources, such as net income and other comprehensive income. Net realizable value, meanwhile, is a valuation concept related to the expected selling price of assets less costs to sell, and is unrelated to changes in equity.
Correct Answer:
Distributions by Owners
Which valuation approach is primarily utilized in financial statements to balance reliability and relevance?
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Historical cost method
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Fair value accounting
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Mixed attribute model
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Current market value
Explanation
Explanation:
The mixed attribute model is the approach primarily used in financial statements today, as it balances both reliability and relevance. Under this model, some elements are reported at historical cost (such as property, plant, and equipment), while others are reported at fair value (such as certain financial instruments). Historical cost offers strong reliability because it is based on actual transactions, while fair value provides greater relevance by reflecting current market conditions. By combining both approaches, the mixed attribute model allows financial reporting to meet the needs of decision-makers more effectively than relying solely on one valuation method.
Correct Answer:
Mixed attribute model
Which of the following best describes an asset in financial accounting?
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A future obligation of an entity to provide services
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A present right of an entity to an economic benefit
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A liability that represents a claim against the entity's resources
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An expense incurred in the process of generating revenue
Explanation
Explanation:
In financial accounting, an asset is defined as a resource that is presently controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. This means an asset is not a future obligation, liability, or expense, but rather something that provides value and benefit to the company, such as cash, accounts receivable, or equipment. The defining feature is the present right of the entity to access or use that resource for economic benefit.
Correct Answer:
A present right of an entity to an economic benefit
In accounting, the present obligations of an entity to transfer economic benefits are known as:
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Expenses
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Assets
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Liabilities
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Shareholders' equity
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Revenues
Explanation
Explanation:
Liabilities represent present obligations of an entity to transfer economic benefits, typically in the form of cash, goods, or services, as a result of past transactions or events. They arise from borrowing, purchasing on credit, or legal obligations such as taxes. Unlike expenses, which reduce equity through consumption of resources, liabilities are obligations that remain outstanding until settled.
Correct Answer:
Liabilities
What is the primary purpose of the Accounting Standards Codification (ASC)?
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To provide a comprehensive framework for financial reporting standards
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To serve as a centralized resource for authoritative accounting literature
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To establish tax regulations for businesses
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To outline the procedures for auditing financial statements
Explanation
Explanation:
The Accounting Standards Codification (ASC), introduced by the Financial Accounting Standards Board (FASB), serves as the single, centralized source of authoritative accounting standards in the United States. Before the ASC, guidance was spread across multiple documents, making it difficult for practitioners to navigate. The ASC organizes and simplifies all U.S. GAAP into a consistent structure, ensuring that companies and auditors can easily locate and apply the correct authoritative guidance. It does not set tax regulations or auditing procedures, nor is it simply a conceptual framework; it is specifically designed to consolidate and codify authoritative U.S. GAAP.
Correct Answer:
To serve as a centralized resource for authoritative accounting literature
In the context of financial reporting, how might a bank's reliance on historical cost accounting for its long-term investments impact the perception of its financial health during periods of market volatility?
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It may obscure the true market value of assets, leading to a potentially misleading representation of financial stability
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It ensures that all assets are reported at their current market value, providing a clear picture of financial health.
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It allows for more accurate forecasting of future cash flows based on current market conditions
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It eliminates the need for footnote disclosures regarding unrealized losses, simplifying financial statements
Explanation
Explanation:
Historical cost accounting records assets at their original purchase price, which does not change with market fluctuations. During periods of market volatility, this can result in reported values that differ significantly from current market values, potentially giving stakeholders a misleading impression of the bank’s financial position. While historical cost provides reliability and verifiability, it may understate or overstate the true economic value of long-term investments, requiring users to consider additional disclosures for a complete picture.
Correct Answer:
It may obscure the true market value of assets, leading to a potentially misleading representation of financial stability
An account that increases either an asset, liability, or owners' equity account. An example is Premium on Bonds Payable, which, when added to the Bonds Payable account, describes the total bond liability of the company
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long-term investments
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adjunct account
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free cash flow
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current liabilities
Explanation
Explanation:
The correct term is an adjunct account. An adjunct account is used to increase the balance of a related account. For example, Premium on Bonds Payable is an adjunct to Bonds Payable, increasing the carrying amount of the liability above its face value. This contrasts with a contra account, which reduces the balance of a related account. Adjunct accounts allow financial statements to more accurately reflect the total value of certain liabilities or assets.
Correct Answer:
adjunct account
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