ACCT 2313 D102 Financial Accounting
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Free ACCT 2313 D102 Financial Accounting Questions
The FASB's Conceptual Framework does all except
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identify the goals and purpose of accounting.
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provide definitions of accounting concepts and principles.
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provide the Accounting Standards Codification
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provide guidance in establishing accounting standards
Explanation
Explanation:
The FASB Conceptual Framework provides a structured foundation for accounting standards by defining objectives, concepts, and qualitative characteristics of financial reporting. It guides the development of accounting standards and enhances consistency. However, it does not include the Accounting Standards Codification itself; the Codification is the official source of authoritative U.S. GAAP.
Correct Answer:
provide the Accounting Standards Codification
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
Which of the following best describes the Level 2 inputs in the Fair Value hierarchy?
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Inputs that are based on quoted prices for identical assets or liabilities in active markets
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Inputs that are derived from observable market data for similar assets or liabilities.
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Inputs that are unobservable and require significant judgment to estimate
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Inputs that are based solely on the company's internal financial data.
Explanation
Explanation:
Level 2 inputs in the Fair Value hierarchy are those that are observable, either directly or indirectly, but do not represent quoted prices for identical items in active markets. Instead, they are based on market data for similar assets or liabilities or from other market corroborated information, such as interest rates or yield curves. Unlike Level 1 inputs, which are based on active market prices for identical items, Level 2 inputs require some adjustments but are still grounded in observable data. They differ from Level 3 inputs, which rely heavily on unobservable assumptions and internal models.
Correct Answer:
Inputs that are derived from observable market data for similar assets or liabilities
What does the Going Concern Assumption imply about a company's financial statements?
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The company will liquidate its assets in the near future
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The company is expected to continue its operations indefinitely
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The company will cease operations within the next fiscal year
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The company will only report cash transactions
Explanation
Explanation:
The Going Concern Assumption is a foundational principle in accounting that presumes a company will continue operating for the foreseeable future, without plans or the necessity to liquidate. This assumption underlies the preparation of financial statements because it justifies reporting assets based on their intended use rather than liquidation value. If there were evidence that a company could not continue as a going concern, financial statements would need to be adjusted to reflect liquidation values. The assumption has nothing to do with reporting only cash transactions; it primarily deals with continuity of operations.
Correct Answer:
The company is expected to continue its operations indefinitely
Notes The second step in the Due Process System of the FASB is
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The board conducts research and analysis, and a discussion memorandum is issued.
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A public hearing on the proposed standard is held
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The board evaluates the research and public response and issues an exposure draft.
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Topics are identified and placed on the board's agenda
Explanation
Explanation:
The FASB follows a formal due process when establishing accounting standards to ensure transparency, input, and fairness. The first step is to identify topics and place them on the Board’s agenda. Once a topic is chosen, the second step involves conducting research and analysis on the issue, which may include seeking input from stakeholders, reviewing existing literature, and examining alternative approaches. This research culminates in the preparation and issuance of a discussion memorandum or other documents that present the issue for public feedback.
Correct Answer:
The board conducts research and analysis, and a discussion memorandum is issued.
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 of the following assumptions in the FASB Conceptual Framework suggests that a business will continue to operate indefinitely unless there is evidence to the contrary?
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Economic entity
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Going concern
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Monetary unit
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Periodicity
Explanation
Explanation:
The Going Concern assumption in the FASB Conceptual Framework presumes that a business will continue its operations for the foreseeable future and will not liquidate or be forced to cease operations unless there is evidence to the contrary. This assumption underpins the preparation of financial statements on a historical cost basis and affects the classification of assets and liabilities. It allows for long-term planning and reporting of assets, liabilities, and equity under the expectation of ongoing operations.
Correct Answer:
Going concern
What is the primary role of the Financial Accounting Standards Board (FASB) since its establishment in 1973?
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To oversee the compliance of public companies with tax regulations
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To establish and enhance accounting standards for financial reporting
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To provide auditing services to public companies
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To regulate the stock market and protect investors
Explanation
Explanation:
Since its creation in 1973, the Financial Accounting Standards Board (FASB) has been the independent body responsible for establishing and improving financial accounting and reporting standards in the United States. Its mission is to ensure that financial statements provide useful information to investors, creditors, and other users for decision-making. The FASB does not handle tax compliance, auditing, or market regulation—those roles belong to the IRS, audit firms, and the SEC respectively. Instead, the FASB’s focus is on developing and maintaining U.S. GAAP, which ensures consistency, comparability, and transparency in financial reporting.
Correct Answer:
To establish and enhance accounting standards for financial reporting
The Financial Accounting Standards Board (FASB) was established as a:
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private body to determine how financial executives should report their firms' financial information to their investors
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private body to disseminate information on how to file federal tax and accounting information
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public body to determine how financial executives should report their firms' financial information to their shareholders
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public body to disseminate information on how to file federal tax and accounting information
Explanation
Explanation:
The Financial Accounting Standards Board (FASB), created in 1973, was established as a private, independent body with the authority to set accounting standards for public and private companies in the United States. Its purpose is to determine how financial executives should report financial information to investors and other external users through Generally Accepted Accounting Principles (GAAP). The FASB is not a government agency (public body), nor does it focus on tax filing procedures. Instead, it operates under the oversight of the Financial Accounting Foundation (FAF) and emphasizes transparency, consistency, and decision-usefulness in financial reporting.
Correct Answer:
private body to determine how financial executives should report their firms' financial information to their investors
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
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