1. All of the following statements about the conceptual framework are correct except:
A.It is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
B.It prescribes the nature, function, and limits of financial accounting and financial statements.
C.It increases financial statement users' understanding of and confidence in financial reporting.
D.All of these options are correct.

2. The first level of the conceptual framework is the:
A.Elements of financial statements.
B.Objectives of financial reporting.
C.Qualitative characteristics of accounting information.
D.Recognition and measurement concepts.

3. The objectives of financial reporting include all of the following except to provide information that is:
A.Useful to those making investment and credit decisions.
B.Helpful to present and potential investors, creditors, and other users.
C.Used in establishing and applying accounting standards.
D.About economic resources and claims to those resources.

4. All of the following are ingredients of relevance except:
A.Feedback value.
B.Predictive value.

5. Secondary qualities of accounting information are:
A.Comparability and consistency.
B.Cost/benefits and materiality.
C.Relevance and reliability.
D.Representational faithfulness and neutrality.

6. Which of the following statements about the United States concept of comprehensive income is incorrect?
A.It is more inclusive than the traditional notion of net income.
B.Unrealized holding gains on available-for-sale securities are included in comprehensive income.
C.It includes all changes in equity during a period except net income.
D.Changes in equity of an entity during a period from transactions and other events from non-owner sources are included in comprehensive income.

7. Increases in equity from peripheral or incidental transactions of an entity are:
C.Investments by owners.

8. Depreciation and amortization policies are justifiable and appropriate because of the:
A.Economic entity assumption.
B.Going concern assumption.
C.Monetary unit assumption.
D.Periodicity assumption.

9. The assumption that implies that the economic activities of an enterprise can be divided into artificial time periods is the:
A.Economic entity assumption.
B.Going concern assumption.
C.Monetary unit assumption.
D.Periodicity assumption.

10. Generally, revenue should be recognized:
A.During production.
B.At the end of production.
C.At the time of sale.
D.At the time cash is received.

11. Expenses are recognized when the:
A.Wages are paid.
B.Work is performed.
C.Product is produced.
D.Work or product actually makes its contribution to revenue.

12. Providing information that is of sufficient importance to influence the judgement and decisions of an informed user is required by the:
A.Full disclosure principle.
B.Historical cost principle.
C.Matching principle.
D.Revenue recognition principle.

13. In providing information with the qualitative characteristics that make it useful, two overriding constraints that must be considered are:
A.Industry practices and conservatism.
B.Materiality and conservatism.
C.Cost-benefit relationship and industry practices.
D.Cost-benefit relationship and materiality.

14. Companies and their auditors have adopted a general rule of thumb that anything less than 5–10% of _______ is considered immaterial.
C.Net income.

15. Which constraint states when in doubt, choose the solution that will be least likely to overstate assets and net income?
B.Industry practices.
C.Cost-benefit relationship.

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