In the hierarchy of generally accepted accounting principles, APB Opinions have the same authority
as AICPA
A.
Statements of Position.
B.
Industry Audit and Accounting Guides.
C.
Issues Papers.
D.
Accounting Research Bulletins.
Correct Answer: D
Explanation:
Choice "d" is correct. AICPA Accounting Research Bulletins, FASB Standards, FASB
Interpretations, FASB Staff Positions, FASB Statement 133 Implementation Issues, and APB Opinions
and Interpretations are the most authoritative sources of generally accepted accounting principles.
Choice "a" is incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB
Technical Bulletins are secondary sources of generally accepted accounting principles. Choice "b" is
incorrect. AICPA Statements of Position, AICPA Accounting and Auditing Guides, and FASB Technical
Bulletins are secondary sources of generally accepted accounting principles. Choice "c" is incorrect.
AICPA Issues Papers and Practice Bulletins, FASB Concepts Statements, and other authoritative
pronouncements are tertiary sources for generally accepted accounting principles.
Question #2 (Topic: demo questions)
According to the FASB conceptual framework, which of the following situations violates the concept
of reliability?
A.
Data on segments having the same expected risks and growth rates are reported to analysts estimating future profits.
B.
Financial statements are issued nine months late.
C.
Management reports to stockholders regularly refer to new projects undertaken, but the financial statements never report project results.
D.
Financial statements include property with a carrying amount increased to management's estimate of market value.
Correct Answer: D
Explanation:
Choice "d" is correct. Management's estimate of market value lacks verifiability, which is a
component of reliability. SFAC 2 para. 89
Choice "a" is incorrect. Communicating data on segments to analysts does not violate the concept of
reliability.
Choice "b" is incorrect. Issuing financial statements nine months late violates timeliness, which is a
component of relevance, not reliability. SFAC 2 para. 56
Question #3 (Topic: demo questions)
According to the FASB conceptual framework, which of the following attributes would not be used to
measure inventory?
A.
Historical cost.
B.
Replacement cost.
C.
Net realizable value.
D.
Present value of future cash flows.
Correct Answer: D
Explanation:
Choice "d" is correct. The present value of future cash flows is used to measure long-term
receivables or payables, not inventory, because inventory is a short-term asset, which has more
immediate cash flows. SFAC 5 para. 67 Choice "a" is incorrect. Historical cost can be used to measure
inventory because it is a relevant and reliable measurement attribute of current assets such as
inventory. Choice "b" is incorrect. Replacement (or current) cost can be used to measure inventory
because it is a relevant and reliable measurement attribute of current assets such as inventory. Choice
"c" is incorrect. Net realizable value can be used to measure inventory because it is a relevant and
reliable measurement attribute of current assets such as inventory.
Question #4 (Topic: demo questions)
According to the FASB conceptual framework, the usefulness of providing information in financial
statements is subject to the constraint of:
A.
Consistency.
B.
Cost-benefit.
C.
Reliability.
D.
Representational faithfulness.
Correct Answer: B
Explanation:
Choice "b" is correct. The pervasive constraint on providing information in financial
statements is that the cost should be outweighed by the benefit to be derived from providing the
information. SFAC 1 para. 23, SFAC 2 para. 133 Choice "a" is incorrect. Consistency is an underlying
concept for financial statements (and a secondary quality of accounting information), but it is not a
constraint on providing information. SFAC 2 para. 120 Choice "c" is incorrect. Reliability is a primary
quality of accounting information and an underlying concept for financial statements, but it is not a
constraint on providing information. SFAC 2 para. 58 Choice "d" is incorrect. Representational
faithfulness is an underlying concept for financial statements (as an element of reliability), but it is not
a constraint on providing information. SFAC 2 para.