Summary questions:

FASB Statement of Financial Accounting Concepts No. 2 indicates several qualitative characteristics of useful accounting information. Following is a list of some of these qualities, as well as a list of statements and phrases describing the qualities. a. Benefits > costs b. Decision usefulness c. Relevance d. Reliability e. Predictive value, feedback value, timeliness f. Verifiability, neutrality, representational faithfulness g. Comparability h. Materiality i. Relevance, reliability ____ 1. Without usefulness, there would be no benefits from information to set against its cost. ____ 2. Pervasive constraint imposed on financial accounting information. ____ 3. Constraint that guides the threshold for recognition. ____ 4. A quality requiring that the information be timely and that it also have predictive value, feedback value, or both. ____ 5. A quality requiring that the information have representational faithfulness and that it be verifiable and neutral. ____ 6. These are the two primary qualities that make accounting information useful for decision making. ____ 7. These are the ingredients needed to ensure that the information is relevant. ____ 8. These are the ingredients needed to ensure that the information is reliable. ____ 9. Includes consistency and interacts with relevance and reliability to contribute to the usefulness of information.

multiple-choice questions: a. Which of the following does the Financial Accounting Standards Board not issue? 1. SOPs 2. SFASs 3. Interpretations 4. Technical bulletins 5. SFACs

b. According to SFAC No. 6, assets can be defined by which of the following? 1. Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events 2. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

3. Residual interest on the assets of an entity that remains after deducting its liabilities

4. Increases in equity of a particular business enterprise resulting from transfers to the enterprise

from other entities of something of value to obtain or increase ownership interests (or equity) in it 5. Decrease in equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise

c. According to SFAC No. 6, expenses can be defined by which of the following? 1. Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entitys ongoing major or central operations 2. Outflows or other consumption or using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entitys ongoing major or central operations 3. Increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period, except those that result from revenues or investments 4. Decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period, except those that result from expenses or distributions to owners 5. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

d. SFAC No. 5 indicates that an item, to be recognized, should meet four criteria, subject to the costbenefit constraint and the materiality threshold.Which of the following is not one of the four criteria? 1. The item fits one of the definitions of the elements. 2. The item has a relevant attribute measurable with sufficient reliability. 3. The information related to the item is relevant. 4. The information related to the item is reliable. 5. The item has comparability, including consistency.

e. SFAC No. 5 identifies five different measurement attributes currently used in practice. Which of the following is not one of the measurement attributes currently used in practice? 1. Historical cost 2. Future cost 3. Current market value 4. Net realizable value 5. Present, or discounted, value of future cash flows f. Which of the following indicates how revenue is usually recognized? 1. Point of sale 2. End of production 3. Receipt of cash 4. During production 5. Cost recovery

g. Statement of Financial Accounting Concepts No. 1, Objectives of Financial Reporting by Business Enterprises, includes all of the following objectives, except one. Which objective does it not include? 1. Financial accounting is designed to measure directly the value of a business enterprise. 2. Investors, creditors, and others may use reported earnings and information about the elements of financial statements in various ways to assess the prospects for cash flows. 3. The primary focus of financial reporting is information about earnings and its components. 4. Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. 5. The objectives are those of general-purpose external financial reporting by business enterprises.

The following data relate to Jones Company for the year ended December 31, 2009: Sales on credit $80,000 Cost of inventory sold on credit 65,000 Collections from customers 60,000 Purchase of inventory on credit 50,000 Payment for purchases 55,000 Cash collections for common stock 30,000 Dividends paid 10,000 Payment to salesclerk 10,000

Answer: a. Determine income on an accrual basis. b. Determine income on a cash basis.