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ch01 - Chapter 01 Environment and Theoretical Structure of...

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Chapter 01 - Environment and Theoretical Structure of Financial Accounting Chapter 01 Environment and Theoretical Structure of Financial Accounting True / False Questions 1. The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. True False 2. Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow. True False 3. The FASB is currently the public sector organization responsible for setting accounting standards in the U.S. True False 4. The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States. True False 5. A rules-based approach to standard setting stresses professional judgment as opposed to following a list of rules. True False 6. Under federal securities laws, the SEC has the authority to set accounting standards in the U.S. True False 1-1
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Chapter 01 - Environment and Theoretical Structure of Financial Accounting 7. The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors. True False 8. Auditors play an important role in the resource allocation process by adding credibility to financial statements. True False 9. Materiality can be affected by the dollar amount of an item, the nature of the item, or both. True False 10. Conservatism is a desired qualitative characteristic of accounting information. True False 11. Equity is a residual amount representing the owner's interest in the assets of the business. True False 12. Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing operations. True False 13. Gains or losses result, respectively, from the disposition of business assets for greater than, or less than, their book values. True False 14. Comprehensive income is another term for net income. True False 1-2
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Chapter 01 - Environment and Theoretical Structure of Financial Accounting 15. Determining fair value by calculating the present value of future cash flows is a level 1 type of input. True False 16. The FASB's framework for measuring fair value doesn't change the situations in which fair value is used under current GAAP. True False Matching Questions 17. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. 1. Predictive value Information is useful in projecting cash flows. ____ 2. Relevance Pertinent to the decision at hand. ____ 3. Distribution to owners Information is available prior to the decision. ____ 4. Confirmatory value Decrease in equity due to transfers to owners. ____ 5. Timeliness Information confirms expectations. ____ 18. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best
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