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Chapter 10The Balance SheetTRUE/FALSE1.If the balance sheet and income statement are non-articulated, they are linked together mathematically without any loose ends.2.With the articulated approach to financial statements, each statement is defined and measured independently of the other.3.The comprehensive income approach required in SFAS No. 130 favors articulation.4.One consequence of the revenue-expense approach is to burden the balance sheet with by-products of income measurement rules.5.There are only a few examples of accounting standards that emphasize the effects of transactions on the income statement to the exclusion of their impact on the balance sheet.6.Under the revenue-expense approach, the income statement is regarded as simply a way of classifying and reporting on changes that occur in a firm’s net assets.7.The definition of assets establishes what types of economic factors will appear in the balance sheet.8.The asset-liability approach is arguably superior to a revenue-expense approach to defining accounting elements.9.Unrealized capital adjustments in owners’ equity are becoming more prevalent as a result of SFAC No. 130 on comprehensive income.
10.The asset-liability approach complements the expense-liability approach because the former is applicable to the balance sheet and the latter is applicable to the income statement.11.Although the revenue-expense approach is the basic orientation of current financial reporting practice, some specific accounting standards reflect an asset-liability approach.12.The FASB defines comprehensive income using the income-expense approach to defining accounting elements.13.The “future service potential” of an asset may be realized as a direct market exchange for another asset, or through conversion in a manufacturing operation for finished goods.14.An executory contract is a contract unperformed by both parties.15.An asset should be initially recorded at either its historical acquisition cost or its cash equivalent purchase price, whichever is greater.16.Inventory is carried at the lower of historical cost or replacement cost.17.In SFAS No. 121, both the recognition and measurement criteria for the impairment of asset event is based on the excess of the carrying value of the asset over its fair market value.