Accounting for Business [3 ed.] 9780198807797

Citation preview

Test Bank For Accoun�ng for Business 3rd Edi�on By Peter Scot (All Chapters, 100% Original Verified, A+ Grade)

Get complete Order files download link below htps://browsegrades.net/singlePaper/387682/test-bank-instant-download-payment-link-makepayment-here-you-will-receive-your-specific-test-bank

Scott: Accounting for Business, 3rd edition (All Chapters)

Correct answers are marked with an asterisk (*). Topic: Qualities of financial information: relevance, faithful representation, comparability, verifiability, timeliness, understandability, materiality and cost-benefit Type: multiple choice question Title: Chapter 01 - Question 01 01) Which one of the following statements most accurately describes the fundamental qualitative characteristic of relevance? a. Information that not only represents relevant economic phenomena but also faithfully represents the phenomena that it purports to represent. Feedback: This is a description of financial information that possesses the other fundamental qualitative characteristic, faithful representation, and is not a description of relevance. Page reference: 11-14 b. Information that is comparable over time. Feedback: This is a feature of financial information that possesses the enhancing qualitative characteristic of comparability and is not a description of the fundamental qualitative characteristic of relevance. Page reference: 11-14 *c. Information that is capable of making a difference in the decisions made by users. Feedback: Financial information is relevant if it is capable of making a difference in the decisions made by users. Page reference: 11-14 d. Information that is available to users in time for it to be capable of influencing their decisions. Feedback: This is a feature of the enhancing qualitative characteristic of timeliness. It is true that the decision usefulness of information is enhanced if it is available to users in time for it to be capable of influencing their decisions, but this is not a description of the fundamental qualitative characteristic of relevance. Page reference: 11-14 Type: multiple response question Title: Chapter 01 - Question 02 02) Relevant information: Please select all that apply. Feedback: Relevant information can be both predictive and confirmatory and it can assist users in making predictions about the future. Information that is complete, neutral, and free from error fulfils the requirements of the second fundamental qualitative characteristic, faithful representation, and is not part of the description of relevance. Page reference: 11-14 *a. May be predictive b. Must be complete, neutral, and free from error *c. Can assist users in making predictions about the future *d. May be confirmatory Type: multiple choice question Title: Chapter 01 - Question 03 03) Which one of the following is not a description of the fundamental qualitative characteristic of relevance? a. Information that may assist users to assess the accuracy of past predictions. Feedback: This is part of the description of relevance. Financial information that assists users to assess the accuracy of past predictions is confirmatory and thus possesses the fundamental qualitative characteristic of relevance. Page reference: 11-14 b. Information that is capable of making a difference in the decisions made by users. Feedback: Financial information must be capable of making a difference in the decisions made by users if it is to be relevant. Page reference: 11-14

Scott: Accounting for Business, 3rd edition

c. Information that may be predictive. Feedback: Relevant information may be predictive and assist users in making predictions about the future. Page reference: 11-14 *d. Information that must be verifiable. Feedback: This is a feature of the enhancing qualitative characteristic of verifiability which provides users with assurance that financial information is faithfully represented and reports the economic phenomena it purports to represent. Therefore, this is not a feature of the fundamental qualitative characteristic of relevance. Page reference: 11-14 Type: true-false Title: Chapter 01 - Question 04 04) Financial information that is understandable must possess the characteristic of simplicity. a. True Feedback: This statement is false. The characteristic of understandability should not be confused with simplicity. Accounting can involve very complex calculations, details and disclosures. Excluding complex information just because it is difficult to understand would not result in relevant information that was faithfully represented. Reports that excluded such information would be incomplete and would thus mislead users. Readers of financial reports are assumed to have a reasonable knowledge of business and economic activities in order to make sense of the information with which they are presented. When users are unable to understand the information presented, then the IASB recommends using an adviser. To help users understand the information presented, information should be classified, characterized, and presented clearly. Page reference: 11-14 *b. False Feedback: The characteristic of understandability should not be confused with simplicity. Accounting can involve very complex calculations, details and disclosures. Excluding complex information just because it is difficult to understand would not result in relevant information that was faithfully represented. Reports that excluded such information would be incomplete and would thus mislead users. Readers of financial reports are assumed to have a reasonable knowledge of business and economic activities in order to make sense of the information with which they are presented. When users are unable to understand the information presented, then the IASB recommends using an adviser. To help users understand the information presented, the information should be classified, characterized, and presented clearly. You are therefore correct to conclude that this statement is false. Page reference: 11-14 Type: true-false Title: Chapter 01 - Question 05 05) Information is material by size only. a. True Feedback: This statement is false as information can be material by both size and by nature. The IASB Conceptual Framework for Financial Reporting states that ‘information is material if omitting it or misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.’Information is thus both material by size (magnitude) (a large transaction that is not included in the financial statements or which is presented incorrectly) and by nature. Where a key piece of information is omitted from the financial statements or presented incorrectly, then this, too, will influence the decisions of users taken on the basis of the financial statements. Page reference: 16 *b. False Feedback: Information can be material by both size and by nature. The IASB Conceptual Framework for Financial Reporting states that ‘information is material if omitting it or

Scott: Accounting for Business, 3rd edition

misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report.’ Information is thus both material by size (magnitude) (a large transaction that is not included in the financial statements or which is presented incorrectly) and by nature. Where a key piece of information is omitted from the financial statements or presented incorrectly, then this, too, will influence the decisions of users taken on the basis of the financial statements. You are therefore correct to conclude that this statement is false. Page reference: 16 Type: multiple choice question Title: Chapter 01 - Question 06 06) Which one of the following statements is not a description of the fundamental qualitative characteristic of faithful representation? a. Information presented must not only represent relevant economic phenomena (transactions and events), but it must also faithfully represent the phenomena that it purports to represent. Feedback: This statement is a perfectly precise description of the fundamental qualitative characteristic of faithful representation. Page reference: 11-14 *b. Information presented should be verifiable. Feedback: Verifiability provides users with assurance that information is faithfully presented and reports the economic phenomena it purports to represent. However, verifiability is an enhancing characteristic of financial information and is not a description of the fundamental qualitative characteristic of faithful representation. Page reference: 11-14 c. Information presented should be complete, neutral and free from error. Feedback: Perfectly faithful representation of economic phenomena in words and numbers requires that the information presented must have three characteristics: it must be complete, neutral and free from error. Therefore, this is an accurate description of the fundamental qualitative characteristic of faithful representation. Page reference: 11-14 d. Information presented does not have to be perfectly accurate in order to provide a faithful representation. Feedback: While faithful representation requires that information presented should be free from error, this does not mean that the information has to be perfectly accurate in order to provide a faithful representation. The IASB Conceptual Framework makes it clear that ‘free from error means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process’ (IASB Conceptual Framework for Financial Reporting paragraph 2.18). Therefore, the IASB does not require information to be perfectly accurate in order for it to meet the requirements of faithful representation. Page reference: 11-14 Type: multiple response question Title: Chapter 01 - Question 07 07) Comparability requires that: Please select all that apply. Feedback: The enhancing qualitative characteristic of comparability does require information to be comparable over time. The usefulness of information is enhanced if it is comparable with similar information about other entities for the same reporting period and with similar information about the same entity for other reporting periods. However, comparability does not mean consistency, even though consistency of presentation and measurement of the same items in the same way from year to year will help to achieve comparability. Similarly, comparability does not mean that information about economic phenomena must be presented uniformly. Information about the same phenomena will be presented in similar but not in the

Scott: Accounting for Business, 3rd edition

same ways by different entities. The differences in the presentation of such phenomena will not be so great as to prevent comparability. Page reference: 11-14 *a. Information should be comparable over time. *b. Information should be comparable with similar information about other entities for the same reporting period and with similar information about the same entity for other reporting periods in order to enhance its usefulness. c. Information should be presented consistently. d. Information about economic phenomena should be presented in a uniform way. Type: multiple choice question Title: Chapter 01 - Question 08 08) Which one of the following statements does not describe verifiability? a. Verifiability provides users with assurance that information is faithfully presented and reports the economic phenomena it purports to represent. Feedback: This is a description of verifiability. Page reference: 11-14 *b. Verifiable iinformation is complete, neutral and free from error. Feedback: This is a feature of information that is faithfully represented and is not a description of verifiability. Page reference: 11-14 c. The accuracy of information can be verified by observation or re-calculation. Feedback: This is a description of verifiability, the ways in which information can be verified to assess its accuracy. Page reference: 11-14 d. External auditors will undertake testing to prove to themselves that the information presented is accurate in all major respects. Feedback: External audit is one way in which to verify the financial information presented so this is a description of verifiability. Page reference: 11-14 Type: true-false Title: Chapter 01 - Question 09 09) Old information is not useful in making decisions. a. True Feedback: This statement is false. It is true that the decision usefulness of information is enhanced if it is available to users in time for it to be capable of influencing their decisions, but it is not true to say that old information cannot be useful in making decisions. Although the decision usefulness of information generally declines with time, information from the past can still be used in identifying trends so this old information continues to be timely in the future. Page reference: 14 *b. False Feedback: It is true that the decision usefulness of information is enhanced if it is available to users in time for it to be capable of influencing their decisions, but it is not true to say that old information cannot be useful in making decisions. Although the decision usefulness of information generally declines with time, information from the past can still be used in identifying trends so this old information continues to be timely in the future. You are therefore correct in concluding that this statement is false. Page reference: 14 Type: multiple choice question Title: Chapter 01 - Question 10 10) Which one of the following statements is not true? *a. Information should only be presented if the costs of obtaining that information exceed the benefits of providing it. Feedback: This statement is not true. To be true, this statement should read: ‘information should only be presented if the benefits of providing that information outweigh the costs of

Scott: Accounting for Business, 3rd edition

obtaining it’. Where the costs exceed the benefits, it is pointless providing information as its usefulness does not justify the expense incurred in obtaining it. Page reference: 17 b. Information is material if omitting it or misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. Feedback: This statement is true and is an accurate representation of the IASB’s description of materiality. Remember that materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report. Page reference: 16 c. To help users understand information presented, that information should be classified, characterized and presented clearly. Feedback: This statement is a description of the enhancing characteristic understandability and is true. Page reference: 14 d. Where information is not comparable, similarities and differences will not be readily apparent. Feedback: This statement is true. Where information is comparable, it is easy to determine where the similarities and differences lie. It is equally true to say that where information is not comparable it is not possible to determine where the similarities and differences lie. Page reference: 13 Type: multiple choice question Title: Chapter 01 - Question 11 11) Information whose omission or misstatement could influence decisions that users make on the basis of financial information about a specific reporting entity defines which characteristic of accounting information? a. Comparability Feedback: The answer you were looking for is materiality. Information is material if omitting it or misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. While comparability will not be enhanced if information is omitted or misstated, this is not part of the definition of comparability. Page reference: 11-14, 16 b. Verifiability Feedback: The answer you were looking for is materiality. Information is material if omitting it or misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. This is not part of the definition of verifiability. Page reference: 11-14, 16 c. Cost-benefit Feedback: The answer you were looking for is materiality. Information is material if omitting it or misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. The cost-benefit principle states that information should only be presented if the benefits of providing that information outweigh the costs of obtaining it. The benefits of presenting material information would outweigh the costs of obtaining and providing it. Page reference: 11-14, 16 *d. Materiality Feedback: Information is material if omitting it or misstating it could influence decisions that…users…make on the basis of…financial information about a specific reporting entity. Page reference: 16 Type: multiple response question Title: Chapter 01 - Question 12 12) Perfectly faithful representation of economic phenomena in words and numbers requires that the information presented must be: Please select all that apply. Feedback: Perfectly faithful representation of economic phenomena in words and numbers requires that the information presented must have three characteristics: it must be complete,

Scott: Accounting for Business, 3rd edition

neutral and free from error. While the decision usefulness of information is enhanced if it is available to users in time for it to be capable of influencing their decisions, this is an enhancing characteristic of financial information, not one of the characteristics required for perfectly faithful representation of economic phenomena. Page reference: 11-14 *a. Free from error *b. Neutral c. Timely *d. Complete Type: true-false Title: Chapter 01 - Question 13 13) The characteristics of materiality and comparability are both entity-specific. a. True Feedback: This statement is false. It is true that materiality is specific to a particular entity. The IASB states that ‘materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report’ (IASB Conceptual Framework for Financial Reporting para 2.11). However, the IASB envisages that comparability will apply not just to the financial information presented by an entity but will also be comparable with the financial information presented by other entities: the usefulness of information is enhanced if it can be compared with similar information about other entities for the same reporting period and with similar information about the same entity for other reporting periods (IASB Conceptual Framework for Financial Reporting para 2.24). Page reference: 11-14, 16 *b. False Feedback: It is true that materiality is specific to a particular entity. The IASB states that ‘materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report’ (IASB Conceptual Framework for Financial Reporting para 2.11). However, the IASB envisages that comparability will apply not just to the financial information presented by an entity but will also be comparable with the financial information presented by other entities: the usefulness of information is enhanced if it can be compared with similar information about other entities for the same reporting period and with similar information about the same entity for other reporting periods (IASB Conceptual Framework for Financial Reporting para 2.24). You are therefore correct to conclude that this statement is false. Page reference: 11-14, 16

Topic: Financial accounting and management accounting

Type: multiple choice question Title: Chapter 01 - Question 14 14) Which one of the following statements does not describe cost and management accounting? *a. Cost and management accounting information is concerned with reporting outcomes of past events to users external to the organisation. Feedback: This is a description of financial accounting which reports on past events to users external to the organisation whereas cost and management accounting reports mostly on the present and the future to users within the organisation. Page reference: 18-19, 21-22 b. Cost and management accounting is concerned with reporting accounting and cost information to users within an organisation. Feedback: This statement describes accurately what cost and management accounting does do. Page reference: 21-22

Scott: Accounting for Business, 3rd edition

c. Cost and management accounting information is used to plan levels of production and activity in the future. Feedback: This statement describes accurately what cost and management accounting does do. Page reference: 21-22 d. Cost and management accounting information is mostly concerned with the present and the future. Feedback: This statement describes accurately what cost and management accounting does do. Unlike financial accounting which reports past results, cost and management accounting is very much concerned with current events and making projections about the future. Page reference: 21-22 Type: multiple choice question Title: Chapter 01 - Question 15 15) Financial accounting is: a. The reporting of past information to users within the organisation. Feedback: Financial accounting is certainly the reporting of past information but those reports are directed to users outside the organisation. Cost and management accounting information is reported to users within the organisation. Page reference: 18-19, 21-22 b. The reporting of present and future information to users within the organisation. Feedback: This is the function of cost and management accounting, not the function of financial accounting. Page reference: 21-22 c. The reporting of present and future information to users outside the organisation. Feedback: Financial accounting does report information to users outside the organisation but financial accounting reports past information not present and future information to these external parties. The reporting of present and future information to users within the business is the function of cost and management accounting. Page reference: 18-19, 21-22 *d. The reporting of past information to users outside the organisation. Feedback: Financial accounting is the reporting of past information to users outside the organisation. Page reference: 18-19 Type: multiple response question Title: Chapter 02 - Question 16 16) Financial accounting: please select all that apply. Feedback: Financial accounting is the reporting of past information to users outside the organisation. Cost and management accounting focuses on costing products and services with a view to setting a selling price to ensure a profit is generated. Similarly, cost and management accounting engages in planning levels of production and activity. Page reference: 18-19, 21-22 *a. Reports on past events. b. Focuses on the costs of products and services. c. Is used to plan levels of production and activity. *d. Reports to users outside the organisation. Type: multiple response question Title: Chapter 02 - Question 17 17) Cost and management accounting: please select all that apply. Feedback: Cost and management accounting reports accounting and cost information to users within an organisation, not to users outside the organisation. Cost and management accounting information is used to help managers manage the business and its activities by focusing on the costs that go into producing products and services to determine a selling price for those products and services that will generate a profit for the business. Cost and management accounting information is then used to plan levels of production and activity in