Page 224 - Accounting Principles (A Business Perspective)

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The revenue that should be recognized this period is:
a. USD 3,000,000.
b. USD 4,500,000.

c. USD 5,000,000.
d. USD 6,500,000.
Modifying conventions include all of the following except:
a. Periodicity.
b. Cost-benefit.
c. Materiality.
d. Conservatism.

Which of the following is not part of the conceptual framework project?
a. Objectives of financial reporting.
b. Quantitative characteristics.
c. Qualitative characteristics.
d. Basic elements of financial statements.
Now turn to “Answers to self-test” at the end of the chapter to check your answers.

Questions
➢ Name the assumptions underlying generally accepted accounting principles. Comment on the
validity of the stable unit of measurement assumption during periods of high inflation.

➢ Why does the accountant use the business entity concept?
➢ When is the going-concern assumption not to be used?
➢ What is meant by the term accrual basis of accounting? What is its alternative?
➢ What does it mean to say that accountants record substance rather than form?
➢ If a company changes an accounting principle because the change better meets the information
needs of users, what disclosures must be made?
➢ What is the exchange-price (or cost) principle? What is the significance of adhering to this principle?
➢ What two requirements generally must be met before recognizing revenue in a period?

➢ Under what circumstances, if any, is the receipt of cash an acceptable time to recognize revenue?
➢ What two methods may be used in recognizing revenues on long-term construction contracts?
➢ Define expense. What principles guide the recognition of expense?
➢ How does an expense differ from a loss?
➢ What is the full disclosure principle?
➢ What role does cost-benefit play in financial reporting?

➢ What is meant by the accounting term conservatism? How does it affect the amounts reported in the
financial statements?

➢ Does materiality relate only to the relative size of dollar amounts?
➢ Identify the three major parts of the conceptual framework project.
➢ What are the two primary qualitative characteristics?
➢ Real world question A recent annual report of the American Ship Building Company stated:

Accounting Principles: A Business Perspective 225 A Global Text