41. The distinction between recognition and realization is essential to accrual accounting, hence the importance accorded to recognition criteria. Firms recognize items that qualify for inclusion in the financial statements when they enter the financial statements. In the case of value decreases, the firm
A. recognizes the decreases as impairment expenses when it realizes the collection of the reduced cash flows.
B. recognizes the decreases as cost of goods sold when the decreases occur before it realizes the collection of the reduced cash flows.
C. recognizes the decreases as impairment expenses when the decreases occur before it realizes the collection of the reduced cash flows.
D. recognizes the decreases as cost of goods sold when it realizes the collection of the reduced cash flows.
E. None of these answer choices is correct.
42. _____ means that the information is pertinent to the decisions of users of financial reports, in the sense that the information can make a difference in those decisions.
A. Conservatism
B. Realization
C. Recognition
D. Relevance
E. Reliability
43. _____ means that the information presented is reasonably free from error and bias and faithfully represents what it purports to represent.
A. Conservatism
B. Realization
C. Relevance
D. Reliability
E. Recognition
44. Historically, _____ has described a preference for financial reporting such “that possible errors in measurement be in the direction of understatement rather than overstatement of net income and net assets.”
A. conservatism
B. reliability
C. realization
D. recognition
E. relevance
45. _____ is the basis for the practice of reporting certain assets at the lower of acquisition cost or fair value. The requirement to test assets for impairment and to record impairment charges rests on the notion that balance sheet carrying values of assets should not exceed the amount of cash that the firm expects to receive by using or selling the asset.
A. Conservatism
B. Reliability
C. Relevance
D. Recognition
E. Realization
46. An accounting _____ arises when a firm incurs an obligation to make a future sacrifice that, because of a past event or transaction, it has little or no discretion to avoid.
A. asset
B. liability
C. shareholders’ equity
D. revenue
E. expense
47. Which of the following is/are true regarding accounting liabilities?
A. All accounting liabilities are obligations.
B. Not all obligations are accounting liabilities.
C. An item must meet the definition of a liability.
D. An item must recognition criteria.
E. All of these answers are correct.
48. _____ are 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 a past event or transaction.
A. Assets
B. Liabilities
C. Shareholders’ equity
D. Revenues
E. Expenses
49. The criteria for liability recognition include(s):
A. the item represents a present obligation, not a potential future commitment or intent.
B. the obligation must exist as a result of a past transaction or exchange, called the obligating event.
C. the obligation must require a probable future economic resource that the firm has little or no discretion to avoid.
D. the obligation must have a relevant measurement attribute that the firm can quantify with sufficient reliability.
E. All of these answers are correct.
50. _____ is a residual interest or claim—that is, the owners (shareholders) of a firm have a claim on assets not required to meet the claims of creditors.
A. Retained Earnings
B. Shareholders’ equity
C. Additional Paid-in-Capital
D. Deficit
E. Par Value