Test 1

Presented as accurately as possible, using a process that reflects the best available inputs. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Free from error

In the absence of evidence to the contrary, the business can be reasonably expected to operate long enough to carry out its existing commitments.

Going concern

The Financial Accounting Standards Board Has 7 members appointed by the Financial Accounting Foundation. Appoints the 7 members of the Financial Accounting Foundation. Is a task force appointed by the Financial Accounting Standards Advisory Council. Has 10 members appointed by the Private Company Council.

Has 7 members appointed by the Financial Accounting Foundation.

The members of the Financial Accounting Standards Board (FASB) Are all board members of major corporations. Have no other organizational ties. Are volunteers who serve in their spare time. Represent a narrow-cross section of interests.

Have no other organizational ties.

Transactions and events are recognized initially at the exchange price to provide relevant and reliable information.

Historical cost

Which of the following is the international accounting standard setter? IASB IFRS FASB GAAP

IASB

For foreign companies that list their securities on U.S. capital markets, the SEC mandates that they are subject to the accounting standards established by the FASB IFRS or their national accounting standards boards. Accounting standards board of their choosing. Sarbanes-Oxley Act.

IFRS or their national accounting standards boards.

Pronouncements that provide clarification of conflicting or unclear issues relating to previously issued FASB Statements of Standards, APB Opinions, or Accounting Research Bulletins. Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Interpretations

The nature and magnitude of an omission or misstatement that would influence the judgment of reasonable users of that information. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Materiality

Accounting measurements for U.S. companies are reported in dollars.

Monetary unit

Absence of bias intended to influence financial statement users' behavior in a particular direction. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Neutrality

All of the following are potential problems with non-U.S. companies filing with the SEC except: a) U.S. companies' financial statements are different from those of the foreign companies they compete with for capital creating difficulties for investors and creditors in comparing companies. b) U.S. based companies with subsidiaries in foreign countries have inefficiencies in financial statement preparation because they are required to use IFRS for the subsidiary and U.S. GAAP for their consolidated financial statements. c) because of the multitude of small U.S. corporations that are not regulated by the SEC, the switch to IFRS would create a "dual-GAAP" system in the United States. d) None of these choices are correct.

D

The Securities Exchange Act of 1934 established extensive reporting requirements for listed companies. All of the following are reporting requirements established with this act except: a) Form 10-K b) Form 10-Q c) Form 8-K d) Form 10-F

D

The Topics, Subtopics, Sections, Subsections, and Paragraphs are descending "levels" within the Codification, and each items in each level is numbered for reference and search purposes. Which level contains the specific guidance that constitutes GAAP? a) Topics b) Subtopics c) Sections d) Paragraphs

D

The demand for financial standards and independent audits is driven by: a) investors and creditors need for relevant and representationally faithful accounting information. b) problems arising from management self-reporting their performance. c) management's incentives to provide biased reports. d) All of these choices are correct.

D

A company will typically engage in three sets of accounting activities: a) financing, investing, and operating. b) financing, marketing, and auditing. c) investing, operating, and marketing. d) operating, financing, and consulting.

A

Operating activities include the day-to-day activities to produce and deliver goods and services to customers. These include all of the following except: a) Purchasing land for a retail building b) Receiving cash on account c) Paying cash on account d) Purchasing inventory

A

The Code of Professional Conduct (CPC) has __________ principles that express the basic tenets of ethical and professional conduct and call for unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. a.6 b.15 c.5 d.10

A

The FASB established the _____ in 1984 as a response to the need for timely guidance on new, specific accounting issues. a) Emerging Issues Task Force b) Generally Accepted Accounting Principles c) International Financial Reporting Standards d) Government Accounting Standards

A

The financial statement that presents a snapshot of the resources of a firm (assets) and the claims on the firm (liabilities and shareholders' equity) is the a.balance sheet. b.income statement. c.statement of shareholders' equity. d.statement of cash flows.

A

The financial statement that provides information about the profits or losses the company has generated during the period is the a.income statement. b.statement of shareholders' equity. c.statement of cash flows. d.balance sheet.

A

The four primary financial statements of a corporation consist of the: a) income statement, balance sheet, statement of cash flows, and statement of shareholders' equity. d) balance sheet, statement of cash flows, statement of retained earnings, and income statement. c) income statement, statement of cash flows, and balance sheet. d) statement of cash flows, balance sheet, income statement, and statement of capital equity.

A

To 'protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation' is the stated mission of the: a) SEC - U.S. Securities and Exchange Commission. b) FASB - Financial Accounting Standards Board. c) EITF - the Emerging Issues Task Force. d) GAAP - Generally Accepted Accounting Principles.

A

Which of the following is an enhancing qualitative characteristic of decision-useful financial information? A. comparability B. timeliness C. understandability D. all of these choices

D. All of these choices

The notes to the financial statements include all except A. accounting policies. B. inventory methods. C. contingencies. D. analyst reports.

D. Analyst Reports

A company's cash flow information is used by investors, lenders, and other creditors to A. help understand its operations and cash-generating ability. B. evaluate its strategic sourcing and use of cash for financing and investing activities. C. assess its liquidity and solvency. D. do all of these choices.

D. Do all of these choices

Faithful representation of financial information includes all except A. completeness. B. neutrality. C. accuracy (error free). D. materiality.

D. Materiality

Which accounting assumption or principle states that historical cost can lose relevance and other valuation methods may be more relevant to financial statement users? A. recognition B. accrual accounting C. going-concern assumption D. mixed attribute measurement model

D. Mixed Attribute Measurement Model

Overall objective of financial information. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Decision usefulness

The going-concern assumption states that A. a company will continue to operate into the foreseeable future. B. the reporting entity is distinct from its owners. C. financial statement users need timely information on an ongoing basis. D. all of these choices.

A. A company will continue to operate into the foreseeable future.

Which of the following establish the authoritative guidance on how U.S. companies should account for and report specific transactions, events, and arrangements in their financial statements? A. accounting standards in GAAP B. accounting standards in IASB C. FASB's Statements of Financial Accounting Concepts D. all of these choices

A. Accounting Standards in GAAP

Recognizing an economic effect in the current period even though the cash flows will occur in a later period is known as A. an accrual. B. a deferral. C. conservatism. D. the monetary unit assumption.

A. An Accrual

Pronouncements of the Committee on Accounting Procedure (CAP) that constitute generally accepted accounting principles unless superceded or amended by the FASB. Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Accounting Research Bulletins

The Codification Is an electronic database that integrates and topically organizes U.S. GAAP into one coherent body of literature. Is the only source of authoritative GAAP for U.S. companies. Does not change GAAP. All of these choices.

All of these choices.

Who are the stakeholders with an interest in a company? Investors. Lenders. Governmental authorities. All of these choices.

All of these choices.

The Codification framework contains six levels going from general to specific in which order? Sections, Subsections, Areas, Topics, Subtopics, Paragraphs Areas, Topics, Subtopics, Sections, Subsections, Paragraphs Areas, Sections, Subsections, Topics, Subtopics, Paragraphs Paragraphs, Areas, Topics, Subtopics, Sections, Subsections

Areas, Topics, Subtopics, Sections, Subsections, Paragraphs

FASB stands for: a) Financial Auditing Standards Board. b) Financial Accounting Standards Board. c) Financial Accounting Standards Bulletins. d) Financial Auditing Standards Bulletins.

B

The FASB Emerging Issues Task Force issues: a) Statements of Position to influence the development of principles. b) consensus positions on the implementation of issues involving the application of standards. c) Financial Reporting Releases on guidelines for reporting issues. d) Technical Bulletins on accounting and reporting problems.

B

The principles of the AICPA Code of Professional Conduct do not include: a) the highest sense of integrity. b) lack of objectivity and independence. c) due care. d) sensitive professional and moral judgments in all activities.

B

Which of the following statements is correct? a) The Financial Accounting Standards Board (FASB) is the first organization to set accounting standards in the United States. b) Accounting Research Bulletins and Accounting Principles Board Opinions remain sources of U.S. GAAP unless they have been specifically superseded or amended by the FASB. c) Accounting Standard setting began in the United States in 1938 when the AICPA formed the Financial Accounting Standards Board (FASB). d) The Accounting Principles Board issued accounting pronouncements called Accounting Research Bulletins.

B

What single, pervasive constraint bounds the qualitative characteristics of financial reports? A. the time constraint B. the cost constraint C. the verifiability constraint D. the accessibility constraint

B. The Cost Constraint

A proposed standard becomes an International Financial Reporting Standard if _____ of the 16 members of IASB approve. a) 8 b) 9 c) 10 d) 12

C

Besides simplifying all authoritative U.S. GAAP in one database and ensuring that codified content is accurate, the FASB also aims to achieve: a) ending the Codification in the near future. b) limiting the Codification of data. c) creating an up-to-date codification research system. d) creating a separate enforcement agency.

C

Situations in which accountants must make decisions about what is the 'right' action to take in given circumstances are: a) conundrums. b) ethical consequences. c) ethical dilemmas. d) professional behaviors.

C

The cornerstone of financial reporting is the: a) Statement of Cash Flows. b) Income Statement. c) Balance Sheet. d) Statement of Shareholders' Equity.

C

The ongoing globalization of business activities has given rise to the need for consistent and comparable financial statements for companies in different countries. The FASB and IASB recognize a need for: a) acceptance of U.S. GAAP worldwide. b) the SEC approval. d) internationally comparable financial information. d) a universal market exchange.

C

Which of the following are working closely to bring together GAAP and IFRS? a.SEC, FASB b.IASB, SEC c.FASB, IASB d.FASB, GASB

C

Which of the following is not correct regarding ethical behavior? a) The professional accountant must realize that he/she serves the greater good of society. b) The professional accountant must realize that he/she owes a responsibility of ethics and fairness to all current and potential stakeholders depending on the information produced. c) The professional accountant who acts ethically will destroy social welfare and can do great harm to innocent stakeholders misled by unreliable information. d) Accounting is a professional service that plays a major role in society.

C

Within GAAP, _____ has the highest-level of authority. a) Interpretations b) Staff Positions c) Statements of Financial Accounting Standards d) Statements of Financial Accounting Concepts

C

______________ are typically external, independent experts in accounting who can carefully evaluate a company's accounting records and verify whether they company has applied accounting standards fairly and consistently. a) Accountants b) Stakeholders c) Auditors d) Creditors

C

Which source of information useful for investors and lenders is not directly affected by existing FASB standards? A. statement of cash flows B. notes to the financial statements C. management's discussion and analysis D. statement of shareholders' equity

C. Management's discussion and analysis

The FASB's Conceptual Framework does all except A. identify the goals and purpose of accounting. B. provide definitions of accounting concepts and principles. C. provide the Accounting Standards Codification. D. provide guidance in establishing accounting standards.

C. Provide the Accounting Standards Codification

The primary objective of financial reporting is to A. provide positive information so as to be attractive to investors and creditors. B. provide negative information so as to ward off takeovers. C. provide useful information for decision making. D. satisfy government authorities.

C. Provide useful information for decision making

Enables users to identify and explain similarities and differences between two or more sets of economic facts. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Comparability

Full disclosure of all the information necessary to understand the information being reported Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Completeness

Helps decision makers confirm or correct prior predictions or expectations. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Confirmatory value

An accounting alternative is selected that is least likely to overstate assets and income.

Conservatism

Accounting methods and procedures applied in the same manner from period to period. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Consistency

he Securities and Exchange Commission (SEC) Has no influence on the establishment of accounting standards but enforces them. Establishes all accounting standards. Delegates its authority to establish accounting standards to the FASB. Delegates its authority to establish accounting standards to individual states.

Delegates its authority to establish accounting standards to the FASB.

The need to solve information asymmetry problems gives rise to Demand for financial accounting information. New and creative products. Demand for a company's products. State and federal labor laws.

Demand for financial accounting information.

The stated mission of the Securities and Exchange Commission (SEC) is to Protect investors. Maintain fair, orderly, and efficient markets. Facilitate capital formation. Do all of these

Do all of these

Appropriate recognition when a company consumes economic resources in conducting business operations.

Expense recognition

When the words and amounts accurately depict the economic substance of what they purport to depict. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Faithful representation

Identification, measurement, recording, and reporting relevant and reliable financial information about companies to present and potential future stakeholders is the role of a.auditing. b.international accounting. c.financial accounting. d.managerial accounting.

c

In adopting new accounting standards, the FASB and IASB must have reasonable assurance that the costs of implementing a standard will not exceed the benefits. This is known as the a.materiality constraint. b.neutrality constraint. c.cost constraint. d.understandability constraint.

c

The __________ is that the company will continue to operate in the foreseeable future. a.reporting entity assumption b.monetary unit assumption c.going-concern assumption d.conservatism assumption

c

The four characteristics that can enhance the decision usefulness of relevant and faithfully represented information are a.comparability, due care, timeliness, and understandability. b.comparability, verifiability, timeliness, and cost constraint. c.comparability, verifiability, timeliness, and understandability. d.comparability, verifiability, consistency, and understandability.

c

__________ is the uncertainty or unpredictability of the future profitability of a company. a.Liquidity b.Return on investment c.Risk d.Operating capability

c

All of the following are sources of financial reporting except a.financial statements. b.notes to the financial statements. c.supplementary information. d.other information.

d

Concepts Statements are general proclamations that establish all of the following except a.objectives of financial reporting. b.definitions of basic elements like assets and liabilities. c.how transactions, events, and arrangements should be presented and classified in financial statements. d.fundamental principles of auditing.

d

The FASB developed the Codification to achieve all of the following goals except to a.simplify user access by codifying all authoritative U.S. GAAP into one database. b.create a codification research system that is up to date. c.ensure the codified content accurately represents all authoritative U.S. GAAP. d.eliminate all pronouncements prior to 1983.

d

The SEC exercises its most direct impact on accounting standards through a.enforcing regulations on companies, exchanges, and investors. b.voting by proxy when the FASB has a proposed new standard. c.frequently using its legal authority to prescribe accounting standards. d.its input and informal approval (or rejection) of standards that have been proposed but not yet issued.

d

The accounting projects portion of the FASB's recognized framework project does not include a.which accounting elements should be recognized in financial statements. b.when the accounting elements should be reported. c.how the accounting elements should be measured. d.when the accounting elements should be measured.

d

The financial statement that presents a snapshot of the resources of a firm (assets) and the claims on the firm (liabilities and shareholders' equity) is the a.income statement. b.statement of shareholders' equity. c.statement of cash flows. d.balance sheet.

d

Making information available to decision makers before it loses its capacity to influence decisions. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Timeliness

Comprehensible to users. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Understandability

Different knowledgeable and independent observers can reach consensus that a particular representation is faithful. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Verifiability

Issuing stock to shareholders is A financing activity. An investing activity. An operating activity. Both a financing and investing activity.

A financing activity.

The FASB states that the ultimate goal of convergence is To convince the IASB to follow U.S. GAAP. To convert GAAP to the same standards as IFRS. A single set of high-quality international standards that companies worldwide would use for domestic and cross-border financial reporting. To require foreign firms listed in U.S. capital markets to reconcile how differences between IFRS and U.S. GAAP affect their reported financial statements.

A single set of high-quality international standards that companies worldwide would use for domestic and cross-border financial reporting.

Pronouncements of the APB that constitute generally accepted accounting principles unless specifically amended or rescinded. Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Opinions

To provide timely information, companies prepare and report financial statements at the end of each year.

Period of time

Helps decision makers form expectations about the future. Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Predictive value

Capacity to make a difference in a decision, enabling users to predict future outcomes and/or confirm prior expectations Comparability, Decision usefulness, Relevance, Faithful representation, Predictive value, Confirmatory value, Verifiability, Neutrality, Free from error, Consistency, Materiality, Timeliness, Understandability, Completeness

Relevance

The financial statements represent the business, rather than its owners.

Reporting entity

Appropriate recognition when a company creates economic benefits (inflows of assets or settlements of obligations) by providing goods or services to customers.

Revenue recognition

Pronouncements issued to provide more timely and consistent application guidance in regard to FASB literature. Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Staff Positions

Issued by the FASB as a series establishing a theoretical foundation upon which to base financial accounting and reporting standards Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Statements of Financial Accounting Concepts

Pronouncements issued by the FASB that establish generally accepted accounting principles and indicate the methods and procedures required on specific accounting issues. Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Statements of Financial Accounting Standards

Issued by the FASB to provide guidance on accounting and reporting problems related to Statements of Standards or Interpretations. Interpretations, Technical Bulletins, Opinions, Statements of Financial Accounting Concepts, Accounting Research Bulletins, Statements of Financial Accounting Standards, Staff Positions

Technical Bulletins

Members of the AICPA must act in a way that will best serve The AICPA. Their employer. Their clients. The public interest.

The public interest.

Recognition is the process of formally recording and reporting an item in the financial statements of a company. To be recognized, an item must a.meet the definition of an element, be measurable, be relevant, and be representationally faithful. b.meet the definition of an element, be timely, be relevant, and be representationally faithful. c.meet the definition of an element, be measurable, be consistent, and be representationally faithful. d.meet the definition of an element, be conservative, be relevant, and be representationally faithful.

a

The __________ states that a business enterprise is a legally and economically distinct entity, so that financial statements can be prepared and reported specifically for that entity. a.reporting entity assumption b.monetary unit assumption c.going-concern assumption d.conservatism assumption

a

Which of the following FASB operating procedures is listed in the correct sequence? a.Identify topic, conduct research, hold public hearings, deliberate on findings, issue exposure draft, vote, and issue accounting standards update. b.Identify topic, conduct research, issue exposure draft, deliberate on findings, issue discussion memorandum, vote, and issue accounting standards update. c.Identify topic, issue exposure draft, conduct research, deliberate on findings, issue discussion memorandum, vote, and issue accounting standards update. d.Identify topic, issue discussion memorandum, conduct research, deliberate on findings, issue exposure draft, vote, and issue accounting standards update.

a

Which of the following qualitative characteristics is related to predictive value? a.Relevance b.Verifiability c.Comparability d.Timeliness

a

Which of the following statements is not true? a.Concepts Statements are narrow and open to interpretation. b.Rules are specific implementation procedures. c.Standards are applications of concepts and principles to different types of transactions, events, and arrangements. d.Concepts Statements and principles are broad and definitional.

a

According to the Conceptual Framework, the basic financial statements include the financial statements and a.other means of financial reporting. b.notes to the financial statements. c.supplementary information. d.other information.

b

Accrual accounting relates the financial effects of a company's transactions a.so that the costs of nonoperating events are matched to the balance sheet in the period impacted. b.to the period in which they occur rather than to when the cash receipt or payment occurs. c.so that the impact of every transaction in a period is properly reflected in the income statement. d.so that the impact of every transaction is reflected in the statement of cash flows.

b

Concepts Statements are general proclamations that establish all of the following except a.how transactions, events, and arrangements should be presented and classified in financial statements. b.fundamental principles of auditing. c.definitions of basic elements like assets and liabilities. d.objectives of financial reporting.

b

Under current GAAP, most resources of a business entity are to be valued in its financial statements at a.a value that is most relevant to the needs of users of the financial statements. b.historical cost. c.the current cost of replacing the resource. d.current appraisal values.

b

Which of the following qualitative characteristics is related to predictive value? a.Verifiability b.Relevance c.Timeliness d.Comparability

b