Chapter 1 Multiple Choice

What would be an advantage of having all countries adopt and follow the same accounting standards? a) Comparability and lower preparation costs. b) Agreement. c) Comparability. d) Lower preparation costs.

a) Comparability and lower preparation costs.

Which of the following is not true of generally accepted accounting principles? a) GAAP does not have substantial authoritative support. b) GAAP is influenced by pronouncements of the SEC. c) GAAP includes detailed practices and procedures as well as broad guidelines of general application. d) GAAP changes over time as the nature of the business environment changes.

a) GAAP does not have substantial authoritative support.

Which of the following is not a significant difference between the FASB (Financial Accounting Standards Board) and its predecessor, the APB? a) Larger membership. b) Increased independence. c) Broader representation. d) Greater autonomy.

a) Larger membership.

Which of the following represents a form of communication through financial reporting but not through financial statements? a) President's letter. b) Income statement. c) Balance sheet. d) Notes to financial statements.

a) Presidents letter

What is the purpose of Emerging Issues Task Force? a) Provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis. b) Provide interpretive guidance. c) Provide timely guidance on select issues. d) Provide interpretation of existing standards.

a) Provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis.

What is the objective of financial reporting? a) Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors. b) Provide information that excludes claims to the resources. c) Provide information that is useful to management in making decisions. d) Provide information that clearly portrays nonfinancial transactions.

a) Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.

Which of the following is not related to an effective capital allocation? a) Provides timely, relevant information and encourages innovation. b) Encouraging innovation. c) Promoting productivity. d) Providing an efficient market for buying and selling securities.

a) Provides timely, relevant information and encourages innovation.

The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the a) SEC. b) APB. c) AICPA. d) FASB.

a) SEC

The Financial Accounting Standards Board (FASB) was proposed by the a) Study Group on establishment of Accounting Principles (Wheat Committee). b) Accounting Principles Board. c) Study Group on the Objectives of Financial Statements. d) American Institute of Certified Public Accountants.

a) Study Group on establishment of Accounting Principles (Wheat Committee).

Which of the following is true of the Financial Accounting Standards Board? a) The members of the FASB are appointed by the Financial Accounting Foundation. b) It is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards. c) It was the forerunner of the current Accounting Principles Board. d) It has issued a series of pronouncements entitled Auditing Standards Updates.

a) The members of the FASB are appointed by the Financial Accounting Foundation.

A common set of accounting standards and procedures is called a) generally accepted accounting principles. b) statements of financial accounting concepts. c) objectives of financial reporting. d) financial accounting standards.

a) generally accepted accounting principles

Financial statements in the early 2000s focused on financial information related to a) hard assets (inventory and plant assets). b) forward-looking data. c) nonfinancial measurements. d) soft assets.

a) hard assets (inventory and plant assets)

The first step taken in the establishment of a typical FASB statement is: a) topics are identified and placed on the board's agenda. b) the board Evaluates responses and changes exposure draft if necessary. Final standard is issued. c) a public hearing on the proposed standard is held. d) the board evaluates the research and public response and issues an exposure draft.

a) topics are identified and placed on the board's agenda.

Which of the following is not a user of financial reports? a) Creditors. b) Employees. c) Government agencies. d) Unions

b) Employees

The most significant current source of generally accepted accounting principles is the a) SEC. b) FASB. c) AICPA. d) APB.

b) FASB

Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders? a) FASB (Financial Accounting Standards Board). b) SEC (Securities and Exchange Commission). c) AICPA (American Institute of Certified Public Accountants). d) CAP (Committee on Accounting Procedure).

b) SEC (Securities and Exchange Commission).

The purpose of Statements of Financial Accounting Concepts is to a) determine the need for FASB involvement in an emerging issue. b) form a conceptual framework for solving existing and emerging problems. c) modify or extend an existing FASB Accounting Standards Update. d) establish GAAP.

b) form a conceptual framework for solving existing and emerging problems.

The passage of a new FASB Accounting Standards Update requires the support of a) seven Board members. b) four board members c) five Board members. d) three Board members.

b) four board members

Which of the following generally provides a better indication of an enterprise's present and continuing ability to generate favorable cash flows? a) Managerial basis accounting. b) Cash basis accounting. c) Accrual basis accounting. d) Financial basis accounting.

c) Accrual basis accounting.

Which of the following is an ethical concern of accountants? a) Managerial Accounting. b) Industry practices. c) Earnings manipulation. d) Conservative accounting.

c) Earnings manipulation.

Which group selects members of the FASB? a) SEC (Securities and Exchange Commission). b) AICPA (American Institute of Certified Public Accountants). c) FAF (Financial Accounting Foundation). d) FASAC (Financial Accounting Standards Advisory Council).

c) FAF (Financial Accounting Foundation).

All of the following are true regarding IFRS except: a) IFRS are developed by the IASB. b) The adoption of IFRS by U.S. companies would make it easier to compare them with foreign companies. c) IFRS includes standards referred to as International Auditing Standards (IAS). d) IFRS is more "principles-based" than U.S. GAAP.

c) IFRS includes standards referred to as International Auditing Standards (IAS).

Accrual accounting is used because a) it recognizes revenues when cash is received and expenses when cash is paid. b) Cash flows are considered less important. c) It provides a better indication of a company's ability to generate cash flows over time than the cash basis. d) It provides past ability to generate negative cash flows.

c) It provides a better indication of a company's ability to generate cash flows over time than the cash basis

What is not due process in the context of standard setting at the FASB? a) Interested parties can make their views known. b) Public hearings are held on proposed accounting standards. c) No public hearings are held on proposed accounting standards. d) The FASB operates in full view of the public.

c) No public hearings are held on proposed accounting standards.

Companies that are listed on a stock exchange are required to submit their financial statements to the a) FASB. b) APB c) SEC. d) AICPA.

c) SEC

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is a) the FASB issues exposure drafts of proposed standards. b) all members of the FASB possess extensive experience in financial reporting. c) all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions. d) a majority of the members of the FASB are CPAs who are drawn from public practice.

c) all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.

The objective of general purpose financial reporting adopts an entity perspective, which means that a) financial reporting should be focused on assessing the company's stewardship. b) financial reporting should be focused solely on the needs of the owners. c) companies are viewed as separate and distinct from their owners. d) none of these answer choices are correct.

c) companies are viewed as separate and distinct from their owners.

The following are part of the "due process" system used by the FASB in the evolution of a typical FASB Accounting Standards Update:1. Exposure Draft2. FASB Accounting Standards Update3. Preliminary Views. The chronological order in which these items are released is as follows: a) 1, 3, 2. b) 1, 2, 3. c) 2, 3, 1. d) 3, 1, 2.

d) 3,1,2

Which of the following would result if there was not a set of generally accepted and universally practiced accounting standards? a) It would be almost impossible to prepare statements that could be compared. b) Each company would have to develop its own standards. c) Readers of financial statements would have to familiarize themselves with every company's peculiar accounting and reporting practices. d) All of these answer choices are correct.

d) All of these answer choices are correct.

Which of the following is a source of pressure that may influence the accounting standard setting process? a) Congress b) Lobbyists c) CPA firms d) All of these answers are correct.

d) All of these answers are correct.

The organization that provides implementation guidance within the framework of the Codification to reduce diversity in practice on a timely basis is the a) AICPA (American Institute of Certified Public Accountants). b) FASAC (Financial Accounting Standards Advisory Council). c) FASB (Financial Accounting Standards Board). d) EITF (Emerging Issues Task Force).

d) EITF (Emerging Issues Task Force).

Primary users for general-purpose financial statements include each of the following except a) creditors. b) suppliers. c) investors. d) employees.

d) Employess

International Financial Reporting Standards (IFRS) are issued by the: a) EITF (Emerging Issues Task Force). b) FASB (Financial Accounting Standards Board). c) SEC (Securities and Exchange Commission). d) IASB (International Accounting Standards Board).

d) IASB (International Accounting Standards Board).

The Financial Accounting Standards Board Accounting Standards Codification a) does not create new GAAP. b) eliminates nonessential information. c) simplifies user access to all authoritative U.S. generally accepted accounting principles. d) all of these answer choices are correct.

d) all of these answer choices are correct.

An effective capital allocation process a) promotes productivity. b) encourages innovation. c) provides an efficient market for buying and selling securities. d) all of these choices are correct.

d) all of these choices are correct.

The mission of the International Accounting Standards Board (IASB) is to a) develop a uniform currency in which the financial transactions of companies throughout the world would be measured. b) arbitrate accounting disputes between auditors and international companies. c) issue enforceable standards which regulate the financial accounting and reporting of multinational corporations. d) develop a single set of high-quality and understandable IFRS for general-purpose financial statements.

d) develop a single set of high-quality and understandable IFRS for general-purpose financial statements.

The Financial Accounting Foundation a) oversees the operations of the AICPA. b) provides information to interested parties on financial reporting issues. c) works with the Financial Accounting Standards Advisory Council to provide information to interested parties on financial reporting issues. d) oversees the operations of the FASB.

d) oversees the operations of the FASB.

The purpose of the International Accounting Standards Board is to a) develop a uniform currency in which the financial transactions of companies through-out the world would be measured. b) arbitrate accounting disputes between auditors and international companies. c) issue enforceable standards which regulate the financial accounting and reporting of multinational corporations. d) promote uniform accounting standards among countries of the world.

d) promote uniform accounting standards among countries of the world.

The purpose of the Emerging Issues Task Force is to a) lobby the FASB on issues that affect a particular industry. b) do research on issues that relate to long-term accounting problems. c) develop a conceptual framework as a frame of reference for the solution of future problems. d) provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis.

d) provide implementation guidance within the Codification framework to reduce diversity in practice on a timely basis.

All of the following are true regarding the FASB Codification except: a) the goal of the Codification was to provide one place where all authoritative literature about a particular topic could be found. b) the Codification changes the way GAAP is documented, presented, and updated. c) the Codification was created to simplify user access. d) the purpose of the Codification is to create new GAAP.

d) the purpose of the Codification is to create new GAAP.