Chapter 1
List the private accounting standard setting bodies in chronological order beginning with the oldest organization. Accounting Principles Board Committee on Accounting Procedure Financial Accounting Standard Board
Committee on Accounting Procedure Accounting Principles Board Financial Accounting Standards Board
If the SEC does not agree with a standard issued by the private sector, it can a) create another accounting standard setting body b) force a change in the standard c) issue a new FASB statement d) remove FASB board members from their position
b
Recent events suggest that full convergence ________ be achieved in the foreseeable future. a) will b) will not
b
Risk refers to the __________ of an investment a) asset base b) uncertainty c) income measurement d) rate of return
b
The Accounting Standards Codification is organized into a) statements and interpretations b) topics and subtopics c) standards and opinions d) rules and interpretations
b
In which of the following areas did the FASB and IASB achieve converged standards? a) lease accounting b) financial instruments c) derivative instruments d) revenue recognition
d
The purpose of the Private Company Council (PCC) is to advise the ________ about its current projects that affect private companies. a) SEC b) PCAOB c) IASB d) FASB
d
Which of the following is a financial statement provided to investors? a) statement of management discussion b) statement of investments c) statement of audit report d) statement of shareholders equity
d
Which of the following types of companies may currently utilize IFRS for financial reporting in the U.S.? a) All US companies b) Currently, IFRS is not permitted for any US registered company c) All domestic companies that issue stock in the US d) Foreign companies that issue stock in the US
d
Which of the following forms of business provide shares of stock as an ownership interest? a) corporation b) partnership c) proprietorship
a
What are the advantages of one global accounting framework? a) make enforcement actions easier b) facilitate access to capital c) improve comparability d) reduce competition between alternative setting regimes
b, c
A corporation's shareholders will receive cash from their investment in which of the following ways? a) sale of assets b) long-term note c) periodic dividends
c
The FASB Accounting Standards ___________ integrates and topically organizes all relevant accounting pronouncements in a searchable, online database
framework
Claire's revenues are greater than her expenses. Claire has net _________ for the period
income or profit
__________ and __________ are willing to provide capital to a corporation only if they expect to receive more cash in return at some time in the future
investors, creditors
Pressure from ___________ and ____________influenced the FASB to revise guidance on fair value accounting.
lobbyists, politicians
It is the responsibility of _______________ to apply Generally Accepted Accounting Principles in preparation of the company's financial statements.
management or managers
The difference between revenue and expenses when expenses are greater is called _________
net loss
The difference between revenue and expenses when revenue is greater is called ___________ ____________
net profit
Net ____________ cash flow is the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.
operating
The capital markets foster an efficient allocation of ____________
resources
True or false: In the United States, sole proprietorships and partnerships outnumber corporations.
true
True or false: Resource inflows and outflows may not correspond to cash inflows and outflows.
true
The first private sector body to set accounting standards in the U.S. was the ____________
CAP
The uncertainty regarding an investment is also referred to as ___________
risk
The ___________ was established to set U.S. accounting standards and is the current standard setting body. (Use acronym.)
FASB
True or false: In 2007, the SEC eliminated the requirement of foreign companies issuing stock in the United States to include a reconciliation of IFRS to U.S. GAAP in their financial statements.
True
True or false: Investors expect that if an investment has greater risk, it should also pay a higher return.
True
True or false: Political pressure has deterred the FASB from issuing particular standard changes.
True
True or false: The FASB considers written comments from interested parties before issuing an Accounting Standards Update.
True
In the United States, corporations acquire capital from which of the following sources? a) investors b) creditors c) the SEC d) tax revenues
a, b
The financial reporting model used by the majority of profit oriented companies is ______________ accounting
accrual
In the United States, we have an economy where the majority of productive resources are privately owned rather than government owned. This is an example of what? a) private enterprise b) free enterprise c) government enterprise
b
Net operating cash flow is found in which accounting model? a) Accrual basis b) cash basis
b
Under the accrual accounting model, the measure of resources sacrificed is called a) net income b) expense c) net loss d) revenue
b
The organization that is responsible for Accounting standards and the standard setting process for states and cities in the United States is the a) Government Authority for Standards and Bylaws b) Generally Accepted Standards and Bylaws c) Governmental Accounting Standards Board d) General Accounting State Board
c
Which accounting model best meets the primary goal of users of financial reporting? a) cost basis b) cash basis c) accrual basis d) net basis
c
Which accounting standard setting body replaced the Accounting Principles Board in 1973? a) American Insitute of Certified Public Accountants b) Securities and Exchange Commission c) Financial Accounting Standards Board d) Public Company Accounting Oversight Board
c
Which of the following would be a likely advantage of a single set of accounting standards? a) less volatile exchange rates b) enhanced export and import opportunities c) easier access to capital
c
On January 1, 20X1, an investor purchases shares of stock in a company for $10,000 cash. At the end of 20X1, the investor receives $400 in dividends and sells his ownership at the end of 20X1 for $10,600. What is the return on investment? a) 9.4% b) 4% c) 10% d) 6%
c) Reason: The return on investment is the amount of dividends and the appreciation of the stock divided by the initial investment. Therefore, the return on investment is ($400 + 600)/$10,000 = 10%.
Where does political pressure come from in International standard setting? (Select all that apply.) a) The United States b) The International Accounting Standards Board c) The European Union (EU) d) Politicians from countries utilizing IFRS
c, d
Differences in implementation and enforcement of IFRS across countries can impact the __________ of financial statements
comparability
Differences in implementation and enforcement of IFRS across countries can impact the ____________ of financial statements
comparability or uniformity
The 1933 and 1934 Acts were designed to restore investor _________ in the stock market
confidence
A company generates profits when it provides goods and services and a) investing activities are greater than financing activities b) assets exceed liabilities c) losses exceed gains d) revenues are greater than expenses
d
The objectives of financial accounting include (Select all that apply.) a) regulate businesses globally b) provide managers with internal information for decisions c) provide information used to evaluate future cash flows d) regulate businesses in the United States e) provide information to investors and creditors
e
Financial accounting is chiefly concerned with providing information to various __________ users
external
Fill in the blank question. Financial accounting is chiefly concerned with providing information to various _______________ users.
external or outside
True or false: Net operating cash flow is a good indicator of a company's long-run cash-generating ability.
false
True or false: The FASB Codification project revised and updated U.S. accounting standards with international accounting standards.
false
True or false: The term financial reporting is used to refer to the process of providing financial information to internal users.
false
___________ accounting is chiefly concerned with providing information to external users.
financial
The process of providing information to external users is referred to as _____________ ____________
financial reporting or accounting
In addition to issuing accounting standards, the FASB has formulated a conceptual _____________ to provide an underlying theoretical and conceptual structure for accounting standards.
framework
The majority of productive resources are privately owned in a _____________ enterprise economy
free
The accrual accounting model is best able to achieve the goal of predicting ____________ cash flows
future
The IASB is dedicated to developing a set of high-quality, understandable, and enforceable ______________ accounting standards
global
Match: 1) 1933 Securities Act 2) 1934 Securities and Exchange Act a) Sets forth account accounting and disclosure requirements for initial public offerings of securiites b) Mandates reporting requirements for companies whose stock is publicly traded
1 a 2 b
The AICPA is the national professional organization for certified professional public ___________
accountants
Which of the following are providers of financial information? a) schools b) customers c) investors d) households e) profit-oriented companies
a, d, e
True or false: Both profit-oriented companies and not-for-profit companies are providers of financial information.
True
The International Accounting Standards Committee issued International Accounting Standards (IAS), whereas the International Accounting Standards Board currently issues a) International Financial Reporting Standards. b) International Accounting and Auditing Standards. c) General Guidelines for Global Reporting. d) Globally Accepted Accounting Principles.
a
The _____ has the authority to set accounting standards for companies, but has delegated the task to the private sector. a) SEC b) FASB c) PCAOB
a
What basis of accounting measures the difference between cash receipts and cash payments from transactions related to providing goods and services to customers during a reporting period? a) cash basis b) cost basis c) accrual basis d) historic basis
a
What classification would the following auditor opinion receive?: "In our opinion, the consolidated financial statements listed in the accompanying index present fairly . . . in conformity with U.S. GAAP." a) a clean opinion b) a disclaimer opinion c) a qualified opinion d) an adverse opinion
a
On January 1, 20X1, Jennifer purchases common stock of Gamma Corporation for $100,000. During the year, Gamma Corporation stock pays a dividend of $3,000. At the end of the year, Jennifer sells the Gamma stock for $104,000. What is the return on investment of the Gamma stock? a) 7% b) 4% c) 10% d) 3%
a Reason: The return on investment is calculated as the dividends received plus the appreciation in the value of the stock divided by the initial investment in the stock. ROI is ($3,000 + 4,000)/$100,000 = 7%
Financial accounting provides investors with information that should help them to evaluate the (Select all that apply.) a) uncertainty of the firms future cash flow b) timing of the firms future cash flow c) amounts of the firms future cash flow d) accuracy of the firms future cash flow
a, b, c
Which of the following are external users of financial information? a) creditors b) suppliers c) government agencies d) investors e) household
a, b, c, d
Which of the following are external users of financial information? a) government agencies b) creditors c) investors d) suppliers e) household
a, b, c, d
External users of a company's financial information include: (Select all that apply.) a) banks b) credit-rating agencies c) board of directors d) labor unionrs
a, b, d
The involvement of accounting professionals and management in accounting scandals resulted in Congress passing the Sarbanes-Oxley Act. What is the purpose of the Sarbanes-Oxley Act? (Select all that apply.) a) Prevent conflicts of interests. b) Regulate auditors. c) Issue capital requirements for companies. d) Require CEO accountability. e) Provide penalties for violators.
a, b, d, e
We can think of the capital markets as a composite of all: Multiple select question. a) creditors. b) auditors. c) investors. d) government agencies.
a, c
Financial accounting provides investors with information that should help them to evaluate the (Select all that apply.) a) amounts of the firms future cash flow b) accuracy of the firms future cash flow c) timing of the firms future cash flow d) uncertainty of the firms future cash flow
a, c, d
Which of the following are common arguments against the creation of a single set of global accounting standards? (Select all that apply.) a) implementation and enforcement of IFRS varies among nations b) global standards will lead to more complex accounting standards c) accounting under IFRS will appear more uniform than it actually is d) maintaining competition between accounting standard-setting bodies improves quality
a, c, d
In which of the following areas did the FASB and IASB already develop converged accounting standards? (Select all that apply.) a) earnings-per-share b) financial instruments c) share-based compensation d) lease accounting e) non-monetary exchanges
a, c, e
In the United States, corporations acquire capital in which of the following ways? Multiple choice a) from investors in exchange for ownership interest b) by providing services to customers c) from the sale of buildings and equipment d) from creditors by borrowing
a, d
Which organizations provide financial information to external users? a) charitable organizations b) creditors c) financial intermediaries d) profit-oriented businesses
a, d
The Emerging Issues Task Force (EITF) was formed to a) prepare exposure drafts for Statements of Financial Accounting Standards b) identify potential problem areas and provide a timely response to issues c) address long-term accounting problems and set standards
b
The Emerging Issues Task Force (EITF) was formed to resolve _________ financial accounting issues within the framework of existing GAAP. a) ill-define b) narrowly-defined c) broad-reaching d) conceptual
b
The International Accounting Standards Committee (IASC) reorganized in 2001 to create a new standard-setting body called the International Accounting Standards Board (IASB). The IASB issues global accounting standards called a) Global Financial Reporting Standards b) International Financial Reporting Standards c) European Accounting Standards d) International Accounting Standards
b
The Private Company Council (PCC) determines whether changes to existing GAAP are necessary to meet the needs of a) users of public company financial statements b) users of private company financial statements c) users of non-profit company financial statements
b
The most recent issue in implementing the fair value accounting standard is a) the attempts by Congress to prohibit historical cost accounting. b) pressure to reduce the extent to which fair value changes are reported in net income. c) the government's responsibility to measure fair value of assets. d) the FASB's reluctance to issue an accounting pronouncement.
b
What is the purpose of the audit report? a) To provide investment advice. b) To add credibility to the financial statements. c) To report taxable income to the IRS.
b
Which of the following provides an underlying structure for the development of accounting standards? a) EITF issue consensuses b) the conceptual framework c) statements of financial accounting standards d) FASB staff positions
b
Which of the following represents the IASB's primary objective? a) to control the international standard setting process b) to develop high quality global standards used to make economic decisions c) to lower the cost of capital on global markets
b
Which of the following instances indicate net operating cash flow may not be a good predictor of long-run cash-generating ability? (Select all that apply.) a) a company pays a service technician the day work is performed b) a company pays cash to purchase a 2 year insurance policy c) a customer pays for services provided in a prior period
b, c
Before issuing an Accounting Standards Update, the FASB undertakes a series of information-gathering steps including a) company visits b) deliberations c) open hearings d) written comments
b, c, d
What are the requirements of most states to become a licensed certified public accountant? a) background check b) experience c) education d) income e) testing
b, c, e
The objectives of financial accounting include (Select all that apply.) a) regulate businesses in the United States b) provide information to investors and creditors c) provide managers with internal information for decisions d) provide information used to evaluate future cash flows e) regulate businesses globally
b, d
Why is accounting standard setting a political process? (Select all that apply.) a) Accounting standards can be legally enforced by the FASB. b) Standards can have significant effects on companies, investors, and creditors. c) Congress votes on the introduction of a new accounting standard. d) Changes in standards can result in a substantial redistribution of wealth within our economy.
b, d
Which of the following are steps the FASB takes before issuing an Accounting Standards Update? Select all that apply a) the board meets with individual shareholders b) the board visits companies that use the proposed standard c) the baord holds a public meeting d) receives requests from stakeholders
c, d
Which are the financial statements most frequently provided to external users? (Select all that apply.) a) audit report b) management discussion section c) income statement d) statement of shareholders' equity e) statement of cash flows f)balance sheet
c, d, e, f
The accrual accounting model measures the entity's accomplishments and resource sacrifices during the period regardless of when ______________ is received or paid
cash
________________ basis accounting measures the difference between cash receipts and payments during a reporting period. (Enter only one word.)
cash