Chapter 1 Intermediate Accounting

How does accounting help the capital allocation process attract investment capital? a. By providing timely, relevant information. b. By encouraging innovation. c. By promoting productivity. d. By providing timely, relevant information and by encouraging innovation.

a. By providing timely, relevant information.

Which of the following is a general limitation of "general purpose financial statements"? a. General purpose financial statements may not be the most informative for a specific enterprise. b. General purpose financial statements are not comparable. c. General purpose financial statements do not fairly present a company's financial operations. d. General purpose financial statements provide financial reporting information to a wide variety of users.

a. General purpose financial statements may not be the most informative for a specific enterprise.

Financial accounting standard-setting in the United States a. can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic. b. is based solely on research and empirical findings. c. is a legalistic process based on rules promulgated by governmental agencies. d. is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

a. can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.

General-purpose financial statements are the product of a. financial accounting. b. managerial accounting. c. both financial and managerial accounting. d. neither financial nor managerial accounting.

a. financial accounting.

The information provided by financial reporting pertains to a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers. b. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers. c. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers. d. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

Which of the following is not a publication of the FASB? a. Statements of Financial Accounting Concepts b. Accounting Research Bulletins c. Interpretations d. Technical Bulletins

b. Accounting Research Bulletins

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 are fully remunerated, serve full time, and are independent of any companies or institutions. c. all members of the FASB possess extensive experience in financial reporting. d. a majority of the members of the FASB are CPAs drawn from public practice.

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

The American Institute of Certified Public Accountants (AICPA) continues to be involved in all of the following except a. developing and enforcing professional ethics. b. developing auditing standards for public companies. c. providing professional education programs. d. grading the CPA exam.

b. developing auditing standards for public companies.

The Financial Accounting Standards Board employs a "due process" system which a. is an efficient system for collecting dues from members. b. enables interested parties to express their views on issues under consideration. c. identifies the accounting issues that are the most important. d. requires that all accountants must receive a copy of financial standards.

b. enables interested parties to express their views on issues under consideration.

The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization's operations is called a. financial accounting. b. managerial accounting. c. tax accounting. d. auditing.

b. managerial accounting.

The FASB issues accounting standards in the form of: a. Accounting Research Bulletins. b. Financial Technical Bulletins. c. Accounting Standards Updates. d. Financial Accounting Standards.

c. Accounting Standards Updates.

Which of the following is not a major challenge facing the accounting profession? a. Nonfinancial measurements. b. Timeliness. c. Accounting for hard assets. d. Forward-looking information.

c. Accounting for hard assets.

Which of the following is a requirement for an accounting principle to be called "generally accepted"? a. An authoritative accounting rule-making body has established it in an official pronouncement. b. The principle has been accepted as appropriate because of its universal application. c. An authoritative accounting rule-making body has established it and it has been accepted because of its universal application. d. Each company develops its own standards.

c. An authoritative accounting rule-making body has established it and it has been accepted because of its universal application.

Which of the following will be of interest to investors in decision-making? a. Assessing the company's ability to generate net cash inflows. b. Assessing management's ability to protect and enhance the capital providers' investments. c. Both assessing the company's ability to generate net cash inflows and assessing management's ability to protect and enhance the capital provider's investments. d. Assessing the company's ability to collect debts.

c. Both assessing the company's ability to generate net cash inflows and assessing management's ability t

Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States? a. AICPA b. FASB c. IASB d. SEC

c. IASB

The International Accounting Standards Board: a. Was the predecessor to the IASC. b. Can overrule the FASB when their policies disagree. c. Promotes the use of high-quality, understandable global accounting standards. d. Has its headquarters in Geneva.

c. Promotes the use of high-quality, understandable global accounting standards.

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

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

What is the purpose of a FASB Staff Position? a. Provide guidance about future rules. b. Provide a consensus on how to account for new and unusual financial transactions. c. Provide interpretive guidance on existing standards. d. Provide timely guidance on select issues.

c. Provide interpretive guidance on existing standards.

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. FASB. b. AICPA. c. SEC. d. APB.

c. SEC.

What is the "expectations gap"? a. The difference between what the public thinks the accountant should not do and what the accountant knows they should do. b. The difference between what the public thinks the accountant should do and what Congress says the accountant should do. c. The difference between what the public thinks the accountant should do and what the accountant thinks they can do. d. The difference between what the accountant should do and what the Courts say the accountant should be doing.

c. The difference between what the public thinks the accountant should do and what the accountant thinks they can do.

FASB Technical Bulletins a. are similar to FASB Interpretations in that they establish enforceable standards under the AICPA's Code of Professional Ethics. b. are issued monthly by the FASB to deal with current topics. c. are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle. d. were recently discontinued by the FASB because they dealt with specialized topics having little impact on financial reporting in general.

c. are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle.

Characteristics of GAAP include all of the following except a. authoritative accounting that the rule-making body has established as a principle of reporting. b. standards are considered useful by the profession. c. each principle is approved by the SEC. d. practice has become universally accepted over time.

c. each principle is approved by the SEC.

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

c. form a conceptual framework for solving existing and emerging problems.

The acronym GAAP stands for: a. generally acceptable authorized pronouncements. b. government authorized accountant principle. c. generally accepted accounting principles. d. government audited accounting pronouncements.

c. generally accepted accounting principles.

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

c. promote uniform accounting standards among countries of the world.

Each of the following are true of the Securities and Exchange Commission except that a. it is a federal agency. b. the SEC's involvement in the development of accounting standards varies. c. the FASB relies on the SEC to develop accounting standards. d. the SEC requires registrants to adhere to GAAP.

c. the FASB relies on the SEC to develop accounting standards.

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 Draft 2. FASB Accounting Standards Update 3. Preliminary Views The chronological order in which these items are released is as follows: a. 1, 2, 3. b. 1, 3, 2. c. 2, 3, 1. d. 3, 1, 2.

d. 3, 1, 2.

Which of the following publications does not qualify as a statement of generally accepted accounting principles? a. Statements of financial standards issued by the FASB b. Accounting interpretations issued by the FASB c. APB Opinions d. Accounting research studies issued by the AICPA

d. Accounting research studies issued by the AICPA

Which organization has been responsible for setting U.S. accounting standards? a. The Accounting Principles Board. b. The Committee on Accounting Procedure. c. The Financial Accounting Standards Board. d. All of the answer choices are correct.

d. All of the answer choices are correct.

Which of the following organizations has not published accounting standards? a. American Institute of Certified Public Accountants. b. Securities and Exchange Commission. c. Financial Accounting Standards Board. d. American Institute of Certified Private Accountants.

d. American Institute of Certified Private Accountants.

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

d. Comparability and lower preparation costs.

Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight? a. Smaller membership. b. The FASB board members were well-paid. c. The FASB board members were CPAs. d. Due process.

d. Due process.

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

d. FASB.

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

d. GAAP does not have substantial authorative support.

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

d. No public hearings are held on proposed accounting standards.

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

d. SEC.

An important historical reason for the FASB reversing its positions when political pressures occur is: a. The cost of gathering data was prohibitive. b. The difficulties in measurement were too great. c. Companies withdraw financial support for the FASB. d. The SEC did not support the FASB position.

d. The SEC did not support the FASB position.

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

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

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

d. employees.

Members of the Financial Accounting Standards Board are a. employed by the American Institute of Certified Public Accountants (AICPA). b. part-time employees. c. required to hold a CPA certificate. d. independent of any other organization.

d. independent of any other organization.

All the following are how accounting information is used by financial accounting except to a. buy, sell, hold equity and debt instruments. b. decide whether to invest in the company. c. evaluate borrowing capacity to determine the extent of a loan to grant. d. plan and control company's operations.

d. plan and control company's operations.

The purpose of the Emerging Issues Task Force is to a. develop a conceptual framework as a frame of reference for the solution of future problems. b. lobby the FASB on issues that affect a particular industry. c. do research on issues that relate to long-term accounting 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.