Chapter 1 Intermediate Accounting : Review - Financial Accounting and Accounting Standards
The FASB 14. Early in its existence the APB was criticized for lack of productivity and failing to act promptly, then it was criticized for overreacting to certain issues. A committee, known as the ___(Wheat Committee), was set up to study the APB and recommend changes in its structure and operation. The result of the Study Group's findings was the demise of the APB and the creation of the __ in 1973. The FASB represents the current rulemaking body within the accounting profession.
Study Group on Establishment of Accounting Principles , Financial Accounting Standards Board (FASB)
Q 1.39: The is an online database that uses a numerical index system to organize its data.
codifications
Q 1.39: The main purpose of developing the __ was to gather all of the literature on a particular topic into one place.
codifications
Q 1.45: Tom is an investor. He looks at the financial reports of companies he is interested in because it supplies him with information that will help him to decide if he wants to invest in the company. This is known as the __ approach.
decision-usefulness
Q 1.51: The Sarbanes-Oxley Act was passed due to the occurrence of accounting __ at a number of large companies.
fraud
Objective of Financial Reporting 7. The accounting profession has developed a common set of standards and procedures known as __ __ __ __. These principles serve as a general guide to the accounting practitioner in accumulating and reporting the financial information of a business enterprise.
generally accepted accounting principles (GAAP)
Q 1.46: The belief that financial records should be focused on the needs of the shareholders is known as the __ perspective.
proprietary
The FASB 19. (L.O. 3) Generally accepted accounting principles (GAAP) are those principles that have __ Accounting principles that have substantial authoritative support are those found in FASB Standards, APB Opinions; and AICPA Research Bulletins (ARBs). If an accounting transaction is not covered in any of these documents, the accountant may look to other authoritative accounting literature for guidance.
substantial authoritative support.
Q 1.1: Marissa is preparing a cash budget for the Chief Financial Officer. What is this an example of? A managerial accounting B financial accounting C financial reporting D capital allocation
A
Q 1.2: Maci is preparing the income statement for her company. Jon is preparing a report that needs to be filed with one of the government agencies the company reports to. What is implied here? A Maci is preparing a formal financial statement, while Jon is engaged in financial reporting. B Jon is preparing a formal financial statement, while Maci is engaged in financial reporting. C Both Jon and Maci are preparing formal financial statements. D Both Maci and Jon are engaged in financial reporting.
A
Q 1.50: Which of the following encourages innovation and works to further promote the production process? A : effective capital allocation B : correct financial reporting C : good investment opportunities D : abundant resources
A
Q 1.47: Which of the following scenarios would lead a person to look primarily at the topic portion of the Codification? A : Riley is looking for as much information as possible on a particular subject, and she is unsure of the exact information she will need. B : Cally is looking for a very particular section regarding the accounting item she is researching. C : Tom wants as little information as possible on the topic he is researching; he just needs the answer to the question he has been asked. D : Jamie is looking for a specific area in which he can find information on the accounting topic he is researching.
A The topic portion of the codification provides a broad collection of related guidance on the topic being researched.
Q 1.48: When it was established, the purpose of the Accounting Principles Board was to (select all that apply) A : publish accounting principles. B : select members of the Financial Accounting Standards Board. C : reduce inconsistencies in accounting practices. D : summarize accounting practices for specific industries. E : assist the SEC with reporting issues by conducting research and analysis. F : determine appropriate accounting practices.
A, B, C
The AICPA and Development of Accounting Principles 13. In 1959, the AICPA created the __ __ __. The major purposes of this group were (a) to advance the written expression of accounting principles, (b) to determine appropriate practices, and (c) to narrow the areas of difference and inconsistency in practice. Its pronouncements, known as __ __, were intended to be based mainly on research studies and be supported by reason and analysis.
Accounting Principles Board (APB), APB Opinions
Q 1.11: How are the SEC and GAAP related to one another? A The SEC employees created GAAP. B The SEC requires companies to follow GAAP. C The SEC requires only CPAs to follow GAAP. D The SEC works toward the elimination of GAAP.
B
Q 1.38: The Sarbanes-Oxley Act A : was passed in response to a several years of subpar corporate earnings. B : increased resources for the SEC to combat fraud. C : requires audit partners to rotate every year. D : affected companies and their internal control systems, but not auditors.
B
Q 1.41: Which of the following roles is frequently filled by the Financial Accounting Foundation? A : Assisting the FASB by performing research and analysis. B : Selecting members of the FASB and funding their activities. C : Improving standards of financial accounting. D : Consulting with the FASB on major policy issues.
B
Q 1.49: After extensive research in the CRS, Dan has given up trying to find the transaction type he was looking for. Instead, he has decided to consult international financial reporting standards. What is the most likely reason for this? A : His transaction is not GAAP-certified. B : The Codification does not cover this transaction type. C : The transaction is not legal. D : He was looking at the wrong system and should have searched the Codification.
B
Q 1.4: What is the difference between effective capital allocation and poor capital allocation? A Effective capital allocation leads to fewer external users, whereas poor capital allocation leads to more external users. B Effective capital allocation leads to a healthy economy, whereas poor capital allocation can negatively affect the securities market. C Effective capital allocation leads to an influx in the securities market, whereas poor capital allocation can lead to a drop in internal users. D Effective capital allocation leads to fewer internal users, whereas poor capital allocation leads to more internal users.
B
Q 1.6: Mara prepares the financial reports for her company. The assets in the reports are distinct from those of shareholders. Ben believes that financial reports should be tailored primarily toward shareholders. What is implied here? A Both Ben and Mara are following the entity perspective. This is correct answer : B Mara is following the entity perspective, whereas Ben is following the proprietary perspective. C Both Ben and Mara are following the proprietary perspective. D Ben is following the entity perspective, whereas Mara is following the proprietary perspective.
B
Q 1.7: Which of the following would be an example of a user looking at general-purpose financial statements? A Sal is a manager looking at the financial statements for the company, but they use a reporting practice he is unfamiliar with. B Tom is looking at a set of documents for a company he wants to invest in; the information is presented clearly and all aspects of the company's financial operations are mentioned. C Kat is an investor looking over financial documents for a company; she feels that a number of things have been misrepresented in the documents. D Dana is looking at two sets of documents for her company, both of which show only some of the financial operations of her workplace.
B
Q 1.42: Meg has been learning about GAAP in class, and she is interested in how the principles are applied to financial accounting as a whole. She has also been learning about the purpose behind companies producing one general-purpose financial statement. Meg believes these two concepts are very similar. Is she correct? A : No, the general-purpose financial statement was designed primarily with internal users in mind, whereas the generally accepted accounting principles were designed with external users in mind. B : Yes, both the general-purpose financial statements and the generally accepted accounting principles are designed for internal and external users. C : Yes, both the general-purpose financial statements and the generally accepted accounting principles work to appeal to external users of company data. D : No, the general-purpose financial statement was designed primarily with internal users in mind, whereas the generally accepted accounting principles were designed with all users in mind.
B General purpose financial statements are prepared to meet the various needs of both internal and external users. Generally accepted accounting principles were designed to ensure that the reporting was uniform, so as to be useful to both internal and external users.
Q 1.10: Morris is part of a government organization that is responsible for standardizing the information that companies present to stockholders. He reviews the financial reports from multiple companies within this organization's jurisdiction. What organization does Morris work for? A the FASB B the APB C the SEC D the CAP
C
Q 1.13: How are the codification and GAAP similar to one another? A The codification works to eliminate GAAP. B The codification works to recreate GAAP. C The codification works to omit any redundancies within GAAP. D The codification and GAAP work together to comply with the APB.
C
Q 1.15: How are FASB and GAAP related when it comes to user groups? A User groups often pressure GAAP to influence the FASB. B The FASB usually pressures user groups to change GAAP. C User groups often pressure the FASB to influence GAAP. D GAAP usually pressures the FASB to change user groups.
C
Q 1.16: Runa runs a company in Norway that is listed with the U.S exchange. What accounting standards will Runa's company use? A FASB B IASB C IFRS D GAAP
C
Q 1.44: Financial statements that are provided only quarterly are often problematic because they A : are difficult to understand. B : do not provide reporting on soft assets. C : do not provide up-to-date financial information. D : do not include reporting on sustainability efforts.
C
Q 1.9: Carolyn is looking over published accounting opinions based primarily on research studies. What organization is Carolyn researching? A CAP B SEC C APB D AICPA
C
Q 1.34: Which of the following is one of the most important reasons that the APB was dissolved in 1973? A : The private sector decided to establish its own accounting practices. B : They were productive but failed to correct accounting abuses throughout their tenure. C : Many of their decisions were opposed by industry, CPAs, and the government. D : The government could no longer fund the salaries of the board members.
C The APB had several issues. However, the issue that led to their downfall was that when they attacked accounting problems, the financial industry, CPAs, and the government all opposed the progress they were trying to make. Because they were essentially ineffective at meeting their goals, they were replaced by the FASB.
Q 1.36: Danielle is looking for information on an accounting principle for class. She does not want to sift through a lot of information to find it, but wants to know the exact location. What area of the CRS results will she look at? A : sections B : topic C : paragraph D : subtopics
C The paragraph level is where you can find the specific content related to a research topic.
The AICPA and Development of Accounting Principles 12. At the urging of the SEC, the AICPA appointed the __ __ __ __ in 1939. This group issued 51 __ __ __ during the years 1939 to 1959.
Committee on Accounting Procedure (CAP), Accounting Research Bulletins (ARBs)
Q 1.12: What is the connection between the Wheat Committee and the APB? A The APB led to the scandal surrounding the Wheat Committee. B The APB ultimately led to the replacement of the Wheat Committee. C The Wheat Committee led to the creation of the APB. D The Wheat Committee ultimately led to the replacement of the APB.
D
Q 1.14: Paul is an accountant at a company that has recently issued its financial statements. The public feels that more information should be included in the statements, but Paul believes that he and the other accountants provided all of the information that they could. What is this an example of? A the Sarbanes-Oxley Act B the APB C the PCAOB D the expectations gap
D
Q 1.32: Which of the following is true of generally accepted accounting principles? A : They change over time as the nature of the business environment changes. B : They include detailed practices and procedures as well as broad guidelines of general application. C : They are influenced by pronouncements of the SEC and IRS. D : All of these answer choices are correct.
D
Q 1.33: An ethical concern for accountants may be A : industry practices. B : None of these answer choices are correct. C : conservative accounting. D : earnings manipulation.
D
Q 1.35: A(n) __________is a form of communication provided by financial reporting but not financial statements. A : balance sheet B : notes to financial statements C : income statement D : president's letter
D
Q 1.3: Dave is an investor interested in buying shares in a new company. He is currently analyzing financial reports to make his decisions. What is this an example of? A the entity perspective B a resource C capital allocation D a user
D
Q 1.40: If politics plays too large of a role in accounting standard setting, what danger is likely to occur? A : User groups become active. B : The FASB delegates its authority to elected officials. C : Individuals may influence the standards. D : Accounting standards that are not truly generally accepted.
D
Q 1.43: Which of the following is a nonfinancial measurement that may be important in future financial reports? A number of not-for-profit partnerships B number of new employees C number of volunteer hours provided to the community D backlog information
D
Q 1.5: Pam prepares the financial reports for her company. The company has a number of assets that are listed on the reports, but the assets of individual shareholders are considered to be distinct from the company itself and are not included. What is this an example of? A the proprietary perspective B stewardship C decision-usefulness D the entity perspective
D
Q 1.8: What would happen if GAAP was no longer used? A It would be easier to compare financial statements. B Companies would experience greater communication. C Companies would be able to generate deals more easily. D It would be almost impossible to compare financial statements.
D
Financial Reporting Environment 2. (L.O. 1) The essential characteristics of accounting are (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties. __ __ is the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties.
Financial accounting
Financial Reporting Environment 3. __ __ are the principal means through which a company communicates its financial information to those outside it. The financial statements most frequently provided are (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners' or stockholders' equity. Note disclosures are an integral part of each financial statement. Other means of communication information that might not be included in the financial statements include the president's letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management forecasts, and social or environmental impact statements.
Financial statements
Q 1.37: When looking at a company's financial reports, __ are interested in the ability to generate net cash inflows.
Investors
The FASB 23. Some of the issues facing financial reporting in the future are the following: a. __, which include customer satisfaction indexes, backlog information, reject rates on goods purchased, as well as the results of companies' sustainability efforts. b. __ c. __ of such intangibles as market dominance, expertize in supply chain management, and brand image. d. __ including realtime financial statement information. e. Understandability of financial reports.
Non-financial measurements, Forward-looking information, Soft assets, Timeliness