Chapter 1 .

Smart Book

1.Financial accounting is chiefly concerned with providing information to various Blank 1 of 1 

external users. (Enter only one word.)

2. Which of the following are external users of financial information?

creditors
household
investors
suppliers
government agencies

3. Which organizations provide financial information to external users?

charitable organizations
profit-oriented businesses
financial intermediaries
creditors

4. Which of the following is a financial statement provided to investors?

Statement of investments
Statement of shareholders' equity
Statement of management discussion
Statement of audit report

5. What is the primary function of financial accounting?

Provide financial information for tax purposes.

Provide financial information to regulatory agencies.
Provide information to internal users of the business.
Provide useful information to users external to the business.

6. True or false: The term financial reporting is used to refer to the process of providing financial
information to internal users.
True
Reason: Financial reporting refers to the process of providing financial information
to external users.

AS : False

7. Financial accounting is primarily concerned with providing financial information to external

users.
True
False
Reason: 
The primary objective of financial accounting is to provide financial information to external
users.

8. We can think of the capital markets as a composite of all

creditors
investors
corporations
auditors

9. Labor unions and creditors are examples of Blank 1 of 1   external or outside users of

financial information. (Enter only one word.)

10. True or false: In the United States, we have a free enterprise economy with the majority of
productive resources being government owned.

True ( Reason: The majority of productive resources are privately owned.)

False

11. Which of the following are providers of financial information?

Companies
households
customers
investors
schools

12. In the United States, corporations acquire capital in which of the following ways?

from the sale of buildings and equipment

by providing services to customers
from creditors by borrowing
from investors in exchange for ownership interest

13. Which are the financial statements most frequently provided to external users? (Select all that
apply.)
income statement
balance sheet
statement of shareholders' equity
management discussion section
audit report
statement of cash flows
14. The primary forms of business organization in the United States are the sole proprietorship,
the Blank 1 of 1. Partnership and the corporation.

15. Financial reporting is the process of

preparing proforma financial statements and notes

providing information to outside users
reporting current period income to the board of directors
closing the temporary accounts

16. The capital markets foster an efficient allocation of Blank 1Blank 1 resources , Correct
Unavailable

17. 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?

4%
6%
9.4%
10%

18. 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?

Government enterprise
Free enterprise
Private enterprise

19. In the United States, corporations acquire capital from which of the following sources?
the SEC
tax revenues
investors
creditors

20. True or false: In the United States, sole proprietorships and partnerships outnumber
corporations.

True
False

21. A corporation's shareholders will receive cash from their investment in which of the
following ways?
A long-term note
Periodic dividends
Sale of assets
22. true or false: The term financial reporting is used to refer to the process of providing financial
information to internal users.
True
Reason: 
Financial reporting refers to the process of providing financial information to external users.
False

23. 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?
7%
10%
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%.
3%
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%.
4%
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%.
Correct Answer

24. True or false: The uncertainty of the return on an investment is also referred to as risk.
True
False

25. The majority of productive resources are privately owned in a Blank 1 of 1 free
enterprise economy. (Enter one word per blank)

26. In the United States, corporations acquire capital in which of the following ways?
from investors in exchange for ownership interest
by providing services to customers
from the sale of buildings and equipment
from creditors by borrowing

27. A company generates profits when it provides goods and services and
losses exceed gains.
revenues are greater than expenses.
investing activities are greater than financing activities.
assets exceed liabilities.

28.
Investors and Creditors are willing to provide capital to a corporation only if they expect to
receive more cash in return at some time in the future.

29. The process of providing information to external users is referred to as financial ,

reporting , or accounting

30. The objectives of financial accounting include (Select all that apply.)
provide information used to evaluate future cash flows.
regulate businesses in the United States.
provide information to investors and creditors.
regulate businesses globally.
provide managers with internal information for decisions.

31. The uncertainty regarding an investment is also referred to as risk

32. The accrual accounting model is best able to achieve the goal of predicting future cash flows

33. An investment that has higher risk also has

greater cash flows.
a lower return on investment.
lower income for the period.
more uncertainty of returns.

34. Net operating cash flow is found in which accounting model?

Accrual basis
Cash basis

35. Financial accounting provides investors with information that should help them to evaluate
the (Select all that apply.)
uncertainty of the firm's future cash flow.
accuracy of the firm's future cash flow.
timing of the firm's future cash flow.
amounts of the firm's future cash flow.

36. What accounting model produces a measure called net operating cash flow?
Cost basis
Cash basis
Accrual basis

37. Which of the following models is best in helping predict future cash flows?
Cost accounting
Cash accounting
Accrual accounting

38. True or false: Net operating cash flow is a good indicator of a company's long-run cash-
generating ability.
True
False

39. True or false: Investors expect that if an investment has greater risk, it should also pay a
higher return.
True
False

40. What is net operating cash flow?

The sum of cash receipts and cash disbursements for all expenditures during a period.
The difference between cash receipts and cash disbursements from providing goods and
services during a period.
The difference between revenues and expenses during a period.

41. The accrual accounting model measures the entity's accomplishments and resource sacrifices
during the period regardless of when Blank 1 of 1 cash, money, or monies
 is received or paid

42. Cash basis accounting measures the difference between cash receipts and payments during a
reporting period.

43. The difference between revenue and expenses when revenue is greater is called net income

44. Which accounting model best meets the primary goal of users of financial reporting?
Cash basis
Net basis
Cost basis
Accrual basis

45. 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 company pays a service technician the day work is performed

A customer pays for services provided in a prior period
A company pays cash to purchase a 2 year insurance policy

46. True or false: Resource inflows and outflows may not correspond to cash inflows and
outflows.
True
False

47. The accrual accounting model's measure of resources provided by business operations is
called revenue

48. What financial reporting model is used by most profit-oriented businesses and not-for-profit
entities?
cash basis accounting
cost accounting
accrual accounting
tax accounting

49. Claire's revenues are greater than her expenses. Claire has net Blank 1 of 1 income 
 for the period

50. The abbreviation GAAP stands for generally Blank 1 of 1 accepted accounting principles. 

51. Question Mode

Matching Question
Match the financial reporting law with its requirements.
Drag and drop application.
1933 Securities Act
Sets forth accounting and disclosure requirements for initial public offerings of securities.
1934 Securities and Exchange Act
Mandates reporting requirements for companies whose stock is publicly traded.

52. Accrual income attempts to measure the resource inflows and outflows generated by the
company's Blank 1 of 1 operations during the reporting period.

53. If the SEC does not agree with a standard issued by the private sector, it can
create another accounting standard setting body.
issue a new FASB statement.
remove FASB board members from their position.
force a change in the standard.
54. True or false: Cash basis accounting is the required accounting method for most profit-
oriented companies.
True
False

55. Which accounting standard setting body replaced the Accounting Principles Board in 1973?
Securities and Exchange Commission
American Institute of Certified Public Accountants
Public Company Accounting Oversight Board
Financial Accounting Standards Board

56. Generally accepted accounting principles are abbreviated as GAAP

57. The first private accounting standard setting body in the United States was the
Financial Accounting Standards Board.
Committee on Accounting Procedure.
Accounting Principles Board.
Securities and Exchange Commission.

58. The 1933 and 1934 Acts were designed to restore investor Blank 1 of
1 confidence, faith, belief, or trust in the stock market.

59. The AICPA is the national professional organization for certified professional public Blank 1
of 1. Accountants (Enter only one word.)

60. The FASB was established to set U.S. accounting standards and is the current standard
setting body

61. The SEC has the authority to set accounting standards for companies, but has delegated the
task to the private sector.

62. The Emerging Issues Task Force (EITF) was formed to resolve _________ financial
accounting issues within the framework of existing GAAP.
narrowly-defined
conceptual
ill-defined
broad-reaching

63. List the private accounting standard setting bodies in chronological order beginning with the
oldest organization.
1. Committee on Accounting Procedure.
2. Accounting Principles Board
3. Financial Accounting Standards Board

64. In addition to issuing accounting standards, the FASB has formulated a conceptual Blank 1
of 1 t framework to provide an underlying theoretical and conceptual structure for accounting
standards.

65. The first body to set accounting standards in the U.S. was the CAP

66. which organization is currently the national professional organization for certified
professional public accountants?
The CAP
The AIA
The APB
The AICPA

67. The acronym for the private sector organization that sets accounting standards in the United
States is the
SEC
AICPA
FASB
APB

68. What was the purpose of the FASB Accounting Standards Codification project?
Reorganize all relevant accounting pronouncements in U.S. GAAP.
Issue new accounting pronouncements.
Integrate international standards with U.S. accounting standards.

69. The Emerging Issues Task Force (EITF) was formed to

address long-term accounting problems and set standards.
identify potential problem areas and provide a timely response to issues.
prepare exposure drafts for Statements of Financial Accounting Standards.

70. The citation used to reference generally accepted accounting principles is

ACSS.
GAAP.
FASB ASC.
FAS.

71. Which of the following provides an underlying structure for the development of accounting
standards?
The Conceptual Framework
EITF Issue Consensuses
Statements of Financial Accounting Standards
FASB Staff Positions

72. The first private accounting standard setting body in the United States was the
Securities and Exchange Commission.
Accounting Principles Board.
Committee on Accounting Procedure.
Financial Accounting Standards Board.

73. The acronym GASB refers to the

Government Accounting and State Bylaws.
Government Accounting Standards Board.
Generally Accepted Standards Board.
General Accounting Standards Bylaws.

74. The FASB Accounting Standards codification organizes all relevant accounting

pronouncements in a searchable, online database

75. The acronym for the Accounting Standards Codification is ASC

76. The organization that develops global accounting standards is the

International Accountants Society Bylaws.
International Accountants Standards and Bylaws.
International Accounting Standards Board.

77. The organization that is responsible for the standard setting process for states and cities in the
United States is the
Generally Accepted Standards and Bylaws.
Government Authority for Standards and Bylaws.
Governmental Accounting Standards Board.
General Accounting State Board.

78. The IASB's main objective is to develop a single set of global accounting standards
 that are high-quality, understandable, and enforceable.

79. As of July 1, 2009, the single source of nongovernmental U.S. GAAP is found in the
AICPA professional standards.
FASB statements.
SEC literature.
Accounting Standards Codification.

80. The IASB is dedicated to developing a set of high-quality, understandable, and

enforceable global, international, universal, or world accounting standards.

81. 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
Global Financial Reporting Standards
International Financial Reporting Standards
European Accounting Standards
International Accounting Standards
82. The Financial Accounting Foundation provides oversight, appoints members, and raises
funds to support the:
EITF
FASB
SEC
IASB

83. Which of the following represents the IASB's primary objective?

To lower the cost of capital on global markets
To control the international standard setting process
To develop high quality global standards used to make economic decisions

84. The FASB Codification project revised and updated U.S. accounting standards with
international accounting standards.
True
False

85. Which of the following would be a likely advantage of a single set of accounting standards?
Less need for issuing consolidated financial statements
Enhanced export and import opportunities
Enhanced financial statement comparability

86. Correctly match the organizations shown on the left with the standards and functions on the
right.
Securities and Exchange Commission
Securities and Exchange Commission answer drop zone Group dealing with emerging issues -
U.S. GAAP incorrect toggle button unavailable
Group dealing with emerging issues - U.S. GAAP
International Organization of Securities Commissions
International Organization of Securities Commissions answer drop zone Regulatory oversight -
IFRS correct toggle button unavailable
Regulatory oversight - IFRS
Emerging Issues Task Force
Emerging Issues Task Force answer drop zone Regulatory oversight - U.S. GAAP incorrect
toggle button unavailable
Regulatory oversight - U.S. GAAP
IASB
IASB answer drop zone Standard-setting board - IFRS correct toggle button unavailable
Standard-setting board - IFRS
Correct Answer
Securities and Exchange Commission
matches
Choice, Regulatory oversight - U.S. GAAP
Regulatory oversight - U.S. GAAP
International Organization of Securities Commissions
matches
Choice, Regulatory oversight - IFRS
Regulatory oversight - IFRS
Emerging Issues Task Force
matches
Choice, Group dealing with emerging issues - U.S. GAAP
Group dealing with emerging issues - U.S. GAAP
IASB
matches
Choice, Standard-setting board - IFRS
Standard-setting board - IFRS

87. The International Accounting Standards Committee issued International Accounting

Standards (IAS), whereas the International Accounting Standards Board currently issues
Globally Accepted Accounting Principles.
International Financial Reporting Standards.
International Accounting and Auditing Standards.
General Guidelines for Global Reporting.

88. Which of the following represent(s) an important objective of the IASB?

To lower the cost of capital on global markets
To control the global standard setting process
To develop high quality global standards

89. Differences in implementation and enforcement of IFRS across countries can impact
comparability or uniformity of financial statements.

90. What was the purpose of the FASB Accounting Standards Codification project?
Reorganize all relevant accounting pronouncements in U.S. GAAP.
Issue new accounting pronouncements.
Integrate international standards with U.S. accounting standards.

91. Which of the following would be a likely advantage of a single set of accounting standards?
Enhanced export and import opportunities
Less volatile exchange rates
Easier access to capital

92. Which of the following are common arguments against the creation of a single set of global
accounting standards? (Select all that apply.)
Accounting under IFRS will appear more uniform than it actually is
Global standards will lead to more complex accounting standards
Maintaining competition between accounting standard-setting bodies improves quality
Implementation and enforcement of IFRS varies among nations

93. 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
False

94. The International Accounting Standards Committee provides oversight, appoints members,
and raises funds to support the:
EITF
FASB
SEC
IASB

95. In which of the following areas did the FASB and IASB already develop converged
accounting standards? (Select all that apply.)
Earnings-per-share
Share-based compensation
Lease accounting
Financial instruments
Non-monetary exchanges

96. Recent events suggest that full convergence ________ be achieved in the foreseeable future.
will
will not

97. Before issuing an Accounting Standards Update, the FASB undertakes a series of
information-gathering steps including
deliberations
open hearings
company visits
written comments

98. In 2007, the SEC eliminated the requirement for foreign or international

companies that issue stock in the United States to include in their financial statements a
reconciliation of IFRS to U.S. GAAP. 

99. The FASB's standard setting process begins when the board adds a project to its technical
agenda. Identify the final step in this process.
The board deliberates at one or more public meetings.
The board issues an Exposure Draft or Discussion Paper.
The staff analyzes comment letters.
The Board issues an Accounting Standards Update.

100. Why is accounting standard setting a political process? (Select all that apply.)
Changes in standards can result in a substantial redistribution of wealth within our
economy.
Accounting standards can be legally enforced by the FASB.
Standards can have significant effects on companies, investors, and creditors.
Congress votes on the introduction of a new accounting standard.
101. In which of the following areas did the FASB and IASB achieve converged standards?
financial instruments
derivative instruments
lease accounting
revenue recognition

102. The FASB and IASB will continue to work together to converge where possible, but ,
differences between IFRS and U.S. GAAP will likely remain.

103. In developing standards, the FASB considers the:

effect on the financial position of constituents
concerns and opinions of constituents
economic transactions that standards will address

104. Pressure from lobbyists and politicians influenced the FASB to revise guidance on fair
value accounting.

105. Which of the following are steps the FASB takes before issuing an Accounting Standards
Update?
The Board holds a public meeting
The Board meets with individual shareholders
Receives requests from stakeholders
The Board visits companies that use the proposed standard

106. Political pressure has deterred the FASB from issuing particular standard changes.
True
False

107. Where does political pressure come from in International standard setting? (Select all that
apply.)
Politicians from countries utilizing IFRS
The International Accounting Standards Board
The European Union (EU)
The United States

108. The purpose of the Private Company Council (PCC) is to advise the ________ about its
current projects that affect private companies.
FASB
PCAOB
IASB
SEC

109. The most recent issue in implementing the fair value accounting standard is
the FASB's reluctance to issue an accounting pronouncement.
the attempts by Congress to prohibit historical cost accounting.
pressure to reduce the extent to which fair value changes are reported in net income.
the government's responsibility to measure fair value of assets.

110. It is the responsibility of management or managers to apply Generally Accepted

Accounting Principles in preparation of the company's financial statements

111. Economic consequences for EU member nations are an important consideration in the
adoption of International Financial Reporting Standards.
True
False

112. The Private Company Council (PCC) determines whether changes to existing GAAP are
necessary to meet the needs of
users of public company financial statements
users of private company financial statements
users of non-profit company financial statements

123. Auditors examine financial statements to express a professional, independent opinion on

the financial statements. 

124. 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.
an adverse opinion
a qualified opinion
a clean opinion
a disclaimer opinion

125. What is the testing requirement for a licensed certified public accountant?
Uniform CMA Examination
Uniform CFA Examination
Uniform CPA Examination

126. Who has the responsibility to appropriately apply GAAP when preparing financial
statements?
Auditors
The SEC
Management
The FASB

127. Where does political pressure come from in International standard setting? (Select all that
apply.)
The European Union (EU)
Politicians from countries utilizing IFRS
The United States
The International Accounting Standards Board

128. What is the purpose of the audit report?

To add credibility to the financial statements.
To provide investment advice.
To report taxable income to the IRS.

129. 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.)
Regulate auditors.
Prevent conflicts of interests.
Issue capital requirements for companies.
Provide penalties for violators.
Require CEO accountability.

130. A(n) unqualified, clean, or unmodified  opinion signals that a company's financial

statements do not contain material departures from US GAAP.

131. What are the requirements of most states to become a licensed certified public accountant?
experience
income
testing
education
background check

132. Who has the responsibility for preparing financial statements in accordance with generally
accepted accounting principles?
CPA firms who audit the company
Audit committee
Corporate management
SEC staff auditors

133. Economic consequences for EU member nations are an important consideration in the
adoption of International Financial Reporting Standards.
True
False

134. The Sarbanes-Oxley Act increases accountability of who?

corporate executives
securities analysts
FASB members

135. Which of the following are provisions included in the Sarbanes-Oxley Act?
Require auditors to retain work papers for 7 years.
Require that the auditors are responsible for preparing the financial statements.
Require that the SEC audit publicly traded companies.
Require that audit firms are hired by the audit committee of the board of directors.

136. Who must personally certify the financial statements and company disclosures or risk
financial penalties and criminal prosecution for fraudulent misstatements?
corporate executives
SEC staff auditors
board of directors of a corporation
CPA firms who audit the company

137. The key provisions of the Sarbanes-Oxley Act include

restricting activities of auditors to prevent conflicts of interest.
requiring that corporate executives certify financial statements.
limiting the role of the FASB in accounting standard setting.
establishing the Securities and Exchange Commission.
requiring documentation and assessing effectiveness of internal controls.

138. The Sarbanes-Oxley Act requires that lead audit partners are required to rotate every
______ years.
3
10
7
5

139. Proponents of objectives-based standards assert that

less professional judgment will be needed in the preparation and audit of the financial statements
professional judgment minimizes sidestepping of rules
financial statements will become more transparent

140. What requirements for corporate accountability are included in the Sarbanes-Oxley Act?
Corporate executives must personally certify the financial statements.
Corporate executives may be criminally liable for fraudulent financial statements.
Corporate management must select the auditor.
Corporate management must hire the same audit and consulting firm.

141. The Sarbanes-Oxley Act requires auditors to retain work papers for ______ years.
10
3
5
7

142. A code or moral system that provides criteria for evaluating right or wrong is referred to
as ethics
143. Criticisms of the objectives-oriented approach for accounting standards are (Select all that
apply.)
professional judgment may result in different treatments of similar transactions.
a lack of disclosure notes explaining accounting policies.
the rules can be easily applied uniformly.
an absence of rules may lead to intentional misuse of a standard.

144. Under the Sarbanes-Oxley Act, who is responsible for the selection of a corporation's
auditor?
The American Institute of Certified Public Accountants.
The Securities and Exchange Commission.
The audit committee of the Board of Directors.
Corporate management.

145. Which of the following fields are considered a profession that has its own code of
professional ethics? (Select all that apply.)
marketing
management
law
accounting
medicine

146. A code or moral system that provides criteria for evaluating right and wrong is referred to as
standards.
ethics.
a dilemma system.
a values model.

147. The organization responsible for the code of ethics for accountants working in government
and industry is the
Public Accounting Standards Oversight Board
Accounting Principles Board
American Institute of Certified Public Accountants
Institute of Management Accountants
Securities and Exchange Commission

148. Which approach to standard setting emphasizes the use of professional judgment when
choosing how to account for a transaction?
Objectives-oriented
Rules-oriented
Transaction-oriented

149. What is the distinguishing feature of a profession?

It is regulated by the SEC.
Its members accept responsibility for the interests of those it serves.
It requires a federal permit to practice.
It requires liability insurance to cover responsibilities.

150. 1. Determine the facts of the situation

2. Identify the ethical issue and stakeholders.
3. Identify the values related to the situation.
4. Specify the alternative course of action.
5. Evaluate the courses of action in terms of their consistency.

151. The organization responsible for the Code of Professional Conduct for accountants
providing auditing services to their own organizations is the
Institute of Internal Auditors
Public Accounting Standards Oversight Board
Accounting Principles Board
Institute of Management Accountants
American Institute of Certified Public Accountants

152. Criticisms of the objectives-oriented approach for accounting standards are (Select all that
apply.)
an absence of rules may lead to intentional misuse of a standard.
the rules can be easily applied uniformly.
a lack of disclosure notes explaining accounting policies.
professional judgment may result in different treatments of similar transactions.

153. The conceptual framework does not prescribe which of the following?
Qualitative characteristics.
U.S. GAAP.
Objectives of financial reporting.
Definitions of elements of financial statements.

154. The conceptual framework includes what types of information?

Revenue recognition policies currently required by the FASB and SEC.
Mandatory reporting requirements for all publicly traded companies.
Requirements imposed by the Sarbanes-Oxley Act.
A system of objectives and fundamentals that help in setting consistent accounting
standards.
Requirements on presentation and disclosures on financial statements.

155. Which of the following are steps in making an ethical decision?

Identify the stakeholders
Determine the facts
Notify the media
Take action

156. The organization responsible for the Code of Professional Conduct for certified public
accountants is the
American Institute of Certified Public Accountants
Securities and Exchange Commission
Accounting Principles Board
Public Accounting Standards Oversight Board
Institute of Management Accountants

157. Under IFRS, the primary purpose of the conceptual framework is to provide
guidance to practitioners when judgment is required
guidance to both standard setters and practitioners
guidance to standard setters

158. The "Accounting Constitution", a coherent system of interrelated objectives and

fundamentals that lead to consistent standards and that prescribe the nature, function, and limits
of financial accounting and reporting is referred to as the conceptual
framework

159. What information regarding an entity's future cash flows are investors and lenders interested
in? (Select all that apply.)
timing
uncertainty
inflation adjusted
amount

160. What concepts are contained in the FASB conceptual framework? (Select all that apply.)
SEC reporting requirements
measurement concepts
leasing and rental concepts
underlying concepts of accounting
concepts regarding types of events to be accounted for

161. The overriding objective in the hierarchy of qualitative characteristics of financial reporting
information is
conservatism.
decision usefulness.
neutrality.
faithful representation.

162. The AICPA has its own Code of Professional Conduct that prescribes ethical conduct
specific to what members?
Accountants in industry
Certified public accountants
Accountants in government
Auditors

163. The key difference between the role of the conceptual framework in US GAAP and IFRS is
that under IFRS, the conceptual framework ______________.
primarily provides guidance to standard setters
guides standard setting and provides a basis for practitioners to make judgments
only provides a basis for practitioners to make judgments
does not include a requirement that the financial statements provide a fair presentation of the
company

164. The primary purpose of financial reporting is to provide useful information for decision
making to
management
capital market regulators
providers of capital
employees

165. Which of the following are enhancing characteristics of financial information? (Select all
that apply.)
cost effectiveness
timeliness
decision usefulness
comparability

166. The conceptual framework includes what types of information?

Revenue recognition policies currently required by the FASB and SEC.
Requirements imposed by the Sarbanes-Oxley Act.
A system of objectives and fundamentals that help in setting consistent accounting
standards.
Requirements on presentation and disclosures on financial statements.
Mandatory reporting requirements for all publicly traded companies.

167. The main focus of accounting information is to

provide information to taxing authorities.
regulate the stock markets.
provide useful information for decision making.
control the firm from a management perspective.

168. To be useful for decision making, information should possess the fundamental decision-
specific qualities of (Select all that apply.)
faithful representation
predictive value
neutrality
relevance
completeness

169. The hierarchy of qualitative characteristics of financial information require that, in order to
be useful for decision making, information should possess the fundamental characteristics of
cost and benefit.
relevance and faithful representation.
neutrality and materiality.
materiality and consistency.

170. The organization responsible for the code of ethics for accountants working in government
and industry is the
Securities and Exchange Commission
Public Accounting Standards Oversight Board
Institute of Management Accountants
Accounting Principles Board
American Institute of Certified Public Accountants

171. What component of financial information helps investors analyze their prior assessments
regarding a company's cash flow generating ability?
faithful representation
materiality
confirmatory value
comparability

172. The two fundamental characteristics of financial information are

predictive value and completeness.
cost and benefit.
relevance and faithful representation.
materiality and neutrality.

173. The method for determining if an item is material and requires separate disclosure relies on
rules in SFAC 7.
professional judgment.
whether the item is greater than 5% of net income.

174. Faithful representation requires that information be (Select all that apply.)
conservative
neutral
complete
free from error

175. For accounting information to be relevant it must possess predictive value and/or
confirmatory value. 

176. Which qualitative characteristic requires that financial information should not influence
decision making to achieve a predetermined result?
materiality
neutrality
conservatism
periodicity

177. What concepts are contained in the FASB conceptual framework? (Select all that apply.)
measurement concepts
leasing and rental concepts
underlying concepts of accounting
SEC reporting requirements
concepts regarding types of events to be accounted for

178. In practice, determining whether an item is material and requires separate disclosure or
recognition is based on
the relative amount of the item.
the absolute amount of the item.
whether the effect of the item is greater than 5% of net income.

179. Faithful representation requires information to have which of the following characteristics?
(Select all that apply.)
neutrality
predictive value
completeness
freedom from material error
confirmatory value

180. According to the conceptual framework, for accounting information to be relevant, what
qualities must it possess? (Select all that apply.)
confirmatory value
predictive value
free from error
consistency

181. The characteristic that a new accounting standard should not favor one group of companies
over others or achieve a particular social outcome is an example of
relevance.
neutrality.
confirmatory value.
understandability.

182. The tendency to recognize unfavorable items more quickly than favorable items is referred
to as conservatism or conservative
183. When there is agreement between a measure or description of an item and the phenomenon
it purports to represent, the item possesses the fundamental characteristic of
confirmatory value.
faithful representation.
relevance.
predictive value.

184. For accounting information to be relevant , it must possess predictive value and/or
confirmatory value. 

185. Which qualitative characteristic requires that financial information should not influence
decision making to achieve a predetermined result?
periodicity
neutrality
conservatism
materiality

186. The application of conservatism leads to: (Select all that apply.)
assets tending to be biased downwards
liabilities tending to be biased downwards
losses being recognized quicker than gains
losses being recognized later than gains

187. An enhancing qualitative characteristic of accounting information that allows users to better
understand similarities and differences in the financial reports across different companies is
called
conservatism.
comparability.
neutrality.
Timeliness

188. The qualitative characteristic of using the same accounting method each period over time
refers to the concept of Consistency or comparability

189. Before they can be recognized, favorable items tend to require more verification than
unfavorable items. Accountants refer to this as
conservatism
relevance
neutrality
faithful representation
190. If the same accounting principles and methods are used for similar events by two different
firms, this enhances what accounting qualitative characteristic?
timeliness
comparability
verifiability
relevance

191. Information is Blank 1Blank 1 Verifiable. , verifiability, or verified

if different independent measures would reach consensus about whether it is representationally
faithful.

192. The qualitative characteristic wherein information is available early enough allowing it to
be useful for a decision describes the concept of
timeliness.
comparability.
verifiability.
matching.

193. Using the same accounting methods in each period refers to the qualitative characteristic of
verifiability.
consistency.
timeliness.
understandability.

194. The accounting characteristic that requires a user to comprehend the information within the
context of the decision being made is referred to as
verifiability.
comparability.
consistency.
understandability.

195. What does it mean if information is cost effective?

Information should have the ability to have an impact on the decisions of users.
The benefits of providing financial information exceed the costs of doing so.
Information should accurately reflect the economic condition of the business.
Information must be able to be understood by users.

196. Accounting information is  comparable, Incorrect Unavailable if similar items are treated
the same way among various companies highlighting similarities and differences between events
and conditions.

197. A consensus among different individuals appraising the value of land describes which
qualitative accounting characteristic?
comparability
verifiability
consistency
timeliness
198. What are the costs of providing financial information?
Operating, investing, and financing costs.
Gathering, processing, and disseminating information.
Transaction and opportunity costs.

199. The SEC requires companies to file quarterly reports to provide information to investors.
This is an example of the concept of
comparability.
consistency.
verifiability.
timeliness.

200. The concept of understandability assumes that the users of financial statements should have
a business background and experience.
a reasonable understanding of business and economic activities.
a license as a certified public accountant.
a finance or accounting certification.

201. Cost effectiveness is a constraint on the accounting choices a company makes.

202. What element of the financial statements is described by the following definition?
"Probable future economic benefits obtained or controlled by a particular entity as a result of past
transactions."
assets
liabilities
equity
revenue
gains

203. For information to be cost effective, the perceived benefit of increased decision usefulness
must
be equal to the anticipated costs of providing that information.
exceed the anticipated costs of providing that information.
be lower than the anticipated costs of providing that information.

204. To enhance timeliness, the SEC requires its registrants to submit financial information how
frequently? (Select all that apply)
quarterly
daily
monthly
annually

205. The accounting characteristic that requires a user to comprehend the information within the
context of the decision being made is referred to as
consistency.
verifiability.
comparability.
understandability.

206. A liability has which of the following characteristics? (Select all that apply.)
It is a probable future sacrifice of an economic benefit.
It is a present obligation.
It is a probable future economic benefit.
It is due to a past transaction or event.

207. Probable future economic benefits obtained or controlled by a particular entity as a result of
past transactions or events are referred to as assets or asset

208. What are the costs of providing financial information? (Select all that apply.)
Gathering information
Disseminating information
Processing information
Interpreting information

209. Another term for equity is

net assets.
net income.
gains.
assets.

210. Simply put, liabilities or liability are the obligations of a company. 

211. Increases in equity of a particular business enterprise resulting from transfers to it from
other entities or individuals of something of value to obtain or increase ownership interests in it
are called
investments by owners.
net assets.
comprehensive income.
retained earnings.

212. Decreases in equity of a particular enterprise resulting from transfers to owners is called
losses.
other comprehensive income.
net income.
distributions to owners.

213. Comprehensive income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from what type of sources?
Nonowner
Investor
Owner

214. A transfer of something of value to obtain or increase ownerships interests in a business is

called
accumulated other comprehensive income.
investments by owners.
retained earnings.
net income.

215. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a
period from delivering or producing goods, rendering services, or other activities that constitute
the entity's ongoing major or central operations are referred to as revenue or revenues

216. Outflows or other using up of assets or incurrences of liabilities during a period from
delivering or producing goods, rendering services, or other activities that constitute the entity's
ongoing major or central operations are referred to as expenses or expense

217. Decreases in equity of a particular enterprise resulting from transfers to owners are
called distributions or distribution to owners.

218. __ include(s) all changes in equity during a period except those resulting from investments
by owners and distributions to owners.
Investments from owners
Net income
Distributions to owners
Comprehensive income

219. An increase in equity from peripheral or incidental transactions of an entity is referred to as

a(n) gain or gains

220. Inflows or other enhancements of assets of an entity or settlements of its liabilities during a
period from delivering or producing goods, rendering services, or other activities that constitute
the entity's ongoing major or central operations are referred to as
losses.
revenues.
gains.
expenses.
221. Outflows or other using up of assets or incurrences of liabilities during a period from
delivering or producing goods, rendering services, or other activities that constitute the entity's
ongoing major or central operations are referred to as
losses.
expenses.
revenues.
gains.

222. Decreases in equity of a particular enterprise resulting from transfers to owners is called
net income.
distributions to owners.
other comprehensive income.
losses.

223. Decreases in equity from peripheral or incidental transactions of an entity are called
expense.
losses.
revenues.
gains.

224. Increases in equity from peripheral or incidental transactions of an entity are called
gains.
losses.
expenses.
revenues.

225. The four basic accounting assumptions (Select all that apply.)
identify the frequency of reporting
identify asset and liability values
assume the entity follows proper GAAP standards
assume the entity will continue to exist
identify the entity being reported on
identify the denomination in which reporting occurs

226. An essential assumption underlying GAAP is that all economic events can be identified
with what?
An economic entity
Company executives
An individual

227. The going concern assumption is critical to the measurement of assets because if a business
were going to cease operations, its assets would be measured at their
future value.
historical cost.
depreciated value.
liquidation values.
228. A decrease in equity from peripheral or incidental transactions of an entity is referred to as
a(n) loss or losses

229. An increase in equity from peripheral or incidental transactions of an entity is referred to as

a(n) gain or gains

230. Which assumption allows the life of the company to be divided into artificial time periods
to provide timely information?
monetary unit
economic entity
periodicity
going concern

231. Which of the following are among the basic assumptions underlying U.S. GAAP? (Select
all that apply.)
cost-effectiveness
periodicity
going concern
conservatism
economic entity
fair value
monetary unit

232. An essential assumption in accounting is that all economic events can be identified
specifically with an individual economic entity

233. Which accounting assumption states that financial statement elements should be measured
in terms of the United States dollar for U.S financial reporting?
going concern
periodicity
economic entity
monetary unit

234. The assumption that a business entity will continue to operate indefinitely in the future
refers to what assumption?
periodicity
monetary unit
going concern
economic entity

235. The periodicity assumption relates to which qualitative characteristic?

comparability
understandability
timeliness
verifiability
236. Recognition refers to the process of
estimating amounts for allocation purposes.
analyzing the financial statements.
measuring the numbers associated with the elements.
recording information in the basic financial statements.

237. The assumption that financial statement elements should be measured in terms of the United
States dollar for U.S. financial reporting is referred to as the monetary or money
 unit assumption.

238. Assuming that a business will operate indefinitely is referred to as the Blank 1: going
Blank 2: concern assumption. 

239. The process of associating numerical amounts to the elements of the financial statements is
referred to as Measurement

240. The process of admitting or recording an item into the basic financial statements is referred
to as
valuation.
measurement.
allocation.
recognition.

241. Disclosure refers to the process of

recording information in the basic financial statements.
including additional information in the financial statements and notes.
analyzing the financial statements.
measuring the numbers associated with the elements.

242. Which accounting assumption states that financial statement elements should be measured
in terms of the United States dollar for U.S financial reporting?
periodicity
economic entity
monetary unit
going concern

243. The assumption that a business entity will continue to operate indefinitely in the future
refers to what assumption?
economic entity
periodicity
monetary unit
going concern

244. According to SFAC 5, the four criteria that must be met for an item to be recognized in the
basic financial statements are
the item can be matched with associated revenues.
the item has relevant attributes that are measurable.
the information about the item is reliable.
the item can be valued at fair value.
the information about the item is relevant to decision making.
The item meets the definition of an element.

245. The process of associating numerical amounts to the elements in the financial statements is
called
measurement.
recognition.
historical cost.
allocation.

246. The periodicity assumption relates to which qualitative characteristic?

understandability
timeliness
verifiability
comparability

247. Revenue recognition criteria are designed to prevent companies from

overstating or overstate  income in one period and, consequently, understating or understate
income in another period.

248. The process of including additional pertinent information in the financial statements and
accompanying notes is referred to as disclosure, disclosing, or disclose

249. The assumption that financial statement elements should be measured in terms of the United
States dollar for U.S. financial reporting is referred to as the monetary or money unit
assumption

250. Select the four criteria used to determine if an item is recognized in the financial statements
according to SFAC 5.
Quality
Persistence
Measurability
Reliability
Relevance
Definition

251. A recently issued FASB standard requires that companies recognize revenue when goods or
services are transferred, distributed, given, delivered, or provided
  to customers for the amount the company expects to be entitled to receive in exchange for those
goods or services.
252. Revenue should be recognized when the seller satisfies its performance obligation(s) to its
customers. What is the accounting issue if the revenue recognition rule is not followed? (Select
all that apply)
Net income may be overstated or understated for the period.
The income statement would not report the accomplishments of the period.
Cash flows would be distorted for the period.
Total assets will be overstated for the period.

253. Disclosure is the process of including additional pertinent information in (Select all that
apply.)
Financial statements
Media press releases
Notes to the financial statements

254. Expense recognition often matches expenses or expense and

revenues, earnings, or revenue that arise from the same transaction

255. The FASB recently issued a standard that requires companies recognize revenue (Select all
that apply.)
even if collection is not probable
for the amount the company expects to be entitled to receive
when goods or services are transferred to customers
at a point in time or over a period of time

256. Expense recognition is implemented by which of the following ways? (Select all that
apply.)
systematic and rational allocation.
cause-and-effect relationship.
in the period incurred
operational investment method.
asset and liability offsetting.
associating expenses and revenues in a specific period of time.

257. Which of the following are acceptable measurement attributes for certain financial
statement items? (Select all that apply.)
net realizable value
cash value
historical cost
future value adjusted for inflation
fair value
present value

258. Expenses are matched or match to revenues from the same transaction

259. A recently issued FASB standard requires that companies recognize revenue when goods or
services are transferred, distributed, given, delivered, or provided to customers for the
amount the company expects to be entitled to receive in exchange for those goods or services. 

260. Matching cost of goods sold with the revenues generated during the period is an example of
which approach to expense recognition?
Cause-and-effect relationship.
When incurred, without regard to revenues.
Association in a specific period of time.
Systematic and rational allocation.

261. What type of measurement model does U.S. GAAP currently employ? (choose only one
answer)
current cost
historical cost
mixed attribute
fair value

262. Hernandez Corporation purchases a building for $300,000 cash. The building was appraised
at $310,000. The tax assessment on the building was $280,000. Three months after purchasing
the building, Company Z offers Hernandez $320,000 for the building. At what amount should
the building be reported in Hernandez's financial statements according to the historical cost
principle?
$280,000
$300,000
$320,000
$310,000

263. The principle stating that asset and liability measurements should be based on the amount
given or received in the original transaction is referred to as the historical cost
principle

264. A company purchases a building by signing a $200,000 10% interest-bearing note due at the
end of five years. At what amount should the building be recorded?
$200,000 plus interest paid over the five-year period
$200,000 less interest paid over the five-year period
$200,000

265. The historical cost of an asset is the

estimated selling price of the asset less costs of completion and transportation.
consideration that would be received in a transaction between market participants at the
measurement date.
amount of consideration given for the asset at initial acquisition.
cost that would be incurred to reproduce the asset.

266. Measuring assets at what value helps financial statement users predict a company's future
cash flows?
historical cost
book value
net realizable value
current cost

267. Recording depreciation on fixed assets is an example of which approach to expense

recognition?
Association in a specific period of time.
When incurred, without regard to revenues.
Cause-and-effect relationship.
Systematic and rational allocation.

268. The cost that would be incurred to purchase or reproduce an asset is referred to as
current cost.
present value.
fair value.
historical cost.
net realizable value.

269. Measuring assets and liabilities based on their original transaction value is an example of
current cost.
net realizable value.
fair value.
present value.
historical cost.

270. The measurement attribute that is based on future cash flows discounted for the time value
of money is
current cost
present value
net realizable value
historical cost

271. An advantage of historical cost measurement is that it is

objective and verifiable.
more relevant than fair value measures.
appropriate for all balance sheet accounts.
the preferred method of valuation in accounting
272. The amount of cash into which an asset is expected to be converted in the normal course of
business is the asset's
present value.
fair value.
net realizable value.
current value.

273. Schoene Company reports its inventory at replacement cost. This is an application of the
measurement attribute of
historical cost
present value
current cost
fair value

274. The measurement method based on future cash flows discounted for the time value of
money is referred to as  present value

275. Fair Value , bases measurements on the price that would be received in an orderly market
transaction

276. Reporting assets at net realizable value helps predict:

future cash flows
current year income
current cash flows
future income

277. The cost that would be incurred to purchase or reproduce an asset is referred to as
present value.
net realizable value.
historical cost.
fair value.
current cost.

278. The measurement attribute that is based on future cash flows discounted for the time value
of money is
current cost
net realizable value
present value
historical cost
279. The price that would be received to sell assets or paid to transfer a liability in an orderly
transaction between market participants at the measurement date is the
fair value.
liquidation value.
present value.
current value.

280. The fair value approach that uses current information from recent transactions or exchanges
in active trading on stock exchanges is the market  approach. 

281. An advantage of historical cost measurement is that it is

more relevant than fair value measures.
the preferred method of valuation in accounting.
objective and verifiable.
appropriate for all balance sheet accounts.

282. The income approach for measuring fair value estimates value by estimating future amounts
of earnings or cash flows and then mathematically converting these amounts to a single present
value.

283. The cost approach determines fair value by estimating the amount that would be required to
buy or construct an asset of similar quality and condition

284. Which approach to measuring fair value uses information from actively traded stock on the
New York Stock Exchange?
cost approach
market approach
income approach

285. What level of the fair value hierarchy includes inputs other than quoted prices that are
observable for the asset or liability?
Level 1
Level 2
Level 3

286. Criticisms of fair value accounting are that fair value estimates may not be
________________.
verifiable
relevant or useful
representationally faithful
current
287. The income approach for measuring fair value estimates future amounts of earnings or cash
flows first and then mathematically converts these amounts to a single present value.

288. Financial assets and liabilities can be reported

at fair value or historical cost
at historical cost only
at fair value only

289. Which approach to measuring fair value determines fair value by estimating the amount that
would be required to buy or construct an asset of similar quality and condition?
market approach
replacement approach
income approach
cost approach

290. The measurement attribute that is based on future cash flows discounted for the time value
of money is
current cost
historical cost
net realizable value
present value

291. What level of the fair value hierarchy includes quoted market prices in active markets for
identical assets and liabilities?
Level 1
Level 3
Level 2

292. The full disclosure principle requires that any information useful to decision makers be
provided in the financial statements, subject to the cost effectiveness constraint.

293. Proponents of fair value accounting point out that it will enhance the relevance of the
information provided

294. If a company elects the fair value option for a financial asset or financial liability, how are
the changes in fair value reported in the financial statements?
As gains or losses on the income statement.
As accumulated other comprehensive income.
As extraordinary income for the period.
As other significant income on the statement of cash flows.

295. If there is accounting information not included in the primary financial statements that

would benefit users, that information should be disclosed in (choose the best answer):
Notes to the financial statements
A press release issued by the company
Supplemental schedules and tables
Parenthetical comments on the face of the statements
Management's discussion and analysis
296. The revenue/expense approach focuses on the income statement because it relies on which
accounting principles? (Select all that apply.)
matching
going concern
revenue recognition
historical cost

297. The full-disclosure principle requires that financial reports should include any information
that could affect the decisions made by external users, within the constraint that the benefits of
that information should exceed the costs of providing the information. 

298. Which approach to accounting measures balance sheet accounts and then recognizes
revenues, expenses, gains, and losses by accounting for changes in balance sheet accounts?
operating/investing
revenue/expense
asset/liability
revenue/liability

299. Notes to the financial statements are an example of the application of which accounting
principle?
matching principle
revenue recognition principle
historical cost principle
full-disclosure principle

300. Which approach to measuring fair value determines fair value by estimating the amount that
would be required to buy or construct an asset of similar quality and condition?
market approach
income approach
replacement approach
cost approach

301. An emphasis is placed on proper income statement item recognition under what approach
under US GAAP?
balance sheet adjustment approach
income statement reconciliation approach
revenue/expense approach
asset/liability approach

302. Recent standard-setting for revenue, investments, and income taxes has followed the
________ approach.
cash flow
income statement
asset/liability
revenue/expense
303. Which approach to accounting uses the measurement of balance sheet accounts to drive
revenue and expense recognition?
revenue/expense
cash/accrual
asset/liability
operating/Income

304. A standard setting focus on the asset/liability approach supports measurement of assets and
liabilities at:
fair value
historical cost
present value

305. Any information useful to decision makers should be provided in the financial statements,
subject to the cost effectiveness constraint. This describes which accounting principle?
historical cost principle
realization principle
matching principle
full-disclosure principle

306. Which approach to accounting measures balance sheet accounts and then recognizes
revenues, expenses, gains, and losses by accounting for changes in balance sheet accounts?
revenue/liability
revenue/expense
asset/liability
operating/investing