Accounting Theory: Conceptual Issues in a Political and Economic Environment 8th Edition

The International Accounting Standards Committee was formed in an attempt at economic integration of member countries. Answer: FALSE Answer: FALSE Answer: FALSE Economic profit is equal to net operating profit less taxes paid minus a charge on invested capital. Answer: TRUE Answer: TRUE Answer: TRUE How did the definition of accounting change from the period before ASOBAT to

A normal four-to-three majority vote is required for passing new accounting standards. Answer: True Answer: True Answer: True The Litigation Reform Act of 1995 requires that an audit include procedures designed to guarantee that illegal acts that would materially affect financial statements will be detected. Answer: False Answer: False Answer: False SFAS No. 33 specified that the effects

In a sole proprietorship, there is a legal distinction between contributed capital and earned capital. Answer: FALSE Answer: FALSE Answer: FALSE A troubled debt restructuring occurs when a creditor, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. Answer: TRUE Answer: TRUE Answer:

Deductive reasoning analyzes empirical data to make inferences about a population. Answer: False Answer: False Answer: False In ASR 190, the SEC reinforced its long-standing position of forbidding the presentation of information other than historical cost. Answer: FALSE Answer: FALSE Answer: FALSE The legal form of a lease is an executory, or unperformed, contract. Answer: TRUE Answer: TRUE Answer: TRUE The fair

A premise stating that accounting reports should be based on historical costs would indicate a normative approach. Answer: True Answer: True Answer: True The proprietary theory approach largely coincides with the components of income measurement as it is presently construed in historical cost-based systems. Answer: TRUE Answer: TRUE Answer: TRUE Income tax allocation may be used by management

An exit-price accounting system provides an estimate of the cash conversion value of a firm's resources. Answer: TRUE Answer: TRUE Answer: TRUE A FASB survey found that most enterprises entering into a pooling of interest believed that the combination would not have occurred if purchase accounting had been acquired. Answer: FALSE Answer: FALSE Answer: FALSE "Economic consequences" is

The value to investors of the information in financial reporting lies in its role as an historical record. Answer: FALSE Answer: FALSE Answer: FALSE The responsibility of the Financial Accounting Foundation is to elect the board of trustees, which selects FASB members, funds the board's activities, and performs the oversight role. Answer: True Answer: True Answer: True For

A general price-level adjustment refers to the purchasing power of the monetary unitary unit relative to all goods and services in the economy. Answer: True Answer: True Answer: True Using ratio scale measurement is possible in accounting. Answer: True Answer: True Answer: True One hypothesis of agency theory is that management attempts to maximize its own welfare by minimizing

Opinion is virtually unanimous that SFAC No. 5 on recognition and measurement is the low point of the conceptual framework. Answer: TRUE Answer: TRUE Answer: TRUE Positive accounting research attempts to be value-free, while normative accounting research is value judgment oriented. Answer: True Answer: True Answer: True Financial reporting for publicly-listed companies in the United States was first regulated

The underlying premise of the clean surplus accounting is that all profit and loss elements go through income. Answer: TRUE Answer: TRUE Answer: TRUE Hypotheses are conclusions derived from the research process. Answer: False Answer: False Answer: False The Accounting Standards Board (ASB) in the UK operates along the lines of the FASB. Answer: TRUE Answer: TRUE Answer: TRUE A position paper

The going-concern postulate states that unless there is evidence to the contrary, it is assumed that the firm will continue indefinitely. Answer: TRUE Answer: TRUE Answer: TRUE The current operating approach has led to the concept of comprehensive income. Answer: FALSE Answer: FALSE Answer: FALSE Partial allocation is an example of flexible uniformity. Answer: FALSE Answer: FALSE Answer: FALSE All empirical evidence

Prior to SFAS No. 106, OPEB had been handled on a cash basis of accounting. Answer: TRUE Answer: TRUE Answer: TRUE The overriding message of SATTA is that current-cost should be accepted as the dominate valuation system. Answer: FALSE Answer: FALSE Answer: FALSE Postulates are generally defined as basic assumptions that cannot be verified. Answer: TRUE Answer: TRUE Answer: TRUE Deferred taxes

Only transactions having a direct effect on fund accounts were included in the statement of changes in financial position. Answer: FALSE Answer: FALSE Answer: FALSE Relevant circumstances are an important aspect of the uniformity issue. Answer: TRUE Answer: TRUE Answer: TRUE Empirical research shows that prices of publicly traded securities react slowly and in an erratic manner to new information. Answer:

SFAS No. 87 is no longer in effect, having been replaced by SFAS 132. Answer: FALSE Answer: FALSE Answer: FALSE The continental model of financial reporting generally presents a strong accounting profession. Answer: FALSE Answer: FALSE Answer: FALSE Unrealized capital adjustments in owners' equity are becoming more prevalent as a result of SFAC No. 130 on comprehensive income. Answer:

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A chart of accounts is an example of an ordinal classification. Answer: False Answer: False Answer: False Inflation has posed the single greatest problem that is faced in accounting theory. Answer: TRUE Answer: TRUE Answer: TRUE A sale and leaseback occurs when the owner of an asset sells it and enters into a lease agreement to lease the

Benefits in a defined benefit plan may be based on either career average or final average salary. Answer: TRUE Answer: TRUE Answer: TRUE The FASB took an enormous step in SFAS No. 106 by requiring the recognition and measurement of OPEB costs and obligations. Answer: TRUE Answer: TRUE Answer: TRUE SFAS requires that abnormal amounts of idle facility

The lower-of-cost or market valuation of inventories is an example of the disclosure principle. Answer: FALSE Answer: FALSE Answer: FALSE SPEs are designed to conduct just one well defined activity. Answer: TRUE Answer: TRUE Answer: TRUE The value of an asset may be determined by multiplying its historical cost by a fraction consisting of the general price index

Timeliness and predictive value are the two main aspect of relevance. Answer: FALSE Answer: FALSE Answer: FALSE An important segment of accounting theory is derived from the research process. Answer: True Answer: True Answer: True APB Opinion No. 5 was criticized on the grounds that it excluded many leases that should be capitalized. Answer: TRUE Answer: TRUE Answer: TRUE Under comprehensive allocation,

Economic income is equal to residual income. Answer: FALSE Answer: FALSE Answer: FALSE Risk in investment can be eliminated by improved accounting and auditing procedures. Answer: False Answer: False Answer: False SFAS No. 142 converted goodwill into a nonamortizable asset subject to its own impairment rules. Answer: TRUE Answer: TRUE Answer: TRUE The discussion memorandum that preceded the conceptual framework was perhaps

In the statement of changes in financial position, sources of resources are defined as transaction debits. Answer: FALSE Answer: FALSE Answer: FALSE The balance sheet gives insight into the cash-generating potential of the operations of a firm. Answer: FALSE Answer: FALSE Answer: FALSE The key group in Moonitz's set of postulates consists of postulates stemming from accounting itself. Answer:

An argument supporting accounting regulation is that it is better to force mandatory reporting than to have individuals competing to buy information privately. Answer: True Answer: True Answer: True Tax allocation is made necessary by the permanent differences in financial statement income and tax income. Answer: FALSE Answer: FALSE Answer: FALSE SFAS No. 13 identifies four capitalization tests

The initial impetus for lease capitalization was caused by concern over lessee balance sheets. Answer: TRUE Answer: TRUE Answer: TRUE Only firms that perform well have incentives to report their operating results. Answer: False Answer: False Answer: False Assessment measures are not concerned with particular attributes of objects. Answer: False Answer: False Answer: False SFAC No. 1 takes the position that users

An advantage of proportionate consolidation is that the minority interest category does not arise. Answer: TRUE Answer: TRUE Answer: TRUE ARB 43 recommended capitalization for leases that were, in substance, installment purchases. Answer: TRUE Answer: TRUE Answer: TRUE Throughout the financial history of the United States, current value has been the accepted valuation system for published financial statements. Answer:

Relevance is considered the most important of the qualitative objectives of APB Statement 4. Answer: FALSE Answer: FALSE Answer: FALSE It can be argued that all leases over one year should be capitalized. Answer: TRUE Answer: TRUE Answer: TRUE Economic exposure directly affects consolidated cash flows. Answer: TRUE Answer: TRUE Answer: TRUE In a defined contribution plan, benefits are defined either as

SFAS No. 82 eliminated the constant dollar income disclosures required by SFAS No.33. Answer: TRUE Answer: TRUE Answer: TRUE The SEC requires disclose of both retrospective and prospective information in the Management's Discussion and Analysis section of the annual report. Answer: TRUE Answer: TRUE Answer: TRUE SFAS No. 87 was the first accounting standard to argue that the

Inductive approaches to accounting theory usually attempt to be descriptive. Answer: True Answer: True Answer: True The majority of exceptions to the general rule regarding revenue recognition have evolved because new transactions have emerged that do not fit the mold of traditional transactions. Answer: TRUE Answer: TRUE Answer: TRUE The equity method is the required reporting method for

Unused tax credits may generate deferred tax assets. Answer: TRUE Answer: TRUE Answer: TRUE In the United States, the term 'present fairly' in opinions of American auditing firms is the same as the 'true and fair view' of international financial reporting. Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] A basic issue with lessor capitalization is symmetry with lessee accounting. Answer:

The essence of SFAS No. 142 is that goodwill must now be amortized over 40 years. Answer: FALSE Answer: FALSE Answer: FALSE The stock market shows that people are willing to contract privately for information about a firm. Answer: True Answer: True Answer: True The assumption of the capital asset pricing model is that individual securities are priced solely

Under the temporal method of translation, all balance sheet items that are carried at current or future exchange prices are translated at the current exchange rate, while items carried at past prices are translated at exchange rates existing at the time the item was acquired. Answer: TRUE Answer: TRUE Answer: TRUE Although the revenue-expense approach

The definition of assets establishes what types of economic factors will appear in the balance sheet. Answer: TRUE Answer: TRUE Answer: TRUE Accounting regulation prevents fraud. Answer: False Answer: False Answer: False There are only a few examples of accounting standards that emphasize the effects of transactions on the income statement to the exclusion of their impact on

Measurements based on the accountability objective would include earnings per share but not return on investment. Answer: FALSE Answer: FALSE Answer: FALSE SFAS No. 35 is considered a landmark standard because it set accounting and reporting standards for a new entity, the pension plan, as separate and distinct from the sponsoring company. Answer: TRUE Answer: TRUE Answer:

The key question addressed by SFAS No. 52 involves how to report exchange gains and losses on the income statement. Answer: FALSE Answer: FALSE Answer: FALSE Currently, there are moves to extend consolidated reporting. Answer: TRUE Answer: TRUE Answer: TRUE Under current requirements, the weak disclosures of noncapitalized leases create incentives to structure leases in such a way as

One consequence of the revenue-expense approach is to burden the balance sheet with by-products of income measurement rules. Answer: TRUE Answer: TRUE Answer: TRUE Assessment measures are concerned with particular attributes of objects and are always direct measurements. Answer: False Answer: False Answer: False Accountability refers to the responsibility of management to report on achieving goals for the

Prior research studies have provided evidence that a firm's unfunded pension benefits are interpreted as if they are liabilities. Answer: TRUE Answer: TRUE Answer: TRUE The main change brought about by SFAS No. 158 was to bring the overfunded or underfunded status of a defined benefit plan to the footnotes of the balance sheet. Answer:

Management intent is an accepted basis for recognition of future events. Answer: FALSE Answer: FALSE Answer: FALSE In the cash flow statement, cash is defined as literal cash on hand or on demand deposit plus cash equivalents. Answer: TRUE Answer: TRUE Answer: TRUE Some capital leases are treated as loans with income realized through implicit interest in each lease

Under SFAS No. 157, prices for assets include deductions for transaction costs. Answer: FALSE Answer: FALSE Answer: FALSE During periods of deflation, a firm's net monetary liability position experiences a purchasing power gain. Answer: FALSE Answer: FALSE Answer: FALSE Management disclosures in the face of a major earnings surprise may take the form of conference calls with analyst