An exit-price accounting system provides an estimate of the cash conversion value of a
firm’s resources.
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.
“Economic consequences” is not part of the conceptual framework.
Monetary holding gains and losses are capital adjustments only, and are not a
component of income.
In the terminology suggested by the FASB related to consolidation reporting, the term
parent company refers to the company whose stockholders as a group end up with
control of the voting stock of the other company entering into the business combination.
The discounted cash flow approach can be used to determine an objective measurement
for most assets and liabilities.
With an accumulated benefit approach, the discount rate includes a general inflation
factor.
According to IAS 7, interest and dividends received or paid must be classified as
financing cash flows.
If a loss is expected on subsequent disposal of a business segment, the estimated loss is
recognized in the financial statements as of the measurement date.
SFAS 142 equates goodwill with other intangible costs to be immediately expensed.
Preferred stockholders are residual equity holders.
In partial tax allocation, resulting credits are interpreted as liabilities that mature beyond
a year.
Comprehensive allocation is a form of rigid uniformity because the question of loan
repayment is ignored.
Improving comparability may lessen relevance or reliability.
Which of the following is not a member of the G4+1?
a. IASB
b. Australia
c. United States
d. France
In SFAS No. 109, the current or noncurrent designation of deferred tax assets and
liabilities is determined by:
a. Whether or not the items would reverse in the next tax year.
b. The classification of the related asset or liability.
c. The amount of aggregate deferred taxes.
d. When the item originated.
Which of the following statements applies to an involuntary termination?
a. The sponsor has a legal liability under ERISA for all accrued benefits.
b. The sponsor has a legal liability under ERISA for all vested benefits but not for
unvested benefits.
c. The sponsor has a legal liability under ERISA only for PBGC guaranteed benefits.
d. None of the above statements apply to an involuntary termination.
In a 1976 discussion memorandum, the FASB defined the new entity approach to
accounting for business combinations as a method which:
a. Results in the assets and liabilities of the subsidiary being valued at market value at
the time of acquisition, and the parent’s assets and liabilities being valued at book value.
b. Results in the assets and liabilities of the parent being valued at market value at the
time of acquisition, and the subsidiary’s assets and liabilities being valued at book
value.
c. Results in all entities’ assets and liabilities being revalued to market values at the time
the combination originates.
d. Uses the book values of the combining companies.
Which one of the following measurement bases applies to investments that are
classified as held-to-maturity?
a. Current value
b. Book value
c. Effective rate of interest method
d. Lower-of-cost-or-market
Which of the following postulates is violated when liquidation values for assets and
equities are reported under ordinary circumstances?
a. Entities
b. Time period
c. Consistency
d. Going concern
Which of the following describes information overload?
a. The inability of preparers to process and adequately report all the information that
should be provided in financial reports
b. The inability of auditors to process and adequately attest to all the information that
should be provided in financial reports
c. The inability of users to process and intelligently use all the information provided in
financial reports
d. The inability of preparers, auditors, and users to process and adequately utilize all the
information provided in financial reports
Which of the following is true regarding the term residual income?
a. Residual income is the income over and above the amount needed to cover current
expenses.
b. Residual income is the income in excess of a charge for the capital that is employed
to generate that income.
c. Residual income is equal to economic income.
d. Residual income is called abnormal earnings when applied to the enterprise’s
operating income and invested capital.
Empirical research that attempts to determine why particular accounting alternatives are
selected by management is an example of:
a. Normative research.
b. Deductive research.
c. Positive accounting research.
d. Analytical research.
The determination of whether a lease is a capital or operating lease is an example of:
a. Elastic uniformity.
b. Finite uniformity.
c. Flexible uniformity.
d. Rigid uniformity.
With which of the following methods of accounting for a business combination does
consolidation of assets and liabilities occur only to the extent of the stock acquired by
the parent?
a. Pooling of interests
b. The purchase method
c. The new entity approach
d. Proportionate consolidation
Which of the following methods reports literal cash flows related to income statement
classifications?
a. The indirect method
b. The direct method
c. Both a and b.
d. None of the above
Which of the following is not true regarding the FASB’s conceptual framework?
a. It is supposed to embody a system of interrelated objectives.
b. It is an attempt to provide a metatheoretical structure for financial accounting.
c. It establishes generally accepted accounting principles.
d. It includes seven statements of financial accounting concepts.
FASB Interpretation 3 was issued in response to the passage of ERISA.
Which of the following was not a goal of ASOBAT?
a. To identify the field of accounting so that useful generalizations about it could be
made and a theory developed
b. To establish standards by which accounting information might be judged
c. To point out possible improvements in accounting practice
d. To emphasize the creative skill and ability of the accountant, whose presentation
should be accepted by those who do not have his or her qualifications and credentials
Which of the following is a true statement?
a. Predictive value refers to usefulness of inputs for predictions rather than being an
actual prediction itself.
b. Timeliness complements rather than conflicts with the other aspects of relevance
because information is more complete and accurate if it is timely.
c. The conceptual framework stressed predictive value rather than the importance of
decision making by outside users.
d. Timeliness and predictive value are the two main aspects of relevance.
In which of the following ways does SFAS No. 109 differ from its predecessors?
a. It allows for the discounting of deferred tax assets and liabilities.
b. It has a comprehensive tax allocation orientation.
c. It provides a more liberal recognition policy for deferred tax assets and tax-loss
carryforwards.
d. It has a revenue-expense (matching) orientation.
Which statement in the conceptual framework deals with qualitative characteristics of
accounting information? Note that SFAC No. 8 replaces this older SFAC.
a. SFAC No. 1
b. SFAC No. 2
c. SFAC No. 3
d. SFAC No. 5
Which one of the following types of liabilities is not currently recognized on balance
sheets?
a. Deferred credits
b. Constructive obligations
c. Equitable obligations
d. Contingent liabilities
Are inductive and deductive research mutually exclusive methods? Give examples to
support your answer.
According to McVay, classification shifting within the income statement is a form of
earnings management.
What is meant by differential disclosure? Identify the three differential disclosure
proposals discussed in the text.
Define inflation and describe how it and historical costing have posed a problem for
accounting theory.
Compare and contrast the two methods that may be used to present operating cash
flows in the statement of cash flows. Which method is preferred by firms and by
outsiders?
How does the accounting prescribed in SFAS No. 13 seek to make a capital lease
resemble a purchase by the lessee of an asset with debt financing?
Discuss the results of the study by Loh and Mian as they relate to the importance of
earnings forecasting.
Explain the hierarchy of accounting qualities identified in SFAC No. 2.
Discuss how Ingram and Lee used the cash flow statement in conjunction with the
income statement for analytical purposes.
Distinguish between input-oriented principles and output-oriented principles and list at
least three principles in each category.