A general price-level adjustment refers to the purchasing power of the monetary unitary
unit relative to all goods and services in the economy.
Using ratio scale measurement is possible in accounting.
One hypothesis of agency theory is that management attempts to maximize its own
welfare by minimizing the various agency costs arising from monitoring and
contracting.
Calculations attempt to simulate or come as close as possible to the measurement of
real phenomena or attributes.
According to SFAC No. 4, “earnings” is the indicator of a nonbusiness organization’s
performance that is comparable to “income” in the profit sector.
The relationship between earnings and stock prices has diminished over the years, but
the ability of earnings to forecast futures cash flows has not.
There is a more even distribution of contribution levels when the projected benefit
method is used rather than the accumulated benefit method.
Under entity theory, creditors are considered equity holders.
Some capital markets research has indicated that ‘bad news’ relative to reported earnings
has a greater impact upon security prices than ‘good news.’
An argument against using students as subjects in behavioral research experiments is
that they are not representative of the broad population of accounting information users.
The Journal of Accountancy was founded by the American Association of Public
Accountants in 1905.
Sarbanes-Oxley has brought about a separation between auditing and management
consulting.
Prediction measures are concerned with factors that may be indicative of future
conditions.
Most of the responsibility for establishing accounting principles has remained with the
private sector rather than the SEC.
Disclosure will become less important in the future because of market efficiency.
Which of the following statements is true regarding stock options?
a. When exercised, an incentive stock option has an option price exceeding the market
price.
b. When granted, a nonqualified stock option has an option price exceeding the market
price.
c. The fair value of an incentive stock option equals the current market price of the
stock minus the present value of the exercise price discounted at the risk free interest
rate over the number of years of life of the option.
d. The value of an incentive stock option can not be determined at the grant date,
Research is supportive of the contention that cash and funds flow data are informative
above and beyond accrual data.
Which of the following is not a true statement regarding SFAS No. 87?
a. It requires the recognition of a minimum pension liability when accumulated benefit
obligations exceed the fair value of plan assets.
b. It has achieved greater uniformity in measuring accrued pension expense.
c. It mandates the use of the accumulated benefit method.
d. It uses service cost rather than normal cost.
Which of the following is a true statement?
a. SFAC No. 5 makes clear that the concepts discussed in the conceptual framework
apply to other means of disclosure in addition to financial statements.
b. SFAC No. 5 appears to deny one of the main tenets of the efficient-markets
hypothesis, that disclosure outside of the body of financial statements is as effective as
disclosure within statements themselves.
c. SFAC No. 5 made a clear attempt to resolve the issues of recognition and
measurement.
d. SFAC No. 5 was successful because it addressed measurement prior to discussing
recognition.
Which of the following is true regarding the Emerging Issues Task Force (EITF)?
a. It has formal authority to establish GAAP.
b. Members of this group consist of CEOs of six major corporations and the chief
accountant of the SEC.
c. It is concerned with highly technical issues, such as financial instruments, which may
affect firms in virtually every industry.
d. All of the above
Which of the following is not one of the four objectives of accounting given by
ASOBAT?
a. To make decisions concerning the use of limited resources (including the
identification of crucial decision areas) and to determine objectives and goals
b. To direct and control an organization’s human and material resources effectively
c. To relate the evaluative framework of standards and guidelines to the objectives
themselves
d. To facilitate social functions and controls
Which of the following is a true statement?
a. Finite uniformity should be more representationally faithful than rigid uniformity.
b. Finite uniformity should be more verifiable than rigid uniformity.
c. Rigid uniformity is more relevant than finite uniformity.
d. Rigid uniformity can be obtained only at a greater cost that finite uniformity.
Democratic paralysis refers to:
a. The tendency of decision making under due process to be extremely slow.
b. The inability to achieve a consensus in the regulatory process.
c. The argument that regulation is not a democratic policy.
d. The inability of previous standard setting bodies to develop a conceptual framework.
Which of the following is not considered one of the three broad categories of
accounting changes?
a. Change in Accounting Principle
b. Change in Accounting Estimate
c. Change in Reporting Entity
d. Change in Accounting Application
Prescribing one method for generally similar transactions even though relevant
circumstances may be present is referred to as:
a. Finite uniformity.
b. Rigid uniformity.
c. Inflexible uniformity.
d. Measurable uniformity.
Which of the following is not true regarding derivatives?
a. A derivative is a financial instrument whose value is based upon another financial
instrument, stock index or interest rate, or interest rate index.
b. Derivatives can be classified into two general types: forward-based and option-based
derivatives.
c. Unrealized holding gains and losses on derivatives are not recognized.
d. SFAS No. 133 values derivatives at fair value.
Which of the following is not a feature of SFAS 157?
a. It affects most balance sheet accounts but has little to say about related income
statement considerations.
b. The fair value of SFAS No. 157 is an entry value system.
c. It is grounded in the belief that fair values are more relevant for decision-making
purposes than historical costing.
d. Prices for both assets and liabilities do not include deductions for transaction costs,
except transportation.
If the proportionate ownership method of accounting for business combinations were to
be used throughout the ownership range, it would be an example of:
a. Finite uniformity.
b. Flexible uniformity.
c. Rigid uniformity.
d. Definable uniformity.
Which of the following does not accurately describe purchasing power gains and losses.
a. Purchasing power gains and losses arise because monetary items gain or lose
purchasing power as the price level changes.
b. Purchasing power gains and losses are part of SFAS No. 157’s income measurement
system.
c. Purchasing power gains and losses are determined by measuring the purchasing
power of the monetary items and comparing it with the actual amount of the net
monetary accounts.
d. All systems of both general purchasing-power-adjusted income and current value
income include purchasing power gains and losses as an element of income.
After noncurrent liabilities have been initially measured, they are recorded on
subsequent balance sheets at:
a. Face value.
b. Present value based on current interest rates.
c. Present value plus stated interest.
d. Book value.
Respond to the following:
Which measurement scale indicates an order of preference but not the degree of
preference among ranks?
a. Interval scale
b. Ratio scale
c. Nominal scale
d. Ordinal scale
Which of the following is not one of the six guidelines or economic factors provided by
SFAS No. 52 for determining the functional currency?
a. Sales price indicators
b. Interest rate indicators
c. Expense indicators
d. Intercompany transactions and arrangements
Which of the following is not true statement?
a. Exit value denotes the selling price that can be received from the firm’s assets when
sold through a process of orderly liquidation.
b. Exit value is a form of opportunity cost.
c. Entry value refers to replacement cost.
d. Exit value is generally preferred to replacement cost.
Answer the following related to behavioral research:
a. What is the main concern of behavioral research?
b. How does behavioral research differ from the decision-model approach?
c. What are some of the findings of this research?
Which one of the following statements does not apply to ERISA?
a. It was a landmark piece of social legislation.
b. It allowed the “rule of 45” be used as an alternative vesting formula.
c. It required unfunded accumulated benefits to be funded over a maximum of fifteen
years.
d. It contained requirements related to investment diversification.
SFAS No. 33 required enterprises to report supplementary information under
a. A constant dollar approach
b. A current cost approach
c. Both constant dollar and current cost approaches
d. None of the above