The underlying premise of the clean surplus accounting is that all profit and loss
elements go through income.
Hypotheses are conclusions derived from the research process.
The Accounting Standards Board (ASB) in the UK operates along the lines of the
FASB.
A position paper of the G4+1 must be put into effect by each of the member
organizations.
With SFAS No. 95, the FASB chose to follow the entity model rather than the
traditional income statement (proprietary) approach.
The statement of cash flows superseded the previously required sources and uses of
funds statement.
Since the 1970s, the SEC appears to have shifted its emphasis toward informative
disclosure rather than protective disclosure.
Currently, pension funds can be diverted from older employees toward younger
employees through cash balance plans.
An annual report to stockholders prepared using FASB accounting standards generally
has more disclosure of nonfinancial statement information than does the typical annual
report filed with the SEC.
The main problem with partial allocation is the question of timeliness.
A study by Watts and Zimmerman that explored the question of how corporate
management responds to new standards proposed by the FASB was discussed in the
text. Answer the following questions related to that study.
a. What was the hypothesis of the study?
b. Describe the study and discuss its findings.
c. Was the study inductive or deductive? Explain.
d. Discuss the criticisms that have been directed at the study and the implications of
those criticisms.
Which of the following statements is not true regarding the Trueblood Committee
Report?
a. It emphasizes the importance of cash flows to users.
b. It emphasizes the relation of earning-power measurements to the generation of future
cash flows.
c. Its earning-power orientation to income is grounded in the notion that in computing
economic income, future cash flows should not be discounted to present value.
d. Its objectives represented an important step taken toward establishing a meaningful
conceptual framework of objectives.
The funds flow statement included:
a. All sources and uses of resources.
b. Only cash transactions.
c. Only transactions affecting current assets.
d. Only transactions affecting fund accounts.
What is the objective of translation under SFAS No. 52?
a. To avoid reporting accounting exchange gains and losses when an economic gain or
loss has not occurred
b. To avoid reporting foreign-currency-denominated operations as if they had occurred
in U.S. dollars
c. To maintain a U.S. dollar orientation
d. Both a and b
Which of the following characteristics does not apply to accounting practices and
procedures in the U.S. prior to 1930?
a. They were applied uniformly among companies.
b. They were considered confidential by the companies applying them.
c. They met the needs of creditors to a greater extent than they met the needs of
shareholders.
d. They emphasized the disclosure of cash and near-cash resources.
Which one of the following statements is not part of the incomplete revelation
hypothesis (IRH)?
a. Some accounting numbers or relationships may not be fully revealed in security
prices.
b. Footnote disclosure is all that is needed for information to fully impact security
prices.
c. Some individuals’ trading habits do not respond in a rational way to new information.
d. Some individuals respond to information is such a way as to impede the market from
acting in a fully efficient manner.
Which of the following bodies was created to deal with municipal accounting issues?
a. GASB
b. FASB
c. FAF
d. EITF
In a 1976 discussion memorandum, the FASB defined the pooling-of-interest method of
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 of the following is not a true statement?
a. A principle is a statement of a true and generalized nature containing referents to the
real world.
b. If a principle could be empirically tested and proven true, it would be capable of
becoming a law.
c. The truth of a law or principle means that is should not be replaced by a newer
system.
d. Principles are general statements that influence the way we view phenomena and the
way we think about problems.
Which of the following is a characteristic of rules-based accounting standards?
a. They are highly detailed
b. They rely heavily on judgment by management or the auditor
c. They are shorter than rules-based standards.
d. They are required by Sarbanes-Oxley
What was the main argument of APB Opinion 8?
a. ERISA did not create a pension liability except in the likelihood of plan termination.
b. The cost of providing pension benefits should be spread over the remaining service
life of employees.
c. Pension expense should be computed using any one of five acceptable accumulated
benefit methods, regardless of cash contributions.
d. The balance sheet should report unfunded vested benefits.
Flexibility applies to which of the following situations?
a. Situations in which there are relevant circumstances and more than one possible
accounting method exists
b. Situations in which there are relevant circumstances but only one possible accounting
method exists
c. Situations in which there are no observable relevant circumstances and more than one
possible accounting method exists
d. All of the above
Which of the following characteristics does not apply to the decision-model approach
to research?
a. It asks what information is needed for making decisions.
b. It asks what information users want.
c. It concentrates on what information is useful for particular decisions.
d. It has a normative and deductive orientation.
Respond to the following:
Anglo-Saxon versus continental differences have been summarized using all but which
of the following characteristics?
a. Strength of the accounting profession
b. Population size
c. Strong equity markets as opposed to credit financing from major banking institutions
d. The importance of the country’s legal system relative to the setting of accounting
rules
Which of the following type of gains and losses arises purely because of the change in
the general price level during a period?
a. Monetary holding gains and losses
b. Real holding gains and losses
c. All holding gains and losses
d. Unrealized gains and losses
Which of the following are defined in the text as the result of the process of identifying,
classifying, and interpreting various phenomena or precepts?
a. Concepts
b. Principles
c. Postulates
d. Axioms
A _____ occurs when the subsidiary’s stock is distributed to the combinor’s
shareholders as a dividend.
a. Spin-off
b. Split-off
c. Split-up
d. Sell-off
In which of the following research areas do researchers believe that there is not a sharp
separation between the researcher and his or her field of investigation?
a. Information economics
b. Critical accounting
c. Capital markets research
d. Agency theory
Which of the following refers to accounting information that is used by investors,
creditors, and other outside parties for analyzing management performance and
decision-making?
a. Managerial accounting
b. Financial accounting
c. Income tax accounting
d. Institutional accounting
Which of the following is not a true statement regarding accounting for development
stage enterprises?
a. SFAS No. 7 requires complete disclosure by the development stage enterprise to
avoid misleading financial statement users by heavy initial losses.
b. SFAS No. 7 achieved uniformity on the basis of the nature of the enterprise rather
than on the basis of the nature of the transaction.
c. The FASB opted for rigid uniformity in selecting a solution as opposed to finite
uniformity, where a relevant circumstance might be viewed as the development stage of
the enterprise.
d. SFAS No. 7 requires that costs of a similar nature be accounted for similarly,
regardless of the stage of development of the entity incurring the cost.
Which of the following is a reason that the FASB should closely watch the lobbying
behavior of free riders?
a. Responding to the interests of free riders could lead to an underproduction of
accounting information.
b. Free riders claim to be acting in the public interest but actually make the market less
competitive.
c. Free riders are not affected by accounting regulation.
d. Free riders do not have the direct economic interests in information production that
others have.
SFAC designated which of the following as the term to indicate the comprehensive or
total change in net assets occurring during the period as a result of operations?
a. Income
b. Earnings
c. Revenue
d. Profits
Which of the following is the key group in Moonitz’s set of postulates?
a. The Environmental group
b. The Imperatives
c. The Economic group
d. Postulates stemming from accounting itself