SFAS No. 87 is no longer in effect, having been replaced by SFAS 132.
The continental model of financial reporting generally presents a strong accounting
profession.
Unrealized capital adjustments in owners’ equity are becoming more prevalent as a
result of SFAC No. 130 on comprehensive income.
The Securities Act of 1933 and the Securities and Exchange Act of 1934 were the first
national securities legislations in the United States.
Early adoption of new financial accounting standards generally indicates “bad news”
whereas late adoption generally indicates “good news.”
SFAS NO. 8 required the temporal method of translation.
Comprehensive income as defined by SFAC No. 6 includes all changes in equity during
a period.
Supplemental disclosures of noncapitalized leases under SFAS No. 13 are greater than
under APB Opinion No. 31.
In SFAS No. 121, both the recognition and measurement criteria for the impairment of
asset event is based on the excess of the carrying value of the asset over its fair market
value less costs of disposal..
Unlike stock price, which is forward looking, residual income focuses on historical
performance.
Conservatism has been called the dominant principle of accounting.
Under SFAS No. 52, if the results of foreign-currency-denominated operations will not
affect U.S. dollar cash flows, no exchange gain or loss is recorded.
General deductive reasoning is extremely important in accounting theory and policy
making.
Legal services and day care benefits are not included in OPEBs.
From an economic standpoint, it appears reasonable that deferred tax liabilities should
be shown at their present value.
International Accounting Standards use deferred tax assets and liabilities for
recognizing temporary differences.
Empirical research has proven that user needs are heterogeneous.
Because post-earnings-announcement drift shows that there is at least some amount of
efficiency in the market, it is even more important to attempt to improve the quality of
accounting standards.
In attempting to analyze the worth of an accounting measure, which of the following
qualities is not mentioned in the text as an important consideration?
a. Objectivity
b. Timeliness
c. Cost
d. Complexity
Which of the following theories argues that the group being regulated eventually comes
to use the regulatory process to promote its own self-interest?
a. Life-cycle theory
b. Agency theory
c. Signalling theory
d. Contracting theory
Which of the following is not a characteristic of a defined contribution plan?
a. The exact value is unknown prior to retirement.
b. Mandatory contributions must be made to a pension fund.
c. Contribution rates are normally stated as a percentage of wages or salaries.
d. Actuaries are consulted to determine annual contribution levels.
Which of the following is true regarding the Committee on Accounting Procedures
(CAP)?
a. It developed a comprehensive statement of accounting principles.
b. It adopted a policy of attacking specific problems and recommending preferred
methods of accounting when possible.
c. It was formed by the SEC in 1936.
d. It eliminated the use of alternative accounting practices by establishing an underlying
accounting theory.
In the statement of changes in financial position, uses of resources are defined as:
a. Transaction debits.
b. Fund increases.
c. Transaction credits.
d. Fund decreases.
What is the appropriate reporting method for less than majority owned companies?
a. The equity method
b. The fair value method
c. Either the equity method or the fair value method depending on whether the investor
can exercise significant influence over operating and financial policies.
d. Either the equity method or the fair value method depending on whether the investor
has effective control over operating and financial policies
Which component of the conceptual framework is perhaps the most difficult to apply in
practice?
a. Confirmatory value
b. Understandability
c. Benefits greater than costs
d. Faithful representation
Which of the following represents the material equity approach to capital leases?
a. Limit capital leases to leases that are virtually conditional sales agreements with
installment payments.
b. Capitalize leases where a purchase equivalent has occurred.
c. The lease treatment is the same for lessor and lessee.
d. Capitalize leases that are not true leases.
Excess income over and above the expected amount of after-tax operating income is
called:
a. Extraordinary Profit
b. Remaining Profit
c. Economic Profit
d. Monetary Profit
Who are residual equity holders?
a. Preferred stockholders
b. Managers
c. Bondholders
d. Common stockholders
When we view the business entity in the context of accounting, as well as in its legal
form, it is clear that:
a. The entity is separate from its owners.
b. The entity is identical to its owners.
c. The pooling method should be used for business combinations.
d. Entities should be considered as one unit as a result of one controlling the other(s).
The accounting standard-setting process begins with which of the following steps?
a. A problem is identified.
b. A task force is formed.
c. Public hearings are held.
d. An exposure draft is issued.
The Committee on Accounting Procedures (CAP) was immediately succeeded by:
a. The Financial Accounting Standards Board (FASB).
b. The Accounting Principles Board (APB).
c. The Accounting Research Board (ARB).
d. The Financial Accounting Foundation (FAF).
What was the main argument of ARB 47?
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.
Under which of the following income tax allocation orientations are only those deferred
credits that can reasonably be expected to reverse in the foreseeable future recorded on
the books?
a. Comprehensive allocation
b. The net-of-tax method
c. Partial allocation
d. The new form of equities method
Which of the following are defined in the text as broad rules that guide the accounting
function?
a. Input-oriented principles
b. Output-oriented principles
c. Basic principles
d. Axioms
Partial tax allocation is an example of:
a. Finite uniformity.
b. Rigid uniformity.
c. Flexible uniformity.
d. None of the above
Early advocates of security-price research now recognize there are limitations to this
research for use in choosing the best accounting policies and evaluating the economic
consequences of alternative accounting policies on security prices. Which of the
following is not a reason for these limitations?
a. The public-good nature of accounting information
b. The existence of free riders
c. The resultant market failure in terms of optimal resource allocation
d. The use of historical costing distorts financial statement amounts
In security-price research, which of the following is an indirect consequence of an
accounting policy change?
a. The value of the firm is affected through an effect on cash flow.
b. The value of the firm is affected through an effect on net income.
c. The value of the firm is affected through an effect on owners.
d. The value of the firm is not affected.
Which of the following is an example of a measurement rather than a calculation?
a. FIFO inventory valuation
b. Replacement cost of ending inventory
c. LIFO cost of goods sold
d. Historical cost depreciation
Which of the following is not one of the three ways of reporting on intercorporate
equity investments?
a. Consolidated reporting as if the two separate legal entities are an accounting entity
using the purchase method.
b. Consolidated reporting using the pooling method
c. Nonconsolidation using the equity method of accounting
d. Nonconsolidation using a fair market value approach
Which of the following statements is not true regarding critical accounting?
a. Critical accountants believe that accounting should more strongly emphasize the
attempt to solve broad societal problems.
b. Critical accounting researchers believe that in viewing and investigating reality, they
also help to shape that reality.
c. It is the intention of critical accounting researchers to move the field into the
mainstream of accounting research by adopting a conflict-based perspective.
d. In critical accounting, there is less emphasis upon historical models and more upon
mathematical and statistical models.
Which of the following is not one of the three possible methods that could be used to
account for unfunded accumulated benefits under ARB 36?
a. A prior period adjustment
b. A component of operating income
c. An extraordinary item of income
d. Allocation over current and future periods
Which of the following is a true statement?
a. When arbitrary allocations are used, income statements have very little information
content.
b. The calculation aspects of most expense measurements are easily resolved under
historical cost accounting.
c. When arbitrary allocations are used, income statements still have information
content.
d. Capital market research has shown that the usefulness of accounting numbers is best
resolved using the deductive logic of the allocation problem.
Describe the controversy surrounding the issuance of APB Opinion No. 2, which
addressed the investment tax credit? How did the APB resolve this controversy and
what was the resulting effect on the board’s authority?
Distinguish between monetary holding gains and losses and real holding gains and
losses.
How does the statement of cash flows sometimes cause a nonarticulation problem?
Explain in general terms how defined benefit pension plans are funded.
Discuss the residual equity theory and its assumptions. Include a description of the
accounting equation used and how income would be computed.
What are the possible economic consequences of OPEB recognition?
Identify and define the five types of liabilities.
What have research studies indicated about whether a firm’s unfunded pension benefits
are interpreted as liabilities?
Describe the methods that are allowed to be used in accounting for the Investment Tax
Credit.