Benefits in a defined benefit plan may be based on either career average or final
average salary.
The FASB took an enormous step in SFAS No. 106 by requiring the recognition and
measurement of OPEB costs and obligations.
SFAS requires that abnormal amounts of idle facility costs, freight, handling and
spoilage be treated as current period costs.
The Trueblood report noted that, during the short run, cash flows are a better predictor
of cash-generating power than are earnings.
Principles-based standards are more highly detailed than rules-based standards.
Minimizing reported income would not be a motive guiding the selection of accounting
methods.
Prior to ARB 38, the accounting procedure for lease payments was to record them as
periodic revenues for lessors and as purchases of assets for lessees.
Output-oriented principles are broad rules that guide the accounting function.
Empirical tests of the free market position are impossible since we live in a regulated
environment.
ARB 36 reduced flexibility in how the cost relating to unfunded accumulated benefits
was dealt with in the income statement.
SFAC No. 5 makes clear that the concepts discussed in the conceptual framework apply
to other means of disclosure in addition to financial statements.
Which of the following is not a true statement regarding SFAS No. 109?
a. It maintained a comprehensive allocation orientation.
b. It requires a matching orientation.
c. It has an asset-liability viewpoint.
d. It retained the mandatory nature of income tax allocation.
Which of the following is not true regarding the asset-liability approach to defining
accounting elements?
a. The asset-liability approach focuses on the measurement of net assets.
b. The asset-liability approach is arguably superior to the revenue-expense approach.
c. The asset-liability approach is the basic orientation of current financial reporting
practices.
d. SFAS No. 109 uses the asset-liability approach by focusing income tax accounting on
the recognition of tax assets and liabilities.
Which of the following is not a true statement?
a. SFAC No. 3 defines 10 elements of financial statements.
b. SFAC No. 3 is a resolution of the definitions presented in the discussion
memorandum for the conceptual framework project.
c. SFAC No. 3 was amended by SFAC No. 6.
d. SFAC No. 3 discusses in detail the three views of financial accounting mentioned in
the discussion memorandum.
For which of the following areas is broad information applicable to many user groups?
a. Predictive ability
b. Accountability
c. Both a and b
d. None of the above
Which of the following is not a true statement?
a. Comparability refers to accounting for similar transactions similarly and different
circumstances differently.
b. Comparability refers to comparing alternatives in order to make a decision.
c. Comparability is an inherent quality of accounting numbers in the same sense that
relevance and reliability are.
d. Uniformity influences comparability.
Which of the following would be an argument in favor of using residual income models
in performance measurement?
a. All forms of residual income are consistent with discounted net cash flows for any
method of depreciation.
b. Residual income focuses on historical performance.
c. The determination of residual income is dependent on an accurate estimate of the cost
of capital.
d. Residual income recognizes that all capital, debt as well as equity, has a cost.
Which of the following was an accomplishment of the American Association of Public
Accountants?
a. The passage of a law in 1896 that created the professional designation of “Certified
Public Accountant”
b. The founding of The Journal of Accountancy in 1905
c. The development of a list of terms and definitions in 1915
d. All of the above
The United States is an example of:
a. The Anglo-Saxon model.
b. The continental model.
c. The ASEAN model.
d. The international model.
Which of the following is a true statement regarding SFAS No. 52?
a. When a foreign entity’s currency is the functional currency, net income is measured in
the foreign currency and then restated into dollars at the current exchange rate at the
end of the period.
b. When a foreign entity’s currency is the functional currency, any exchange adjustment
resulting from translating balance sheet and income statement items at different
exchange rates is recognized as a gain or loss on the income statement.
c. When a foreign entity’s currency is the functional currency, all balance sheet items
are translated at the average exchange rate for the period.
d. If the results of foreign-currency-denominated operations will not affect U.S. dollar
cash flows, no exchange gain or loss is recorded.
The system of disclosure largely in effect today is called:
a. Selective disclosure.
b. Conventional disclosure.
c. Differential disclosure.
d. Standard disclosure.
The income tax law established which of the following as a basis for taxation?
a. Economic income
b. Increase in wealth
c. Business income
d. Accounting income
Which of the following statements is not true regarding the efficient-markets
hypothesis?
a. It stems primarily from the discipline of finance.
b. It assumes that market prices of publicly traded securities reflect fully all publicly
available information.
c. As a result of this proposition, the impetus for less disclosure with more concern for
choice among accounting alternatives has grown stronger.
d. It states that the return of a security is based on its risk.
What is meant by the term “functional currency”?
a. The functional currency is the currency of the parent corporation.
b. The functional currency is the currency of the country in which the foreign subsidiary
is located.
c. The functional currency is the currency of the parent’s primary economic
environment where cash is primarily received and spent.
d. The functional currency is the currency of the subsidiary’s primary economic
environment where cash is primarily received and spent.
Benston, Bromwich, and Wagenhofer believe that the principles-based approach would
work better in tandem with:
a. A fair value measurement orientation
b. A revenue-expense orientation
c. An asset-liability orientation
d. All of the above
Contributed capital is measured by:
a. The cost of assets contributed to the firm by stockholders.
b. The market value of assets contributed to the firm by stockholders.
c. The book value of assets contributed to the firm by stockholders.
d. The discounted present value of assets contributed to the firm by stockholders.
ASOBAT emphasized which of the following in its definition of accounting?
a. The creative ability of the accountant
b. The work and skill of the accountant
c. The needs of the users of accounting information
d. Recording transactions
Which former Special Prosecutor attempted to have the Sarbanes-Oxley Act of 2002
ruled to be unconstitutional?
a. John G. Roberts
b. Ruth Bader Ginsberg
c. James Patterson
d. Kenneth W. Starr
In the terminology suggested by the FASB, which of the following terms 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?
a. Parent
b. Subsidiary
c. Combinee
d. Combinor
Effective with SFAC No. 8, the two primary decision-specific qualities include
relevance and
a. Reliability.
b. Faithful representation
c. Timeliness
d. Predictive value.
Which of the following is a financial reporting model that features the presence of a
strong accounting profession?
a. The Anglo-Saxon model
b. The continental model
c. The ASEAN model
d. The international model
Respond to the following:
a. What does the term functional currency mean?
b. What is the accounting treatment if the foreign entity’s currency in the functional
currency?
c. What is the accounting treatment if the U.S. currency is the functional currency?
If a number assigned to an object is an actual measurement of a property of the object,
it is referred to as a(n):
a. Direct measurement.
b. Biased measurement.
c. Indirect measurement.
d. Prediction measurement.
Identify four qualities that are pertinent to accounting measures.
Identify the major contributions of APB Statement 4.
What are the three categories of expenses identified in APB Statement 4, and what is
the related hierarchy of expense recognition?
What are the three distinct types of assets that appear in the balance sheets, and what
degree of certainty and measurement reliability does each represent?
List and describe the three valuation techniques used by SFAS No. 157 for assets and
liabilities.
What is meant by proportionate consolidation, and what are its advantages?
What is “comprehensive income,” and how does SFAS No. 120 allow it to be reported?
Why might SFAC No. 5 be considered a “failure”?
Define the elements of financial statements identified in SFAC No. 3 and SFAC No. 6.