The lower-of-cost or market valuation of inventories is an example of the disclosure
principle.
SPEs are designed to conduct just one well defined activity.
The value of an asset may be determined by multiplying its historical cost by a fraction
consisting of the general price index for the current period divided by the general price
index existing at the time of acquisition.
The indirect costs of information pertain to gathering, preparation, and dissemination of
information.
The principal argument used to justify the replacement cost system over exit values is
that if the great majority of the firm’s assets were not already owned, it would be
economically justifiable to acquire them.
Most recent empirical research on income tax allocation has generally proved to be
favorable to the use of the asset-liability orientation.
Both exit value and replacement cost are valuation systems that fall into the current
value category.
It may be assumed that accounting information has no usefulness to investors because
many individual stockholders do not read annual reports.
The fact that service giving rise to pension benefits occurred in the past was the main
concern of ARB 36.
An asset should be initially recorded at either its historical acquisition cost or its cash
equivalent purchase price, whichever is greater.
SFAS No. 33 required both constant dollar and current-cost-adjusted income.
Events are economic occurrences that require accounting entries.
A false sense of comparability may develop during translation of an IFRS from English
into another language.
Accounting information ranks at the top on surveys that ask investors to weigh the
importance of different types of investment information.
Accounting information is determined by supply and demand.
With financing-type leases, there is no sales revenue, only interest revenue earned from
the debt financing.
Which of the following findings would support the naive-investor hypothesis?
a. A finding that security prices respond to income levels that differ solely because of
alternative accounting methods with no cash flow consequences
b. A finding that security prices do not respond to artificial book-income differences
c. A finding that security prices do not respond to the adoption of LIFO for accounting
for inventories and cost of goods sold
d. A finding that security prices do not respond to a change in reported accounting
earnings from the prior year
Under SFAC No. 8, which of the following are aspects of relevance?
a. Comparability and understandability
b. Timeliness and comparability
c. Representational faithfulness and decision usefulness
d. Predictive value and confirmatory value
Which of the following applies to the U.S. dollar orientation approach to the translation
of foreign operations?
a. It requires an enterprise to account for foreign operations as if those operations
actually occurred in U.S. dollars.
b. It recognizes that the foreign operations occurred in a foreign currency and that those
operations may not affect U.S. dollars.
c. Foreign currency denominated assets, liabilities, revenues, and expenses are assumed
to be measured in the foreign currency but are translated to U.S. dollars for reporting
purposes.
d. The effects of changing exchange rates are not reported in income until the net assets
are exchanged.
Which one of the following measurement bases applies to investments not subject to
equity accounting that are classified as trading securities?
a. Current value
b. Book value
c. Effective rate of interest method
d. Lower-of-cost-or-market
With SFAS No. 95 defining funds as cash, the FASB has:
a. Moved from a flexibility orientation to a position of rigid uniformity.
b. Moved from a position of rigid uniformity to one of finite uniformity.
c. Moved from a position of rigid uniformity to a flexibility orientation.
d. Moved from a flexibility orientation to a position of finite unity.
Which of the following applies to SFAS No. 13?
a. It applied the four criteria for a capital lease to both lessees and lessors.
b. It created inconsistencies in financing-type leases.
c. It eliminated asymmetry between lessor and lessee accounting.
d. It requires the lessee to always use the lessor’s implicit interest rate.
Which statement in the conceptual framework is concerned with the objectives of
business financial reporting? Note that SFAC 8 replaces this SFAC.
a. SFAC No. 1
b. SFAC No. 2
c. SFAC No. 3
d. SFAC No. 5
Which state passed the law that first created the designation “Certified Public
Accountant”?
a. Massachusetts
b. California
c. Ohio
d. New York
e. Iowa
Which one of the following summary indicators is the most used?
a. Return on investment
b. Earnings per share
c. Debt-to-equity ratio
d. Current ratio
Which of the following organizations published “Objectives of Financial Statements”
(Trueblood Committee Report)?
a. AAA
b. AICPA
c. APB
d. CAP
Which of the following methods of valuing an asset is based on the amount that a firm
could acquire by selling the asset?
a. Replacement cost
b. Entry value
c. Exit value
d. Both a and b
Which of the following is a true statement?
a. Asset-liability advocates are not prepared to tolerate a fluctuating income statement
that may include unrealized holding gains and losses.
b. Asset-liability advocates and revenue-expense advocates are polarized in part
because the financial statements are nonarticulated.
c. Revenue-expense proponents are prepared to introduce deferred charges and deferred
credits in order to smooth income measurement.
d. With articulation, it is possible to have a revenue-expense based income statement
and an asset-liability based balance sheet.
Which of the following statements is not true regarding the three major definitions of
accounting liabilities that have evolved over time?
a. Two of the three definitions imply a proprietary view of the firm.
b. The first definition made no distinction between owner’s equity and liabilities.
c. Not all definitions have included deferred credits as liabilities.
d. In all three definitions, liabilities include only credit balances that involve a debtor
and creditor relation.
The major objectives of financial statements are:
a. Capital maintenance measurement and adaptability.
b. Accountability and adaptability.
c. Predictive ability and accountability.
d. Capital maintenance and predictive ability.
According to the text, which of the following has posed the single greatest problem that
is faced in accounting theory?
a. Historical costing
b. Additivity
c. Inflation
d. Price-level adjustments
Respond to the following:
a. What is meant by the “articulated” approach to financial statements?
b. How does the revenue-expense approach differ from the asset-liability approach for
defining accounting elements?
c. What, if any, would be the advantage of using a nonarticulated approach to financial
statements?
Which of the following is an argument supporting the “current operating” income
recognition school of thought?
a. Most financial statement users look only to bottom-line net income to assess current
performance and to make predictions regarding subsequent years’ performance.
b. Under this approach, management makes the decision on whether or not an item is
extraordinary and therefore excluded from the income statement.
c. The summation of all income displayed on the income statement for a period of years
should reflect the reporting entity’s net income for that period.
d. Proper classification within the income statement allows both normal recurring items
and unusual, infrequently occurring items to be displayed separately within the same
statement.
In the sources section of the statement of changes in financial position, transactions are
subclassified into those affecting:
a. The fund balance and other accounts
b. Cash and other accounts
c. Current assets or liabilities and other accounts
d. Liquid assets and other accounts