In the statement of changes in financial position, sources of resources are defined as
transaction debits.
The balance sheet gives insight into the cash-generating potential of the operations of a
firm.
The key group in Moonitz’s set of postulates consists of postulates stemming from
accounting itself.
Accounting for postretirement benefits is very different from pension accounting.
In portfolio theory, systematic risk is defined as the variance of expected investment
returns.
An organized disclosure policy that includes “bad news” is beneficial to all parties
because uncertainty about the firm is reduced.
FIFO and LIFO measures of cost of goods sold and inventories are examples of
calculations rather than measurements.
The postulates and principles approach was concerned with user objectives.
Economic profit is sometimes referred to as abnormal earnings.
Positive accounting research attempts to describe “what is” and determine how things
should be.
Codification is a justification of the standard-setting process itself rather than of the
individual standards that result from that process.
A principle contains elements observable by empirical techniques.
The income tax law of 1913 established accounting income as a basis for taxation.
As a result of APB Opinion No. 30, extraordinary items other than gains and losses
from early extinguishment of debt, have practically disappeared.
Flexibility is not often used in generally accepted accounting principles.
If the balance sheet and income statement are nonarticulated, they are linked together
mathematically without any loose ends.
Which of the following is not a 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.
Which type of accounting principle is concerned with general approaches or rules for
preparing financial statements and their content?
a. Input-oriented principles
b. Output-oriented principles
c. Constraining principles
d. Both a and c
Which of the following is not true regarding free cash flows (FCFs)
a. Investors can estimate the intrinsic value of a firm by discounting forecasted FCFs.
b. Spending FCFs will not affect the firm’s ability to generate more.
c. FCFs can be obtained directly from the Statement of Cash Flows.
d. Unlike Cash From Operating Activities, FCFs do not include interest expense.
Which of the following is true regarding discontinued operations?
a. If a loss is expected on disposal, the estimated loss is recognized in the financial
statements as of the measurement date.
b. If a loss is expected on disposal, the estimated loss is recognized in the financial
statements as of the disposal date.
c. If a loss is expected on disposal, recognition is deferred until realization.
d. If a gain is expected on disposal, the estimated gain is recognized in the financial
statements as of the measurement date.
For capital budgeting purposes, an investment is acceptable if:
a. The present value of the expected net cash flows is positive.
b. Net present value is positive.
c. The intrinsic value is greater than the current market price.
d. All of the above.
The use of which of the following types of measurement scales in accounting allows
meaningful comparisons among similar accounting measurements for different firms?
a. Interval scale
b. Ratio scale
c. Nominal scale
d. Ordinal scale
Which of the following is a pervasive constraint under the ‘original’ qualitative
characteristics of accounting, pre-SFAC No. 8? It is an entity-specific constraint post
SFAC No. 8.
a. Decision usefulness
b. Understandability
c. Materiality
d. Neutrality
Which of the following professional associations has an interest in the accounting
standard-setting process?
a. The AICPA
b. The Financial Executives Institute (FEI)
c. The American Accounting Association (AAA)
d. All of the above
The requirement by SFAS No. 2 that research and development costs be immediately
expensed is an example of:
a. Elastic uniformity.
b. Finite uniformity.
c. Flexible uniformity.
d. Rigid uniformity.
Which of the following statements was not made in ARB 43?
a. Income taxes are an expense that should be allocated as other expenses are allocated.
b. Income taxes should be allocated to income and other accounts as other expenses are
allocated.
c. The income statement should reflect tax expense properly allocable to the income
included in the income statement for the year.
d. Tax expense should equal the amount of tax payable based on taxable income for the
year.
Which of the following statements does not apply to the study by Lev that examined
earnings numbers and stock returns?
a. According to Lev, over time, the correlation between earnings numbers and stock
returns has been low.
b. Lev believed that earnings have very little explanatory power relative to changes in
stock prices.
c. Lev believed that one of the primary reasons for the level of correlation between
earning and stock returns lies with the low quality of reported income numbers.
d. The study’s results contradicted those of the Ou and Penman study.
Which of the following terms is used to refer to harmonization among accounting
practice of different enterprises?
a. Formal harmonization
b. Material harmonization
c. De jure harmonization.
d. Convergence
Which of the following is not a component of the single income statement proposed by
the G4+1 report?
a. Pro forma earnings
b. Results of operating or trading activities
c. Results pertaining to financing and other treasury activities
d. Other Gains and Losses
When a pension plan commences, credit is often granted to employees for past years of
service, giving rise to what is called:
a. Unfunded past service cost.
b. Unfunded benefits.
c. Unfunded actuarial liability.
d. All of the above
Which of the following examines or tests data, usually from a sample of a population,
to make inferences about the population?
a. Deductive reasoning
b. Inductive reasoning
c. Subjective reasoning
d. Objective reasoning
Which of the following research areas hypothesizes that management attempts to
maximize its own welfare by minimizing costs of monitoring and contracting?
a. Information economics
b. Critical accounting
c. Capital markets research
d. Agency theory
Discuss the matching principle and how it applies to recognizing expenses. Why is the
matching principle currently under attack?
Compare and contrast the characteristics of the CAP, APB, and FASB.
Describe the two broad types of pension plans and identify how they differ from one
another.
Discuss the effectiveness of SFAS No. 13 in addressing the lease capitalization
problem.
How is conservatism defined from a preparer’s orientation? Which conservatism goal
should take precedence when conservatism criteria conflict?
What do Healy and Palepu propose as a remedy for the auditing process being reduced
to a ‘complex checklist’?
Compare and contrast the Anglo-Saxon financial reporting model with the continental
model.
Describe the decision-model approach to accounting research and identify the two
major decisions embraced by this approach.
Discuss what is meant by “the liability crisis in public accounting.” How did the Federal
Litigation Reform Act of 1995 address this issue?