An argument supporting accounting regulation is that it is better to force mandatory
reporting than to have individuals competing to buy information privately.
Tax allocation is made necessary by the permanent differences in financial statement
income and tax income.
SFAS No. 13 identifies four capitalization tests that are now applicable to both lessees
and lessors.
With the new entity approach, consolidation of assets and liabilities occurs only to the
extent of the stock acquired by the parent.
Income tax allocation is grounded in the matching concept.
In setting policy, due process means that a regulatory agency seeks to involve all
affected parties in its deliberations.
APB Statement 4 was in agreement with ASOBAT that financial statements should be
oriented toward a limited group of users.
The FASB has made more extensive use of research than did its predecessors.
The elimination of primary earnings per share by SFAS No. 128 is a case of less
information leading to more usefulness.
From a lessee’s point of view, a leveraged lease is very different from the other leases.
All accounting measurements are of either the assessment or the prediction variety.
SPEs were widely used by U.S. companies for legitimate purposes.
Environmental conditions are elements beyond managerial control.
“Matching” refers to the fact that all expenses can be directly identified with either
specific revenues or specific time periods.
What was the main argument of FASB Interpretation 3?
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.
A _____ occurs when the subsidiary’s stock is sold for cash, assets, or in settlement of a
debt.
a. Spin-off
b. Split-off
c. Split-up
d. Sell-off
Which of the following is true regarding American securities exchanges?
a. The US and the UK have a system of reciprocity in place for listing the securities on
one another’s stock exchanges.
b. The SEC does not allow foreign companies that do not use US GAAP to be listed on
American stock exchanges.
c. Most Japanese firms listed for trading on American securities exchanges use US
GAAP.
d. Canadian companies may list existing shares for trading on American stock
exchanges, but may not list new stock issues.
Which of the following factors is not listed in your text as affecting a direct assessment
measure?
a. The measurer
b. The attribute being measured
c. Instruments available for the measuring task
d. The individual who will use the measure
Which of the following applies if a lease is interpreted as unilaterally unperformed by
the lessee?
a. The lease contract is fully executed by the lessor when possession of the leased asset
is transferred to the lessee.
b. An asset and liability do not exist for the lessee.
c. The lessor permits use of the asset for one period at a time and only if the rentals are
paid by the lessee.
d. Current lease payments are expensed by the lessee.
The roots of behavioral research lie in the field(s) of:
a. Economics.
b. Finance.
c. Psychology and sociology.
d. Accounting.
Which of the following is a continental model country with some signs of moving
toward the Anglo-Saxon view?
a. Germany
b. France
c. Canada
d. Japan
Which of the following methods of accounting for a business combination is based on
the premise that no substantive transaction occurs between the companies involved?
a. Pooling of interests
b. The purchase method
c. The new entity approach
d. Proportionate consolidation
Which of the following is not a true statement regarding the IASB?
a. The IASB has promulgated a conceptual framework.
b. The IASB is playing an important role in the drive toward harmonization.
c. Several European nations have surrendered their standard-setting powers to the
IASB.
d. Members of the IASB have pledged to use their best endeavors to bring the adoption
of IASB standards to their countries.
Which of the following is a definition of revenue that clearly represents an
asset-liability approach?
a. Revenue results from the sale of goods and rendering of services and is measured by
the charge made to customers, clients, or tenants for goods and services furnished to
them.
b. Revenue represents gross increases in assets and gross decreases in liabilities
measured in conformity with generally accepted accounting principles that result from
those types of profit-directed activities.
c. Revenue should be identified with the period during which the major economic
activities necessary to the creation and disposition of goods and services has been
accomplished.
d. Revenues are the inflow or other enhancements of assets of an entity or settlement of
its liabilities (or a combination of both) during a period from delivering or producing
goods, rendering services, or other activities that constitute the entity’s ongoing major
or central operations.
Which of the following is not a true statement regarding John C. Burton, former chief
accountant of the SEC?
a. His influence moved the development of accounting for changing prices significantly
forward.
b. He believed that any changes in financial reporting should be made to the
measurement system itself.
c. He believed that inflation creates greater distortions when the current cost approach
to measurement is used.
d. He had doubts as to whether a system using general price-level adjustments would
provide any benefit.
Which of the following events resulted in shareholders’ beginning to question whether
accounting and reporting practices were adequate to assess investments?
a. The stock market crash of 1929
b. The federal government’s lump-sum payments for the retirement of Liberty Bonds
c. The creation of the SEC in 1934
d. None of the above
Which of the following is a true statement?
a. Under the articulated concept, accounting elements are defined using the
revenue-expense approach rather than the asset-liability approach.
b. The articulated approach severs the mathematical relationships between the balance
sheet and income statement.
c. Under the articulated approach, contributed capital, retained earnings, and unrealized
capital adjustments are subclassifications of owners’ equity.
d. Recent SFASs have advocated the nonarticulated approach to financial statements.
Which of the following statements is true regarding the Trueblood Committee Report?
a. It expresses the belief that different valuation bases are appropriate for different
assets and liabilities.
b. It is concerned with guaranteeing additivity of asset and liability amounts.
c. It expresses the belief that the same valuation base should be used for all assets and
all liabilities.
d. Both b and c
Recognition and Matching are examples of:
a. Input-oriented principles
b. Output-oriented principles
c. Constraining principles
d. Both a and c
Which of the following statements is true?
a. A paradigm is a shared problem-solving view among members of a science or
discipline.
b. In accounting, the shared paradigm has been current valuation.
c. Criticism of historical cost has increased since inflation lessened during the 1980s.
d. It appears that a scientific revolution has occurred in accounting because historical
cost is no longer the dominant paradigm.
A lease must be accounted for as either a rental agreement or a purchase equivalent with
debt financing by:
a. The lessor.
b. The lessee.
c. Both the lessor and lessee.
d. None of the above
Which of the following is a major difference between the IASB’s conceptual framework
and the FASB’s?
a. The IASB prefers replacement cost over historical cost as a measurement basis.
b. FASB limits primary user groups to investors and creditors.
c. FASB’s conceptual framework is considerably shorter than the IASB’s.
d. The IASB’s framework is in the form of a series of Concept Statements rather than a
single framework.
Which of the following is not a major input into the accounting standard-setting
process?
a. Accounting theory
b. Political factors
c. Geographical constraints
d. Economic conditions
The basic set of premises in a theory are also sometimes called all of the following
except:
a. Hypotheses.
b. Assumptions.
c. Postulates.
d. Positions.
Which of the following directly preceded the statement of cash flows?
a. The funds flow statement
b. The sources and uses of funds statement
c. The statement of changes in financial position
d. The sources and uses of resources statement
The secondary 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.
What is the underlying premise of clean surplus theory and how is it applied in
determining the valuation of a firm’s equity?
Explain how Sarbanes-Oxley of 2002 significantly changes how the FASB will operate
in the future.
Distinguish between proprietary theory and entity theory. Include descriptions of the
balance sheet equation used by each and how income is computed.
Identify and explain the two primary objectives of financial statements and the two
secondary objectives of financial statements.
Summarize the provisions of SFAS No. 142 related to the definition of goodwill,
impairment testing of goodwill, and the proper handling of goodwill in the event of the
sale of an acquired subsidiary.
Discuss the criticisms that of SFAC No. 6?