An advantage of proportionate consolidation is that the minority interest category does
not arise.
ARB 43 recommended capitalization for leases that were, in substance, installment
purchases.
Throughout the financial history of the United States, current value has been the
accepted valuation system for published financial statements.
The most important new issue brought up in the discussion memorandum that preceded
the conceptual framework was predictive ability.
Under SFAS No. 109, the deferred tax balance is to be classified as current or
noncurrent in the same manner as the assets and liabilities to which the deferred taxes
relate.
The equity method is questionable in terms of both relevance and representational
faithfulness.
The main reason underlying SFAS 154 is that it is part of the convergence project with
the IASB.
When a direct assessment measure is used, there is always only one correct measure.
The two general financial reporting models that have evolved in economically advanced
countries are the Anglo-Saxon model and the European Model.
Competitive disadvantage is an indirect cost of published information.
Harmonization of accounting standards refers to the degree of coordination or similarity
among the various sets of national accounting standards and methods and the formats of
financial reporting.
SFAS No. 106 requires a liability be recognized related to OPEB only if a legal
obligation exists.
Which of the following accounting research areas is based on the efficient-markets
hypothesis?
a. The decision-model approach
b. Behavioral research
c. Critical accounting
d. Capital markets research
The establishment of which of the following groups has resulted in a challenge to the
FASB’s standard-setting powers?
a. The Governmental Accounting Standards Board (GASB)
b. The Emerging Issues Task Force (EITF)
c. The Accounting Standards Executive Committee (AcSEC)
d. All of the above
The ‘true and fair view’ refers to
a. The use of judgment to make financial statements useful.
b. The same thing as ‘present fairly’ in opinions of American auditing firms.
c. The fact that financial statements are in accordance with GAAP
d. The fact that financial statements are presented correctly in accordance with the law.
With which of the following methods of accounting for a business combination does a
minority interest category not arise?
a. Pooling of interests
b. The purchase method
c. The new entity approach
d. Proportionate consolidation
A lease must be accounted for as either a rental agreement, a sale equivalent with debt
financing, or a loan equivalent by:
a. The lessor.
b. The lessee.
c. Both the lessor and lessee.
d. None of the above
Which of the following is not a possible justification for regulated markets?
a. Possible market failure
b. Natural monopolies
c. The possibility that free markets are contrary to social goals
d. Private contracting opportunities
Discuss why the reporting of disaggregated data may be preferable to consolidated data.
Which of the following statements is not true regarding the Trueblood Committee?
a. It was formed at a time when the APB was under heavy criticism.
b. It was formed when very little progress was being made in terms of reformulating the
structure of accounting theory.
c. It was charged with using APB Statement 4 as a vehicle for refining the objective of
financial statements.
d. It enumerated a total of twelve objectives of financial accounting.
When the premises of a theory are constructed so that they can be tested by statistical
inference, they are usually called:
a. Postulates.
b. Inferences.
c. Hypotheses.
d. Assumptions.
Which of the following should be considered first in applying the matching concept?
a. Costs should be matched against the revenue directly produced.
b. Costs should be matched to revenue in a rational and systematic manner.
c. Costs should be recognized as period expenses when incurred.
d. Costs should be recognized as expenses when cash is paid.
Which of the following bodies did not publish one of the important committee reports
and documents that lead to accounting objectives and standards?
a. AAA
b. AICPA
c. APB
d. CAP
Protective disclosure and informative disclosure are two types of disclosures as
interpreted by the:
a. FTC.
b. FASB.
c. AICPA.
d. SEC.
Which of the following is true regarding the predictive ability of accounting data?
a. The predictive ability objective is validated by market efficiency.
b. Previous studies have indicated that historical cost income is not as good a predictor
of itself as general price-level-adjusted income or current value income.
c. Studies have found that income measurement methods that have the greatest
predictive ability are also best in terms of most other objectives.
d. Predictive ability is the same as the quantifiability standard of ASOBAT.
Which of the following is not a true statement regarding SFAS No. 35?
a. It established accounting standards for the measurement and reporting of plan assets
and plan obligation.
b. It was a landmark standard because it defined the pension plan as a new entity,
separate and distinct from the sponsoring company.
c. It defined plan obligations as accumulated benefits, both vested and unvested.
d. It required information about the sponsor’s obligations to be reported as a note in the
sponsor’s financial statements.
Which of the following postulates states that unless there is evidence to the contrary, it
is assumed that the firm will continue indefinitely?
a. Entities
b. Time period
c. Consistency
d. Going concern
On the statement of cash flows, the proceeds from the sale of equipment would be
classified as:
a. An investing activity.
b. An operating activity.
c. A financing activity.
d. Either an investing, operating, or financing activity.
Mandatory public reporting of financial information:
a. Enhances the perceived fairness of the capital market.
b. Increases the total cost to society of obtaining the information.
c. Results in costs greater than benefits.
d. Requires companies to generate a lot of information that would not otherwise be
produced by its accounting system.
Which of the following does not describe the continental model of financial reporting?
a. A weak accounting profession
b. Strong governmental influence
c. The primacy of investor needs over tax influences and creditor needs
d. Emphasis of debt financing over equity capital
Which one of the following would not be a party to a defined benefit plan?
a. The sponsoring employer
b. A pension fund
c. The employee
d. The actuary
Which of the following was not an objective of ERISA?
a. To improve access to pension benefits for employees
b. To extend vesting periods
c. To override discretionary funding clauses in pension plans
d. To improve the security of pension benefits for employees
Which of the following statements is true regarding post-earnings-announcement drift?
a. Security prices do not react significantly at the time of earnings announcements.
b. At least part of the blame for this effect has been laid at the feet of financial analysts.
c. This effect is more important for larger firms than for smaller firms.
d. Security prices never fully reflect the effects of earnings announcements.
Which of the following is true for intrinsic values?
a. It is the present value of future expected cash flows.
b. It is unaffected by changes in interest rates.
c. It must be below current market price for a stock purchase to be acceptable.
d. It is the undiscounted value of the cash that can be taken out of a business during its
remaining life.
Which of the following suggested bases of recognizing revenue is not permitted by
authoritative literature?
a. During production for long-term construction contracts if reliable estimates of the
extent of progress and of the cost to complete can be made and if reasonable assurance
of collectibility exists
b. At the completion of production if immediate marketability at a quoted price exists
for a product whose units are interchangeable
c. On an accretion basis where product marketability at known prices exists and it is
desirable to recognize changes in assets, such as growing timber
d. On a cash basis if no reasonable basis exist for estimating collectibility
Which of the following is not true regarding the revenue-expense approach to defining
accounting elements?
a. The revenue-expense approach defines assets and liabilities as a by-product of
revenues and expenses.
b. Under the revenue-expense approach, the balance sheet is burdened with by-products
of income measurement rules.
c. Deferred charges and deferred credits are ambiguous debits and credits that appear on
the balance sheet under the revenue-expense approach.
d. There are very few examples of the use of the revenue-expense approach in recent
accounting standards.
What is critical accounting, and in what way does it differ from all of the other research
areas discussed in the text?
Distinguish between a postulate and a principle as they are used in ARS 1 and ARS 3.
Identify the major categories of each that are included in these two studies.
How has the Government Accounting Standards Board (GASB) challenged the FASB’s
standard setting powers?
What is Regulation FD, and how does it relate to the disclosure of information?
Discuss two types of economic consequences of lease accounting.
Contrast principles-based and rules-based accounting standards. Why do these
approaches to standard setting tend to converge according to Schipper?