Relevance is considered the most important of the qualitative objectives of APB
Statement 4.
It can be argued that all leases over one year should be capitalized.
Economic exposure directly affects consolidated cash flows.
In a defined contribution plan, benefits are defined either as a specific dollar amount or
by a general formula based on salary.
Both predictive value and representational faithfulness are impaired under historical
costing.
An argument in favor of unregulated markets is that because of private opportunities to
contract for information, market intervention in the form of mandatory disclosure rules
is both unnecessary and undesirable.
The pooling of interests consolidation method has been eliminated for new acquisitions
by SFAS No. 141.
Analytical/deductive research methods are commonly used in accounting research.
The key factor of difference between the Anglo-Saxon and continental models appears
to be between capital-based financial markets and credit-based financial markets.
Much of the accounting research in the behavioral area uses laboratory subjects in
carefully controlled experimental situations.
Relevance and reliability are the primary characteristics that standard setters should be
concerned with.
Public goods are commodities that, once consumed, reduce the opportunity for
consumption by others.
Research has provided evidence that the stock market may be fooled by the higher
income reported under the pooling method.
Transactions are economic or financial events that are recorded in the firm’s accounts.
Proprietary theory assumes that the owners and the firm are virtually identical.
Agency theory holds that management always tries to maximize the value of the firm.
The terms calculation and measurement both refer to the valuation of a real phenomena
or attribute.
Of the research methods discussed in the text, the critical accounting approach is the
closest to the standard-setting function.
Classifying leases as either operating or capital leases is an example of attempting to
establish finite uniformity.
An executory contract is a contract unperformed by both parties.
Which of the following set of standards is at the heart ASOBAT?
a. Relevance, Verifiability, Objectivity, Usefulness
b. Relevance, Verifiability, Freedom from Bias, Quantifiability
c. Reliability, Verifiability, Freedom from Bias, Quantifiability
d. Relevance, Usefulness, Freedom from Bias, Objectivity
Which of the following would create a permanent difference between published
statements and tax returns?
a. Municipal bond interest income
b. Deductible charitable contributions
c. MACRS depreciation
d. Bad debt expense
Which of the following statements is true regarding accountability?
a. Accountability refers to a narrower concept than does stewardship.
b. Measurements based on the accountability objective include earnings per share but
not return on investment.
c. The question of which valuation system provides the best input for
accountability-oriented measurement is unimportant.
d. Accountability refers to the responsibility of management to report on achieving
goals for the effective and efficient utilization of enterprise resources.
In an accounting context, which of the following represents the degree of consensus
among measurers in situations where a given group of measurers having similar
instruments and constraints group measures the same attribute of a given object?
a. Bias
b. Equality
c. Objectivity
d. Impartiality
Which of the following would give rise to abnormal earnings?
a. Accelerated depreciation
b. LIFO costing for inventories and cost of goods sold
c. Immediate write-off of research and development
d. All of the above
Which of the following is not a true statement regarding SFAS No. 96?
a. It required the comprehensive allocation approach.
b. It was conservative in terms of recognizing deferred tax assets.
c. It was issued in 1987 and continued the approach of APB Opinion No. 11.
d. SFAS NO. 109 succeeded it in 1992.
Which of the following methods requires a separate schedule reconciling net operating
cash flow with net income?
a. The indirect method
b. The direct method
c. Both a and b
d. None of the above
Which of the following is NOT true regarding the PCAOB?
a. The PCAOB is a governmental sector regulatory body.
b. The PCAOB is overseen by the SEC.
c. The PCAOB was established by the Sarbanes-Oxley Act.
d. The PCAOB has authority to set auditing standards.
SFAS No. 52 adopted:
a. A U.S. dollar orientation to accounting for foreign currency operations.
b. A functional currency orientation to accounting for foreign currency operations.
c. A foreign currency orientation to accounting for foreign currency operations.
d. None of the above
The liability concept that restricts liability to each defendant’s share of the damages
based upon the judge or jury’s assessment of their share of the damages is called:
a. Proportionate liability.
b. Compensatory liability.
c. Joint and several liability.
d. Disproportionate liability.
Which of the following is a provision of SFAS No. 131?
a. Segment liabilities must be reported, but reported segment assets is optional.
b. Reconciliation of segment profit or loss to consolidated profit of loss must be done
before income taxes.
c. A segment is constituted by having 20% or more of combined revenue of all
operating segments.
d. Segment reporting is based on the way management organizes the segments for
making operating decisions and assessing performance.
Under which of the following circumstances should rigid uniformity be used?
a. If the event is a not a simple event
b. If the event is a complex event in which finite uniformity cannot be instituted in a
cost-effective manner
c. Both a and b
d. None of the above; rigid uniformity should never by used
The current operating school of thought holds that:
a. All components of comprehensive income should be in the income statement.
b. The income statement should contain only normal operating components of
comprehensive income.
c. Retained earnings should reflect only total earnings as reported in the income
statement and dividend distributions, in addition to beginning and ending balances.
d. Unusual or infrequently occurring gains and losses should be reported on the income
statement.
Which of the following is one of the criteria that have been suggested for lease
capitalization?
a. The lessee treats lease payments as periodic expenses.
b. The lessor pays costs normally incident to ownership.
c. The lessee treats the lease as a purchase for tax purposes.
d. Leased property is special purpose to the lessor.
Which of the following is a true statement?
a. Transactions are events that may be either external or internal to an enterprise.
b. Events that are internal to the firm do not require entries in the firm’s accounts.
c. Transactions are economic or financial events that may or may not be recorded in the
firm’s accounts.
d. “Simple events” do not have any significant economic variables that lead to
essentially different recording.
Which of the following is not a true statement regarding a sale and leaseback?
a. It occurs when the owner of an asset sells the asset and enters into a lease agreement
to lease the asset back.
b. The lessor and lessee both use the standard criteria for classifying such a lease as
operating or capital.
c. The lessor is the original legal owner and the lessee is the new legal owner.
d. SFAS No. 13 allows a gain or loss to be immediately recognized in cases where the
original owner retains the use of a substantially smaller part of the total asset.
Which of the following is not true regarding SFAS No. 142
a. Goodwill may be defined as the excess earning power of an acquisition
b. Goodwill is defined as the difference between the amount paid for an acquired
subsidiary and the fair market value of its individual net assets.
c. Tests of goodwill impairment must be made on an annual basis.
d. Because goodwill has an indefinite life, it is not subject to write-off as an expense.
Which of the following is a true statement regarding the pension liability and pension
expense recognition requirements of SFAS No. 87?
a. SFAS No. 87 presumes an explicit contract in calculating accrued pension expense.
b. SFAS No. 87 uses an explicit contract view in requiring the recognition of a
minimum pension liability.
c. SFAS No. 87 may overestimate the pension liability by including future salary
projections in the liability computation.
d. SFAS No. 87 does not include future salary projections in the pension expense
calculation.
The liability concept that can result in one party having to pay for more than its
proportionate share of damages is called:
a. Proportionate liability.
b. Compensatory liability.
c. Joint and several liability.
d. Punitive liability.
According to Sorter and Gans, which of the following describes the intent of the
Trueblood Committee Report’s second financial statement objective?
a. Financial statements should serve those with limited ability.
b. Financial statements should serve special needs of specific users.
c. Financial statements should serve the general needs of users.
d. Financial statement should serve only those users who are very knowledgeable about
financial statements and information.
Which of the following is not true regarding earnings and dividends?
a. Managers adjust dividends primarily to reflect the change in current earnings.
b. Stock price may be modeled as the present value of future expected dividends.
c. Investors regard cash dividends as credible signals of future performance.
d. Current income has a value in predicting future dividends.
Discuss reasons why the FASB replaced the more general funds flow concept with a
cash flow statement.
What are nonqualified stock options and incentive stock options, and how does expense
recognition differ for these two types of stock options?
How has the FASB (and the SEC) addressed the contention that small firms incur
significantly higher costs than large ones in carrying out complex accounting standards
or disclosure requirements?
What does harmonization of accounting standards mean, and what are the two aspects
of harmonization?
What are the relevant circumstances that justify differential accounting for
intercorporate equity investments?
Discuss the differences between each of the following:
Also identify how these types of approaches relate to one another. (For example: is
deductive research normative or descriptive; is it global or particularistic?)
Discuss the revenue recognition principle and how the terms “critical event,” “earned,”
“realized,” and “realizable” apply to revenue recognition.
What were the reasons for the failure of ARS 1 and ARS 3?
What are the arguments for discounting deferred tax liabilities?