Inductive approaches to accounting theory usually attempt to be descriptive.
The majority of exceptions to the general rule regarding revenue recognition have
evolved because new transactions have emerged that do not fit the mold of traditional
transactions.
The equity method is the required reporting method for all less-than-majority owned
companies.
With the new form of equities approach, the credit arising under income tax allocation
represents a subordinated equity investment in the firm by the federal government.
ARB 38 recommended that where it was obvious a lease contract was in substance a
purchase, an asset, but not a liability, should be recognized in the lessee’s balance sheet.
The value of a company can be increased when the firm voluntarily reports private
information about itself if the information reduces uncertainty about the firm’s future
prospects.
The only method allowed by GAAP in accounting for convertible bonds is to treat the
debt as conventional debt until conversion.
Total holding gain or loss is the sum of monetary holding gains and losses and real
holding gains and losses.
SFAS No. 87 was the first pension accounting standard to segregate accumulated
benefits into vested and unvested benefits.
The strongest evidence from capital market research concerns the information content
of annual accounting earnings numbers.
Hypotheses and theories are based on an informal method of investigation.
Future contingencies that are allocations do not have real information content for
financial statement users.
Predicting changes in future economic conditions should be a major consideration in
the recognition of future events.
Most testing of the efficient-markets hypothesis has dealt only with past information
reflected in security prices.
Comprehensive income is the change in equity of an entity during a period of
transactions and other events and circumstances, from owner and nonowner sources.
SFAS 141 requires acquisitions previously accounted for as poolings be converted to
purchase accounting.
The tax liability would be greater than tax expense whenever revenues are recognized
for tax purposes in a different period than for published reporting purposes.
The Accounting Standards Executive Committee of the AICPA (ASEC) and the
Emerging Issues Task Force (EITF) were established to solve the problems of particular
industries as well as narrow technical issues.
According to the Trueblood Committee Report, current values should be reported when
they differ significantly from historical costs.
On the statement of cash flows, the direct method starts with accrual income and adjusts
it for the noncash items it contains.
The simplest type of measuring system is the:
a. Interval scale.
b. Ratio scale.
c. Nominal scale.
d. Ordinal scale.
Which of the following does not apply to the Bretton Woods Agreement of 1944?
a. The developments surrounding the agreement have heightened the importance of how
translation of foreign-based operations should be handled.
b. It established controlled exchange rates worldwide.
c. It allowed monetary authorities to buy or sell gold or foreign exchange with the intent
of maintaining an allowable exchange rate fluctuation.
d. It collapsed in 1971 resulting in freer and more volatile exchange rate fluctuations.
Which of the following statements applies to the two-event view of past event
recognition?
a. It would recognize a transaction as occurring when an offer of early retirement is
made to employees.
b. It would be more reliant upon probabilistic estimates than the one-event view.
c. It is faster than the one-event view.
d. It is consistent with the asset and liability views of SFAC No. 6.
SFAC No. 5 defines disclosure as:
a. Presentation of information in the financial statements.
b. Presentation of information by means other than recognition in the financial
statements.
c. Recognition of information in the financial statements or footnotes.
d. Presentation of information in any source available.
Empirical research is:
a. Inductive.
b. Deductive.
c. Analytical.
d. None of the above
Which of the following methods of valuing an asset is based on the amount that would
be paid for it in markets where the asset would ordinarily be acquired?
a. Replacement cost
b. Entry value
c. Exit value
d. Both a and b
Which of the following types of liabilities do not represent obligations on the firm to
transfer assets in the future, but are past transactions being postponed from the income
statement until future periods?
a. Deferred credits
b. Constructive obligations
c. Equitable obligations
d. Contingent liabilities
Which of the following is a true statement regarding feedback value?
a. It concerns confirming or correcting decision makers’ earlier expectations.
b. It refers to assessing where the firm presently stands.
c. It is closely related to accountability.
d. All of the above
Which of the following methods of reporting comprehensive income is preferred by the
FASB?
a. Reporting comprehensive income in a combined statement of financial performance
b. Reporting comprehensive income in a separate statement of comprehensive income
which would begin with net income
c. Reporting comprehensive income within a statement of changes in equity
d. Not reporting comprehensive income
Which of the following is the date that management commits itself to a formal plan to
dispose of a business segment?
a. The measurement date
b. The disposal date
c. The assessment date
d. The transfer date
Which of the following best describes when revenues are generally recognized?
a. At the completion of production
b. At the point of sale when legal title is transferred
c. When cash is collected
d. During production
Discuss whether alternative accounting policies have a systematic effect on security
prices and what this implies about the information content of accounting policy
changes. Include a discussion of previous research in this area.
Which of the following reflects SFAS No. 109’s position regarding tax-loss
carryforwards?
a. A tax-loss carryforward should not be recorded because future benefits are uncertain.
b. Any excess of the tax-loss carryforward over deferred tax liabilities should not be
booked.
c. A tax-loss carryforward coming from an acquired corporation should not be
recognized.
d. A tax-loss carryforward should be booked as an asset in most cases.
Economic exposure is:
a. The exposure to exchange gains and losses resulting from translating
U.S.-dollar-denominated financial statement into foreign denominations.
b. The exposure to exchange gains and losses resulting from translating
foreign-currency-denominated financial statements into U.S. dollars.
c. The exposure to cash flow changes resulting from dealings in foreign-denominated
transactions and commitments.
d. A result of the need to use more foreign currency to settle U.S. dollar denominated
debt.
Which of the following is a true statement regarding actuarial funding?
a. Actuarial funding applies to both defined benefit and defined contribution plans.
b. Given the same set of plan conditions and actuarial assumptions, each different
actuarial funding model derives the same funding pattern over time.
c. Given the same set of plan conditions and actuarial assumptions, each different
actuarial funding model builds up a pension fund to the same future balance.
d. Actuarial funding is synonymous with terminal funding.
Which of the following concepts focuses on preparers of financial information?
a. Comparability
b. Consistency
c. Uniformity
d. Both b and c
Which of the following is not a true statement regarding assets as they appear on the
balance sheet?
a. Historical cost gives a good indication of the productive value of assets.
b. Assets held for sale and measured at net realizable value represent a high degree of
certainty as to measurement reliability.
c. Certain types of deferred charges do not have any direct effect on future cash flows.
d. In terms of additivity, it is questionable if a balance sheet should be added.
Which of the following is the primary criterion for revenue recognition applied in
practice?
a. Cash collection
b. Completion of the production process
c. Completion of the earnings process
d. When sales price is measurable
“One-line consolidation” refers to:
a. The equity method.
b. The fair value method.
c. The purchase method.
d. Pooling of interests.
Which type of accounting principle is concerned with the comparability of financial
statements of different firms?
a. Input-oriented principles
b. Output-oriented principles
c. Constraining principles
d. Both a and c
In the terminology suggested by the FASB, which of the following terms refers to the
accounting entity that results from a business combination?
a. Parent enterprise
b. Combined enterprise
c. Consolidated enterprise
d. Controlling enterprise
Respond to the following:
When is tax allocation necessary?
a. When a revenue or expenses reaches the financial statements before it appears on the
tax return
b. When a revenue or expense reaches the tax return before it appears on the financial
statements
c. When the tax basis and book basis of assets and liabilities differ
d. All of the above