Example Test Questions
Chapter 1
Multiple Choice:
1. Which of the following bodies has the ultimate authority to issue accounting pronouncements in
the United States?
2. What historical evidence of the business operations of the private estate of Apollonius was
discovered early inthe20th century?
3. Who has been given credit or developing the double-entry system of bookkeeping?
4. Which of the following was not a criticism of the development of accounting standards by the
Accounting Principles Board?
5. Which of the following is the professional organization of university accounting professors?
6. What controversy originally highlighted the need for standard setting groups to have more
authority?
7. Which of the following committees recommended abolishing the Accounting Principles Board
and replacing it with the Financial Accounting Board?
8. Which of the following is a public sector accounting standard setter?
9. Which of the following types of pronouncements now establishes generally accepted accounting
principles?
10. Which of the following types of pronouncements are intended to establish the objectives and
concepts that the FASB will use in developing standards of financial accounting and reporting?
11. Which of the following is not a consequence of the standards overload problem to small
businesses?
12. Some accountants maintain that accounting standards are as much a product of political action as
they are of careful logic or empirical findings. This belief is an example of the concept of
13. The impact of accounting reports on various segments of our economic society is the definition of
the concept of
14. Considering and understanding how business decisions affect the financial statements is
15. Economic consequences of accounting standard-setting means:
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16. Which of the following is a source of nonauthoritative accounting guidance and literature?
17. Which of the following companies was involved in an accounting failure that caused the public
accounting firm Arthur Andersen to gout of business?
Essay
1. What is the difference between normative and positive theory?
2. Why is the development of a general theory of accounting important
3. Discuss the evolution of accounting during the 1930s.
One of the first attempts to improve accounting began shortly after the inception of the Great
Depression with a series of meetings between representatives of the New York Stock Exchange
(NYSE) and the American Institute of Accountants. The purpose of these meetings was to discuss
problems pertaining to the interests of investors, the NYSE, and accountants in the preparation of
external financial statements.
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4. Discuss the evolution of the three private sector accenting standard setting organizations.
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5. What were the purposes of the Wheat and Trueblood committees?
6. What was the purpose of the GAAP Hierarchy?
7. What were the four types of pronouncements originally issued by the FASB prior to the adoption
of the FASB ASC?
8. Discuss why standard setting may be viewed as a political process.
9. Define the following terms
10. Discuss the evolution of the phrase “generally accepted accounting principles.
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11. What controversy caused the AICPA to issue Rule 203 that requires companies to use GAAP
when issuing financial statements?
12. Discuss the FASB ASC including the reasons for its adoption and the FASB’s goals in
developing it.
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13. Discuss the role of ethics in accounting.
Ethics are concerned with the types of behavior society considers right and wrong. Accounting
ethics incorporate social standards of behavior as well as behavioral standards that relate
specifically to the profession. The environment of public accounting has become ethically
complex. The accountants’ Code of Professional Ethics developed by the AICPA has evolved
over time, and as business transactions have become more and more complex, ethical issues have
also become more complex.
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14. What is a special purpose entity and how do they work?
15. How did the Sarbanes-Oxley Act change the way the FASB is funded?
16. Discuss the objectives of the International Accounting Standards Board.