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Under the temporal method of translation, all balance sheet items that are carried at
current or future exchange prices are translated at the current exchange rate, while items
carried at past prices are translated at exchange rates existing at the time the item was
acquired.
Although the revenue-expense approach is the basic orientation of current financial
reporting practice, some specific accounting standards reflect an asset-liability
approach.
The Accounting Standards Steering Committee (ASSC) is the United Kingdom
equivalent of the Securities and Exchange Commission.
Although not specifically mentioned in the most recent definition of liabilities, deferred
credits continue to be part of the liability section in the balance sheet under present
practices.
The expected portfolio return decreases as risk increases.
Only leases that would be considered true leases in the eyes of the law are capitalized.
During a period of inflation, a firm's net monetary asset position experiences a
purchasing power loss.
The present financial disclosure system imposes costs on users rather than the
companies themselves.
The criteria for capitalizing a real estate lease are identical to those of other leases.
The FASB maintains that accrual accounting systems are more useful for predicting net
cash flows than are simpler cash-based systems.
Within the continental model of financial reporting, Germany has the closest approach
to a uniform national accounting system.
Proregulation arguments as well as arguments for unregulated markets are largely
deductively reasoned rather than empirically researched.
Respond to the following:
a. What is the decision-usefulness approach to accounting theory?
b. What are the characteristics and limitations of the decision-model approach?
c. What are the characteristics of the decision-maker approach?
The term "present magnitudes" refers to:
a. Conditions known at the time of an event.
b. Conditions known only at a later date.
c. Events that will significantly affect the financial statements.
d. None of the above
Criticism of the standard-setting process under the APB included:
a. Exposure for tentative opinions was too limited and occurred too late in the process.
b. The standard-setting process was too long and subject to too many outside pressures.
c. Both a and b
d. None of the above
Which of the following statements does not apply to the market model?
a. It is a simpler approach than the standard version of the capital asset pricing model.
b. This approach is seldom used in accounting research.
c. In this model, the risk-free return is dropped from the equation.
d. Abnormal returns are captured in the error term of the model.
In 1930 the AICPA began working with which of the following organizations to prepare
"five broad accounting principles," one of the most important documents in the
development of accounting rule making?
a. The SEC
b. The NYSE
c. The AAA
d. The FTC
Respond to the following:
a. What is meant by market efficiency?
b. What does the efficient-markets hypothesis imply about the value of accounting
information?
c. Describe the three forms of the efficient-markets hypothesis.
What of the following is not a true statement regarding the Pension Benefit Guaranty
Corporation (PBGC)?
a. The PBGC has a statutory lien against the sponsor for 100 percent of shortfalls in
vested benefits.
b. The PBGC was created by ERISA as a national insurer of pension plans.
c. Vested benefits of participants are partially guaranteed by the PBGC if a plan is
terminated.
d. The PBGC is empowered to collect premiums from plans to pay for guaranteed
termination benefits.
Which of the following concepts provides a framework for analyzing financial
reporting incentives between managers and owner?
a. Signalling theory
b. Agency theory
c. Information symmetry
d. Private contracting
Which of the following is not true regarding comprehensive income?
a. Comprehensive income includes foreign currency translation adjustments.
b. Comprehensive income includes unrealized holding gains and losses on
available-for-sale securities.
c. Comprehensive income includes minimum pension liability adjustments previously
classified as intangible assets.
d. Earnings per share should be calculated for comprehensive income.
Which of the following is not true regarding SFAS 158?
a. It brought the overfunded and underfunded status of defined benefit plan to the
footnotes of the balance sheet.
b. It required certain costs be charged to other comprehensive income.
c. It requires a credit to other pension income for amortized prior service costs.
d. An overfunded or underfunded amount for OPEBs must be shown as an asset or
liability on the balance sheet.
Answer the following questions regarding agency theory:
a. What are the assumptions, focus, and hypothesis of agency theory?
b. How does opportunistic behavior, or moral hazard apply to agency theory?
c. How does an audit of financial statements pertain to agency theory?
Which of the following statements does not apply to a multiemployer pension plan.
a. It is subject to collective bargaining agreements.
b. Two are more employers are plan sponsors.
c. There are no regulatory differences between these plans and single-employer plans.
d. One employer can contribute no more than 50 percent of initial contributions.
For which of the following accounts would the amount recorded under partial tax
allocation be equal to the amount recorded under comprehensive tax allocation?
a. Income Tax Liability
b. Deferred Tax Liability
c. Income Tax Expense
d. None of the above
Judging a theory by observing evidence rather than simply by its internal logic is called:
a. Subjective reasoning.
b. Inductive reasoning.
c. Deductive reasoning.
d. Objective reasoning.
A FASB discussion memorandum suggested that cash flow data are a useful
supplemental disclosure for all of the following reasons except:
a. They provide information about the quality of income.
b. They aid in assessing flexibility and liquidity.
c. They help to identify the relationship between accounting income and cash flows.
d. They are a better predictor of future earnings than is accounting income.
Which of the following is not a criticism that has been aimed at ARS 1?
a. Some postulates appear to stem from one of the other postulate categories.
b. Self-evident postulates may not be sufficiently substantive to lead to a unique and
meaningful set of accounting principles.
c. The postulates are necessary but not sufficient to lead to a viable outcome.
d. Postulates should have played a less passive role.
Which of the following represents the approach to interim reporting favored by APB
Opinion No. 28?
a. The integral view
b. Disjointed view
c. The discrete view
d. The linked view
Which of the following methods of reporting comprehensive income did the FASB
members that dissented from SFAS No. 130 believe most firms would use?
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 represents the legal approach to capital leases?
a. Limit capital leases to leases that are virtually conditional sales agreements with
installment payments.
b. Capitalize leases where a purchase equivalent has occurred.
c. The lease treatment is the same for lessor and lessee.
d. Capitalize leases that are not true leases.
Which of the following applies to the measurement and recognition of an asset?
a. A pervasive principle in accounting is that an asset is measured at the market value of
the consideration exchanged or sacrificed to acquire it and place it in operating
condition.
b. In some cases, an asset may be recorded at an amount greater than its cash equivalent
purchase price.
c. When the consideration given for an asset is nonmonetary, the market value of that
consideration generally provides the most reliable basis for measuring acquisition cost.
d. Assets are always measured and reported based on historical cost.
Which of the following is a true statement?
a. A principle contains elements observable by empirical techniques.
b. The APB's Special Committee on Research Program defined both postulates and
broad principles.
c. A principle is an analytical statement whose truth or falsity is self-contained by its
internal logic.
d. Postulates are generally defined as basic assumptions that cannot be verified.
Which of the following is not a characteristic of a true lease?
a. Government agencies recognized the lessee as the owner of the leased asset.
b. The rentals charged under leasing plans without an option to purchase approximate
the rentals charged under plans with such an option.
c. The lessor retains the right to inspect the equipment during the term of the lease.
d. There is no mention of interest as a factor in rental charges.
Which of the following is not an argument supporting unregulated markets?
a. Agency theory
b. Private contracting opportunities
c. Signalling theory
d. Social goals
