Prior research studies have provided evidence that a firm’s unfunded pension benefits
are interpreted as if they are liabilities.
The main change brought about by SFAS No. 158 was to bring the overfunded or
underfunded status of a defined benefit plan to the footnotes of the balance sheet.
Under SFAS No. 13, payments on capital leases are separated into the equivalent of
principal and interest each period.
The study by Ou and Penman, which used traditional accounting measures to predict
whether a company’s income would increase or decrease, indicated that markets are not
as efficient as previously thought, and that fundamental analysis is important for
investment purposes.
The Netherlands is a continental nation with a largely Anglo-Saxon accounting model.
The purpose of ASOBAT was to refine the objectives of financial statements as a part of
a metatheoretical structure.
SFAS No. 112 applies to both inactive and active employees who have not yet retired.
Rigid uniformity considers relevant circumstances.
The G4+1 report on leases would make all leases financing leases.
The Federal Litigation Reform Act of 1995 replaced the previous proportionate liability
requirement with joint and several liability for damages suffered by third parties who
rely on the financial statement of firms attested to by CPAs.
The Committee on Accounting Procedures (CAP) represented the profession’s first
sustained attempt to develop workable financial accounting rules.
The FASB was the first standard-setting body to address translation of foreign-based
operations and holdings into U.S. dollars.
Under partial allocation, income tax expense is equal to the tax liability.
It was in the 1940s that accounting policy makers first responded to the lease
accounting problem.
A monetary holding gains are the difference between general price-level-adjustment
amounts and current value.
Under SFAS No. 157, if an asset is valued from and ‘in-use’ perspective, its value is
based on its use in combination with other assets.
The use of research in accounting results in the field being referred to as an academic
discipline.
A _________ occurs when the subsidiary’s shares are distributed to the combinor’s
shareholders in exchange for shares of the parent’s stock.
a. Spin-off
b. Split-off
c. Split-up
d. Sell-off
Which of the following is a true statement regarding an exit-price accounting system?
a. It measures flexibility of the firm in terms of the amount of cash that would be
realized from a forced liquidation of assets.
b. It provides an excellent indicator of liquidity.
c. It provides an estimate of the speed of conversion of a firm’s resources.
d. It provides an estimate of the cash conversion value of a firm’s resources.
Which of the following possible measurement bases listed by the IASB in the most
prevalent?
a. Present Value
b. Exit Value
c. Replacement cost
d. Historical cost
Which of the following is not true if the functional currency of a foreign operation is
U.S. dollars?
a. All balance sheet items that were carried at current or future exchange prices are
translated at the current exchange rate.
b. All balance sheet items carried at past prices are translated at exchange rates existing
at the time the item was acquired.
c. All income statement items are translated at the average exchange rate for the
reporting period.
d. Exchange gains and losses arising from translation from the currency of record into
the functional currency are recognized on the income statement.
Identify the four major provisions of the Employee Retirement Income Security Act of
1974 (ERISA).
Under which of the following methods must allocation take place as long as timing
differences arise, despite the possibility of relevant circumstantial differences?
a. Comprehensive allocation
b. The net-of-tax method
c. Partial allocation
d. The new form of equities method
Which of the following organizations published “A Statement of Basic Accounting
Theory” (ASOBAT)?
a. AAA
b. AICPA
c. APB
d. CAP
Current liabilities are initially measured at:
a. Face value.
b. Present value based on current interest rates.
c. Present value plus stated interest.
d. Book value.
Which of the following is a true statement?
a. The eight SFACs that comprise the conceptual framework were not evolutionary
because they were derived from previous documents such as the Trueblood Report and
ASOBAT.
b. The definitions of SFAC No. 6 were basically a restatement of the definitions of APB
Statement 4.
c. The Achilles’ heel of the document is SFAC No. 5, which reaffirmed historical cost as
the basic measurement system.
d. The key document in the series of SFACs that comprise the conceptual framework is
SFAC No. 1.
In a 1976 discussion memorandum, the FASB defined the purchase method of
accounting for business combinations as a method which:
a. Results in the assets and liabilities of the subsidiary being valued at market value at
the time of acquisition, and the parent’s assets and liabilities being valued at book value.
b. Results in the assets and liabilities of the parent being valued at market value at the
time of acquisition, and the subsidiary’s assets and liabilities being valued at book
value.
c. Results in all entities’ assets and liabilities being revalued to market values at the time
the combination originates.
d. Uses the book values of the combining companies.
Which of the following is a characteristic of a true lease?
a. The presence of a provision for the transfer of the title to the lessee
b. The presence of interest as a factor in rental charges
c. Rental charges that are competitive with those charged by other lessors of similar
equipment
d. The assumption of the risk of loss by the lessee
Which of the following is not a characteristic of good inductive accounting theory
research?
a. It must carefully specify the problem that is being examined.
b. It must be based on a hypothesis that is capable of being tested.
c. It must test the entire population under investigation.
d. It must employ the requisite tools of statistical inference.
With the temporal method of translation:
a. All balance sheet items that are carried at current or future exchange prices are
translated at the current exchange rate.
b. Balance sheet items carried at past prices, such as fixed assets, are translated at the
current exchange rate.
c. Income statement items are translated at the current exchange rate.
d. Income statement items are translated at historical exchange rates.
Which of the following is not true regarding the imperatives of ARS 1?
a. They are normative in nature.
b. They have developed within the context of accounting practice.
c. They are objectives that should be striven for.
d. The key imperative postulate appears to be consistency.
In the uses section of the statement of changes in financial position, transactions are
subclassified into those affecting:
a. The fund balance and other accounts.
b. Cash and other accounts.
c. Current assets or liabilities and other accounts.
d. Liquid assets and other accounts.
Which of the following valuation approaches converts historical cost dollars by an
index such as the Consumer Price Index?
a. Current value
b. Discounted cash flows
c. Replacement cost
d. General price-level adjustment
Which of the following documents first stated that users of financial statements should
be knowledgeable and should understand the characteristics and limitations of financial
statements?
a. “Objectives of Financial Statements” (Trueblood Committee Report)
b. “Basic Concepts and Accounting Principles Underlying Financial Statements of
Business Enterprises” (APB Statement 4)
c. “A Statement of Basic Accounting Theory” (ASOBAT)
d. “Statement of Accounting Theory and Theory Acceptance” (SATTA)
What is the policy function performed by bodies such as the FASB and the SEC? List
and discuss the three sources of inputs to the policy-making function.
Discuss the role of management in relevant circumstances.
Why did accounting and reporting practices in the U.S. prior to 1930 not meet the needs
of shareholder investors?
What are the capture theory and the life-cycle theory of regulation, and how do they
apply to the regulation of accounting?
What is due process, and how has the political nature of regulation affected the CAP,
the APB and the FASB?