Chapter 1

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1

The financial statements most frequently provided include all of the following except the
A.
balance sheet.
B.
statement of cash flows.
C.
statement of retained earnings.
D.
statement of stockholders' equity.

C.
statement of retained earnings.

2

An effective capital allocation process
A.
promotes innovation.
B.
provides an efficient market for obtaining and granting credit.
C.
encourages productivity.
D.
all of these.

D.
all of these.

3

The objective of general purpose financial reporting adopts an entity perspective, which means that
A.
financial reporting should be focused an assessing the company's stewardship.
B.
financial reporting should be focused solely on the needs of the owners.
C.
companies are viewed as separate and distinct from their owners.
D.
none of these.

C.
companies are viewed as separate and distinct from their owners.

4

Which of the following statements is not an objective of financial reporting?
A.
Provide information that is useful in investment and credit decisions.
B.
Provide information about enterprise resources, claims to those resources, and changes to them.
C.
Provide information on the liquidation value of an enterprise.
D.
Provide information that is useful in assessing cash flow prospects.

C.
Provide information on the liquidation value of an enterprise.

5

Accounting principles are "generally accepted" only when
A.
an authoritative accounting rule-making body has established it in an official pronouncement.
B.
it has been accepted as appropriate because of its universal application.
C.
both of these.
D.
neither of these.

C.
both of these.

6

The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as
A.
consistently primary.
B.
consistently secondary.
C.
sometimes primary and sometimes secondary.
D.
non-existent.

C.
sometimes primary and sometimes secondary.

7

Generally accepted accounting principles
A.
include detailed practices and procedures as well as broad guidelines of general application.
B.
are influenced by pronouncements of the SEC and IRS.
C.
change over time as the nature of the business environment changes.
D.
all of these.

D.
all of these.

8

Financial accounting standard-setting in the United States
A.
can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.
B.
is based solely on research and empirical findings.
C.
is a legalistic process based on rules promulgated by governmental agencies.
D.
is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

A.
can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.

9

What group or organization governs the ethical issues in financial accounting?
A.
The Securities and Exchange Commission (SEC).
B.
The American Institute of Certified Public Accountants (AICPA).
C.
The Financial Accounting Standards Board – (FASB).
D.
The Government Accounting Standards Board (GASB).

C.
The Financial Accounting Standards Board – (FASB).

10

The information provided by financial reporting pertains to
A.
individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
B.
business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.
C.
individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
D.
an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

A.
individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

11

An effective capital allocation process
A.
promotes productivity.
B.
encourages innovation.
C.
provides an efficient market for buying and selling securities.
D.
all of these.

D.
all of these.

12

Issues in financial reporting include
A.
the expectations gap.
B.
the economic consequences of accounting rules.
C.
political pressure from users.
D.
all of these.

D.
all of these.

13

Accrual accounting is used because
A.
cash flows are considered less important.
B.
it provides a better indication of ability to generate cash flows than the cash basis.
C.
it recognizes revenues when cash is received and expenses when cash is paid.
D.
none of these.

B.
it provides a better indication of ability to generate cash flows than the cash basis.

14

A common set of accounting standards and procedures are called
A.
financial accounting standards.
B.
generally accepted accounting principles.
C.
objectives of financial reporting.
D.
statements of financial accounting concepts.

B.
generally accepted accounting principles.

15

Which of the following statements about the FASB's Codification is true?
A.
The Codification provides all of the authoritative literature on a topic in one place.
B.
The Codification creates new GAAP.
C.
The Codification includes International Financial Reporting Standards.
D.
All of these statements are true.

A.
The Codification provides all of the authoritative literature on a topic in one place.

16

Which of the following publications does not qualify as a statement of generally accepted accounting principles?
A.
Statements of financial standards issued by the FASB
B.
Accounting interpretations issued by the FASB
C.
APB Opinions
D.
Accounting research studies issued by the AICPA

D.
Accounting research studies issued by the AICPA

17

The purpose of the International Accounting Standards Board is to
A.
issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.
B.
develop a uniform currency in which the financial transactions of companies through-out the world would be measured.
C.
promote uniform accounting standards among countries of the world.
D.
arbitrate accounting disputes between auditors and international companies.

C.
promote uniform accounting standards among countries of the world.

18

From the four statements that follow, which grouping is true?
1. Technical competence is not enough when encountering ethical decisions.
2. The pressures “to bend the rules,” “to play the game,” “to just ignore it” can be considerable.
3. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives.
4. The decision may be easier because there is no comprehensive ethical system to provide guidelines.

1 and 2 are true.

19

The financial statements most frequently provided include all of the following except the:
A.
balance sheet.
B.
statement of cash flows.
C.
statement of retained earnings.
D.
statement of stockholders' equity.

C.
statement of retained earnings.

20

An effective process of capital allocation is critical to a healthy economy, which:
A.
promotes productivity.
B.
encourages innovation.
C.
provides an efficient and liquid market for buying and selling securities.
D.
All of the options are correct.

D.
All of the options are correct.

21

GAAP includes all of the following except:
A.
FASB Technical Bulletins.
B.
SEC Statements on Accounting Positions.
C.
AICPA-SEC Practice Bulletins.
D.
AICPA Accounting Research Bulletins.

B.
SEC Statements on Accounting Positions.

22

All of the following are objectives of financial reporting except to provide information:
A.
about enterprise resources, claims to those resources, and changes in them.
B.
that is useful in investment and credit decisions.
C.
about the management and major shareholders of an enterprise.
D.
that is useful in assessing cash flow prospects.

C.
about the management and major shareholders of an enterprise.

23

The term GAAP means:
A.
generally accepted accounting practices.
B.
generally accepted accounting principles.
C.
generally accepted auditing practices.
D.
generally accepted accounting purposes.

B.
generally accepted accounting principles.

24

Which one of the following organizations has not been instrumental in the development of financial accounting standards?
A.
AICPA.
B.
FASB.
C.
IMA.
D.
SEC.

C.
IMA.

25

Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders?
A.
AICPA.
B.
FASB.
C.
GASB.
D.
SEC.

D.
SEC.