132 test bank for intermediate accounting spiceland 7th edition

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132 Test Bank for Intermediate Accounting Spiceland 7th Edition

True False Questions - Free Text Questions - Multiple Choice Questions

True- False Questions

Auditors play an important role in the resource allocation process by adding credibility to financial statements

The purpose of the conceptual framework is to provide a structure and

framework for a consistent set of GAAP

1 True

2 False

Accrual accounting attempts to measure revenues and expenses that

occurred during accounting periods so they equal net operating cash flow

The funding of the standard-setting bodies that promulgate IFRS is as

independent as that underlying U.S GAAP

According to the FASB's Statements of Financial Accounting Concepts,

conservatism is a desired qualitative characteristic of accounting information

1 True

2 False

The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises

The FASB's framework for measuring fair value doesn't change the situations

in which fair value is used under current GAAP

1 True

2 False

Determining fair value by calculating the present value of future cash flows is

a level 1 type of input

The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States

Materiality can be affected by the dollar amount of an item, the nature of the item, or both

A rules-based approach to standard setting stresses professional judgment

as opposed to following a list of rules

1 True

2 False

Equity is a residual amount representing the owner's interest in the assets of the business

1 True

2 False

Mutiple Choice Questions- Page 1

The main issue in the debate over accounting for employee stock options was:

1 A Which employees should receive options.

2 B The amount of compensation expense that a company should recognize.

3 C How many options should be granted to key executives.

4 D The tax consequences of employee stock options.

The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of:

1 A An ethical dilemma.

2 B An accounting theory issue.

3 C A technical accounting issue.

4 D None of the above is correct.

SFAC No.5 focuses on:

1 A Objectives of financial reporting.

2 B Qualitative characteristics of accounting information.

3 C Recognition and measurement concepts in accounting.

4 D Elements of financial statements.

Phase A of the new conceptual framework focuses on:

1 A Objective and qualitative characteristics.

2 B Presentation and disclosure.

3 C Recognition and measurement.

4 D Elements of financial statements.

In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of:

4 D Has nothing to do with the convergence process.

When a registrant company submits its annual filing to the SEC, it uses:

1 A Form 10-A.

2 B Form 10-K.

3 C Form 10-Q.

4 D Form S-1.

GAAP is an abbreviation for:

1 A Generally authorized accounting procedures.

2 B Generally applied accounting procedures.

3 C Generally accepted auditing practices.

4 D Generally accepted accounting principles.

Independent auditors express an opinion on the:

1 A Fairness of financial statements.

2 B Accuracy of financial statements.

3 C Soundness of a company's future.

4 D Quality of a company's management.

The primary professional organization for those accountants working in the industry is the:

Which of the following does not apply to secondary markets?

1 A Transactions are important to the efficient allocation of resources in our economy.

2 B New resources are provided when shares of stock are sold by the corporation to the initial owners.

3 C Transactions help to establish market prices for additional shares that may be issued in the future.

4 D Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others.

Accounting standard setting has been characterized as:

1 A A political process.

2 B Using the scientific method.

3 C Pure deductive reasoning.

4 D Pure inductive reasoning.

Pronouncements issued by the Committee on Accounting Procedures:

1 A Dealt with specific accounting and reporting problems.

2 B Were based on exposure drafts and public comment letters.

3 C Originated from congressional studies and SEC directives.

4 D Were the outcome of research studies and a theoretical framework.

The most recent example of the political process at work in standard setting is the heated debate that occurred on the issue of:

1 A Pension plan accounting.

2 B Accounting for postretirement benefits other than pensions.

3 C Accounting for business combinations.

4 D Accounting for stock-based compensation.

The most likely important flaw leading to the demise of the APB was the

perceived lack of:

1 A Confidence.

2 B Competence.

3 C Independence.

4 D Importance.

The FASB's standard-setting process includes, in the correct order:

1 A Exposure draft, research, discussion paper, Accounting Standards Update.

2 B Research, exposure draft, discussion paper, Accounting Standards Update.

3 C Research, discussion paper, exposure draft, Accounting Standards Update.

4 D Discussion paper, research, exposure draft, Accounting Standards Update.

The FASB's conceptual framework's qualitative characteristics of accounting information include:

account receivable is collected in cash Porite's practice is an example of:

1 A Cash basis accounting.

2 B Accrual accounting.

3 C The matching principle.

4 D Economic entity.

The International Accounting Standards Board:

1 A Was the predecessor to the IASC.

2 B Can overrule the FASB when their policies disagree.

3 C Promotes the use of high-quality, understandable global accounting standards.

4 D Has its headquarters in Geneva.

Which of the following is not true about net operating cash flow?

1 A It is the difference between cash receipts and cash disbursements from providing goods and services.

2 B It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows.

3 C Over short periods, it may not be indicative of long-run cash-generating ability.

4 D It is easy to understand and all information required to measure it is factual.

The conceptual framework's qualitative characteristic of relevance includes:

1 A Predictive value.

2 B Verifiability.

3 C Completeness.

4 D Neutrality.

The most political issue in the FASB's most recent deliberations and

amendments to GAAP on business combinations was:

1 A The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination.

2 B The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the combination.

3 C The unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination.

4 D The unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.

One of the elements that many believe distinguishes a profession from other occupations is the acceptance of responsibility by its members for the

interests of those it serves, which is often articulated in:

1 A Its conceptual framework.

2 B Its code of ethics.

3 C Federal laws.

4 D State laws.

Which of the following was the first private-sector entity that set accounting standards in the United States?

1 A Accounting Principles Board.

2 B Committee on Accounting Procedure.

3 C Financial Accounting Standards Board.

4 D AICPA.

Which of the following groups is not among financial intermediaries?

1 A Mutual fund managers.

2 B Financial analysts.

3 C CPAs.

4 D Credit rating organizations.

Which of the following is not a potential benefit of accrual accounting,

compared to cash-basis accounting?

1 A Timeliness.

2 B Better reflecting economic activity.

3 C Periodicity.

4 D Better matching of revenues and expenses.

The FASB's conceptual framework's qualitative characteristics of accounting information include:

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002?

1 A Corporate executive accountability.

2 B Auditor rotation.

3 C Retention of work papers.

4 D All of the above are provisions of the Act.

The FASB issues accounting standards in the form of:

1 A Accounting Research Bulletins.

2 B Accounting Standards Updates.

3 C Financial Accounting Standards.

4 D Financial Technical Bulletins.

Which of the following has the statutory authority to set accounting standards

in the United States?

1 A FASB.

2 B IRS.

3 C SEC.

4 D AICPA.

A firm's comprehensive income always:

1 A Is the same as its net income.

2 B Is greater than its net income.

3 C Is less than its net income.

4 D Could be greater than or less than net income.

The primary historical reason for the FASB reversing its positions when political pressures occur is:

1 A The cost of gathering data was prohibitive.

2 B The difficulties in measurement were too great.

3 C They have no authority in such situations.

4 D The SEC did not support the FASB position.

External decision makers would not look primarily to financial accounting information to assist them in making decisions on:

1 A Granting credit.

2 B Capital budgeting.

3 C Selecting stocks.

4 D Mergers and acquisitions.

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act:

1 A Changed the entity responsible for setting auditing standards.

2 B Increased corporate executive responsibility for financial statements.

3 C Limited nonaudit services that can be performed by auditors for audit clients.

4 D Changed the entity responsible for setting accounting standards.

Corporations issue their shares to the investing public in the: option a:

Primary market: Yes, Secondary market: yes; option b: Primary market: no, Secondary market: yes; option c: Primary market: Yes, Secondary market: no; option d: Primary market: no, Secondary market: no

1 A Option a

2 B Option b

3 C Option c

4 D Option d

The primary focus for financial accounting information is to provide

information useful for: option a: Investing decisions: Yes, Credit Decisions: yes; option b: Investing decisions: Yes, Credit Decisions: no; option c:

Investing decisions: no, Credit Decisions: yes;option d: Investing decisions:

no, Credit Decisions: no

1 A Option a

2 B Option b

3 C Option c

4 D Option d

In the Norwalk Agreement, the FASB and IASB pledged to:

1 A Combine their organizations to form the BUSYB.

2 B Make progress on specific MOU projects.

3 C Achieve convergence by the year 2015.

4 D Remove existing differences between their standards.

80 Free Test Bank for Intermediate Accounting 7th

Edition by Spiceland Mutiple Choice Questions- Page 2

Under IFRS, the conceptual framework:

1 A Emphasizes the overarching concept of the financial statements providing a "true and fair representation" of the company.

2 B Is not designed to provide guidance to standard setters, but rather only to

practitioners.

3 C Is not designed to provide guidance to practitioners, but rather only to standard setters.

4 D Specifies a set of rules that determine what constitutes a true IFRS standard.

Recognizing expected losses immediately, but deferring expected gains, is an example of:

1 A Materiality.

2 B Conservatism.

3 C Cost-effectiveness.

4 D Timeliness.

The conceptual framework's recognition and measurement concepts

recognize which of the following as an assumption, rather than a principle?

1 A Going concern.

2 B Historical cost.

3 C Full disclosure.

4 D Realization.

Constraints on qualitative characteristics of accounting information include:

1 A Timeliness.

2 B Going concern.

3 C Neutrality.

4 D Cost-effectiveness.

The recognition of which of the following expenses exemplifies the

application of the matching principle?

1 A President's salary.

2 B Research and development.

3 C Cost of goods sold.

4 D Advertising.

Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts The company's

independent accountants did not protest when, contrary to GAAP, the

company recorded bad debt expense only when specific accounts were

determined to be uncollectible, rather than use an allowance for uncollectible accounts The concept demonstrated is:

1 A Comparability.

2 B Faithful representation.

3 C Cost-effectiveness.

4 D Materiality.

Change in equity from nonowner sources is:

1 A Comprehensive income.

2 B Revenues.

3 C Expenses.

4 D Gains and losses.

According to the conceptual framework, verifiability implies:

1 A Legal evidence.

2 B Logic.

3 C Consensus.

4 D Legal verdict.

Net income equals:

1 A Assets minus liabilities.

2 B Revenues minus cost of goods sold.

3 C Revenues minus expenses.

4 D Cash receipts minus cash payments.

The matching principle is:

1 A A valuation method.

2 B An expense recognition accounting principle.

3 C A cash basis reporting principle.

4 D An asset classification procedure.

Disclosure notes to a company's financial statements:

1 A Are relatively unimportant facts that don't belong in the basic financial statements.

2 B Document the source of financial statement facts, like literary footnotes.

3 C Are an integral part of a company's financial statements.

4 D Are irrelevant facts that are immaterial in amount.

Elements of financial statements do not include:

1 A Monetary unit.

2 B Investments by owners.

3 C Comprehensive income.

4 D Losses.

The full disclosure principle requires a balance between:

1 A Comparability and consistency.

2 B Relevance and cost-effectiveness.

3 C Reliability and neutrality.

4 D Timeliness and predictive value.

Gains are:

1 A Inflows from selling a product or service to a customer.

2 B Increases in equity resulting from transfers of assets to the company from owners.

3 C Increases in equity from peripheral transactions of an entity.

4 D None of the above is correct.

Which of the following is typically characterized as a principle, rather than an assumption?

1 A Periodicity.

2 B Monetary unit.

3 C Conservatism.

4 D Full disclosure.

The revenue/expense approach emphasizes:

1 A Recognition of revenues (typically applying the realization principle).

2 B Recognition of expenses (typically applying the matching principle).

3 C The income statement.

4 D All of the above are correct.

Enhancing qualitative characteristics of accounting information include each

of the following except:

1 A Timeliness.

2 B Materiality.

3 C Comparability.

4 D Verifiability.