Test bank for intermediate accounting 18th edition by stice

balance sheet TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking 2.. all of the above TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking 3.. financial news TOP: AICPA FN-Reportin

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Chapter 1—Financial Reporting

MULTIPLE CHOICE

1 The following is NOT a major component of the financial statements:

a auditor’s opinion

b annual report

c explanatory notes

d balance sheet

TOP: AICPA FN-Reporting MSC: AACSB Reflective Thinking

2 The following are users of accounting information:

a stakeholders

b creditors

c investors

d all of the above

3 Interested parties receive information about a company’s past performance from:

a CEO’s

b the SEC

c financial reporting

d financial news

4 The overall objective of financial reporting is to provide information

a that is useful for decision making

b about an enterprise's assets, liabilities, and owners' equity

c about an enterprise's financial performance during a period

d that allows owners to assess management's performance

5 Which of the following is NOT normally an objective of financial reporting?

a To provide information about an entity's assets and claims against those assets

b To provide information that is useful in assessing an entity's sources and uses of cash

c To provide information that is useful in lending and investing decisions

d To provide information about an entity's liquidation value

6 accounting focuses on the development and communication of financial information for external users

a management

b forensic

c audit

d financial

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7 The area of accounting that emphasizes developing accounting information for use within a company is known as accounting

a management

b forensic

c audit

d financial

8 The responsibility to review the work of the accountants and issue opinions as to the fairness

of the financial statements rests with

a the external auditor

b the board of directors

c the internal auditors

d management

9 As independent (or external) auditors, CPAs are primarily responsible for

a preparing financial statements in conformity with GAAP

b certifying the accuracy of financial statements

c expressing an opinion as to the fairness of financial statements

d filing financial statements with the SEC

10 Which of the following is an internal user of a company's financial information?

a Board of directors

b Stockholders in the company

c Holders of the company's bonds

d Creditors with long-term contracts with the company

11 In 1973, the following private-sector body was organized to set accounting standards in the United States:

a the Financial Accounting Foundation

b the Securities and Exchange Commission

c the FASB

d the Accounting Principles Board

12 The members of the are appointed by the Financial Accounting Foundation

a American Accounting Association

b Financial Accounting Standards Board

c Securities and Exchange Commission

d American Institute of Certified Public Accountants

13 Operations of the FASB are overseen by the:

a operations of the AICPA

b Financial Accounting Foundation

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c AAA

d financial reporting arm of the SEC

14 A major difference between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

a all members of the FASB serve full time, are paid a salary, and are independent of any public or private enterprises

b over 50 percent of the members of the FASB are required to be Certified Public

Accountants

c the FASB issues exposure drafts of proposed standards

d all members of the FASB possess experience in both public and corporate accounting

15 Which of the following is a characteristic of the Financial Accounting Standards Board?

a The FASB is composed of five members

b FASB members must come from CPA firms

c FASB members are part-time

d FASB members may retain their positions with previous employers

16 Documents issued by the FASB include all of the following except

a Statements of Financial Accounting Standards

b Interpretations of Statements of Financial Accounting Standards

c Statements of Financial Accounting Concepts

d Financial Reporting Releases

17 Primary responsibility for GAAP and public reporting currently rests with the

a SEC

b FASB

c Congress

d AICPA

18 The responsibility of the Emerging Issues Task Force (EITF) is to

a issue statements which reflect a consensus of the EITF on how to account for new

financial reporting issues where guidance is needed quickly

b do research on financial reporting issues that are being addressed by the AICPA

c respond to groups lobbying the FASB on issues that affect a particular industry

d develop concept statements the AICPA can use as a frame of reference to solve future problems

19 The normal order followed by the FASB in publishing its standards is

a statement, discussion memorandum, opinion

b discussion memorandum, interpretation, exposure draft, statement

c exposure draft, discussion memorandum, statement

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d discussion memorandum, exposure draft, statement

20 Proper application of accounting principles is most dependent upon the

a existence of specific guidelines

b oversight of regulatory bodies

c external audit function

d professional judgment of the accountant

TOP: AICPA FN-Reporting MSC: AACSB Ethics

21 The Governmental Accounting Standards Board

a was incorporated into the Financial Accounting Standards Board when the FASB was

created

b addresses financial reporting issues of U.S government treaties and treasury rulings

c addresses the financial reporting issues related to state and local governments

d addresses the governmental reporting activities of the SEC

22 The primary current source of generally accepted accounting principles for governmental operations is the

a Financial Accounting Standards Board

b Securities and Exchange Commission

c Governmental Accounting Standards Board

d Government Accounting Office

23 The process of establishing financial accounting standards is

a a democratic process in that a majority of practicing accountants must agree with a

standard before it becomes implemented

b a legislative process based on rules promulgated by government agencies

c based solely on economic analysis of the effects each standard will have if it is

implemented

d a social process which incorporates political actions of various interested user groups as well as professional research and logic

24 The SEC was given the power to establish accounting principles including setting

requirements for details shown on financial statements by the:

a FASB

b AICPA

c Congress

d AAA

25 Once the FASB has established an accounting standard, the

a standard is continually reviewed to see if modification is necessary

b standard is not reviewed unless the SEC makes a complaint

c task of reviewing the standard to see if modification is necessary is given to the AICPA

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d principle of consistency requires that no revisions ever be made to the standard

26 The of a firm is primarily responsible for the preparation of financial statements

in accordance with GAAP

a the internal auditors

b management

c the external auditors

d the board of directors

27 Accounting standards help accountants meet the information demands of interested parties

by providing:

a legislation introduction pertaining to financial reporting

b limits and guidance for financial reporting

c improved operating plans to the Board

d reports to the Media

28 The primary current source of generally accepted accounting principles for nongovernmental operations is the

a American Institute of Certified Public Accountants

b Securities and Exchange Commission

c Financial Accounting Standards Board

d Governmental Accounting Standards Board

29 How many board members serve on the FASB?

a 5

b 7

c 14

d 20

30 When the FASB deliberates about an accounting standard, firms whose financial statements would be affected by that standard

a are legally barred from lobbying the FASB

b are not allowed to lobby the FASB if the standard would have a negative impact on their

financial statements

c are not allowed to lobby the FASB if the standard would have a positive impact on their

financial statements

d are free to lobby for or against the standard

TOP: AICPA FN-Reporting MSC: AACSB Ethics

31 The staff interpretations statements issued by the SEC are called:

a Staff Accounting Research Bulletins

b Statements on Accounting Principles

c Financial Accounting Standards

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d Staff Accounting Bulletins

32 The primary purpose of the Securities and Exchange Commission is to

a regulate the issuance and trading of securities

b issue accounting and auditing regulations for publicly held companies

c prevent the trading of speculative securities

d enforce generally accepted accounting principles

TOP: AICPA BB-Legal MSC: AACSB Reflective Thinking

33 Form 10-K is submitted to the

a FASB

b GASB

c IRS

d SEC

34 The following private-sector organization was created by the Sarbanes-Oxley Act of 2002 to perform required audits on U S publicly traded companies:

a AICPA

b Public Company Accounting Oversight Board

c Financial Executives Institute

d Financial Accounting Standards Board

TOP: AICPA FN-Research MSC: AACSB Reflective Thinking

35 The International Accounting Standards Board was formed to

a enforce FASB standards in foreign countries

b develop worldwide accepted accounting standards

c establish accounting standards for U.S multinational companies

d develop accounting standards for countries that do not have their own standard-setting

bodies

36 Which of the following items is not a modifying convention?

a Matching

b Materiality

c Industry practices

d Conservatism

TOP: AICPA FN-Reporting MSC: AACSB Analytic

37 Generally accepted accounting principles

a are accounting adaptations based on the laws of economic science

b derive their credibility and authority from legal rulings and court precedents

c derive their credibility and authority from the federal government through the financial

reporting section of the SEC

d derive their credibility and authority from general recognition and acceptance by the

accounting profession

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TOP: AICPA BB-Legal MSC: AACSB Reflective Thinking

38 A conceptual framework of accounting should

a lead to uniformity of financial statements among companies within the same industry

b eliminate alternative accounting principles and methods

c guide the AICPA in developing generally accepted auditing standards

d define the basic objectives, terms, and concepts of accounting

39 Accountants prepare financial statements at arbitrary points in time during a company's lifetime in accordance with the accounting concept of

a matching

b comparability

c accounting periods

d materiality

40 The assumed continuation of a business entity in the absence of evidence to the contrary is

an example of the accounting concept of

a accrual

b consistency

c comparability

d going concern

41 Important constraints underlying the qualitative characteristics of accounting information are

a historical cost and going concern

b materiality, conservatism, and cost-effectiveness

c consistency, comparability, and conservatism

d verifiability, neutrality, and representational faithfulness

42 When a large number of individuals, using the same measurement method, demonstrate that

a high degree of consensus can be secured among independent measurers, then the result exhibits the characteristic of

a verifiability

b neutrality

c relevance

d reliability

43 Which of the following measurement attributes is not currently used in practice?

a Present value

b Net realizable value

c Current replacement cost

d Inflation-adjusted cost

44 Financial information exhibits the characteristic of consistency when

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a accounting procedures are adopted which smooth net income and make results consistent

between years

b extraordinary gains and losses are shown separately on the income statement

c accounting entities give similar events the same accounting treatment each period

d expenditures are reported as expenses and netted against revenue in the period in which

they are paid

45 Historical cost has been the valuation basis most commonly used in accounting because of its

a timelessness

b conservatism

c reliability

d accuracy

46 When financial reports from two different companies have been prepared and presented in a similar manner, the information exhibits the characteristic of

a relevance

b reliability

c comparability

d consistency

47 Accounting for inventories by applying the lower-of-cost-or-market is an example of the application of

a conservatism

b comparability

c consistency

d materiality

48 The secondary qualitative characteristics of accounting information are

a relevance and reliability

b comparability and consistency

c understandability and decision usefulness

d materiality and conservatism

49 Which of the following elements of financial statements is not a component of comprehensive

income?

a Revenues

b Expenses

c Losses

d Distributions to owners

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50 An item would be considered material and therefore would be disclosed in the financial statements if the

a expected benefits of disclosure exceed the additional costs

b impact on earnings is greater than 3 percent

c FASB definition of materiality is met

d omission of misstatement of the amount would make a difference to the users

51 What accounting concept justifies the use of accruals and deferrals?

a Going-concern assumption

b Corporate form of organization

c Consistency characteristic

d Arm's-length transactions

52 Which of the following is NOT a purpose of the conceptual framework of accounting?

a To provide definitions of key terms and fundamental concepts

b To provide specific guidelines for resolving situations not covered by existing accounting standards

c To assist accountants and others in selecting among alternative accounting and reporting

methods

d To assist the FASB in the standard-setting process

53 Which of the following is NOT an implication of the going-concern assumption?

a The historical cost principle is credible

b Depreciation and amortization policies are justifiable and appropriate

c The current/noncurrent classification of assets and liabilities is justifiable and significant

d Amortizing research and development costs over multiple periods is justifiable and

appropriate

54 The following is a qualitative characteristic of accounting information:

a timeliness

b feedback value

c neutrality

d decision usefulness

55 Which of the following statements concerning the objectives of financial reporting is correct?

a The objectives are intended to be specific in nature

b The objectives are directed primarily toward the needs of internal users of accounting

information

c The objectives were the end result of the FASB's conceptual framework project

d The objectives encompass not only financial statement disclosures, but other information

as well

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56 Recording the purchase price of a paper shredder (with an estimated useful life of 10 years)

as an expense of the current period is justified by the

a going-concern assumption

b materiality constraint

c matching principle

d comparability principle

TOP: AICPA FN-Measurement MSC: AACSB Analytic

57 The following is NOT one of the fundamental criteria for recognition?

a Timeliness

b Measurability

c Relevance

d Reliability

58 According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is

a realization

b recognition

c matching

d allocation

59 Conservatism is best described as selecting an accounting alternative that

a understates assets and/or net income

b has the least favorable impact on owners' equity

c overstates, as opposed to understates, liabilities

d is least likely to mislead users of financial information

TOP: AICPA FN-Measurement MSC: AACSB Analytic

60 The financial statements that are prepared for the business are separate and distinct from the owners according to the

a going-concern assumption

b matching principle

c economic entity assumption

d full disclosure principle

61 Enron’s problem with related-party transactions breached the assumption of:

a going concerns

b arm’s-length transactions

c freedom of enterprise

d market stability

62 Under Statement of Financial Accounting Concepts No 2, representational faithfulness is an

ingredient of

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