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Test Bank For Intermediate Accounting: Reporting and Analysis, 3rd Edition

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    1. A problem arising from equal information is called information asymmetry. a. True b. False ANSWER: False POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 2. The demand for relevant and reliable financial information stems from the needs of the internal and external stakeholders. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 3. The mission of the Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and assist in the formation of capital. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 1 Chapter 1

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    4. The SEC uses its authority to establish accounting standards, while also enforcing regulations on companies, exchanges, and investors. a. True b. False ANSWER: False POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 5. The Financial Accounting Standards Board (FASB) began in 1973 after the AICPA phased out the Accounting Principles Board (APB). a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 6. FASB’s Emerging Issues Task Force assists and advises the FASB by identifying and addressing timely but more narrow and specific standard setting issues. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 2 Chapter 1

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    7. The Codification is set up as a system of levels starting with sections, topics, and subtopics. a. True b. False ANSWER: False POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 8. The Codification was established to assist in reducing the time necessary to research an accounting issue and improve the ability to utilize accounting information that conforms with GAAP. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 9. The convergence project between the IASB and GAAP was initiated in 2002 when the two boards entered into the “Northward Agreement”. a. True b. False ANSWER: False POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 3 Chapter 1

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    10. A potential issue facing the convergence project is that many companies have entered into contracts based upon U.S. GAAP financial reporting; many of these contracts will have to be renegotiated using IFRS which potentially could cause some companies more harm than good. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 11. The balance sheet is a snapshot of a company’s financial position at a particular date. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 12. The statement of shareholders' equity reports the effects from the recognition or valuation of certain asset or liability transactions that change Accumulated Other Comprehensive Income. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 4 Chapter 1

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    13. “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.” This is the Integrity Principle of the AICPA Code of Professional Conduct. a. True b. False ANSWER: False POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 14. “Members should act in a way that will service the public interest, honor the public trust, and demonstrate commitment to professionalism.” This is the Public Interest Principle of the AICPA’s Code of Professional Conduct. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 15. Creditors' information needs revolve around all of the following decisions, except a. extending credit b. maintaining a credit relationship c. not extending credit d. investing in credit instruments ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 5 Chapter 1

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    16. Which of the following is an internal user of a company's financial information? a. company treasurer b. shareholder in the company c. bank lending to the company d. union ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 17. After formulating a strategic plan, a company will engage in what three types of activities? a. Planning, operating, and selling b. Investing, operating, and selling c. Financing, investing, and operating d. Operating, planning, and financing ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering Page 6 Chapter 1

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    18. What is Financial Reporting? a. The process of communicating internal accounting information to existing and potential investors, creditors, lenders, and other external decision makers. b. The process of communicating financial accounting information to existing and potential investors, creditors, lenders, and other external decision makers. c. The process of preparing financial accounting information to existing and potential investors, managers, and employees. d. The process of communicating the strategic plan to existing and potential investors, creditors, lenders, and other external decision makers. ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering 19. When making decisions, equity investors are interested in assessing a. the company's ability to generate cash flows. b. management's ability to increase the capital providers' investments. c. the company's ability to pay dividends. d. All of these choices ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering Page 7 Chapter 1

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    20. Which of the following is not a decision that external stakeholder’s of a company's financial information would make? a. whether or not to extend credit to the company b. whether or not to hold the company's stock c. whether or not the company should add a new product line d. whether or not to ask for an increase in employees' benefits during union contract negotiations ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering 21. As a potential equity investor, what information about a company would you be least interested in prior to making an investment decision? a. What differentiates them from their competition? b. Whether they are generating a profit? c. Whether they have positive cash flows? d. What are the employee benefits and compensation packages? ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 22. The primary reason that financial accounting and managerial accounting have somewhat different objectives is because they a. need information in different formats b. provide information for different decisions c. need information in different geographic locations d. need information at different times ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 8 Chapter 1

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    23. Information asymmetry may cause problems because management’s behavior a. may be to enhance the owners' financial interests at the expense of their self-interests. b. will always follow classic agency law. c. may not always be in the best interests of the owners (shareholders). d. as agents will always be in the best interests of the owners (shareholders). ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 24. Which of the following organizations has legal authority to prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets? a. Accounting Principles Board b. Securities and Exchange Commission c. Financial Accounting Standards Board d. Committee on Accounting Procedure ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering 25. Which organization has the most legal authority? a. Financial Accounting Standards Board b. Accounting Standards Executive Committee c. Governmental Accounting Standards Board d. Securities and Exchange Commission ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering Page 9 Chapter 1

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    26. Three major organizations in the private and public sector develop U.S. and International Financial Reporting Standards. They include all of the following except the a. EU (European Union). b. SEC (Securities and Exchange Commission). c. FASB (Financial Accounting Standards Board). d. IASB (International Accounting Standards Board). ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering 27. The Securities and Exchange Commission has the legal authority to prescribe accounting principles and reporting practices for a. all companies issuing publicly traded securities b. all companies issuing any type of securities c. all companies d. all corporations ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering 28. Which of the following is not a major standard-setting body responsible for the establishment of U.S. and International Financial Reporting Standards? a. SEC (Securities Exchange Commission) b. PCAOB (Public Company Accounting Oversight Board) c. FASB (Financial Accounting Standards Board) d. IASB (International Accounting Standards Board) ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering Page 10 Chapter 1

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    29. While formally the SEC is charged with the responsibility for establishing accounting principles to be followed in the preparation of SEC filings, the impact of the SEC generally has been a. in its assistance to Congress with the development of tax law. b. in guiding the development of stock exchanges. c. ineffective in controlling foreign corporations and investors. d. in its informal review and approval of standards developed in the private sector prior to their release. ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Understanding 30. What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States? a. The SEC requires all companies listed on an exchange to submit their financial statements to the SEC. b. The SEC coordinates with the FASB in establishing accounting standards. c. The SEC has a mandate to establish accounting standards for corporations listed in the U.S. capital markets. d. The SEC reviews financial statements for compliance with U.S. GAAP or IFRS. ANSWER: c POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding 31. The Securities Exchange Act of 1934 established extensive reporting requirements for listed companies. Which is not a commonly required report? a. Form 10-Q. An extensive quarterly report, including financial statements. b. Form S-2. A registration statement c. Form 10-K. An extensive annual report, including financial statements d. Form 8-K. A report used to describe significant events that may affect the company. ANSWER: b POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 11 Chapter 1

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    32. Which of the following statements regarding Standards contained in the FASB Accounting Standards Codification (ASC) is true? a. They have the force of law, and failure to follow them can be prosecuted. b. They apply to financial reporting by all U.S. companies. c. They were created in 2009 when the ASC was created and did not exist prior to that time. d. They have to be approved by the SEC before they become effective. ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Understanding 33. Which of the following statements is true? a. In order to remain impartial, the FASB discourages public input during development of standards. b. FASB accounting standards are the result of clearly defined objectives, an integrated body of theory, and the known consequences of actions. c. The FASB deliberates and issues accounting standards only after receiving a formal letter of request from the SEC. d. Accounting standards, which have economic and political consequences, are often the result of compromise. ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Understanding 34. Beginning in 1938 and extending to the present, which is the correct sequence of accounting rule-making bodies? a. APB-CAP-FASB b. CAP-FASB-APB c. CAP-APB-FASB d. FASB-APB-CAP ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 12 Chapter 1

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    35. The Financial Accounting Foundation (FAF) is the parent organization of which of the following organizations? a. AICPA (American Institute of Certified Public Accountants) b. AAA (American Accounting Association) c. SIFMA (Securities Industry and Financial Markets Association) d. FASB (Financial Accounting Standards Board) ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Understanding 36. How many FASB members currently make up the Board? a. 5 b. 7 c. 21 d. 33 ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 37. Concerning FASB membership, which statement is not true? a. Not all members are CPAs from public practice. b. All members are full time and fully paid. c. All members are also members of the Financial Accounting Foundation. d. All members must sever organizational ties with their previous employer. ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 13 Chapter 1

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    38. Which of the following is not one of the stages used by the FASB process before issuing an Accounting Standards Update? a. Conducting research b. Issuing an Exposure Draft c. Obtaining approval from the SEC for the new standard d. Holding public hearings ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering 39. Which of the following statements about the FASB Accounting Standards Codification is false ? a. The Codification is currently the only authoritative source of U.S. GAAP. b. The purpose of creating the Codification was to simplify user access to authoritative U.S. GAAP. c. The framework of the Codification contains six levels, which are increasingly more specific. d. The six levels contained within the Codification framework are hierarchical in nature, such that the higher levels are considered to be more authoritative than the lower levels. ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 40. Which of the following statements about the FASB Accounting Standards Codification is true? a. It only exists as an electronic database; paper copies are not available. b. When the Codification was adopted in 2009, it caused major changes in the contents of U.S. GAAP. c. It is reviewed and periodically updated by the SEC. d. It is only one of a large number of authoritative pronouncements that have been issued over time, all of which comprise U.S GAAP. ANSWER: a POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 14 Chapter 1

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    41. The FASB Accounting Standards Codification is expected to provide all of the following benefits except a. to reduce the research time necessary to solve an accounting research issue. b. to codify authoritative support such as results of academic research. c. to provide real-time updates as new standards are issued. d. to improve the usability of the authoritative accounting literature. ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 42. Which of the following statements regarding the requirement to follow U.S. GAAP in financial reporting is true? a. U.S. GAAP has been adopted as federal law, so failure to follow U.S. GAAP is prosecuted through the federal court system. b. U.S. GAAP has been adopted as state law in all 50 states, so failure to follow U.S. GAAP is prosecuted through the state court system. c. U.S. GAAP represents a set of professional standards, and the requirement to follow U.S. GAAP is enforced through the AICPA Code of Professional Conduct. d. Compliance with U.S. GAAP is not enforced; it is a voluntary choice made by most companies and by most professional accountants ANSWER: c POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Understanding Page 15 Chapter 1

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    43. Prior to 2009, which of the following types of FASB Pronouncements carried the highest authority within GAAP by establishing the methods and procedures required on specific accounting issues? a. Staff Positions b. Statements of Financial Accounting Standards c. Statements of Financial Accounting Concepts d. Technical Bulletins ANSWER: b POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Understanding 44. The FASB Accounting Standards Codification includes six levels or components. Which of the following is not one of those levels? a. Area b. Topic c. Sub-paragraphs d. Paragraphs ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 45. Which of the following documents includes all of the accounting standards? a. Regulation S-X b. The FASB Conceptual Framework c. Statements of Financial Accounting Standards d. none of these ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering Page 16 Chapter 1

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    46. Conversion to IFRS reporting by all U.S. companies would be best accomplished with a transition plan for all of the following reasons except a. it would have to be a multi-year process. b. it needs to be an orderly process with a minimum of cost and disruption to the participants. c. certain IFRS need further improvement through continued convergence efforts. d. careful planning would enable maximum manipulation of the IFRS for the financial benefit of the United States. ANSWER: d POINTS: 1 DIFFICULTY: Medium LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 47. The agreement in 2002 by the FASB and IASB to develop high quality, compatible accounting standards that could be used by both domestic and cross-border financial reporting was called the a. International Accounting Standards agreement b. Financial Accounting Standards Board Global agreement c. Norwalk agreement d. United GAAP agreement ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering 48. For foreign companies that issue securities in the United States to raise capital, the SEC a. requires these companies to file form 20-F which reconciles certain amounts reported in their financial statements with US GAAP. b. accepts all financial statements that use IFRS. c. accepts only financial statements that are fully stated under US GAAP. d. accepts financial statements from foreign companies that use English-language IFRS without exception. ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 17 Chapter 1

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    49. What is the responsibility of the International Accounting Standards Board? a. IASB promotes uniform accounting standards among different countries. b. IASB settles accounting disputes between auditors and international companies. c. IASB issues standards which regulate the financial accounting and reporting of multinational corporations and then enforces them through legal channels. d. IASB is to develop a uniform currency in which the financial transactions would be measured. ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering 50. U.S. companies that have subsidiaries in foreign countries can file their financial statements with the SEC by u s ing? a. IFRS b. GAAP c. either IFRS or GAAP d. IFRS for their subsidiaries and GAAP for their holdings in the United States. ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering 51. Which of the following is not a major standard-setting body responsible for the establishment of U.S. and international GAAP (Generally Accepted Accounting Principles)? a. SEC (Securities Exchange Commission) b. PCAOB (Public Company Accounting Oversight Board) c. FASB (Financial Accounting Standards Board) d. IASB (International Accounting Standards Board) ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Remembering Page 18 Chapter 1

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    52. Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence process. The process of changing these standards usually involves a. a short deliberation followed by a vote of the U.S. Congress. b. acceptance of the change by the Internal Revenue Service. c. rejecting all existing standards and developing an entirely new concept. d. selecting the best standard between existing U.S. and international standards. ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 53. Notes to financial statements provide a. discussions that further explain items shown in the financial statements. b. comparative financial information with the previous year. c. management's discussions about plans for the future. d. the report of the independent auditors. ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 54. What financial statement is considered the cornerstone of financial reporting? a. the income statement b. the statement of cash flows c. the statement of shareholders' equity d. the balance sheet ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 19 Chapter 1

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    55. The accounting equations is a. Assets + Liabilities = Shareholders' Equity b. Assets -Liabilities = Shareholders' Equity c. Assets = Liabilities - Shareholders' Equity d. Assets + Shareholders' Equity = Liabilities ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding 56. Which statement measures and reports the financial results of a company’s performance for a period of time? a. income statement b. balance sheet c. statement of cash flows d. statement of financial position ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 57. The four major financial statements of a corporation consist of the a. income statement, balance sheet, statement of cash flows, and statement of changes in shareholders' equity. b. balance sheet, statement of cash flows, statement of retained earnings, and income statement. c. income statement, statement of cash flows, statement of financial flexibility, and balance sheet. d. statement of cash flows, balance sheet, income statement, and statement of capital equity. ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering Page 20 Chapter 1

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    58. What important topics are discussed in the Management Discussion and Analysis section of the financial statements? a. Business risk factors associated with the company. b. Management provides insight into key decisions implemented during that time period and future developments. c. Management utilizes this area as a forum to discuss strategic motives. d. All of these choices are discussed. ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 59. What is the correct order of presentation for the statement of cash flows? a. Operating, Investing, Financing b. Financing, Operating, Investing c. Investing, Financing, Operating d. Operating, Financing, Investing ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 60. What is the correct presentation of the income statement? a. Revenues - expenses + gains - losses = Net Income b. Revenues - expenses = Net income - losses + gains c. Revenues - losses - expenses + gains = Net Income d. Revenues + gains - losses - expenses = Net Income ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering Page 21 Chapter 1

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    61. Dividends that are paid to owners would affect both the a. balance sheet and statement of cash flows. b. balance sheet and income statement. c. income statement and statement of changes in equity. d. income statement and statement of cash flows. ANSWER: a POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 62. Which of the following transactions would be reported in the cash flows from investing activities section in the statement of cash flows for the Harlem Company? a. Harlem sold a piece of land for $600,000. b. Harlem borrowed $3,000,000 c. Harlem issued common stock for $700,000 to investors. d. Harlem paid a cash dividend to its shareholders. ANSWER: a POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.6 - LO: 1.6 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 63. Which Principle of the AICPA Code of Professional Conduct is: As a member one should continually strive to improve competence and the quality of services, observe all technical and ethical standards, and provide professional responsibility to the best of his/her ability? a. The Public Interest b. Responsibilities c. Scope and Nature of Services d. Due Care ANSWER: d POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 22 Chapter 1

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    64. Auditors face ethical issues because a. GAAP permits various standards to be used to produce profits. b. auditors may express an opinion that may impact employees of a company. c. auditors may not discover insider trading. d. GAAP does not permit fraud. ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Remembering 65. Unethical actions include which of the following? a. polluting lakes and streams b. overcharging on government contracts c. securities fraud d. All of these choices are unethical actions. ANSWER: d POINTS: 1 DIFFICULTY: Medium LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 66. The stated principles of the AICPA Code of Professional Conduct do not include a. Integrity. b. Optimism. c. Objectivity and Independence. d. Responsibilities. ANSWER: b POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 23 Chapter 1

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    67. Which of the following is not considered an ethical issue in accounting? a. Biased financial statement presentation b. Accelerated revenue recognition c. Earnings manipulation d. Industry practices ANSWER: d POINTS: 1 DIFFICULTY: Medium LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 68. The AICPA Code of Professional Conduct includes which of the following principles? a. Professionalism b. Conservatism c. Objectivity d. Quality ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Remembering 69. Which Principle of the AICPA Code of Professional Conduct is: A member, as a professional, should exercise sensitive and moral judgments in all their activities? a. Objectivity and Independence b. Integrity c. Responsibilities d. Due Care ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 24 Chapter 1

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    70. Which Principle of the AICPA Code of Professional Conduct is: Members should broaden and maintain public confidence by performing all of their professional responsibilities with the highest sense of honesty possible? a. Scope and Nature of Services b. Due Care c. Integrity d. Objectivity and Independence ANSWER: c POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 25 Chapter 1

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    71. Listed below are the names of several organizations involved in the process of establishing standards for financial reporting. Following the list is a series of statements. a. Securities and Exchange Commission (SEC) b. International Accounting Standards Board (IASB) c. Financial Accounting Standards Board ____ 1. Reporting standards issued by this organization are legally enforceable. Failure to adhere to them is a violation of law. ____ 2. Reporting standards issued by this organization only apply to companies listed on U.S. securities exchanges.. ____ 3. Reporting standards issued by this organization apply to all U.S. companies, whether publicly traded or privately held. ____ 4. This organization has the legal authority and the responsibility to oversee financial reporting in the U.S. ____ 5. Requires 10 out of 16 board members’ approvals before a standard is issued. ____ 6. This organization is government agency established by the U.S. Congress. Required: Match each organization with its descriptive statement by placing the letter of the appropriate organization in the space provided. (Note: Organizations may be used more than once or not at all.) ANSWER: 1. a 2. a 3. c 4. a 5. b 6. a POINTS: 1 DIFFICULTY: Challenging LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Applying Page 26 Chapter 1

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    72. Listed below are some of the steps the FASB goes through before issuing a new standard. ____ a. Conduct research ____ b. Deliberate on findings ____ c. Invitations to comment ____ d. Identify topic ____ e. Issue Exposure Draft ____ f. Issue Statement ____ g. Modify Exposure Draft ____ h. Vote Required: Indicate the proper sequence of these steps. ANSWER: a. 2 d. 1 g. 6 b. 4 e. 5 h. 7 c. 3 f. 8 POINTS: 1 DIFFICULTY: Challenging LEARNING OBJECTIVES: ACCT.WHAL.16.1.5 - LO: 1.5 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting KEYWORDS: Bloom's: Applying 73. Listed below are the Six Principles of AICPA’s Code of Professional Conduct. a. Responsibilities b. Scope and Nature of Services c. Due Care d. The Public Interest e. Objectivity and Independence f. Integrity Required: Match each principle with its descriptive statement by placing the appropriate letter in the space provided. Each principle choice is used only once. _______ 1) A member should be free from conflicts of interest and be objective. A member should be free of bias and provide auditing and attestation services in an independent manner. Page 27 Chapter 1

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    _______ 2) A member is public practice should always consider the Code of Professional Conduct in determining the nature and scope of services which they have been asked to provide. _______ 3) Members should perform all of their professional activities with the highest sense of integrity possible. This maintains and broadens public confidence in the profession. _______ 4) Members should act in a way that demonstrates professionalism and honors public trust. _______ 5) As a member, one should continually strive to improve competence and the quality of services to the best of their ability. ______ 6) Members should exercise sensitive professional and moral judgments in when carrying out their activities as a professional. ANSWER: 1) E 2) B 3) F 4) D 5) C 6) A POINTS: 1 DIFFICULTY: Challenging LEARNING OBJECTIVES: ACCT.WHAL.16.1.7 - LO: 1.7 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 28 Chapter 1

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    74. What types of resources do companies compete for and why? ANSWER: Companies compete for scarce resources that include financial capital, physical and natural resources, intellectual property, technology, and the next new product or services. Each company strives to be successful by securing skilled employees and executives, in order to reach customers through a variety of marketing channels. Companies look for the best suppliers that provide resources essential to their businesses. POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Communications LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding 75. The demand for accounting information arises from the informational needs of various stakeholders. Required List five internal stakeholders or external stakeholders. ANSWER: Internal Employees Company Executives External Customers Suppliers Banks Creditors Equity investors Communities Tax Authorities Government Pension Funds Labor Unions POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1 NATIONAL STANDARDS: United States - BUSPROG: Communications LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding Page 29 Chapter 1

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    76. What is the mission of the Securities and Exchange Commission? How did the SEC come into being? ANSWER: The mission of the SEC is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The U.S. Congress created the SEC to administer the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC has the legal authority over the accounting principles and reporting practices for all corporations that issue publicly traded securities within the U.S. capital markets. POINTS: 1 DIFFICULTY: Challenging LEARNING OBJECTIVES: ACCT.WHAL.16.1.2 - LO: 1.2 NATIONAL STANDARDS: United States - BUSPROG: Communications LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Understanding 77. What is the responsibility of FASB? ANSWER: FASB is responsible for identifying financial issues, conducting the necessary research to address the issues, and leading to preliminary views, hearings, and an exposure draft open to comments through a multi-stage process used to issue new accounting guidance. POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO: 1.3 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal KEYWORDS: Bloom's: Analyzing 78. The FASB Codification consists of six components or levels, what are the components or levels? ANSWER: 1) Areas 2) Topics 3) Subtopics 4) Sections 5) Subsections 6) Paragraphs POINTS: 1 DIFFICULTY: Challenging LEARNING OBJECTIVES: ACCT.WHAL.16.1.4 - LO: 1.4 NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling KEYWORDS: Bloom's: Applying Page 30 Chapter 1

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