(Test Bank) Intermediate Accounting

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Test Bank

18th Edition

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Test Bank for Intermediate Accounting, The downloadable file consists of 1328 pages, and the total size of the file is 11.31 MB. Purchase now only for highly discounted price.

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CHAPTER 1 THE ENVIRONMENT AND CONCEPTUAL FRAMEWORK OF FINANCIAL REPORTING IFRS questions are available at the end of this chapter. TRUE-FALSE—Conceptual 1. Financial statements are the principal means through which a company communicates its financial information to those outside it. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 2. Users of financial reports of a company use the information provided by these reports to make capital allocation decisions. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 3. An effective process of capital allocation provides an efficient market for buying and selling securities and obtaining and granting credit. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 4. Investors are interested in financial reporting because it provides information that is useful for making decisions. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 5. Users of financial accounting statements have both coinciding and conflicting needs for information of various types. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 6. Although the FASB has developed a conceptual framework, no Statements of Financial Accounting Concepts have been issued to date. Ans: F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 7. The passage of a new FASB Accounting Standards Update requires the support of five of the seven board members. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 8. Statements of Financial Accounting Concepts set forth fundamental objectives and concepts that are used by the FASB in developing future standards of financial accounting and reporting. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 9. The FASB’s Codification creates a new set of GAAP. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 2 10. The objective of financial reporting is to report the plans made by a company to improve the productivity of its employees. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 11. A soundly developed conceptual framework enables the FASB to issue more useful and consistent pronouncements over time. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 12. A conceptual framework is a coherent system of concepts that flow from an objective. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 13. The first level of the conceptual framework identifies the recognition, measurement, and disclosure concepts used in establishing accounting standards. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 14. The objective of financial reporting serves as the foundation of the conceptual framework. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 15. Users of financial statements are assumed to need no knowledge of business and financial accounting matters to understand the information contained in financial statements. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 16. Relevance and faithful representation are the two fundamental qualities that make accounting information useful for decision-making. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 17. The idea of consistency does not mean that companies cannot switch from one accounting method to another. Ans: T, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 18. Timeliness and neutrality are two ingredients of relevance. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 19. Verifiability and predictive value are two ingredients of faithful representation. Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 20. Revenues, gains, and distributions to owners all increase equity. Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 21. Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None The Environment and Conceptual Framework of Financial Reporting 1 - 3 22. Accounting standards are now less likely to require the reporting or disclosure of fair value information. Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 23. The second level of the conceptual framework provides the qualitative characteristics that make accounting information useful and the elements of financial statements. Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 24. The historical cost principle would be of limited usefulness if not for the going concern assumption. Ans: T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 25. The economic entity assumption means that economic activity can be identified with a particular legal entity. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 26. The expense recognition principle states that debits must equal credits in each transaction. Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 27. Revenues are recognized in the accounting period in which the performance obligation is satisfied. Ans: T, LO: 3 Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 28. Supplementary information may include details or amounts that present a different perspective from that adopted in the financial statements. Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 29. To justify requiring a particular measurement or disclosure, the benefits to be derived from it must equal the costs associated with it. Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 30. In cost-benefit analysis, costs are generally more difficult to quantify than are benefits. Ans: F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 31. GAAP is a product of careful logic or empirical findings and is not influenced by political action. Ans: F, LO: 4 Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 32. The Public Company Accounting Oversight Board has oversight and enforcement authority and establishes auditing and independence standards and rules. Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 4 33. The expectations gap is due to the difference between what the public thinks accountants should do and what accountants think they can do. Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 34. Traditional financial reports do not provide any information about a company’s soft assets (intangibles). Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 35. Ethical issues in financial accounting are governed by the AICPA. Ans: F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: Prof. Demeanor, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None MULTIPLE CHOICE—Conceptual 36. General-purpose financial statements are the product of a. financial accounting. b. managerial accounting. c. both financial and managerial accounting. d. neither financial nor managerial accounting. Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 37. Which of the following is not an external user of financial reports? a. Creditors b. Government agencies c. Unions d. Management Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 38. The financial statements most frequently provided include all of the following except the a. balance sheet. b. income statement. c. statement of cash flows. d. trial balance. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 39. All the following are ways in which accounting information is used by financial statement users except to a. buy, sell, hold equity, and debt instruments. b. decide whether to invest in the company. c. evaluate borrowing capacity to determine the extent of a loan to grant. d. plan and control a company's operations. Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis , IFRS: None The Environment and Conceptual Framework of Financial Reporting 1 - 5 40. How does accounting help the capital allocation process allocate investment capital? a. By providing relevant and reliable information b. By encouraging innovation c. By promoting productivity d. By providing relevant and reliable information and by encouraging innovation Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 41. Which of the following is not related to an effective capital allocation? a. Promoting productivity b. Encouraging innovation c. Providing an efficient market for buying and selling securities d. Providing relevant and reliable information and encouraging innovation Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 42. What is the objective of financial reporting? a. Provide information that is useful to management in making decisions b. Provide information that portrays nonfinancial transactions c. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors d. Provide information that excludes claims to the resources Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 43. Primary users for general-purpose financial statements include each of the following except a. creditors. b. suppliers. c. investors. d. employees. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 44. Which of the following is of interest to investors’ decision-making? a. Assessing the company’s ability to generate net cash inflows b. Comparing income and assets of different companies c. Both assessing the company’s ability to generate net cash inflows and comparing income and assets of different companies d. Assessing the company’s ability to collect debts Ans: c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 45. Which of the following is a requirement for an accounting principle to be considered "generally accepted"? a. An authoritative accounting rule-making body has established it in an official pronouncement. b. The principle has been accepted as appropriate because of its universal application. c. An authoritative accounting rule-making body has established it and it has been accepted because of its universal application. d. Each company develops its own standards. Ans: c, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 6 46. A common set of accounting standards and procedures is called a. financial accounting standards. b. generally accepted accounting principles. c. objectives of financial reporting. d. statements of financial accounting concepts. Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 47. Which of the following is a limitation of "general-purpose financial statements"? a. General purpose financial statements may not be the most informative for a specific enterprise. b. General purpose financial statements are not comparable. c. General purpose financial statements do not fairly present a company's financial operations. d. General purpose financial statements provide financial reporting information to a wide variety of users. Ans: a, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 48. 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 AICPA in establishing accounting standards. c. The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction. d. The SEC reviews financial statements for compliance. Ans: c, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 49. What is not due process in the context of standard setting at the FASB? a. The FASB operates in full view of the public. b. Public hearings are held on proposed accounting standards. c. Interested parties can make their views known. d. No public hearings are held on proposed accounting standards. Ans: d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 50. A characteristic of generally accepted accounting principles includes a. a common set of standards and procedures. b. standards and principles are based on federal statutes. c. acceptance requires an affirmative vote of Certified Public Accountants. d. practices that become accepted for at least a year by all industry members. Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: NoneKnowledge The Environment and Conceptual Framework of Financial Reporting 1 - 7 51. Characteristics of generally accepted accounting principles include all of the following except a. authoritative accounting that the rule-making body has established as a principle of reporting. b. standards are considered useful by the profession. c. each principle is approved by the SEC. d. practice has become universally practiced over time. Ans: c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 52. Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight than standards previously issued? a. The FASB board had a smaller membership. b. The FASB board members were well-paid. c. The FASB board members were CPAs. d. The FASB follows due process. Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 53. The passage of a new FASB Accounting Standards Update requires the support of a. seven Board members. b. three Board members. c. four Board members. d. five Board members. Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 54. Each of the following is true of the Securities and Exchange Commission except that a. it is a federal agency. b. the SEC’s involvement in the development of accounting standards varies. c. the FASB relies on the SEC to develop accounting standards. d. the SEC requires registrants to adhere to GAAP. Ans: c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 55. The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the a. FASB. b. AICPA. c. SEC. d. APB. Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 56. Companies that are listed on a stock exchange are required to submit their financial statements to the a. AICPA. b. APB c. FASB. d. SEC. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 8 57. Which of the following is true of the Financial Accounting Standards Board? a. It has issued a series of pronouncements entitled Auditing Standards Updates. b. It exercises oversight of the Financial Accounting Foundation. c. It is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards. d. The members are appointed by the Financial Accounting Foundation. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 58. The Financial Accounting Foundation a. oversees the operations of the FASB. b. oversees the operations of the AICPA. c. provides information to interested parties on financial reporting issues. d. works with the Financial Accounting Standards Advisory Council to provide information to interested parties on financial reporting issues. Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 59. The Financial Accounting Standards Board employs a "due process" system which a. is an efficient system for collecting dues from members. b. enables interested parties to express their views on issues under consideration. c. identifies the accounting issues that are the most important. d. requires that all accountants must receive a copy of financial standards. Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 60. The FASB has issued each of the following pronouncements except a. Accounting Standards Updates. b. Financial Accounting Concepts. c. Accounting Research Bulletins. d. The FASB has issued each of these pronouncements. Ans: c, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 61. Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States? a. AICPA b. FASB c. IASB d. SEC Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 62. The purpose of Statements of Financial Accounting Concepts is to a. establish GAAP. b. modify or extend an existing FASB Accounting Standards Update. c. provide a conceptual framework for the development of financial accounting standards. d. determine the need for FASB involvement in an emerging issue. Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None The Environment and Conceptual Framework of Financial Reporting 1 - 9 P63. Members of the Financial Accounting Standards Board are a. employed by the American Institute of Certified Public Accountants (AICPA). b. part-time employees. c. required to hold a CPA certificate. d. independent of any other organization. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None P64. The following are parts of the "due process" system used by the FASB in the evolution of a typical FASB Accounting Standards Update: 1. Exposure Draft 2. FASB Accounting Standards Update 3. Preliminary Views The chronological order in which these items are released is as follows: a. 1, 2, 3. b. 1, 3, 2. c. 2, 3, 1. d. 3, 1, 2. Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 65. Which of the following is not true of generally accepted accounting principles? a. GAAP includes detailed practices and procedures as well as broad guidelines of general application. b. GAAP is influenced by pronouncements of the SEC. c. GAAP changes over time as the nature of the business environment changes. d. GAAP does not have substantial authoritative support. Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 66. The most significant current source of generally accepted accounting principles is the a. AICPA. b. SEC. c. APB. d. FASB. Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 67. 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 throughout the world would be measured. c. promote uniform accounting standards among countries of the world. d. arbitrate accounting disputes between auditors and international companies. Ans: c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge & Diversity, AICPA BC: Global and Industry Perspectives, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: IFRS Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 10 68. What would be an advantage of having all countries adopt and follow the same accounting standards? a. Relevance b. Materiality c. Consistency d. Understandability Ans: d, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge & Diversity, AICPA BC: Global and Industry Perspectives, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: IFRS 69. Generally accepted accounting principles a. are fundamental truths or axioms that can be derived from laws of nature. b. derive their authority from legal court proceedings. c. derive their credibility and authority from general recognition and acceptance by the accounting profession. d. are specified in detail in the FASB conceptual framework. Ans: c, LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 70. The objective of general-purpose financial reporting is to provide financial information about a reporting entity to each of the following except a. potential equity investors. b. potential lenders. c. present investors. d. All of these answers are correct. Ans: d, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 71. In addition to research and support of its staff, the FASB relies on the expertise of a. a committee of the SEC. b. various task force groups. c. the Accounting Board of Governors. d. accounting experts from other countries. Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 72. The Financial Accounting Standards Advisory Council (FASAC) a. consults with the FASB and helps appoint task force members. b. is the source of authoritative GAAP pronouncements. c. makes pronouncements that sometimes contradict GAAP. d. is a political group formed to lobby Congress in the U.S. Ans: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 73. The information provided by financial reporting pertains to a. individual business enterprises, rather than to industries or an economy as a whole or members of society as consumers. b. business industries, rather than to individual enterprises or an economy as a whole or 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. Ans: a, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None The Environment and Conceptual Framework of Financial Reporting 1 - 11 74. Which of the following represents a form of communication through financial reporting but not through financial statements? a. Balance sheet b. President's letter c. Income statement d. Notes to financial statements Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None 75. The underlying theme of the conceptual framework is a. decision-usefulness. b. understandability. c. faithful representation. d. comparability. Ans: a, LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AACSKnowledgee, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 76. The pervasive criterion by which accounting information can be judged is that of a. decision-usefulness. b. freedom from bias. c. timeliness. d. comparability. Ans: a, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 77. The objective of general-purpose financial reporting is a. to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity. b. to provide companies with the option to select information that favors one set of interested parties over another. c. to provide users with financial information that implies total freedom from error. d. to provide a metric for financial information used to determine when the boundary between two or more entities should be disregarded and the entities considered to be a licensing arrangement. Ans: a, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None P78. If the LIFO inventory method was used last period, it should be used for the current and following periods because of a. consistency. b. materiality. c. timeliness. d. verifiability. Ans: a, LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None S79. Which of the following is a characteristic describing the fundamental quality of relevance? a. Predictive value b. Neutrality c. Verifiability d. Understandability Ans: a, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 12 80. Which of the following is a fundamental quality of useful accounting information? a. Comparability b. Relevance c. Neutrality d. Materiality Ans: b, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 81. Which of the following is a fundamental quality of useful accounting information? a. Materiality b. Comparability c. Faithful representation d. Consistency Ans: c, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 82. What is meant by comparability when discussing financial accounting information? a. Information has predictive or confirmatory value. b. Information is reasonably free from error. c. Information is measured and reported in a similar manner across companies. d. Information is timely. Ans: c, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 83. What is meant by consistency when discussing financial accounting information? a. Information presented by a company applies the same accounting treatment to similar events, from period to period. b. Information is timely. c. Information is classified, characterized, and presented clearly and concisely. d. Information is verifiable. Ans: a, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 84. Which of the following is an ingredient of relevance? a. Completeness b. Neutrality c. Timeliness d. Materiality Ans: d, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 85. Which of the following is an ingredient of faithful representation? a. Predictive value b. Materiality c. Neutrality d. Confirmatory value Ans: c, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None The Environment and Conceptual Framework of Financial Reporting 1 - 13 86. Changing the method of inventory valuation should be disclosed in the financial statements because of which qualitative characteristic of accounting information? a. Consistency b. Verifiability c. Timeliness d. Comparability Ans: a, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 87. A company issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information? a. Comparability b. Timeliness c. Understandability d. Verifiability Ans: b, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 88. What is the quality which means that the information is capable of making a difference in a decision? a. Understandability b. Materiality c. Timeliness d. Relevance Ans: d, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 89. Neutrality is an ingredient of which fundamental quality of information? a. Faithful representation b. Comparability c. Relevance d. Understandability Ans: a, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 90. If the FIFO inventory method was used last period, it should be used for the current and following periods because of a. relevance. b. neutrality. c. understandability. d. consistency. Ans: d, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 91. The two fundamental qualities that make accounting information useful for decision making are a. comparability and timeliness. b. materiality and neutrality. c. relevance and faithful representation. d. faithful representation and comparability. Ans: c, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None Test Bank for Intermediate Accounting, Eighteenth Edition 1 - 14 92. Accounting information is considered to be relevant when it a. can be depended on to represent the economic conditions and events that it is intended to represent. b. is capable of making a difference in a decision. c. is understandable by reasonably informed users of accounting information. d. is verifiable and neutral. Ans: b, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 93. The quality of information that means the numbers and descriptions match what actually existed or happened is a. relevance. b. faithful representation. c. completeness. d. neutrality. Ans: b, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: None, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: NoneKnowledge 94. Which of the following does not relate to relevance? a. Materiality b. Predictive value c. Confirmatory value d. All of these answer choices relate to relevance. Ans: d, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 95. According to Statement of Financial Accounting Concepts No. 8, materiality is an ingredient of the fundamental quality(ies) of Relevance Faithful Representation a. Yes Yes b. No Yes c. Yes No d. No No Ans: c, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 96. According to Statement of Financial Accounting Concepts No. 8, completeness is an ingredient of the fundamental quality(ies) of Relevance Faithful Representation a. Yes No b. Yes Yes c. No No d. No Yes Ans: d, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None The Environment and Conceptual Framework of Financial Reporting 1 - 15 97. According to Statement of Financial Accounting Concepts No. 8, neutrality is an ingredient of the fundamental quality(ies) of Relevance Faithful Representation a. Yes Yes b. No Yes c. Yes No d. No No Ans: b, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 98. Neutrality means that information a. provides benefits that are at least equal to the costs of its preparation. b. can be compared with similar information about an enterprise at other points in time. c. would have no impact on a decision-maker. d. does not favor one set of interested parties over another. Ans: d, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 99. The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same methods is a. relevance. b. faithful representation. c. verifiability. d. neutrality. Ans: c, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 100. According to Statement of Financial Accounting Concepts No. 8, predictive value is an ingredient of the fundamental quality(ies) of Relevance Faithful Representation a. Yes No b. Yes Yes c. No No d. No Yes Ans: a, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None 101. Under Statement of Financial Accounting Concepts No. 8, free from error is an ingredient of the fundamental quality of Faithful Representation Relevance a. Yes Yes b. No Yes c. Yes No d. No No Ans: c, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None