Accounting and Society Exam Practice Tests
Course Introduction
This course explores the integral role of accounting within society, examining how accounting practices influence and reflect economic, social, and political environments. Students will analyze the impact of accounting information on decision-making for individuals, organizations, and governments, as well as its broader implications for issues such as corporate responsibility, ethics, and social justice. Through case studies and real-world examples, the course highlights how accounting both shapes and is shaped by societal expectations, regulatory frameworks, and global trends, preparing students to understand the broader consequences of accounting actions in contemporary society.
Recommended Textbook
Accounting Theory Conceptual Issues in a Political and Economic Environment 9th Edition by Harry
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Chapter 1: An Introduction to Accounting Theory
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Q1) The terms calculation and measurement both refer to the valuation of a real phenomena or attribute.
A)True
B)False
Answer: False
Q2) All accounting measurements are of either the assessment or the prediction variety.
A)True
B)False Answer: True
Q3) Assessment measures are concerned with particular attributes of objects and are always direct measurements.
A)True
B)False Answer: False
Q4) In a ratio scale, the zero point implies "nothingness," or the absence of the quality being measured.
A)True
B)False Answer: True
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Chapter 2: Accounting Theory and Accounting Research
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Q1) Agency theory holds that management always tries to maximize the value of the firm.
A)True
B)False
Answer: False
Q2) When the premises of a theory are constructed so that they can be tested by statistical inference, they are usually called:
A)postulates.
B)inferences.
C)hypotheses.
D)assumptions.
Answer: C
Q3) Inductive approaches to accounting theory usually attempt to be descriptive.
A)True
B)False
Answer: True
Q4) The decision-model approach to accounting research is normative.
A)True
B)False
Answer: True
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Chapter 3: Development of Institutional Structure of Financial Accounting
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Sample Questions
Q1) Which state passed the law that first created the designation "Certified Public Accountant"?
A)Massachusetts
B)California
C)Ohio
D)New York
E) Iowa
Answer: D
Q2) Criticism of the standard-setting process under the APB included:
A)exposure for tentative opinions was too limited and occurred too late in the process.
B)the standard-setting process was too long and subject to too many outside pressures.
C)both a andb.
D)none of the above.
Answer: C
Q3) The AICPA has developed an electronic filing of financial data called EDGAR.
A)True
B)False Answer: False
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Chapter 4: The Economics of Financial Reporting Regulation
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Q1) Which of the following is not an argument supporting unregulated markets?
A)Agency theory
B)Private contracting opportunities
C)Signalling theory
D)Social goals
Q2) True market demand for public goods may be determined by the number of consumers who pay for the goods.
A)True
B)False
Q3) Which of the following is not a possible justification for regulated markets?
A)Possible market failure
B)Natural monopolies
C)The possibility that free markets are contrary to social goals
D)Private contracting opportunities
Q4) Congress empowered the Securities and Exchange Commission (SEC) to regulate financial reporting in the 1930s.
A)True
B)False
Q5) What is meant by "the paradox of regulation"?
Q6) What are the arguments against regulation of financial reporting? Page 6
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Chapter 5: Postulates, Principles, and Concepts
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Q1) Proprietary theory assumes that the owners and the firm are virtually identical.
A)True
B)False
Q2) There are eight broad principles in ARS 3.
A)True
B)False
Q3) Which of the following is \(\underline{not}\) a possible outcome of postulate C-4, stability of the monetary unit?
A)If purchasing power of the monetary unit is not stable, some form of inflation accounting is appropriate.
B)If purchasing power of the monetary unit is not stable, historical cost is still justified.
C)If purchasing power of the monetary unit is stable, a system of current values is justified.
D)If purchasing power of the monetary unit is stable, retention of historical cost is justified.
Q4) Discuss the revenue recognition principle and how the terms "critical event," "earned," "realized," and "realizable" apply to revenue recognition.
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Chapter 6: The Search for Objectives
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Q1) Several important committee reports gave rise to objectives and standards in place of the postulates and principles approach.
A)True
B)False
Q2) What is the most common thread running through various documents, reports, and monographs discussed in the text?
A)The historical cost method of income measurement is as good a predictor of itself as other methods.
B)Financial statements should be relevant to users for decision-making purposes.
C)Earning-power measurements are essential to the prediction of future cash flows.
D)The same valuation base should be used for all assets and all liabilities.
Q3) Respond to the following:
a.What is the decision usefulness approach to accounting theory?
b.What are the characteristics and limitations of the decision-model approach?
c.What are the characteristics of the decision-maker approach?
Q4) How did the definition of accounting change from the period before ASOBAT to the issuance of SATTA in 1977?
Q5) Identify the major contributions of APB Statement 4.
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Chapter 7: The Fasbs Conceptual Framework
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Q1) Which statement in the conceptual framework is concerned with the objectives of business financial reporting? Note that SFAC 8 replaces this SFAC.
A)SFAC No. 1
B)SFAC No. 2
C)SFAC No. 3
D)SFAC No. 5
Q2) Relevance and reliability are the primary characteristics that standard setters should be concerned with.
A)True
B)False
Q3) Which of the following is a true statement?
A)Predictive value refers to usefulness of inputs for predictions rather than being an actual prediction itself.
B)Timeliness complements rather than conflicts with the other aspects of relevance because information is more complete and accurate if it is timely.
C)The conceptual framework stressed predictive value rather than the importance of decision-making by outside users.
D)Timeliness and predictive value are the two main aspects of relevance.
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Chapter 8: Usefulness of Accounting Information to Investors
and Creditors
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Q1) Which of the following is \(\underline{not}\) true regarding capital market research?
A)Studies have found a low correlation between the variability of accounting earnings and beta.
B)Studies have found a strong association between accounting-based ratios and the market measure of risk.
C)Studies have found that supplemental segment (line of business) disclosures resulted in a revision of systematic risk, indicating that such information is useful for risk assessments.
D)At least one study has found that pension information is not useful for risk assessments.
Q2) Discuss the results of the study by Loh and Mian as they relate to the importance of earnings forecasting.
Q3) The FASB maintains that accrual accounting systems are more useful for predicting net cash flows than are simpler cash-based systems.
A)True
B)False
Q4) What are the weaknesses of capital market research?
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Chapter 9: Uniformity and Disclosure: Some Policy-Making
Directions
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Q1) The term "present magnitudes" refers to:
A)conditions known at the time of an event.
B)conditions known only at a later date.
C)events that will significantly affect the financial statements.
D)none of the above.
Q2) What is Regulation FD, and how does it relate to the disclosure of information?
Q3) Discuss the role of management in relevant circumstances.
Q4) An event, as defined in SFAC No. 6, is "a happening of consequence to an entity."
A)True
B)False
Q5) Which of the following is a true statement?
A)Disclosure is concerned with information in the financial statements as well as information in the footnotes, management's discussion and analysis, financial and operating forecasts, and other supplementary communications.
B)Disclosure is concerned with information in the financial statements only.
C)Disclosure is concerned with information in the footnotes only.
D)Disclosure is concerned with information in the financial statements and all supplementary communications except financial and operating forecasts.
Page 12
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Chapter 10: International Accounting
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Q1) Which country has the oldest professional accounting organizations?
A)The UK
B)The US
C)France
D)Germany
Q2) The "true and fair view" refers to:
A)the use of judgment to make financial statements useful.
B)the same thing as "present fairly" in opinions of American auditing firms.
C)the fact that financial statements are in accordance with GAAP
D)the fact that financial statements are presented correctly in accordance with the law.
Q3) Which of the following does \(\underline{not}\) accurately characterize the IFAC?
A)It produces international financial reporting standards.
B)Its guidelines cannot be imposed on any member organization or nation.
C)Its board produces international standards for ethics, education, and public sector accounting.
D)It produces international standards for auditing and assurance.
Q4) What does harmonization of accounting standards mean, and what are the two aspects of harmonization?
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Chapter 11: The Balance Sheet
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Q1) The FASB defines comprehensive income using the income-expense approach to defining accounting elements.
A)True
B)False
Q2) Non-current liabilities are initially measured at: A)face value.
B)present value based on current interest rates.
C)present value plus stated interest.
D)book value.
Q3) If the balance sheet and income statement are non-articulated, they are linked together mathematically without any loose ends.
A)True
B)False
Q4) The definition of assets establishes what types of economic factors will appear in the balance sheet.
A)True
B)False
Q5) How should stock dividends be measured and accounted for? Is this treatment justified?
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Chapter 12: The Income Statement
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Q1) Which of the following methods of reporting comprehensive income did the FASB members that dissented from SFAS No. 130 believe most firms would use?
A)Reporting comprehensive income in a combined statement of financial performance
B)Reporting comprehensive income in a separate statement of comprehensive income which would begin with net income
C)Reporting comprehensive income within a statement of changes in equity
D)Not reporting comprehensive income
Q2) What is "comprehensive income," and how does SFAS No. 120 allow it to be reported?
Q3) What are the three categories of expenses identified in APB Statement 4, and what is the related hierarchy of expense recognition?
Q4) Which of the following represents the attribute(s) that must be measurable before revenue is recognized?
A)Sales price and cash collections
B)Sales price
C)Cash collections
D)Sales price, cash collections, and future costs
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Chapter 13: Statement of Cash Flows
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Q1) An exit-price accounting system provides an estimate of the cash conversion value of a firm's resources.
A)True
B)False
Q2) Identify and describe the three categories of cash flows reported on the statement of cash flows. What problems have been noted related to this classification system?
Q3) The funds flow statement included:
A)all sources and uses of resources.
B)only cash transactions.
C)only transactions affecting current assets.
D)only transactions affecting fund accounts.
Q4) In the statement of changes in financial position, sources of resources are defined as transaction debits.
A)True
B)False
Q5) Identify and describe the two balancing sections of the statement of changes in financial position.
Q6) How does the statement of cash flows sometimes cause a non-articulation problem?
Page 16
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Chapter 14: Income Taxes and Financial Accounting
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Q1) IAS 12 classifies deferred tax accounts as either current or non-current, depending on the account to which they pertain. .
A)True
B)False
Q2) Which of the following statements does not apply to intrastatement tax allocation?
A)It is also referred to as intraperiod tax allocation.
B)It includes showing prior period adjustments net of tax effect.
C)It includes showing extraordinary items, changes in accounting principle, and operations of discontinued segments net of tax effect.
D)It is difficult to employ, and its costs appear to outweigh its benefits.
Q3) International Accounting Standards use deferred tax assets and liabilities for recognizing temporary differences.
A)True B)False
Q4) Unused tax credits may generate deferred tax assets. A)True B)False
Q5) What are the arguments for discounting deferred tax liabilities?
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Chapter 15: Pensions and Other Postretirement Benefits
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Q1) What are the possible economic consequences of OPEB recognition?
Q2) Which of the following statements does not apply to a multiemployer pension plan?
A)It is subject to collective bargaining agreements.
B)Two are more employers are plan sponsors.
C)There are no regulatory differences between these plans and single-employer plans.
D)One employer can contribute no more than 50 percent of initial contributions.
Q3) How is pension expense calculated under SFAS No. 87, and when is pension liability recognized?
Q4) The FASB took an enormous step in SFAS No. 106 by requiring the recognition and measurement of OPEB costs and obligations.
A)True
B)False
Q5) Prior to SFAS No. 106, OPEB had been handled on a cash basis of accounting.
A)True
B)False
Q6) FASB Interpretation 3 was issued in response to the passage of ERISA.
A)True
B)False
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Chapter 16: Leases
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Q1) The concept of full payout refers to the lessee making all required payments according to the lease agreement.
A)True
B)False
Q2) Which of the following is not one of the capitalization tests now applicable to both lessees and lessors?
A)Title passes to the lessee at the end of the lease term.
B)The lease contract contains a bargain purchase option.
C)The lease term is at least 75 percent of estimated useful life.
D)Lease agreement is non-cancellable for a long term.
Q3) Which of the following is one of the criteria that have been suggested for lease capitalization?
A)The lessee treats lease payments as periodic expenses.
B)The lessor pays costs normally incident to ownership.
C)The lessee treats the lease as a purchase for tax purposes.
D)Leased property is special purpose to the lessor.
Q4) Respond to the following:
a.What are the current criteria for capitalization identified in SFAS No. 13?
b.How is the minimum lease payment calculated?
Q5) Discuss two types of economic consequences of lease accounting.
Page 19
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Chapter 17: Intercorporate Equity Investments
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Q1) Which of the following is not true regarding SFAS No. 142?
A)Goodwill may be defined as the excess earning power of an acquisition.
B)Goodwill is defined as the difference between the amount paid for an acquired subsidiary and the fair market value of its individual net assets.
C)Tests of goodwill impairment must be made on an annual basis.
D)Because goodwill has an indefinite life, it is not subject to write-off as an expense.
Q2) A _____ occurs when the subsidiary's stock is distributed to the combinor's shareholders as a dividend.
A)spin-off
B)split-off
C)split-up
D)sell-off
Q3) Discuss why the reporting of disaggregated data may be preferable to consolidated data.
Q4) How and why were SPEs changed by FASB Interpretation No. 46 and Interpretation 46R?
Q5) What are the relevant circumstances that justify differential accounting for intercorporate equity investments?
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