Accounting Theory Exam
Questions
Course Introduction
Accounting Theory explores the fundamental principles, concepts, and frameworks that underpin accounting practices and standards. This course examines the development and evolution of accounting thought, the role of accounting in society, and the theoretical foundations that guide financial reporting, measurement, and disclosure. Students will critically assess various accounting paradigms, regulatory environments, and ethical considerations while analyzing the relevance, reliability, and impact of accounting information on decision-making. Through case studies and scholarly research, students gain insight into current debates and emerging trends shaping the discipline and practice of accounting.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 6th Edition by
Available Study Resources on Quizplus
14 Chapters
732 Verified Questions
732 Flashcards
Source URL: https://quizplus.com/study-set/3961
Page 2
Clyde P. Stickney
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/79407
Sample Questions
Q1) When identifying the strategies that a particular firm pursues to gain a competitive advantage it is important to determine if its products are designed to meet the needs of a specific market segment or are they intended for a
Answer: broader consumer market
Q2) The accrual basis method of accounting can be best described as:
A) The recording of transactions and adjustments so that debits equal credits.
B) The method that equates assets with liabilities and owners' equity.
C) The method that recognizes revenue when money is received.
D) The method that matches incurred expenses with related revenues when they are earned.
Answer: D
Q3) The tools of effective financial statement analysis are also useful for assessing whether to extend ____________________ to a firm, either for a short-term or for a long-term.
Answer: credit
Q4) What are three activities reported in the statement of cash flows and what information does each activity provide?
Answer: 11ea92c5_78cc_c661_9469_597fe9f96f2a_TB5976_00
Page 3
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Asset and Liability Valuation and Income
Measurement
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/79401
Sample Questions
Q1) Fish Farm Corporation purchases a new tract of land on which it is going to build new growing and holding tanks in order to expand its business, which of the following costs would not be part of the cost of the land?
A) costs to run a title search
B) costs of grading to level the land
C) costs of tearing down an existing structure
D) cost of the new holding tanks
Answer: D
Q2) When income tax expense for a period is greater than income tax payable the difference will be reported how and on which financial statement?
A) Deferred tax asset and Statement of Cash Flows
B) Deferred tax asset and Balance Sheet
C) Deferred tax liability and Statement of Cash Flows
D) Deferred tax liability and Balance Sheet
Answer: D
Q3) Stockholders' equity can be expanded into the following three accounts: contributed capital, retained earnings and
Page 4
Answer: accumulated other comprehensive income
To view all questions and flashcards with answers, click on the resource link above.
Chapter 3: Income Flows Versus Cash Flows: Key
Relationships in the Dynamics of a Business
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/79400
Sample Questions
Q1) Normally, cash flows from operations will peak during which phase of the product life cycle?
A) Introduction
B) Growth
C) Maturity
D) Decline
Answer: C
Q2) If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities its cash flow from operation will normally be
A) greater than net income
B) less than net income
C) greater than the change in working capital from operations
D) greater than the change in cash
Answer: B
Q3) Many analysts use ____________________ as a crude measure of a firm's ability to pay down debt.
Answer: EBITDA
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Profitability Analysis
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/79399
Sample Questions
Q1) The numerator of the return on assets ratio is net income from operations excluding the effects of any ______________________________.
Answer:
Q2) One important difference between return on assets (ROA) and return on common shareholder's equity (ROCE) is
A) ROA does not differentiate based on how a company finances its assets, ROCE does.
B) ROA does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles, ROCE does.
C) ROCE does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles, ROA does.
D) ROCE does not differentiate based on how a company finances its assets, ROA does.
Q3) Operating income is negative in an amount equal to _________________________ when revenues are zero.
Answer:
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Risk Analysis
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/79398
Sample Questions
Q1) Market equity beta measures the covariability of a firm's returns with the return's of
A) all industry competitors in the market.
B) risk free securities.
C) all securities in the market.
D) all firms of comparable market value.
Q2) The best indicator for assessing a firm's long-term solvency risk is its ability to generate what over a period of years?
A) Sales
B) Earnings
C) Positive cash flows
D) Income from continuing operations
Q3) In general, the shorter the number of days of needed financing, the ____________________ is the cash flow from operations to average current liabilities.
Q4) Refer to the financial statement data for Patriot Comp. for 2006 and 2005. Complete the table by computing the ratios.
Q5) Large current ratios indicate the availability of cash and near cash assets to repay ____________________ coming due within the next year.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Quality of Accounting Information and Adjustments to Reported Financial Statement Data
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/79397
Sample Questions
Q1) Which of the following items is consistent with earnings being informative about current performance and but not informative about future earnings?
A) The firm recognizes an unexpected gain
B) The firm recognizes a fair value gain on a financial asset as a result of a favorable move in interest rates.
C) The firm recognizes additional expenses this period due to pre-opening costs associated with new stores.
D) The firm experiences a large jump in sales and earnings as a result of successful research and development of new products.
Q2) Geyser Corp. reported net income of $390,000 in 2007. During 2007 Geyser reported a loss of $72,000 from a peripheral activity. The loss was included as part of income from continuing operations. Assuming that the loss is a one-time event and that Geyser has an effective tax rate of 35% calculate Geyser's adjusted net income. Show all of your calculations for credit.
In addition, discuss why analysts might make an adjustment of this type.
Q3) The _________________________ is the date of closing the sale, if the firm intends to sell the segment, or the date operations cease, if the firm intends to abandon the segment.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Revenue Recognition and Related Expenses
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/79396
Sample Questions
Q1) Specifically identifiable intangible assets acquired from others may have either a ____________________ useful life or an ____________________ useful life.
Q2) The difference between the economic resources received from customers and the economic resources paid to suppliers, employees and other providers of goods and services is called ____________________.
Q3) The process of allocating the historical cost of certain assets to the periods of their use in a reasonably systematic manner is referred to as ____________________.
Q4) Companies that engage in long-term contracts can recognize income using either the _____________________________________________ method or the ________________________________________ method.
Q5) A Company that uses FIFO will find that its ___________________________________ account tends to be somewhat out of date.
Q6) ___________________________________ include trade and brand names, trademarks, patents, copyrights, franchise rights, customer lists and goodwill.
Q7) Financial reporting requires firms to ____________________ immediately all R&D costs incurred internally.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Liability Recognition and Related Expenses
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/79395
Sample Questions
Q1) When firms use derivatives effectively to manage risks, the net gain or loss each period should be relatively ____________________.
Q2) Which of the following is not one of the GAAP classifications for derivatives?
A) Speculative investment
B) Fair value hedge
C) Asset-Liability hedge
D) Cash flow hedge
Q3) Gains and losses on cash flow hedges affect earnings ____________________ than those on fair value hedges.
Q4) Which of the following is not normally recognized as a liability on the balance sheet?
A) Warranties Payable.
B) Bonds payable.
C) Subscription Fees Received in Advance.
D) Employment Commitments.
Q5) ____________________ over sufficiently long time periods equals cash inflows minus cash outflows from operating, investing, and financing activities
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Intercorporate Entities
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/79394
Sample Questions
Q1) Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2005. During 2005, Judd declared a dividend of $5 per share and reported net income of $75,000. At the end of 2005 the market value of a share of Judd, Inc. stock has increased to $32 per share. If Ashley Company accounts for the investment as a minority, active investment and uses the equity method to account for the investment, the investment will appear in the December 31, 2005 balance sheet at what amount?
A) $60,000
B) $65,000
C) $64,000
D) $75,000
Q2) When dividends from an investment are recognized as income, the investment must have been of which type?
A) Minority, Passive Investment
B) Majority, Passive Investment
C) Majority, Active Investment
D) Minority, Active Investment
Q3) The _________________________ is the date a firm gives a stock option to employees.
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: Forecasting Financial Statements
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/79406
Sample Questions
Q1) A company that has a cost structure in which its costs grow at a lesser rate than its sale enjoys ___________________________________.
Q2) If a company has very low operating leverage (i.e. a low proportion of fixed costs the cost structure) and no changes are expected in operations
A) percentage change income statement percentages can serve as the basis for projecting operating expenses.
B) using common-size income statement percentages will overstate future projected operating expenses.
C) using common-size income statement percentages will understate future projected operating expenses.
D) using common-size income statement percentages can serve as a reasonable basis for projecting future operating expenses.
Q3) The authors set forth a six step forecasting game plan for preparing pro forma financial statements. Discuss the six steps necessary to prepare the three principal financial statements.
Q4) For some types of assets, such as plant, property and equipment, asset growth typically ____________________ future sales growth.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
Available Study Resources on Quizplus for this Chatper
30 Verified Questions
30 Flashcards
Source URL: https://quizplus.com/quiz/79405
Sample Questions
Q1) Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements. Discuss what three elements need to be measured by the analyst.
Q2) Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.
Q3) In theory, the value of a share of common equity is the present value of ____________________________________________________________.
Q4) A company with a market beta of 1 has systemic risk ____________________ to the average amount of systemic risk of all equity securities in the market.
Q5) Provide the rationale for using expected dividends in a valuation model.
Q6) Because the market equity beta reflects the level of operating leverage, financial leverage, variability of sales and other characteristics of a firm there are situations where an analyst might have to adjust the beta because of changes in the capital structure. A situation that might require an analyst to estimate a new levered beta is a ___________________________________.
Q7) If dividend projections include the effect of inflation then the discount rate used should be a ____________________ rate.
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Valuation: Cash-Flow-Based Approaches
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/79404
Sample Questions
Q1) Which of the following is not a problem with using a dividend-based valuation formula
A) dividends are arbitrarily established
B) dividends represent a transfer of wealth to shareholders
C) some firms do not pay a regular periodic dividend
D) it is a challenge to forecast the final liquidating dividend
Q2) Changes in general price levels cause the ______________________________ of the monetary unit to change over time.
Q3) For most firms, ______________________________ include cash and short-term investment securities, accounts receivable, inventory, property, plant and equipment, intangible assets and investments in affiliated companies.
Q4) If an analyst wants to value a potential investment in the common stock equity in a firm the relevant cash flows the analyst should use are
A) free cash flow from operations
B) free cash flows for all debt and equity capital stakeholders
C) free cash flows to common equity shareholders
D) cash flow from operations
Q5) Provide the rationale for using expected free cash flow in valuation.
Q6) What three elements are needed to value a resource when using cash flows?
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Valuation: Earnings-Based Approaches
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/79403
Sample Questions
Q1) The residual income valuation approach assumes that accounting for net income and book value of shareholders' equity follows
Q2) Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,600 at the end of 2005. During 2006 the firm earns net income of $1,300, pays dividends to shareholders of $600, and uses $300 to repurchase common shares. The book value of shareholders equity at the end of 2006 is:
A) $2,000
B) $400
C) $3,800
D) $2,600
Q3) Over the life of a firm, the capital invested in the firm by the shareholders plus the income of the firm will reflect
A) the dividend paying ability of the firm.
B) the free cash flows available to shareholders.
C) the value of the firm to shareholders.
D) the value of the firm for debtholders and shareholders.
Q4) What is the rationale for using expected earnings as a basis for valuations?
Q5) What is meant by the term clean surplus accounting?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Valuation: Market-Based Approaches
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/79402
Sample Questions
Q1) Under the value-to-book model a firm in steady state equilibrium earning ROCE = R<sub>E</sub> will
A) create additional shareholder wealth and be valued above book value.
B) maintain shareholder wealth and be valued at book value.
C) destroy shareholder wealth and be valued below book value.
D) be in a no growth state.
Q2) Strictly speaking, the price-earnings ratio assumes that firm value is
A) future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate.
B) future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.
C) present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate.
D) present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.
Q3) The PEG ratio does not take into account differences in ____________________ and ________________________________________ across firms.
To view all questions and flashcards with answers, click on the resource link above. Page 16