Type:
Test Bank
Resource:
Financial Accounting Theory and Analysis Text and Cases
Edition:
10th Edition
Author(s):
Richard G. Schroeder Myrtle W. Clark Jack M. Cathey
Example Test Questions Chapter 1 Multiple Choice: 1. Which of the following bodies has the ultimate authority to issue accounting pronouncements in the United States? a. Securities and Exchange Commission b. Financial Accounting Standards Board c. International Accounting Standards Committee d. Internal Revenue Service Answer a 2. What historical evidence of the business operations of the private estate of Apollonius was discovered early inthe20th century? a. The Iliad b. Plato's Republic c. The Zenon papyri d. Pacioli’s work, Summa de Arithmetica Geometria Proportioni et Proportionalita, Answer c 3. Who has been given credit or developing the double-entry system of bookkeeping? a. Francis Wheat b. Fra Luca Pacioli c. A. C. Littleton d. William Paton Answer b 4. Which of the following was not a criticism of the development of accounting standards by the Accounting Principles Board? a. The independence of the members of the APB. The individuals serving on the board had fulltime responsibilities elsewhere that might influence their views of certain issues. b. The structure of the board. The largest eight public accounting firms (at that time) were automatically awarded one member, and there were usually five or six other public accountants on the APB. c. Harmonization. The accounting standards developed were dissimilar to those developed by the International Accounting Standards Committee. d. Response time. The emerging accounting problems were not being investigated and solved quickly enough by the part-time members. Answer c
5. Which of the following is the professional organization of university accounting professors? a. American Accounting Association b. American Institute of Certified Public Accountants
c. American Institute of Accountants d. Financial Executives Institute Answer a 6. What controversy originally highlighted the need for standard setting groups to have more authority? a. Accounting for stock options b. Accounting for derivatives c. Accounting for marketable securities d. Accounting for the investment tax credit Answer d 7. Which of the following committees recommended abolishing the Accounting Principles Board and replacing it with the Financial Accounting Board ? a. Wheat b. Cohen c. Trueblood d. Anderson Answer a 8. Which of the following is a public sector accounting standard setter? a. FASB b. SEC c. APB d. CAP Answer b 9. Which of the following types of pronouncements now establishes generally accepted accounting principles? a. Statements of Concepts b. Statements of Financial Accounting Standards c. APB Opinions d. Accounting Standards Updates Answer d
10. Which of the following types of pronouncements are intended to establish the objectives and concepts that the FASB will use in developing standards of financial accounting and reporting? a. Statements of Concepts b. Statements of Financial Accounting Standards c. APB Opinions d. Accounting Standards Updates
Answer a 11. Which of the following is not a consequence of the standards overload problem to small businesses? a. If a small business omits a GAAP requirement from audited financial statements, a qualified or adverse opinion may be rendered. b. Small businesses do not need to keep financial records c. The cost of complying with GAAP requirements may cause a small business to forgo the development of other, more relevant information. d. Small CPA firms that audit smaller companies must keep up to date on all the same requirements as large international firms, but they cannot afford the specialists that are available on a centralized basis in the large firms. Answer b 12. Some accountants maintain that accounting standards are as much a product of political action as they are of careful logic or empirical findings. This belief is an example of the concept of a. Standard setting as apolitical process b. Standards overload c. Economic consequences d. The role of ethics in accounting Answer a 13. T he impact of accounting reports on various segments of our economic society is the definition of the concept of a. Standard setting as apolitical process b. Standards overload c. Economic consequences d. The role of ethics in accounting Answer c 14. Considering and understanding how business decisions affect the financial statements is a. The sole responsibility of the Securities and Exchange Commission. b. Provided in the auditor’s report. c. Referred to as an economic consequence perspective. d. Interpreted strictly by the company’s suppliers. Answer c
15.
Which of the following is a source of nonauthoritative accounting guidance and literature? a. Financial Accounting Standards Board Statements b. Financial Accounting Standards Board Interpretations c. Financial Accounting Standards Board Technical Bulletins d. Practices that are widely recognized and prevalent either generally or in the industry
Answer d
16.
Which of the following companies was involved in an accounting failure that caused the public accounting firm Arthur Andersen to gout of business? a. Goldman Sachs b. Wachovia c. Enron d. AIG
Answer c Essay 1. What is the difference between normative and positive theory? Normative theories explain what should be, whereas positive theories explain what is. Ideally, there should be no such distinction, because a well-developed and complete theory encompasses both what should be and what is. 2. Why is the development of a general theory of accounting important The development of a general theory of accounting is important because of the role accounting plays in our economic society. We live in a capitalistic society, which is characterized by a selfregulated market that operates through the forces of supply and demand. Goods and services are available for purchase in markets, and individuals are free to enter or exit the market to pursue their economic goals. All societies are constrained by scarce resources that limit the attainment of all individual or group economic goals. In our society, the role of accounting is to report how organizations use scarce resources and to report on the status of resources and claims to resources. 3. Discuss the evolution of accounting during the 1930s. One of the first attempts to improve accounting began shortly after the inception of the Great Depression with a series of meetings between representatives of the New York Stock Exchange (NYSE) and the American Institute of Accountants. The purpose of these meetings was to discuss problems pertaining to the interests of investors, the NYSE, and accountants in the preparation of external financial statements. Similarly, in 1935 the American Association of University Instructors in Accounting changed its name to the American Accounting Association (AAA) and announced its intention to expand its activities in the research and development of accounting principles and standards. The first result of these expanded activities was the publication, in 1936, of a brief report cautiously titled “A Tentative Statement of Accounting Principles Underlying Corporate Financial Statements.” The four-and-one-half-page document summarized the significant concepts underlying financial statements at that time. The cooperative efforts between the members of the NYSE and the AIA were well received. However, the post-Depression atmosphere in the United States was characterized by regulation. There was even legislation introduced that would have required auditors to be licensed by the federal government after passing a civil service examination. Two of the most important pieces of legislation passed at this time were the Securities Act of 1933 and the Securities Exchange Act of 1934, which established the Securities and Exchange Commission (SEC). The SEC was created to administer various securities acts. Under powers