Question 1

Financial disclosure statements are strictest in

Accepted Answer

A) the United Kingdom. 
B) Germany. 
C) the United States. 
D) France. 
A) the United Kingdom. 
B) Germany. 
C) the United States. 
D) France.

Question 2

The following is NOT a major component of the financial statements:

Accepted Answer

A) auditor's opinion 
B) annual report 
C) explanatory notes 
D) balance sheet 
A) auditor's opinion 
B) annual report 
C) explanatory notes 
D) balance sheet

Question 3

Which of the following is NOT a purpose of the conceptual framework of accounting?

Accepted Answer

A) To provide definitions of key terms and fundamental concepts 
B) To provide specific guidelines for resolving situations not covered by existing accounting standards 
C) To assist accountants and others in selecting among alternative accounting and reporting methods 
D) To assist the FASB in the standard-setting process 
A) To provide definitions of key terms and fundamental concepts 
B) To provide specific guidelines for resolving situations not covered by existing accounting standards 
C) To assist accountants and others in selecting among alternative accounting and reporting methods 
D) To assist the FASB in the standard-setting process

Question 4

Many accountants argue that relevance and reliability often require trade-offs.
Define both relevance and reliability and explain what is meant by "trade-offs" between relevance and reliability.Include in your explanation a specific example of where trade-offs could occur.

Accepted Answer

Relevance is the capacity of information

Question 5

Which of the following is NOT normally an objective of financial reporting?

Accepted Answer

A) To provide information about an entity's assets and claims against those assets 
B) To provide information that is useful in assessing an entity's sources and uses of cash 
C) To provide information that is useful in lending and investing decisions 
D) To provide information about an entity's liquidation value 
A) To provide information about an entity's assets and claims against those assets 
B) To provide information that is useful in assessing an entity's sources and uses of cash 
C) To provide information that is useful in lending and investing decisions 
D) To provide information about an entity's liquidation value

Question 6

The United States Securities and Exchange Commission

Accepted Answer

A) has recognized IASB standards as an acceptable alternative to U.S. GAAP. 
B) requires foreign companies listing their shares on U.S. stock exchanges to restate their financial statements to U.S. GAAP. 
C) has barred foreign companies from listing their shares on U.S. stock exchanges. 
D) has no jurisdiction in the United States over foreign companies listing their shares on U.S. stock exchanges. 
A) has recognized IASB standards as an acceptable alternative to U.S. GAAP. 
B) requires foreign companies listing their shares on U.S. stock exchanges to restate their financial statements to U.S. GAAP. 
C) has barred foreign companies from listing their shares on U.S. stock exchanges. 
D) has no jurisdiction in the United States over foreign companies listing their shares on U.S. stock exchanges.

Question 7

Which of the following is a characteristic of the Financial Accounting Standards Board?

Accepted Answer

A) The FASB is composed of five members. 
B) FASB members must come from CPA firms. 
C) FASB members are part-time. 
D) FASB members may retain their positions with previous employers. 
A) The FASB is composed of five members. 
B) FASB members must come from CPA firms. 
C) FASB members are part-time. 
D) FASB members may retain their positions with previous employers.

Question 8

Generally accepted accounting principles

Accepted Answer

A) are accounting adaptations based on the laws of economic science. 
B) derive their credibility and authority from legal rulings and court precedents. 
C) derive their credibility and authority from the federal government through the financial reporting section of the SEC. 
D) derive their credibility and authority from general recognition and acceptance by the accounting profession. 
A) are accounting adaptations based on the laws of economic science. 
B) derive their credibility and authority from legal rulings and court precedents. 
C) derive their credibility and authority from the federal government through the financial reporting section of the SEC. 
D) derive their credibility and authority from general recognition and acceptance by the accounting profession.

Question 9

The overall objective of financial reporting is to provide information

Accepted Answer

A) that is useful for decision making. 
B) about an enterprise's assets, liabilities, and owners' equity. 
C) about an enterprise's financial performance during a period. 
D) that allows owners to assess management's performance. 
A) that is useful for decision making. 
B) about an enterprise's assets, liabilities, and owners' equity. 
C) about an enterprise's financial performance during a period. 
D) that allows owners to assess management's performance.

Question 10

Thermocore is a medium-sized company that produces wall paneling.Thermocore is a wholly-owned subsidiary of a holding company called Tempra-Sure,Inc.Both Thermocore and Tempra-Sure,Inc.are owned by the same individuals as principal shareholders.
Thermocore has fallen on hard times due to a downturn in the construction industry in the primary market area the company serves.Sales of the company have declined and net losses have occurred for each of the last three years.The company is in dire need of cash but the owners of Tempra-Sure,Inc.and Thermocore know that additional financing from a bank or other source is unlikely due to the company's weakened financial condition.
The owners of Tempra-Sure,Inc.and Thermocore believe that the downturn in construction will eventually reverse and that Thermocore will return to profitability when conditions improve.Based on these beliefs,the owners have proposed to the independent auditors a plan whereby the holding company (Tempra-Sure,Inc.)would obtain a loan from a bank and then make an intercompany loan to Thermocore.Under this plan,the owners would sell their personal residences to Tempra-Sure,Inc..Lease agreements between Tempra-Sure,Inc.and the owners would be drafted.These lease agreements would allow the owners to continue to occupy their homes.Title to the homes would pass to Tempra-Sure,Inc..Tempra-Sure,Inc.would become involved in property management in addition to holding the stock of Thermocore.Tempra-Sure,Inc.would have no additional properties other than the personal residences of the owners.The acquisition of additional properties by Tempra-Sure,Inc.is unlikely.
Required:
Assume that you are the partner in the public accounting firm performing the audit of Tempra-Sure,Inc.and Thermocore.Prepare your response to the owners of Tempra-Sure,Inc.and Thermocore regarding the plan to obtain additional financing.Include references to the Conceptual Framework and underlying assumptions of accounting in your response.

Accepted Answer

As partner of the public accounting firm

Question 11

Accountants prepare financial statements at arbitrary points in time during a company's lifetime in accordance with the accounting concept of

Accepted Answer

A) matching. 
B) comparability. 
C) accounting periods. 
D) materiality. 
A) matching. 
B) comparability. 
C) accounting periods. 
D) materiality.

Question 12

The term "due process" is used in various settings to describe the steps taken to ensure that an administrative matter receives the consideration required to adequately protect the interests of those involved.Due process is an integral part of the legal and legislative processes,for example.
The Financial Accounting Standards Board (FASB)also uses a set of due process procedures to ensure that the interests of its constituents are considered in the development of accounting standards.
Required:
Identify the steps in the set of due process procedures used by the FASB.

Accepted Answer

The following represent the steps that t

Question 13

The branch of accounting that is concerned with providing information to present and potential creditors of an enterprise is

Accepted Answer

A) auditing. 
B) managerial accounting. 
C) financial accounting. 
D) income tax accounting. 
A) auditing. 
B) managerial accounting. 
C) financial accounting. 
D) income tax accounting.

Question 14

As independent (or external)auditors,CPAs are primarily responsible for

Accepted Answer

A) preparing financial statements in conformity with GAAP. 
B) certifying the accuracy of financial statements. 
C) expressing an opinion as to the fairness of financial statements. 
D) filing financial statements with the SEC. 
A) preparing financial statements in conformity with GAAP. 
B) certifying the accuracy of financial statements. 
C) expressing an opinion as to the fairness of financial statements. 
D) filing financial statements with the SEC.

Question 15

Enron's problem with related-party transactions breached the assumption of:

Accepted Answer

A) going concerns 
B) arm's-length transactions 
C) freedom of enterprise 
D) market stability 
A) going concerns 
B) arm's-length transactions 
C) freedom of enterprise 
D) market stability

Question 16

An item would be considered material and therefore would be disclosed in the financial statements if the

Accepted Answer

A) expected benefits of disclosure exceed the additional costs. 
B) impact on earnings is greater than 3 percent. 
C) FASB definition of materiality is met. 
D) omission of misstatement of the amount would make a difference to the users. 
A) expected benefits of disclosure exceed the additional costs. 
B) impact on earnings is greater than 3 percent. 
C) FASB definition of materiality is met. 
D) omission of misstatement of the amount would make a difference to the users.

Question 17

When financial reports from two different companies have been prepared and presented in a similar manner,the information exhibits the characteristic of

Accepted Answer

A) relevance. 
B) reliability. 
C) comparability. 
D) consistency. 
A) relevance. 
B) reliability. 
C) comparability. 
D) consistency.

Question 18

In an effort to improve the conceptual framework,the FASB,in conjunction with the IASB has been moving towards more __________ standards.

Accepted Answer

A) rules approach 
B) principles approach 
C) broad approach 
D) international approach 
A) rules approach 
B) principles approach 
C) broad approach 
D) international approach

Question 19

Historical cost has been the valuation basis most commonly used in accounting because of its

Accepted Answer

A) timelessness. 
B) conservatism. 
C) reliability. 
D) accuracy. 
A) timelessness. 
B) conservatism. 
C) reliability. 
D) accuracy.

Question 20

The primary current source of generally accepted accounting principles for nongovernmental operations is the

Accepted Answer

A) American Institute of Certified Public Accountants. 
B) Securities and Exchange Commission. 
C) Financial Accounting Standards Board. 
D) Governmental Accounting Standards Board. 
A) American Institute of Certified Public Accountants. 
B) Securities and Exchange Commission. 
C) Financial Accounting Standards Board. 
D) Governmental Accounting Standards Board.

Exam 1: Financial Reporting

Financial disclosure statements are strictest in

The following is NOT a major component of the financial statements:

Which of the following is NOT a purpose of the conceptual framework of accounting?

Many accountants argue that relevance and reliability often require trade-offs. Define both relevance and reliability and explain what is meant by "trade-offs" between relevance and reliability.Include in your explanation a specific example of where trade-offs could occur.

Which of the following is NOT normally an objective of financial reporting?

The United States Securities and Exchange Commission

Which of the following is a characteristic of the Financial Accounting Standards Board?

Generally accepted accounting principles

The overall objective of financial reporting is to provide information

Accountants prepare financial statements at arbitrary points in time during a company's lifetime in accordance with the accounting concept of

The branch of accounting that is concerned with providing information to present and potential creditors of an enterprise is

As independent (or external)auditors,CPAs are primarily responsible for

Enron's problem with related-party transactions breached the assumption of:

An item would be considered material and therefore would be disclosed in the financial statements if the

When financial reports from two different companies have been prepared and presented in a similar manner,the information exhibits the characteristic of

In an effort to improve the conceptual framework,the FASB,in conjunction with the IASB has been moving towards more __________ standards.

Historical cost has been the valuation basis most commonly used in accounting because of its

The primary current source of generally accepted accounting principles for nongovernmental operations is the

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

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