Intermediate Accounting I – Chapter 1

1. The financial statements most frequently provided include all of the following except the:

a. balance sheet.

b. statement of cash flows.

c. statement of retained earnings.

d. statement of stockholders’ equity.

2. All of the following are objectives of financial reporting except to provide information:

a. about enterprise resources, claims to those resources, and changes in them.

b. that is useful in investment and credit decisions.

c. about the management and major shareholders of an enterprise.

d. that is useful in assessing cash flow prospects.

3. Which of the following best describes the idea that the FASB operates in full view of the public and gives interested parties ample opportunity to make their views known?

a. Due process.

b. Increased independence.

c. Broader representation.

d. Greater autonomy.

4. The _ has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules.

a. FASB.

b. PCAOB.

c. SEC.

d. IRS.

5. International Financial Reporting Standards (IFRSs) are issued by the:

a. FASB

b. IASB

c. SEC

d. EU

6. Which of the following relate to the need for one set of international accounting standards?

a. Information technology.

b. Mergers and acquisitions.

c. Financial markets.

d. All of these choices are correct.

7. The information provided by financial reporting pertains to

a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

b. business industries, rather than to individual enterprises or an economy as a whole or to 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.

8. The objective of financial reporting identifies __ as the primary users for general-purpose financial statements.

a. Managers.

b. Regulators (IRS and SEC).

c. Investors and creditors.

d. Employees.

9. A common set of accounting standards and procedures are called

a. financial accounting standards.

b. generally accepted accounting principles.

c. objectives of financial reporting.

d. statements of financial accounting concepts.

10. The __ requires that members prepare financial statements in accordance with GAAP.

a. Financial Accounting Standards Board.

b. Internal Revenue Service.

c. AICPA’s Code of Professional Conduct.

d. International Accounting Standards Board.

11. Which of the following user groups influence the formulation of accounting standards?

a. Government.

b. Academicians.

c. CPAs and accounting firms.

d. All of these choices are correct.

12. The failure of financial reports to provide information on customer satisfaction indexes, reject rates, and company sustainability efforts describes the financial reporting challenge of

a. Forward-looking information.

b. Nonfinancial measurements.

c. Soft assets.

d. Understandability.

13. Fundamental considerations the FASB must keep in mind in its rule-making activities include

a. Improvement in financial reporting.

b. International convergence.

c. Simplification of the accounting literature.

d. All of these choices are correct.

14. General-purpose financial statements are the product of

a. managerial accounting.

b. both financial and managerial accounting.

c. neither financial nor managerial accounting.

d. financial accounting.

15. Which of the following is not a user of financial reports?

a. Unions.

b. Government agencies.

c. Creditors.

d. All of these are users.

16. The financial statements most frequently provided include all of the following except the

a. statement of cash flows.

b. statement of retained earnings.

c. income statement.

d. balance sheet.

17. The information provided by financial reporting pertains to

a. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

b. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.

c. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

d. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.

18. All the following are differences between financial and managerial accounting in how accounting information is used except to

a. plan and control company’s operations.

b. decide whether to invest in the company.

c. evaluate borrowing capacity to determine the extent of a loan to grant.

d. all the above.

19. Which of the following represents a form of communication through financial reporting but not through financial statements?

a. President’s letter.

b. Balance sheet.

c. Income statement.

d. Notes to financial statements.

20. How does accounting help the capital allocation process attract investment capital?

a. By providing timely, relevant information and by encouraging innovation.

b. By promoting productivity.

c. By providing timely, relevant information.

d. By encouraging innovation.

21. Which of the following helps in determining whether a business thrives?

a. Markets.

b. Competition.

c. Free enterprise.

d. All of these answer choices are correct.

22. Which of the following is related to an effective capital allocation?

a. Providing an efficient market for buying and selling securities.

b. All of these answer choices are correct.

c. Promoting productivity.

d. Encouraging innovation.

23. Financial statements in the early 2000s provide information related to

a. nonfinancial measurements.

b. none of these answer choices are correct.

c. hard assets (inventory and plant assets).

d. forward-looking data.

24. Which of the following is not a major challenge facing the accounting profession?

a. Timeliness.

b. Accounting for hard assets.

c. Forward-looking information.

d. Nonfinancial measurements.

25. What is the objective of financial reporting?

a. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.

b. Provide information that excludes claims to the resources.

c. Provide information that clearly portrays nonfinancial transactions.

d. Provide information that is useful to management in making decisions.

26. Which of the following will be of interest to investors in decision-making?

a. Both assessing the company’s ability to generate net cash inflows and assessing management’s ability to protect and enhance the capital provider’s investments.

b. Assessing the company’s ability to generate net cash inflows.

c. Assessing management’s ability to protect and enhance the capital providers’ investments.

d. Assessing the company’s ability to collect debts.

27. Which of the following is a requirement for an accounting principle to be called “generally accepted”?

a. An authoritative rule-making body has established it or it has been accepted because of its universal application.

b. None of the answer choices are correct.

c. An authoritative accounting rule-making body has established it in an official pronouncement.

d. The principle has been accepted as appropriate because of its universal application.

28. What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?

a. The SEC coordinates with the AICPA in establishing accounting standards.

b. The SEC requires all companies listed on an exchange to submit their financial statements to the SEC.

c. The SEC reviews financial statements for compliance.

d. The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.

29. Why did the AICPA create the Accounting Principles Board?

a. The SEC disbanded the previous standard setting organization.

b. The previous standard setting organization did not provide a structured set of accounting principles.

c. None of the answer choices are correct.

d. No such organization existed in the past.

30. Rule 203 of the Code of Professional Conduct addresses:

a. advertising to obtain clients.

b. financial statements being based on generally accepted accounting principles.

c. auditing financial statements.

d. ethical requirements.

31. What is the “expectations gap”?

a. The difference between what the public thinks the accountant should do and what the accountant thinks they can do.

b. The difference between what the public thinks the accountant should not do and what the accountant knows they should do.

c. The difference between what the public thinks the accountant is doing and what Congress says the accountant is doing.

d. The difference between what the accountant is doing and what the Courts say the accountant should be doing.

32. What would be an advantage of having all countries adopt and follow the same accounting standards?

a. Lower preparation costs.

b. Comparability and lower preparation costs.

c. Agreement.

d. Comparability.

33. Which of the following is an ethical concern of accountants?

a. None of these answers are correct.

b. Earnings manipulation.

c. Industry practices.

d. Conservative accounting.

34. Authoritative standards for IFRS include:

a. International Financial Reporting Standards only.

b. International Financial Reporting Standards, International Accounting Standards and U.S. GAAP only.

c. International Financial Reporting Standards and International Accounting Standards only.

d. International Financial Reporting Standards, International Accounting Standards and any GAAP standard recognized by an organized stock exchange.

35. The IASB’s standard-setting structure includes all of the following except

a. Board

b. Standards Comparison Committee

c. Trustees

d. Standards Advisory Council

36. The statement of retained earnings is one of the financial statements most frequently provided by public companies.

a. True

b. False

37. Capital allocation is the process of determining how and at what cost money is allocated among competing interests.

a. True

b. False

38. Which of the following generally provides a better indication of an enterprise’s present and continuing ability to generate favorable cash flows?

a. Cash basis accounting.

b. Accrual basis accounting.

c. Managerial basis accounting.

d. Financial basis accounting.

39. Accounting principles are “generally accepted” only when

I. an authoritative accounting rule-making body has established it in an official pronouncement.

II. it has been accepted as appropriate because of its universal application.

a. I only.

b. II only.

c. I or II.

d. Neither I nor II

40. The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as

a. consistently primary.

b. consistently secondary.

c. sometimes primary and sometimes secondary.

d. non-existent.

41. Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders?

a. AICPA.

b. FASB.

c. GASB.

d. SEC.

42. The first step taken in the establishment of a typical FASB statement is:

a. the board conducts research and analysis and a discussion memorandum is issued.

b. a public hearing on the proposed standard is held.

c. the board evaluates the research and public response and issues an exposure draft.

d. topics are identified and placed on the board’s agenda.

43. Financial Accounting Concepts are a major type of pronouncement issued by the FASB.

a. True

b. False

44. Which of the following publications is not considered a GAAP document?

a. Statements of financial standards issued by the FASB

b. Accounting interpretations issued by the FASB

c. APB Opinions

d. Accounting research studies issued by the AICPA

45. Generally accepted accounting principles

a. include detailed practices and procedures as well as broad guidelines of general application.

b. are influenced by pronouncements of the SEC and IRS.

c. change over time as the nature of the business environment changes.

d. all of these answer choices are correct.

46. Politics play no role in establishing GAAP.

a. True

b. False

47. All listed companies in the European Union use IFRS.

a. True

b. False

48. From the four statements that follow, which are true?
49. Technical competence is not enough when encountering ethical decisions.
50. The pressures “to bend the rules,” “to play the game,” “to just ignore it” can be considerable.
51. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives.
52. The decision may be easier because there is no comprehensive ethical system to provide guidelines.

a. 1, 2, 3, and 4 are all true.

b. 1, 2, and 4 are all true.

c. 2 and 4 are all true.

d. 1 and 2 are all true.

49. International Financial Reporting Standards (IFRS) are issued by the:

a. FASB.

b. IASB.

c. IASF.

d. SEC.

50. IFRS is more “rule-based” in its approach to standards than U.S. GAAP.

a. True

b. False