Test bank for intermediate accounting reporting and analysis 1st edition by wahlen

Test Bank for Intermediate Accounting Reporting and Analysis
1st Edition by Wahlen

Test Bank for Intermediate Accounting Reporting and
Analysis 1st Edition by Wahlen
A problem arising from equal information is called information
asymmetry.

1. True
2. False


The need for relevant and reliable financial information stems from the needs
of the internal and external stakeholder’s.

1. True
2. False
The mission of the Securities and Exchange Commission is to protect
investors, maintain orderly, and efficient markets, and assist in the formation
of capital.

1. True
2. False
The SEC uses its authority to establish accounting standards, while also
enforcing regulations on companies, exchanges, and investors.

1. True
2. False
FASB came to being in 1973 after the AICPA phased out the Accounting
Principles Board.

1. True
2. False
FASB’s Emerging Issues Task Force was established to identify issues in which
it felt FASB needed to address.

1. True
2. False


The codification is set up as a system of levels starting with sections, topics,
and subtopics.

1. True
2. False
The codification was established to assist in reducing the time necessary to
research an accounting issue and improve the ability to utilize accounting
information to conform to GAAP.

1. True
2. False
The convergence project between the IASB and GAAP was initiated in 2002
when the two boards entered into the “Northward Agreement”.

1. True
2. False
A potential issue facing the convergence project is that many companies have
entered into contracts based upon U.S. GAAP financial reporting, many of
these contracts will have to be renegotiated using IFRS which potentially
could cause some companies more harm than good.

1. True
2. False
The balance sheet is a snapshot of a company’s financial position at a
particular date and time.

1. True
2. False


The statement of shareholder’s equity reports the effects of Accumulated
Other Comprehensive income.

1. True
2. False
“In carrying out their responsibilities as professionals, members should
exercise sensitive professional and moral judgments in all their activities.”
This is the Integrity principle of the AICPA Code of Professional Conduct.

1. True
2. False
“Members should act in a way that will service the public interest, honor the
public trust, and demonstrate commitment to professionalism.” This is the
Public Interest Principle of the AICPA’s Code of Professional Conduct.

1. True
2. False
Creditors' information needs revolve around all of the following decisions,
except

1. extending credit

2. maintaining a credit relationship
3. not extending credit
4. investing in credit instruments
Which of the following is an internal stakeholder of a company's financial
information?

1. company treasurer


2. stockholder in the company
3. bank lending to the company
4. union
After formulating a strategic plan what three types of activities will a
company engage in?

1. Planning, operating, and selling
2. Investing, operating, and selling
3. Financing, investing, and operating
4. Operating, planning, and financing
What is Financial Reporting?

1. The process of communicating internal accounting information to existing and
potential investors, creditors, lenders, and other external decision makers.
2. The process of communicating financial accounting information to existing
and potential investors, creditors, lenders, and other external decision
makers.
3. The process of preparing financial accounting information to existing and
potential investors, managers, and employees.
4. The process of communicating the strategic plan to existing and potential
investors, creditors, lenders, and other external decision makers.

When making decisions, equity investors are interested in assessing

1. the company's ability to generate cash flows.
2. management's ability to increase the capital providers' investments.
3. the company's ability to pay dividends.
4. All of these choices


Which of the following is not a decision that external stakeholder’s of a
company's financial information would make?

1. whether or not to extend credit to the company
2. whether or not to hold the company's stock
3. whether or not the company should add a new product line
4. whether or not to ask for an increase in employees' benefits during union
contract negotiations
As a potential equity investor, what would you least be interested in a
company prior to making and investment decision?

1. What differentiates them from their competition?
2. Whether they are generating a profit?
3. Whether they have positive cash flows?
4. What are the employee benefits and compensation packages?
The primary reason that financial accounting and managerial accounting have
somewhat different objectives is because they

1. need information in different formats
2. provide information for different decisions
3. need information in different geographic locations
4. need information at different times

Information asymmetry problems arise because management’s behavior

1. may be to enhance the owners' financial interests at the expense of their selfinterests
2. will always follow classic agency law
3. may not always be in the best interests of the owners (stockholders)


4. as agents will always be in the best interests of the owners (stockholders)
The organization that has legal authority to prescribe accounting principles
and reporting practices for all corporations issuing publicly traded securities
within the U.S. capital markets is?

1. Accounting Principles Board
2. Securities and Exchange Commission
3. Financial Accounting Standards Board
4. Committee on Accounting Procedure
Which organization has the most legal authority?

1. Financial Accounting Standards Board
2. Accounting Standards Executive Committee
3. Governmental Accounting Standards Board
4. Securities and Exchange Commission
Three major organizations in the private and public sector develop U.S. and
international GAAP. They include all of the following except the

1. EU (European Union)
2. SEC (Securities and Exchange Commission)
3. FASB (Financial Accounting Standards Board)
4. IASB (International Accounting Standards Board)
The Securities and Exchange Commission has the legal authority to prescribe

accounting principles and reporting practices for

1. all companies issuing publicly traded securities
2. all companies issuing any type of securities


3. all companies
4. all corporations
Which of the following is NOT a major standard-setting body responsible for
the establishment of U.S. and international GAAP (Generally Accepted
Accounting Principles)?

1. SEC (Securities Exchange Commission)
2. PCAOB (Public Company Accounting Oversight Board)
3. FASB (Financial Accounting Standards Board)
4. IASB (International Accounting Standards Board)
While formally the SEC is charged with the responsibility for establishing
accounting principles to be followed in the preparation of SEC filings, the
impact of the SEC generally has been

1. in its assistance to Congress with the development of tax law
2. in guiding the development of stock exchanges
3. ineffective in controlling foreign corporations and investors
4. its informal review and approval of standards developed in the private sector
prior to their release
What is the relationship between the Securities and Exchange Commission
and accounting standard setting in the United States?

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

2. The SEC coordinates with the FASB in establishing accounting standards.
3. The SEC has a mandate to establish accounting standards for corporations
within the U.S. capital markets.
4. The SEC reviews financial statements for compliance with U.S. GAAP or IFRS.


The Securities Exchange Act of 1934 established extensive reporting
requirements for listed companies. Which is not a commonly required
report?

1. Form 10-Q. An extensive quarterly report, including financial statements.
2. Form S-2. A registration statement
3. Form 10-K. An extensive annual report, including financial statements
4. Form 8-K. A report used to describe significant events that may affect the
company.
Which of the following statements is true?

1. Accounting standard setting began in the United States when the AICPA
formed the Committee on Accounting Procedure.
2. Accounting standard setting began in the United States when the SEC formed
the Committee on Accounting Procedure.
3. Accounting standard setting began in the United States when the AICPA
formed the Accounting Principles Board.
4. Accounting standard setting began in the United States when the FASB
formed the Committee on Accounting Procedure.
Which of the following statements is true?

1. In order to remain impartial, the FASB discourages public input during
development of standards.
2. FASB accounting standards are the result of clearly defined objectives, an

integrated body of theory, and the known consequences of actions.
3. The FASB deliberates and issues accounting standards only after receiving a
formal letter of request from the SEC.
4. Accounting standards, which reflect social decisions, are often the result of
compromise.


Going from 1938 to the present, which is the correct sequence of accounting
rule-making bodies?

1. APB-CAP-FASB
2. CAP-FASB-APB
3. CAP-APB-FASB
4. FASB-APB-CAP
The Financial Accounting Foundation (FAF) is the parent organization of the
which?

1. AICPA (American Institute of Certified Public Accountants)
2. AAA (American Accounting Association)
3. SIFMA (Securities Industry and Financial Markets Association)
4. FASB (Financial Accounting Standards Board)
How many FASB members are there?

1. 5
2. 7
3. 21
4. 33
Concerning FASB membership, which statement is not true?

1. Not all members are CPAs from public practice.

2. All members are full time and fully paid.
3. All members are also members of the Financial Accounting Foundation.
4. All members must sever organizational ties with their previous employer.


The FASB Emerging Issues Task Force issues which of the following?

1. Statements of Position to influence the development of principles
2. Consensus Positions on the implementation of standards
3. Financial Reporting Releases on guidelines for reporting issues
4. Technical Bulletins on accounting and reporting problems
Which pronouncements are not issued by the FASB?

1. Statements of Financial Accounting Concepts
2. Technical Bulletins
3. Opinions
4. Interpretations
Which of the following pronouncements issued by the FASB provides the
lowest level of authoritative support?

1. technical bulletins
2. interpretations
3. statements of financial accounting standards
4. staff positions
The FASB Accounting Standards Codification is expected to provide all of the
following benefits except

1. reduce the research time necessary to solve an accounting research issue
2. codify authoritative support such as results of academic research
3. provide real-time updates as new standards are issued

4. improve the usability of the authoritative accounting literature


What type of FASB pronouncements refined GAAP by clarifying conflicting or
unclear issues relating to previously issued standards?

1. Staff Positions
2. Technical Bulletins
3. Interpretations
4. Other Pronouncements
What type of FASB Pronouncement carried the highest authority within GAAP,
establishing the methods and procedures required on specific accounting
issues?

1. Staff Positions
2. Statements of Financial Accounting Standards
3. Statements of Financial Accounting Concepts
4. Technical Bulletins
What type of FASB Pronouncement were to provide more timely and
consistent application guidance and made to narrow and limit revisions of
standards?

1. Technical Bulletins
2. Statements of Financial Accounting Standards
3. Interpretations
4. None of these choices
Assume that authoritative support regarding GAAP for a particular
transaction is needed. A correct hierarchy of authority to be followed
(highest, second, third) would be

1. FASB Statements, AICPA Accounting Interpretations, FASB Technical Bulletins


2. FASB Technical Bulletins, AICPA Accounting Interpretations, FASB Statements
3. AICPA Accounting Interpretations, FASB Technical Bulletins, FASB Statements
4. FASB Statements, FASB Technical Bulletins, AICPA Accounting Interpretations
The FASB Accounting Standards Codification includes six levels or
components which of these is not a level?

1. Area
2. Topic
3. Sub-paragraphs
4. Paragraphs
Which of the following documents includes all of the accounting
standards?

1. Regulation S-X
2. The FASB Conceptual Framework
3. Statements of Financial Accounting Standards
4. none of these
Conversion to IFRS reporting by all U.S. companies would be best
accomplished with a transition plan for all of the following reasons
except

1. it would have to be a multi-year process
2. it needs to be an orderly process with a minimum of cost and disruption to
the participants
3. certain IFRS need further improvement through continued convergence
efforts
4. careful planning would enable maximum manipulation of the IFRS for the

financial benefit of the United States.


The agreement in 2002 by the FASB and IASB to develop high quality,
compatible accounting standards that could be used by both domestic and
cross-border financial reporting was called the

1. International Accounting Standards agreement
2. Financial Accounting Standards Board Global agreement
3. Norwalk agreement
4. United GAAP agreement
For foreign companies that issue securities in the United States to raise
capital, the SEC

1. requires these companies to file form 20-F which reconciles certain amounts
reported in their financial statements with US GAAP.
2. accepts all financial statements that use IFRS.
3. accepts only financial statements that are fully stated under US GAAP.
4. accepts financial statements from foreign companies that use Englishlanguage IFRS without exception.
What is the responsibility of the International Accounting Standards
Board?

1. IASB promotes uniform accounting standards among international countries.
2. IASB settles accounting disputes between auditors and international
companies.
3. IASB issues standards which regulate the financial accounting and reporting
of multinational corporations and then enforces through legal channels.
4. IASB is to develop a uniform currency in which the financial transactions
would be measured.

U.S. companies that have subsidiaries in foreign countries can file their
financial statements with the SEC by using?

1. IFRS
2. GAAP
3. either IFRS or GAAP
4. IFRS for their subsidiaries and GAAP for their holdings in the United States.
What is the name of the parent organization to the International Accounting
Standards Board?

1. IASB (International Accounting Standards Board)
2. IFRS (International Financial Reporting Standards)
3. FASB (Financial Accounting Standards Board)
4. IFRIC (International Financial Reporting Standards Interpretations Committee)
Which of the following is NOT a major standard-setting body responsible for
the establishment of U.S. and international GAAP (Generally Accepted
Accounting Principles)?

1. SEC (Securities Exchange Commission)
2. PCAOB (Public Company Accounting Oversight Board)
3. FASB (Financial Accounting Standards Board)
4. IASB (International Accounting Standards Board)
Certain U.S. accounting standards have been, and will be, amended to aid in
the international convergence process. The process of changing these
standards usually involves

1. a short deliberation followed by a vote of the U.S. Congress
2. acceptance of the change by the Internal Revenue Service

3. rejecting all existing standards and developing an entirely new concept
4. selecting the best standard between existing U.S. and international standards
Notes to financial statements provide

1. discussions that further explain items shown in the financial statements
2. comparative financial information with the previous year
3. management's discussions about plans for the future
4. the report of the independent auditors
What financial statement is considered the cornerstone of financial
reporting?

1. income statement
2. statement of cash flows
3. statement of retained earnings
4. balance sheet
The accounting equations is

1. Assets + Liabilities = Stockholder's Equity
2. Assets -Liabilities = Stockholder’s Equity
3. Assets = Liabilities - Stockholder’s Equity
4. Assets + Stockholders' Equity = Liabilities
Which statement measures and reports the financial results of a company’s
performance for a period of time?

1. income statement
2. balance sheet
3. statement of cash flows

4. statement of financial position
The four major financial statements of a corporation consist of the

1. income statement, balance sheet, statement of cash flows, and statement of
changes in stockholders' equity
2. balance sheet, statement of cash flows, statement of retained earnings, and
income statement
3. income statement, statement of cash flows, statement of financial flexibility,
and balance sheet
4. statement of cash flows, balance sheet, income statement, and statement of
capital equity
The Management Discussion and Analysis section of the financial statements
discusses what important topics?

1. Business risk factors associated with the company.
2. Management provides insight into key decisions implemented during that
time period and future developments.
3. Management utilizes this area as a forum to discuss strategic motives.
4. All of these choices
The correct order of presentation for the statement of cash flows is?

1. Operating, Investing, Financing
2. Financing, Operating, Investing
3. Investing, Financing, Operating
4. Operating, Financing, Investing
The correct presentation of the income statement is?

1. Revenues - expenses + gains - losses = Net Income
2. Revenues-expenses = Net income - losses + gains

3. Revenues- losses - expenses + gains = Net Income
4. Revenues + gains - losses -expenses = Net Income
Contributions that are paid to owners would affect both the

1. balance sheet and statement of cash flows
2. balance sheet and income statement
3. income statement and statement of changes in equity
4. income statement and statement of cash flows
Which of the following transactions would be reported in the cash flows from
investing activities section in the statement of cash flows for the Harlem
Company?

1. Harlem sold a piece of land for $600,000.
2. Harlem borrowed $3,000,000
3. Harlem issued common stock for $700,000 to investors.
4. Harlem paid a cash dividend to its stockholders.
Which Principle of the AICPA Code of Professional Conduct is: As a member
one should continually strive to improve competence, observe all ethical
standards and provide services to the best of their ability?

1. The Public Interest
2. Responsibilities
3. Scope and Nature of Services
4. Due Care
Auditors face ethical issues because

1. GAAP permits various standards to be used to produce profits

2. auditors may express an opinion that may cause difficulty to employees of a
company
3. auditors may not discover insider trading
4. GAAP does not permit fraud
Unethical actions include which of the following?

1. polluting lakes and streams
2. overcharging on government contracts
3. securities fraud
4. All of these choices
The stated principles of the AICPA Code of Professional Conduct do NOT
include

1. Integrity
2. Honesty
3. Objectivity and Independence
4. Responsibilities
Which of the following is not considered an ethical issue in accounting?

1. Biased financial statement presentation
2. Accelerated revenue recognition
3. Earnings manipulation
4. Industry practices
The AICPA Code of Professional Conduct includes which of the following
principles?

1. Professionalism


2. Conservatism

3. Objectivity
4. Quality
Which Principle of the AICPA Code of Professional Conduct is: A member
should be free from conflicts of interest and be objective. A member should
be free of bias and provide auditing and attestation services in an
independent manner?

1. Objectivity and Independence
2. Integrity
3. Responsibilities
4. Due Care
Which Principle of the AICPA Code of Professional Conduct is: Members should
perform all of their professional responsibilities with the highest sense of
integrity possible. This ensures trust and public confidence in the
profession?

1. Scope and Nature of Services
2. Due Care
3. Integrity
4. Objectivity and Independence