,Test Bank for Intermediate Accounting, 19th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Chapter 1: The Environment and Conceptual Framework of Financial Reporting
Multiple-Choice Questions (60 Questions)
1. The primary objective of financial reporting, as established by the FASB's Conceptual Framework, is to:
A) Provide information useful to present and potential equity investors, lenders, and other creditors in
making decisions about providing resources to the entity
B) Maximize the company's stock price
C) Ensure the company pays the minimum amount of taxes
D) Provide detailed internal management reports
Correct Answer: A
Rationale: The objective of financial reporting is to provide financial information about the reporting
entity that is useful to existing and potential investors, lenders, and other creditors in making decisions
about providing resources to the entity.
2. Users of financial reports of a company use the information provided by these reports to make: A)
Capital allocation decisions
B) Product design decisions
C) Employee hiring decisions
D) Marketing campaign decisions
Correct Answer: A
Rationale: Capital allocation involves determining how to distribute financial resources among
competing investments. Investors and creditors rely on financial reporting to make informed decisions
about where to allocate their capital.
3. Which accounting standard-setting body has the statutory authority to establish accounting standards
for publicly traded companies in the United States? A) International Accounting Standards Board (IASB)
B) Financial Accounting Standards Board (FASB)
C) Securities and Exchange Commission (SEC)
D) American Institute of Certified Public Accountants (AICPA)
Correct Answer: C
Rationale: The SEC has the statutory authority to establish accounting standards for publicly traded
companies. The SEC relies on the FASB to develop those standards, but the SEC retains final authority.
4. According to the FASB's Conceptual Framework, which qualitative characteristics make financial
information useful for decision-making?
A) Relevance and Faithful Representation
B) Profitability and Liquidity
C) Conservatism and Materiality
D) Timeliness and Verifiability
Correct Answer: A
,Rationale: The two fundamental qualitative characteristics are relevance and faithful representation.
Relevance includes predictive value, confirmatory value, and materiality. Faithful representation
includes completeness, neutrality, and freedom from error.
5. The FASB has issued how many Statements of Financial Accounting Concepts (SFAC) since 1978?
A) None
B) Four
C) Eight
D) Twelve
Correct Answer: C
Rationale: The FASB has issued eight Statements of Financial Accounting Concepts (SFAC) since 1978.
These statements set forth fundamental objectives and concepts used in developing accounting
standards.
6. The passage of a new FASB Accounting Standards Update requires the support of how many of the
seven board members?
A) Five
B) Four (simple majority)
C) Six
D) All seven
Correct Answer: B
Rationale: An Accounting Standards Update requires the support of a simple majority (four of seven) of
FASB members for passage, not five votes.
7. The FASB's Codification creates a new set of GAAP.
A) True
B) False
Correct Answer: B
Rationale: The FASB Accounting Standards Codification reorganizes existing GAAP into a single source of
authoritative literature; it does not create new GAAP.
8. What is the primary purpose of the Conceptual Framework?
A) Provide a detailed set of rules for every accounting transaction
B) Guide the FASB in developing accounting standards and help users understand financial information
C) Replace all existing GAAP standards
D) Provide tax calculation guidelines
Correct Answer: B
Rationale: The Conceptual Framework guides the FASB in setting standards and helps users interpret
financial information. It is not a set of detailed rules nor a replacement for GAAP.
9. Which of the following best describes the "due process" followed by the FASB in setting accounting
standards?
A) Issuing standards without public input to ensure speed
B) Following a process that includes public exposure, hearings, and comment periods
C) Relying solely on academic research
D) Adopting IFRS without modification
, Correct Answer: B
Rationale: The FASB follows extensive due process, including issuing exposure drafts, holding public
hearings, and allowing comment periods to gather input from stakeholders.
10. An effective process of capital allocation provides:
A) An inefficient market for buying and selling securities
B) An efficient market for buying and selling securities and obtaining and granting credit
C) Higher tax rates for companies
D) Reduced financial reporting requirements
Correct Answer: B
Rationale: When capital is allocated efficiently, markets function properly, allowing investors to buy and
sell securities with confidence and enabling companies to obtain necessary credit at fair rates.
11. Investors are interested in financial reporting because:
A) It provides information that is useful for making decisions
B) It guarantees a return on investment
C) It eliminates investment risk
D) It predicts future stock prices with certainty
Correct Answer: A
Rationale: The primary objective of financial reporting is to provide information that is useful to
investors, creditors, and other users in making rational investment, credit, and similar decisions.
12. Statements of Financial Accounting Concepts set forth:
A) Detailed rules for specific transactions
B) Fundamental objectives and concepts used by the FASB in developing standards of financial
accounting and reporting
C) Tax regulations for corporations
D) Audit procedures for public companies
Correct Answer: B
Rationale: The Statements of Financial Accounting Concepts (SFAC) form the conceptual framework of
accounting, guiding the FASB in establishing consistent and useful accounting standards.
13. The objective of financial reporting serves as the foundation of the Conceptual Framework. A)
True
B) False
Correct Answer: A
Rationale: The objective of financial reporting (providing useful information to investors and creditors) is
the starting point and foundation upon which the entire conceptual framework is built.
14. Users of financial statements are assumed to:
A) Need no knowledge of business and financial accounting matters
B) Have a reasonable knowledge of business and economic activities
C) Be professional accountants only
D) Be government regulators only
Correct Answer: B
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Chapter 1: The Environment and Conceptual Framework of Financial Reporting
Multiple-Choice Questions (60 Questions)
1. The primary objective of financial reporting, as established by the FASB's Conceptual Framework, is to:
A) Provide information useful to present and potential equity investors, lenders, and other creditors in
making decisions about providing resources to the entity
B) Maximize the company's stock price
C) Ensure the company pays the minimum amount of taxes
D) Provide detailed internal management reports
Correct Answer: A
Rationale: The objective of financial reporting is to provide financial information about the reporting
entity that is useful to existing and potential investors, lenders, and other creditors in making decisions
about providing resources to the entity.
2. Users of financial reports of a company use the information provided by these reports to make: A)
Capital allocation decisions
B) Product design decisions
C) Employee hiring decisions
D) Marketing campaign decisions
Correct Answer: A
Rationale: Capital allocation involves determining how to distribute financial resources among
competing investments. Investors and creditors rely on financial reporting to make informed decisions
about where to allocate their capital.
3. Which accounting standard-setting body has the statutory authority to establish accounting standards
for publicly traded companies in the United States? A) International Accounting Standards Board (IASB)
B) Financial Accounting Standards Board (FASB)
C) Securities and Exchange Commission (SEC)
D) American Institute of Certified Public Accountants (AICPA)
Correct Answer: C
Rationale: The SEC has the statutory authority to establish accounting standards for publicly traded
companies. The SEC relies on the FASB to develop those standards, but the SEC retains final authority.
4. According to the FASB's Conceptual Framework, which qualitative characteristics make financial
information useful for decision-making?
A) Relevance and Faithful Representation
B) Profitability and Liquidity
C) Conservatism and Materiality
D) Timeliness and Verifiability
Correct Answer: A
,Rationale: The two fundamental qualitative characteristics are relevance and faithful representation.
Relevance includes predictive value, confirmatory value, and materiality. Faithful representation
includes completeness, neutrality, and freedom from error.
5. The FASB has issued how many Statements of Financial Accounting Concepts (SFAC) since 1978?
A) None
B) Four
C) Eight
D) Twelve
Correct Answer: C
Rationale: The FASB has issued eight Statements of Financial Accounting Concepts (SFAC) since 1978.
These statements set forth fundamental objectives and concepts used in developing accounting
standards.
6. The passage of a new FASB Accounting Standards Update requires the support of how many of the
seven board members?
A) Five
B) Four (simple majority)
C) Six
D) All seven
Correct Answer: B
Rationale: An Accounting Standards Update requires the support of a simple majority (four of seven) of
FASB members for passage, not five votes.
7. The FASB's Codification creates a new set of GAAP.
A) True
B) False
Correct Answer: B
Rationale: The FASB Accounting Standards Codification reorganizes existing GAAP into a single source of
authoritative literature; it does not create new GAAP.
8. What is the primary purpose of the Conceptual Framework?
A) Provide a detailed set of rules for every accounting transaction
B) Guide the FASB in developing accounting standards and help users understand financial information
C) Replace all existing GAAP standards
D) Provide tax calculation guidelines
Correct Answer: B
Rationale: The Conceptual Framework guides the FASB in setting standards and helps users interpret
financial information. It is not a set of detailed rules nor a replacement for GAAP.
9. Which of the following best describes the "due process" followed by the FASB in setting accounting
standards?
A) Issuing standards without public input to ensure speed
B) Following a process that includes public exposure, hearings, and comment periods
C) Relying solely on academic research
D) Adopting IFRS without modification
, Correct Answer: B
Rationale: The FASB follows extensive due process, including issuing exposure drafts, holding public
hearings, and allowing comment periods to gather input from stakeholders.
10. An effective process of capital allocation provides:
A) An inefficient market for buying and selling securities
B) An efficient market for buying and selling securities and obtaining and granting credit
C) Higher tax rates for companies
D) Reduced financial reporting requirements
Correct Answer: B
Rationale: When capital is allocated efficiently, markets function properly, allowing investors to buy and
sell securities with confidence and enabling companies to obtain necessary credit at fair rates.
11. Investors are interested in financial reporting because:
A) It provides information that is useful for making decisions
B) It guarantees a return on investment
C) It eliminates investment risk
D) It predicts future stock prices with certainty
Correct Answer: A
Rationale: The primary objective of financial reporting is to provide information that is useful to
investors, creditors, and other users in making rational investment, credit, and similar decisions.
12. Statements of Financial Accounting Concepts set forth:
A) Detailed rules for specific transactions
B) Fundamental objectives and concepts used by the FASB in developing standards of financial
accounting and reporting
C) Tax regulations for corporations
D) Audit procedures for public companies
Correct Answer: B
Rationale: The Statements of Financial Accounting Concepts (SFAC) form the conceptual framework of
accounting, guiding the FASB in establishing consistent and useful accounting standards.
13. The objective of financial reporting serves as the foundation of the Conceptual Framework. A)
True
B) False
Correct Answer: A
Rationale: The objective of financial reporting (providing useful information to investors and creditors) is
the starting point and foundation upon which the entire conceptual framework is built.
14. Users of financial statements are assumed to:
A) Need no knowledge of business and financial accounting matters
B) Have a reasonable knowledge of business and economic activities
C) Be professional accountants only
D) Be government regulators only
Correct Answer: B
