,Intermediate Accounting, 10e (Spiceland)
Chapter 1 Environment and Theoretical Structure of Financial Accounting
1) The primary function of financial accounting is to provide relevant financial information to
parties external to business enterprises.
Answer: TRUE
Difficulty: 1 Easy
Topic: Environment of financial accounting and reporting
Learning Objective: 01-01 Describe the function and primary focus of financial accounting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
2) Accrual accounting attempts to measure revenues and expenses that occurred during
accounting periods so they equal net operating cash flow.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cash versus accrual accounting
Learning Objective: 01-02 Explain the difference between cash and accrual accounting.
Blooms: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
3) The FASB is currently the public-sector organization responsible for setting accounting
standards in the United States.
Answer: FALSE
Difficulty: 1 Easy
Topic: Development of accounting and reporting standards
Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of
accounting standards, including convergence between U.S. and international standards.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
4) The FASB's due process invites various interested parties to indicate their opinions about
whether financial accounting standards should be changed.
Answer: TRUE
Difficulty: 1 Easy
Topic: GAAP―Standard-setting process
Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
5) Accounting for stock-based compensation is an area in which the FASB has received little
political interference.
Answer: FALSE
Difficulty: 1 Easy
1
Copyright ©2021 McGraw-Hill
,Topic: GAAP―Standard-setting process
Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
6) The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity
responsible for setting standards for auditing public companies in the United States.
Answer: TRUE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
7) A rules-based approach to standard-setting stresses professional judgment as opposed to
following a list of rules.
Answer: FALSE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
8) Under federal securities laws, the SEC has the authority to set accounting standards in the
United States.
Answer: TRUE
Difficulty: 1 Easy
Topic: Development of accounting and reporting standards
Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of
accounting standards, including convergence between U.S. and international standards.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
9) The primary responsibility for properly applying GAAP when communicating with investors
and creditors through financial statements lies with a firm's auditors.
Answer: FALSE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
10) Auditors play an important role in the resource allocation process by adding credibility to
financial statements.
2
Copyright ©2021 McGraw-Hill
, Answer: TRUE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Critical thinking
11) The purpose of the conceptual framework is to provide a structure and framework for a
consistent set of GAAP.
Answer: TRUE
Difficulty: 1 Easy
Topic: Conceptual framework―Purpose
Learning Objective: 01-06 Explain the purpose of the conceptual framework.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
12) In the United States, the conceptual framework indicates GAAP when a more specific
accounting standard does not apply.
Answer: FALSE
Difficulty: 1 Easy
Topic: Conceptual framework―Purpose
Learning Objective: 01-06 Explain the purpose of the conceptual framework.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
13) Materiality can be affected by the dollar amount of an item, the nature of the item, or both.
Answer: TRUE
Difficulty: 1 Easy
Topic: Concepts―Qualitative characteristics
Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the
elements of financial statements.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
AICPA: FN Measurement
14) According to the FASB's Statements of Financial Accounting Concepts, conservatism is a
desired qualitative characteristic of accounting information.
Answer: FALSE
Difficulty: 1 Easy
Topic: Concepts―Qualitative characteristics
Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the
elements of financial statements.
Blooms: Remember
AACSB: Reflective Thinking
3
Copyright ©2021 McGraw-Hill
Chapter 1 Environment and Theoretical Structure of Financial Accounting
1) The primary function of financial accounting is to provide relevant financial information to
parties external to business enterprises.
Answer: TRUE
Difficulty: 1 Easy
Topic: Environment of financial accounting and reporting
Learning Objective: 01-01 Describe the function and primary focus of financial accounting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
2) Accrual accounting attempts to measure revenues and expenses that occurred during
accounting periods so they equal net operating cash flow.
Answer: FALSE
Difficulty: 1 Easy
Topic: Cash versus accrual accounting
Learning Objective: 01-02 Explain the difference between cash and accrual accounting.
Blooms: Understand
AACSB: Reflective Thinking
AICPA: FN Measurement
3) The FASB is currently the public-sector organization responsible for setting accounting
standards in the United States.
Answer: FALSE
Difficulty: 1 Easy
Topic: Development of accounting and reporting standards
Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of
accounting standards, including convergence between U.S. and international standards.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
4) The FASB's due process invites various interested parties to indicate their opinions about
whether financial accounting standards should be changed.
Answer: TRUE
Difficulty: 1 Easy
Topic: GAAP―Standard-setting process
Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
5) Accounting for stock-based compensation is an area in which the FASB has received little
political interference.
Answer: FALSE
Difficulty: 1 Easy
1
Copyright ©2021 McGraw-Hill
,Topic: GAAP―Standard-setting process
Learning Objective: 01-04 Explain why establishing accounting standards is characterized as a political process.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
6) The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity
responsible for setting standards for auditing public companies in the United States.
Answer: TRUE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
7) A rules-based approach to standard-setting stresses professional judgment as opposed to
following a list of rules.
Answer: FALSE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
8) Under federal securities laws, the SEC has the authority to set accounting standards in the
United States.
Answer: TRUE
Difficulty: 1 Easy
Topic: Development of accounting and reporting standards
Learning Objective: 01-03 Define generally accepted accounting principles (GAAP) and discuss the historical development of
accounting standards, including convergence between U.S. and international standards.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
9) The primary responsibility for properly applying GAAP when communicating with investors
and creditors through financial statements lies with a firm's auditors.
Answer: FALSE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
10) Auditors play an important role in the resource allocation process by adding credibility to
financial statements.
2
Copyright ©2021 McGraw-Hill
, Answer: TRUE
Difficulty: 1 Easy
Topic: Encouraging high-quality financial reporting
Learning Objective: 01-05 Explain factors that encourage high-quality financial reporting.
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Critical thinking
11) The purpose of the conceptual framework is to provide a structure and framework for a
consistent set of GAAP.
Answer: TRUE
Difficulty: 1 Easy
Topic: Conceptual framework―Purpose
Learning Objective: 01-06 Explain the purpose of the conceptual framework.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
12) In the United States, the conceptual framework indicates GAAP when a more specific
accounting standard does not apply.
Answer: FALSE
Difficulty: 1 Easy
Topic: Conceptual framework―Purpose
Learning Objective: 01-06 Explain the purpose of the conceptual framework.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
13) Materiality can be affected by the dollar amount of an item, the nature of the item, or both.
Answer: TRUE
Difficulty: 1 Easy
Topic: Concepts―Qualitative characteristics
Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the
elements of financial statements.
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical thinking
AICPA: FN Measurement
14) According to the FASB's Statements of Financial Accounting Concepts, conservatism is a
desired qualitative characteristic of accounting information.
Answer: FALSE
Difficulty: 1 Easy
Topic: Concepts―Qualitative characteristics
Learning Objective: 01-07 Identify the objective and qualitative characteristics of financial reporting information, and the
elements of financial statements.
Blooms: Remember
AACSB: Reflective Thinking
3
Copyright ©2021 McGraw-Hill
