Accounting: What the Numbers Mean, 13th Edition Test Bank by Marshall, 9781264126743

1

,Chapter nn1
Introduction nnto nnFinancial nnReporting



QUESTIONS


1- nn1. a. The nnAICPA nnis nnan nnorganization nnof nnCPAs nnthat nnprior nnto nn1973
nnaccepted nnthe nnprimary nnresponsibility nnfor nnthe nndevelopment nnof


nngenerally nnaccepted nnaccounting nnprinciples. nnTheir nnrole nnwas


nnsubstantially nnreduced nnin nn1973 nnwhen nnthe nnFinancial nnAccounting


nnStandards nnBoard nnwas nnestablished. n n Their nnrole nnwas nnfurther


nnreduced nnwith nnthe nnestablishment nnof nnthe nnPublic nnCompany


nnAccounting nnOversight nnBoard nnwas nnestablished nnin nn2002.




b. The nnFinancial nnAccounting nnStandards nnBoard nnreplaced nnthe nnAccounting
nnPrinciples nnBoard nnas nnthe nnprimary nnrule-making nnbody nnfor


nnaccounting nnstandards. nnIt nnis nnan nnindependent nnorganization nnand


nnincludes nnmembers nnother nnthan nnpublic nnaccountants.




c. The nnSEC nnhas nnthe nnauthority nnto nndetermine nngenerally nnaccepted
nnaccounting nnprinciples nnand nnto nnregulate nnthe nnaccounting


nnprofession. nnThe nnSEC nnhas nnelected nnto nnleave nnmuch nnof nnthe


nndetermination nnof nngenerally nnaccepted nnaccounting nnprinciples nnto


nnthe nnprivate nnsector. n n The nnFinancial nnAccounting nnStandards


nnBoard nnhas nnplayed nnthe nnmajor nnrole nnin nnestablishing nnaccounting


nnstandards nnsince nn1973. n n Regulation nnof nnthe nnaccounting


nnprofession nnwas nnsubstantially nnturned nnover nnto nnthe nnPublic


nnCompany nnAccounting nnOversight nnBoard nnin nn2002.




1- nn 2. n n n n Consistency nnis nn obtained nn through nnthe nn application of
nn nn the
1

,nnsame nnaccounting nnprinciple nnfrom nnperiod nnto nnperiod. nn A nnchange nnin
nnprinciple nnrequires nnstatement nndisclosure.




1

, 1- nn3. The nnconcept nnof nnhistorical nncost nndetermines nnthe nnbalance nnsheet nnvaluation
nnof nnland. nnThe nnrealization nnconcept nnrequires nnthat nna nntransaction nnneeds nnto


nnoccur nnfor nnthe nnprofit nnto nnbe nnrecognized.




1- nn4. a. n n Entity e. n n Historical nncost



b. Realization f. n n Historical nncost



c. Materiality g. n n Disclosure



d. Conservatism



1- nn5. Entity nnconcept



1- nn6. n n Generally nnaccepted nnaccounting nnprinciples nndo nnnot nnapply nnwhen nna nnfirm
nndoes nnnot nnappear nnto nnbe nna nngoing nnconcern. n n If nnthe nndecision nnis nnmade


nnthat nnthis nnis nnnot nna nngoing nnconcern, nnthen nnthe nnuse nnof nnGAAP nnwould


nnnot nnbe nnappropriate.




1- nn7. With nnthe nntime nnperiod nnassumption, nninaccuracies nnof nnaccounting nnfor nnthe
nnentity, nnshort nnof nnits nncomplete nnlife nnspan, nnare nnaccepted. nnThe nnassumption


nnis nnmade nnthat nnthe nnentity nncan nnbe nnaccounted nnfor nnreasonably nnaccurately


nnfor nna nnparticular nnperiod nnof nntime. n n In nnother nnwords, nnthe nndecision nnis


nnmade nnto nnaccept nnsome nninaccuracy nnbecause nnof nnincomplete nninformation


nnabout nnthe nnfuture nnin nnexchange nnfor nnmore nntimely nnreporting. n n The


nnstatements nnare nnconsidered nnto nnbe nnmeaningful nnbecause nnmaterial


nninaccuracies nnare nnnot nnacceptable.




1- 8. nn nn It nnis nntrue nnthat nnthe nnonly nnaccurate nnway nnto nnaccount nnfor nnthe nnsuccess
nnor nnfailure nnof nnan nnentity nnis nnto nnaccumulate nnall nntransactions nnfrom nnthe


nnopening nnof nnbusiness nnuntil nnthe nnbusiness nneventually nnliquidates. n n But nnit


nnis nnnot nnnecessary nnthat nnthe nnstatements nnbe nncompletely nnaccurate nnin


2