Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
TRUE/FALSE
1. Financial accounting refers to accounting information that is used by management for decision-
making purposes.
ANSWER: F
2. Accounting theory includes the basic rules, definitions, and principles that underlie the drafting of
accounting standards and how they are derived.
ANSWER: T
M
3. Accounting theory includes conceptual frameworks, accounting legislation, valuation models,
and hypotheses and theories.
ANSWER: T
E
4. Hypotheses and theories are based on an informal method of investigation.
ANSWER: F
D
5. Replacement cost as a measure of asset value is generally more reliable than historical cost.
G
ANSWER: F
6. Accounting theory is developed and refined by the process of accounting research.
E
ANSWER: T
7. Indirect measures are usually preferable to direct measures because they are less costly to obtain.
E
ANSWER: F
8. Assessment measures are concerned with particular attributes of objects and are always direct
K
measurements.
ANSWER: F
9. When a direct assessment measure is used, there is always only one correct measure.
ANSWER: F
10. The simplest type of measuring system is the nominal scale.
ANSWER: T
11. A chart of accounts is an example of an ordinal classification.
ANSWER: F
Accounting Theory: 9th edition Page 1 of 11
,Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
12. Numerals assigned in ordinal rankings indicate an order of preference where the degree of
preference among ranks is the same.
ANSWER: F
13. In a ratio scale, the zero point implies “nothingness,” or the absence of the quality being
measured.
ANSWER: T
14. Using ratio scale, measurement is possible in accounting.
M
ANSWER: T
15. Objectivity may be defined as the degree of consensus among measurers.
E
ANSWER: T
16. Assessment measures are not concerned with particular attributes of objects.
ANSWER: F
D
17. Prediction measures are concerned with factors that may be indicative of future conditions.
G
ANSWER: T
18. Timeliness and cost are pertinent to assessment measures but are not pertinent to prediction
E
measures.
ANSWER: F
E
19. All accounting measurements are of either the assessment or the prediction variety.
ANSWER: T
K
20. The need for information on a timely basis may conflict with cost constraints in some situations.
ANSWER: T
21. The terms calculation and measurement both refer to the valuation of a real phenomena or
attribute.
ANSWER: F
22. Calculations attempt to simulate or come as close as possible to the measurement of real
phenomena or attributes.
ANSWER: F
Accounting Theory: 9th edition Page 2 of 11
,Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
23. FIFO and LIFO measures of cost of goods sold and inventories are examples of calculations
rather than measurements.
ANSWER: T
24. There are often trade-offs between objectivity and the usefulness of numbers generated by the
measurement process.
ANSWER: T
25. Measurement is an integral part of accounting theory.
M
ANSWER: T
26. Throughout the financial history of the United States, current value has been the accepted
valuation system for published financial statements.
E
ANSWER: F
27. The discounted cash flow approach can be used to determine an objective measurement for most
assets and liabilities.
ANSWER: F
D
G
28. A general price-level adjustment refers to the purchasing power of the monetary unitary unit
relative to all goods and services in the economy.
E
ANSWER: T
29. Both exit value and replacement cost are valuation systems that fall into the current value
category.
E
ANSWER: T
K
30. The principal argument used to justify the replacement cost system over exit values is that if the
great majority of the firm’s assets were not already owned, it would be economically justifiable
to acquire them.
ANSWER: T
MULTIPLE CHOICE
1. Which of the following methods of valuing an asset is based on the amount that a firm could
acquire by selling the asset?
a. Replacement cost
b. Entry value
c. Exit value
d. Both a and b
ANSWER: C
Accounting Theory: 9th edition Page 3 of 11
, Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
2. Which of the following methods of valuing an asset is based on the amount that would be paid
for it in markets where the asset would ordinarily be acquired?
a. Replacement cost
b. Entry value
c. Exit value
d. Both a and b
ANSWER: D
3. Which of the following would be considered a political factor relative to the financial accounting
policy function?
a. Auditors
b. Inflation
M
c. Taxes
d. Price changes
ANSWER: A
E
4. Which of the following groups carry out most accounting research?
a. Public accounting firms
b. Private industry
c. Accounting professors
d. Chartered Financial Analysts D
G
ANSWER: C
5. If a number assigned to an object is an actual measurement of a property of the object, it is
referred to as a(n):
E
a. direct measurement.
b. biased measurement.
c. indirect measurement.
d. prediction measurement.
E
ANSWER: A
K
6. Which of the following factors is not listed in your text as affecting a direct assessment measure?
a. The measurer
b. The attribute being measured
c. Instruments available for the measuring task
d. The individual who will use the measure
ANSWER: D
7. The simplest type of measuring system is the:
a. interval scale.
b. ratio scale.
c. nominal scale.
d. ordinal scale.
ANSWER: C
Accounting Theory: 9th edition Page 4 of 11
TRUE/FALSE
1. Financial accounting refers to accounting information that is used by management for decision-
making purposes.
ANSWER: F
2. Accounting theory includes the basic rules, definitions, and principles that underlie the drafting of
accounting standards and how they are derived.
ANSWER: T
M
3. Accounting theory includes conceptual frameworks, accounting legislation, valuation models,
and hypotheses and theories.
ANSWER: T
E
4. Hypotheses and theories are based on an informal method of investigation.
ANSWER: F
D
5. Replacement cost as a measure of asset value is generally more reliable than historical cost.
G
ANSWER: F
6. Accounting theory is developed and refined by the process of accounting research.
E
ANSWER: T
7. Indirect measures are usually preferable to direct measures because they are less costly to obtain.
E
ANSWER: F
8. Assessment measures are concerned with particular attributes of objects and are always direct
K
measurements.
ANSWER: F
9. When a direct assessment measure is used, there is always only one correct measure.
ANSWER: F
10. The simplest type of measuring system is the nominal scale.
ANSWER: T
11. A chart of accounts is an example of an ordinal classification.
ANSWER: F
Accounting Theory: 9th edition Page 1 of 11
,Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
12. Numerals assigned in ordinal rankings indicate an order of preference where the degree of
preference among ranks is the same.
ANSWER: F
13. In a ratio scale, the zero point implies “nothingness,” or the absence of the quality being
measured.
ANSWER: T
14. Using ratio scale, measurement is possible in accounting.
M
ANSWER: T
15. Objectivity may be defined as the degree of consensus among measurers.
E
ANSWER: T
16. Assessment measures are not concerned with particular attributes of objects.
ANSWER: F
D
17. Prediction measures are concerned with factors that may be indicative of future conditions.
G
ANSWER: T
18. Timeliness and cost are pertinent to assessment measures but are not pertinent to prediction
E
measures.
ANSWER: F
E
19. All accounting measurements are of either the assessment or the prediction variety.
ANSWER: T
K
20. The need for information on a timely basis may conflict with cost constraints in some situations.
ANSWER: T
21. The terms calculation and measurement both refer to the valuation of a real phenomena or
attribute.
ANSWER: F
22. Calculations attempt to simulate or come as close as possible to the measurement of real
phenomena or attributes.
ANSWER: F
Accounting Theory: 9th edition Page 2 of 11
,Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
23. FIFO and LIFO measures of cost of goods sold and inventories are examples of calculations
rather than measurements.
ANSWER: T
24. There are often trade-offs between objectivity and the usefulness of numbers generated by the
measurement process.
ANSWER: T
25. Measurement is an integral part of accounting theory.
M
ANSWER: T
26. Throughout the financial history of the United States, current value has been the accepted
valuation system for published financial statements.
E
ANSWER: F
27. The discounted cash flow approach can be used to determine an objective measurement for most
assets and liabilities.
ANSWER: F
D
G
28. A general price-level adjustment refers to the purchasing power of the monetary unitary unit
relative to all goods and services in the economy.
E
ANSWER: T
29. Both exit value and replacement cost are valuation systems that fall into the current value
category.
E
ANSWER: T
K
30. The principal argument used to justify the replacement cost system over exit values is that if the
great majority of the firm’s assets were not already owned, it would be economically justifiable
to acquire them.
ANSWER: T
MULTIPLE CHOICE
1. Which of the following methods of valuing an asset is based on the amount that a firm could
acquire by selling the asset?
a. Replacement cost
b. Entry value
c. Exit value
d. Both a and b
ANSWER: C
Accounting Theory: 9th edition Page 3 of 11
, Chapter 1—AN INTRODUCTION TO ACCOUNTING THEORY
2. Which of the following methods of valuing an asset is based on the amount that would be paid
for it in markets where the asset would ordinarily be acquired?
a. Replacement cost
b. Entry value
c. Exit value
d. Both a and b
ANSWER: D
3. Which of the following would be considered a political factor relative to the financial accounting
policy function?
a. Auditors
b. Inflation
M
c. Taxes
d. Price changes
ANSWER: A
E
4. Which of the following groups carry out most accounting research?
a. Public accounting firms
b. Private industry
c. Accounting professors
d. Chartered Financial Analysts D
G
ANSWER: C
5. If a number assigned to an object is an actual measurement of a property of the object, it is
referred to as a(n):
E
a. direct measurement.
b. biased measurement.
c. indirect measurement.
d. prediction measurement.
E
ANSWER: A
K
6. Which of the following factors is not listed in your text as affecting a direct assessment measure?
a. The measurer
b. The attribute being measured
c. Instruments available for the measuring task
d. The individual who will use the measure
ANSWER: D
7. The simplest type of measuring system is the:
a. interval scale.
b. ratio scale.
c. nominal scale.
d. ordinal scale.
ANSWER: C
Accounting Theory: 9th edition Page 4 of 11
