ACCT 301 EXAM I QUESTIONS WITH VERIFIED
ANSWERS
The objective of financial statements emphasizes a stewardship approach for reporting
financial information. - Answers - False; financial statements are used to provide useful
information for equity invests, lenders, and other creditors. However, management can
use statements to help them with the entity's stewardship responsibilities.
The purpose of the objective of financial reporting is to prepare a balance sheet, an
income statement, a statement of cash flows, and a statement of owners' or
stockholders' equity. - Answers - False; the purpose of financial reporting is to provide
financial information on the entity that is useful to equity investors, lenders, and other
creditors. Preparing financial statements are used to satisfy this purpose.
Because they are generally shorter, FASB interpretations are subject to less due
process, compared to FASB standards. - Answers - False; FASB interpretations and
standards are subject to the same due process
The objective of financial reporting uses an entity rather than a proprietary approach in
determining what information to report. - Answers - True
Identify the objective of financial reporting. - Answers - The objective of financial
reporting is to provide pertinent financial information on the business entity that is useful
to equity investors, lenders, and other creditors, so they can use this information to
make decisions.
Describe the level of sophistication expected of the users of financial information by the
objective of financial reporting. - Answers - Users are expected to be reasonably
knowledgeable in business and financial accounting, so general-purpose financial
statements are prepared in a way that assumes this.
Identify the two committees of the AICPA that established accounting principles prior to
the establishment of the FASB. - Answers - The Committee on Accounting Procedure
(CAP) and Accounting Principles Board (APB) were established prior to FASB.
Speculate as to why these two organizations failed. - Answers - CAP used a problem-
by-problem based approach to handle accounting issues, but failed to provide a set of
standardized accounting principles that was much needed. APB was established to
provide such standards, but was not productive enough. In addition, the APB was not
responsive enough to accounting abuses and often ran into opposition from different
entities.
ANSWERS
The objective of financial statements emphasizes a stewardship approach for reporting
financial information. - Answers - False; financial statements are used to provide useful
information for equity invests, lenders, and other creditors. However, management can
use statements to help them with the entity's stewardship responsibilities.
The purpose of the objective of financial reporting is to prepare a balance sheet, an
income statement, a statement of cash flows, and a statement of owners' or
stockholders' equity. - Answers - False; the purpose of financial reporting is to provide
financial information on the entity that is useful to equity investors, lenders, and other
creditors. Preparing financial statements are used to satisfy this purpose.
Because they are generally shorter, FASB interpretations are subject to less due
process, compared to FASB standards. - Answers - False; FASB interpretations and
standards are subject to the same due process
The objective of financial reporting uses an entity rather than a proprietary approach in
determining what information to report. - Answers - True
Identify the objective of financial reporting. - Answers - The objective of financial
reporting is to provide pertinent financial information on the business entity that is useful
to equity investors, lenders, and other creditors, so they can use this information to
make decisions.
Describe the level of sophistication expected of the users of financial information by the
objective of financial reporting. - Answers - Users are expected to be reasonably
knowledgeable in business and financial accounting, so general-purpose financial
statements are prepared in a way that assumes this.
Identify the two committees of the AICPA that established accounting principles prior to
the establishment of the FASB. - Answers - The Committee on Accounting Procedure
(CAP) and Accounting Principles Board (APB) were established prior to FASB.
Speculate as to why these two organizations failed. - Answers - CAP used a problem-
by-problem based approach to handle accounting issues, but failed to provide a set of
standardized accounting principles that was much needed. APB was established to
provide such standards, but was not productive enough. In addition, the APB was not
responsive enough to accounting abuses and often ran into opposition from different
entities.
