1-2 Test Bank for Intermediate Accounting, Thirteenth Edition
CHAPTER 1 d. Notes to financial statements.
P
27. The process of identifying, measuring, analyzing, and communicating financial information
FINANCIAL ACCOUNTING AND needed by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting.
ACCOUNTING STANDARDS b. managerial accounting.
c. tax accounting.
IFRS questions are available at the end of this chapter. d. auditing.
MULTIPLE CHOICE—Conceptual 28. How does accounting help the capital allocation process attract investment capital?
a. Provides timely, relevant information.
21. General-purpose financial statements are the product of b. Encourages innovation.
a. financial accounting. c. Promotes productivity.
b. managerial accounting. d. a and b above.
c. both financial and managerial accounting.
d. neither financial nor managerial accounting. 29. Whether a business is successful and thrives is determined by
a. markets.
22. Users of financial reports include all of the following except b. free enterprise.
a. creditors. c. competition.
b. government agencies. d. all of these.
c. unions.
d. All of these are users. 30. An effective capital allocation process
a. promotes productivity.
23. The financial statements most frequently provided include all of the following except the b. encourages innovation.
a. balance sheet. c. provides an efficient market for buying and selling securities.
b. income statement. d. all of these.
c. statement of cash flows.
d. statement of retained earnings. 31. Financial statements in the early 2000s provide information related to
a. nonfinancial measurements.
24. The information provided by financial reporting pertains to b. forward-looking data.
a. individual business enterprises, rather than to industries or an economy as a whole or c. hard assets (inventory and plant assets).
to members of society as consumers. d. none of these.
b. business industries, rather than to individual enterprises or an economy as a whole or
to members of society as consumers. 32. Which of the following is not a major challenge facing the accounting profession?
c. individual business enterprises, industries, and an economy as a whole, rather than to a. Nonfinancial measurements.
members of society as consumers. b. Timeliness.
d. an economy as a whole and to members of society as consumers, rather than to c. Accounting for hard assets.
individual enterprises or industries. d. Forward-looking information.
25. All the following are differences between financial and managerial accounting in how 33. What is a major objective of financial reporting?
accounting information is used except to a. Provide information that is useful to management in making decisions.
a. plan and control company's operations. b. Provide information that clearly portray nonfinancial transactions.
b. decide whether to invest in the company. c. Provide information that is useful to assess the amounts, timing, and uncertainty of
c. evaluate borrowing capacity to determine the extent of a loan to grant. perspective cash receipts.
d. All the above. d. Provide information that excludes claims to the resources.
26. Which of the following represents a form of communication through financial reporting but 34. What is a major objective of financial reporting?
not through financial statements? a. Provide information that is useful to the Internal Revenue Service in determining the
a. Balance sheet. amount of federal income taxes payable.
b. President's letter. b. Provide information that is useful in assessing the amounts and timing of revenue.
c. Income statement. c. Provide information that is comprehensible only by sophisticated investors.
d. Provide information that clearly portrays the economic resources of an enterprise.
, Financial Accounting and Accounting Standards 1-3 1-4 Test Bank for Intermediate Accounting, Thirteenth Edition
40. Which of the following is a general limitation of "general purpose financial statements"?
35. Which of the following statements is not an objective of financial reporting? a. General purpose financial statements may not be the most informative for a specific
a. Provide information that is useful in investment and credit decisions. enterprise.
b. Provide information about enterprise resources, claims to those resources, and changes b. General purpose financial statements are comparable.
to them. c. General purpose financial statements are assumed to present fairly the company's
c. Provide information on the liquidation value of an enterprise. financial operations.
d. Provide information that is useful in assessing cash flow prospects. d. None of the above.
36. Accrual accounting is used because 41. What is the relationship between the Securities and Exchange Commission and accounting
a. cash flows are considered less important. standard setting in the United States?
b. it provides a better indication of ability to generate cash flows than the cash basis. a. The SEC requires all companies listed on an exchange to submit their financial
c. it recognizes revenues when cash is received and expenses when cash is paid. statements to the SEC.
d. none of the above. b. The SEC coordinates with the AICPA in establishing accounting standards.
c. The SEC has a mandate to establish accounting standards for enterprises under its
37. One objective of financial reporting is to provide jurisdiction.
a. information about the investors in the business entity. d. The SEC reviews financial statements for compliance.
b. information about the liquidation values of the resources held by the enterprise.
c. information that is useful in assessing cash flow prospects. 42. What is due process in the context of standard setting at the FASB?
d. information that will attract new investors. a. FASB operates in full view of the public.
b. Public hearings are held on proposed accounting standards.
38. Accounting principles are "generally accepted" only when c. Interested parties can make their views known.
a. an authoritative accounting rule-making body has established it in an official pro- d. All of the above.
nouncement.
b. it has been accepted as appropriate because of its universal application. 43. Which of the following organizations has been responsible for setting U.S. accounting
c. both a and b. standards?
d. neither a nor b. a. Accounting Principles Board.
b. Committee on Accounting Procedure.
39. A common set of accounting standards and procedures are called c. Financial Accounting Standards Board.
a. financial accounting standards. d. All of the above.
b. generally accepted accounting principles.
c. objectives of financial reporting. 44. Why did the AICPA create the Accounting Principles Board?
d. statements of financial accounting concepts. a. The SEC disbanded the previous standard setting organization.
b. The previous standard setting organization did not provide a structured set of
accounting principles.
c. No such organization existed in the past.
d. None of the above.
45. Which organization was responsible for issuing Accounting Research Bulletins?
a. Accounting Principles Board.
b. Committee on Accounting Procedure.
c. The SEC.
d. AICPA.
46. A characteristic of generally accepted accounting principles include the following
a. common set of standards and principles.
b. standards and principles are based federal statutes.
c. acceptance requires an affirmative vote of Certified Public Accountants.
d. practices that become accepted for at least a year by all industry members.
, Financial Accounting and Accounting Standards 1-5 1-6 Test Bank for Intermediate Accounting, Thirteenth Edition
47. Characteristics of generally accepted accounting principles include all of the following 54. Companies that are listed on a stock exchange are required to submit their financial
except statements to the
a. authoritative accounting the rule-making body established a principle of reporting. a. AICPA.
b. standards are considered useful by the profession. b. APB
c. each principle is approved by the SEC. c. FASB.
d. practice has become universally accepted over time. d. SEC.
48. Why was it believed that accounting standards that were issued by the Financial Accounting 55. The Financial Accounting Standards Board (FASB) was proposed by the
Standards Board would carry more weight? a. American Institute of Certified Public Accountants.
a. Smaller membership. b. Accounting Principles Board.
b. FASB board members are well-paid. c. Study Group on the Objectives of Financial Statements.
c. FASB board members must be CPAs. d. Special Study Group on establishment of Accounting Principles (Wheat Committee).
d. Due process.
56. The Financial Accounting Standards Board
49. The passage of a new FASB Standards Statement requires the support of a. has issued a series of pronouncements entitled Statements on Auditing Standards.
a. all Board members. b. was the forerunner of the current Accounting Principles Board.
b. three Board members. c. is the arm of the Securities and Exchange Commission responsible for setting financial
c. four Board members. accounting standards.
d. five Board members. d. is appointed by the Financial Accounting Foundation.
50. What is the purpose of Emerging Issues Task Force? 57. The Financial Accounting Foundation
a. Provide interpretation of existing standards. a. oversees the operations of the FASB.
b. Provide a consensus on how to account for new and unusual financial transactions. b. oversees the operations of the AICPA.
c. Provide interpretive guidance. c. provides information to interested parties on financial reporting issues.
d. Provide timely guidance on select issues. d. works with the Financial Accounting Standards Advisory Council to provide informa-tion
to interested parties on financial reporting issues.
51. Which organization is responsible for issuing Emerging Issues Task Force Statements?
a. FASB 58. The major distinction between the Financial Accounting Standards Board (FASB) and its
b. CAP predecessor, the Accounting Principles Board (APB), is
c. APB a. the FASB issues exposure drafts of proposed standards.
d. SEC b. all members of the FASB are fully remunerated, serve full time, and are independent of
any companies or institutions.
52. The role of the Securities and Exchange Commission in the formulation of accounting c. all members of the FASB possess extensive experience in financial reporting.
principles can be best described as d. a majority of the members of the FASB are CPAs drawn from public practice.
a. consistently primary.
b. consistently secondary. 59. The Financial Accounting Standards Board employs a "due process" system which
c. sometimes primary and sometimes secondary. a. is an efficient system for collecting dues from members.
d. non-existent. b. enables interested parties to express their views on issues under consideration.
c. identifies the accounting issues that are the most important.
53. The body that has the power to prescribe the accounting practices and standards to be d. requires that all accountants must receive a copy of financial standards.
employed by companies that fall under its jurisdiction is the
a. FASB. 60. Which of the following is not a publication of the FASB?
b. AICPA. a. Statements of Financial Accounting Concepts
c. SEC. b. Accounting Research Bulletins
d. APB. c. Interpretations
d. Technical Bulletins
, Financial Accounting and Accounting Standards 1-7 1-8 Test Bank for Intermediate Accounting, Thirteenth Edition
P
61. FASB Technical Bulletins 68. Members of the Financial Accounting Standards Board are
a. are similar to FASB Interpretations in that they establish enforceable standards under a. employed by the American Institute of Certified Public Accountants (AICPA).
the AICPA's Code of Professional Ethics. b. part-time employees.
b. are issued monthly by the FASB to deal with current topics. c. required to hold a CPA certificate.
c. are not expected to have a significant impact on financial reporting in general and d. independent of any other organization.
provide guidance when it does not conflict with any broad fundamental accounting
P
principle. 69. The following published documents are part of the "due process" system used by the FASB
d. were recently discontinued by the FASB because they dealt with specialized topics in the evolution of a typical FASB Statement of Financial Accounting Standards:
having little impact on financial reporting in general.
1. Exposure Draft
2. Statement of Financial Accounting Standards
62. The purpose of the Emerging Issues Task Force is to
3. Preliminary Views
a. develop a conceptual framework as a frame of reference for the solution of future
problems. The chronological order in which these items are released is as follows:
b. lobby the FASB on issues that affect a particular industry. a. 1, 2, 3.
c. do research on issues that relate to long-term accounting problems. b. 1, 3, 2.
d. issue statements which reflect a consensus on how to account for new and unusual c. 2, 3, 1.
financial transactions that need to be resolved quickly. d. 3, 1, 2.
63. The American Institute of Certified Public Accountants (AICPA) continues to be involved in 70. Generally accepted accounting principles
all of the following except a. include detailed practices and procedures as well as broad guidelines of general
a. developing and enforcing professional ethics. application.
b. developing auditing standards. b. are influenced by pronouncements of the SEC and IRS.
c. providing professional education programs. c. change over time as the nature of the business environment changes.
d. all of the above. d. all of these.
P 71. The most significant current source of generally accepted accounting principles is the
64. Which of the following pronouncements were issued by the Accounting Principles Board?
a. Accounting Research Bulletins a. AICPA.
b. Opinions b. SEC.
c. Statements of Position c. APB.
d. Statements of Financial Accounting Concepts d. FASB.
65. Which of the following organizations has not been instrumental in the development of 72. Which of the following is not a part of generally accepted accounting principles?
financial accounting standards in the United States? a. FASB Interpretations
a. AICPA b. CAP Accounting Research Bulletins
b. FASB c. APB Opinions
c. IASB d. All of these are part of generally accepted accounting principles.
d. SEC
73. Which of the following publications does not qualify as a statement of generally accepted
66. An organization that has not published accounting standards is the accounting principles?
a. American Institute of Certified Public Accountants. a. Statements of financial standards issued by the FASB
b. Securities and Exchange Commission. b. Accounting interpretations issued by the FASB
c. Financial Accounting Standards Board. c. APB Opinions
d. All of these have published accounting standards. d. Accounting research studies issued by the AICPA
67. The purpose of Statements of Financial Accounting Concepts is to 74. Rule 203 of the Code of Professional Conduct address:
a. establish GAAP. a. ethical requirements.
b. modify or extend the existing FASB Standards Statement. b. financial statements should be based on generally accepted accounting principles.
c. form a conceptual framework for solving existing and emerging problems. c. advertising to obtained clients.
d. determine the need for FASB involvement in an emerging issue. d. auditing financial statements.
CHAPTER 1 d. Notes to financial statements.
P
27. The process of identifying, measuring, analyzing, and communicating financial information
FINANCIAL ACCOUNTING AND needed by management to plan, evaluate, and control an organization’s operations is called
a. financial accounting.
ACCOUNTING STANDARDS b. managerial accounting.
c. tax accounting.
IFRS questions are available at the end of this chapter. d. auditing.
MULTIPLE CHOICE—Conceptual 28. How does accounting help the capital allocation process attract investment capital?
a. Provides timely, relevant information.
21. General-purpose financial statements are the product of b. Encourages innovation.
a. financial accounting. c. Promotes productivity.
b. managerial accounting. d. a and b above.
c. both financial and managerial accounting.
d. neither financial nor managerial accounting. 29. Whether a business is successful and thrives is determined by
a. markets.
22. Users of financial reports include all of the following except b. free enterprise.
a. creditors. c. competition.
b. government agencies. d. all of these.
c. unions.
d. All of these are users. 30. An effective capital allocation process
a. promotes productivity.
23. The financial statements most frequently provided include all of the following except the b. encourages innovation.
a. balance sheet. c. provides an efficient market for buying and selling securities.
b. income statement. d. all of these.
c. statement of cash flows.
d. statement of retained earnings. 31. Financial statements in the early 2000s provide information related to
a. nonfinancial measurements.
24. The information provided by financial reporting pertains to b. forward-looking data.
a. individual business enterprises, rather than to industries or an economy as a whole or c. hard assets (inventory and plant assets).
to members of society as consumers. d. none of these.
b. business industries, rather than to individual enterprises or an economy as a whole or
to members of society as consumers. 32. Which of the following is not a major challenge facing the accounting profession?
c. individual business enterprises, industries, and an economy as a whole, rather than to a. Nonfinancial measurements.
members of society as consumers. b. Timeliness.
d. an economy as a whole and to members of society as consumers, rather than to c. Accounting for hard assets.
individual enterprises or industries. d. Forward-looking information.
25. All the following are differences between financial and managerial accounting in how 33. What is a major objective of financial reporting?
accounting information is used except to a. Provide information that is useful to management in making decisions.
a. plan and control company's operations. b. Provide information that clearly portray nonfinancial transactions.
b. decide whether to invest in the company. c. Provide information that is useful to assess the amounts, timing, and uncertainty of
c. evaluate borrowing capacity to determine the extent of a loan to grant. perspective cash receipts.
d. All the above. d. Provide information that excludes claims to the resources.
26. Which of the following represents a form of communication through financial reporting but 34. What is a major objective of financial reporting?
not through financial statements? a. Provide information that is useful to the Internal Revenue Service in determining the
a. Balance sheet. amount of federal income taxes payable.
b. President's letter. b. Provide information that is useful in assessing the amounts and timing of revenue.
c. Income statement. c. Provide information that is comprehensible only by sophisticated investors.
d. Provide information that clearly portrays the economic resources of an enterprise.
, Financial Accounting and Accounting Standards 1-3 1-4 Test Bank for Intermediate Accounting, Thirteenth Edition
40. Which of the following is a general limitation of "general purpose financial statements"?
35. Which of the following statements is not an objective of financial reporting? a. General purpose financial statements may not be the most informative for a specific
a. Provide information that is useful in investment and credit decisions. enterprise.
b. Provide information about enterprise resources, claims to those resources, and changes b. General purpose financial statements are comparable.
to them. c. General purpose financial statements are assumed to present fairly the company's
c. Provide information on the liquidation value of an enterprise. financial operations.
d. Provide information that is useful in assessing cash flow prospects. d. None of the above.
36. Accrual accounting is used because 41. What is the relationship between the Securities and Exchange Commission and accounting
a. cash flows are considered less important. standard setting in the United States?
b. it provides a better indication of ability to generate cash flows than the cash basis. a. The SEC requires all companies listed on an exchange to submit their financial
c. it recognizes revenues when cash is received and expenses when cash is paid. statements to the SEC.
d. none of the above. b. The SEC coordinates with the AICPA in establishing accounting standards.
c. The SEC has a mandate to establish accounting standards for enterprises under its
37. One objective of financial reporting is to provide jurisdiction.
a. information about the investors in the business entity. d. The SEC reviews financial statements for compliance.
b. information about the liquidation values of the resources held by the enterprise.
c. information that is useful in assessing cash flow prospects. 42. What is due process in the context of standard setting at the FASB?
d. information that will attract new investors. a. FASB operates in full view of the public.
b. Public hearings are held on proposed accounting standards.
38. Accounting principles are "generally accepted" only when c. Interested parties can make their views known.
a. an authoritative accounting rule-making body has established it in an official pro- d. All of the above.
nouncement.
b. it has been accepted as appropriate because of its universal application. 43. Which of the following organizations has been responsible for setting U.S. accounting
c. both a and b. standards?
d. neither a nor b. a. Accounting Principles Board.
b. Committee on Accounting Procedure.
39. A common set of accounting standards and procedures are called c. Financial Accounting Standards Board.
a. financial accounting standards. d. All of the above.
b. generally accepted accounting principles.
c. objectives of financial reporting. 44. Why did the AICPA create the Accounting Principles Board?
d. statements of financial accounting concepts. a. The SEC disbanded the previous standard setting organization.
b. The previous standard setting organization did not provide a structured set of
accounting principles.
c. No such organization existed in the past.
d. None of the above.
45. Which organization was responsible for issuing Accounting Research Bulletins?
a. Accounting Principles Board.
b. Committee on Accounting Procedure.
c. The SEC.
d. AICPA.
46. A characteristic of generally accepted accounting principles include the following
a. common set of standards and principles.
b. standards and principles are based federal statutes.
c. acceptance requires an affirmative vote of Certified Public Accountants.
d. practices that become accepted for at least a year by all industry members.
, Financial Accounting and Accounting Standards 1-5 1-6 Test Bank for Intermediate Accounting, Thirteenth Edition
47. Characteristics of generally accepted accounting principles include all of the following 54. Companies that are listed on a stock exchange are required to submit their financial
except statements to the
a. authoritative accounting the rule-making body established a principle of reporting. a. AICPA.
b. standards are considered useful by the profession. b. APB
c. each principle is approved by the SEC. c. FASB.
d. practice has become universally accepted over time. d. SEC.
48. Why was it believed that accounting standards that were issued by the Financial Accounting 55. The Financial Accounting Standards Board (FASB) was proposed by the
Standards Board would carry more weight? a. American Institute of Certified Public Accountants.
a. Smaller membership. b. Accounting Principles Board.
b. FASB board members are well-paid. c. Study Group on the Objectives of Financial Statements.
c. FASB board members must be CPAs. d. Special Study Group on establishment of Accounting Principles (Wheat Committee).
d. Due process.
56. The Financial Accounting Standards Board
49. The passage of a new FASB Standards Statement requires the support of a. has issued a series of pronouncements entitled Statements on Auditing Standards.
a. all Board members. b. was the forerunner of the current Accounting Principles Board.
b. three Board members. c. is the arm of the Securities and Exchange Commission responsible for setting financial
c. four Board members. accounting standards.
d. five Board members. d. is appointed by the Financial Accounting Foundation.
50. What is the purpose of Emerging Issues Task Force? 57. The Financial Accounting Foundation
a. Provide interpretation of existing standards. a. oversees the operations of the FASB.
b. Provide a consensus on how to account for new and unusual financial transactions. b. oversees the operations of the AICPA.
c. Provide interpretive guidance. c. provides information to interested parties on financial reporting issues.
d. Provide timely guidance on select issues. d. works with the Financial Accounting Standards Advisory Council to provide informa-tion
to interested parties on financial reporting issues.
51. Which organization is responsible for issuing Emerging Issues Task Force Statements?
a. FASB 58. The major distinction between the Financial Accounting Standards Board (FASB) and its
b. CAP predecessor, the Accounting Principles Board (APB), is
c. APB a. the FASB issues exposure drafts of proposed standards.
d. SEC b. all members of the FASB are fully remunerated, serve full time, and are independent of
any companies or institutions.
52. The role of the Securities and Exchange Commission in the formulation of accounting c. all members of the FASB possess extensive experience in financial reporting.
principles can be best described as d. a majority of the members of the FASB are CPAs drawn from public practice.
a. consistently primary.
b. consistently secondary. 59. The Financial Accounting Standards Board employs a "due process" system which
c. sometimes primary and sometimes secondary. a. is an efficient system for collecting dues from members.
d. non-existent. b. enables interested parties to express their views on issues under consideration.
c. identifies the accounting issues that are the most important.
53. The body that has the power to prescribe the accounting practices and standards to be d. requires that all accountants must receive a copy of financial standards.
employed by companies that fall under its jurisdiction is the
a. FASB. 60. Which of the following is not a publication of the FASB?
b. AICPA. a. Statements of Financial Accounting Concepts
c. SEC. b. Accounting Research Bulletins
d. APB. c. Interpretations
d. Technical Bulletins
, Financial Accounting and Accounting Standards 1-7 1-8 Test Bank for Intermediate Accounting, Thirteenth Edition
P
61. FASB Technical Bulletins 68. Members of the Financial Accounting Standards Board are
a. are similar to FASB Interpretations in that they establish enforceable standards under a. employed by the American Institute of Certified Public Accountants (AICPA).
the AICPA's Code of Professional Ethics. b. part-time employees.
b. are issued monthly by the FASB to deal with current topics. c. required to hold a CPA certificate.
c. are not expected to have a significant impact on financial reporting in general and d. independent of any other organization.
provide guidance when it does not conflict with any broad fundamental accounting
P
principle. 69. The following published documents are part of the "due process" system used by the FASB
d. were recently discontinued by the FASB because they dealt with specialized topics in the evolution of a typical FASB Statement of Financial Accounting Standards:
having little impact on financial reporting in general.
1. Exposure Draft
2. Statement of Financial Accounting Standards
62. The purpose of the Emerging Issues Task Force is to
3. Preliminary Views
a. develop a conceptual framework as a frame of reference for the solution of future
problems. The chronological order in which these items are released is as follows:
b. lobby the FASB on issues that affect a particular industry. a. 1, 2, 3.
c. do research on issues that relate to long-term accounting problems. b. 1, 3, 2.
d. issue statements which reflect a consensus on how to account for new and unusual c. 2, 3, 1.
financial transactions that need to be resolved quickly. d. 3, 1, 2.
63. The American Institute of Certified Public Accountants (AICPA) continues to be involved in 70. Generally accepted accounting principles
all of the following except a. include detailed practices and procedures as well as broad guidelines of general
a. developing and enforcing professional ethics. application.
b. developing auditing standards. b. are influenced by pronouncements of the SEC and IRS.
c. providing professional education programs. c. change over time as the nature of the business environment changes.
d. all of the above. d. all of these.
P 71. The most significant current source of generally accepted accounting principles is the
64. Which of the following pronouncements were issued by the Accounting Principles Board?
a. Accounting Research Bulletins a. AICPA.
b. Opinions b. SEC.
c. Statements of Position c. APB.
d. Statements of Financial Accounting Concepts d. FASB.
65. Which of the following organizations has not been instrumental in the development of 72. Which of the following is not a part of generally accepted accounting principles?
financial accounting standards in the United States? a. FASB Interpretations
a. AICPA b. CAP Accounting Research Bulletins
b. FASB c. APB Opinions
c. IASB d. All of these are part of generally accepted accounting principles.
d. SEC
73. Which of the following publications does not qualify as a statement of generally accepted
66. An organization that has not published accounting standards is the accounting principles?
a. American Institute of Certified Public Accountants. a. Statements of financial standards issued by the FASB
b. Securities and Exchange Commission. b. Accounting interpretations issued by the FASB
c. Financial Accounting Standards Board. c. APB Opinions
d. All of these have published accounting standards. d. Accounting research studies issued by the AICPA
67. The purpose of Statements of Financial Accounting Concepts is to 74. Rule 203 of the Code of Professional Conduct address:
a. establish GAAP. a. ethical requirements.
b. modify or extend the existing FASB Standards Statement. b. financial statements should be based on generally accepted accounting principles.
c. form a conceptual framework for solving existing and emerging problems. c. advertising to obtained clients.
d. determine the need for FASB involvement in an emerging issue. d. auditing financial statements.
