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Test Bank CHAPTER 1 FINANCIAL ACCOUNTING AND

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Test Bank CHAPTER 1 FINANCIAL ACCOUNTING AND

CHAPTER 1

 

FINANCIAL ACCOUNTING AND

ACCOUNTING STANDARDS

 

IFRS questions are available at the end of this chapter.

 

TRUE-FALSE—Conceptual

                Description

                F              1.            Definition of financial accounting.

                T              2.            Purpose of financial statements.

                T              3.            Definition of financial accounting.

                T              4.            Capital allocation process.

                F              5.            Objective of financial reporting.

                T              6.            Decision-Usefulness approach.

                T              7.            Users of financial statements.

                F              8.            Committee on Accounting Procedure.

                F              9.            Passage of FASB standards.

                T              10.          Financial Accounting Concepts.

                T              11.          Creation of Accounting Principles Board.

                F              12.          FASB Codification.

                T              13.          Code of Professional Conduct.

                F              14.          GAAP and political action.

                T              15.          Public Company Accounting Oversight Board.

                T              16.          Expectations gap.

                F              17.          Financial reports.

                F              18.          Fair value information.

                F              19.          International Financial Reporting Standards.

                F              20.          Ethical issues.

 

MULTIPLE CHOICE—Conceptual

                Description

                a              21.          Financial accounting.

                d             22.          Users of financial reports.

                d             23.          Identify the major financial statements.

                a              24.          Financial reporting entity.

                d             25.          Differences between financial and managerial accounting.

                b             26.          Financial reporting communication.

                b             27.          Managerial accounting.

                a              28.          Capital allocation process.

                d             29.          Efficient use of resources.

                d             30.          Capital allocation process.

                c              31.          Financial statement information.

                c              32.          Accounting profession challenge.

                c              33.          Financial reporting objective.

                d             34.          Financial statements primary users.

                c              35.          Investor’s decision making.

MULTIPLE CHOICE—Conceptual  (cont.)

 

.               Description

                b             36.          Accrual accounting.

                c              37.          Objective of financial reporting perspective.

                c              38.          Meaning of “generally accepted.”

                b             39.          Common set of standards and procedures.

                a              40.          Limitation of general purpose financial statements.

                c              41.          Securities and Exchange Commission and accounting standard setting.

                d             42.          Due process in FASB standard setting.

                d             43.          Organizations responsible for setting accounting standards.

                b             44.          Reason for Accounting Principles Board creation

                b             45.          Organization issuing Accounting Research Bulletins.

                a              46.          Characteristic of GAAP.

                c              47.          Characteristics of GAAP.

                d             48.          FASB accounting standards.

                c              49.          FASB standard passage.

                b             50.          Purpose of Emerging Issues Task Force.

                a              51.          AICPA role in standard setting.

                c              52.          Role of SEC.

                c              53.          Powers of the SEC.

                d             54.          SEC enforcement.

                d             55.          Creation of FASB.

                d             56.          Appointment of FASB members.

                a              57.          Purpose of the Financial Accounting Foundation.

                b             58.          Characteristics of FASB.

                b             59.          FASB and "due process" system.

                b             60.          Publications of FASB.

                c              61.          Purpose of FASB Technical Bulletins.

                d             62.          Purpose of Emerging Issues Task Force.

                b             63.          Role of the AICPA.

                b             64.          Pronouncement issued by the APB.

                c              65.          Standard setting organizations.

                d             66.          Identification of standard setting organizations.

                c              67.          Statements of financial accounting concepts.

                d             P68.       FASB members.

                d             P69.       FASB statement process.

                d             70.          Nature of GAAP.

                d             71.          Body which promulgates GAAP.

                d             72.          Publications which are not GAAP.

                d             73.          Publications which are not GAAP.

                b             74.          Code for Professional Conduct Rule 203.

                c              75.          Purpose of FASB staff position.

                c              76.          Components of GAAP.

                a              77.          Political environment of standard setting.

                c              78.          International Accounting Standards Board.

 

MULTIPLE CHOICE—Conceptual  (cont.)

.               Description

                d             79.          Standard setting process pressure.

                a              80.          Danger of politics in standard setting

                c              81.          Definition of "expectation gap".

                b             82.          Reason accounting standards differ across countries.

                d             83.          Advantage of countries adopting same accounting standards.

                a              84.          Ethical concern of accountants.

 

P Note: these questions also appear in the Problem-Solving Survival Guide.

 

 

EXERCISES

                Item      Description

                E1-85     Objectives of financial reporting.

                E1-86     Development of accounting principles.

                E1-87     Publications and organizations.

                E1-88     FASB.

                E1-89     Evolution of a statement of financial accounting standards.

 

 

 

CHAPTER LEARNING OBJECTIVES

                1.            Identify the major financial statements and other means of financial reporting.

                2.            Explain how accounting assists in the efficient use of scarce resources.

                3.            Identify the objectives of financial reporting.

                4.            Explain the need for accounting standards.

                5.            Identify the major policy-setting bodies and their role in the standard-setting process.

                6.            Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP.

                7.            Describe the impact of user groups on the rule-making process.

                8.            Describe some of the challenges facing financial reporting.

                9.            Understand issues related to ethics and financial accounting.

 

 

 

 

SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS

 

Item      Type      Item      Type      Item      Type      Item      Type      Item      Type      Item      Type      Item      Type

Learning Objective 1

1.            TF           21.          MC         23.          MC         25.          MC         P27.       MC                                                        

2.            TF           22.          MC         24.          MC         26.          MC                                                                                        

Learning Objective 2

3.            TF           4.            TF           28.          MC         29.          MC         30.          MC                                                        

Learning Objective 3

5.            TF           33.          MC         35.          MC         37.          MC                                                                                        

6.            TF           34.          MC         36.          MC         85.          E                                                                                             

Learning Objective 4

7.            TF           38.          MC         39.          MC         40.          MC         86.          E                                                             

Learning Objective 5

8.            TF           43.          MC         49.          MC         55.          MC         61.          MC         67.          MC         89.          E

9.            TF           44.          MC         50.          MC         56.          MC         62.          MC         P68.       MC                        

10.          TF           45.          MC         51.          MC         57.          MC         63.          MC         P69.       MC                        

11.          TF           46.          MC         52.          MC         58.          MC         64.          MC         P86.       E                             

41.          MC         47.          MC         53.          MC         59.          MC         65.          MC         87.          E                             

42.          MC         48.          MC         54.          MC         60.          MC         66.          MC         88.          E                             

Learning Objective 6

12.          TF           70.          MC         72.          MC            74.       MC        76.          MC                                                        

13.          TF           71.          MC         73.          MC         75.          MC                                                                                       

Learning Objective 7

 

14.          TF           16.          TF           77.          MC         79.          MC         81.          MC         83.          E                             

15.          TF           62.          MC         78.          MC         80.          MC         82.          MC                                                        

Learning Objective 8

17.          TF           18.          TF           19.          TF           31.          MC         32.          MC                                                        

Learning Objective 9

20.          TF           84.          MC                                                                                                                                                        

 

Note:    TF = True-False

                                MC = Multiple Choice

                                E = Exercise

 

 

 

TRUE-FALSE—Conceptual

 

                1.            Financial accounting is the process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control a company’s operations.

 

                2.            Financial statements are the principal means through which a company communicates its financial information to those outside it.

 

                3.            Users of financial reports provided by a company use that information to make their capital allocation decisions.

 

                4.            An effective process of capital allocation promotes productivity and provides an efficient market for buying and selling securities and obtaining and granting credit.

 

                5.            The objective of financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, but not to users who are not investors.

 

                6.            Investors are interested in financial reporting because it provides information that is useful for making decisions (decision-usefulness approach).

 

                7.            Users of financial accounting statements have both coinciding and conflicting needs for information of various types.

 

                8.            The Securities and Exchange Commission appointed the Committee on Accounting Procedure.

 

                9.            The passage of a new FASB Standards Statement requires the support of five of the seven board members.

 

                10.          Financial Accounting Concepts set forth fundamental objectives and concepts that are used in developing future standards of financial accounting and reporting.

 

                11.          The AICPA created the Accounting Principles Board in 1959.

 

                12.          The FASB’s Codification integrates existing GAAP, and creates new GAAP.

 

                13.          The AICPA’s Code of Professional Conduct requires that members prepare financial statements in accordance with generally accepted accounting principles.

 

                14.          GAAP is a product of careful logic or empirical findings and are not influenced by political action.

 

                15.          The Public Company Accounting Oversight Board has oversight and enforcement authority and establishes auditing and independence standards and rules.

 

                16.          The expectations gap is caused by what the public thinks accountants should do and what accountants think they can do.

 

                17.          Financial reports in the early 21st century did not provide any information about a company’s soft assets (intangibles).

 

                18.          Accounting standards are now less likely to require the recording or disclosure of fair value information.

 

                19.          U.S. companies that list overseas are required to use International Financial Reporting Standards, issued by the Intern

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