Chapter 1 Accounting multiple choice

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External decision makers would not look primarily to financial accounting information to assist them in making decisions on

B. Capital budgeting

Corporations issue their shares to the investing public in the

C. Option C

The primary focus for financial accounting information is to provide information useful for

A. Option A

Which of the following is not true about net operating cash flow?

B. t is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows

Which of the following groups is not among financial intermediaries?


Which of the following was the first private sector entity that set accounting standards in the US?

B. Committee on Accounting Procedure

Which of the following does not apply to secondary markets?

B. New resources are provided when shares of stock are sold by the corporation to the initial owners.

A cause-and-effect relationship is implicit in the

C. Matching priniciple

The full disclosure principle requires a balance between

B. Relevance and cost effectiveness

Which of the following groups is not among the external users for whom financial statements are prepared

D. All of the above are external users of financial statements

In a recent annual report, Apple Computer reported the following in one of its disclosure notes:"Warranty Expense" This note exemplifies Apple's use of

B. The matching principle

GAAP is an abbreviation for

D. Generally accepted accounting principles

The SEC issues accounting standards in the form of

B. Financial Reporting Releases

Pronouncements issued by the Committee on Accounting Procedures

A. Dealt with specific accounting and reporting problems

The FASB's standard-setting process includes, in the correct order:

C. Research, discussion paper, exposure draft, Accounting Standards Update

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act:

D. Changed the entity responsible for setting accounting standards

CPAs are licensed by

D. State governments

A firm's comprehensive income always

D. Could be greater than or less than net income

Which of the following has the authority to set accounting standards in the US?


The most likely important flaw leading to the demise of the APB was the perceived lack of:

C. Independence

Accounting standard setting has been characterized as

A. A political process

The international Accounting Standards Board

C. Promotes the use of high-quality, understandable global accounting standards

The most political issue in the FASB's most recent deliberations and amendments to GAAP on business combinations was

A. The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination

Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002?

D. All of the above are provisions of the Act

When a registrant company submits its annual filing to the SEC, it uses:

B. Form 10-K

The primary professional organization for those accountants working in the industry is the


The primary historical reason for the FASB reversing its positions when political pressures occur is

D. The SEC did not support the FASB position

The most recent example of the political process at work in standard setting is the heated debate that occurred on the issue of:

C. Accounting for business combinations

The recognition of which of the following expenses exemplifies the application of the matching principle

C. Cost of goods sold

The FASB's conceptual framework's qualitative characteristics of accounting information include

C. Faithful representation

The conceptual framework's qualitative characteristic of relevance includes

A. Predictive value

The conceptual framework's qualitative characteristic of faithful representation includes:

B. Neutrality

The framework's recognition and measurement concepts recognize which of the following as an assumption, rather than a principle?

A. Going concern

The framework's recognition and measurement concepts recognize which of the following as a principle, rather than an assumption

D. Full disclosure

Phase A of the new conceptual framework focuses on

A. Objective and qualitative characteristics.

The primary objective of financial accounting information is to provide useful information to

D. None of the above

SFAC No. 5 focuses on

Recognition and measurement concepts in accounting

The main issue in the debate over accounting for employee stock options was

B. The amount of compensation expense that a company should recognize

net income equals

C. Revenues minus expenses

Enhancing qualitative characteristics of accounting information include each of the following except

B. Materiality

The enhancing qualitative characteristic of understandability means that information should be understood by

B. Those who have a reasonable understanding of business and economic activities

Fundamental qualitative characteristics of accounting information are

C. Faithful representation and relevance

Enhancing qualitative characteristics of accounting information include

B. Comparability and timeliness

Gains are

C. Increases in equity from peripheral transactions of an entity

When there is agreement between a measure or description and the phenomenon it purports to represent, information posses which characteristic?

C. Faithful representation

Surefeet Corporation changed its inventory valuation method. Which characteristic is jeopardized by this change?

C. Consistency

Of the following, the most important objective for financial reporting is to provide information useful for

A. Making decisions

Independent auditors express an opinion on the

A. Fairness of financial statements

Constraints on qualitative characteristics of accounting information include

D. Materiality

Elements of financial statements do not include

A. Monetary unit

According to the conceptual framework, verifiability implies

C. Consensus

Land acquired in 2011 for a future building site at a cost of 40000. The land should be reported in the statements at

A. 40000

Maltec Corporation has started placing its quarterly financial statements on its web page, thereby reducing by ten days the time to get information to investors and creditors. The qualitative concept improved is

C. Timeliness

Recognizing expected losses immediately, but deferring expected gains, is an example of

B. Conservatism

Change in equity from nonowner sources is

A. Comprehensive income

The assumption that in the absence of contrary information a business entity will continue indefinitely is the

C. Going concern assumption

Which of the following Statements of Financial Accounting Concepts defines the 10 elements of financial statements


The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of

A. An ethical dilemma

One of the elements that many believe distinguishes a profession from other occupations is the acceptance by its members of a responsibility for the interests of those it serves, often articulated in

B. Its code of ethics

Primecoat Corporation could disseminate its annual financial statements two days if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of the resources. The concept demonstrated is:

D. Cost effectiveness

An important argument in support of historical cost information is

D. Verifiability

If a company has gone bankrupt, its financial statements likely violate

D. The going concern assumption

Revenue should not be recognized until

A. The earnings process is complete and collection is reasonably assured

Which of the following is not an identified valuation technique in GAAP regarding fair value measurement?

C. Cost-benefit approach

Disclosure notes to a company's financial statements

C. Are an integral part of a company's financial statements

Which of the following best demonstrates the full disclosure principle?

D. Disclosure notes to financial statements

Four different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is

D. Verifiability

The matching principle is

B. An expense recognition accounting principle

To meet the needs of full disclosure, companies use supplemental information including

D. All of the above are correct

Ford Motor Company purchases services from suppliers on account and sells its products to distributors on short-term credit. As a result, do each of these events affect net income faster than they affect net operating cash flows?

A. Option A

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