76 Test Bank for Intermediate Accounting 18th Edition by Stice Multiple Choice Questions The following private-sector organization was created by the Sarbanes-Oxley Act of 2002 to perform required audits on U S publicly traded companies: a.AICPA b.Public Company Accounting Oversight Board c.Financial Executives Institute d.Financial Accounting Standards Board A major difference between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is a.all members of the FASB serve full time, are paid a salary, and are independent of any public or private enterprises b.over 50 percent of the members of the FASB are required to be Certified Public Accountants c.the FASB issues exposure drafts of proposed standards d.all members of the FASB possess experience in both public and corporate accounting The following is NOT a major component of the financial statements: a.auditor’s opinion b.annual report c.explanatory notes d.balance sheet Which of the following is NOT normally an objective of financial reporting? a.To provide information about an entity's assets and claims against those assets b.To provide information that is useful in assessing an entity's sources and uses of cash c.To provide information that is useful in lending and investing decisions d.To provide information about an entity's liquidation value Primary responsibility for GAAP and public reporting currently rests with the a.SEC 2 b.FASB c.Congress d.AICPA The primary current source of generally accepted accounting principles for governmental operations is the a.Financial Accounting Standards Board b.Securities and Exchange Commission c.Governmental Accounting Standards Board d.Government Accounting Office Which of the following is an internal user of a company's financial information? a.Board of directors b.Stockholders in the company c.Holders of the company's bonds d.Creditors with long-term contracts with the company The following are users of accounting information: a.stakeholders b.creditors c.investors d.all of the above The International Accounting Standards Board was formed to a.enforce FASB standards in foreign countries b.develop worldwide accepted accounting standards c.establish accounting standards for U.S multinational companies d.develop accounting standards for countries that not have their own standard-setting bodies Proper application of accounting principles is most dependent upon the a.existence of specific guidelines b.oversight of regulatory bodies c.external audit function d.professional judgment of the accountant Which of the following is a characteristic of the Financial Accounting Standards Board? a.The FASB is composed of five members b.FASB members must come from CPA firms c.FASB members are part-time d.FASB members may retain their positions with previous employers The area of accounting that emphasizes developing accounting information for use within a company is known as accounting a.management b.forensic c.audit d.financial As independent (or external) auditors, CPAs are primarily responsible for a.preparing financial statements in conformity with GAAP b.certifying the accuracy of financial statements c.expressing an opinion as to the fairness of financial statements d.filing financial statements with the SEC accounting focuses on the development and communication of financial information for external users a.management b.forensic c.audit d.financial When the FASB deliberates about an accounting standard, firms whose financial statements would be affected by that standard a.are legally barred from lobbying the FASB b.are not allowed to lobby the FASB if the standard would have a negative impact on their financial statements c.are not allowed to lobby the FASB if the standard would have a positive impact on their financial statements d.are free to lobby for or against the standard Operations of the FASB are overseen by the: a.operations of the AICPA b.Financial Accounting Foundation c.AAA d.financial reporting arm of the SEC Generally accepted accounting principles a.are accounting adaptations based on the laws of economic science b.derive their credibility and authority from legal rulings and court precedents c.derive their credibility and authority from the federal government through the financial reporting section of the SEC 4 d.derive their credibility and authority from general recognition and acceptance by the accounting profession How many board members serve on the FASB? a.5 b.7 c.14 d.20 The overall objective of financial reporting is to provide information a.that is useful for decision making b.about an enterprise's assets, liabilities, and owners' equity c.about an enterprise's financial performance during a period d.that allows owners to assess management's performance The SEC was given the power to establish accounting principles including setting requirements for details shown on financial statements by the: a.FASB b.AICPA c.Congress d.AAA The primary purpose of the Securities and Exchange Commission is to a.regulate the issuance and trading of securities b.issue accounting and auditing regulations for publicly held companies c.prevent the trading of speculative securities d.enforce generally accepted accounting principles The responsibility to review the work of the accountants and issue opinions as to the fairness of the financial statements rests with a.the external auditor b.the board of directors c.the internal auditors d.management The staff interpretations statements issued by the SEC are called: a.Staff Accounting Research Bulletins b.Statements on Accounting Principles c.Financial Accounting Standards d.Staff Accounting Bulletins The members of the are appointed by the Financial Accounting Foundation a.American Accounting Association b.Financial Accounting Standards Board c.Securities and Exchange Commission d.American Institute of Certified Public Accountants The Governmental Accounting Standards Board a.was incorporated into the Financial Accounting Standards Board when the FASB was created b.addresses financial reporting issues of U.S government treaties and treasury rulings c.addresses the financial reporting issues related to state and local governments d.addresses the governmental reporting activities of the SEC Interested parties receive information about a company’s past performance from: a.CEO’s b.the SEC c.financial reporting d.financial news Accounting standards help accountants meet the information demands of interested parties by providing: a.legislation introduction pertaining to financial reporting b.limits and guidance for financial reporting c.improved operating plans to the Board d.reports to the Media The responsibility of the Emerging Issues Task Force (EITF) is to a.issue statements which reflect a consensus of the EITF on how to account for new financial reporting issues where guidance is needed quickly b.do research on financial reporting issues that are being addressed by the AICPA c.respond to groups lobbying the FASB on issues that affect a particular industry d.develop concept statements the AICPA can use as a frame of reference to solve future problems Form 10-K is submitted to the a.FASB b.GASB c.IRS d.SEC The of a firm is primarily responsible for the preparation of financial statements in accordance with GAAP a.the internal auditors b.management c.the external auditors d.the board of directors Which of the following items is not a modifying convention? a.Matching b.Materiality c.Industry practices d.Conservatism In 1973, the following private-sector body was organized to set accounting standards in the United States: a.the Financial Accounting Foundation b.the Securities and Exchange Commission c.the FASB d.the Accounting Principles Board The normal order followed by the FASB in publishing its standards is a.statement, discussion memorandum, opinion b.discussion memorandum, interpretation, exposure draft, statement c.exposure draft, discussion memorandum, statement d.discussion memorandum, exposure draft, statement The primary current source of generally accepted accounting principles for nongovernmental operations is the a.American Institute of Certified Public Accountants b.Securities and Exchange Commission c.Financial Accounting Standards Board d.Governmental Accounting Standards Board The process of establishing financial accounting standards is a.a democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented b.a legislative process based on rules promulgated by government agencies c.based solely on economic analysis of the effects each standard will have if it is implemented d.a social process which incorporates political actions of various interested user groups as well as professional research and logic Documents issued by the FASB include all of the following except a.Statements of Financial Accounting Standards b.Interpretations of Statements of Financial Accounting Standards c.Statements of Financial Accounting Concepts d.Financial Reporting Releases Once the FASB has established an accounting standard, the a.standard is continually reviewed to see if modification is necessary b.standard is not reviewed unless the SEC makes a complaint c.task of reviewing the standard to see if modification is necessary is given to the AICPA d.principle of consistency requires that no revisions ever be made to the standard 76 Free Test Bank for Intermediate Accounting 18th Edition by Stice Multiple Choice Questions - Page Large business enterprises employ financial accountants who are primarily concerned with financial reporting a.corporate tax b.management c.external d.international When financial reports from two different companies have been prepared and presented in a similar manner, the information exhibits the characteristic of a.relevance b.reliability c.comparability d.consistency For which of the following reporting issues has the FASB adopted substantially the same approach as the IASB? a.Segment reporting b.Earnings per share c.Statement of cash flows d.Pension plans The journal Accounting Horizons is published by which of the following organizations? a.American Institute of Certified Public Accountants (AICPA) b.American Accounting Association (AAA) c.Securities and Exchange Commission (SEC) d.Financial Accounting Standards Board (FASB) Which of the following elements of financial statements is not a component of comprehensive income? a.Revenues b.Expenses c.Losses d.Distributions to owners Which of the following measurement attributes is not currently used in practice? a.Present value b.Net realizable value c.Current replacement cost d.Inflation-adjusted cost Accountants prepare financial statements at arbitrary points in time during a company's lifetime in accordance with the accounting concept of a.matching b.comparability c.accounting periods d.materiality When a large number of individuals, using the same measurement method, demonstrate that a high degree of consensus can be secured among independent measurers, then the result exhibits the characteristic of a.verifiability b.neutrality c.relevance d.reliability Financial information exhibits the characteristic of consistency when a.accounting procedures are adopted which smooth net income and make results consistent between years b.extraordinary gains and losses are shown separately on the income statement c.accounting entities give similar events the same accounting treatment each period d.expenditures are reported as expenses and netted against revenue in the period in which they are paid The following is NOT one of the fundamental criteria for recognition? a.Timeliness b.Measurability c.Relevance d.Reliability Internal users are provided information by the following branch of accounting: a.auditing b.managerial accounting c.financial accounting d.income tax accounting Recording the purchase price of a paper shredder (with an estimated useful life of 10 years) as an expense of the current period is justified by the a.going-concern assumption b.materiality constraint c.matching principle d.comparability principle Important constraints underlying the qualitative characteristics of accounting information are a.historical cost and going concern b.materiality, conservatism, and cost-effectiveness c.consistency, comparability, and conservatism d.verifiability, neutrality, and representational faithfulness The primary measurement basis currently used to value assets in external financial statements of an enterprise is the a.current market price if the assets currently held by an enterprise were sold on the open market b.current market price if the assets held by an enterprise were purchased on the open market c.present value of the cash flows the assets are expected to generate over their remaining useful lives d.market price of the assets held by an enterprise at the date the assets were acquired (although some assets may be valued at their current selling price or net realizable value) According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is a.realization 2 b.recognition c.matching d.allocation Which of the following is not included in the highest authoritative level of GAAP? a.FASB Statements b.AICPA Statements of Position c.FASB Staff Positions d.Accounting Principles Board (APB) Opinions What accounting concept justifies the use of accruals and deferrals? a.Going-concern assumption b.Corporate form of organization c.Consistency characteristic d.Arm's-length transactions Which of the following statements concerning the objectives of financial reporting is correct? a.The objectives are intended to be specific in nature b.The objectives are directed primarily toward the needs of internal users of accounting information c.The objectives were the end result of the FASB's conceptual framework project d.The objectives encompass not only financial statement disclosures, but other information as well An item would be considered material and therefore would be disclosed in the financial statements if the a.expected benefits of disclosure exceed the additional costs b.impact on earnings is greater than percent c.FASB definition of materiality is met d.omission of misstatement of the amount would make a difference to the users The United States Securities and Exchange Commission a.has recognized IASB standards as an acceptable alternative to U.S GAAP b.requires foreign companies listing their shares on U.S stock exchanges to restate their financial statements to U.S GAAP c.has barred foreign companies from listing their shares on U.S stock exchanges d.has no jurisdiction in the United States over foreign companies listing their shares on U.S stock exchanges The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of a.accrual b.consistency c.comparability d.going concern The branch of accounting that is concerned with providing information to present and potential creditors of an enterprise is a.auditing b.managerial accounting c.financial accounting d.income tax accounting In an effort to improve the conceptual framework, the FASB, in conjunction with the IASB has been moving towards more standards a.rules approach b.principles approach c.broad approach d.international approach Financial statements issued for the use of parties external to the enterprise are the primary responsibility of the a.management of the enterprise b.stockholders of the enterprise c.independent auditors of the enterprise d.creditors of the enterprise Enron’s problem with related-party transactions breached the assumption of: a.going concerns b.arm’s-length transactions c.freedom of enterprise d.market stability Historical cost has been the valuation basis most commonly used in accounting because of its a.timelessness b.conservatism c.reliability d.accuracy Accounting for inventories by applying the lower-of-cost-or-market is an example of the application of a.conservatism b.comparability c.consistency d.materiality Which of the following is NOT a purpose of the conceptual framework of accounting? a.To provide definitions of key terms and fundamental concepts b.To provide specific guidelines for resolving situations not covered by existing accounting standards c.To assist accountants and others in selecting among alternative accounting and reporting methods d.To assist the FASB in the standard-setting process The financial statements that are prepared for the business are separate and distinct from the owners according to the a.going-concern assumption b.matching principle c.economic entity assumption d.full disclosure principle The accrual basis of accounting is based primarily on a.conservatism and revenue realization b.conservatism and matching c.consistency and matching d.revenue realization and matching The secondary qualitative characteristics of accounting information are a.relevance and reliability b.comparability and consistency c.understandability and decision usefulness d.materiality and conservatism Financial disclosure statements are strictest in a.the United Kingdom b.Germany c.the United States d.France The following is a qualitative characteristic of accounting information: a.timeliness b.feedback value c.neutrality d.decision usefulness A conceptual framework of accounting should a.lead to uniformity of financial statements among companies within the same industry b.eliminate alternative accounting principles and methods c.guide the AICPA in developing generally accepted auditing standards d.define the basic objectives, terms, and concepts of accounting Which of the following is true about international accounting standards? a.Significant differences exist between U.S GAAP and GAAP of other countries b.Few differences exist between U.S GAAP and GAAP of other countries c.The IASB is the standards-setting body of France d.It is unlikely that the differences between U.S GAAP and GAAP of other countries will diminish over time Which of the following is NOT an implication of the going-concern assumption? a.The historical cost principle is credible b.Depreciation and amortization policies are justifiable and appropriate c.The current/noncurrent classification of assets and liabilities is justifiable and significant d.Amortizing research and development costs over multiple periods is justifiable and appropriate Conservatism is best described as selecting an accounting alternative that a.understates assets and/or net income b.has the least favorable impact on owners' equity c.overstates, as opposed to understates, liabilities d.is least likely to mislead users of financial information Which of the following qualitative characteristics of financial information requires that information NOT be biased in favor of one group of users to the detriment of others? a.Relevance b.Reliability c.Verifiability d.Neutrality Which of the following is true? a.Form 10-K is required under the FASB Conceptual Framework b.Form 10-Q is a quarterly report of significant events required by the SEC c.Form 8-K is a quarterly report of significant events required by the SEC d.Form 8-K is the annual report submitted by small businesses to the SEC  ... of consistency requires that no revisions ever be made to the standard 76 Free Test Bank for Intermediate Accounting 18th Edition by Stice Multiple Choice Questions - Page Large business enterprises... International Accounting Standards Board was formed to a.enforce FASB standards in foreign countries b.develop worldwide accepted accounting standards c.establish accounting standards for U.S multinational... previous employers The area of accounting that emphasizes developing accounting information for use within a company is known as accounting a.management b.forensic c.audit d.financial As