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Intermediate Accounting 14th edition By Kieso Test Bank

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COMPLETE TEST BANK WITH ANSWERS

 

Intermediate Accounting 14th edition By Kieso Test Bank

 

Sample  Questions

 

TRUE-FALSEConceptual

 

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

 

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

 

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

 

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

 

  1. 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.

 

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

 

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

 

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

 

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

 

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

 

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

 

  1. The FASBs Codification integrates existing GAAP, and creates new GAAP.

 

  1. The AICPAs Code of Professional Conduct requires that members prepare financial statements in accordance with generally accepted accounting principles.

 

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

 

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

 

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

 

 

 

1 6          Test Bank for Intermediate Accounting, Fourteenth Edition

 

  1. Financial reports in the early 21st century did not provide any information about a companys soft assets (intangibles).

 

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

 

  1. S. companies that list overseas are required to use International Financial Reporting Standards, issued by the International Accounting Standards Board.

 

  1. Ethical issues in financial accounting are governed by the AICPA.

 

 

True-False AnswersConceptual

 

Item Ans. Item Ans. Item Ans. Item Ans.
1. F 6. T 11. T 16. T
2. T 7. T 12. F 17. F
3. T 8. F 13. T 18. F
4. T 9. F 14. F 19. F
5. F 10. T 15. T 20. F

 

 

 

MULTIPLE CHOICEConceptual

 

  1. General-purpose financial statements are the product of

 

  1. financial accounting.
  2. managerial accounting.
  3. both financial and managerial accounting.
  4. neither financial nor managerial accounting.

 

  1. Users of financial reports include all of the following except

 

  1. government agencies.
  2. All of these are users.

 

  1. The financial statements most frequently provided include all of the following except the

 

  1. balance sheet.
  2. income statement.
  3. statement of cash flows.
  4. statement of retained earnings.

 

  1. The information provided by financial reporting pertains to

 

  1. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
  2. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.

 

  1. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
  2. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

 

 

 

Financial Accounting and Accounting Standards 1 7

 

 

  1. All the following are differences between financial and managerial accounting in how accounting information is used except to

 

  1. plan and control companys operations.
  2. decide whether to invest in the company.
  3. evaluate borrowing capacity to determine the extent of a loan to grant.
  4. All the above.

 

  1. Which of the following represents a form of communication through financial reporting but not through financial statements?

 

  1. Balance sheet.
  2. Presidents letter.
  3. Income statement.
  4. Notes to financial statements.

 

P27.    The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organizations operations is called

 

  1. financial accounting.
  2. managerial accounting.
  3. tax accounting.

 

  1. How does accounting help the capital allocation process attract investment capital?

 

  1. Provides timely, relevant information.
  2. Encourages innovation.
  3. Promotes productivity.
  4. a and b above.

 

  1. Whether a business is successful and thrives is determined by

 

  1. free enterprise.
  2. all of these.

 

  1. An effective capital allocation process

 

  1. promotes productivity.
  2. encourages innovation.
  3. provides an efficient market for buying and selling securities.
  4. all of these.

 

  1. Financial statements in the early 2000s provide information related to

 

  1. nonfinancial measurements.
  2. forward-looking data.
  3. hard assets (inventory and plant assets).
  4. none of these.

 

  1. Which of the following is not a major challenge facing the accounting profession?

 

  1. Nonfinancial measurements.
  2. Accounting for hard assets.
  3. Forward-looking information.

 

 

 

1 8          Test Bank for Intermediate Accounting, Fourteenth Edition

 

 

  1. What is the objective of financial reporting?

 

  1. Provide information that is useful to management in making decisions.
  2. Provide information that clearly portray nonfinancial transactions.
  3. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.
  4. Provide information that excludes claims to the resources.

 

  1. Primary users for general-purpose financial statements include

 

  1. both creditors and investors.

 

  1. When making decisions, investors are interested in assessing

 

  1. the companys ability to generate net cash inflows.
  2. managements ability to protect and enhance the capital providers investments.
  3. Both a and b.
  4. the companys ability to generate net income.

 

  1. Accrual accounting is used because

 

  1. cash flows are considered less important.
  2. it provides a better indication of ability to generate cash flows than the cash basis.
  3. it recognizes revenues when cash is received and expenses when cash is paid.
  4. none of the above.

 

  1. Which perspective is adopted as part of the objective of general-purpose financial reporting?
    1. Decision-usefulness perspective.
    2. Proprietary perspective.
    3. Entity perspective.
    4. Financial reporting perspective.

 

  1. Accounting principles are generally accepted only when

 

  1. an authoritative accounting rule-making body has established it in an official pro-nouncement.
  2. it has been accepted as appropriate because of its universal application.
  3. both a and b.
  4. neither a nor b.

 

  1. A common set of accounting standards and procedures are called

 

  1. financial accounting standards.
  2. generally accepted accounting principles.
  3. objectives of financial reporting.
  4. statements of financial accounting concepts.

 

 

 

Financial Accounting and Accounting Standards 1 9

 

 

  1. Which of the following is a general limitation of general purpose financial statements?

 

  1. General purpose financial statements may not be the most informative for a specific enterprise.
  2. General purpose financial statements are comparable.
  3. General purpose financial statements are assumed to present fairly the companys financial operations.

 

  1. None of the above.

 

  1. What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?

 

  1. The SEC requires all companies listed on an exchange to submit their financial statements to the SEC.

 

  1. The SEC coordinates with the AICPA in establishing accounting standards.
  2. The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.
  3. The SEC reviews financial statements for compliance.

 

  1. What is due process in the context of standard setting at the FASB?

 

  1. FASB operates in full view of the public.
  2. Public hearings are held on proposed accounting standards.
  3. Interested parties can make their views known.
  4. All of the above.

 

  1. Which of the following organizations has been responsible for setting U.S. accounting standards?

 

  1. Accounting Principles Board.
  2. Committee on Accounting Procedure.
  3. Financial Accounting Standards Board.
  4. All of the above.

 

  1. Why did the AICPA create the Accounting Principles Board?

 

  1. The SEC disbanded the previous standard setting organization.
  2. The previous standard setting organization did not provide a structured set of accounting principles.

 

  1. No such organization existed in the past.
  2. None of the above.

 

  1. Which organization was responsible for issuing Accounting Research Bulletins?

 

  1. Accounting Principles Board.
  2. Committee on Accounting Procedure.
  3. The SEC.

 

  1. A characteristic of generally accepted accounting principles include the following:

 

  1. common set of standards and principles.
  2. standards and principles are based federal statutes.
  3. acceptance requires an affirmative vote of Certified Public Accountants.
  4. practices that become accepted for at least a year by all industry members.

 

 

 

1 10       Test Bank for Intermediate Accounting, Fourteenth Edition

 

 

  1. Characteristics of generally accepted accounting principles include all of the following except

 

  1. authoritative accounting the rule-making body established a principle of reporting.
  2. standards are considered useful by the profession.
  3. each principle is approved by the SEC.
  4. practice has become universally accepted over time.

 

  1. Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight?

 

  1. Smaller membership.
  2. FASB board members are well-paid.
  3. FASB board members must be CPAs.
  4. Due process.

 

  1. The passage of a new FASB Standards Statement requires the support of

 

  1. all Board members.
  2. three Board members.
  3. four Board members.
  4. five Board members.

 

  1. What is the purpose of Emerging Issues Task Force?

 

  1. Provide interpretation of existing standards.
  2. Provide a consensus on how to account for new and unusual financial transactions.
  3. Provide interpretive guidance.
  4. Provide timely guidance on select issues.

 

  1. Which organization is responsible for issuing Emerging Issues Task Force Statements?

 

  1. FASB
  2. CAP
  3. APB
  4. SEC

 

  1. The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as
    1. consistently primary.
    2. consistently secondary.
    3. sometimes primary and sometimes secondary.
    4. non-existent.

 

  1. The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the

 

 

 

 

Financial Accounting and Accounting Standards 1 11

 

 

  1. Companies that are listed on a stock exchange are required to submit their financial statements to the

 

  1. APB

 

  1. The Financial Accounting Standards Board (FASB) was proposed by the

 

  1. American Institute of Certified Public Accountants.
  2. Accounting Principles Board.
  3. Study Group on the Objectives of Financial Statements.
  4. Special Study Group on establishment of Accounting Principles (Wheat Committee).

 

  1. The Financial Accounting Standards Board

 

  1. has issued a series of pronouncements entitled Statements on Auditing Standards.
  2. was the forerunner of the current Accounting Principles Board.
  3. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.
  4. is appointed by the Financial Accounting Foundation.

 

  1. The Financial Accounting Foundation

 

  1. oversees the operations of the FASB.
  2. oversees the operations of the AICPA.
  3. provides information to interested parties on financial reporting issues.
  4. works with the Financial Accounting Standards Advisory Council to provide informa-tion to interested parties on financial reporting issues.

 

  1. The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

 

  1. the FASB issues exposure drafts of proposed standards.
  2. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
  3. all members of the FASB possess extensive experience in financial reporting.
  4. a majority of the members of the FASB are CPAs drawn from public practice.

 

  1. The Financial Accounting Standards Board employs a due process system which

 

  1. is an efficient system for collecting dues from members.
  2. enables interested parties to express their views on issues under consideration.
  3. identifies the accounting issues that are the most important.
  4. requires that all accountants must receive a copy of financial standards.

 

  1. Which of the following is not a publication of the FASB?

 

  1. Statements of Financial Accounting Concepts
  2. Accounting Research Bulletins
  3. Interpretations
  4. Technical Bulletins

 

 

 

1 12       Test Bank for Intermediate Accounting, Fourteenth Edition

 

 

  1. FASB Technical Bulletins

 

  1. are similar to FASB Interpretations in that they establish enforceable standards under the AICPAs Code of Professional Ethics.
  2. are issued monthly by the FASB to deal with current topics.
  3. are not expected to have a significant impact on financial reporting in general and provide guidance when it does not conflict with any broad fundamental accounting principle.

 

  1. were recently discontinued by the FASB because they dealt with specialized topics having little impact on financial reporting in general.

 

  1. The purpose of the Emerging Issues Task Force is to

 

  1. develop a conceptual framework as a frame of reference for the solution of future problems.
  2. lobby the FASB on issues that affect a particular industry.
  3. do research on issues that relate to long-term accounting problems.
  4. issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly.

 

  1. The American Institute of Certified Public Accountants (AICPA) continues to be involved in all of the following except

 

  1. developing and enforcing professional ethics.
  2. developing auditing standards.
  3. providing professional education programs.
  4. all of the above.

 

P64.      Which of the following pronouncements were issued by the Accounting Principles Board?

  1. Accounting Research Bulletins
  2. Opinions
  3. Statements of Position
  4. Statements of Financial Accounting Concepts

 

  1. Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?
    1. AICPA
    2. FASB
    3. IASB
    4. SEC

 

  1. An organization that has not published accounting standards is the

 

  1. American Institute of Certified Public Accountants.
  2. Securities and Exchange Commission.
  3. Financial Accounting Standards Board.
  4. All of these have published accounting standards.

 

  1. The purpose of Statements of Financial Accounting Concepts is to

 

  1. establish GAAP.
  2. modify or extend the existing FASB Standards Statement.
  3. form a conceptual framework for solving existing and emerging problems.
  4. determine the need for FASB involvement in an emerging issue.

 

 

 

Financial Accounting and Accounting Standards 1 13

 

P68.     Members of the Financial Accounting Standards Board are

  1. employed by the American Institute of Certified Public Accountants (AICPA).
  2. part-time employees.
  3. required to hold a CPA certificate.
  4. independent of any other organization.

 

P69.    The following are part of the due process system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards:

 

  1. Exposure Draft

 

  1. Statement of Financial Accounting Standards
  2. Preliminary Views

 

The chronological order in which these items are released is as follows:

 

  1. 1, 2, 3.
  2. 1, 3, 2.
  3. 2, 3, 1.
  4. 3, 1, 2.

 

  1. Generally accepted accounting principles

 

  1. include detailed practices and procedures as well as broad guidelines of general application.
  2. are influenced by pronouncements of the SEC and IRS.
  3. change over time as the nature of the business environment changes.
  4. all of these.

 

  1. The most significant current source of generally accepted accounting principles is the

 

 

  1. Which of the following is not a part of generally accepted accounting principles?

 

  1. FASB Interpretations
  2. CAP Accounting Research Bulletins
  3. APB Opinions
  4. All of these are part of generally accepted accounting principles.

 

  1. Which of the following publications does not qualify as a statement of generally accepted accounting principles?
    1. Statements of financial standards issued by the FASB
    2. Accounting interpretations issued by the FASB
    3. APB Opinions
    4. Accounting research studies issued by the AICPA

 

  1. Rule 203 of the Code of Professional Conduct addresses:

 

  1. ethical requirements.
  2. financial statements should be based on generally accepted accounting principles.
  3. advertising to obtained clients.
  4. auditing financial statements.

 

 

 

1 14       Test Bank for Intermediate Accounting, Fourteenth Edition

 

 

  1. What is the purpose of a FASB Staff Position?

 

  1. Provide interpretation of existing standards.
  2. Provide a consensus on how to account for new and unusual financial transactions.
  3. Provide interpretive guidance.
  4. Provide timely guidance on select issues.

 

 

  1. Which of the following is not considered a component of generally accepted accounting principles?

 

  1. FASB Implementation Guides.
  2. Widely recognized industry practices.
  3. Articles published in CPA journals.
  4. AICPA Accounting Interpretations.

 

  1. Financial accounting standard-setting in the United States

 

  1. can be described as a social process which reflects political actions of various interested user groups as well as a product of research and logic.

 

  1. is based solely on research and empirical findings.
  2. is a legalistic process based on rules promulgated by governmental agencies.
  3. is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

 

  1. The purpose of the International Accounting Standards Board is to

 

  1. issue enforceable standards which regulate the financial accounting and reporting of multinational corporations.
  2. develop a uniform currency in which the financial transactions of companies through-out the world would be measured.

 

  1. promote uniform accounting standards among countries of the world.
  2. arbitrate accounting disputes between auditors and international companies.

 

  1. What is not a source of pressure that may influence the accounting standard setting process?

 

  1. CPA firms.
  2. None of the above.

 

  1. What is a possible danger if politics plays too big a role in accounting standard setting?

 

  1. Accounting standards that are not truly generally accepted.
  2. Individuals may influence the standards.
  3. User groups become active.
  4. The FASB delegates its authority to elected officials.

 

 

 

Financial Accounting and Accounting Standards 1 15

 

 

  1. What is expectation gap?

 

  1. The difference between what the public thinks the accountant is not doing and what the accountant knows they dont do.
  2. The difference between what the public thinks the accountant is doing and what Congress says the accountant is doing.
  3. The difference between what the public thinks the accountant is doing and what the accountant thinks they can do.

 

  1. The difference between what the accountant is doing and what the Courts say the accountant should be doing.

 

  1. What is not a reason that accounting standards may differ across countries?

 

  1. Past Practice.

 

  1. What would be an advantage of having all countries adopt and follow the same accounting standards?

 

  1. Lower preparation costs.
  2. b and c

 

  1. Which of the following is an ethical concern of accountants?

 

  1. Earnings manipulation.
  2. Conservative accounting.
  3. Industry practices.
  4. None of the above.

 

 

Multiple Choice AnswersConceptual

 

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
21. a 31. c 41. c 51. a 61. c 71. d 81. c
22. d 32. c 42. d 52. c 62. d 72. d 82. b
23. d 33. c 43. d 53. c 63. b 73. d 83. d
24. a 34. d 44. b 54. d 64. b 74. b 84. a
25. d 35. c 45. b 55. d 65. c 75. c    
26. b 36. b 46. a 56. d 66. d 76. c    
27. b 37. c 47. c 57. a 67. c 77. a    
28. a 38. c 48. d 58. b 68. d 78. c    
29. d 39. b 49. c 59. b 69. d 79. d    
30. d 40. a 50. b 60. b 70. d 80. a    

 

 

 

1 16       Test Bank for Intermediate Accounting, Fourteenth Edition

 

 

EXERCISES

 

Ex. 1-85Objective of financial reporting.

 

What is the objective of financial reporting? How do general-purpose financial statements help meet this objective.

 

 

Solution 1-85

 

The objective of financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity.

 

General-purpose financial statements provide financial reporting information to a wide variety of users. They help shareholders, creditors, employees, and regulators to better understand a companys financial position and related performance.

 

 

 

 

Ex. 1-86Development of accounting principles.

 

 

Presented below are three independent, unrelated statements regarding the formulation of generally accepted accounting principles. Each statement contains some incorrect or debatable statement(s).

 

Statement I

 

The users of financial accounting statements have coinciding and conflicting needs for statements of various types. To meet these needs, and to satisfy the financial reporting responsibility of management, accountants prepare different sets of financial statements for different users.

 

Statement II

 

The FASB should be responsive to the needs and viewpoints of the entire economic community, not just the public accounting profession. The FASB therefore will succeed because it will deal effectively with all interested groups.

 

 

Statement III

 

The Securities and Exchange Commission is very concerned about financial reporting and has formulated a committee called the Accounting Standards Executive Committee (AcSEC) to provide input to the FASB. In addition, after each FASB Statement is issued, the AcSEC issues Statements of Position stating its position on the FASB statement.

 

Instructions

 

Evaluate each of the independent statements and identify the areas of fallacious reasoning in each. Explain why the reasoning is incorrect. Complete your discussion of each statement before proceeding to the next statement.

 

 

 

Financial Accounting and Accounting Standards 1 17

 

 

Solution 1-86

 

Statement I

 

It is true that users of financial accounting statements have coinciding and conflicting needs for statements of various types. However, to meet these needs, accountants generally prepare a single set of general-purpose financial statements, rather than a number of different types of financial statements. It may be argued that accountants often do prepare special statements for particular purposes, but in general the accounting profession has relied on general purpose financial statements prepared in conformance with generally accepted accounting principles.

 

Statement II

 

It is true that the FASB should be responsive to the needs of the entire economic community, not just the public accounting profession. However, it is not clear whether the FASB will succeed. The FASB will have the best chance of survival if it deals with problems promptly, sets proper priorities, takes whatever action it thinks is right and in the public interest, and handles pressures responsibly without overreacting to them.

 

Statement III

 

The Accounting Standards Executive Committee (AcSEC) was established within the American Institute of Certified Public Accountants, not the Securities and Exchange Commission, to respond to pronouncements of the FASB. The AcSEC does issue Statements of Position, but issues them before the FASB sets standards on the issue.

 

 

Ex. 1-87Publications and organizations.

 

Significant accounting publications are listed below (1-8). Sources or sponsors of accounting publications are identified next by alphabetical character (a-f). Match the publications with their sources.

 

Publications

 

____  1.      Accounting Research Bulletins (1953-1959)

 

____  2.     Statements on Auditing Standards

 

____  3.      Statements of Position (SOPs)

 

____  4.     Emerging Issues Task Force Statements

 

____  5.      Opinions (1962-1973)

 

____  6.     Technical Bulletins

 

____  7.     Statements of Financial Accounting Standards

 

____  8.     Statements of Financial Accounting Concepts

 

    Sources/Sponsors  
a. Auditing Standards Board d. Committee on Accounting Procedure
b. Accounting Standards Executive Committee e. Accounting Principles Board
c. The AICPA f. Financial Accounting Standards Board

 

 

 

1 18       Test Bank for Intermediate Accounting, Fourteenth Edition

 

Solution 1-87        
1. d 4. f 7. f
2. a 5. e 8. f
3. b 6. f    

 

 

Ex. 1-88FASB.

 

The Financial Accounting Standards Board was established because many groups interested in financial reporting believed that the Accounting Principles Board was not effective. Discuss the apparent advantages that the FASB should have over its earlier counterpart, the APB.

 

 

Solution 1-88

 

  1. Smaller membership. The FASB is composed of seven members, replacing the relatively large 18-member APB.

 

  1. Full-time, remunerated membership. FASB members are well-paid, full-time members, appointed for renewable five-year terms. The APB members were unpaid and part-time.

 

  1. Greater autonomy. The APB was a senior committee of the AICPA, whereas the FASB is not part of any single professional organization. It is appointed by and answerable only to the Financial Accounting Foundation.

 

  1. Increased independence. APB members retained their private positions with firms, companies, or institutions. FASB members must sever all such ties.

 

  1. Broader representation. All APB members were required to be CPAs and members of the AICPA. Currently, it is not necessary to be a CPA to be a member of the FASB.

 

 

Ex. 1-89Evolution of a statement of financial accounting standards.

 

In establishing financial accounting standards, two basic premises of the FASB are (1) The FASB should be responsive to the needs and viewpoints of the entire economic community, not just the accounting profession. (2) It should operate in full view of the public through a due process system that gives interested persons ample opportunity to make their views known. To ensure achievement of these goals, what are the steps taken in the evolution of an FASB Statement of Financial Accounting Standards?

 

 

Solution 1-89

 

The steps in the evolution of an FASB Statement of Financial Accounting Standards are:

 

  1. Topics are identified and placed on the Boards agenda.

 

  1. Research and analysis are conducted and preliminary views of pros and cons are issued.

 

  1. A public hearing on the proposed standard is held.

 

  1. The Board evaluates the research and public response and issues an exposure draft.

 

  1. The Board evaluates the responses and changes the exposure draft, if necessary. The final standard is then issued.

 

 

 

Financial Accounting and Accounting Standards 1 19

 

 

 

IFRS QUESTIONS

 

True/False:

 

  1. IFRS includes both International Financial Reporting Standards and International Accounting Standards.

 

  1. International Financial Reporting Standards preceded International Accounting Standards

 

  1. The standard-setting structure used by the International Accounting Standards Board is very similar to that used by the Financial Accounting Standards Board.

 

  1. The rules-based standards of IFRS are more detailed than the simpler, principles-based standards of U.S. GAAP.

 

  1. The International Accounting Standards Board issues International Financial Reporting Standards.

 

  1. International Accounting Standards are no longer considered part of IFRS because they have been replaced by International Financial Reporting Standards.

 

 

Answers to True/False questions:

 

  1. True
  2. False
  3. True
  4. False
  5. True
  6. False

 

 

 

Multiple Choice:

 

  1. Authoritative standards for IFRS include:

 

  1. International Financial Reporting Standards only.
  2. International Financial Reporting Standards and International Accounting Standards only.
  3. International Financial Reporting Standards, International Accounting Standards and U.S. GAAP only.

 

  1. International Financial Reporting Standards, International Accounting Standards and any GAAP standard recognized by an organized stock exchange.

 

 

 

1 20       Test Bank for Intermediate Accounting, Fourteenth Edition

 

 

  1. Which of these statements regarding the IFRS and U.S. GAAP is correct?

 

  1. S. GAAP is considered to be principles-based and more detailed than IFRS.
  2. S. GAAP is considered to be rules-based and less detailed than IFRS.
  3. IFRS is considered to be principles-based and less detailed than U.S. GAAP
  4. Both U.S. GAAP and IFRS are considered to be rules-based, but U.S. GAAP tends to be more complex.

 

  1. The IASBs standard-setting structure includes all of the following except

 

  1. Standing Interpretations Committee
  2. Standards Advisory Council
  3. Standards Comparison Committee
  4. Trustees

 

 

Answers to Multiple Choice:

 

  1. b
  2. c
  3. c

 

 

Short Answer:

 

  1. Why would it be advantageous for U.S. GAAP and International GAAP to be the same?

 

  1. Relevant and reliable financial information is a necessity for viable capital markets. Unfortunately, financial statements from companies outside the United States are often prepared using different principles than U.S. GAAP. As a result, international companies have to develop financial information in different ways. Beyond the additional costs these companies incur, users of financial statements are often forced to understand at least two sets of GAAP. It is not surprising that there is a growing demand for one set of high quality international standards.

 

  1. What is the difference between principles-based and rules-based accounting rules? Is IFRS more principles-based than U.S. GAAP? Explain.

 

  1. Principles-based rules are considered to be based on accounting principles to result in financial statements that are presented. Rules-based standards are generally quite detailed, and in many instances follow a check-box mentality that some contend may shield auditors and companies from legal liability. Because IFRS tends to be simpler and less stringent in its accounting and disclosure requirements, it is generally considered more principles-based than U.S. GAAP.TRUE/FALSE

     

    1. A ledger is where the company initially records transactions and selected other events.

     

    1. Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed.

     

    1. Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed.

     

    1. An example of an internal event would be a flood that destroyed a portion of a companys inventory.

     

    1. All liability and stockholders equity accounts are increased on the credit side and decreased on the debit side.

     

    1. In general, debits refer to increases in account balances, and credits refer to decreases.

     

    1. The first step in the accounting cycle is the journalizing of transactions and selected other events.

     

    1. One purpose of a trial balance is to prove that debits and credits of an equal amount are in the general ledger.

     

    1. A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts.

     

    1. If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts.

     

    1. Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period.

     

    1. An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense.

     

    1. The book value of any depreciable asset is the difference between its cost and its salvage value.

     

    1. The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

     

    1. The post-closing trial balance consists of asset, liability, owners equity, revenue and expense accounts.

     

    1. All revenues, expenses, and the dividends account are closed through the Income Summary account.

     

    1. It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period.

     

     

    The Accounting Information System 3 7

     

    *18.        The accrual basis recognizes revenue when earned and expenses in the period when cash is paid.

     

    *19.        Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions.

     

    *20.        An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries.

     

     

    True / False Answers Conceptual

     

    Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
    1. F 5. F 9. T 13. F 17. F
    2. T 6. F 10. F 14. T *18. F
    3. F 7. F 11. T 15. F *19. F
    4. F 8. T 12. T 16. F *20. F

     

     

     

    MULTIPLE CHOICEConceptual

     

    1. Factors that shape an accounting information system include the

     

    1. nature of the business.
    2. size of the firm.
    3. volume of data to be handled.
    4. all of these.

     

    1. Maintaining a set of accounting records is

     

    1. required by the Internal Revenue Service.
    2. required by the Foreign Corrupt Practices Act.
    3. required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

     

    1. Debit always means

     

    1. right side of an account.
    2. none of these.

     

    1. An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the

     

    1. trial balance.
    2. none of these.

     

     

    3 8          Test Bank for Intermediate Accounting, Fourteenth Edition

     

    1. A trial balance

     

    1. proves that debits and credits are equal in the ledger.
    2. supplies a listing of open accounts and their balances that are used in preparing financial statements.
    3. is normally prepared three times in the accounting cycle.
    4. all of these.

     

    1. Which of the following is a real (permanent) account?

     

    1. Goodwill
    2. Sales
    3. Accounts Receivable
    4. Both Goodwill and Accounts Receivable

     

    1. Which of the following is a nominal (temporary) account?

     

    1. Unearned Revenue
    2. Salary Expense
    3. Inventory
    4. Retained Earnings

     

    1. Nominal accounts are also called

     

    1. temporary accounts.
    2. permanent accounts.
    3. real accounts.
    4. none of these.

     

    1. The double-entry accounting system means

     

    1. Each transaction is recorded with two journal entries.
    2. Each item is recorded in a journal entry, then in a general ledger account.
    3. The dual effect of each transaction is recorded with a debit and a credit.
    4. More than one of the above.

     

    1. When a corporation pays a note payable and interest,

     

    1. the account notes payable will be increased.
    2. the account interest expense will be decreased.
    3. they will debit notes payable and interest expense.
    4. they will debit

     

    1. Stockholders equity is not affected by all

     

    1. cash receipts.

     

    1. The debit and credit analysis of a transaction normally takes place

     

    1. before an entry is recorded in a journal.
    2. when the entry is posted to the ledger.
    3. when the trial balance is prepared.
    4. at some other point in the accounting cycle.

     

     

    The Accounting Information System 3 9

     

    1. The accounting equation must remain in balance

     

    1. throughout each step in the accounting cycle.
    2. only when journal entries are recorded.
    3. only at the time the trial balance is prepared.
    4. only when formal financial statements are prepared.

     

    1. The difference between the accounting process and the accounting cycle is

     

    1. the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions.
    2. the accounting cycle represents the steps taken to accomplish the accounting process.

     

    1. the accounting process represents the steps taken to accomplish the accounting cycle.
    2. merely semantic, because both concepts refer to the same thing.

     

    1. An optional step in the accounting cycle is the preparation of

     

    1. adjusting entries.
    2. closing entries.
    3. a statement of cash flows.
    4. a post-closing trial balance.

     

    1. Which of the following criteria must be met before an event or item should be recorded for accounting purposes?
      1. The event or item can be measured objectively in financial terms.
      2. The event or item is relevant and reliable.
      3. The event or item is an element.
      4. All of these must be met.

     

    1. Which of the following is a recordable event or item?

     

    1. Changes in managerial policy
    2. The value of human resources
    3. Changes in personnel
    4. None of these

     

    1. Which of the following is not an internal event?

     

    1. Depreciation
    2. Using raw materials in the production process
    3. Dividend declaration and subsequent payment
    4. All of these are internal transactions.

     

    1. External events do not include

     

    1. interaction between an entity and its environment.
    2. a change in the price of a good or service that an entity buys or sells, a flood or earthquake.

     

    1. improvement in technology by a competitor.
    2. using buildings and machinery in operations.

     

    1. A trial balance may prove that debits and credits are equal, but

     

    1. an amount could be entered in the wrong account.
    2. a transaction could have been entered twice.
    3. a transaction could have been omitted.
    4. all of these.

     

     

    3 10       Test Bank for Intermediate Accounting, Fourteenth Edition

     

    1. A general journal

     

    1. chronologically lists transactions and other events, expressed in terms of debits and credits.
    2. contains one record for each of the asset, liability, stockholders equity, revenue, and expense accounts.
    3. lists all the increases and decreases in each account in one place.
    4. contains only adjusting entries.

     

    1. A journal entry to record the sale of inventory on account will include a

     

    1. debit to
    2. debit to accounts receivable.
    3. debit to
    4. credit to cost of goods sold.

     

    1. A journal entry to record a payment on account will include a

     

    1. debit to accounts receivable.
    2. credit to accounts receivable.
    3. debit to accounts payable.
    4. credit to accounts payable.

     

    1. A journal entry to record a receipt of rent revenue in advance will include a

     

    1. debit to rent revenue.
    2. credit to rent revenue.
    3. credit to
    4. credit to unearned rent.

     

    1. Which of the following errors will cause an imbalance in the trial balance?

     

    1. Omission of a transaction in the journal.
    2. Posting an entire journal entry twice to the ledger.
    3. Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable.
    4. Listing the balance of an account with a debit balance in the credit column of the trial balance.

     

    S46.      Which of the following is not a principal purpose of an unadjusted trial balance?

    1. It proves that debits and credits of equal amounts are in the ledger.
    2. It is the basis for any adjustments to the account balances.
    3. It supplies a listing of open accounts and their balances.
    4. It proves that debits and credits were properly entered in the ledger accounts.

     

    S47.      An adjusting entry should never include

    1. a debit to an expense account and a credit to a liability account.
    2. a debit to an expense account and a credit to a revenue account.
    3. a debit to a liability account and a credit to revenue account.
    4. a debit to a revenue account and a credit to a liability account.

     

    1. Which of the following is an example of an accrued expense?

     

    1. Office supplies purchased at the beginning of the year and debited to an expense account.
    2. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.

     

    1. Depreciation expense
    2. Rent earned during the period, to be received at the end of the year

     

     

    The Accounting Information System 3 11

     

    P49.      Which of the following statements is associated with the accrual basis of accounting?

    1. The timing of cash receipts and disbursements is emphasized.
    2. A minimum amount of record keeping is required.
    3. This method is used less frequently by businesses than the cash method of accounting.
    4. Revenues are recognized in the period they are earned, regardless of the time period the cash is received.

     

    P50.      An adjusting entry to record an accrued expense involves a debit to a(an):

    1. expense account and a credit to a prepaid account.
    2. expense account and a credit to Cash.
    3. expense account and a credit to a liability account.
    4. liability acco

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