Question 1

The primary reason that financial accounting and managerial accounting have somewhat different objectives is because they
A)need information in different formats
B)provide information for different decisions
C)need information in different geographic locations
D)need information at different times

Accepted Answer

Financial accounting is focused on providing information to external stakeholders, such as investors and creditors, in order to help them make decisions about whether or not to invest in a company. Managerial accounting, on the other hand, is focused on providing information to internal stakeholders, such as managers and employees, in order to help them make decisions about how to effectively manage and run the company. Therefore, their objectives are different and tailored to the specific needs of their intended audience.

Question 2

Assume that authoritative support regarding GAAP for a particular transaction is needed.A correct hierarchy of authority to be followed (highest, second, third)would be
A)FASB Statements, AICPA Accounting Interpretations, FASB Technical Bulletins
B)FASB Technical Bulletins, AICPA Accounting Interpretations, FASB Statements
C)AICPA Accounting Interpretations, FASB Technical Bulletins, FASB Statements
D)FASB Statements, FASB Technical Bulletins, AICPA Accounting Interpretations

Accepted Answer

FASB Statements have the highest authority, followed by FASB Technical Bulletins, and then AICPA Accounting Interpretations. Therefore, the correct hierarchy of authority to be followed would be FASB Statements, FASB Technical Bulletins, and then AICPA Accounting Interpretations. Option D is the only choice that follows this hierarchy, so it is the best choice.

Question 3

Which of the following pronouncements issued by the FASB does not provide for the highest level of authoritative support?
A)technical bulletins
B)interpretations
C)statements of financial accounting standards
D)staff positions

Accepted Answer

Technical bulletins provide guidance on specific accounting issues, but they are not considered to be as authoritative as interpretations, statements of financial accounting standards, or staff positions.

Question 4

Exchanges of capital stock and bonds that occur between investors take place in
A)primary markets
B)open markets
C)secondary markets
D)private markets

Accepted Answer

Exchanges of stocks and bonds between investors take place in secondary markets. Primary markets are where new securities are issued, often through initial public offerings (IPOs). Open markets are a general term that can refer to any type of market that is freely accessible to buyers and sellers, often used to describe publicly-traded securities. Private markets are where securities are sold privately, often to accredited investors.

Question 5

The FASB Accounting Standards Codification is expected to provide all of the following benefits except
A)reduce the research time necessary to solve an accounting research issue
B)codify authoritative support such as results of academic research
C)provide real-time updates as new standards are issued
D)improve the usability of the authoritative accounting literature

Accepted Answer

The FASB Accounting Standards Codification does not include results of academic research as authoritative support. Rather, it codifies only existing authoritative accounting literature from sources such as FASB Statements and EITF Abstracts.

Question 6

Which pronouncements are not issued by the FASB?
A)Statements of Financial Accounting Concepts
B)Technical Bulletins
C)Opinions
D)Interpretations

Accepted Answer

Opinions were issued by the American Institute of Certified Public Accountants (AICPA) Accounting Principles Board, not by the Financial Accounting Standards Board (FASB).

Question 7

Which of the following statements is true?
A)In order to remain impartial, the FASB discourages public input during development of standards.
B)FASB accounting standards are the result of clearly defined objectives, an integrated body of theory, and the known consequences of actions.
C)The FASB deliberates and issues accounting standards only after receiving a formal letter of request from the SEC.
D)Accounting standards, which reflect social decisions, are often the result of compromise.

Accepted Answer

Accounting standards are indeed reflective of social decisions and often result from compromise among various stakeholders, including businesses, regulators, and users of financial statements. This is because the development of these standards involves considering the diverse interests and perspectives of different parties, leading to outcomes that may not fully satisfy any single group but are acceptable to all involved.

Question 8

The organization that presently has the primary responsibility to establish generally accepted accounting principles that are applicable to the financial statements of entities in the U.S.private sector is the
A)Accounting Principles Board
B)Securities and Exchange Commission
C)Financial Accounting Standards Board
D)Committee on Accounting Procedure

Accepted Answer

The Financial Accounting Standards Board (FASB) has been the primary organization responsible for setting generally accepted accounting principles (GAAP) for the U.S. private sector since 1973. The Accounting Principles Board (APB) and the Committee on Accounting Procedure (CAP) were earlier bodies that had a role in setting GAAP, but the FASB replaced them as the primary standard-setting organization. The Securities and Exchange Commission (SEC) oversees the FASB and has the authority to establish GAAP if needed, but it generally defers to the FASB.

Question 9

Concerning FASB membership, which statement is not true?
A)Not all members are CPAs from public practice.
B)All members are full time and fully paid.
C)All members are also members of the Financial Accounting Foundation.
D)All members must sever organizational ties with their previous employer.

Accepted Answer

Members of the FASB are not required to be members of the Financial Accounting Foundation. The Financial Accounting Foundation is responsible for selecting members of the FASB and overseeing its activities, but being a member of one does not necessitate membership in the other.

Question 10

Exchanges of capital stock and bonds between a corporation and investors take place in
A)secondary markets
B)primary markets
C)stock exchanges
D)tertiary markets

Accepted Answer

Exchanges of capital stock and bonds between a corporation and investors take place in primary markets. Primary markets are where new securities are issued and sold for the first time, with the proceeds going to the issuer. Secondary markets are where existing securities are bought and sold by investors, with the proceeds going to other investors rather than the issuer. Stock exchanges are physical or virtual marketplaces where securities are traded. Tertiary markets are not a recognized category of financial markets.

Question 11

Which of the following is not a decision that external users of a company's financial information would make?
A)whether or not to extend credit to the company
B)whether or not to hold the company's stock
C)whether or not the company should add a new product line
D)whether or not to ask for an increase in employees' benefits during union contract negotiations

Accepted Answer

External users of financial information do not make decisions about the company's internal operations such as adding a new product line. A, B, and D are decisions that external users such as creditors, investors, and employees would make based on the company's financial information.

Question 12

The four major financial statements of a corporation consist of the
A)income statement, balance sheet, statement of cash flows, and statement of changes in stockholders' equity
B)balance sheet, statement of cash flows, statement of retained earnings, and income statement
C)income statement, statement of cash flows, and balance sheet
D)statement of cash flows, balance sheet, income statement, and statement of capital equity

Accepted Answer

The four major financial statements of a corporation are the income statement, balance sheet, statement of cash flows, and statement of changes in stockholders' equity. Option A lists all four statements correctly. Option B includes a statement of retained earnings instead of a statement of changes in stockholders' equity. Option C excludes the statement of changes in stockholders' equity. Option D lists the statements in an incorrect order.

Question 13

Which of the following is an internal user of a company's financial information?
A)company treasurer
B)stockholder in the company
C)bank lending to the company
D)union

Accepted Answer

The company treasurer is an internal user of financial information as they are responsible for managing the company's finances and making financial decisions. Stockholders are external users, banks are external users, and unions are typically external users as well, but may have some access to financial information for negotiations.

Question 14

Creditors' information needs revolve around all of the following decisions, except
A)extending credit
B)maintaining a credit relationship
C)not extending credit
D)investing in credit instruments

Accepted Answer

Creditors' information needs do not revolve around investing in credit instruments, as they are the ones lending money, not seeking to invest it. Their information needs are focused on deciding whether or not to extend credit, maintain a credit relationship, or not extend credit altogether.

Question 15

Going from 1938 to the present, which is the correct sequence of accounting rule-making bodies?
A)APB-CAP-FASB
B)CAP-FASB-APB
C)CAP-APB-FASB
D)FASB-APB-CAP

Accepted Answer

The Committee on Accounting Procedure (CAP) existed from 1939 to 1959 and was the first accounting rule-making body. It was replaced by the Accounting Principles Board (APB) from 1959 to 1973. Finally, in 1973 the Financial Accounting Standards Board (FASB) was established and remains the current accounting rule-making body. Therefore, the correct sequence is CAP-APB-FASB.

Question 16

Agency theory suggests that managers' behavior
A)may be to enhance the owners' financial interests at the expense of their self-interests
B)will always follow classic agency law
C)may not always be in the best interests of the owners (stockholders)
D)as agents will always be in the best interests of the owners (stockholders)

Accepted Answer

Agency theory acknowledges the possibility of divergent interests between the principal (owners/stockholders) and agent (managers). This means that managers' behavior may not always align with the best interests of the owners.

Question 17

Notes to financial statements provide
A)discussions that further explain items shown in the financial statements
B)comparative financial information with the previous year
C)management's discussions about plans for the future
D)the report of the independent auditors

Accepted Answer

Notes to financial statements provide additional explanations and details about the items shown in the financial statements, such as accounting policies, contingencies, and significant events. They help users better understand the financial performance and position of the company. The other options mentioned - comparative financial information, management discussions about plans for the future, and the report of the independent auditors - may be included in the notes, but they are not the primary purpose of the notes.

Question 18

Which characteristic applies more to financial accounting than to managerial accounting?
A)primarily segmented reports
B)primarily quantitative information
C)Internal-decision focus
D)statement format determined by company information needs

Accepted Answer

Financial accounting focuses more on quantitative information such as financial statements, balance sheets and income statements to provide a summary of a company's financial performance. Managerial accounting, on the other hand, focuses more on internal decision-making and uses primarily segmented reports that provide more detailed information for management's use. The statement format for financial accounting is determined by generally accepted accounting principles (GAAP), while the statement format for managerial accounting is tailored to the specific needs of the company.

Question 19

Which of the following documents includes all of the accounting standards?
A)Regulation S-X
B)The FASB Conceptual Framework
C)Statements of Financial Accounting Standards
D)none of these

Accepted Answer

None of these documents individually includes all of the accounting standards. Regulation S-X outlines the form and content of financial statements required by the SEC, the FASB Conceptual Framework provides an underlying structure for the development of accounting standards, and Statements of Financial Accounting Standards (issued by the FASB) are specific standards, but not all encompassing.

Question 20

How many FASB members are there?
A)5
B)7
C)21
D)33

Accepted Answer

The FASB has seven members.

Quiz 1: The Environment of Financial Reporting

The primary reason that financial accounting and managerial accounting have somewhat different objectives is because they

Assume that authoritative support regarding GAAP for a particular transaction is needed.A correct hierarchy of authority to be followed (highest, second, third) would be

Which of the following pronouncements issued by the FASB does not provide for the highest level of authoritative support?

Exchanges of capital stock and bonds that occur between investors take place in

The FASB Accounting Standards Codification is expected to provide all of the following benefits except

Which pronouncements are not issued by the FASB?

Which of the following statements is true?

The organization that presently has the primary responsibility to establish generally accepted accounting principles that are applicable to the financial statements of entities in the U.S.private sector is the

Concerning FASB membership, which statement is not true?

Exchanges of capital stock and bonds between a corporation and investors take place in

Which of the following is not a decision that external users of a company's financial information would make?

The four major financial statements of a corporation consist of the

Which of the following is an internal user of a company's financial information?

Creditors' information needs revolve around all of the following decisions, except

Going from 1938 to the present, which is the correct sequence of accounting rule-making bodies?

Agency theory suggests that managers' behavior

Notes to financial statements provide

Which characteristic applies more to financial accounting than to managerial accounting?

Which of the following documents includes all of the accounting standards?

How many FASB members are there?