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Exam 1: Environment and Theoretical Structure of Financial Accounting

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Question 21

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Which of the following does not apply to secondary markets?

A) Transactions are important to the efficient allocation of resources in our economy.
B) New resources are provided when shares of stock are sold by the corporation to the initial owners.
C) Transactions help to establish market prices for additional shares that may be issued in the future.
D) Many investors might be unwilling to provide resources to corporations if there is no available mechanism for the future sale of their stocks and bonds to others.

E) A) and D)
F) All of the above

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Question 22

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A firm's comprehensive income is always:

A) The same as its net income.
B) Greater than its net income.
C) Less than its net income.
D) Could be greater than or less than net income.

E) A) and B)
F) A) and C)

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Question 23

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What is the SEC and how is it involved with accounting standard setting?

Accounting standard setting has been characterized as:

Which of the following is not an identified valuation technique in SFAS No. 157?

Accounting standards have developed over time to reflect changes in the business world as well as changes in our ability to account for such changes. Using the example of marking assets and liabilities to their fair value, explain why you would expect accounting standards to change.

The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors.

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

Equity is a residual amount representing the owner's interest in the assets of the business.

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

Compute net income for the first year for Alpaca Corporation.

Change in equity from nonowner sources is:

Identify or define the following terms: a. historical cost, b. realization.

Secondary qualitative characteristics of accounting information include:

The matching principle is:

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

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:

Compute net income for the first year for Tri Fecta.

Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The concept demonstrated is:

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