Test Bank For Intermediate Accounting Reporting and Analysis 3rd Edition James M Wahlen

Chapter 1
Intermediate Accounting: Reporting and Analysis, 3rd Ed

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1. A problem arising from equal information is called information

asymmetry. a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ACCT.WHAL.16.1.1 - LO: 1.1
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision Modeling
KEYWORDS: Bloom's: Remembering
2. The demand for relevant and reliable financial information stems from the needs of the internal and
external stakeholders.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
3. The mission of the Securities and Exchange Commission is to protect investors, maintain fair, orderly, and
efficient markets, and assist in the formation of capital.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Copyright Cengage Learning. Powered by Cognero. Page 1
Chapter 1
4. The SEC uses its authority to establish accounting standards, while also enforcing regulations on
companies, exchanges, and investors.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
5. The Financial Accounting Standards Board (FASB) began in 1973 after the AICPA phased out the Accounting
Principles Board
(APB). a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
6.
FASB’s Emerging Issues Task Force assists and advises the FASB by identifying and addressing timely but
more narrow and specific standard setting issues.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
7. The Codification is set up as a system of levels starting with sections, topics, and
subtopics. a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
8. The Codification was established to assist in reducing the time necessary to research an accounting issue and
improve the ability to utilize accounting information that conforms with GAAP.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
9. The convergence project between the IASB and GAAP was initiated in 2002 when the two boards entered into
the
“Northward
Agreement”. a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
10. A potential issue facing the convergence project is that many companies have entered into contracts based upon
U.S.
GAAP financial reporting; many of these contracts will have to be renegotiated using IFRS which potentially
could cause some companies more harm than good.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
11. The balance sheet is a snapshot of a company’s financial position at a particular

date. a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
12. The statement of shareholders' equity reports the effects from the recognition or valuation of certain asset or
liability transactions that change Accumulated Other Comprehensive Income.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
13. “In carrying out their responsibilities as professionals, members should exercise sensitive professional and
moral judgments in all their activities.” This is the Integrity Principle of the AICPA Code of Professional
Conduct.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
14. “Members should act in a way that will service the public interest, honor the public trust, and demonstrate
commitment to professionalism.” This is the Public Interest Principle of the AICPA’s Code of Professional
Conduct. a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
15. 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
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
16. Which of the following is an internal user of a company's financial

information?
a. company treasurer
b. shareholder in the company
c. bank lending to the
company d. union
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
17. After formulating a strategic plan, a company will engage in what three types of activities?
a. Planning, operating, and
selling b. Investing, operating,
and selling
c. Financing, investing, and
operating d. Operating, planning,
and financing
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Reporting
KEYWORDS: Bloom's:
Remembering
Chapter 1
18. What is Financial Reporting?

a. The process of communicating internal accounting information to existing and potential investors,
creditors, lenders, and other external decision makers.
b. The process of communicating financial accounting information to existing and potential investors,
creditors, lenders, and other external decision makers.
c. The process of preparing financial accounting information to existing and potential investors,
managers, and employees.
d. The process of communicating the strategic plan to existing and potential investors, creditors, lenders, and
other external decision makers.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
19. When making decisions, equity investors are interested in

assessing a. the company's ability to generate cash flows.
b. management's ability to increase the capital providers'
investments. c. the company's ability to pay dividends.
d. All of these choices
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
20. Which of the following is not a decision that external stakeholder’s 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
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
21. As a potential equity investor, what information about a company would you be least interested in prior to
making an investment decision?
a. What differentiates them from their competition?
b. Whether they are generating a profit?
c. Whether they have positive cash flows?
d. What are the employee benefits and compensation packages?
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
22. 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
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
KEYWORDS:
NATIONAL STANDARDS: Bloom's:
United States - BUSPROG: Reflective Thinking
Remembering
Chapter 1
KEYWORDS: Bloom's:
Remembering
Chapter 1
23. Information asymmetry may cause problems because management’s 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 (shareholders).
d. as agents will always be in the best interests of the owners (shareholders).
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
24. Which of the following organizations has legal authority to prescribe accounting principles and reporting
practices for all corporations issuing publicly traded securities within the U.S. capital markets?
a. Accounting Principles Board
b. Securities and Exchange
Commission c. Financial Accounting
Standards Board d. Committee on
Accounting Procedure
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
25. Which organization has the most legal authority?

a. Financial Accounting Standards Board
b. Accounting Standards Executive
Committee c. Governmental Accounting
Standards Board d. Securities and Exchange
Commission
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-
Legal KEYWORDS: Bloom's: Remembering
KEYWORDS: Bloom's:
Remembering
Chapter 1
26. Three major organizations in the private and public sector develop U.S. and International Financial Reporting
Standards. They include all of the following except
the a. EU (European Union).
b. SEC (Securities and Exchange Commission).
c. FASB (Financial Accounting Standards Board).
d. IASB (International Accounting Standards Board).
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
27. The Securities and Exchange Commission has the legal authority to prescribe accounting principles and
reporting practices for
a. all companies issuing publicly traded
securities b. all companies issuing any type of
securities
c. all companies
d. all corporations
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
28. Which of the following is not a major standard-setting body responsible for the establishment of U.S. and
International Financial Reporting Standards?
a. SEC (Securities Exchange Commission)
b. PCAOB (Public Company Accounting Oversight Board)
c. FASB (Financial Accounting Standards Board)
d. IASB (International Accounting Standards Board)
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's:
Remembering
Chapter 1
LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal
KEYWORDS: Bloom's:
Remembering
Chapter 1
29. While formally the SEC is charged with the responsibility for establishing accounting principles to be followed
in the preparation of SEC filings, the impact of the SEC generally has been
a. in its assistance to Congress with the development of tax
law. b. in guiding the development of stock exchanges.
c. ineffective in controlling foreign corporations and investors.
d. in its informal review and approval of standards developed in the private sector prior to their release.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Legal KEYWORDS: Bloom's: Understanding
30. What is the relationship between the Securities and Exchange Commission and accounting standard setting in the
United States?
a. The SEC requires all companies listed on an exchange to submit their financial statements to the
SEC. b. The SEC coordinates with the FASB in establishing accounting standards.
c. The SEC has a mandate to establish accounting standards for corporations listed in the U.S. capital
markets. d. The SEC reviews financial statements for compliance with U.S. GAAP or IFRS.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
KEYWORDS: Bloom's: Understanding
31. The Securities Exchange Act of 1934 established extensive reporting requirements for listed companies. Which is
not
a commonly required report?
a. Form 10-Q. An extensive quarterly report, including financial
statements. b. Form S-2. A registration statement
c. Form 10-K. An extensive annual report, including financial statements
d. Form 8-K. A report used to describe significant events that may affect the company.
ANSWER: b
POINTS: 1
KEYWORDS: Bloom's:
Remembering
Chapter 1
KEYWORDS: Bloom's:
Remembering
Chapter 1
32. Which of the following statements regarding Standards contained in the FASB Accounting Standards Codification
(ASC) is true?
a. They have the force of law, and failure to follow them can be
prosecuted. b. They apply to financial reporting by all U.S. companies.
c. They were created in 2009 when the ASC was created and did not exist prior to that
time. d. They have to be approved by the SEC before they become effective.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ACCT.WHAL.16.1.3 - LO:
1.3
NATIONAL STANDARDS: United States - BUSPROG: Reflective
Thinking
33. 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 have economic and political consequences, are often the result of
compromise.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
1.3
Thinking
34. Beginning in 1938 and extending 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

Chapter 1
d. FASB-APB-
CAP
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
1.3
Thinking
LOCAL STANDARDS: United States - OH - Default City - AICPA: FN-Decision
Modeling

Chapter 1
35. The Financial Accounting Foundation (FAF) is the parent organization of which of the following organizations?
a. AICPA (American Institute of Certified Public Accountants)
b. AAA (American Accounting Association)
c. SIFMA (Securities Industry and Financial Markets Association)
d. FASB (Financial Accounting Standards Board)
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
36. How many FASB members currently make up the Board?

a. 5
b. 7
c. 21
d. 33
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
37. 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.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
Chapter 1
38. Which of the following is not one of the stages used by the FASB process before issuing an Accounting Standards
Update?
a. Conducting research
b. Issuing an Exposure Draft
c. Obtaining approval from the SEC for the new
standard d. Holding public hearings
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
39. Which of the following statements about the FASB Accounting Standards Codification is false?
a. The Codification is currently the only authoritative source of U.S. GAAP.
b. The purpose of creating the Codification was to simplify user access to authoritative U.S.
GAAP. c. The framework of the Codification contains six levels, which are increasingly more
specific.
d. The six levels contained within the Codification framework are hierarchical in nature, such that the
higher levels are considered to be more authoritative than the lower levels.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
40. Which of the following statements about the FASB Accounting Standards Codification is true?
a. It only exists as an electronic database; paper copies are not available.
b. When the Codification was adopted in 2009, it caused major changes in the contents of U.S.
GAAP. c. It is reviewed and periodically updated by the SEC.
d. It is only one of a large number of authoritative pronouncements that have been issued over time, all of
which comprise U.S GAAP.
ANSWER: a
POINTS: 1
Chapter 1

Chapter 1
41. The FASB Accounting Standards Codification is expected to provide all of the following benefits except
a. to reduce the research time necessary to solve an accounting research
issue. b. to codify authoritative support such as results of academic
research.
c. to provide real-time updates as new standards are issued.
d. to improve the usability of the authoritative accounting literature.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
42. Which of the following statements regarding the requirement to follow U.S. GAAP in financial reporting is true?
a. U.S. GAAP has been adopted as federal law, so failure to follow U.S. GAAP is prosecuted through the
federal court system.
b. U.S. GAAP has been adopted as state law in all 50 states, so failure to follow U.S. GAAP is
prosecuted through the state court system.
c. U.S. GAAP represents a set of professional standards, and the requirement to follow U.S. GAAP is
enforced through the AICPA Code of Professional Conduct.
d. Compliance with U.S. GAAP is not enforced; it is a voluntary choice made by most companies and by
most professional accountants
ANSWER: c
POINTS: 1

Chapter 1
43. Prior to 2009, which of the following types of FASB Pronouncements carried the highest authority within
GAAP by establishing the methods and procedures required on specific accounting issues?
a. Staff Positions
b. Statements of Financial Accounting
Standards c. Statements of Financial
Accounting Concepts d. Technical Bulletins
ANSWER: b
POINTS: 1
44. The FASB Accounting Standards Codification includes six levels or components. Which of the following is not
one of those levels?
a. Area
b. Topic
c. Sub-
paragraphs d.
Paragraphs
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
45. 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
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
46. Conversion to IFRS reporting by all U.S. companies would be best accomplished with a transition plan for all
of the following reasons except
a. it would have to be a multi-year process.
b. it needs to be an orderly process with a minimum of cost and disruption to the
participants. c. certain IFRS need further improvement through continued convergence
efforts.
d. careful planning would enable maximum manipulation of the IFRS for the financial benefit of the United States.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
47. The agreement in 2002 by the FASB and IASB to develop high quality, compatible accounting standards that
could be used by both domestic and cross-border financial reporting was called the
a. International Accounting Standards agreement
b. Financial Accounting Standards Board Global
agreement c. Norwalk agreement
d. United GAAP agreement
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
48. For foreign companies that issue securities in the United States to raise capital, the SEC
a. requires these companies to file form 20-F which reconciles certain amounts reported in their
financial statements with US GAAP.
b. accepts all financial statements that use IFRS.
c. accepts only financial statements that are fully stated under US GAAP.
d. accepts financial statements from foreign companies that use English-language IFRS without exception.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
49. What is the responsibility of the International Accounting Standards Board?

a. IASB promotes uniform accounting standards among different countries.
b. IASB settles accounting disputes between auditors and international companies.
c. IASB issues standards which regulate the financial accounting and reporting of multinational
corporations and then enforces them through legal channels.
d. IASB is to develop a uniform currency in which the financial transactions would be measured.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
50. U.S. companies that have subsidiaries in foreign countries can file their financial statements with the SEC by
using?
a. IFRS
b. GAAP
c. either IFRS or GAAP
d. IFRS for their subsidiaries and GAAP for their holdings in the United States.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
51. Which of the following is not a major standard-setting body responsible for the establishment of U.S. and
international
GAAP (Generally Accepted Accounting Principles)?
a. SEC (Securities Exchange Commission)
b. PCAOB (Public Company Accounting Oversight Board)
c. FASB (Financial Accounting Standards Board)
d. IASB (International Accounting Standards Board)
ANSWER: b
POINTS: 1
DIFFICULTY: Easy

Chapter 1

Chapter 1
52. Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence
process.
The process of changing these standards usually involves
a. a short deliberation followed by a vote of the U.S.
Congress. b. acceptance of the change by the Internal
Revenue Service.
c. rejecting all existing standards and developing an entirely new concept.
d. selecting the best standard between existing U.S. and international standards.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
53. 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.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
54. What financial statement is considered the cornerstone of financial reporting?

a. the income statement
b. the statement of cash flows
c. the statement of shareholders'
equity d. the balance sheet
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
55. The accounting equations is

a. Assets + Liabilities = Shareholders'
Equity b. Assets -Liabilities =
Shareholders' Equity c. Assets = Liabilities
- Shareholders' Equity d. Assets +
Shareholders' Equity = Liabilities
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
56. Which statement measures and reports the financial results of a company’s performance for a period of time?
a. income
statement b.
balance sheet
c. statement of cash flows
d. statement of financial position
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
57. 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 shareholders'
equity. b. balance sheet, statement of cash flows, statement of retained earnings, and income statement.
c. income statement, statement of cash flows, statement of financial flexibility, and balance
sheet. d. statement of cash flows, balance sheet, income statement, and statement of capital
equity.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
58. What important topics are discussed in the Management Discussion and Analysis section of the financial
statements?
a. Business risk factors associated with the
company.
b. Management provides insight into key decisions implemented during that time period and future
developments. c. Management utilizes this area as a forum to discuss strategic motives.
d. All of these choices are
discussed.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
1.6
Thinking
Modeling
59. What is the correct order of presentation for the statement of cash flows?
a. Operating, Investing,
Financing b. Financing,
Operating, Investing c. Investing,
Financing, Operating d.
Operating, Financing, Investing
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
1.6
Thinking
Modeling
60. What is the correct presentation of the income

statement?
a. Revenues - expenses + gains - losses = Net Income
b. Revenues - expenses = Net income - losses + gains
c. Revenues - losses - expenses + gains = Net Income
d. Revenues + gains - losses - expenses = Net Income
Chapter 1
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
1.6
Thinking
Modeling

Chapter 1
61. Dividends that are paid to owners would affect both

the a. balance sheet and statement of cash flows.
b. balance sheet and income statement.
c. income statement and statement of changes in
equity. d. income statement and statement of cash
flows.
ANSWER: a
POINTS: 1
62. Which of the following transactions would be reported in the cash flows from investing activities section
in the statement of cash flows for the Harlem Company?
a. Harlem sold a piece of land for
$600,000. b. Harlem borrowed $3,000,000
c. Harlem issued common stock for $700,000 to
investors. d. Harlem paid a cash dividend to its
shareholders.
ANSWER: a
POINTS: 1
63. Which Principle of the AICPA Code of Professional Conduct is: As a member one should continually strive to
improve competence and the quality of services, observe all technical and ethical standards, and provide
professional responsibility to the best of his/her ability?
a. The Public
Interest b.
Responsibilities
c. Scope and Nature of
Services d. Due Care
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
64. Auditors face ethical issues

because
a. GAAP permits various standards to be used to produce profits.
b. auditors may express an opinion that may impact employees of a
company. c. auditors may not discover insider trading.
d. GAAP does not permit fraud.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
65. Unethical actions include which of the following?

a. polluting lakes and streams
b. overcharging on government
contracts c. securities fraud
d. All of these choices are unethical actions.
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
66. The stated principles of the AICPA Code of Professional Conduct do not
include a. Integrity.
b. Optimism.
c. Objectivity and
Independence. d.
Responsibilities.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
Chapter 1
67. Which of the following is not considered an ethical issue in accounting?

a. Biased financial statement
presentation b. Accelerated revenue
recognition
c. Earnings
manipulation d.
Industry practices
ANSWER: d
POINTS: 1
DIFFICULTY: Medium
68. The AICPA Code of Professional Conduct includes which of the following principles?
a.
Professionalism
b. Conservatism
c.
Objectivity
d. Quality
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
69. Which Principle of the AICPA Code of Professional Conduct is: A member, as a professional, should
exercise sensitive and moral judgments in all their activities?
a. Objectivity and
Independence b. Integrity
c.
Responsibilities
d. Due Care
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
70. Which Principle of the AICPA Code of Professional Conduct is: Members should broaden and maintain
public confidence by performing all of their professional responsibilities with the highest sense of honesty
possible?
a. Scope and Nature of
Services b. Due Care
c. Integrity
d. Objectivity and Independence
ANSWER: c
POINTS: 1
DIFFICULTY: Easy

Chapter 1
71. Listed below are the names of several organizations involved in the process of establishing standards for
financial reporting. Following the list is a series of statements.
a. Securities and Exchange Commission (SEC)
b. International Accounting Standards Board (IASB)
c. Financial Accounting Standards Board
Reporting standards issued by this organization are legally enforceable.

____ 1.
Failure to adhere to them is a violation of law.
Reporting standards issued by this organization only apply to companies listed on

____ 2. U.S. securities
exchanges..
Reporting standards issued by this organization apply to all U.S.

____ 3.
companies, whether publicly traded or privately held.
This organization has the legal authority and the responsibility to oversee ancial
____ 4. fin
reporting in the U.S.
____ 5. Requires 10 out of 16 board members’ approvals before a standard is d.
issue
____ 6. This organization is government agency established by the U.S.
Congress.
Required:
Match each organization with its descriptive statement by placing the letter of the appropriate organization
in the space provided. (Note: Organizations may be used more than once or not at all.)
ANSWER: 1. a
2. a
3. c
4. a
5. b
6. a
POINTS: 1
DIFFICULTY: Challenging
KEYWORDS: Bloom's: Applying

Chapter 1
72. Listed below are some of the steps the FASB goes through before issuing a new standard.
____ a. Conduct research
____ b. Deliberate on findings
____ c. Invitations to comment
____ d. Identify topic
____ e. Issue Exposure Draft
____ f. Issue Statement
____ g. Modify Exposure Draft
____ h. Vote
Required:
Indicate the proper sequence of these steps.
ANSWER: a. 2 d. 1 g. 6
b. 4 e. 5 h. 7
c. 3 f. 8
POINTS: 1
73. Listed below are the Six Principles of AICPA’s Code of Professional Conduct.
a. Responsibilities
b. Scope and Nature of
Services c. Due Care
d. The Public Interest
e. Objectivity and
Independence f. Integrity
Required:
Match each principle with its descriptive statement by placing the appropriate letter in the space provided.
Each principle choice is used only once.
A member should be free from conflicts of

interest
_______ 1) and be objective. A member should be free of
bias and provide auditing and attestation services
in an independent manner.
Chapter 1

Chapter 1
A member is public practice should always
consider the Code of Professional Conduct in
_______ 2)
determining the nature and scope of services
which they have been asked to provide.
Members should perform all of their professional

activities with the highest sense of integrity
_______ 3)
possible. This maintains and broadens public
confidence in the profession.
Members should act in a way that

_______ 4)
demonstrates professionalism and honors
public trust.
As a member, one should continually strive to

_______ 5) improve competence and the quality of services
to the best of their ability.
Members should exercise sensitive professional

______ 6) and moral judgments in when carrying out their
activities as a professional.
ANSWER: 1) E
2) B
3) F
4) D
5) C
6) A
POINTS: 1

Chapter 1
74. What types of resources do companies compete for and why?

ANSWER:
Companies compete for scarce resources that include financial capital, physical
and natural resources, intellectual property, technology, and the next new
product or services. Each company strives to be successful by securing skilled
employees and executives, in order to reach customers through a variety of
marketing channels. Companies look for the best suppliers that provide
resources essential to their businesses.
POINTS: 1
NATIONAL STANDARDS: United States - BUSPROG: Communications
75. The demand for accounting information arises from the informational needs of various
stakeholders.
Required
List five internal stakeholders or external stakeholders.
ANSWER: Internal
Employees
Company Executives
External
Customer
s Suppliers
Banks
Creditors
Equity
investors
Communities
Tax Authorities
Government
Pension Funds
Labor Unions
POINTS: 1
DIFFICULTY: Easy
Chapter 1

Chapter 1
76. What is the mission of the Securities and Exchange Commission? How did the SEC come into being?
ANSWER: The mission of the SEC is to “protect investors, maintain fair, orderly, and
efficient markets, and facilitate capital formation.”
The U.S. Congress created the SEC to administer the Securities Act of 1933 and
the Securities Exchange Act of 1934. The SEC has the legal authority over the
accounting principles and reporting practices for all corporations that issue publicly
traded securities within the U.S. capital markets.
POINTS: 1
77. What is the responsibility of FASB?

ANSWER:
FASB is responsible for identifying financial issues, conducting the necessary
research to address the issues, and leading to preliminary views, hearings, and an
exposure draft open to comments through a multi-stage process used to issue new
accounting guidance.
POINTS: 1
Legal KEYWORDS: Bloom's: Analyzing
78. The FASB Codification consists of six components or levels, what are the components or levels?
ANSWER: 1) Areas
2) Topics
3) Subtopics
4) Sections
5) Subsections
6) Paragraphs
POINTS: 1

Chapter 1
79. What are the FASB operating procedures when reviewing whether to issue a new
standard?
ANSWER: 1) Identify a topic
2) Appoint a task force
3) Conduct research
4) Issue Preliminary views or invitations to comment
5) Hold public hearings
6) Deliberate on findings
7) Issue exposure draft
8) Hold public hearings
9) Modify the exposure draft
10) Vote
11) Issue an Accounting Standard update
POINTS: 1
80. The FASB and IASB have some ambitious accounting standards projects to complete prior to their
convergence. List three of the projects currently on the agenda.
ANSWER: 1) insurance
2) leases
3) financial instruments
4) revenue recognition
POINTS: 1

Chapter 1
81. Define:
1) What are assets?
2) What are liabilities?
3) What is shareholder’s equity?
4) In which financial statement would one find assets, liabilities and shareholder’s equity?
ANSWER: 1) Assets are resources the firm owns that will provide a future economic benefit to
the company.
2) Liabilities are claims to the resources owned by the firm. These items are
obligations owed by the company.
3) Shareholder’s equity is the residual claim to the resources of the firm. In the event
of liquidation this would be whatever is left after the sale of the assets and payment
of the liabilities.
4) Balance Sheet
POINTS: 1
82. Define:
1) What are revenues?
2) What are expenses?
3) What is net income?
4) In which financial statement would one find revenues, expenses, and net income?
ANSWER: 1) Revenue is the inflow of assets resulting in the selling goods and services
to customers.
2) Expenses are the outflow of assets resulting in the process of generating
revenue.
3) Net income is the bottom line or profit. It represents the wealth gained by
the company for the shareholders during the period.
4) Income
Statement
POINTS: 1

Chapter 1
83. What are the six areas covered in the AICPA Code of Professional
Conduct?
ANSWER: 1) Responsibilities
2) The Public Interest
3) Integrity
4) Objectivity and Independence
5) Due Care
6) Scope and Nature of Services
POINTS: 1
84. Assume you are tutoring a beginning accounting student who tells you that the members of the FASB must
have a great deal of power because they have the authority to issue standards that dictate accounting
procedure.
Required:
Explain why accounting standards are the result of compromise and how such compromises are reached.
ANSWER: In order for a new standard to be issued, a majority of at least a four-to-three vote is
necessary. In order for such a vote to occur, the members within the board must
negotiate with each other to determine which points are important and which are
not. In turn, each board member is influenced by the data and opinions collected
from the various interested parties--preparers, users, and auditors--during the
multistage process of issuing a standard. This includes discussion memorandums,
public hearings, and exposure drafts.
POINTS: 1

Chapter 1
85. Prior to 2009, the FASB issued several types of pronouncements which had differing levels of authority.
Explain the differing types of pronouncements, provide a brief explanation as to what changed after 2009 and
why is it still important today?
ANSWER:
FASB Pronouncements were issued with differing levels of authority. Statements of
Financial Accounting Standards had the most authority in regards to specific topics.
These pronouncements established the methods and procedures required for
specific accounting issues. Interpretations had the next level of authority. The
Interpretations provided clarification on ambiguous or conflicting issues as they
related to issued standards. Staff Positions provided more application guidance
allowing for limited or narrow revisions of already established standards. Technical
bulletins followed after Staff Positions. These were issued due to reporting
problems as they related to specific standards. The bulletins provided additional
information to clarify, explain, or elaborate about the specific standard. Statements
of Financial Accounting Concepts establish the theoretical foundation for financial
accounting and reporting standards. Other pronouncements are in the form of
question and answers.
Prior to 2009, these pronouncements were hard to follow, because they were
numerous to say the least, and many times conflicted each other. In 2009, FASB
introduced the FASB Accounting Standards Codification (ASC), which housed over
2,000 standards in one place of reference.
The hierarchy of pronouncements is important today because they are still

referenced in accounting literature and allow justification for companies to explain
their interpretation of GAAP.
POINTS: 1
LOCAL STANDARDS: United States - OH - Default City - AICPA: BB-Legal
86. The SEC is considering proposals regarding the accounting principles companies may use for their financial
statement filings. The SEC could require that U.S. companies use only U.S. GAAP in their financial statement
filings. Alternatively, the SEC could allow, or even require, U.S. companies to use IFRS in their financial
statement filings. Many issues and complexities surround the use of IFRS. The SEC must consider these and
many other issues as it deliberates whether it should continue to require the use of U.S. GAAP or whether it
should require the use of IFRS.
Required:
Identify and discuss three of the potential problems to be considered by the SEC in deliberating these proposals.
ANSWER: Note: Six issues are discussed below. Three should be selected and discussed.

Chapter 1
1. Many U.S. companies (particularly smaller ones) filing with the SEC do not
operate globally, so they would not see any advantage when using IFRS. If
IFRS were required, it would likely be very costly for them to switch from
U.S. GAAP

Chapter 1
to IFRS, thereby affecting profitability during the conversion period.
2. If IFRS were allowed rather than required and some regulated companies did
not switch to IFRS, there would be differences between the financial
statements of regulated companies that used U.S. GAAP and those that used
IFRS. These differences potentially affect the ability of investors and creditors
in comparing companies.
3. Most U.S. corporations are small companies and do not issue publicly
traded securities; therefore, they are not regulated by the SEC. These
corporations
would likely continue to use U.S. GAAP in preparing their financial statements.
A
switch to IFRS for regulated U.S. companies would create a "dual-
GAAP" system in the United States.
4. Accountants, auditors, and financial statement users would have to be

trained to understand the impact of IFRS on the preparation of financial
statements for companies using these standards.
5. If U.S. companies have subsidiaries operating in foreign countries, they may

be required to prepare their subsidiaries’ financial statements according to
IFRS for local filings and still have to prepare their financial statements using
U.S. GAAP when filing with the SEC; this would create costly inefficiencies.
6. Many companies have entered into contracts based on U. S. GAAP. (For

example, companies may have borrowed money with "debt covenants" based
on U.S. GAAP that restrict their financing activities.) A shift to IFRS may
require renegotiating these contracts.
POINTS: 1

Chapter 1
87. Your accounting instructor allows you to look at his grade book in order to verify the points you have received to
date in the final course taken by all accounting majors. While looking at your points, you notice that your best
friend's score on the last exam was recorded incorrectly. He actually received a 68 on the test but the score was
recorded as an 86 in the grade book. Your friend needs a passing grade in this class in order to graduate. If the
grade book were updated to show the correct score, your friend might not have enough points to pass the course.
Required:
Discuss the steps you should take to deal with this ethical dilemma using three ethical criteria. You need not
indicate the ethical action you would take.
ANSWER: Students may answer in a variety of ways, however, their answers should include
the following steps: (1) identifying the stakeholders (the student, the friend, and
the instructor) and the student's responsibilities (to him/herself, the friend, and the
instructor); (2) discussion of the three ethical criteria, (a) utility: what action
would be optimal for all stakeholders?, (b) rights: what action respects the rights
of all the
stakeholders?, (c) justice: what action is fair and just?; (3) identifying any
"overwhelming factors" that might justify disregarding one or more of the three
ethical criteria; and (4) deciding if the action to be taken is ethical.
POINTS: 1
NATIONAL STANDARDS: United States - BUSPROG: Ethics

Test Bank For Intermediate Accounting Reporting and Analysis 3rd Edition James M Wahlen

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Chapter 1

Intermediate Accounting: Reporting and Analysis, 3rd Ed

1. A problem arising from equal information is called information

11. The balance sheet is a snapshot of a company’s financial position at a particular

16. Which of the following is an internal user of a company's financial

18. What is Financial Reporting?

19. When making decisions, equity investors are interested in

23. Information asymmetry may cause problems because management’s behavior

25. Which organization has the most legal authority?

33. Which of the following statements is true?

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36. How many FASB members currently make up the Board?

37. Concerning FASB membership, which statement is not true?

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49. What is the responsibility of the International Accounting Standards Board?

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53. Notes to financial statements

54. What financial statement is considered the cornerstone of financial reporting?

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55. The accounting equations is

57. The four major financial statements of a corporation consist of

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60. What is the correct presentation of the income

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61. Dividends that are paid to owners would affect both

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64. Auditors face ethical issues

65. Unethical actions include which of the following?

67. Which of the following is not considered an ethical issue in accounting?

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Reporting standards issued by this organization are legally enforceable.

Reporting standards issued by this organization only apply to companies listed on

Reporting standards issued by this organization apply to all U.S.

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____ a. Conduct research

____ b. Deliberate on findings

____ c. Invitations to comment

____ d. Identify topic

____ e. Issue Exposure Draft

____ f. Issue Statement

____ g. Modify Exposure Draft

Indicate the proper sequence of these steps.

A member should be free from conflicts of

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Members should perform all of their professional

Members should act in a way that

As a member, one should continually strive to

Members should exercise sensitive professional

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74. What types of resources do companies compete for and why?

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77. What is the responsibility of FASB?

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The hierarchy of pronouncements is important today because they are still