Test Bank for Intermediate Accounting 2nd Canadian Edition by Spiceland

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(1)Test Bank for Intermediate Accounting 2nd Canadian Edition by Spiceland The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. 1. True 2. False Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow. 1. True 2. False The FASB is currently the public sector organization responsible for setting accounting standards in Canada. 1. True 2. False

(2) Capital markets provide a mechanism to help the economy allocate resources. 1. True 2. False A rules-based approach to standard setting stresses professional judgment as opposed to following a list of rules. 1. True 2. False The Canadian legislation and securities regulations require companies listed on Canadian stock exchanges to prepare statements that conform to GAAP 1. True 2. False The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors. 1. True 2. False Auditors play an important role in the resource allocation process by adding credibility to financial statements. 1. True 2. False Materiality can be affected by the dollar amount of an item, the nature of the item, or both. 1. True 2. False Conservatism is a desired qualitative characteristic of accounting information. 1. True 2. False

(3) Equity is a residual amount representing the owner's interest in the assets of the business. 1. True 2. False Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing operations. 1. True 2. False Gains or losses result, respectively, from the disposition of business assets for greater than, or less than, their book values. 1. True 2. False Comprehensive income is another term for net income. 1. True 2. False Accounting choices should influence the behavior of managers. 1. True 2. False Trade offs are often required between relevance and reliability. 1. True 2. False External decision makers would not look primarily to financial accounting information to assist them in making decisions on: 1. A. Granting credit. 2. B. Capital budgeting. 3. C. Selecting stocks.

(4) 4. D. Mergers and acquisitions. Corporations issue their shares to the investing public in the: 1. A. Option A 2. B. Option B 3. C. Option C 4. D. Option D The primary focus for financial accounting information is to provide information useful for: 1. A. Option A 2. B. Option B 3. C. Option C 4. D. Option D Which of the following is not true about net operating cash flow? 1. A. It is the difference between cash receipts and cash disbursements from providing goods and services. 2. B. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows. 3. C. Over short periods of time, it may not be indicative of long-run cash-generating ability. 4. D. It is easy to understand and all information required to measure it is factual. Which of the following groups is not among financial intermediaries? 1. A. Mutual fund managers 2. B. Financial analysts 3. C. CICA 4. D. Credit rating organizations Which of the following is responsible for setting accounting standards in Canada? 1. A. IASB 2. B. AcSB 3. C. FASB 4. D. AICPA

(5) Which of the following does not apply to secondary markets? 1. A. Transactions are important to the efficient allocation of resources in our economy. 2. B. New resources are provided when shares of a company are sold by the corporation to the initial owners. 3. C. Transactions help to establish market prices for additional shares that may be issued in the future. 4. 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. A cause-and-effect relationship is implicit in the: 1. A. Realization principle. 2. B. Historical cost principle. 3. C. Matching principle. 4. D. Going concern assumption. The full disclosure principle requires a balance between: 1. A. Comparability and consistency. 2. B. Relevance and cost effectiveness. 3. C. Reliability and neutrality. 4. D. Timeliness and predictive value. Which of the following groups is not among the external users for whom financial statements are prepared? 1. A. Customers 2. B. Suppliers 3. C. Employees 4. D. All of these are external users of financial statements. In a recent annual report, Apple Computer reported the following in one of its disclosure notes: "Warranty Expense: The Company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of: 1. A. Conservatism 2. B. The matching principle 3. C. Realization principle 4. D. Full disclosure principle

(6) GAAP is an abbreviation for: 1. A. Generally authorized accounting procedures. 2. B. Generally applied accounting procedures. 3. C. Generally accepted auditing practices. 4. D. Generally accepted accounting principles. The Security commissions in Canada are responsible for 1. A. Accounting Standards. 2. B. Overseeing capital market exchanges. 3. C. Banking regulations. 4. D. Setting interest rates. Which of the following is not a primary source of GAAP 1. A. FASB pronouncements 2. B. CICA handbook 3. C. AcSB interpretation guides. 4. D. EIC abstracts. When a company charges the entire cost of a small appliance to expense in the year of purchase even though it has an estimated useful life of 3 years, this is an application of: 1. A. Matching principle. 2. B. Historical cost principle. 3. C. Materiality constraint. 4. D. full disclosure principle. Identify the traits that make financial information useful: 1. A. Comparability and Consistency. 2. B. Reliability and relevance 3. C. Understandability. 4. D. All of the above.

(7) The process of identifying, measuring, analyzing and communicating financial information to plan, evaluate and control operations is 1. A. Financial Accounting. 2. B. Auditing 3. C. Tax accounting. 4. D. Management Accounting. A firm's comprehensive income is always: 1. A. The same as its net income. 2. B. Greater than its net income. 3. C. Less than its net income. 4. D. Could be greater than or less than net income. Which of the following has the authority to set accounting standards in the United States? 1. A. FASB 2. B. IRS 3. C. SEC 4. D. AICPA Which of the following is not considered a qualitative characteristic under the Conceptual Framework? 1. A. .Relevance 2. B. Understandability. 3. C. Fair value. 4. D. Consistency Accounting standard setting has been characterized as: 1. A. A political process. 2. B. Using the scientific method. 3. C. Pure deductive reasoning. 4. D. Pure inductive reasoning.

(8) The International Accounting Standards Board: 1. A. Was the predecessor to the IASC. 2. B. Can overrule the FASB when their policies disagree. 3. C. Promotes the use of high-quality, understandable global accounting standards. 4. D. Has its headquarters in Geneva. In order to coordinate the provincial securities commissions, the Canadian Securities Administrators was formed and make all filings of Canadian listed companies available through: 1. A. SEDAR 2. B. EDGAR. 3. C. AcSB 4. D. IASB. A tradeoff is often required between various degrees of: 1. A. Matching and Materiality. 2. B. Timeliness and Neutrality. 3. C. Consistency and Comparability 4. D. Relevance and Reliability. ABC Company charges all of their capital expenditures under $500 to expense. What principle is this policy based on? 1. A. Matching. 2. B. Materiality. 3. C. Full Disclosure 4. D. Comparability. The AcSB consists of a maximum of ___________members 1. A. 5 2. B. 12 3. C. 15 4. D. 9

(9) Which of the following is not a secondary source of GAAP 1. A. FASB 2. B. IASB 3. C. EIC Abstracts 4. D. Approved exposure drafts. A sole proprietor of a convenience store has included his home on the balance sheet of his business. This violates: 1. A. Monetary unit assumption 2. B. Going Concern Principle. 3. C. Periodicity assumption. 4. D. Economic entity assumption Corporations provide shareholders quarterly and annual statements. This is an example of: 1. A. Going Concern 2. B. Monetary Unit. 3. C. Periodicity 4. D. Relevance The recognition of which of the following expenses exemplifies the application of the matching principle? 1. A. President's salary. 2. B. Research and development. 3. C. Cost of goods sold. 4. D. Advertising. The AcSB's conceptual framework's qualitative characteristics of accounting information include: 1. A. Historical cost. 2. B. Realization. 3. C. Reliability. 4. D. Full disclosure.

(10) The AcSB's conceptual framework's qualitative characteristics of accounting information include: 1. A. Full disclosure. 2. B. Relevance. 3. C. Going concern. 4. D. Historical cost. The conceptual framework's qualitative characteristic of relevance includes: 1. A. Timeliness. 2. B. Verifiability. 3. C. Representational faithfulness. 4. D. Neutrality. The conceptual framework's qualitative characteristic of reliability includes: 1. A. Predictive value. 2. B. Neutrality. 3. C. Feedback value. 4. D. Timeliness. The conceptual framework's recognition and measurement concepts recognize which of the following as an assumption, rather than a principle? 1. A. Going concern. 2. B. Historical cost. 3. C. Full disclosure. 4. D. Realization. The conceptual framework's recognition and measurement concepts recognize which of the following as a principle, rather than an assumption? 1. A. Periodicity. 2. B. Monetary unit. 3. C. Conservatism. 4. D. Full disclosure.

(11) To provide information useful to the decision maker, supplementary information could be in the form of: 1. A. Comments on face of statements. 2. B. Disclosure notes. 3. C. Additional detailed statements. 4. D. All of the above. Financial accounting information should provide information about: 1. A. Resources of an enterprise. 2. B. Claims to resources. 3. C. The effects of transactions that cause changes in resources. 4. D. All of these. For Financial statements to be relevant, they should possess: 1. A. Representational faithfulness. 2. B. Verifiability. 3. C. Predictive value 4. D. Neutrality. The main issue in the debate over accounting for employee stock options was: 1. A. Which employees should receive options. 2. B. The amount of compensation expense that a company should recognize. 3. C. How many options should be granted to key executives. 4. D. The tax consequences of employee stock options. Net income equals: 1. A. Assets minus liabilities. 2. B. Revenues minus cost of goods sold. 3. C. Revenues minus expenses. 4. D. Cash receipts minus cash payments. Financial reporting objectives state that financial statements should be comprehensible to: 1. A. Accounting experts.

(12) 2. B. Those who have a reasonable understanding of business and economic activities and are willing to study the information. 3. C. Large investors. 4. D. The average investor with average communication skills and average training and experience. Financial reporting objectives do not include providing information: 1. A. About resources, obligations, and changes. 2. B. To determine market values, assess profit potential, and evaluate management. 3. C. To assess the amounts and timing of prospective cash receipts. 4. D. To make rational investment, credit, and similar decisions. Primary qualitative characteristics of accounting information are: 1. A. Relevance and comparability. 2. B. Comparability and consistency. 3. C. Reliability and relevance. 4. D. Reliability and consistency. Secondary qualitative characteristics of accounting information include: 1. A. Relevance and comparability. 2. B. Comparability and consistency. 3. C. Reliability and relevance. 4. D. Reliability and consistency. Gains are: 1. A. Inflows from selling a product or service to a customer. 2. B. Increases in equity resulting from transfers of assets to the company from owners. 3. C. Increases in equity from peripheral transactions of an entity. 4. D. None of these. When there is agreement between a measure or description and the phenomenon it purports to represent, information possesses which characteristic? 1. A. Verifiability. 2. B. Predictive value. 3. C. Representational faithfulness. 4. D. Timeliness.

(13) Surefeet Corporation changed its inventory valuation method. Which characteristic is jeopardized by this change? 1. A. Comparability. 2. B. Representational faithfulness. 3. C. Consistency. 4. D. Feedback value. Of the following, the most important objective for financial reporting is to provide information useful for: 1. A. Predicting cash flows. 2. B. Determining taxable income. 3. C. Providing accountability. 4. D. Increasing future profits. Independent auditors express an opinion on the: 1. A. Fairness of financial statements. 2. B. Accuracy of financial statements. 3. C. Soundness of a company's future. 4. D. Quality of a company's management. If an independent auditing firm is satisfied that statements are presented fairly in accordance with GAAP, they will express which of the following: 1. A. A clean opinion 2. B. An unqualified opinion. 3. C. A disqualified opinion. 4. D. A rejection of opinion. Constraints on qualitative characteristics of accounting information include: 1. A. Timeliness. 2. B. Going concern. 3. C. Neutrality. 4. D. Materiality.

(14) Elements of financial statements do not include: 1. A. Monetary unit. 2. B. Investments by owners. 3. C. Comprehensive income. 4. D. Losses. According to the conceptual framework, verifiability implies: 1. A. Legal evidence. 2. B. Logic. 3. C. Consensus. 4. D. Legal verdict. Land was acquired in 2009 for a future building site at a cost of $40,000. The assessed valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. The land should be reported in the financial statements at: 1. A. $40,000. 2. B. $27,000. 3. C. $46,000. 4. D. $48,000. 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: 1. A. Comparability. 2. B. Consistency. 3. C. Relevance. 4. D. Reliability. Recognizing expected losses immediately, but deferring expected gains, is an example of: 1. A. Materiality. 2. B. Conservatism. 3. C. Cost effectiveness. 4. D. Timeliness.

(15) Change in equity from nonowner sources is: 1. A. Comprehensive income. 2. B. Revenues. 3. C. Expenses. 4. D. Gains and losses. The assumption that in the absence of contrary information a business entity will continue indefinitely is the: 1. A. Periodicity assumption. 2. B. Entity assumption. 3. C. Going concern assumption. 4. D. Historical cost assumption. Which of the following Sections of the CICA handbook defines the 8 elements of financial statements? 1. A. CICA 1000 2. B. CICA 1300, 3855 3. C. CICA 1000, 3855 4. D. CICA 1000, 1530 The possibility that the capital markets' focus on periodic profits may tempt a company's management to bend or even break accounting rules to inflate reported net income is an example of: 1. A. An ethical dilemma. 2. B. An accounting theory issue. 3. C. A technical accounting issue. 4. D. None of these is correct. One of the elements that many believe distinguishes a profession from other occupations is the acceptance by its members of a responsibility for the interests of those it serves, often articulated in: 1. A. Its conceptual framework. 2. B. Its code of ethics. 3. C. Federal laws. 4. D. State laws.

(16) Primecoat could get its annual financial statements two days earlier if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is: 1. A. Timeliness. 2. B. Materiality. 3. C. Relevance. 4. D. Cost effectiveness. 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: 1. A. Comparability. 2. B. Representational faithfulness. 3. C. Cost effectiveness. 4. D. Materiality. The best argument in support of historical cost information is: 1. A. Relevance. 2. B. Predictive quality for future cash flows. 3. C. Materiality. 4. D. Verifiability. If a company has gone bankrupt, its financial statements likely violate: 1. A. The matching principle. 2. B. The realization principle. 3. C. The stable monetary unit assumption. 4. D. The going concern assumption. Revenue should not be recognized until: 1. A. The earnings process is complete and collection is reasonably assured. 2. B. Contracts have been signed and payment has been received. 3. C. Work has been performed and customer has been billed. 4. D. Collection has been made and warrantees have expired.

(17) The conceptual framework of accounting should have many positive effects as new accounting standards are developed. Which of the following is not one of those effects? 1. A. Financial statements among companies should be more consistent and comparable 2. B. Standard setting should be more consistent with the objectives of financial reporting 3. C. Management should have greater latitude in choosing among accounting alternatives 4. D. Users' understanding in financial statements should increase Disclosure notes to a company's financial statements: 1. A. Are relatively unimportant facts that don't belong in the basic financial statements. 2. B. Document the source of financial statement facts, like literary footnotes. 3. C. Are an integral part of a company's financial statements. 4. D. Are irrelevant facts that are immaterial in amount. Which of the following best demonstrates the full disclosure principle: 1. A. The multi-step income statement. 2. B. The auditors' report. 3. C. The company's tax return. 4. D. Disclosure notes to financial statements. Four different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is: 1. A. Reliability. 2. B. Comparability. 3. C. Representational faithfulness. 4. D. Verifiability. The matching principle is: 1. A. A valuation method. 2. B. An expense recognition accounting principle. 3. C. A cash basis reporting principle. 4. D. An asset classification procedure.

(18) To meet the needs of full disclosure, companies use supplemental information, including: 1. A. Parenthetical comments or modifying comments placed on the face of the financial statements. 2. B. Disclosure notes conveying additional insights about company operations, accounting principles, contractual agreements, and pending litigation. 3. C. Supplemental financial statements that report more detailed information than is shown in the primary financial statements. 4. D. All of these are correct. Ford Motor Company purchases services from suppliers on account and sells its products to distributors on short-term credit. As a result, do each of these affect net income faster than they affect net operating cash flows? 1. A. Option A 2. B. Option B 3. C. Option C 4. D. Option D

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