Accounting Theory Conceptual Issues In A Political And Economic Environment 9th Edition Harry I. -James L. - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below TRUE/FALSE The APB was the first to successfully derive an underlying framework of postulates and principles. …
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Accounting Theory Conceptual Issues In A Political And Economic Environment 9th Edition Harry I. -James L. – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
TRUE/FALSE
ANSWER: F
ANSWER: T
ANSWER: T
ANSWER: T
ANSWER: F
ANSWER: F
ANSWER: T
ANSWER: T
ANSWER: T
ANSWER: F
ANSWER: F
ANSWER: T
ANSWER: T
ANSWER: F
ANSWER: F
ANSWER: T
ANSWER: F
ANSWER: T
ANSWER: T
ANSWER: F
ANSWER: F
ANSWER: T
ANSWER: F
ANSWER: T
ANSWER: T
ANSWER: F
MULTIPLE CHOICE
| a. | The authors refused to abandon historical cost. |
| b. | The postulates were not complete and therefore could not exclude all value systems other than the one prescribed in the principles. |
| c. | At least one of the principles was not derived from any of the postulates. |
| d. | The question of whether valuations of various assets were additive became an issue. |
ANSWER: A
| a. | A principle contains elements observable by empirical techniques. |
| b. | The APB’s Special Committee on Research Program defined both postulates and broad principles. |
| c. | A principle is an analytical statement whose truth or falsity is self-contained by its internal logic. |
| d. | Postulates are generally defined as basic assumptions that cannot be verified. |
ANSWER: D
| a. | A principle is a statement of a true and generalized nature containing referents to the real world. |
| b. | If a principle could be empirically tested and proven true, it would be capable of becoming a law. |
| c. | The truth of a law or principle means that is should not be replaced by a newer system. |
| d. | Principles are general statements that influence the way we view phenomena and the way we think about problems. |
ANSWER: C
| a. | He initially rejected an inductive type of approach. |
| b. | He used symbolic terminology and formal methods. |
| c. | He rejected a deductive approach rooted in reasoning alone. |
| d. | He was unconcerned about the experiential and empirical aspects of accounting. |
ANSWER: C
| a. | The Environmental group |
| b. | The Imperatives |
| c. | The Economic group |
| d. | Postulates stemming from accounting itself |
ANSWER: B
| a. | Some postulates appear to stem from one of the other postulate categories. |
| b. | Self-evident postulates may not be sufficiently substantive to lead to a unique and meaningful set of accounting principles. |
| c. | The postulates are necessary but not sufficient to lead to a viable outcome. |
| d. | Postulates should have played a less passive role. |
ANSWER: D
| a. | They are normative in nature. |
| b. | They have developed within the context of accounting practice. |
| c. | They are objectives that should be striven for. |
| d. | The key imperative postulate appears to be consistency. |
ANSWER: D
| a. | If purchasing power of the monetary unit is not stable, some form of inflation accounting is appropriate. |
| b. | If purchasing power of the monetary unit is not stable, historical cost is still justified. |
| c. | If purchasing power of the monetary unit is stable, a system of current values is justified. |
| d. | If purchasing power of the monetary unit is stable, retention of historical cost is justified. |
ANSWER: B
| a. | One of its principles states that revenue is earned by the entire process of operations of the firm rather than at the point of sale. |
| b. | All of its principles were derived from the postulates of ARS 1. |
| c. | The asset valuation measures prescribed are additive. |
| d. | One of the main criticisms aimed at ARS 3 relates to its advocating the exit-value approach to asset valuation. |
ANSWER: A
| a. | The authors were commissioned to find postulates and principles that would lead to a measure of true income. |
| b. | The postulates were not complete and could not exclude all value systems other than the one prescribed in the principles. |
| c. | The authors were able to identify a single concept of income that was superior to others. |
| d. | Nothing is said about the users of accounting information and what their needs and abilities might be. |
ANSWER: C
| a. | Constraints |
| b. | Concepts |
| c. | Axioms |
| d. | Conventions |
ANSWER: B
| a. | Concepts |
| b. | Principles |
| c. | Postulates |
| d. | Axioms |
ANSWER: A
| a. | Concepts |
| b. | Principles |
| c. | Postulates |
| d. | Axioms |
ANSWER: C
| a. | Concepts |
| b. | Principles |
| c. | Postulates |
| d. | Axioms |
ANSWER: B
| a. | Input-oriented principles |
| b. | Output-oriented principles |
| c. | Basic principles |
| d. | Axioms |
ANSWER: A
| a. | Going Concern, Time Period, Market Prices, Monetary Unit |
| b. | Objectivity, Time Period, Accounting Entity, Monetary Unit |
| c. | Going Concern, Time Period, Accounting Entity, Monetary Unit |
| d. | Going Concern, Time Period, Financial Statements, Monetary Unit |
ANSWER: C
| a. | Entities |
| b. | Time period |
| c. | Consistency |
| d. | Going concern |
ANSWER: D
| a. | Entities |
| b. | Time period |
| c. | Consistency |
| d. | Going concern |
ANSWER: D
| a. | It results in an artificial segmentation of a continuing process. |
| b. | It has led to accrual accounting. |
| c. | It allows different accounting methods to be followed in interim periods. |
| d. | It allows interim reports to include estimates of annual amounts. |
ANSWER: C
| a. | the entity is separate from its owners. |
| b. | the entity is identical to its owners. |
| c. | the pooling method should be used for business combinations. |
| d. | entities should be considered as one unit as a result of one controlling the other(s). |
ANSWER: A
| a. | Preferred stockholders |
| b. | Managers |
| c. | Bondholders |
| d. | Common stockholders |
ANSWER: D
| a. | Residual equity theory |
| b. | Proprietary theory |
| c. | Entity theory |
| d. | Commander theory |
ANSWER: C
| a. | Residual equity theory |
| b. | Proprietary theory |
| c. | Entity theory |
| d. | Commander theory |
ANSWER: B
| a. | Residual equity theory |
| b. | Proprietary theory |
| c. | Entity theory |
| d. | Commander theory |
ANSWER: B
| a. | Residual equity theory |
| b. | Proprietary theory |
| c. | Entity theory |
| d. | Commander theory |
ANSWER: C
| a. | Input-oriented principles |
| b. | Output-oriented principles |
| c. | Constraining principles |
| d. | Both a and c |
ANSWER: B
| a. | Input-oriented principles |
| b. | Output-oriented principles |
| c. | Constraining principles |
| d. | Both a and c |
ANSWER: D
| a. | input-oriented principles. |
| b. | output-oriented principles. |
| c. | constraining principles. |
| d. | both a and c. |
ANSWER: A
| a. | Comparability |
| b. | Consistency |
| c. | Uniformity |
| d. | Both b and c |
ANSWER: A
| a. | Comparability |
| b. | Consistency |
| c. | Uniformity |
| d. | Both b and c |
ANSWER: D
| a. | Comparability |
| b. | Materiality |
| c. | Consistency |
| d. | Objectivity |
ANSWER: B
| a. | Comparability |
| b. | Materiality |
| c. | Consistency |
| d. | Objectivity |
ANSWER: C
ESSAY
ANSWER:
Postulates are basic assumptions concerning the business environment. They cannot be verified, but serve as a basis for inference and a foundation for deducing propositions. ARS 1 identified and defined the basic postulates of accounting. These postulates were of two different types. Groups A and B were made up of general, descriptive postulates that were derived from the economic and political environments. The second category is value judgments.
The postulates themselves are in three groups: the environmental group, those stemming from accounting itself, and the imperatives, with the imperatives being the key group. The imperatives correspond to objectives that should be striven for. The key imperative postulate appears to be stability of the monetary unit.
Principles are general approaches utilized in the recognition and measurement of accounting events. Most of the principles listed in ARS 3 were reasoned from the postulates of ARS 1. These principles are divided into two main types: input-oriented principles and output-oriented principles. Input-oriented principles are broad rules that guide the accounting function and include general underlying rules of operation and constraining principles. Output-oriented principles involve certain qualities or characteristics that financial statements should possess if the input-oriented principles are appropriately executed.
ANSWER:
ARS 1 and ARS 3 failed for several reasons including the following:
| (1) | The accounting profession would not abandon historical cost. |
| (2) | The postulates and principles were not complete and therefore could not exclude all value systems other than the one prescribed in the principles. |
| (3) | At least one principle (related to profit recognition) was not derived from any of the postulates. |
| (4) | The question of whether valuations of various assets were additive became an issue. |
| (5) | The authors were commissioned to find those postulates and principles that would lead to “true income.” It has since become evident that no income measurement can be deemed to have such an advantage over competing concepts. |
| (6) | They occurred at a time when little formal attention was given to opportunities to react to potential accounting rules for those who will be subject to them. |
ANSWER:
The going-concern postulate states that unless there is evidence to the contrary, it is assumed that the firm will continue indefinitely. Under ordinary circumstances, reporting liquidation values for assets and equities is a violation of this postulate. This principle is too broad to lead to any kind of a choice among valuation systems, including historical cost. The postulate was also criticized because the time period of continuity is presumed to be long enough to conclude the firm’s present contractual arrangements. However, by the time these affairs are concluded, they will have been replaced by new arrangements. Hence, the implication is one of indefinite life. However, over the long run, many firms do conclude their activities. Therefore, continuity is more in the nature of a predication than an underlying assumption.
ANSWER:
Input-oriented principles are concerned with general approaches or rules for preparing financial statements and their content, including any necessary supplementary disclosures. Output-oriented principles are concerned with the comparability of financial statements of different firms. Input-oriented principles include recognition, matching, conservatism, disclosure, materiality, and objectivity. Out-oriented principles include comparability, consistency, and uniformity.
ANSWER:
The most prevalent revenue recognition point is at the point of sale. Other possibilities may arise, however, such as the firm’s “critical event.” The critical event is the operation function that is the most crucial in terms of the earning process. However, ARS 3 states that revenue is earned by the entire process of operations of the firm rather than at one point only.
The conceptual framework of the FASB states that revenue recognition occurs in accordance with two criteria: (1) the assets to be received from the performance of the revenue function are realized or realizable; and (2) performance of the revenue function is “substantially accomplished” (earned). Realized means that the firm’s product or service has been converted to cash or claims to cash, while realizable has been defined as the ability to convert assets already received or held into known amounts of cash or claims to cash.
ANSWER:
Expenses are costs that expire as a result of generating revenues. Some expenses can be directly identified with either specific revenue or specific time periods. However, many important expenses cannot be so identified. The process of recognizing cost expiration for categories such as depreciation, cost of good sold, interest, and deferred charges is called matching. Matching implies that expenses are being recognized on a fair and equitable basis relative to the recognition of revenues.
Matching is currently under attack because the historical cost approach often tends to substantially understate expense measurements relative to the value of expired-asset services. Also the systematic and rational methods employed under GAAP tend to be extremely arbitrary.
ANSWER: Conservative, from a preparer’s point of view, is the attempt to select generally accepted accounting methods that result in any of the following: (1) slower revenue recognition, (2) faster expense recognition, (3) lower asset valuation, and (4) higher liability valuation. If these criteria conflict, lower income considerations should take precedence.
ANSWER:
Proprietary theory assumes that the owners and the firm are virtually identical. This theory is descriptive of economies made up largely of the small owner-operated firms that existed prior the Industrial Revolution. More recently, it has been applied to large oligopolistic firms in an attempt to bring the absentee owner to center stage when viewing the business enterprise. These absentee ownership claims were legitimized by measuring profit available for distribution to owners rather than the notion that earnings—and capital—belong to the corporation itself. Under proprietary theory, the assets belong to the firm’s owners, the liabilities are their obligations, and ownership equities accrue to the owners. The balance sheet equation is “Total assets – Total liabilities = Owners’ Equities.” Income represents the owners’ increase in both net assets and owners’ equities arising from operations during the period.
Entity theory assumes the firm and its owners are separate beings. The assets belong to the firm itself; both liability and equity holders are investors in those assets with different rights and claims against them. The balance sheet equation is “Total Assets = Total Equities (including liabilities).” Under orthodox entity theory, stockholders have rights relative to receiving dividends when declared, voting at the annual corporate meeting, and sharing in net assets after all other claims have been met. Owners’ equity accounts do not represent their interest as owners but simply their claims as equity holders. Similarly, net income does not belong to the owners although the amount is credited to the claims of equity holders after all other claims have been satisfied. Income does not belong to capital providers until dividends are declared or interest becomes due. In measuring income, both interest and dividends represent distribution of income to providers of capital. Hence, both are treated the same and neither is a deduction from income.
If the entity theory were taken to its logical conclusion, the owners’ equity accounts would belong unequivocally to the firm, despite the presence of stockholder claims. Also, income would belong to the firm itself and, in turn, interest and dividends would both be deductions in calculating it.
ANSWER:
The residual equity theory is a variant of both proprietary and entity theory. The residual equity holders are that group of equity claimants whose rights are superseded by all other claimants, the common stockholders. Common stockholders are the ultimate risk takers within an enterprise. Their interest in the firm serves as a buffer or protector for all groups with prior claims on the firm, such as preferred stockholders and bond owners. The underlying assumption of the residual equity theory is that information appropriate for decision-making purposes, such as that helpful in predicting cash flows, must be supplied to the residual equity holders. The balance sheet equation under this approach would be “Total Assets – Total Specific Equities (including liabilities and preferred stock) = Residual Equity.” Although the assets are still owned by the firm, they are held in a trust type of arrangement and management’s objective is maximization of the value of the residual equity. Income accrues to the residual equity holders after all other claims have been met. Interest and preferred dividends (but not common dividends) would be deductions in arriving at income.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
