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TEST BANK For Intermediate Accounting, 3rd Edition by Elizabeth A. Gordon| Verified Chapter's 1 - 22 | Complete

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Intermediate Accounting, 3rd Edition

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Intermediate Accounting, 3rd Edition

TEST BANK For Intermediate Accounting, 3rd Edition by Elizabeth A. Gordon| Verified Chapter's 1 - 22 | Complete This is a bank of tests (study questions) to help you prepare for the tests. To clarify, this is a test bank, not a textbook. You have immediate access to download your test bank. No del...

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Test Bank for For Intermediate Accounting
3rd Edition by Elizabeth A. Gordon, Jana S. Raedy

,Intermediate Accounting, 3e (Gordon/Raedy/Sannella)
Chapter 1 The Financial Reporting Environment

1.1 Overview of Financial Reporting

1) The financial reporting process generates three basic financial statements.
Answer: FALSE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

2) The demand for financial information is based on market participant demand.
Answer: TRUE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

3) Managers of economic entities are best considered to be users of financial information.
Answer: FALSE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

4) Managers of economic entities are best considered to be preparers of financial information.
Answer: TRUE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

5) The Securities and Exchange Commission (SEC) regulates financial reporting for publicly traded
companies.
Answer: TRUE
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

6) The FASB gives the SEC authority to regulate accounting for publicly traded companies.
Answer: FALSE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

,7) The Public Company Accounting Oversight Board (PCAOB) sets financial accounting standards and
oversees the audits of public companies in the United States.
Answer: FALSE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

8) Financial accounting standards influence the behavior of managers and other internal users.
Answer: TRUE
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

9) Theories and procedures that evolve as a result of lobbying from various groups are examples of
proactive factors within the legal, economic, political, and social environment.
Answer: FALSE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

10) Financial information includes information that is not governed by rules set forth by the accounting
standard-setting bodies.
Answer: TRUE
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

11) What is the term that describes the process of identifying, measuring, and communicating financial
information about an economic entity to various user groups?
A) financial reporting
B) accounting standard setting
C) financial statement
D) financial accounting
Answer: D
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

,12) Which element of financial accounting involves identifying the individuals who demand financial
information?
A) financial information
B) economic entity
C) user groups
D) legal, economic, political, and social environment
Answer: C
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

13) Which of the following is not one of the four basic financial statements?
A) balance sheet
B) trial balance
C) cash flows statement
D) statement of comprehensive income
Answer: B
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

14) Which organization is responsible for promulgating U.S. GAAP?
A) Financial Accounting Standards Board
B) Public Company Accounting Oversight Board
C) International Accounting Standards Board
D) Securities and Exchange Commission
Answer: A
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

15) Which organization is responsible for setting auditing standards and overseeing the audits of public
companies in the United States?
A) Financial Accounting Standards Board
B) Public Company Accounting Oversight Board
C) American Institute of Certified Public Accountants
D) Securities and Exchange Commission
Answer: B
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

,16) Which organization prepares and grades the Uniform CPA Examination?
A) Financial Accounting Standards Board
B) Public Company Accounting Oversight Board
C) American Institute of Certified Public Accountants
D) International Accounting Standards Board
Answer: C
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

17) Which of the following user groups consists of individuals that provide guidance to others in making
investment and credit decisions?
A) financial analysts
B) equity investors
C) creditors
D) suppliers
Answer: A
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

18) Which of the following user groups consists of individuals who expect to receive a return on their
investment?
A) employees
B) equity investors
C) creditors
D) suppliers and customers
Answer: B
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

19) Which of the following user groups consist of companies that analyze financial information to identify
the reporting entity's objectives, assumptions, overall business strategy, and capabilities?
A) competitors
B) creditors and other debt investors
C) employees and labor unions
D) suppliers and customers
Answer: A
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

,20) Which party involved in the financial reporting process provides assurance that the financial
statements prepared by management fairly present the financial position and performance of the
company?
A) standard setters
B) regulators
C) internal auditors
D) external auditors
Answer: D
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

21) Which regulatory body sets auditing standards and oversees the audits of public companies in the
United States?
A) Public Company Accounting Oversight Board (PCAOB)
B) Financial Accounting Standards Board (FASB)
C) American Institute of Certified Public Accountants (AICPA)
D) Securities and Exchange Commission (SEC)
Answer: A
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

22) Which of the following types of information would be categorized as financial information?
A) asset values governed by accounting standards
B) footnote disclosures in annual reports
C) auditor's report
D) all of the above
Answer: D
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

23) Equity investors include all but which of the following?
A) partners
B) shareholders
C) bondholders
D) sole proprietor
Answer: C
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

,24) What group or organization both protects investors and oversees the accounting standard-setting
process in the United States?
A) public accounting firms
B) American Institute of Public Accountants
C) United States Securities and Exchange Commission
D) Financial Accounting Standards Board
Answer: C
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

25) is the process of analyzing large data sets in order to draw useful conclusions.
A) Technology Innovation
B) Financial Reporting
C) Data Analytics
D) Data Capture
Answer: C
Diff: 1
Objective: 1.1
IFRS/GAAP: GAAP
AACSB: Application of knowledge

26) How does accounting help in the capital allocation process?
Answer: Financial accounting provides information that enables users to evaluate economic entities
and make efficient resource allocation decisions based on the risks and returns of a particular
investment. This process directs capital flows to their most productive uses. The notion of "efficient and
effective" allocation of capital helps drive capitalist economies and societies to greater standards of
living. To provide unreliable and irrelevant information leads to poor capital allocation which adversely
affects the securities market. An inefficient and wasteful allocation would reward poorly run entities
until they ultimately flounder or go bust.
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Reflective thinking

27) In what ways does accounting information proactively interact with its environment?
Answer: Financial accounting is proactive in that it can change or influence its environment by
providing feedback information that is used by organizations and individuals to reshape the economy.
Accounting information is used to efficiently allocate capital resources throughout the economy.
Accounting standards can also influence managerial behavior.
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Reflective thinking

,28) What is meant by general-purpose financial statements?
Answer: Published financial statements are called general-purpose financial statements because they
provide information to a wide spectrum of user groups: investors, creditors, financial analysts,
customers, employees, competitors, suppliers, unions, and government agencies. Although considered
general purpose, most financial information is provided to satisfy users with limited ability or authority
to obtain additional information, which includes investors and creditors.
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Reflective thinking

29) Define data analytics and explain how it can be used in financial reporting.
Answer: Data analytics is the process of analyzing large data sets to draw useful conclusions. It involves
converting raw data into useful knowledge. Data analytics is playing an increasingly important role in the
accounting profession. In financial reporting, we can use data analytics to improve the quality of our
estimates and valuations. Auditors are using it to increase the quality and accuracy of the audit.
Diff: 2
Objective: 1.1
IFRS/GAAP: GAAP/IFRS
AACSB: Reflective thinking

1.2 Role of Standard Setters

1) IFRS refers to generally accepted accounting standards that apply globally.
Answer: TRUE
Diff: 1
Objective: 1.2
IFRS/GAAP: IFRS
AACSB: Application of knowledge

2) Standard setters develop accounting standards based on natural economic laws.
Answer: FALSE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

3) The FASB and the IFRS have been working together to converge U.S. and international standards to and
have eliminated most differences.
Answer: FALSE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

,4) The FASB promulgates accounting standards in the U.S. and the International Accounting Standards
Board (IASB) issues international accounting standards.
Answer: TRUE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

5) Accountants in the United States do not need to learn international accounting standards.
Answer: FALSE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

6) The SEC permits the use of IFRS-based financial statements by international companies with shares
trading on U.S. stock exchanges.
Answer: TRUE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

7) When accountants work on the financial statements of U.S. companies with foreign subsidiaries
prepared under IFRS in the home countries, the accountants do not convert the subsidiaries' financial
statements to U.S. GAAP.
Answer: FALSE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

8) The American Institute of Certified Public Accountants tests IFRS on the uniform CPA exam.
Answer: TRUE
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

, 9) Which of the following statements correctly identifies accounting standard setters?
A) The AICPA promulgates accounting standards in the U.S. and the IFRS issues international
accounting standards.
B) The AICPA promulgates accounting standards in the U.S. and the IASB issues international
accounting standards.
C) The FASB promulgates accounting standards in the U.S. and the IFRS issues international accounting
standards.
D) The FASB promulgates accounting standards in the U.S. and the IASB issues international accounting
standards.
Answer: D
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

10) Which of the following statements is false?
A) The SEC permits the use of IFRS-based financial statements by international companies with shares
trading on U.S. stock exchanges.
B) Non-U.S. companies operate in the United States but prepare their financial statements using IFRS.
C) Accountants must convert to U.S. GAAP the IFRS financial statements of foreign subsidiaries that
belong to U.S. companies.
D) The accounting profession has determined that a working knowledge of IFRS is not important for
accountants working in the United States.
Answer: D
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

11) Which of the following is not a reason why an accountant in the United States should learn
international accounting standards?
A) The United States has plans to fully adopt IFRS in the near future.
B) The SEC permits the use of IFRS-based financial statements by international companies with shares
trading on the U.S. stock exchanges.
C) An accountant may work for, or assist, a foreign company that operates in the U.S. and uses IFRS for
financial reporting.
D) U.S. companies operate subsidiaries outside of the United States which report under IFRS in their home
countries.
Answer: A
Diff: 1
Objective: 1.2
IFRS/GAAP: GAAP/IFRS
AACSB: Application of knowledge

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