Deck 1: An Introduction to Accounting Theory

Question 1

In a ratio scale, the zero point implies "nothingness," or the absence of the quality being measured.

Answer 1

True

Question 2

Accounting theory includes conceptual frameworks, accounting legislation, valuation models, and hypotheses and theories.

Answer 2

True

Question 3

Accounting theory is developed and refined by the process of accounting research.

Answer 3

True

Question 4

Prediction measures are concerned with factors that may be indicative of future conditions.

Question 5

Objectivity may be defined as the degree of consensus among measurers.

Question 6

Financial accounting refers to accounting information that is used by management for decision-making purposes.

Question 7

The simplest type of measuring system is the nominal scale.

Question 8

Timeliness and cost are pertinent to assessment measures but are not pertinent to prediction measures.

Question 9

Using ratio scale measurement is possible in accounting.

Question 10

Replacement cost as a measure of asset value is generally more reliable than historical cost.

Question 11

A chart of accounts is an example of an ordinal classification.

Question 12

Assessment measures are concerned with particular attributes of objects and are always direct measurements.

Question 13

Indirect measures are usually preferable to direct measures because they are less costly to obtain.

Question 14

Hypotheses and theories are based on an informal method of investigation.

Question 15

All accounting measurements are of either the assessment or the prediction variety.

Question 16

Assessment measures are not concerned with particular attributes of objects.

Question 17

Accounting theory includes the basic rules, definitions, and principles that underlie the drafting of accounting standards and how they are derived.

Question 18

The need for information on a timely basis may conflict with cost constraints in some situations.

Question 19

Numerals assigned in ordinal rankings indicate an order of preference where the degree of preference among ranks is the same.

Question 20

When a direct assessment measure is used, there is always only one correct measure.

Question 21

Measurement is an integral part of accounting theory.

Question 22

Which of the following would be considered a political factor relative to the financial accounting policy function?

A) Auditors
B) Inflation
C) Taxes
D) Price changes

Question 23

The principal argument used to justify the replacement cost system over exit values is that if the great majority of the firm's assets were not already owned, it would be economically justifiable to acquire them.

Question 24

Which of the following methods of valuing an asset is based on the amount that a firm could acquire by selling the asset?

A) Replacement cost
B) Entry value
C) Exit value
D) Both a and b

Question 25

Which of the following groups carry out most accounting research?

A) Public accounting firms
B) Private industry
C) Accounting professors
D) Chartered Financial Analysts

Question 26

The discounted cash flow approach can be used to determine an objective measurement for most assets and liabilities.

Question 27

The use of which of the following types of measurement scales in accounting allows meaningful comparisons among similar accounting measurements for different firms?

A) Interval scale
B) Ratio scale
C) Nominal scale
D) Ordinal scale

Question 28

Which of the following factors is not listed in your text as affecting a direct assessment measure?

A) The measurer
B) The attribute being measured
C) Instruments available for the measuring task
D) The individual who will use the measure

Question 29

Which of the following methods of valuing an asset is based on the amount that would be paid for it in markets where the asset would ordinarily be acquired?

A) Replacement cost
B) Entry value
C) Exit value
D) Both a and b

Question 30

There are often trade-offs between objectivity and the usefulness of numbers generated by the measurement process.

Question 31

The terms calculation and measurement both refer to the valuation of a real phenomena or attribute.

Question 32

Which measurement scale indicates an order of preference but not the degree of preference among ranks?

A) Interval scale
B) Ratio scale
C) Nominal scale
D) Ordinal scale

Question 33

Calculations attempt to simulate or come as close as possible to the measurement of real phenomena or attributes.

Question 34

The simplest type of measuring system is the:

A) Interval scale.
B) Ratio scale.
C) Nominal scale.
D) Ordinal scale.

Question 35

For which measurement scale must the change in the attribute measured among assigned numbers be equal?

A) Interval scale
B) Ratio scale
C) Ordinal scale
D) Both a and b

Question 36

FIFO and LIFO measures of cost of goods sold and inventories are examples of calculations rather than measurements.

Question 37

Throughout the financial history of the United States, current value has been the accepted valuation system for published financial statements.

Question 38

Both exit value and replacement cost are valuation systems that fall into the current value category.

Question 39

If a number assigned to an object is an actual measurement of a property of the object, it is referred to as a(n):

A) Direct measurement.
B) Biased measurement.
C) Indirect measurement.
D) Prediction measurement.

Question 40

A general price-level adjustment refers to the purchasing power of the monetary unitary unit relative to all goods and services in the economy.

Question 41

Give at least three examples of how accounting numbers may affect social reality.

Question 42

Discuss the difference between direct measurement and indirect measurement. Give examples of each in an accounting context.

Question 43

Which of the following is not true regarding accounting theory?

A) It includes concepts, valuation models, and hypotheses.
B) It is developed and refined by the process of accounting research.
C) It is concerned with improving financial accounting and statement presentation.
D) It is concerned with insuring that managers and investors are in agreement on how to improve financial statements.

Question 44

Which of the following is an example of a measurement rather than a calculation?

A) FIFO inventory valuation
B) Replacement cost of ending inventory
C) LIFO cost of goods sold
D) Historical cost depreciation

Question 45

Which of the following is a measure of predictive ability?

A) Objectivity
B) Bias
C) Timeliness
D) Productivity

Question 46

Which of the following valuation methods is frequently referred to as a process of orderly liquidation?

A) Exit valuation
B) Entry value
C) Replacement cost
D) Historical cost

Question 47

Which of the following valuation approaches converts historical cost dollars by an index such as the Consumer Price Index?

A) Current value
B) Discounted cash flows
C) Replacement cost
D) General price-level adjustment

Question 48

Which of the following specifically refers to the process of arriving at a pronouncement issued by the FASB or SEC?

A) Standard setting
B) Accounting research
C) Policy determination
D) Accounting valuation measurement

Question 49

Of the valuation systems discussed in your text, which one is purely theoretical, with virtually no operable practicability on a statement-wide basis?

A) Current value
B) Discounted cash flows
C) General price-level adjustment
D) Historical cost

Question 50

Identify four qualities that are pertinent to accounting measures.

Question 51

In attempting to analyze the worth of an accounting measure, which of the following qualities is not mentioned in the text as an important consideration?

A) Objectivity
B) Timeliness
C) Cost
D) Complexity

Question 52

Which of the following is not a major input into the accounting standard-setting process?

A) Accounting theory
B) Political factors
C) Geographical constraints
D) Economic conditions

Question 53

What is the policy function performed by bodies such as the FASB and the SEC? List and discuss the three sources of inputs to the policy-making function.

Question 54

For which measurement scale must the change in the attribute measured among assigned numbers be equal and the zero point imply the absence of the attribute measured?

A) Interval scale
B) Ratio scale
C) Ordinal scale
D) Both a and b

Question 55

List the four types of measurement scales in order of measurement rigor. Describe and give examples of each type of scale.

Question 56

Which of the following refers to accounting information that is used by investors, creditors, and other outside parties for analyzing management performance and decision-making?

A) Managerial accounting
B) Financial accounting
C) Income tax accounting
D) Institutional accounting

Question 57

Computations and comparisons of accounting ratios is possible because:

A) The zero point in accounting implies "nothingness" in terms of dollar amount.
B) Accounting measures are on an interval scale.
C) Assets and liabilities are listed in the order of liquidity in the balance sheet.
D) Accounting is a basic classification system.

Question 58

Which of the following has/have been the accepted valuation system for published financial statements throughout the financial history of the United States?

A) Historical cost
B) Income tax valuation
C) Discounted cash flows
D) General price level

Question 59

Which of the following valuation approaches has/have been defended as more suitable as a means for distributing income because it is not based on hypothetical opportunity cost figures?

A) Income tax valuation
B) Discounted cash flows
C) Historical cost
D) Current value

Question 60

In an accounting context, which of the following represents the degree of consensus among measurers in situations where a given group of measurers having similar instruments and constraints group measures the same attribute of a given object?

A) Bias
B) Equality
C) Objectivity
D) Impartiality

Question 61

Explain how a firm might use a special purpose entity (SPE) to subvert the standard-setting process.