Question 1

Which of the following statements is correct about generalising the findings of a study to the general population,based on particular samples?

Accepted Answer

A)   It is not possible to make generalisations unless you study the entire population.
B)   It is possible to make generalisations as long as the sample is representative of the population.
C)   It is possible to make generalisations as long as the sample includes at least 50 per cent of the population.
D)   It is possible to make generalisations if the sample is representative, and its size allows statistical inferences to be made. D

Question 2

Which of the following statements aligns with the views of 'Falsificationists',such as Popper and others?

Accepted Answer

A)   Hypotheses are proposed by guessing, without guidance from existing theories.
B)   It is possible to state that a theory is true.
C)   Hypotheses must be stated in a form that assumes they are true, until evidence that is not supportive rejects them.
D)   All theories are false until they are proved to be true. C

Question 3

The sequential stages of inductive reasoning are:

Accepted Answer

A)   Principles, objectives, assumptions and practice
B)   Practice, principles, assumptions and objectives
C)   Objectives, assumptions, principles and definitions
D)   Assumptions, objectives, principles and definitions B

Question 4

A theory (or model)that states that the most useful information for economic decision making is the current cash equivalents,as measured by the current net market values,is:

Accepted Answer

A)   Current Price Accounting
B)   Continuously Contemporary Accounting Theory
C)   Current Cost Accounting Theory
D)   Replacement Value Accounting Theory

Question 5

According to Thouless (1974),the 'tricks' some writers often use to distract readers from limitations in the logic of an argument or theory are:

Accepted Answer

A)   Using emotionally-toned words
B)   Evasion of a sound refutation of an argument by use of a sophisticated formula
C)   Changing the meaning of a term during the course of an argument
D)   All of the given options are correct.

Question 6

Which of the following statements best explains the role of logic in a theoretical argument?

Accepted Answer

A)   As long as the premises of an argument follow logically from one to the other, the conclusion will be correct.
B)   A conclusion can only be true to the extent that we accept that the premises on which it is based are true.
C)   Arguments cannot be rejected on the basis of observation; only on whether they are logical or not.
D)   All theories and their arguments must correspond with actual observation of current practices, or real-world phenomena, to be logical.

Question 7

The failure of a particular study to support a theory:

Accepted Answer

A)   Provides the basis for rejecting the theory as useless or insignificant
B)   Means that the particular study must have flaws in its design or execution in specifying and collecting the data
C)   Threatens the theory, if repeated or more refined studies fail to support it with empirical evidence
D)   Means that the hypothesis was too broad, and did not specify the particular circumstances and conditions in enough detail

Question 8

All liability accounts have credit balances.The accounts receivable account is a liability account.Therefore,the accounts receivable account has a credit balance.Which of the following statements is correct with respect to the above argument?

Accepted Answer

A)   The argument follows a logical and clear reasoning.
B)   The argument is illogical.
C)   The conclusion reached is clearly true.
D)   The classification of accounts receivable is consistent with the observed classification of receivables.

Question 9

Normative accounting theories and research seek to:

Accepted Answer

A)   Explain and predict particular phenomena based on observation
B)   Prescribe particular approaches not driven by existing practices
C)   Describe what is normal, or generally accepted, practice
D)   All of the given options are correct.

Question 10

In evaluating theories of accounting,which of the following is not true?

Accepted Answer

A)   Different theories are often the result of working in different paradigms, which provide greatly different perspectives.
B)   Positive Accounting Theory is an example of a theory that is value free.
C)   Selecting a theory, topic, design or method for research is based on value judgements.
D)   All theories of accounting, and assumptions on which they are based, are abstractions of reality, and so choice is based on how closely the theory fits our own perceptions.

Question 11

Which of the following is not assumed in Positive Accounting Theory?

Accepted Answer

A)   Individuals (including managers)  are economically rational in their behaviour.
B)   Individuals (including managers)  are primarily motivated by self-interest.
C)   The natural objective of managers is to maximise the wealth of the firm.
D)   Managers are not indifferent in selecting accounting methods to use.

Question 12

Which of the following hypotheses is testable,and therefore possible to falsify?

Accepted Answer

A)   Assets are designed to best fulfil the function for which they are intended
B)   Current replacement cost accounting is more useful than historical cost accounting
C)   Research and development expenditure is an expense.
D)   The net profit of a company is affected by the economic downturn

Question 13

Which of the following is not an example of a normative accounting theory or research?

Accepted Answer

A)   Conceptual frameworks of accounting
B)   Critical perspectives of accounting practice
C)   Capital markets-based (security price)  research
D)   True income theories

Question 14

In evaluating various research studies,it is important to first consider:

Accepted Answer

A)   The logic of the argument and how it is tested
B)   The logic of the argument and the assumptions on which it is based
C)   The purpose of the study and the type of theory on which it is based
D)   Whether the data collected represents a valid measure of the theoretical variables in question

Question 15

Which of the following statements is true about proving a theory?

Accepted Answer

A)   An accepted Positive Accounting Theory purports to provide sound predictions the majority of the time.
B)   An accepted Positive Accounting Theory that purports to explain and predict, must hold true in all cases.
C)   A Positive Accounting Theory does not need to be tested or proven.
D)   An accepted Positive Accounting Theory has no 'exceptions to the rule'.

Question 16

Which of the following is true about theories in general?

Accepted Answer

A)   Theories can include any coherent set of ideas or statements to explain, or provide guidance in respect of, certain phenomena.
B)   Theories must be empirically based to describe what is, rather than what should be.
C)   Theories must be based on inductive reasoning to provide a generalisation or prediction.
D)   All of the given options are correct.

Question 17

A theory is:

Accepted Answer

A)   A proposed explanation of a phenomenon which still has to be rigorously tested
B)   A scheme or system of ideas or statements or propositions which has undergone extensive testing and is generally accepted to be the accurate explanation behind an observation
C)   A provisionally accepted hypothesis proposed for further research
D)   None of the given options are correct.

Question 18

Which of the following is not a description of a paradigm?

Accepted Answer

A)   It is a model for the formulation and resolution of research problems.
B)   It is a school of thought or a principle by which a group of researchers operate.
C)   It is a collection of unrelated theories.
D)   It offers a systematic approach to raise questions and to frame answers.

Question 19

A good theory is one:

Accepted Answer

A)   That is falsified
B)   That is true
C)   For which there is a conceivable means of testing its falsity and the theory withstands the test
D)   For which there is no conceivable means of testing its falsity and the theory upholds

Question 20

Which of the following is an example of a dominant paradigm in accounting prior to 1960?

Accepted Answer

A)   Current cost accounting
B)   Conceptual framework of accounting
C)   Historical cost accounting
D)   Continuously contemporary accounting

Exam 1: Introduction to Financial Accounting Theory