1. Which early accounting theorist was among the first to express the view that all changes in the

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Chapter 2

Multiple Choice

• Which early accounting theorist was among the first to express the view that all changes in the

value of assets and liabilities should be reflected in the financial statements?

• A. C. Littleton
• John Canning
• William Paton
• DR Scott

Answer c

• Which of the following economists most influenced the views of DR Scott?
• Thorstein Veblen

ii. John Hicks iii. Karl Marx iv. John Smith

Answer a

• Which of the following is not one of DR Scott’s hierarchy of accounting postulates and

principles?

• Orientation postulate.
• The principles of truth and fairness.
• The materiality principle
• The principles of adaptability and consistency.

Answer c

• Which of the following organizations published the monograph titled A Tentative Statement of

Accounting Principles Affecting Annual Corporate Reports?

• SEC
• AAA
• AIA
• NAA

Answer b

• Which of the following organizations published the monograph titled A Statement of Accounting

Principles?

• SEC
• AAA
• AIA

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• NAA

Answer c

• Who was the author of Accounting Research Study No. 1, The Basic Postulates of Accounting?
• Robert Sprouse
• Maurice Moonitz
• Alvin Jennings\
• Thomas Hatfield

Answer b

• Which of the following is not an approach to accounting theory as categorized by Statement on

Accounting Theory and Theory Acceptance?

• Classical,
• Neoclassical
• Decision usefulness
• Information economics.

Answer b

• What is the objective of financial reporting?
• Provide information that is useful to management in making decisions.
• Provide information that clearly portrays nonfinancial transactions.
• Provide information about the reporting entity that is useful to present and potential equity

investors, lenders, and other creditors.

• Provide information that excludes claims to the resources.

Answer c

• Under Statement of Financial Accounting Concepts No. 8, confirmatory value is an ingredient of

the primary quality of Relevance Faithful representation

• No No
• No Yes
• Yes Yes
• Yes No

Answer d

• Which of the following is considered a constraint by Statement of Financial Accounting Concepts

No. 8?

• Cost
• Conservatism

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• Timeliness
• Verifiability

Answer a

• Under Statement of Financial Accounting Concepts No. 8, which of the following is an ingredient

of the primary quality of relevance?

• Neutrality
• Completeness
• Understandability
• Verifiability

Answer b

• Under Statement of Financial Accounting Concepts No. 8, which of the following is an ingredient

of the primary quality of faithful representation?

• Understandability
• Verifiability
• Predictive value
• Materiality

Answer b

• Under Statement of Financial Accounting Concepts No. 8, the ability through consensus of

measures to ensure that information represents what it purports to represent is an example of the concept of

• Relevance
• Verifiability
• Faithful representation
• Feedback value

Answer c

• Under Statement of Financial Accounting Concepts No. 8, which of the following relates to both

relevance and reliability?

• Timeliness
• Materiality
• Predictive value
• Neutrality

Answer a

• Under Statement of Financial Accounting Concepts No. 8, which of the following is not a

qualitative characteristic associated with faithful representation?

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• Completeness
• Free from error
• Neutrality
• Predictive value

Answer d

• What is meant by comparability when discussing financial accounting information?
• Information has predictive or confirmatory value.
• Information is reasonably free from error.
• Information that is measured and reported in a similar fashion across companies.
• Information is timely.

Answer c

• What is meant by consistency when discussing financial accounting information?
• Information that is measured and reported in a similar fashion across points in time.
• Information is timely.
• Information is measured similarly across the industry.
• Information is verifiable

Answer a

• An item is considered material if
• It doesn’t cost a lot of money.
• It is of a tangible good.
• It is likely to influence the decision of an investor or creditor.
• The cost of reporting the item is greater than its benefits

Answer c

• If the FASB’s proposed definition of materiality as a legal concept is adopted the most likely

outcome is

• It will have little impact on the number of items classified as material
• It will lower the threshold for recognizing event and transactions as material
• It will raise the threshold for recognizing event and transactions as material
• Its impact cannot be determined

Answer c

• What is the purpose of Emerging Issues Task Force?
• Provide interpretation of existing standards.
• Provide a consensus on how to account for new and unusual financial transactions.
• Provide interpretive guidance.