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Test Bank for Intermediate Accounting Volume 5th Edition Multiple Choice Questions Private placements refer to: C shares that form part of a control block D all of these answers are correct B debt or equity securities issued to individuals or organizations without being listed with a securities commission A funds not disclosed by private companies What is the purpose of financial statements? A to disclose the market value of the firm's assets and liabilities C to identify shareholders B to determine compliance with tax laws D to help users make decisions 6) John is the vice president of marketing for a local tour guide company He is concerned that his customers are not recommending his company to friends of theirs For John, this problem is a: a purchase issue b demographic problem c prepurchase issue d postpurchase issue 29) Research has shown that Mexican firms are less likely to have formal codes of ethics and more likely to bribe public officials than are American or Canadian companies This demonstrates that: a business practices can be unethical without being illegal b social marketing is not important in Mexico c cultural values and beliefs are important for determining what is considered ethical d American and Canadian companies are more respectful than Mexican companies 22) People who have grown up “wired” in a world of digital technology are described as a horizontal revolutionaries b smart socialites c digital natives d face-to-place consumers 16) Doritos have capitalized on _ in their memorable Superbowl ads a spokescharacters b social marketing c green marketing d consumer-generated content Which of the following is published by the Financial Accounting Standards Board? B Accounting Exposure Drafts A Accounting Project Proposals E Statements of Auditing Revisions D CICA Handbook Sections and Accounting Guidelines C Accounting Issues Papers 33) Which Act is designed to protect consumers against purchasing food, cosmetics, or drugs that are deceptive or misleading, or that may pose a risk to health? a Food and Drugs Act b Consumer Packaging and Labelling Act c Hazardous Products Act d National Trademark and True Labelling Act Generally accepted accounting principles currently are promulgated primarily by the: D Accounting Standards Board (AcSB) A Canadian Academic Accounting Association (CAAA) B Canada Customs and Revenue Agency C Ontario Securities Commission (OSC) Which of the following statement(s) is(are) correct? B Companies that use the disclosed basis of accounting are NOT allowed to use differential reporting, A Companies that use the disclosed basis of accounting are in effect using differential reporting, C When used, the disclosed basis of accounting must comply with GAAP D both "companies that use the disclosed basis of accounting are NOT allowed to use differential reporting" and "when used, the disclosed basis of accounting must comply with GAAP" are correct Professional accountants need a wide range of knowledge and skills Which of the following is not an example of such knowledge or skills? A an ability to calculate and analyze data, and a facility with numbers C an ability to communicate in a concise and understandable manner B knowledge of many disciplines such as finance, economics, management, marketing and statistics D skills derived from prior management experience The body that has the responsibility to set generally accepted accounting principles in Canada is the A FASB D OSC C AcSB B IASC 35) Jackson, the marketing manager for a large food manufacturing plant, recently met with his boss because he was concerned that his company was violating the Food and Drugs Act of 1953 and the Competition Act of 1986 Based on this information, what was the problem that Jackson was concerned about? a The company had not taken any quality-control measures when producing its products b The company was advertising one of its unhealthy products as being healthy c The company would not reveal what information it was collecting from its customers d Its products were unsafe to consume and could cause harm to people External decision-makers include all of the following except: C creditors B owners A managers D financial press The conceptual framework of accounting should have many positive effects as new accounting standards are developed Which of the following is not one of those effects? D Management should have greater latitude in choosing among accounting alternatives A Financial statements among companies and industries should be more consistent and comparable C Users' understanding and confidence in financial statements should increase B Standard setting should be more consistent with an overall statement of the objectives and concepts of financial reporting E Accountants should be better able to assess the validity of different accounting alternatives for similar and dissimilar transactions and events 27) Sara and Jessica text back and forth while Sara is shopping and Jessica is riding the bus to work This is an example of: a a synchronous interaction b an asynchronous interaction c utilitarian consumption d a consumption community Which of the following statements regarding cash flows is not accurate? A Before the present cash flow statement standard became effective, companies had a choice of whether to report cash flow from operating activities or working capital from operating activities D Information about past cash flows is useful in predicting an entity's future cash flows E Information about the balances of current liabilities, long-term debt and stockholders' equity can be found in the statement of cash flows B Studies have shown that a cash flows report is more relevant to investor decisions than a working capital report C The reported cash flow from operating activities has been found useful in evaluating a firm's ability to make interest payments and repay debt Generally accepted accounting principles are: A optional procedures for recording economic events C the rules of accounting, prescribed exclusively by Federal regulatory agencies D standards of accounting, a material departure from which may result in a qualified opinion issued by an auditor B mandatory rules applied to both financial and management accounting If cash flow prediction is a company's primary reporting objective, this would likely result in: C Poor matching D Fewer accruals and deferrals A Higher earnings B Lower earnings Generally accepted accounting principles A include specific rules, practices and procedures D all of these answers are correct C standards of accounting, a material departure from which may result in a qualified opinion issued by an auditor B include broad principles and conventions of general applications including underlying concepts Pronouncements of the Accounting Standards Board: C are similar in force and effect to those of the Accounting and Auditing Research Committee A are commonly known as "Accounting Research Studies." B are enforced by the American Accounting Association E must be followed for income tax purposes D are commonly known as "Opinions." The disclosed basis of accounting refers to D the practice of disclosing all pertinent accounting policies in a company's annual report A the use of non-GAAP policies by private companies C the use of International Financial Reporting Standards B the use of non-GAAP policies by any company Which of the following is NOT a primary motivator for maximizing net income? C To enhance managers' performance-based compensation A Compliance with debt covenants D To minimize the company's income tax liability B To positively influence users' assessment of management performance 10) Which of the following is not an example of a demographic variable? a age b geography c lifestyle d ethnicity 23) The multi-player online game “World of Warcraft” is a good example of: a consumer-generated content b the dark side of consumerism c a virtual brand community d anti-consumption The users toward which financial statements are directed: A are very sophisticated and experienced in using financial information B are independent Public Accountants C have degrees in accounting and finance E are Chartered Financial Analysts D have a reasonable understanding of business and economic activities The stewardship function refers to C The collection of information for planning the future of the entity, implementing those plans, and for controlling daily operations D The collection of information to help present and potential investors and creditors and other users in assessing the amounts, timing and uncertainty of prospective cash receipts B A company's corporate citizenship track record A Disclosing management's use of funds and other financial information to absentee shareholders 12) Marketers who interact with their customers on a regular basis, and not just at the time of purchase, are most likely engaged in: a brand loyalty b psychographic segmentation c market segmentation d relationship marketing 15) The film The Wedding Crashers had what reported impact? a It resulted in an decrease in wedding bookings b It led to a sell out DVD success c It caused an outbreak of uninvited wedding guests d It boosted the US economy by 15% in it’s year of release 8) A fast-food chain describes its core customer as a single male under 30 years of age with a working class job, who reads little, likes loud music, and hangs out with friends This is an example of: a subculture b marketing segmentation c demographics d typical male Canadian consumer of burgers A acceptance of the source by industry professionals B the specificity of the source D both the specificity of the source & the continued relevance of the source C the continued relevance of the source 24) Groups of people that unite on the Internet to share a passion for a product are known as: a chat rooms b virtual brand communities c consumer networks d product organizations 28) Global terms like kuroi kiri, la mordida, bustarella, and baksheesh are referring to: a competition b segmentation c theft d bribery 31) Although research has shown that consumers think better of products made by firms they feel are behaving ethically, many "ethical" companies encounter difficulties selling their products What is a good a reason for this? a Ethical companies not make good quality products b Products made by ethical companies are hard to find for consumers c Sometimes consumers' buying behaviour is not consistent with their positive attitudes about ethical products d Consumers lie on surveys about ethical companies in order to appear like they care 5) Tina, a supervisor of displays for Sears Canada, knows that attractive displays can generate additional sales of particular items From a marketer's perspective, this is a/an: a purchase issue b postpurchase issue c merchandising complexity d loss leader The role of the Accounting Standards Board (ACSB) in the formulation of accounting principles in Canada can be best described as A primary B secondary C sometimes primary and sometimes secondary D non-existent The organization created to develop accounting standards in Canada, the ACSB, is concerned about: B reported earnings C reported comparability of results D reporting abuse E all of these answers are correct A reported cash flows 9) In studying consumer behaviour, it is often useful to categorize people on the basis of some similarity Descriptions such as age, gender, income, or occupation are called: a demographics b psychographics c personal profiles d physiology 17) Saucony Canada held a contest asking consumers to send in their own photos, which will be utilized in a future advertising campaign for the company This is an example of: a anticonsumption b consumer-generated content c social marketing d green marketing 18) Billy is an avid collector of shoes He constantly voices his opinion on blogs and product review websites of what features new shoes should have His behaviour is consistent with the concept of: a file sharing b database marketing c interpretivism d consumer-generated content 14) Tony Roma’s restaurant sends regular customers a coupon for a free meal on their birthdays This is an example of: a a company seeking to attract lost clients back to base b a social networking process c a loss-leading promotion campaign d relationship marketing 26) The Open Data Partnership is: a a low privacy date-matching service b a free-serve information access network c a system allowing consumers to edit information collected about them d a controlled group of corporations dedicated to information sharing The stewardship function is reflected by: A Minimizing interperiod allocations C Full disclosure D Both (A) and (B) are correct E Both (A) and (C) are correct B Performance evaluation 13) Recently marketers have come to realize the value of what is being called relationship marketing In marketing terms, it means: a developing friendships with foreign governments so that American products can be sold in their countries at a fair price b instituting practices which show companies' awareness of their responsibilities to the environment and society c building bonds between brands and customers that will last over time d using new electronic capabilities to ensure that all channel members work smoothly together, for example, in seeing that products get to retailers before their inventories run out 32) In a survey designed to measure people's willingness to pay for fair trade coffee, researchers found that most coffee drinkers were willing to pay an average price premium of a 10 percent b 20 percent c 30 percent d 40 percent Which of the following is NOT a primary source of GAAP? D Abstracts of Issues discussed by the EIC (Emerging Issues Committee) C Accounting Guidelines issued by the AcSB A Accounting sections of the CICA Handbook B FASB accounting standards Which of the following statements is correct? D Neither primary nor secondary sources of GAAP have established hierarchies C Both primary and secondary sources of GAAP have established hierarchies B There is no hierarchy with respect to secondary sources of GAAP A There is no hierarchy with respect to primary sources of GAAP 34) Of the following pieces of legislation intended to protect the consumer, which was passed first? a Textile Labelling Act b Food and Drug Act c Motor Vehicle Safety Act d Hazardous Products Act e National Trademark and True Labelling Act During the coming years, we should expect the ACSB to C continue to provide accounting standards for private companies D all of these B harmonize Canadian GAAP to international standards A extend differential reporting options available to private companies 7) The expanded view of the exchange that includes the issues that influence the consumer before, during, and after a purchase is called: a the value b the strategic focus c the pre-sell strategy d the consumption process 4) The study of the processes involved when individuals or groups select, purchase, use, or dispose of products, services, ideas, or experiences to satisfy needs and desires is called: a market segmentation, b relationship marketing c market research d consumer behaviour 30) The fact that bribery in business is acceptable in some countries but not in others demonstrates that: a ethics are relative to the situation in which business persons find themselves b cultural jamming has been successfully practiced in some countries c ethics are incompatible with social marketing d practices can be unethical without being illegal True-False Questions Both private and publicly accountable companies must comply with IFRS beginning on January 1, 2011 True False A company's functional currency is the currency in which it conducts most of its business True False A company's presentation currency should normally be its functional currency True False The main purpose of financial accounting is to communicate useful financial information to decision-makers both inside and outside of the business organization True False Disclosure notes facilitate the evaluation of enterprise position and performance because they include information, which helps to explain qualitaitve aspects of earnings True False The Canadian Institute of Chartered Accountants (CICA) initially created the Accounting and Auditing Research Committee, which was replaced by the Accounting Research Committee (ARC), which in turn was replaced by the Accounting Standards Board (AcSB) True False Maximization of net income is a common motivation of managers True False The various provincial securities commissions not exert influence on the development of accounting standards True False The disclosed basis of accounting (DBA) refers to the use of Non-GAAP accounting policies by private companies True False Canadian companies must always present their financial results in Canadian dollars True False A company whose net income is highly correlated to its operating cash flows is said to have a high quality of earnings True False The CICA Handbook requires that income for tax purposes be equal to a company's accounting income at all times True False External users of a company's financial statements may have conflicting objectives True False The Accounting Standards Board (ACSB) is an independent group established to promulgate accounting standards for governmental units such as provincial and civic entities True False Developments in accounting standards have not addressed the problem of using accounting techniques to smooth earnings True False The influence of tax rules when selecting appropriate accounting treatment for a transaction is particularly strong with public companies True False A wholly-owned subsidiary of a multinational corporation is essentially a private corporation True False At least half of the members of the ACSB must be other than professional accountants True False The Federal Accounting Standards Board (FASB) is a branch of the CICA True False Due to the excellent work of the ACSB, there are very few choices among alternative accounting policies today True False The CICA Handbook is the most important primary source of GAAP True False The accounting standards for private enterprises (ASPE) are essentially a scaled-down version of the CICA handbook, which is available to all small and medium sized enterprises with no fiduciary responsibility True False Accounting concepts, principles and standards are just as broad and general today as they were sixty years ago True False Mutual fund companies, which may be privately held, are deemed to have a fiduciary responsibility and must therefore comply with IFRS True False Privately held, publicly accountable companies with a fiduciary responsibility must comply with IFRS True False Managers of an entity are considered to be internal decision- makers True False Canadian corporations are prohibited from using U.S GAAP True False The International Accounting Standards Board is responsible for the creation of International Financial Reporting Standards used by companies whose securities are traded on international markets True False FASB and International Accounting Standards are secondary sources of GAAP True False Free Text Questions Discuss in general the due process procedure the AcSB follows in developing accounting standards Who are the groups which typically have opposing views when it comes to accounting standards, and why? Answer Given After identifying an issue of interest, the AcSB writes a project proposal which defines the terms of reference, the need and scope of the issue, and those affected A task force is made up to monitor the issue to its conclusion An issues paper may be prepared to help the AcSB members to appreciate the problems A statement of principles is usually prepared to outline the basic response to the issues raised Input is then sought on a private and confidential basis to fine-tune the issues After AcSB approval, an exposure draft is developed and circulated to all interested parties and input is requested Revisions may result in a re-exposure draft being circulated again for further public input Finally, a 2/3 vote by the AcSB is required to approve a new section of the CICA Handbook BThe two groups with frequently opposing views are the preparers (reporting companies) and the investment community Reporting companies base their arguments for or against a standard on how their interests might be affected by a new standard The investment community typically wants expanded disclosure to enable the best possible decisions concerning resource allocation, and favours neutral reporting The AcSB prefers neutral financial accounting principles to principles which would have a goal of influencing particular types of economic activity or government regulation What is GAAP, how is it currently defined, and what is the outcome of the due process? Answer Given GAAP is the set of rules, procedures, policies and customs, which govern measurement, recognition and disclosure in financial statements Currently, the bulk of GAAP is defined as those pronouncements promulgated by the Accounting and Auditing Research Committee, Accounting Research Committee, and Accounting Standards Board, which have not been superseded by later pronouncements Primarily, these consist of the Accounting recommendations in the Handbook and when a matter is not covered by a Recommendation, other accounting principles that either: (a) are generally accepted by virtue of their use in similar circumstances by a significant number of entities in Canada; or (b) are consistent with the Recommendations in the Handbook and are developed through the exercise of professional judgement, including consultation with other informed accountants where appropriate, and the application of the concepts In exercising professional judgement, established principles for analogous situations dealt with in the Handbook would be taken into account and reference would be made to: (i) other relevant matters dealt with in the Handbook; (ii) practice in similar circumstances; (iii) Accounting Guidelines; (iv) Abstracts of Issues Discussed by the CICA Emerging Issues Committee (v) International Accounting Standards published by the International Accounting Standards Committee; (vi) standards published by bodies authorised to establish financial accounting standards in other jurisdictions; (vii) CICA research studies; and (viii) other sources of accounting literature such as textbooks and journals The relative importance of these various sources is a matter of professional judgement in the circumstances (CICA Handbook, Section 1000) Do you think that most companies in the oil sector would adopt expanded disclosure policies or simply adhere to minimum compliance requirements? Explain Answer Given Students answers are sure to vary here, and for this reason this would be a good question for class- discussion purposes While many responses may be valid, it can be argued that oil companies would be under enormous pressure to disclose as much information about their activities as possible Rightly or wrongly, oil companies are often thought to be exploiting the environment for their own benefit Moreover, many consumers still believe that they are being "gouged" by these companies As a result, companies in the oil sector are not viewed favourably by many people As a result of these negative perceptions, these companies would feel pressured to provide ... same accounting practices for financial reporting purposes as for tax reporting Answer Given The term used to for adopting the same accounting practices for financial reporting purposes as for. .. the accounting field has as its main purpose serving the information needs of parties outside the reporting firm? A Financial accounting B Tax accounting D Auditing C Managerial accounting 21) ... Financial Accounting Standards Board? B Accounting Exposure Drafts A Accounting Project Proposals E Statements of Auditing Revisions D CICA Handbook Sections and Accounting Guidelines C Accounting