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QUESTION

ETH/557 - ACCOUNTING ETHICS Final exam

1. In 2003, FASB and IASB met and established four criteria for establishing revenue recognition. To recognize revenue, which of the following conditions must be present?

A change in assets has occurred and can be appropriately measured.

Payment for the sale must be received prior to recognizing the revenue.

The product or deliverable, in the case of a service business, has been received by the customer.

A promise to deliver has been established.

2. Failure to provide any care in fulfilling a duty owed to another is called

gross negligence

constructive fraud

breach of contract

negligence

3. Which of the following is a fundamental characteristic of the market system?

Unselfish behavior

Central planning by government

Government-set wages and prices

Property rights

4. The income effect indicates that

consumers should substitute among various products until the marginal utility from the last unit of each product purchased is the same

a rise in money income will cause consumers to buy smaller quantities of normal goods

when the price of a product falls, a consumer will be able to buy more of it with a specific income

when the price of a product falls, the lower price will induce the consumer to buy more of that product now that it is relatively cheaper

5. The price elasticity of demand coefficient measures

the slope of the demand curve

how far business executives can stretch their fixed costs

buyer responsiveness to price changes

the extent to which a demand curve shifts as incomes change

 6. A normative statement is one that

applies only to microeconomics

is based on the law of averages

is based on value judgments

applies to macroeconomics

7. Many conflicts of interest in business contracts can be remedied ethically by which of the following?

Deception and disclosure

Camouflage and consent

Disclosure and consent

Conflicts of interest can never be remedied ethically

8. Four professional general standards and responsibilities for Certified Public Accountants are quality control and assurance, professional judgment, competence, and:

integrity

diligence

independence

knowledge

9. In 2002, Adelphia Cable filed bankruptcy when it was discovered that

excess fictitious expenses of $1 million were added to the income statement

bank debt in excess of $2.3 billion was not shown on the financial statements

assets on the financial statements were considerably undervalued

sales in excess of $72 billion were omitted from the financial statements

10. When budgets are used to measure performance, there is a danger that budgetary slack may occur. This happens when

sales budgets are set too high and cost budgets are set too low

sales budgets are set too low and cost budgets are set too high

sales budgets are set too low and cost budgets are set too low

sales budgets are set too high and cost budgets are set too high

11. ABC Company owes XYZ Enterprises $1 million for goods purchased from XYZ over a year ago. XYZ Enterprises continues to list the $1 million in their accounts receivable balance and does not record any allowance for doubtful accounts. XYZ Enterprises is failing to follow

SFAS 169

Financial Accounting Standards Board FAS 157

Financial Accounting Standards Board Statement No. 5

SFAS 101

12) The EU Privacy Directive presents problems for the United States in that

data may not be transferred to a non-EU entity unless guarantees are provided that equal security measures are in place

transferred data may not be translated into another language

high transfer charges are required to be paid by the recipient in the currency of the country transferring the data

several layers of approval are necessary before any data may be transferred to a non-EU entity

13) When revenue is recognized and shipment has not been made and the criteria for recognizing revenue on bill-and-hold transactions set out in SEC Staff Accounting Bulletin No. 101 have not been met, this is known as

timely revenue recognition

postrevenue recognition

premature revenue recognition

conservative revenue recognition

14. According to the Agency Theory, in a corporation there are two types of information consumers known as

principals and vendors

customers and agents

vendors and customers

agents and principals

15. Tom Donaldson and Tom Dunfee are proponents of ethical guidelines related to technology that are based on differentiating hypernorms from nonhypernorms. This theory is known as

Integrative Social Contracts Theory

Transparent Ethical Dilemma Theory

Electronic Communications Privacy Theory

Social Contract Network Theory

16. When the economist says that economic wants are insatiable, this means that

economic resources—land, labor, capital, and entrepreneurial ability—are scarce

these wants are virtually unlimited and therefore incapable of complete satisfaction

the structure of consumer demand varies from time to time and from country to country

economic resources are valuable only because they can be used to produce consumer goods

17. The pursuit of self-interest

is highly detrimental to the market system

means the same as selfishness

gives direction to the market system

is reflected in the behavior of firms, but not in the behavior of consumers

18) The bankruptcy of WorldCom in 2002 was due to the company’s actions in

expensing equipment purchases rather than capitalizing these purchases

failing to record revenues

classifying expenses as assets

recording fictitious liabilities

19) Productive efficiency refers to

the production of the product-mix most wanted by society

production at some point inside of the production possibilities curve

the full employment of all available resources

the use of the least-cost method of production

20. Agency costs arise when agents fail to act in the best interests of the principals. One example of losses from poor decisions would be

purchasing inferior material to earn yearly bonus

investing additional funds in profitable projects

prioritizing projects, according to the best interests of the corporation

increasing the scope of the audit of the financial statements

21) If the price of normal good X rises, the income

effect will induce the consumer to buy more of X and the substitution effect will induce him to buy less

and substitution effects will both induce the consumer to buy more of X

effect will induce the consumer to buy less of X and the substitution will induce him to buy more

and substitution effects will both induce the consumer to buy less of X

 22) Section 55 of the Principles of Professional Conduct of the AICPA states that

members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism

a member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities

a member should observe the profession’s technical and ethical standards, strive continually to improve competence and quality of services, and discharge professional responsibility to the best of the member’s ability

members should perform all professional responsibilities with the highest sense of integrity

23) The concept of economic efficiency is primarily concerned with

the limited wants-unlimited resources dilemma

the conservation of irreplaceable natural resources

considerations of equity in the distribution of wealth

obtaining the maximum output from available resources

24. Which of the following is a normative statement?

The temperature is high today.

It is too hot to play tennis today.

It will cool off later this evening.

The humidity is high today.

25. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then, the price elasticity of demand is

4.00

3.94

2.09

1.37

26) Other things equal, an excise tax on a product will

increase its supply

increase the quantity sold

increase its demand

increase its price

 27) If a conflict of interest arises prior to entering into a business contract, the parties should

cease and desist because all conflicts of interest are irreconcilable

determine the type of conflict and if disclosure of the conflict of interest is sufficient to proceed with the contract

commence a cooling-off period until the conflict is removed

stop negotiations immediately and contact a mediator to negotiate the terms of the contract

 28) Assuming an economy has fixed quantities of resources, that economy  

is able to produce the same amount of output regardless of the production technologies it chooses

is able to satisfy all consumer wants

is more efficient, the larger the amount of goods and services it produces

will produce the same output whether or not resources are used efficiently

29) When evaluating the performance of managers in investment centers, performance metrics should be based on

only costs under their control

revenues, costs, and investments under their control

only investments under their control

revenue and costs under their control

30. When applying for a bank loan or trade credit, one way a company can appear to be in a healthier financial position would be to

overstate its expenses

understate its sales

undervalue its assets

understate its liabilities

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