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

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

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