ETH/557 ACCOUNTING ETHICS Final exam

ETH/557 ACCOUNTING ETHICS Final exam

1In 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.2Failure to provide any care in fulfilling a duty owed to another is called£ gross negligence£ constructive fraud£ breach of contract£ negligence3Which of the following is a fundamental characteristic of the market system?£ Unselfish behavior£ Central planning by government£ Government-set wages and prices£ Property rights4The 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 cheaper5The 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 change6A normative statement is one that£ applies only to microeconomics£ is based on the law of averages£ is based on value judgments£ applies to macroeconomics7Many 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 ethically8Four professional general standards and responsibilities for Certified Public Accountants are quality control and assurance, professional judgment, competence, and:£ integrity£ diligence£ independence£ knowledge9In 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 statementsWhen 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 high11ABC 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 10112) 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 entity13) 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 recognition14According 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 principals15Tom 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 TheoryWhen the economist says that economic wants are insatiable, this means that£ economic resourcesland, labor, capital, and entrepreneurial abilityare 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 goods17The 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 consumers18) The bankruptcy of WorldCom in 2002 was due to the companys actions in£ expensing equipment purchases rather than capitalizing these purchases£ failing to record revenues£ classifying expenses as assets£ recording fictitious liabilities19) 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 production20Agency 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 statements21) 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 X22) 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 professions technical and ethical standards, strive continually to improve competence and quality of services, and discharge professional responsibility to the best of the members ability£ members should perform all professional responsibilities with the highest sense of integrity23) 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 resources24Which 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.25Suppose 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£ 1.3726) Other things equal, an excise tax on a product will£ increase its supply£ increase the quantity sold£ increase its demand£ increase its price27) 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 contract28) 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 efficiently29) 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 control30When 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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