7. Classify the following hypotheses according to whether they are the conclusions of positive or normative theories. Explain your answers.

(a) Historical cost accounting should be replaced by a market value system.

(b) Historical cost accounting provides information used by creditors.

(c) Historical cost accounting is used by many managers to allocate costs in determining divisional performance.

8. Give an example of the types of issues that might be resolved by accounting theories developed using the following methods of theory construction.

(a) psychological pragmatic approach

(b) scientific approach

(c) naturalistic approach

(d) normative approach

(e) positive approach

9. Explain the naturalistic and syntactic approaches to theory construction. Are these approaches mutually exclusive? Why or why not?

10. The decision-usefulness approach to theory development can be used to develop theories of accounting.

(a) Explain what is meant by the decision-usefulness approach to theory development.

(b) How can the decision-usefulness approach relate to accounting theory formulation?

(c) Give two examples of decisions that require data obtained from accounting reports.