1. One problem that the FASB has noted with overly conservative accounting is that:

A. Under-reporting of income in one period often leads to over-reporting income in future periods.

B. Bankers and creditors tend to be unhappy with conservative balance sheets.

C. This accounting generally forces companies to pay unduly high taxes.

D. This accounting tends to make income too volatile.

2. On November 20, Routledge Publishing prints 4,000 copies of an accounting textbook. In December, Routledge Publishing ships 1,000 copies to various bookstores, who have the right to return the books if they cant sell them within three months. Historically, the bookstores typically return 4% of the books. Under GAAP, what is the correct accounting for these events?

A. Routledge should record revenues related to 4,000 books in November, when it prints them.

B. Routledge should record revenues in December for 1,000 books, and an allowance for sales returns of 4% of the sales.

C. Routledge should record revenues in December for 1,000 books, and wait until later to record any sales returns.

D. Routledge should wait until after the three-month return period before recording any revenues.

3. When a law firm sends bills to its clients, it is able to list on its bills the amounts of hours worked by each particular lawyer on that case, and the billing rates of these lawyers. This ability to associate the particular lawyers work with the bill is an example of

A. Traceability

B. Homogeneity

C. Divisibility

D. Avoidability

4. According to research, movements in stock prices are most closely related to movements in which financial statement?

A. Balance sheet

B. Income Statement

C. Statement of owners equity

D. Cash flow statement

5. Historical financial statements are meant to help users assess all of the following, except:

A. Likely success of new products

B. Performance of management in earning income

C. Profitability of the business

D. Solvency of the business