ACT505 Quiz 6

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Charles Darwin University *

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505

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Accounting

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May 6, 2024

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Question 1 The 'political cost hypothesis' of Positive Accounting Theory suggests which of the following? A. Large firms are more likely to use accounting choices that reduce reported profits. B. Small firms are more likely to use accounting choices that reduce reported profits. C. Neither large nor small firms are more likely to use accounting choices that reduce reported profits. D. Both large and small firms are more likely to use accounting choices that reduce reported profits. Question 2 The 'efficiency perspective' of Positive Accounting Theory suggests that firms will: A. Adopt the accounting methods that require the least resources to implement B. Adopt the accounting methods that result in the highest reported earnings C. Adopt the accounting methods that result in the lowest reported earnings D. Adopt the accounting methods that best reflect the underlying economic performance of the entity Feedback No. The correct answer is D. Adopt the accounting methods that best reflect the underlying economic performance of the entity Question 3 According to Positive Accounting Theory, using stock prices to determine bonuses: A. Increases the likelihood of management disclosing good news B. Increases the likelihood of management disclosing of bad news C. Increases the likelihood of management disclosing both good and bad news D. Has no effect on the likelihood of management disclosures Question 4 Which of the following parties desire the firm to take the most risks? A. Managers B. Debtholders C. Owners D. All parties desire the firm to take the same level of risk. Question 5 Which of the following is not an example of a Positive Accounting Theory or research? A. True income theories B. Legitimacy Theory C. Costs associated with increased wage claims

D. The cost of remaining largely unnoticed by government regulatory agencies Question 6 Which of the following statements is not true about Positive Accounting Theory? A. It is used to distinguish research aimed at explanation and prediction. B. It is designed to explain and predict which firms will, and which firms will not, use a particular method, and also prescribes which method a firm should use. C. It focuses on the relationships between the various individuals involved in providing resources to an organisation, and how accounting is used to assist in the functioning of these relationships. D. One of the key theories that underpins Positive Accounting Theory is Agency theory. Question 7 A manager electing to adopt a depreciation method that increases income, but does not reflect the actual use of the asset, is consistent with: A. The efficiency perspective of Positive Accounting Theory B. The opportunistic perspective of Positive Accounting Theory C. Both the opportunity and the efficiency perspectives of Positive Accounting Theory D. Neither the opportunity nor the efficiency perspectives of Positive Accounting Theory Question 8 The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following? A. The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that lower income. B. The lower the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. C. The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income. D. None of the given options are correct. Question 9 A contribution of Positive Theory is that it enables us to understand: A. Why interest groups expend resources lobbying for or against particular standards B. Why a manager adopts particular accounting techniques over others C. The effect accounting standards have on different groups and resource allocation D. All of the given options are correct.

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