1- Framework, Overview, and Financial Statements

Question 1

Which of the following statements best describes the operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement?

The emerging issues task force must approve a discussion memorandum before it is disseminated to the public.

The exposure draft is modified per public opinion before issuing the discussion memorandum.

A new statement is issued only after a majority vote by the members of the FASB.

A new FASB statement can be rescinded by a majority vote of the AICPA membership

Answer 1

A new statement is issued only after a majority vote by the members of the FASB.

Question 2

Which of the following will best protect investors against fraudulent financial reporting by corporations?

Criminal statutes.

The requirement that financial statements be audited.

The fact that all firms must report the same way.

The integrity of management.

Answer 2

The requirement that financial statements be audited.

Question 3

In reference to proposed accounting standards, the term “negative economic consequences” includes:

The cost of complying with GAAP.

The inability to raise capital.

The cost of government intervention when not in compliance with GAAP.

The failure of internal control systems.

Answer 3

The inability to raise capital.

Question 4

Choose the correct statement about GAAP.

GAAP are laws.

Only publicly traded companies must comply with GAAP.

It is a violation of SEC regulations for publicly traded companies to depart from GAAP.

Firms may not restate financial statements previously issued.

Answer 4

It is a violation of SEC regulations for publicly traded companies to depart from GAAP.

Question 5

T or F

The top level of the GAAP hierarchy is the FASB Accounting Standards Codification.

Answer 5

False

Question 6

Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of:
 A.   Consistency. 
 B.   Going concern. 
 C.   Matching. 
 D.   Substance over form.

Answer 6

C. Matching

Question 7

Current market value is used to value what?

Answer 7

Trading and Available-for-sale- securities

Question 8

According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:
 A.   Consistency. 
 B.   Cost-benefit. 
 C.   Relevance. 
 D.   Representational faithfulness.

Answer 8

B. Cost-Benefit

Question 9

What is the underlying concept governing the Generally Accepted Accounting Principles pertaining to recording gain contingencies?

A. Conservatism.
B. Relevance.
C. Consistency.
D. Faithful representation.

Answer 9

A. Conservatism.
Gain contingencies are not recognized, but loss contingencies that are probable and estimable are recognized. This is a classic example of conservatism, which suppresses positive information under conditions of uncertainty but requires the reporting of negative information when the negative outcome is likely.

Question 10

Which regulation governs the form and content of financial statement disclosures?
A.  Regulation S-X. 
 B.  Sarbanes Oxley. 
 C.  Regulation S-K. 
 D.  Regulation S-Q.

Answer 10

A. Regulation S-X.

Question 11

Which of the following statements concerning the fair value hierarchy used in ascertaining fair value is/are correct?

I. Quoted market prices should be adjusted for a “blockage factor” when a firm holds a sizable portion of the asset being valued.

II. Quoted market prices in markets that are not active because there are few relevant transactions cannot be used.

A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.

Answer 11

D. Neither I nor II.
Neither Statement I nor Statement II is correct. Quoted market prices should not be adjusted for a “blockage factor” when a firm holds a sizable portion of the asset being valued (Statement I). A “blockage factor” occurs when an entity holds a sizable portion of an asset (or liability) relative to the trading volume of the asset or liability in the market. Using a “blockage factor” would adjust the market value for the impact of such a large block of securities being sold, but is not permitted in determining fair value. Additionally, quoted market prices in markets that are not active because there are few relevant transactions can be used in determining fair value (Statement II). Such prices would be considered level 2 factors, observable inputs but not in active markets

Question 12

Which one of the following is not a required disclosure in annual financial reports for an entity that uses fair value measurement?
A. The level of the fair value hierarchy within which fair value measurements fall.
B. The valuation techniques used to measure fair value.
C. Combined disclosures about fair value measurements required by all pronouncements.
D. A discussion of any change from the prior period in valuation techniques used to measure fair value.

Answer 12

C. Combined disclosures about fair value measurements required by all pronouncements.

Combined disclosures about fair value measurements required by all pronouncements are not required, but are encouraged.

Question 13

Which of the following statements concerning disclosures when fair value measurement is used is/are correct?

I. Disclosures must be provided that show information for each major category of assets and/or liabilities.

II. Most disclosures must be in both interim and annual financial statements.

A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II

Answer 13

C. Both I and II.
Both Statement I and Statement II are correct. Disclosures must be provided that show information for each major category of assets and/or liabilities (e.g., investments held-for-trading, investments available-for-sale, derivatives, etc.) (Statement I), and most disclosures must be in both interim and annual financial statements (Statement II).

Question 14

Even though the SEC delegates the creation of accounting standards to the private sector, the SEC frequently comments on accounting and auditing issues. The main pronouncements published by the SEC are:

A. Federal Reporting Updates (FRU).
B. Financial Reporting Releases (FRR).
C. Staff Auditing Bulletins (SAB).
D. Accounting Principles Opinions (APO).

Answer 14

B. Financial Reporting Releases (FRR).
The main pronouncements published by the SEC are the Financial Reporting Releases (FRR) and the Staff Accounting Bulletins (SAB).

Question 15

In determining the fair value of a nonfinancial asset, assessing the highest and best use of the asset must take into account all but which one of the following?

A. What is physically possible.
B. What is financially feasible.
C. How the reporting entity would use the asset.
D. What is legally permissible.

Answer 15

C. How the reporting entity would use the asset.

Question 16

In determining the fair value of an asset in the most advantageous market, the market based exit price should be adjusted for

Transaction Cost Transportation Cost

A. Yes Yes
B. Yes No
C. No Yes
D. No No

Answer 16

C. No Yes

Question 17

Which of the following benefits is the fair value framework intended to accomplish with respect to fair value measurement and fair value reporting?

Increased Consistency Increased Comparability

A. Yes Yes
B. Yes No
C. No Yes
D. No No

Answer 17

A. Yes Yes

Question 18

Giaconda, Inc. acquires an asset for which it will measure the fair value by discounting future cash flows of the asset. Which of the following terms best describes this fair value measurement approach?
 A.   Market. 
 B.   Income. 
 C.   Cost. 
 D.   Observable inputs.

Answer 18

B. Income.

Question 19

When the fair value of an asset is determined as the amount that currently would be required to replace the service capacity of the asset, which one of the following valuation techniques has been used?

A. Income approach.
B. Cost approach.
C. Expense approach.
D. Market approach.

Answer 19

B. Cost approach.

Question 20

If a firm changes the valuation approach used to determine fair value, how would the amount of change in fair value resulting from the change in the valuation approach be reported?

A. As a change in accounting principle.
B. As an adjustment to beginning retained earnings of the period of change in approach.
C. As a change in accounting estimate.
D. As gain on the income statement for the period of change in approach.

Answer 20

C. As a change in accounting estimate.

Question 21

In determining the fair value of an asset or liability, would the fair value of the asset or the fair value of the liability be determined using an entry price or an exit price?

Asset Fair Value Liability Fair Value
A. Entry price Entry price
B. Entry price Exit price
C. Exit price Entry price
D. Exit price Exit price

Answer 21

D. Exit price Exit price

Question 22

Which one of the following can be measured at fair value at the option of the reporting entity?
A. A liability under a lease contract.
B. An investment classified as held-for-trading.
C. An investment classified as held-to-maturity.
D. A liability under a pension plan.

Answer 22

C. An investment classified as held-to-maturity.

Question 23

Alphaco has two subsidiaries, Betaco and Charlieco, both of which are consolidated by Alphaco. Alphaco and Betaco have elected to measure their respective investments held-to-maturity at fair value. Charlieco measures its investments held-to-maturity using amortized cost. In its consolidated financial statements, for which companies, if any, may Alphaco elect to report investment held-to-maturity at fair value?
A. Alphaco only.
B. Alphaco and Betaco only.
C. Alphaco, Betaco, and Charlieco.
D. None of the companies; all investments held-to-maturity must be measured and reported at amortized cost.

Answer 23

C. Alphaco, Betaco, and Charlieco.

Question 24

Inputs to the valuation techniques used to determine (measure) fair value may include inputs that are:

Observable Unobservable

A. No No
B. No Yes
C. Yes No
D. Yes Yes

Answer 24

D. Yes Yes

Question 25

Which of the following levels of the fair value hierarchy is the highest and which is the lowest in terms of desirability for use in determining fair value? Highest Level Lowest Level A. Level 3 Level 1 B. Level 1 Level 4 C. Level 1 Level 3 D. Level 4 Level 1

Answer 25

C. Level 1 Level 3

Question 26

Observable inputs, other than quoted prices in active markets for identical items, would constitute what level in the fair value hierarchy? A. Level 1 B. Level 2 C. Level 3 D. Level 4

Answer 26

B. Level 2

Question 27

Which one of the following is not a required disclosure in annual financial reports for an entity that uses fair value measurement? A. The level of the fair value hierarchy within which fair value measurements fall. B. The valuation techniques used to measure fair value. C. Combined disclosures about fair value measurements required by all pronouncements. D. A discussion of any change from the prior period in valuation techniques used to measure fair value.

Answer 27

C. Combined disclosures about fair value measurements required by all pronouncements. Combined disclosures about fair value measurements required by all pronouncements are not required, but are encouraged.

Question 28

Under U.S. GAAP the disclosure requirements when fair value measurement is used are differentiated by which of the following classifications? A. Between assets measured at fair value and liabilities measured at fair value. B. Between fair value measurements that result in gains and fair value measurements that result in losses. C. Between items measured at fair value on a recurring basis and items measured at fair value on a non-recurring basis. D. Between items for which fair value measurement is required and items for which fair value measurement is elected.

Answer 28

C. Between items measured at fair value on a recurring basis and items measured at fair value on a non-recurring basis. Disclosure requirements when fair value measurement is used are differentiated between items measured at fair value on a recurring basis and items measured at fair value on a non-recurring basis. Items measured at fair value on a recurring basis are adjusted to (measured at) fair value period after period; an example would be investments held-for-trading. Items measured at fair value on a non-recurring basis are adjusted to (measured at) fair value only when certain conditions are met; an example would be the impairment of an asset.

Question 29

When an entity uses the fair value option for eligible financial assets and liabilities, which one of the following is not an expected outcome of the disclosures required of that entity? A. Users being able to understand management's reasons for using the fair value option. B. Users being able to understand how changes in fair value affect net income. C. Replace the kind and amount of information that would have been provided if the fair value option had not been used with information related to fair value. D. Users being able to understand the difference between fair value and cash flows.

Answer 29

C. Replace the kind and amount of information that would have been provided if the fair value option had not been used with information related to fair value. The disclosures required when the fair value option is used are not intended to replace the kind and amount of information that would have been provided if the fair value option had not been used. Rather, the intent is to provide the same kind and amount of information that would have been provided if the fair value option had not been elected.

Question 30

``` The SEC is comprised of five commissioners, appointed by the President of the United States, and four divisions. Which of the following divisions is responsible for overseeing compliance with the securities acts? A. Division of Corporate Finance. B. Division of Enforcement. C. Division of Trading and Markets. D. Division of investment management. ```

Answer 30

A. Division of Corporate Finance.

Question 31

Even though the SEC delegates the creation of accounting standards to the private sector, the SEC frequently comments on accounting and auditing issues. The main pronouncements published by the SEC are: A. Federal Reporting Updates (FRU). B. Financial Reporting Releases (FRR). C. Staff Auditing Bulletins (SAB). D. Accounting Principles Opinions (APO).

Answer 31

B. Financial Reporting Releases (FRR).

Question 32

The SEC enforces the corporate registration requirements of the Securities Act of 1933 as one of its principal objectives. These requirements are intended to provide information that enables the SEC to: A. Evaluate the financial merits of the corporation offering the securities to the public. B. Ensure that investors are provided with adequate information on which to base investment decisions. C. Guarantee that the facts contained in the registration statement are accurate. D. Assure investors of the accuracy of the financial statements.

Answer 32

B. Ensure that investors are provided with adequate information on which to base investment decisions.

Question 33

Which of the following is not a required component of the 10-K filing? A. Product market share. B. Description of the business. C. Market price of common stock. D. Executive compensation.

Answer 33

A. Product market share. The market share of the company's product is not a required disclosure. The company may chose to voluntarily present this information, but it is not a required disclosure.

Question 34

A company is required to file quarterly financial statements with the United States Securities and Exchange Commission on Form 10-Q. The company operates in an industry that is not subject to seasonal fluctuations, which could have a significant impact on its financial condition. In addition to the most recent quarter end, for which of the following periods is the company required to present Balance Sheets on Form 10-Q? A. The end of the corresponding fiscal quarter of the preceding fiscal year. B. The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the preceding fiscal year. C. The end of preceding fiscal year. D. The end of the preceding fiscal year and the end of the prior two fiscal years.

Answer 34

C. The end of preceding fiscal year. The Balance Sheet for the end of the preceding fiscal year would have been the last audited Balance Sheet. This Balance Sheet is presented along with the current fiscal quarter.

Question 35

A company is an accelerated filer that is required to file Form 10-K with the United States Securities and Exchange Commission (SEC). What is the maximum number of days after the company's fiscal year end that the company has to file Form 10-K with the SEC? A. 60 days. B. 75 days. C. 90 days. D. 120 days.

Answer 35

B. 75 days. An accelerated filer has an aggregate worldwide market value of the voting and nonvoting common stock held by nonaffiliates of $75 million or more, but less than $700 million on the last business day of the issuer's most recently completed second fiscal quarter. A large accelerated filer has market capitalization (as described) of $700 million or more. Beginning in 20X6 the SEC changed the 10-K filing deadline for large accelerated filers to be 60 days from the fiscal year end. Accelerated filers still have 75 days to file their 10-K.

Question 36

Reporting accounts receivable at net realizable value is a departure from the accounting principle of: A. Conservatism. B. Fair value. C. Market value. D. Historical cost.

Answer 36

D. Historical cost. Reporting accounts receivable at net realizable value is a departure from the principle of historical cost. Accounts receivable is usually aged by some method and reported at net realizable value.

Question 37

Measurement Attribute for Land ``` A. Historical B. Amortized Historical Cost C. Fair Market Value D. Net Realizable Value E. Present Value ```

Answer 37

A. Historical

Question 38

Measurement Attribute for Fixed Assets ``` A. Historical B. Amortized Historical Cost C. Fair Market Value D. Net Realizable Value E. Present Value ```

Answer 38

B. Amortized Historical Cost

Question 39

Measurement Attribute for Prepaid Insurance ``` A. Historical B. Amortized Historical Cost C. Fair Market Value D. Net Realizable Value E. Present Value ```

Answer 39

A. Historical

Question 40

Measurement Attribute for Marketable Securities and Derivatives ``` A. Historical B. Amortized Historical Cost C. Fair Market Value D. Net Realizable Value E. Present Value ```

Answer 40

C. Fair Market Value

Question 41

``` Measurement Attribute for Accounts Receivable A. Historical B. Amortized Historical Cost C. Fair Market Value D. Net Realizable Value E. Present Value ```

Answer 41

D. Net Realizable Value

Question 42

Ratio for liquidity

Answer 42

CA/CL

Question 43

Which of the following is responsible for fund raising for entire operations involving the IASB? A. IFRS Interpretations Committee. B. IFRS Advisory Council. C. IFRS Foundation. D. Standard Advisory Council.

Answer 43

C. IFRS Foundation. The IFRS Foundation, as the legal entity of the entire organization, has the responsibility to ensure that the operations are sufficiently funded in order to ensure the fulfillment of the standard-setting objectives without compromising the independence and objectivity of the standard-setting process.

Question 44

Which of the following is a member of the Monitoring Board? A. Global Accounting Technical Officer of the World Bank. B. CEO of the Financial Executives International. C. Chair of the CFA Institute. D. Chair of the U.S. Securities and Exchange Commission.

Answer 44

D. Chair of the U.S. Securities and Exchange Commission.

Question 45

The IFRS Foundation serves as the administrative umbrella for a group of bodies. Which of the following bodies are NOT included under the IFRS Foundation umbrella? A. International Federation of Accountants (IFAC). B. International Accounting Standards Board. C. IFRS Interpretations Committee. D. IFRS Advisory Council.

Answer 45

A. International Federation of Accountants (IFAC). The International Federation of Accountants (IFAC) is a global organization for the accounting profession. Its members are accounting and auditing organizations throughout the world. It is an independent organization not under the IFRS Foundation umbrella, but it does support the activities of the IFRS Foundation by encouraging high-quality practices by the world's accountants and auditors.

Question 46

Which of the following is an objective of the IFRS Foundation? A. To enforce the use and rigorous application of those standards. B. To take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings. C. To develop, in the public interest, a single set of high-quality, understandable, enforceable, and globally accepted financial-reporting standards (IFRSs) through its member associations. D. To require adoption of international financial reporting standards (IFRSs) globally.

Answer 46

B. To take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings.

Question 47

According to the IASB Framework, which of the following is an essential characteristic of an asset? A. The claims to an asset's benefits are legally enforceable. B. An asset is tangible. C. An asset is obtained at a cost. D. An asset provides future benefits.

Answer 47

D. An asset provides future benefits. According to the IASB's Framework, an asset is defined as "a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity." IASB Framework, para. 49.

Question 48

Under IFRS for SMEs, which of the following cost flow assumptions can be used for inventory valuation purposes? FIFO LIFO Weighted Average Cost Yes Yes Yes Yes Yes No Yes No Yes Yes No No

Answer 48

Yes No Yes Under IFRS for SMEs, the FIFO and weighted average cost assumptions of cost flow may be used for inventory valuation purposes, but the LIFO cost flow assumption may not be used.

Question 49

Under IFRS for SMEs, which of the following, if any, must be disclosed in financial statements? Earnings per Share (EPS) Information by Segment Yes Yes Yes No No Yes No No

Answer 49

No No Under IFRS for SMEs, neither earnings per share (EPS), nor information by segment is required in financial statements. Since financial statements prepared under IFRS for SMEs are those of entities not traded on exchanges or otherwise required to file with regulatory agencies, earnings per share and segment reporting are not considered important information for users. These are two of the simplifications in IFRS for SMEs that make the standards less burdensome than either U.S. GAAP or full IFRS.

Question 50

Gross Profit =

Answer 50

Sales - COGS

Question 51

Net Sales =

Answer 51

Sales- Returns and Allowances

Question 52

Cost of Goods Manufactured (COGM)=

Answer 52

Cost of Goods brought to completion during the year COGM + Beginning Year FG Inventory - End of Year FG= Cost of Sales

Question 53

Definition of Comprehensive Income Examples of Other Comprehensive Income

Answer 53

Comprehensive Income= Net Income + Other Comprehensive Income Examples: * Foreign Currency Translation Adjustments * Unrealized holding gains/losses * Pension plan cost adjustments * Certain deferred derivative gains/losses

Question 54

Definition of Accounting Income

Answer 54

Revenues less expenses + Gains Less Losses

Question 55

Definition of Economic Income

Answer 55

Change in Net worth of a business during an accounting period FV of Net Assets on Jan 1 + Net Income for Period + Owner Investments - Dividends and Stock Repurchases= Fair Value at Dec 31

Question 56

The Income Statement Is divided into two portions: ``` Top Portion (Above the Line) Bottom Portion (Below the Line) ```

Answer 56

Top: Routinely occurring items and other items that are included in income from continuing operations Bottom: Unrelated to Continuing Operations

Question 57

Gross Margin

Answer 57

=Net Sales- COGS

Question 58

Order of Sample Income Statement

Answer 58

Net Sales - COGS = Gross Margin ``` - Operating Expenses + Misc Revenues and Gains - Misc Expenses and Losses +- Unusual or infrequent items = Income from Continuing Operations BEFORE TAX ``` - Less Income Tax Expense = Income from Continuing Operations +- Income from Discontinued Operations (net of tax) = Net Income

Question 59

Which of the following should be included in general and administrative expenses? Interest Advertising Yes Yes Yes No No Yes No No

Answer 59

No No Neither expense is normally included in general and administrative expenses because interest and advertising are expenses that result from very specific activities and are frequently material in amount. They should be separately identified.

Question 60

Equation for Comprehensive Income

Answer 60

Comprehensive Income= Net Income + Other Comprehensive Income

Question 61

Name the Four "Other Comprehensive Items" Name two items that are NOT "OCI" and how they are reported

Answer 61

1. Unrealized G/L on AFS Securities 2. Unrealized G/L from Certain Derivative Transactions 3. Unrecognized G/L from Pension Costs 4. Foreign currency translation adjustments Not OCI: 1. Prior period adjustments 2. Retrospective effects of changes in accounting principles Reported as adjusments to retained earnings.

Question 62

What does AOCI stand for, how is it calculated, and where is it reported?

Answer 62

Accumulated Other Comprehensive Income The amount carried over from the previous period and then increased/decreased during the current period. Reported on the Owners Equity section of the balance sheet in an account title; AOCI

Question 63

Net Income is closed out to Retained Earnings and Other Comprehensive INcome is closed out to what?

Answer 63

AOCI

Question 64

Under FASB U.S. GAAP, which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles? A. Unrealized loss on investments in noncurrent marketable equity securities. B. Unrealized loss on investments in current marketable equity securities. C. Loss on exchange of similar assets. D. Loss on exchange of dissimilar assets.

Answer 64

A. Unrealized loss on investments in noncurrent marketable equity securities. Unrealized gains and losses on securities available for sale are among the few items that appear in comprehensive income but not in earnings. Only SAS can be noncurrent. Assuming the current securities are classified as trading securities, then that unrealized loss is included in earnings. This is a change in owners' equity that is not included in earnings and is not the result of a transaction with owners. It is an "other" comprehensive income item. "Other" refers to other than net income, which is the largest component of comprehensive income. The remaining items are recognized in income.

Question 65

What is the purpose of reporting comprehensive income? A. To summarize all changes in equity from nonowner sources. B. To reconcile the difference between net income and cash flows provided from operating activities. C. To provide a consolidation of the income of the firm's segments. D. To provide information for each segment of the business.

Answer 65

A. To summarize all changes in equity from nonowner sources. The purpose of comprehensive income is to show all changes to equity, including changes that currently are not a required part of net income. Comprehensive income reflects all changes from owner and nonowner sources. The other comprehensive income items are: unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and

Question 66

5 Items of Owner's Equity

Answer 66

``` Stock (Common and Preferred) APIC Retained Earnings Treasury Stock AOCI ```

Question 67

The basic purpose of an Statement of Cash Flows (SCF) and the three sections

Answer 67

To present the reader with information about the sources and uses of cash Operating Investing Financing

Question 68

The primary purpose of a Statement of Cash Flows is to provide relevant information about: A. Differences between net income and associated cash receipts and disbursements. B. An enterprise's ability to generate future positive net cash flows. C. The cash receipts and cash disbursements of an enterprise during a period. D. An enterprise's ability to meet cash operating needs.

Answer 68

C. The cash receipts and cash disbursements of an enterprise during a period. The Statement of Cash Flows is a listing of cash flows for a period in meaningful categories. Thus, it depicts the major cash receipts and disbursements during a period. Although such information may help a user to assess the ability of a firm to generate future cash flows, it does not, necessarily, say anything about the firm's ability to do so in the future. Similarly, the cash flow statement does not directly indicate the firm's ability to meet future cash operating needs. The reconciliation of income and net operating cash flows does indicate the differences between income and operating cash flows, but this is not the primary purpose of the statement

Question 69

Paper Co. had net income of $70,000 during the year. The dividend payment was $10,000. The following information is available: ``` Mortgage repayment $20,000 Available-for-sale securities purchased 10,000 increase Bonds payable-issued 50,000 increase Inventory 40,000 increase Accounts payable 30,000 decrease ``` What amount should Paper report as net cash provided by operating activities in its Statement of Cash Flows for the year? A. $0 B. $10,000 C. $20,000 D. $30,000

Answer 69

A. $0 Operating Activities come from adjustments to reconcile net income to net cash flows and through analyzing the change in current asset and liability accounts. Net income - increase in inventory - decrease in accounts payable $70.000 - $40 000 - $30 000 = $0

Question 70

Which of the following sets of financial statements generally cannot be prepared directly from the adjusted trial balance? A. Income Statement, Balance Sheet, Statement of Cash Flows. B. Income Statement, Statement of Cash Flows. C. Statement of Cash Flows. D. Balance Sheet and Statement of Cash Flows.

Answer 70

C. Statement of Cash Flows. This statement generally requires a significant amount of analysis to uncover the cash flows reported within. The adjusted trial balance presents ending account balances. The Statement of Cash Flows reports changes in cash by category. Cash flows are changes in cash and are categorized by type and reported in three categories: operating, investing, and financing.

Question 71

Bay Manufacturing Co. purchased a three-month U.S. Treasury bill. In preparing Bay's Statement of Cash Flows, this purchase would: A. Have no effect. B. Be treated as an outflow from financing activities. C. Be treated as an outflow from investing activities. D. Be treated as an outflow from lending activities.

Answer 71

C. Be treated as an outflow from investing activities. Even if this transaction involved a change in cash and cash equivalents, it would not be classified as an investing activity. But the three-month bill meets the definition of cash equivalent. Three months is the maximum original maturity under the definition. Cash and cash equivalents are the reporting basis of the Statement of Cash Flows. Cash decreased but cash equivalents increased the same amount as a result of this purchase. Thus, there is no net effect on cash and cash equivalents. Therefore, there is nothing to report in the Statement of Cash Flows.

Question 72

Operating, Investing, or Financing Activity? Sale/Purchase of PPE

Answer 72

Investing

Question 73

Operating, Investing, or Financing Activity? Sale/Purchase of Debt or Equity Securities (Held-to-Maturity or Available-for-Sales), or Bonds of Other Entities

Answer 73

Investing

Question 74

Operating, Investing, or Financing Activity? Collection of loan principal

Answer 74

Investing

Question 75

Operating, Investing, or Financing Activity? Cash inflows from customers

Answer 75

Operating

Question 76

Operating, Investing, or Financing Activity? Cash outflows to suppliers, employees, or government

Answer 76

Operating

Question 77

Operating, Investing, or Financing Activity? Cash Inflows from interest income of dividend income

Answer 77

Operating

Question 78

Operating, Investing, or Financing Activity? Sales of trading investments

Answer 78

Operating

Question 79

Operating, Investing, or Financing Activity? Cash outflows for interest

Answer 79

Operating

Question 80

Operating, Investing, or Financing Activity? Sale or Purchase of trading securities/investments

Answer 80

Operating

Question 81

Operating, Investing, or Financing Activity? Cash inflows from the sale of equity securities

Answer 81

Financing

Question 82

Operating, Investing, or Financing Activity? Cash inflows from the issuance of debt (bonds and notes)

Answer 82

Financing

Question 83

Operating, Investing, or Financing Activity? Cash outflows to stockholders as dividends

Answer 83

Financing

Question 84

Operating, Investing, or Financing Activity? Cash outflows to redeem long-term debt

Answer 84

Financing

Question 85

Operating, Investing, or Financing Activity? Cash outflows to re-acquire own capital stock

Answer 85

Financing

Question 86

Operating, Investing, or Financing Activity? Income Tax Paid

Answer 86

Operating

Question 87

Operating, Investing, or Financing Activity? Interest Paid

Answer 87

Operating

Question 88

Operating, Investing, or Financing Activity? Cash Inflows from sale of own stock

Answer 88

Financing

Question 89

Operating, Investing, or Financing Activity? Proceeds from Borrowing (Bonds, Notes, etc)

Answer 89

Financing

Question 90

Operating, Investing, or Financing Activity? Paying back lendors (Principal only)

Answer 90

Financing

Question 91

Operating, Investing, or Financing Activity? Gain/Loss on the sale of equipment

Answer 91

The gain on the sale of equipment is subtracted in the reconciliation of net cash flow and net income, but it is not, itself, a cash flow.

Question 92

Operating, Investing, or Financing Activity? Amortization of a bond discount

Answer 92

The amortization of the bond discount is a reconciling item, not a cash flow.

Question 93

Operating, Investing, or Financing Activity? Payments to acquire shares of common stock in other companies

Answer 93

Investing

Question 94

Operating, Investing, or Financing Activity? Proceeds from issuance of common stock?

Answer 94

Financing

Question 95

Operating, Investing, or Financing Activity? Proceeds from issuance of convertible bonds

Answer 95

Financing

Question 96

Operating, Investing, or Financing Activity? Borrowing on a line of credit

Answer 96

Financing

Question 97

Operating, Investing, or Financing Activity? Down payment on equipment purchase

Answer 97

Investing

Question 98

Operating, Investing, or Financing Activity? Payments to retire bonds outstanding

Answer 98

Financing

Question 99

Equation for Figuring Net PPE

Answer 99

Beginning Balance + Purchases - Book Value of Disposals - Depreciation Expense= Ending Balance or BB + Purch - BV of Disposals - Depr = EB

Question 100

Equation for figuring Inventory

Answer 100

BB + Purch - COGS = EB

Question 101

1.Primary qualitative characteristics

Answer 101

relevance and faithful representation;

Question 102

2.Enhancing qualitative characteristics

Answer 102

comparability, verification, timeliness and understandability;

Question 103

3.Assumptions

Answer 103

entity, going concern, time period and unit of measure

Question 104

4.Principles

Answer 104

historical cost, revenue recognition, matching and full disclosure;

Question 105

5.Constraints

Answer 105

materiality and cost benefit.

Question 106

Under IFRS for SMEs, which of the following, if any, must be disclosed in financial statements? Earnings per Share (EPS) Information by Segment Yes Yes Yes No No Yes No No

Answer 106

No No

Question 107

Which of the following statements, if any, concerning IFRS for SMEs is/are correct? I. IFRS for SMEs is based on accrual basis accounting. II. Generally, IFRS for SMEs may be used as an alternative to using OCBOA. I only. II only. Both I and II. Neither I nor II.

Answer 107

Both I and II.

Question 108

Glenda Corporation prepares its financial statements in accordance with IFRS. Glenda must report finance costs on the statement of cash flows In operating activities. Either in operating activities or financing activities. In financing activities. In investing activities or financing activities.

Answer 108

Either in operating activities or financing activities.

Question 109

Which of the following may not be disclosed on the income statement for a company that prepares its financial statements in accordance with IFRS? Gain or loss. Tax expense. Gain or loss from extraordinary items. Gain or loss from discontinued operations.

Answer 109

Gain or loss from extraordinary items.

Question 110

Filigree Corporation prepares its financial statements in accordance with IFRS. Filigree acquired equipment by issuing 5,000 shares of its common stock. How should this transaction be reported on the statement of cash flows? As an outflow of cash from investing activities and an inflow of cash from financing activities. As an inflow of cash from financing activities and an outflow of cash from operating activities. At the bottom of the statement of cash flows as a significant noncash transaction. In the notes to the financial statements as a significant noncash transaction.

Answer 110

In the notes to the financial statements as a significant noncash transaction. This transaction did not involve an exchange of cash; therefore, it is not included on the statement of cash flows. IFRS requires that significant noncash transactions be reported in the notes to the financial statements. (Note that for U.S. GAAP, if there are only a few significant noncash transactions, they may be reported at the bottom of the statement of cash flows, or they may be reported in a separate schedule in the notes to the financial statements.)

Question 111

Largo Corporation prepares its financial statements in accordance with IFRS. Which of the following items is required disclosure on the income statement? Revenues, cost of goods sold, and advertising expense. Finance costs, tax expense, and income. Operating expenses, nonoperating expenses, and extraordinary items. Gross profit, operating profits, and net profits.

Answer 111

Finance costs, tax expense, and income.

Question 112

The summary of significant accounting policies should disclose the A. Maturity dates of noncurrent debts. B. Terms for convertible debt to be exchanged for common stock. C. Concentration of credit risk of all financial instruments by geographical region. D. Criteria for determining which investments are treated as cash equivalents.

Answer 112

Criteria for determining which investments are treated as cash equivalents

Question 113

Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of A. Concentration of credit risk. B. Concentration of market risk. C. Risk of measurement uncertainty. D. Off‐balance sheet risk of accounting loss.

Answer 113

Concentration of credit risk.

Question 114

The following information was taken from Baxter Department Store's financial statements: Inventory on January 1 $ 100,000 Inventory on December 31 300,000 Net sales 2,000,000 Net purchases 700,000 What was Baxter's inventory turnover for the year ending December 31? A. 2.5 B. 3.5 C. 5 D. 10

Answer 114

2.5

Question 115

What is the formula for inventory turnover ratio?

Answer 115

COGS/Average Balance in Inventory

Question 116

What is the formula for A/R turnover ratio?

Answer 116

= Sales/ Average Balance in A/R

Question 117

What is the formula for Average Number of Days to Collect?

Answer 117

=365 / A/R turnover ratio

Question 118

Are the following ratios useful in assessing the liquidity position of a company? Defensive‐interval ratio Return on stockholders' equity Yes Yes Yes No No Yes No No

Answer 118

Yes No

Question 119

Which of the following facts concerning fixed assets should be included in the summary of significant accounting policies? Depreciation method Composition No Yes Yes Yes Yes No No No

Answer 119

Yes No

Question 120

IFRS requires a classified Statement of Financial Position. What are the required classifications? A. Cash; trade receivables and payables; property, plant and equipment; long‐term assets and liabilities; and other assets and liabilities. B. Cash; trade receivables and payables; property, plant and equipment; and other assets and liabilities. C. Current, long‐term, and other assets and liabilities. D. Current and non‐current assets and liabilities.

Answer 120

Current and non‐current assets and liabilities

Question 121

Which of the following items would not appear on the Income Statement prepared using IFRS? A. Discontinued operations. B. Gross Profit. C. Depreciation and amortization. D. All items would appear on the Income Statement when using IFRS.

Answer 121

D. All items would appear on the Income Statement when using IFRS.

Question 122

The summary of significant accounting policies should disclose the Pro forma effect of retroactive application of an accounting change. Basis of profit recognition on long‐term construction contracts. Adequacy of pension plan assets in relation to vested benefits. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years.

Answer 122

Basis of profit recognition on long‐term construction contracts.

Question 123

How to figure book value per share?

Answer 123

= Total Stockholder Equity/ Common Stock Shares (less any required)

Question 124

Another Name for Balance Sheet

Answer 124

Statement of Financial Position

Question 125

``` Measurement Attribute for Accounts Receivable A. Historical B. Amortized Historical Cost C. Fair Market Value D. Net Realizable Value E. Present Value ```

Answer 125

Present Value

Question 126

A company buys ten shares of securities at $2,000 each on December 31, year 1. The securities are classified as available for sale. The company does not elect to use the fair value option for reporting its available‐for‐sale securities. The fair value of the securities increases to $2,500 on December 31, year 2, and to $2,750 on December 31, year 3. On December 31, year 3, the company sells the securities. Assume no dividends are paid and that the company has a tax rate of 30%. What is the amount of the reclassification adjustment for other comprehensive income on December 31, year 3? A. $ 7,500 B. $ (7,500) C. $ 5,250 D. $ (5,250)

Answer 126

D. $ (5,250) Assuming the fair value option is not elected, the calculation of holding gains recognized in other comprehensive income is as follows: Before tax Income tax Net of tax Year ended 12/31/Y2 $5,000 $1,500 $3,500 Year ended 12/31/Y3 2,500 750 1,750 Total gain $7,500 $2,250 $5,250 The reclassification adjustment should be shown net of tax, so ($5,250) is the adjustment amount. $5,250 had been previously added to other comprehensive income when the gains occurred. The $5,250 needs to be taken out in order to avoid counting the gains twice. The securities have been sold so the gains are now realized and will be part of net income.

Question 127

When a full set of general‐purpose financial statements are presented, comprehensive income and its components should A. Appear as a part of discontinued operations, extraordinary items, and cumulative effect of a change in accounting principle. B. Be reported net of related income tax effect, in total and individually. C. Appear in a supplemental schedule in the notes to the financial statements. D. Be displayed in a financial statement that has the same prominence as other financial statements.

Answer 127

D. Be displayed in a financial statement that has the same prominence as other financial statements. Comprehensive income (net income plus other comprehensive income) should be displayed in a financial statement that has the same prominence as other financial statements.

Question 128

Accumulated other comprehensive income should be reported on the balance sheet as a component of Retained earnings Additional paid‐in capital A. No Yes B. Yes Yes C. Yes No D. No No

Answer 128

D. No No The accumulated balance of other comprehensive income should be reported as a component of equity, separate from retained earnings and additional paid‐in capital.

Question 129

The Statement of Changes in Equity shows an increase in the common stock account of $2,000 and an increase in the additional paid‐in capital account of $10,000. If the common stock has a par value of $2, and the only transactions affecting these accounts were these issues of common stock, what was the average issue price of the common stock during the year? $2 $5 $10 $12

Answer 129

$12 If the par value of the stock is $2, and the increase in the common stock account is $2,000, then $2,000/$2 = 1,000 shares issued. The average issue price is the sum of the par value ($2) and the additional paid‐in capital ($10,000/1,000 shares, or $10), which totals $12.