Day 14

Question 1

In case of an error where an operating expense was classified as a non-operating expense, the correct adjustment is:

Answer 1

Increase operating expenses
AND
Decrease non-operating expenses

Note: Need to make this adjustment bc it affects the analysis of operating expenses vs non-operating expenses

Question 2

ABC estimated its two-year equipment warranty costs based on $100 per unit sold in Year 1. Experience during Year 2 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported:

Answer 2

RULE: Changes in estimates affect ONLY the CURRENT and SUBSEQUENT periods

(NOT Prior Periods and NOT Retained Earnings)

MCQ-00081

Question 3

Shipping costs incurred by a Cosigner on transfer of goods to a Consignee should be considered as:

Answer 3

Inventory cost to the Consignor

RULE: Consignor includes consigned goods in the hands of the Consignee (potential buyer) at Consignor’s cost plus shipping costs to the Consignee

MCQ-00290

Question 4

True or False: The relationship between NI and RE is analogous to the relationship between OCI and Accumulated OCI

Answer 4

TRUE

NI is closed to RE in the same way OCI is closed to Accumulated OCI

MCQ-07478

Question 5

What is considered contingent shares for purposes of computing EPS?

Answer 5

1. Shares issuable upon the passage of a specific period of time
2. Shares issuable upon the issuance of a patent
3. Shares issuable upon achieving specific net income target

These Shares are CONTINGENT Shares bc they are issuable for no cash consideration after the occurrence of the specific condition

MCQ-01195

Question 6

What is not considered contingent shares for the purposes of computing EPS?

Answer 6

Shares issuable upon exercise of a Stock Option

NOT considered contingent shares bc the Option Holder is required to pay the Strike Price to EXERCISE the Options

MCQ-01195