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C249 - Int. Accounting II

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WGU C249 - Intermediate Accounting II
Richard Seger
Quiz by Richard Seger, updated more than 1 year ago More Less
Valerie Tyson
Created by Valerie Tyson almost 6 years ago
Richard Seger
Copied by Richard Seger almost 5 years ago
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Resource summary

Question 1

Question
What are two descriptions of preemptive stock rights?
Answer
  • A privilege often referred to as a warrant
  • A means of protecting stockholders from involuntary dilution of ownership
  • A class of corporate ownership interest that has the highest levels of risk and reward
  • A class of corporate ownership interest in which some rights are exchanged for other rights or privileges

Question 2

Question
A corporation issues 1,000 shares of $10 par value common stock for $12,000. Paid issuance costs are $500. How should the issuance be accounted for?
Answer
  • Debit cash $12,000; credit common stock $10,000; credit additional paid-in capital $2,000
  • Debit cash $12,000; debit additional paid-in capital $500; credit common stock $11,500
  • Debit cash $12,000; debit operating expenses $500; credit common stock $11,500
  • Debit cash $12,000; credit common stock $9,500; credit additional paid-in capital $2,500

Question 3

Question
Why would a corporation reacquire stock by using the cost method rather than the par value method?
Answer
  • To make the stock available for future re-issue
  • To evaluate the stock’s actual market value
  • To permanently retire the stock
  • To eliminate competition in the marketplace

Question 4

Question
A company uses the cost method of accounting for treasury stock. On January 1, the company repurchases 1,000 shares of stock at $10 per share. On December 31, the company sells the repurchased shares back to its stockholders for $15 per share. The cash account is debited for the transaction. Which two credits should be recorded? 
Answer
  • Treasury stock for $10,000
  • Paid-in capital from treasury stock for $5,000
  • Gain on sale of treasury stock for $15,000
  • Gain on sale of treasury stock for $5,000
  • Paid-in capital from treasury stock for $15,000

Question 5

Question
What is a stockholder benefit of preferred stock?
Answer
  • Management control through voting rights
  • Basic ownership interest
  • Preferential payment of dividends
  • Guaranteed payment of dividends

Question 6

Question
A corporation distributes its ownership stake in a subsidiary corporation to its shareholders through a property dividend payment. The subsidiary ownership stake represents 200,000 shares, has a market value of $450,000, and has a carry value of $325,000. How should this dividend distribution be recorded?
Answer
  • Debit retained earnings for $325,000.
  • Debit retained earnings for $450,000.
  • Credit investments for $325,000.
  • Credit investments for $450,000.

Question 7

Question
Match each International Financial Reporting Standards (IFRS) element to its equivalent generally accepted accounting principles (GAAP) element.  Answer options may be used more than once or not at all. Share Capital—Ordinary [blank_start]Common Stock[blank_end] Share Premium Additional [blank_start]Paid-In Capital[blank_end] Statement of Changes in Equity [blank_start]Statement of Stockholders' Equity[blank_end] Preference Shares [blank_start]Preferred Stock[blank_end]
Answer
  • Common Stock
  • Paid-In Capital
  • Statement of Stockholders' Equity
  • Preferred Stock

Question 8

Question
A company issues 1,000 shares of preferred stock at face value. The preferred stock shares have a par value of $2 per share and are convertible into 1,000 shares of common stock with a par value of $5 per share. What is the effect on the retained earnings of this company if the preferred stock holders convert these shares?
Answer
  • A decrease of $3,000
  • An increase of $3,000
  • A decrease of $5,000
  • An increase of $5,000

Question 9

Question
A company issues 1,000 bonds, each with a face value of $1,000, for $1.1 million. Each bond has a detachable warrant that allows the holder to purchase common stock for $20 per share. The market value of the bonds without the warrants is $950,000. The fair market value of the warrants is $50,000. How much should the company record as the value of the warrants?
Answer
  • $20,000
  • $50,000
  • $55,000
  • $100,000

Question 10

Question
A company compensates a senior executive with 1,000 stock options. The options have a value of $3 each and enable the executive to purchase shares of $2 par value common stock at $30 each. The following year, the executive exercises 500 of the options. Which journal entry correctly records the exercise of these options?
Answer
  • Debit cash $15,000; debit paid-in capital – stock options $1,500; credit common stock $1,000; credit paid-in capital in excess of par $15,500
  • Debit cash $30,000; debit paid-in capital – stock options $3,000; credit common stock $2,000; credit paid-in capital in excess of par $31,000
  • Debit compensation expense $15,000; credit paid-in capital – stock options $15,000
  • Debit compensation expense $30,000; credit paid-in capital – stock options $30,000

Question 11

Question
On January 1, a company has 700,000 shares of issued and outstanding common stock. On March 1, the company repurchases 60,000 shares. On June 1, it effects a 2-for-1 stock split. On November 1, it issues 240,000 shares. The company has a net income for the year of $2,720,000. What is the basic earnings per share of common stock for the year (rounded to the nearest cent)?
Answer
  • $1.79
  • $2.03
  • $3.89
  • $4.06

Question 12

Question
On January 1, a company establishes an executive compensation plan that includes a stock-appreciation rights (SARs) plan consisting of 200,000 SARs. The plan allows executives to receive cash payouts of the difference between the current market price at the time of exercise and an exercise price of $30, any time in the next two years. On January 1, the market price of the company’s stock is $42, and on December 31, of the same year the market price is $47. The company uses the percentage approach for recording compensation expense. What compensation expense should be recorded for the year?
Answer
  • $1,200,000
  • $1,7000,000
  • $2,400,000
  • $3,400,000

Question 13

Question
How are changes in the fair value of share options recorded under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?
Answer
  • Increases and decreases in fair value are recorded under both GAAP and IFRS.
  • Decreases in fair value are recorded under both GAAP and IFRS, but only GAAP permits increases.
  • Decreases in fair value are recorded under both GAAP and IFRS, but only IFRS permits increases.
  • Increases in fair value are recorded under both GAAP and IFRS, but only GAAP permits reductions.

Question 14

Question
On January 1, 2014, Corporation A purchases bonds in Corporation B. The bonds have a par value of $50,000 and a stated interest rate of 6%, with annual interest payments on December 31 and a maturity date of December 31, 2023. Corporation A purchases the bonds for $43,290 to yield 8% interest, and holds the bonds in its trading account.  On December 31, 2014, the fair value of the bonds is $45,000. When the bond market opens on January 2, 2015, Corporation B sells the bonds for an amount intended to achieve a 7% yield for Corporation A. Disregarding accrued interest, what gain (rounded to whole dollars) should Corporation A recognize on the bonds in 2015?
Answer
  • $1,742
  • $2,014
  • $2,989
  • $3,452

Question 15

Question
Company A has 3,000 common shares issued and outstanding. On June 1, Company B purchases 1,000 common shares of Company A for $12,000. Company B records the purchase in its available-for-sale account. On December 31, Company A reports a net income of $1 per share and pays a dividend of $0.25 per share. The shares have a fair market value of $10 per share. Which journal entries should Company B record on December 31?
Answer
  • Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit equity investments $250; credit fair value adjustment (available-for-sale) $2,000 Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit dividend revenue $250; credit fair value adjustment (available-for-sale) $2,000 Debit cash $250; debit equity investments $1,000; credit dividend revenue $250; credit investment income $1,000 Debit cash $250; debit equity investments $1,000; credit equity investments $250; credit investment income $1,000
  • Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit dividend revenue $250; credit fair value adjustment (available-for-sale) $2,000
  • Debit cash $250; debit equity investments $1,000; credit dividend revenue $250; credit investment income $1,000
  • Debit cash $250; debit equity investments $1,000; credit equity investments $250; credit investment income $1,000

Question 16

Question
Which two circumstances represent the significant influence of an investor over an investee that requires use of the equity method of accounting for an equity investment rather than the fair value method? Choose 2 answers 
Answer
  • Ownership of 15% of the investee’s voting stock
  • Interchange of managers between investor and investee companies
  • Purchase of the majority of the investee’s products or services
  • Classification of the investment as available-for-sale

Question 17

Question
A company has a 30% stake in another company. The investment is on the company’s books for $560,000. At the end of the current fiscal year, the investment has a fair value of $510,000. Which method should this company use to adjust the book value?
Answer
  • Equity method
  • Book value method
  • Fair value method
  • Current method

Question 18

Question
How should a company account for transfers of investment securities between categories?
Answer
  • When transferring available-for-sale securities to held-to-maturity investments, record the investments on the transfer date at historical cost.
  • When transferring held-to-maturity investments to available-for-sale securities, record any gain or loss on the income statement.
  • When transferring held-to-maturity investments to available-for-sale securities, record any unrealized gain or loss in stockholders’ equity.
  • When transferring available-for-sale securities to held-to-maturity investments, record the investments on the future sale date at fair value.

Question 19

Question
Which derivative instrument protects an investment against a price decrease and preserves its ability to appreciate in value if the price increases?
Answer
  • Swap
  • Put Option
  • Call Option
  • Forward Contract

Question 20

Question
An oil refinery plans to purchase raw materials on March 1. On December 1 of the preceding year, the refinery considers locking in the current market price for the purchase of one million barrels of oil. The spot price for a barrel of oil is $100. The refinery purchases 1,000 futures contracts for 1,000 barrels per contract at a price of $100 per barrel as a cash flow hedge. On December 31, the price of oil rises to $108 per barrel. How should the company record this change in the value of the futures contracts on December 31?
Answer
  • Debit cash; credit futures contracts
  • Debit cash; credit gain on futures contracts
  • Debit futures contracts; credit unrealized holding gain or loss - equity
  • Debit futures contracts; credit unrealized holding gain or loss - income

Question 21

Question
What are two conditions that must be met to qualify a financial instrument for hedge accounting? Choose 2 answers 
Answer
  • The company documents the hedging relationship, including identification of the hedged transaction or item.
  • The financial instrument meets the definition of a derivative, and the underlying security is documented.
  • The company evaluates the hedging relationship at inception and on an ongoing basis and finds it to be highly effective.
  • The hedging instrument is shown to produce either a gain or an immaterial loss.

Question 22

Question
Which party must consolidate its financial statements to include a variable interest entity?
Answer
  • The party that is exposed to the majority risks and rewards of the variable interest entity
  • The party that holds more voting rights by stock ownership of the variable interest entity
  • The party that controls a majority of the managerial positions of the variable interest entity
  • The party that exerts control by performing day-to-day operations of the variable interest entity

Question 23

Question
Which fair value disclosure is true for impaired, long-lived assets that are held and used?
Answer
  • Significant, observable inputs other than quoted prices are considered Level 1 measurements.
  • Impairment charges resulting from write-down to fair value are included in earnings for the period.
  • Fully depreciated fixed assets should be evaluated to determine disclosure as an impaired asset.
  • Quoted prices in active markets for identical assets are considered Level 3 measurements.

Question 24

Question
In which situation should gains or losses be charged to other comprehensive income?
Answer
  • Under generally accepted accounting principles (GAAP), when changes in value on derivatives are used as cash flow hedges
  • Under International Financial Reporting Standards (IFRS), when changes in value on derivatives are used as cash flow hedges
  • Under generally accepted accounting principles (GAAP), when changes in value on derivatives are classified as trading
  • Under International Financial Reporting Standards (IFRS), when changes in value on derivatives are classified as trading

Question 25

Question
What is a difference between the recognition of revenue and the recognition of gain? 
Answer
  • Revenue must be recognized immediately; gains can be recognized at any time.
  • Revenue results from ordinary operations; gains occur outside of ordinary operations.
  • Revenue results from selling products; gains result from permitting others to use enterprise assets.
  • Revenue results from the provision of services; gains result from the sale of inventory.

Question 26

Question
Company A sells $100,000 of its product to Company B and transfers all risks of ownership. Company A records the following journal entry for the transaction:  Debit accounts receivable: $100,000  Credit sales revenue: $100,000  Later in the same accounting period, Company B returns $10,000 of the equipment to Company A for credit. Which journal entry should Company A record for the returned equipment? 
Answer
  • Debit inventory $10,000; credit accounts receivable $10,000
  • Debit sales revenue $10,000; credit accounts receivable $10,000
  • Debit sales returns and allowances $10,000; credit accounts receivable $10,000
  • Debit sales revenue $10,00; credit cost of goods sold $10,000

Question 27

Question
A company uses the completed-contract method of accounting for long-term contracts. The company completes all deliverables for a two-year contract. The contract generates a total revenue of $500,000 and a gross profit of $50,000. How much revenue should the company recognize in the current reporting period? 
Answer
  • $500,000
  • $450,000
  • $250,000
  • $50,000

Question 28

Question
A company uses the percentage-of-completion method of accounting for long-term contracts. When should the company recognize losses on an unprofitable contract?
Answer
  • When the contract is completed
  • Amortized over the life of the contract
  • When a loss is first incurred
  • When the loss amount is estimated

Question 29

Question
A company repossesses goods that it sold to another company under an installment sales contract. The contract has an outstanding receivables balance of $15,000 and a deferred gross profit of $4,000. The fair value of the repossessed goods is $8,000. Which journal entry should the company record for the repossession?
Answer
  • Debit repossessed merchandise $8,000; debit loss on repossession $7,000; credit accounts receivable $15,000
  • Debit repossessed merchandise $15,000; debit deferred gross profit $4,000; credit accounts receivable 15,000; credit gain on repossession $4,000
  • Debit deferred gross profit $4,000; debit repossessed merchandise $11,000; credit accounts receivable $15,000
  • Debit deferred gross profit $4,000; debit repossessed merchandise $8,000; debit loss on repossession $3,000; credit accounts receivable $15,000

Question 30

Question
How is revenue recognized under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?
Answer
  • Both GAAP and IFRS define revenue as including income and gains.
  • Under GAAP, revenue recognition is principle-based; under IFRS, it is rules-based.
  • GAAP uses concepts such as realizable revenue and earned revenue; IFRS bases revenue on the probability of economic benefits.
  • GAAP has only one standard for revenue recognition; IFRS has multiple standards.

Question 31

Question
What is one way that a temporary difference between taxable income and financial income can become a deferred tax asset or liability?
Answer
  • Expenses or losses are deductible before they are recognized in financial income, resulting in deferred tax asset.
  • Expenses or losses are deductible before they are recognized in financial income, resulting in deferred tax liability.
  • Revenues or gains are taxable after they are recognized in financial income, resulting in deferred tax asset.
  • Revenues or gains are taxable before they are recognized in financial income, resulting in deferred tax liability.

Question 32

Question
A company has a deductible temporary difference of $5 million. The tax rate is 40%. The company determines that it is unlikely to realize $500,000 of that amount.  Which journal entry correctly records this adjustment?
Answer
  • Debit income tax expense $500,000; credit allowance to reduce deferred tax asset to expected realizable value $500,000
  • Debit income tax expense $1,500,000; credit allowance to reduce deferred tax asset to expected realizable value $1,500,000
  • Debit income tax expense $1,500,000; credit deferred tax asset $1,500,000
  • Debit loss on unrealizable deferred tax asset $500,000; credit deferred tax asset $500,000

Question 33

Question
What is a permanent difference between financial reporting income and taxable income?
Answer
  • Stock-based compensation expense
  • Depletion of natural resources beyond historical cost
  • Accrued expense pending outcome of civil litigation
  • Depreciation using sum-of-the-years'-digits method

Question 34

Question
Which tax rate applies when calculating a deferred income tax asset or liability?
Answer
  • The average tax rate for periods with deferred tax balances
  • The effective tax rate enacted for the applicable future period
  • The marginal tax rate for the applicable future period
  • The estimated average tax rate over the period of deferral

Question 35

Question
A company reports the income and taxes shown in the following table.    Taxable income Tax rate Tax paid or (loss) Year 1 $5,000 30% $1,500 Year 2 $30,000 35% $10,500 Year 3 $40,000 40% $16,000 Year 4 ($50,000)     The company chooses to carry back the Year 4 tax loss. How much should this company claim as a tax refund for Year 3?
Answer
  • $6,500
  • $8,000
  • $16,000
  • $20,000

Question 36

Question
To which categories should companies allocate income tax expense on income statements?
Answer
  • Continuing operations, discontinued operations, extraordinary items, and prior period adjustments
  • Continuing operations, discontinued operations, profitable operations, and unprofitable operations
  • Current operations, extraordinary items, long term operations, and prior period adjustments
  • Extraordinary items, prior period adjustments, profitable operations, and unprofitable operations

Question 37

Question
Which accounting entry implements a principle of the asset-liability method of income tax accounting?
Answer
  • Recognizing a contra expense account for future tax benefits attributable to a carryforward
  • Recognizing a short-term capital gain for refunds on the current year's tax return
  • Recognizing a current tax liability for taxes payable on the current year's tax return
  • Recognizing a current tax liability for expected future tax benefits

Question 38

Question
The following table illustrates the differences between a company’s contract revenue and recognized revenue for a four-year contract.  Contract revenue source Year 1 Year 2 Year 3 Year 4 Financial statements $40,000 $0 $0 $0 Tax return $10,000 $10,000 $10,000 $10,000 Assume tax rates of 40% in Year 1 and 50% in all other years.  How much deferred income tax liability should the company recognize at the end of Year 1? 50% * $10,000 * 3 years
Answer
  • $12,000
  • $15,000
  • $16,000
  • $20,000

Question 39

Question
Which classification of deferred taxes imposed by International Financial Reporting Standards (IFRS) further restricts the classification used by generally accepted accounting principles (GAAP)?
Answer
  • Noncurrent asset or liability
  • Stockholders’ equity
  • Current asset or liability
  • Tax expense

Question 40

Question
When should a company report a pension liability?
Answer
  • When the projected obligation is greater than the fair value of the plan assets
  • When the pension expense is less than the funding level
  • When the projected obligation is less than the fair value of the plan assets
  • When the pension expense is greater than the funding level

Question 41

Question
Which type of pension plan guarantees the benefits that employees will receive?
Answer
  • A defined contribution plan
  • A defined benefit plan
  • A contributory plan
  • A noncontributory plan

Question 42

Question
Which measurement of a pension obligation is computed by using vested and non-vested benefits at current salary levels?
Answer
  • Vested benefit obligation
  • Projected benefit obligation
  • Accumulated benefit obligation
  • Non-vested benefit obligation

Question 43

Question
Which calculation determines the actual return on the plan assets component of the pension expense?
Answer
  • (ending balance – beginning balance) × net present cash value
  • (ending balance – beginning balance) × settlement interest rate
  • (ending balance – beginning balance) + (current investment income – contributions)
  • (ending balance – beginning balance) – (contributions – benefits paid)

Question 44

Question
A company has an unexpected gain of $1,000 on pension plan assets. Which journal entry should the company use to account for the gain?
Answer
  • Credit gain on pension assets; debit pension expense
  • Debit other comprehensive income; credit pension expense
  • Credit other comprehensive income; debit pension expense
  • Debit pension expense; credit gain on pension assets

Question 45

Question
A company determines that its pension benefit obligation for the period is overfunded. How should the company report this overfunding on the financial statements?
Answer
  • As a current liability
  • As a noncurrent asset
  • As a current asset
  • As a noncurrent liability

Question 46

Question
How does the accounting for postretirement healthcare benefits differ from accounting for pensions?
Answer
  • Healthcare benefits are generally funded future liabilities; pension benefits are generally not funded.
  • Healthcare benefits are paid monthly; pensions are paid as used.
  • Healthcare benefit obligations are generally uncapped; pensions are a well-defined obligation.
  • Healthcare benefits are reasonably predictable; pensions vary over geography and time.

Question 47

Question
How do generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) differ regarding the recognition of pension liability and asset gains and losses?
Answer
  • Under IFRS, they are recognized directly to income.
  • Under GAAP, they remain in other comprehensive income.
  • Under GAAP, they are amortized over their remaining service lives by using the corridor approach, from accumulated other comprehensive income into income.
  • Under IFRS, they are amortized over their remaining service lives by using the corridor approach, from other comprehensive income or equity into income.

Question 48

Question
A company leases equipment from another company. The lease meets the criteria for a capital lease. The lease terms are as follows:  • Term: 5 years • Annual lease payment: $14,980 • Total minimum lease payments: $74,900 • Present value of minimum lease payments: $62,465 • Fair market value of equipment: $80,000 • Incremental borrowing rate: 10% Which journal entry is required by the lessee to establish the lease as a capital lease?
Answer
  • Debit leased equipment $80,000; credit lease liability $80,000
  • Debit leased equipment $62,465; credit lease liability $62,465
  • Debit leased equipment $80,000; credit lease liability $74,900; credit interest payable $5,100
  • Debit leased equipment $74,900; credit lease liability $62,465; credit interest payable $12,435

Question 49

Question
A company leases equipment from another company through an operating lease. The lease terms are as follows:  • Term: 5 years • Annual lease payment: $14,980 • Fair market value of equipment: $80,000 • Incremental borrowing rate: 10% Which journal entry should the lessee record for its first lease payment?
Answer
  • Debit lease liability $14,980; debit interest payment $ 8,000; credit cash $22,980
  • Debit rent expense $14,980; credit cash $14,980
  • Debit lease liability $14,980; credit cash $14,980
  • Debit leased equipment $14,980; credit accumulated depreciation $14,980

Question 50

Question
From a lessor’s perspective, what is the difference between a direct-financing lease and a sales-type lease?
Answer
  • A direct-financing lease is for a shorter period than a sales-type lease.
  • A direct-financing lease involves a dealer’s profit; a sales-type lease does not.
  • A sales-type lease is for a shorter period than a direct-financing lease.
  • A sales-type lease involves a dealer’s profit; a direct-financing lease does not.

Question 51

Question
A leasing company enters into a direct-financing lease agreement that includes a guaranteed residual value. The lease terms are as follows:  • Fair value of leased equipment: $80,000 • Cost of equipment to lessor: $75,000 • Present guaranteed residual value: $2,150 Which basis should the lessor use to calculate the required periodic lease payment?
Answer
  • $72,850
  • $75,000
  • $77,850
  • $80,000

Question 52

Question
Which lease element should increase the present value of the lessee’s total minimum lease payments?  
Answer
  • Guaranteed residual value
  • Lessor’s internal direct costs
  • Unguaranteed residual value
  • Lessor’s internal indirect costs

Question 53

Question
What does the guaranteed residual value of an asset represent?
Answer
  • The fair market value of the asset at the end of the lease
  • The book value of the asset at the end of the lease
  • An amount determined at the beginning of the lease that will be due to the lessor at the end of the lease
  • An amount determined at the end of the lease to be due to the lessor

Question 54

Question
Which lease obligation disclosures are required in the financial statements?
Answer
  • Specific and separate descriptions of the nature of each individual leasing arrangement
  • Descriptions and amounts of leased assets by major balance sheet classification and related liabilities
  • The names and addresses of individual lessors for whom a current lease exists
  • The amount of equity included in all leased assets under current lease agreements

Question 55

Question
Which criteria must be met for a sale-leaseback to be considered a minor leaseback?
Answer
  • The present value of the rental payments are 10% or less of the fair value of the asset.
  • The lease term is less than 10% of the useful life of the asset.
  • The lease includes a bargain-purchase option.
  • The book value of the asset is less than the present value of the rental payments.

Question 56

Question
How does lease accounting under generally accepted accounting principles (GAAP) differ from lease accounting under International Financial Reporting Standards (IFRS)?
Answer
  • GAAP uses additional criteria for the lessor such as collectability of payments and additional cost.
  • GAAP requires the lessee to record the lease at the higher of the implicit rate and the incremental rate.
  • GAAP requires that the total net present value of lease payments be disclosed for future years.
  • GAAP is more general in its approach to determining whether a lease arrangement transfers reward of ownership.

Question 57

Question
Which type of accounting change results when the life of a fixed asset is extended?
Answer
  • Principle
  • Estimate
  • Entity
  • Basis

Question 58

Question
Which accounting decision should be reported as a change in accounting principle?
Answer
  • Deferring marketing costs that were previously expensed but are now material
  • Adopting the percentage-of-completion method of recognizing the revenue of newly acquired contracts
  • Changing from the average cost method of inventory valuation to the first-in, first-out (FIFO) method of inventory valuation
  • Changing the method used to determine the salvage values of fixed assets for the purpose of reporting depreciation expense

Question 59

Question
A company uses straight-line depreciation. On January 1, the company purchases fixed assets that cost $50,000. At the time of purchase, the company estimates that the assets have a useful life of 10 years. During the third year of owning the assets, the company changes its estimate of the useful life of the assets to 15 years.  How much depreciation has accumulated at the end of the fourth year of owning the assets?
Answer
  • $10,667
  • $12,266
  • $13,333
  • $16,154

Question 60

Question
Which information should a company disclose when a reporting entity changes?
Answer
  • The effect of the change on cash flows for all reported years
  • The effect of the change on net income for current and subsequent years
  • The effect of the change on income tax payable for the current year
  • The effect of the change on earnings per share for the current year

Question 61

Question
A company discovers that it did not record a rent payment it made last year. This error results in an overstatement of last year’s net income in the company’s financial statements. Which account should the company debit to account for the impact of this error on net income?
Answer
  • Net income
  • Rent expense
  • Current liabilities
  • Retained earnings

Question 62

Question
International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) provide guidance for reporting accounting changes and errors. Which guideline applies only under International Financial Reporting Standards (IFRS)?
Answer
  • The impracticality exception applies to the correction of errors.
  • The impracticality exception applies to changes in accounting principles.
  • Companies must report direct effects of accounting policy changes retrospectively.
  • Companies must report indirect effects of accounting policy changes in the current period.

Question 63

Question
Which section of the statement of cash flows displays the cash generated from normal day-to-day business activities?
Answer
  • Current cash flows
  • Operating cash flows
  • Investing cash flows
  • Financing cash flows

Question 64

Question
Which transactions are reported in the investing section of a cash flow statement?
Answer
  • Revenues and expenses
  • Purchases and sales of long-term assets
  • Loan payments
  • Purchases and sales of current assets

Question 65

Question
A company has an inventory value that is greater at the end of the year than it was at the beginning of the year. What is the effect on the company’s indirect cash flow statement?
Answer
  • Cash from operations increases compared to net income.
  • Cash from operations decreases compared to net income.
  • Cash from operations is equal to net income.
  • Cash from operations is equal to the change in inventory value.

Question 66

Question
Which adjustments are required as a result of a decrease in accounts receivable during the accounting period, under the direct and indirect methods of calculating the cash flow from operations?
Answer
  • An increase under the direct method, and a decrease under the indirect method
  • An increase under the direct method, and an increase under the indirect method
  • A decrease under the direct method, and an increase under the indirect method
  • A decrease under the direct method, and a decrease under the indirect method

Question 67

Question
Which account provides the information for calculating net cash flow from operating activities?
Answer
  • Common stock
  • Depreciation
  • Wages
  • Sales

Question 68

Question
In its second year of business, a company has a net income of $120,000. The following table provides year-end account information.  Account Year 1 Year 2 Accounts payable $5,000 $4,000 Accumulated depreciation $65,000 $85,000 Prepaid expenses $20,000 $15,000 Fixed assets $250,000 $255,000 The company uses the indirect method to prepare a statement of cash flows for Year 2. How much should the company report as net cash provided by operating activities?
Answer
  • $91,000
  • $96,000
  • $119,000
  • $124,000

Question 69

Question
How does the reporting of taxes, interest, and dividends on the statement of cash flows differ under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?
Answer
  • IFRS offers multiple options; GAAP dictates that taxes and interest must be reported as operating activities and dividends must be reported as financing activities.
  • IFRS offers multiple options; GAAP dictates that interest and dividends must be reported as financing activities and taxes must be reported as operating activities.
  • GAAP offers multiple options; IFRS dictates that taxes and interest must be reported as operating activities and dividends must be reported as financing activities.
  • GAAP offers multiple options; IFRS dictates that interest and dividends must be reported as financing activities and taxes must be reported as operating activities.

Question 70

Question
A creditor is reviewing a company’s financial statements.  Which ratio provides the information necessary for the creditor to assess the company’s ability to meet its current obligations?
Answer
  • Liquidity ratio
  • Activity ratio
  • Profitability ratio
  • Coverage

Question 71

Question
What is a key difference between financial forecasts and financial projections?
Answer
  • Forecasts provide expected results; projections provide possible results.
  • Forecasts provide possible results; projections provide expected results.
  • Forecasts are created by external analysts; projections are created by company management.
  • Forecasts are created by company management; projections are created by external analysts.

Question 72

Question
On December 31 of Year 1, a company reports accounts receivable of $110,000. During Year 2, the company has net credit sales of $1 million. On December 31 of Year 2, the company reports accounts receivable of $140,000.  What is this company’s accounts receivable turnover ratio for Year 2?
Answer
  • 7.14
  • 8.00
  • 8.33
  • 9.09

Question 73

Question
A company reports the following financial information:  Year 1 Year 2 Difference Sales $20,000 $25,000 $5,000 Expenses $10,000 $12,000 $2,000 Profit $10,000 $13,000 $3,000 Which analysis technique determines that sales have increased by 25% by dividing the sales difference by the Year 1 sales?
Answer
  • Horizontal analysis
  • Vertical analysis
  • Percentage analysis
  • Ratio analysis

Question 74

Question
What are two potential disadvantages of full disclosure? Choose 2 options
Answer
  • Increased costs of accounting personnel and task management
  • Reduced discretion by management regarding disclosed material
  • Too much information for financial statement readers to absorb
  • Greater potential for accounting errors

Question 75

Question
Which information does the Financial Accounting Standards Board (FASB) require a company to disclose about each of its operating segments?
Answer
  • Revenues from transactions with other operating segments if the revenue is included in calculations of the operating segment’s profit or loss
  • The allocation of joint, common, and company-wide costs incurred for the benefit of more than one operating segment
  • All depreciation, depletion, and amortization expenses
  • Revenue per customer for each customer from which 5% or more of the total company revenue is derived

Question 76

Question
Which inventory information should a company disclose in the notes to the financial statements?
Answer
  • Cash flows generated by reductions in inventory
  • Most profitable and least profitable inventory items
  • Pledges of inventory as collateral
  • Recent purchases and sales of inventory items

Question 77

Question
How should interim reports account for costs that are uncertain until year-end?
Answer
  • Ignore the costs for the interim periods.
  • Include the budgeted amounts until the final amounts are known.
  • Estimate the costs and their allocation to interim periods.
  • Expense the costs in the current interim period.

Question 78

Question
An auditor’s opinion contains an exception that does not invalidate the overall financial statements. Which type of opinion should this auditor issue?
Answer
  • Unqualified
  • Qualified
  • Adverse
  • Exception

Question 79

Question
Who is ultimately responsible for the financial statements of a company?
Answer
  • Independent auditor
  • Internal auditor
  • Corporate accounting department
  • Corporate management

Question 80

Question
How often are interim reports usually provided under generally accepted accounting principles (GAAP) and under International Financial Reporting Standards (IFRS)?
Answer
  • Every three months under GAAP; every four months under IFRS
  • Every three months under GAAP; every six months under IFRS
  • Every four months under GAAP; every three months under IFRS
  • Every six months under GAAP; every three months under IFRS
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