ACCT 370 Quiz 4 Equity, Acquisitions & Cash Flows solutions complete answers

ACCT 370 Quiz 4 Equity, Acquisitions & Cash Flows solutions complete answers 

 

Changes in the balance sheet accounts at June 30, 20X1 and 20X2 for the Poker Company are presented below:

 
Increase
 
(Decrease)
Assets
 
 
 
Cash
$
480,000
 
Accounts receivable
 
200,000
 
Inventory
 
300,000
 
Long-term investments
 
200,000
 
Equipment
 
(200,000
)
Accumulated depreciation
 
(60,000
)
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
(40,000
)
Dividends payable
 
400,000
 
Notes payable—Current
 
(200,000
)
Notes payable—Long-term
 
400,000
 
Common stock, $1.00 par
 
300,000
 
Additional paid-in capital
 
100,000
 
Retained earnings
 
80,000
 
 
Additional Information for 20X2:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A new long-term investment was acquired for $360,000.
A long-term investment was sold for $160,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.

The gain on the sale of equipment for 20X2 is:

 

During 20X1, Lang Corporation reported cost of goods sold of $775,000. During the year inventory decreased $25,000 and accounts payable increased $12,500. How much cash was paid to suppliers during 20X1?

 

The cash flow statement of the United Company is in process for 20X2. The United Company is reporting the following balances: 

 
12/31/X1
 
12/31/X2
 
Equipment
$
100,000
 
 
$
170,000
 
 
Loss on sale of equipment
 
0
 
 
 
10,000
 
 
Accumulated depreciation—equipment
 
75,000
 
 
 
95,000
 
 
 
During 20X2, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.

Equipment purchases in 20X2 were:

 

Philip, an accounting major, is analyzing a multinational company's performance. He is trying to determine the reasons for the company's declining operating profit. The information available includes segment-related disclosures. Philip should consider conducting this type of analysis using segment disclosures:

 

Reported segments must represent at least 75 % of _____ reported in the income statement.

 

On December 1, 20X1 a U.S. company sold merchandise to a foreign company for 750,000 yuan. The payment in yuan is due on January 31, 20X2. The spot rate was as follows: $0.20 per yuan on December 1, 20X1; $0.19 per yuan on December 31, 20X1; and $0.21 per yuan on January 31, 20X2 when the payment was received. Which of the following incorrectly describes the accounting for this foreign currency transaction?

 

One of the key factors that differentiates the temporal method from the current rate method is that under the temporal method, assets and liabilities are reported at:

 

Meadows Limited, a foreign subsidiary of U.S. based Meadows Inc. operates primarily for the benefit of its parent company. When the exchange rate was $1.30 per one British Pound Sterling (£), Meadows Limited purchased Inventory for £2,100 pounds. Meadows resells one-third of the inventory for £900 when the exchange rate was $1.26 per Pound Sterling and another one-third for £900 when the exchange rate was $1.28 per Pound Sterling. The parent company applies the temporal method in its process of consolidating the financial results of its subsidiaries with its own financial results.

Meadows Inc. reports gross profit associated with its subsidiary in the amount of:

 

Meadows Inc. reports sales revenue associated with its subsidiary in the amount of:

 

Meadows Inc. reports cost of goods associated with its subsidiary in the amount of:

 

Bremmer Company's functional currency is the Euro. On February 1, 20X1, when the exchange rate is $1.20 per Euro, Bremmer purchases 100 units of inventory for a total purchase price of 4,300 Euros. Bremmer sells half of the inventory on March 24 and the other half on April 14. The exchange rate is $1.17 on March 24 and $1.21 on April 14.

If Bremmer were to keep records denominated in U.S. dollars, the company would recognize the sale of inventory April 14, by crediting cost of goods sold for:

 

The currency used in the market in which a foreign subsidiary effectively operates is referred as the:

 

Revaluing foreign currency denominated assets and liabilities in response to currency changes always increases or decreases:

 

Interest income recognized for investments in debt securities classified as available-for-sale as compared to being classified as held-to-maturity is:

 

Yanita Company, an IFRS reporting firm, has three bank accounts. The respective account balances are as follows:

Account 1: $50,000; Account 2: $70,000; Account 3: $(10,000).

Consistent with IFRS, cash and cash equivalents are equal to:

 

Madrid Incorporated’s 20X1 income statement reported income tax expense of $635,375. During 20X1, Madrid’s income taxes payable account increased $19,735 while the deferred tax asset account increased $39,365. How much cash was paid for taxes during 20X1?

 

During 20X1, Krug Company reported net sales of $1,025,000. During the year net accounts receivable increased $39,750 even though Krug wrote-off $7,150 of receivables as uncollectible; Krug uses the allowance method to account for bad debts. Krug’s bad debt expense during 20X1 was $20,500. How much cash was collected from customers during 20X1?

 

Changes in the balance sheet accounts at June 30, 20X1 and 20X2 for the Poker Company are presented below: 

 
Increase
 
(Decrease)
Assets
 
 
 
Cash
$
480,000
 
Accounts receivable
 
200,000
 
Inventory
 
300,000
 
Long-term investments
 
200,000
 
Equipment
 
(200,000
)
Accumulated depreciation
 
(60,000
)
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
(40,000
)
Dividends payable
 
400,000
 
Notes payable—Current
 
(200,000
)
Notes payable—Long-term
 
400,000
 
Common stock, $1.00 par
 
300,000
 
Additional paid-in capital
 
100,000
 
Retained earnings
 
80,000
 
 
Additional Information for 20X2:
Net income was $480,000 and dividends of $400,000 were declared.
Common stock was issued for cash.
A new long-term investment was acquired for $360,000.
A long-term investment was sold for $160,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.

The net cash flow from operating activities for 20X2 is a:

 

Which of the following is an acceptable accounting approach for distributions under the equity method?

 

U.S. GAAP provides guidance that defines hedge effectiveness. To be considered effective, a hedge should offset between ___% and ___% of changes in the hedged item's market price.

 

The following information is available for Crammer Company’s two segments: 

Financial Statement Information
Segment A (in Million)
Segment B (in Million)
Service revenue
$
100
 
$
200
 
Operating expenses
$
80
 
$
160
 
Average Assets
$
50
 
$
320
 
 
Segment A’s rate of return on assets is:

 

Segment B’s rate of return on assets is:

 

Beyer Company, is a U.S. based multinational that operates in the U.S., Europe, and Asia. The company reports on two distinct product-related segments—manufacturing and financing. Additional disclosures required include:

 

Katie analyzes the dollar-based consolidated financial statements of a company that owns a foreign subsidiary. Katie observes that the foreign subsidiary’s sales increased by 24% compared to last year. Katie should be aware that the results

 

Milton Company’s unadjusted trial balance on 12/31/20X1 shows an accounts receivable from a non-U.S. customer. The receivable arose from a sale denominated in Euros. Since the receivable was recognized, the Euro value has risen. Milton should:

 

Wiese Limited, a foreign subsidiary of U.S. based Wald Inc. operates primarily economically independent from its parent company. When the exchange rate was $1.30 per one British Pound Sterling (£), Wald Limited purchased Inventory for £2,100 pounds. Wald resells one-third of the inventory for £900 when the exchange rate was $1.26 per Pound Sterling and another one-third for £900 when the exchange rate was $1.28 per Pound Sterling. At the end of the reporting period, the exchange rate is $1.29 per Pound Sterling. The parent company applies the current rate method in its process of consolidating the financial results of its subsidiaries with its own financial results.

Wald Inc. reports ending inventory associated with its subsidiary in the amount of:

 

Cramer Company owns 100% of the outstanding shares of its European subsidiaries, which operate under Cramer Company’s business model. The subsidiaries’ primary objective is to help Cramer Company expand its global market share. In consolidating the subsidiaries’ financial statements with those of the U.S. parent, the subsidiaries’ financial statement numbers should be:

 

Susqua, Inc. has held-to-maturity debt securities it purchased in 20X1. At December 31, 20X2, Susqua, Inc. reported a $120,000 impairment loss related to these securities. During 20X3, the debtor was successful in registering a new patent which improved the debtor’s operating outlook. This change of events resulted in a reversal of $45,000 of the impairment loss. At December 31, 20X3, the fair value of the debt securities had increased by $68,000 over the impaired value previously recorded. Susqua, Inc. uses IFRS for its external reporting. How much, if any, of this reversal can Susqua, Inc. report in its income for 20X3?

 

Mesquite, Inc. has held-to-maturity debt securities it purchased in 20X1. At December 31, 20X2, the amortized cost basis of the securities is $220,000 and the fair value of the securities is $208,000. The present value of estimated future cash flows discounted at the original effective interest rate is $210,000. Mesquite, Inc. uses IFRS for its external reporting. What amount of loss, if any, will Mesquite, Inc. report related to these securities for 20X2?

 

On January 1, 20X1, the Regal Company purchased 30% of the outstanding voting stock of the Air Corporation for $300,000; the book value of Air’s net assets at the date of purchase was $900,000. Regal was willing to pay more than the book value of the acquired shares because Air’s depreciable assets with a ten-year remaining life were undervalued. Regal uses straight-line depreciation. During 20X1, Air reported net income of $75,000 and paid dividends of $30,000.

 

The income reported by Regal during 20X1 pertaining to the Air investment was:

 

On January 1, 20X1, Ramsey Company purchased 35% of the outstanding common shares of the Vapor Company for $70,000. At the time of investment, Vapor Company’s net assets were $200,000. During 20X1, Vapor Company earned $80,000 and declared a dividend of $40,000. Ramsey accounted for the investment under the equity method.

 

What is the balance in the investment account as of December 31, 20X1?

 

Central Investments bought 4,000 shares of Benet Company common stock on January 1, 20X1, for $20,000, and 4,000 shares of Roy Company common on July 1, 20X1, for $24,000. Benet declared dividends on December 31, 20X1 of $3,000. At the end of 20X1, the fair value of Roy was $30,000 and the fair value of Benet was $28,000. At the end of 20X2, the fair value of Roy was $32,000 and the fair value of Benet was $24,000. These investments are reported in the long-term asset section of Central’s balance sheet. Central owns 8% of Benet Company and 12% of Roy Company.

 

How much income was reported on the 20X1 income statement?

 

A company purchased shares of stock of another company for $75,000 during 20X1. The shares’ fair value was $79,000 at the end of 20X1 and $81,000 at the end of 20X2. Which of the following statements correctly describes the investor’s accounting for the investment?

 

The Heath Corporation reported net income for 20X1 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.

 

The basic earnings per share for 20X1 is:

 

Condensed financial data are presented below for the Phoenix Corporation:

 
2019
 
2018
Accounts receivable
 
267,500
 
 
$
230,000
 
Inventory
 
312,500
 
 
 
257,500
 
Total current assets
 
670,000
 
 
 
565,000
 
Intangible assets
 
50,000
 
 
 
60,000
 
Total assets
 
825,000
 
 
 
695,000
 
Current liabilities
 
252,500
 
 
 
200,000
 
Long-term liabilities
 
77,500
 
 
 
75,000
 
Sales
 
1,640,000
 
 
 
 
 
Cost of goods sold
 
982,500
 
 
 
 
 
Interest expense
 
10,000
 
 
 
 
 
Income tax expense
 
77,500
 
 
 
 
 
Net income
 
127,500
 
 
 
 
 
Cash flow from operations
 
71,000
 
 
 
 
 
Cash flow from investing activities
 
(6,000
)
 
 
 
 
Cash flow from financing activities
 
(62,500
)
 
 
 
 
Tax rate
 
30
%
 
 
 
 
 

The total asset turnover ratio for 2019 is (rounded):

 

Floating-rate debt is the most common method for lenders to protect themselves from losses that may arise as a result of:

 

Cheery Company follows IFRS for its financial reporting. On January 1, 2018 Cheery issued €250 million of 10-year convertible notes that pay interest at 5% annually. Investors pay €250 million for the notes even though the company’s credit risk at the time implies a 10% interest rate for traditional debt of similar duration. When the cash flows associated with the debt are discounted at 10%, the resulting value is €175 million.

 

How much cash will Cheery pay for interest during 2018?

 

The components of pension expense are:

 

Defined contribution plans are preferred by companies for all except which of the following reasons?

 

Cash dividends paid by a corporation:

 

Companies with surplus cash will consider the needs of cash for:

 

When a dividend is not declared on preferred stock, and the common share­holders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is:

 

Mandatorily redeemable preferred stock is reported on the balance sheet as:

 

Which of the following is not indicative of a complex capital structure?

 

The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.

 

If each share of preferred stock is convertible into 8 shares of common stock, the diluted earnings per share for 2018 is (rounded):

 

On January 1, 2018, Waddle Company adopted a compensatory stock option plan and granted its managers 10,000 options to buy shares of common stock; each option can be used to acquire a share of common stock at a price of $25 a share. The fair value of each option was $7.50 on January 1, 2018. The options can be converted into common stock after July 1, 2018. The required service period is three years.

 

What is the balance in paid-in capital-stock options as of December 31, 2019 assuming that the fair value approach to accounting for stock options is used?

 

Accounting for nonqualified stock option plans results in all of the following except:

 

To record newly issued stock shares upon conversion of debt, managers most often choose the method known as the:

 

A minority ownership interest generally occurs when an investor owns less than which of the following percentages of the stock of an investee company?

 

A parent company’s investment account would include an element which is representative of :

 

Testing for goodwill impairment:

 

Which of the following is not a use of a variable interest entity (VIE)?

 

Foreign currency nonmonetary assets and liabilities for non-free-standing subsidiaries are translated using the:

 

Which of the following is not true regarding consolidations under IFRS?

 

Other-than-temporary impairments are not an issue for debt investments classified as:

 

Cash flows arising from the payment of dividends are cash flows from:

 

Which of the following is not correct with respect to the difference between accrual accounting and cash flow reporting?

 

The FASB decided that the allocation of income taxes paid to operating, financing, and investing activities would be complex and arbitrary, and relied on which one of the following justifications for its decision?

 

Pipe Corporation reported cost of goods sold of $250,000 for 2018. It also reported an increase in inventory for the year of $30,000, and an increase in accounts payable of $24,000. Pipe would report cash paid to suppliers in 2018 under the direct method for cash flows of:

 

The analyst would most likely understand that the change in the balance sheet account for property, plant, and equipment does not reconcile with the account change included in the statement of cash flows because of a write-off due to impairments which the analyst discovered when examining the:

 

Which of the following does not accurately describe the presentation of software development costs on the statement of cash flows?

 

Which of the following statements concerning IFRS and the statement of cash flows is correct?

 

The Xano Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements. The company also reported a LIFO reserve of $34,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is

 

The two broad categories of differences that result from determining the pre-tax book income and the taxable income are:

 

Which accounting choice would not be used to reduce the likelihood of a technical default?

 

The term "consolidated" is used in financial statements under U.S. GAAP to refer to the financial reporting for a parent and its subsidiaries. The equivalent term used on balance sheets in the United Kingdom is:

 

A lender may be protected from deterioration of the borrower’s creditworthiness if the commercial lending agreement requires the borrower to maintain a:

 

The role of financial accounting information is to facilitate economic transactions and to foster efficient allocation of resources among businesses and individuals.

 

Financial reports provide information that can reduce investors’ uncertainty about the company’s opportunities and risks, thereby raising the company’s cost of capital.

 

Comparability across companies allows analysts to identify real economic similarities in and differences between underlying economic events because those similarities or differences are not obscured by accounting methods or disclosure practices.

 

Executive compensation contracts seldom contain annual bonus and longer term pay components tied to financial statement results, but instead usually rely on stock options as a means to reward managers in a manner that is less subject to manipulation by management.

 

The public and private sector regulatory agencies establish and enforce financial reporting requirements designed to ensure that companies meet certain minimum levels of financial disclosure.

 

Although the SEC has the ultimate legal authority to set accounting principles in the U.S., it has looked to private-sector organizations (e.g., the FASB) to establish and enforce these principles.

 

Management has considerable discretion over the particular accounting procedures used in the financial statements and over the details contained in related note disclosures.

 

Accounting standard-setting in the U.S. is a technical process and thus little affected by political considerations.

 

The IASB and FASB have worked together to develop a single set of high-quality, understandable, enforceable and globally accepted international financial reporting standards.

 

Foreign companies registered with the SEC that use IFRS no longer have to reconcile their financial statements to U.S. GAAP.

 

U.S. GAAP has been criticized as being too “rules-based” thus allowing managers to invent “loopholes” that conform to the letter of a standard but simultaneously violate its spirit.

 

The goal of the movement toward international convergence of accounting standards is a single set of accounting standards accepted worldwide and superior to the choices presently available.

 

Regulators of industries granted monopoly privileges use financial statement data in setting the rates companies are permitted to charge for the services these industries provide.

 

Owners and managers have an economic incentive to supply the amount and type of financial information that will enable the company to raise capital at the lowest cost.

 

Financial statement information can help customers monitor a supplier’s manufacturing processes and thus evaluate the quality of its products.

 

The conceptual framework for financial reporting includes the standards of GAAP.

 

A company’s financial statements reflect information about

 

All financial statements:

 

A firm’s financial statements contain trends that give users insight into the firm’s

 

The ability to raise additional cash by selling assets, issuing stock, or borrowing more is

 

Creditors assess credit risk by comparing a firm’s required principal and interest payments to estimates of the firm’s current and future

 

Professional analysts need information on a company’s future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment prospects and to

 

The costs of providing financial information is ultimately borne by

 

Which of the following statements is not correct regarding a company’s financial statements?

 

Which of the following are correct with respect to information contained in financial statements?

 

Which is not correct regarding Regulation Fair Disclosure (Reg FD) ?

 

Companies that have projected operating cash flows that are more than sufficient to meet debt payments are

 

Investors who compare a firm’s discounted future cash flows to the current market price of a stock are using the

 

A company’s financial statements can be used for all of the following purposes except

 

The market analysis known as fundamental analysis

 

Investors who follow a fundamental analysis approach

 

In designing audit procedures the auditor will include all of the following except:

 

Analytical review procedures include all of the following except

 

Relevant financial information

 

To achieve faithful representation, the financial information must be

 

Financial information that is provided to decision makers before it loses its capacity to influence their decisions is

 

Financial information which does not favor one set of interested parties over another is

 

Employees demand financial information for all of the following except:

 

Which of the following statements is correct with respect to economic incentives to release financial information?

 

Which statement below describes efficient market investors?

 

Which of the following create a competitive disadvantage according to the full disclosure principle?

 

When independent measurers get similar results when using the same accounting measurement methods, the financial information is

 

Being verifiable and neutral is part of what makes financial information

 

If a company fails to disclose information about a lawsuit because it might be embarrassing to the company, it is violating

 

Which of the following is not an accurate statement related to the demand for financial reporting?

 

Financial information capable of making a difference in a decision is

 

Business enterprises enter into many different types of contracts. Examples of such contracts that often contain language that refers to verifiable financial statement numbers include all of the following except

 

What type of trends and relationships can be gleaned from a company’s financial statements?

 

The type of analysis that uses financial statements to assess a company’s current market price is

 

When financial statements are used by shareholders and investors to evaluate the performance of a company’s top executives it is referred to as the _____________ function of financial reports.

 

Which statement is not true regarding the conservatism convention in accounting?

 

Investors who presume that they have no insights about company value beyond the current market price and use financial statement data to assess firm-specific attributes believe in the

 

Which of the following people outside the company do not demand financial statement information as a key input?

 

Which item below does not describe a politically vulnerable firm?

 

Which of the following are primary qualitative characteristics of accounting information?

 

To achieve Faithful Representation, accounting information presented must meet which of the following requirements?

 

The amounts of executive compensation and bonuses are often determined by

 

Whose responsibility is it to ensure that the company’s financial information is properly assembled, classified, characterized, and presented clearly and concisely in order to make it understandable?

 

Which of the following is not an action taken by shareholders when the earnings and share price fall below acceptable levels?

 

Employees demand financial statement information because the firm’s performance is often linked to all of the following except

 

When a borrower violates a loan covenant that requires minimum achievement of an accounting measure in the financial statements, the lender can

 

Investors and analysts must have certain capabilities regarding financial reporting which include

 

The goal of generally accepted accounting principles is to ensure that a company’s financial statements

 

Timeliness is a qualitative characteristic of accounting information that indicates that information should be provided to users

 

Which one of the following types of disclosure costs is the cost of disclosing the company’s pricing strategies?

 

If the financial reporting environment were unregulated, disclosure would occur voluntarily

 

Companies offering higher risk securities have incentives to mask their true condition by

 

One financial disclosure cost is the possibility that competitors may use the information to harm the company providing the disclosure. All of the following disclosures might create a competitive disadvantage except

 

It is common for shareholders to initiate litigation when

 

When comparing U.S. GAAP and IFRS standards, which of the following is not correct?

 

Using the same accounting methods to record and report similar events from period to period demonstrates

 

Which one of the following has statutory authority to determine accounting rules for companies whose securities are owned by the general public?

 

Which of the following does not describe how FASB endeavors to draft pronouncements?

 

The growth of global investing has spurred development of worldwide accounting standards that are written by the

 

The organization responsible for establishing auditing standards and inspecting and investigating auditing practices of public accounting firms is

 

The only authoritative source of U.S. GAAP is created by FASB and exists in a single database known as

 

The ASC uses a structure in which the FASB’s authoritative accounting guidance is organized into all of the following except

 

ASC content is organized

 

GAAP’s flexibility in its reporting standards allows companies to

 

Financial statements follow

 

A company manages a large portfolio of marketable securities and sells only stocks with substantial gains in poor income years or sells only stocks with substantial losses in good income years. This strategy is an indication of

 

Identify the correct order of the three steps constituting the FASB’s “due process” procedure.

 

The Securities and Exchange Act of 1934 required all publicly traded firms to

 

The Financial Accounting Standards Board has responsibility for the establishment of U. S. accounting standards and

 

When financial information is measured and reported in a similar manner across different companies in the same industry it is

 

When a company changes from straight-line to the declining balance method of accounting for depreciation, the financial statements lack

 

The network of conventions, rules, guidelines, and procedures used by the accounting profession is known as generally accepted

 

Omissions or misstatements within a financial statement which could influence the decisions of the user of the statement violates

 

Some countries’ philosophy of financial reporting differs from U.S. GAAP because their financial reports are required to

 

Differences between IFRS and U.S. GAAP include all of the following except

 

Financial reporting philosophies differ across countries. These philosophies evolve from and reflect several factors including all of the following except

 

Companies needing to access new and ever larger sources of capital in response to increased international competitiveness face a severe disadvantage if their financial reporting

 

International financial reporting standards are currently established by the

 

IFRS frequently

 

International Financial Reporting Standards (IFRS) are

 

Which of the following statements regarding IFRS is incorrect?

 

Accounting information is heavily regulated

 

When is it permissible to issue financial statements that contain a material departure from GAAP?

 

The underlying principal in ASC Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected to be exchanged for those goods or services.

 

Amounts received from the sale of gift cards should be recognized by the seller at the time of sale.

 

Under a consignment arrangement, revenue is not recognized until the consigned goods are sold to a third party.

 

ASC Topic 606 provides a five-step model for evaluating how and when revenue should be recognized rather than providing detailed industry-by-industry standards.

 

Ann Smith just saw her doctor. After the appointment, she was informed by the receptionist that the fee for the visit is $75 and that her insurance company will be billed for the visit. Ann was also notified that her insurance company will pay all of the fee except for the $20 co-pay, which she pays with her debit card right away. Because the doctor’s office has not entered into a contract, it would not record revenue until it verifies that the insurance company will pay.

 

Gamebox sells video-gaming devices, games, and online game subscriptions. The Gamebox system normally sells for $250 and comes prepackaged with one game. The average price for games is $30. The company also sells its online game subscription package, which allows members to download and play one new game per month, for $240. During the holiday season, the company provides a package deal which includes the gaming system with two games and a free one-year game subscription for $400. The company should allocate $192.31of the $400 package purchase price to the gaming system.

 

Under the percentage-of-completion method, the amount debited to “construction expense” each period is the actual construction costs incurred in that period.

 

Treating the “billings on construction in progress” account as an off-set (contra) to the construction inventory account avoids including certain costs and profits twice on the balance sheet.

 

Prior to ASC Topic 606, the installment sales method of recognizing profit for accounting purposes is acceptable GAAP if collection of the sales price is not reasonably assured.

 

Initial franchise fee revenue should be recognized when all material services or conditions relating to the sale have been substantially performed by the franchisor.

 

The key accounting issue related to bundled (multiple-element) sales transactions is the amount of revenue to be recognized over the contract period.

 

Both public U.S. companies and companies reporting under IFRS must begin reporting revenue based on ASC Topic 606 in January 2018. Early adoption is permitted under both U.S. GAAP and IFRS.

 

Sell4U is an online site that allows its clients to post items for sale. Sell4U charges a 5% brokerage fee for use of the site, payable within 10 days of the sale. As an agent, Sell4U may recognize revenue for the brokerage fee as soon as an item is sold.

 

Evans Equipment sells, installs, and maintains manufacturing equipment. The typical sales contract includes the purchase of the equipment, installation, and a five-year maintenance contract. Most customers choose to trade in the equipment for the new model at the end of the five-year contract. Evans Equipment should amortize the cost of installation over five years.

 

Gamebox, a seller of video-gaming systems, games and online gaming subscriptions, recently made available a coupon that allows its gaming subscription members to extend their subscriptions by three months at no charge. Subscribers need only to login to the website using their user name and password and provide the coupon code. Because this contract modification (from 12 months to 15 months) does not add distinct goods or services from the original contract, Gamebox need only make a cumulative catch-up adjustment.

 

The time that the performance obligation is satisfied for revenue recognition is usually

 

If consideration is received before a contract is identified and the consideration is nonrefundable, revenue may be recognized if

 

Under ASC Topic 606 guidance for revenue recognition, all of the following conditions must be met to account for a contract with a customer, except

 

Assuming the requirements for recognizing revenue over time are met, and using the percentage-of-completion method to recognize revenue, the measure of completion is computed by dividing

 

Assuming the requirements for recognizing revenue over time are met, and using the percentage-of-completion method, the profit to be recognized in any year is based on the completion ratio of

 

Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue over time are met. The total estimated cost of the project is $4,000,000 and the following information is available:

($ in thousands)
Year 1
Year 2
Year 3
Costs incurred
$ 1,000
$ 1,500
$ 1,250
Estimated completion costs
$ 3,000
$ 1,500
$        0
Billings
$    750
$ 1,750
$ 2,500
Cash collected
$    500
$ 1,500
$ 3,000
 

Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 2?

 

Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 3?

 

Which one of the following entries would be made in Year 1 to record the costs incurred using the percentage-of-completion method of revenue recognition?

 

Which one of the following entries would be made in Year 1 to record the income recognized using the percentage-of-completion method of revenue recognition?

 

Which one of the following entries would be made in Year 2 to record the customer billing using the percentage-of-completion method of revenue recognition?

 

Using revenue recognition standards prior to ASC Topic 606, which one of the following entries would be made in Year 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition?

 

Borden Construction entered into the following contracts with Lovely Landscaping, LLP: (1) construct a paver patio, (2) plant trees, and (3) landscape planting beds for a new home construction project. Lovely Landscaping should treat the contracts

 

Prior to ASC Topic 606 for revenue recognition, when losses occur on long-term contracts using the completed-contract method, they are recognized

 

On January 1, 2018, Monroe Contractors signed a contract to inspect and complete needed repairs to the water lines for the town of Pleasantville. Because Monroe will not know which water lines will need repairs until after it completes the inspections, it is difficult to accurately estimate the amount it will charge the town. Therefore, Monroe will recognize revenue for the contract using the completed-contract method. The work is expected to be completed in 2020.

 

Using a completed-contract method prior to ASC Topic 606 for revenue recognition, if Monroe had $1.5 million in its Construction In Progress Inventory account and billings to Pleasantville of $2 million as of December 31, 2018, how much net income should Monroe Construction recognize for 2018?

 

Which of the following is not a permitted simpler approach to revenue recognition under ASC Topic 606 for revenue recognition?

 

Burgers and More operates a chain of fast-food restaurants across the United States. The restaurants are franchised operations. Under the franchise agreement, restaurant owners have the right to use the Burgers and More trade name, financing arrangements for franchisees, and management training at the corporate headquarters as well as the right to use training videos for their employees. The Burgers and More franchise contracts contain the following separate performance obligations:

 

Which of the following criteria must be met to recognize revenue under a bill-and-hold arrangement?

 

Ford Appliance Center records revenue on the installment sales method, prior to ASC Topic 606 for revenue recognition. The following information is available for the first two years of business.

 
Year 1
Year 2
Sales
$200,000
$250,000
Cost of goods sold
140,000
162,500
Cash collections:
 
 
     Year 1 sales
100,000
80,000
     Year 2 sales
 
130,000
 

How much realized gross profit on installment sales will Ford recognize in Year 1?

 

Assume that Ford Appliance Center has consistently recognized revenue on installment sales using the cost recovery method. How much realized gross profit on installment sales will Ford recognize in Year 1?

 

How much realized gross profit on installment sales will Ford recognize in Year 2?

 

Which one of the following entries properly records the installment sales for Year 2?

 

Which one of the following entries properly records the cost of installment goods sold for Year 2?

 

Which of the following is not a factor that indicates multiple performance obligations in a contract?

 

CPA Now developed an app to help prepare for the CPA exam. Customers may separately purchase (a) the app, (b) updates to the app, and (c) coaching support for the exam, or a package that includes the app and free updates coaching support until they pass the exam. The package deal includes performance obligation(s).

 

Yashito Corporation sells cameras and accessories. The company’s newest model, popular with preteens, takes wallet-sized instant photos. The wholesale price for this camera is $50. In addition, the company sells carrying cases ($25), film cartridges ($15), and selfie lenses ($10) made especially for this camera. During the holiday season, Yashito offers the camera, film, carrying case, and selfie lens as a package for $75. For each package sold, the transaction price allocated to the camera is

 

Under ASC Topic 606 for revenue recognition, a performance obligation is considered satisfied when control over the goods and services is transferred to the customer. Which of the following is not an indicator that control has transferred?

 

Hargren Publishing offers its Accounting textbooks as e-texts through its online homework management system. Purchase of an access code provides the student with access to the e-text and online learning materials for six months. During that time, students have access to updates to the text and learning materials. Hargren should recognize revenue for purchases of access codes

 

In 2017, Borden Construction was contracted to build an apartment complex for its client, Deer Park Realty Management. The project was estimated to cost $15 million; however, on December 31, 2017, when the project was 75% complete, Borden estimated that the project costs would be much less, and agreed to adjust the contract price to $10 million. Prior to December 31, 2017, Borden Construction had recognized revenue of $10 million. At year end, Borden should

 

Continuing franchise fees that are based on the franchisee’s percentage of sales should be recognized by the franchisor as revenue

 

Initial franchise fees should be recorded as revenue by the franchisor

 

Under GAAP prior to ASC Topic 606 for revenue recognition, which of the following conditions is not necessary for a seller to recognize revenue at time of sale when a right of return exists?

 

GAAP prior to ASC Topic 606 for revenue recognition specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met except:

 

The key accounting issue related to bundled products such as software licenses and technical support

 

Under ASC Topic 606 for revenue recognition, which of the following statements is not accurate regarding performance obligations?

 

Examples of variable consideration include all of the following except

 

A right of return exists when

 

Under ASC Topic 606 for revenue recognition, which of the following factors is not an indicator of the principal/agent determination?

 

Which of the following disclosures is not required by ASC Topic 606 guidance for revenue recognition?

 

Under the new revenue recognition guidance in ASC Topic 606, a performance obligation is satisfied over time if

 

Which of the following statements is not applicable to revenue recognition guidance under ASC Topic 606?

 

Which of the following statements is not applicable to contract acquisition costs under ASC Topic 606 guidance for revenue recognition?

 

Which of the following statements is not applicable to ASC Topic 606 guidance for revenue recognition?

 

The new ASC Topic 606 provides a model for revenue recognition that includes

 

Under ASC Topic 606, which of the following is not a criteria for revenue recognition?

 

Revenue for goods to be sold under a consignment arrangement of a manufacturer and a retail store should be recognized by the manufacturer when

 

In the case of sales where the customer is billed before delivery of the goods,

 

In the case of goods delivered to a consignee under a consignment arrangement,

 

Payments to a customer for slotting fees

 

Internet companies that simply act as agent or broker for the transfer of goods must record revenue based on

 

Which of the following statements does not apply to the principal/agent relationship under ASC Topic 606 guidance for revenue recognition?

 

Under ASC Topic 606, revenue should be recognized for services when

 

The cost-plus approach

 

Examples of variable consideration include the following except:

 

Wilson, Inc. sells, installs and maintains manufacturing equipment. The contract with its customers to purchase equipment includes installation and includes a one-year maintenance contract, renewable for up to five years. Because the useful life of the equipment is expected to be five years, the company can reasonably expect its customers to renew the maintenance contracts for the full five years. Wilson records the cost of installation of the equipment as a capitalized contract and amortizes the cost over the five-year maintenance agreement period. Because of a defect in model A5403, Wilson anticipates that many of its customers will trade in the model and not renew the maintenance contracts. Wilson, Inc. should

 

The new ASC Topic 606 for revenue recognition

 

Which of the following statements is not true regarding ASC Topic 606?

 

Which of the following methods can be used to recognize revenue when a performance obligation is satisfied over time?

 

Which of the following statements is true regarding the new ASC Topic 606 for revenue recognition?

 

Which of the following statements is true regarding the five-step model in the ASC Topic 606 guidance for revenue recognition?

 

Which of the following is not a necessary condition for a firm to account for a customer contract under the ASC Topic 606 guidance for revenue recognition?

 

Contracts must be

 

The residual approach to allocate transaction prices to multiple performance obligations in a contract is appropriate when

 

A patient of Dr. Jones presents his Medicare card after his appointment. The total charge for the services was $100; however, Medicare will pay only $60 for this service and the patient is to pay $20. Acceptance of the patient’s Medicare insurance creates a contract

 

Under the ASC Topic 606, which of the following statements is not a criteria that may determine whether the percentage of completion method may be used to recognize revenue

 

Which of the following statements does not apply to the installment sales method?

 

Which of the following statements is true prior to ASC Topic 606 regarding accounting for revenue recognition?

 

According to revenue recognition under ASC Topic 606, which of the following is a factor applicable to identifying performance obligations in a contract?

 

Regarding ASC Topic 606 guidance for revenue recognition, which of the following statements is not true?

 

Which of the following statements is not true regarding ASC Topic 606 guidance for revenue recognition?

 

Which of the following statements is true regarding contracts in ASC Topic 606 guidance for revenue recognition?

 

Which of the following statements is not true regarding the software developer example provided in ASC Topic 606 guidance for revenue recognition?

 

Which of the following statements is not true regarding the treatment of warranties under the new revenue recognition guidance in ASC Topic 606?

 

Under the new revenue recognition guidance in ASC Topic 606, which of the following statements is true regarding contracts with customer options?

 

Under ASC Topic 606 guidance for revenue recognition, which of the following factors is not a consideration when determining the transaction price of a contract?

 

Under the new revenue recognition guidelines in ASC Topic 606, which of the following statements is not true regarding performance obligations satisfied over time?

 

Which of the following statements is not true regarding transactions involving intellectual property?

 

Which of the following statements is not true regarding revenue recognition regarding gift cards?

 

Under ASC Topic 606, which of the following statements is not true regarding the use of practical expedients in applying the revenue recognition model?

 

Which of the following statements is not true regarding the adoption of ASC Topic 606 guidance for revenue recognition?

 

Under IFRS in accounting for revenue recognition, for collection to be probable in order for revenue to be recognized on a contract, “probable” means

 

In accounting for revenue recognition under ASC Topic 606, a contract modification is considered a new, separate contract when

 

In accounting for revenue recognition under ASC Topic 606, when there is a modification of a contract, which of the following is correct?

 

In accounting for revenue recognition under ASC Topic 606, revenue can be recognized before a contract exists when cash has been received and

 

According to ASC Topic 606 guidance for revenue recognition, which of the following statements is true regarding customer options when identifying performance obligations in a contract?

 

Sew & More sells sewing machines and sewing supplies. The company recently ran a sales promotion on sewing machines that allowed customers to purchase a new sewing machine using store credit. The terms of the contract stated that customers would make 12 monthly payments that included a 6% annual interest rate. On the date of each sale, Sew & More should record

 

 The return on the pension fund impacts the employer’s periodic pension expense for defined contribution pension plans.

 

The parties involved in a defined benefit plan are the same as those in a defined contribution plan.

 

Most of the factors used to determine specific expense accruals for defined benefit pension plans are based upon actuarial assumptions and present values.

 

Service cost is the increase in the discounted present value of the pension benefits ultimately payable that is attributable to an additional year’s employment.

 

Companies can influence the calculation of pension expense by choosing a higher or lower discount rate and/or by choosing a higher or lower expected rate of return on plan assets.

 

The difference between the actual and expected return on plan assets during year two is a component of pension expense for year two.

 

A pension plan is underfunded if the projected benefit obligation exceeds the fair value of the pension plan assets.

 

The pension asset/liability reported within the balance sheet must reflect the funded status of the pension plan.

 

Under current GAAP, volatility in asset returns translates directly into net income volatility because the actual return on plan assets reduces pension expense.

 

The funded status of the pension plan at a given date is the difference between the fair value of the plan assets and the projected benefit obligation.

 

Higher marginal income tax rates create an incentive for companies to underfund their pension plans.

 

The pension liability that must be shown on the balance sheet of the plan sponsor is the excess of the projected benefit obligation over the plan assets at fair value.

 

ERISA created the Pension Benefit Guaranty Corporation to protect employees from losing their retirement funds if the sponsor goes into bankruptcy.

 

Companies are required to disclose the dollar amount of pension retirement benefits they expect to pay in each of the next ten years.

 

Pension expense is likely to be both more volatile and lower under IFRS than pension expense computed under U.S. GAAP.

 

A company instituted an IRS-approved plan to fund a percentage of each employee’s salary to a plan that would pay benefits to the employee after termination of services. This plan is a

 

A company contributes to its defined contribution plan. Which one of the following journal entries properly records this transaction?

 

Which of the following statements does not properly describe a defined benefit pension plan?

 

Which of the following is not a factor in the determination of pension expense when the employer sponsors a defined benefit pension plan?

 

Which of the following statements is not correct about defined contribution plans?

 

Which of the following statements is correct with respect to a defined contribution plan?

 

Which of the following is not an example of a defined contribution plan?

 

The components of pension expense are

 

The service cost of a defined benefit pension plan is the

 

The service cost component of a defined benefit pension plan is computed as the

 

Which of the following does not cause an increase in the pension expense for a defined benefit plan?

 

Which statement below is not correct regarding the Projected Benefit Obligation (PBO)?

 

Which of the following is not a correct statement with respect to the interest cost component of pension expense?

 

The interest cost component of a defined benefit pension plan is computed as the

 

The return on plan assets component of pension expense for a defined benefit pension plan is

 

Pona, Inc. has a defined benefit pension plan for its employees. The plan assets and projected benefit obligation at the beginning of the year were $608,000. The accumulated benefit obligation at the beginning of the year was $456,000.  The expected return on plan assets was 8% while the actual return was 9%. The service cost for the year was $130,841. The actuarially assumed discount rate was 7% and amortization of prior service costs was $17,750.

 

The interest cost for the year is

 

The total pension expense for the year is

 

The Shasti Corporation reported the following for the year ending December 31, 2018:

Service cost: $142,610
Plan assets, January 1, 2018: $1,200,000
Prior service cost amortization: $21,150
Expected return on plan assets: 9%
Actual return on plan assets: 8.5%
Pension expense: $175,760
Actuarially determined discount rate: 8%
 

What was the projected benefit obligation on January 1, 2018?

 

The Carrasco Company has provided you the following information pertaining to its defined benefit pension plan that was adopted on January 1, 2018:

The service cost was $750,000 during 2018 and $1,125,000 during 2019.
The contribution to the pension plan was $600,000 on December 31, 2018 and $1,200,000 on December 31, 2019.
The actuarially determined discount rate and the expected return on plan assets are both 10%.
The actual return on plan assets was 10.5%.
Retirement benefits pertaining to years of service prior to 2018 were not granted to the employees.
 

What is the pension expense for the year ended December 31, 2019?

 

What is the balance of the projected benefit obligation as of December 31, 2019?

 

What is the balance of the pension plan assets as of December 31, 2019?

 

Current accounting standards require that the discount rate used for pension plans be

 

Changes in the discount rate on pension plans cause material differences in

 

The smoothing of pension expense is

 

Smith, Inc. has a pension plan with the following data available for 2018 and 2019:

                                                      2018              2019

Service cost
$  30,000
$  34,000
Interest cost
$  18,000
$  20,000
Actual return on plan assets
$  15,000
$  21,600
Beginning of year plan assets
$200,000
$240,000
Discount rate
     8%
8%
Expected return on plan assets
8 %
8 %
 

Smith’s pension expense for 2018 is

 

Smith’s pension expense for 2019 is

 

The adjustment to OCI for gain or loss from the return on plan assets for 2018 is

 

The adjustment to OCI for gain or loss from the return on plan assets for 2019 is

 

If the beginning cumulative net actuarial gains are $30,000, the fair value of the plan assets is $200,000 at the beginning of 2018, and the average remaining service period of active employees is 10 years, the amortization of actuarial gains for 2018 is

 

If the market-related value of the plan assets is $260,000 at the beginning of 2019, the beginning of the year projected benefit obligation is $250,000, the cumulative net actuarial gains in AOCI are $30,000 at the beginning of 2018 and $28,250 at the beginning of 2019, and the average remaining service period of active employees is 10 years, then the amortization of actuarial gains for 2019 is

 

To compute the amortization on the cumulative net actuarial gains and losses in AOCI for a pension plan, the corridor is computed as 10% of the

 

At the beginning of 2018, Moony, Inc. has a cumulative net actuarial loss in AOCI of $50,000 in its pension plan. The estimated remaining service period of active employees is 12 years for both years.

 

                                                                      2018                      2019

Beginning plan asset value                      $ 335,000              $ 350,000

Beginning projected benefit obligation     325,000                 385,000

Current year gain or (loss)                          (37,500)                  25,000

 

The amortization of the cumulative net actuarial loss for 2018 is

 

The corridor for amortization for 2019 is: 

 

When employers amend pension plans to increase benefits to participants, which one of the following is created?

 

TKE Corporation established a defined benefit pension plan in 2016. TKE has provided the following information for the year ended December 31, 2018:

 

Service cost
$90,000
Interest cost
$120,000
Actual return on plan assets
$70,000
Expected return on plan assets
$80,000
Amortization of prior service costs
$30,000
 

The pension expense for 2018 is

 

If the company contributes $160,000 cash to the pension plan trustee, which one of the following journal entries properly records the payment?

 

If the company contributes $130,000 cash to the pension plan trustee, which one of the following journal entries properly records the payment?

 

If the company contributes $170,000 cash to the pension plan trustee, which one of the following journal entries properly records the payment?

 

For income tax purposes, pension plan sponsors deduct the amount of the

 

U. S. tax law limits the deductibility of contributions to pension plans for firms whose plans

 

The trustee for the Bronson Corporation pension sent a report to the CEO with the following information for the fiscal year:

 

Beginning balance of plan assets at fair value          $1,560,000

Actual return on plan assets                                         $210,000

Employer’s contribution                                               $150,000

Distributions to retirees                                                  $75,000

Service cost                                                                  $125,000

Interest cost                                                                  $156,000

Loss from changes in benefits or assumptions               $35,000

Beginning balance of the PBO                                   $1,580,000

 

The ending balance of plan assets is

 

The ending balance of the projected benefit obligation (PBO) is

 

At the beginning of the year, the pension plan is

 

At the end of the year, the pension plan is

 

The Marino Company has provided you the following information pertaining to its defined benefit pension plan that was adopted on January 1, 2018:

The service cost was $950,000 during 2018 and $1,045,000 during 2019.
The prior service cost amortization each year was $290,000.
The contribution to the pension plan was $1,500,000 on December 31, 2018 and $1,800,000 on December 31, 2019.
The actuarially determined discount rate and the expected return on plan assets was 10%.
The actual return on plan assets was 9.5%.
Retirement benefits pertaining to years of service prior to 2018 were granted to the employees. The prior service cost is being amortized over the remaining ten-year life of the employees.
 

What is the pension expense for the year ended December 31, 2018?

 

What is the pension expense for the year ended December 31, 2019?

 

What is the balance of the projected benefit obligation as of December 31, 2019?

 

The Brand Corporation’s January 1, 2018 balance sheet reports a net pension liability of $243,000. On December 31, 2018, the projected benefit obligation was $4,975,000, the fair value of the plan assets was $4,679,000, and the accumulated benefit obligation was $3,482,500. The December 31, 2018 balance sheet should report a net pension liability totaling

 

The Canton Corporation’s January 1, 2018 balance sheet reports a net pension asset of $397,500. On December 31, 2018, the projected benefit obligation was $6,479,000, the fair value of the plan assets was $6,747,000, and the accumulated benefit obligation was $3,482,500. The December 31, 2018 balance sheet should report

 

The net pension liability that must be shown on the balance sheet of the plan sponsor is the

 

New actuarial losses arising in the current year would:

 

Which of the following is not correct regarding prior service costs?

 

Which of the following statements does not properly describe accounting for OPEB plans?

 

Which of the following statements is not correct?

 

Which of the following statements best describes how U.S. tax laws affect company funding of pension plans?

 

Which of the following does not apply to the ERISA law?

 

Which of the following is not a required disclosure pertaining to defined benefit pension plans?

 

Which of the following statements pertaining to defined benefit pension plans is not correct?

 

Which of the following statements is correct?

 

Analysts reporting on companies will pay close attention to the disclosures regarding pension benefits. Key points include all of the following except:

 

When assessing pension risk, analysts compute ratios for both long- and short-term risk. Which statement below is not correct?

 

Which item is not a component included by analysts in assessing short-term pension risk?

 

Which of the following is not a proper description of the pension Accumulated Benefit Obligation (ABO)?

 

Which of the following is not a similarity between the accounting for a defined benefit pension plan and accounting for other postretirement benefit plans?

 

A major difference between accounting for pension plans and accounting for other postretirement benefit plans is that

 

When accounting for funded postretirement benefit plans other than pensions (OPEB), which one of the following is subtracted in the calculation of postretirement benefit expense?

 

Postretirement benefits other than pensions (OPEB) are computed based upon:

 

Which of the following is often not a component of other post retirement benefit (OPEB) expense?

 

The income statement reporting for other postretirement benefits (OPEB) is based on the

 

Which of the following statements is not accurate with respect to accounting for other post-retirement plan benefits (OPEB)?

 

Which of the following is not a criticism of pension accounting and reporting?

 

Which of the following statements does not properly represent IFRS guidance on pension costs?

 

Under IFRS, pension expense generally consists of

 

Differences between IFRS and U.S. GAAP in accounting for pensions include all of the following except:

 

Under IFRS past service costs are recognized immediately as part of pension expense.

 

 

1.
A 3-for-1 stock split will reduce the per share par value and will
a. decrease the number of shares proportionately.
b. decrease earnings per share.
c. increase owners' equity.
d. increase the total par value of the common stock.
 
 
2.
20. Treasury stock is reported within the balance sheet as
a. a long-term investment.
b. a short-term investment.
c. an account contra to retained earnings.
d. an account contra to owners' equity.
 
 
3.
81. Which item is not an accurate representation of the impact of convertible bonds on the computation of EPS? 
a. A convertible bond's net-of-tax interest expense is added back to net income when determining diluted earnings per share only if the bond is known to be dilutive. 
b. Convertible bonds that were outstanding during the entire year will not have an impact on the weighted average number of common shares outstanding used in the calculation of basic earnings per share. 
c. Current GAAP requires that convertible bonds should only be considered as-if converted for diluted earnings per share if the share price is more than the conversion price. 
d. If the convertible bonds have an antidilutive effect they are ignored in the computation of diluted EPS.
 
 
4.
According to current GAAP, the date when the terms for stock options are mutually agreed-upon and the stock options are awarded to employees is the
a. vesting date.
b. grant date.
c. exercise date.
d. payment date.
 
 
6.
Analysts should expect to see stock option information in
a. the auditor's report.
b. a note to the financial statements.
c. a separate report to the SEC.
d. a separate report to shareholders.
 
 
7.
An argument raised by opponents to the FASB's proposal that employee stock options should be recognized as an expense was that it could
a. violate the historical cost principle.
b. violate the cost-benefit rule.
c. violate materiality concepts.
d. jeopardize compliance with contract terms and conditions.
 
 
8.
As a result of the Revised Model Business Corporation Act, it may be fair to state that
a. the book value of owners' equity may not give an accurate picture of potentially legal distributions.
b. the book value of owners' equity gives an accurate picture of potentially legal distributions.
c. the book value of owners' equity never gives an accurate picture of potentially legal distributions.
d. the book value of assets gives an accurate picture of potentially legal distributions
 
 
9.
A bond with a carrying value of $790,000 was converted into 100,000 shares of $5 per share par value common stock at a time when the market value per share was $9.00 per share. Which of the following statements does not accurately describe the financial accounting for the conversion?
a. A loss of $110,000 will be recognized if the market value method of recording the conversion is used. 
b. Total owners' equity increases $790,000 if the market value method of recording the conversion is used. 
c. Total owners' equity increases $790,000 if the book value method of recording the conversion is used. 
d. Total owners' equity increases $900,000 if the market value method of recording the conversion is used.
 
 
10.
By examining the statement of shareholders' equity an investor can determine all of the following except:
a. shares issued to employees for share-based compensation.
b. unrealized losses on available-for-sale securities.
c. the amount of convertible bonds issued during the year.
d. dividends declared on common stock.
 
 
11.
By using the book value method to record the conversion of convertible bonds, managers are able to protect themselves from recording conversion losses.
true or false
 
 
12.
Call provisions on convertible bonds protect the
a. investor against extreme stock price increases.
b. company against extreme stock price increases.
c. bank against extreme stock price decreases.
d. company against extreme stock price decreases.
 
 
14.
Companies with a history of net operating losses are prone to issue which one of the following to raise money?
a. Debenture bonds
b. Serial bonds
c. Preferred stock
d. Notes payable
 
 
16.
A company that has earnings in Year 2 equal to the earnings of Year 1 can improve its Year 2 reported earnings per share by
a. selling additional common stock.
b. selling additional preferred stock.
c. selling shares of treasury stock at a price exceeding what was paid for the treasury stock.
d. purchasing shares of treasury stock.
 
 
17.
The comparability of earnings per share across firms is influenced by the relative amount of capital raised by the various firms and by the ability of the firms to manage their reported earnings per share.
true or false
 
 
18.
Convertible bonds are usually
a. mortgage bonds.
b. senior bonds.
c. callable.
d. participating.
 
 
 
 
 
 
 
 
 
 

19.
A corporation reported the following during 2018: 
• Net income $175,250
• Sale of 10,000 shares of $5 par value common stock for $8.75 per share
• A repurchase of shares as treasury stock, costing $24,750
• A resale of treasury stock for $14,695; the shares cost $15,500 when repurchased.
• A declaration and distribution of a $39,000 cash dividend
• A declaration and distribution of a "small" stock dividend of 5,000 shares of $5 par value common stock at a total market value of $50,000. 
What was the increase in shareholders' equity during 2018?
a. $213,695
b. $188,695
c. $198,195
d. $173,195
 
 
20.
Corporations that issue preferred stock do so because preferred stock is less risky than debt.
true or false
 
 
21.
Current GAAP requires that share-based compensation be expensed at the grant date of the stock options award.
true or false
 
 
22.
Current GAAP requires the allocation of total share-based compensation cost to expense on a straight-line basis over the vesting period
true or false
 
 
23.
Current GAAP specifies that the compensation costs for stock options are measured
a. at the grant date only.
b. at the grant date and again at the vesting date.
c. at the vesting date only.
d. at the grant date and again at the exercise date.
 
 
24.
The denominator used in the calculation of basic earnings per share is the
a. number of common shares outstanding at the end of the year.
b. number of preferred shares outstanding at the end of the year.
c. weighted average number of common shares outstanding during the year.
d. weighted average number of common shares and preferred shares outstanding during the year.
 
 
25.
Earnings per share (EPS) data are prominent in corporate annual reports, but EPS suffers as a financial performance measure because EPS ignores the amount of
a. revenue required to generate reported earnings.
b. capital required to generate reported earnings.
c. liabilities required to generate reported earnings.
d. expenses required to generate reported earnings.
 
 
26.
The exercise price for stock option plans on the grant date is
a. always higher than the market price of the underlying shares.
b. always lower than the market price of the underlying shares.
c. usually lower than the market price of the underlying shares.
d. usually equal to or higher than the market price of the underlying shares.
 
 
27.
Financial analysts should always review stock repurchase plans carefully because
a. the plans always produce above-market returns.
b. the plans usually produce above-market returns.
c. it is important to determine the reasons for the buyback.
d. the plans are always beneficial to the shareholders.
 
 
28.
Financial statement users must recognize that interest expense may seriously
a. overstate the true cost of debt financing when convertible debt is used.
b. understate the true cost of debt financing when convertible debt is used.
c. impact the dividend rate.
d. impact the amount of dividend declared.
 
 
 
 
 
 
 
 
 

29.
The following information has been obtained from the Brewster Corporation:
• 250,000 shares of common stock were outstanding on January 1, 2018.
• 30,000 shares of preferred stock were issued on March 1, 2018.
• 12,000 shares of common stock were purchased on April 1, 2018.
• 10,000 shares of common stock were issued on October 1, 2018.
What is the weighted average number of shares to be used in the calculation of basic earnings per share for 2018?
a. 268,500
b. 243,500
c. 248,000
d. 278,000
 
 
30.
The following information has been obtained from the Mastic Corporation:
• 550,000 shares of common stock were outstanding on January 1, 2018.
• Bonds convertible into 50,000 shares of common stock were issued on July 1, 2018; the bonds have been determined to be dilutive. 
• 36,000 shares of common stock were issued on November 1, 2018.
• 24,000 shares of common stock were purchased on December 1, 2018.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2018?
a. 612,000
b. 587,000
c. 604,000
d. 579,000
 
 
31.
The following information has been obtained from the Myers Corporation:
• 300,000 shares of common stock were outstanding on January 1, 2018.
• 50,000 stock options were outstanding on January 1, 2018; each option allows the holder to acquire one share of common stock for $20 per share. The average market price of the common stock during 2018 was $25 per share. 
• 48,000 shares of common stock were issued on February 1, 2018.
• 18,000 shares of common stock were purchased on August 1, 2018.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2018?
a. 380,000
b. 326,500
c. 346,500
d. 386,500
 
 
32.
The following information has been provided to you by the Rae Corporation for the year ending December 31, 2018:
• Net income was $979,000.
• Cash dividends totaling $120,000 were paid to the common shareholders.
• 6% convertible bonds with a par value of $2,000,000 were issued on February 1, 2018. 
• The corporation's marginal income tax rate is 40%. 
• 6% convertible preferred stock with a par value of $800,000 was outstanding during the entire year. 
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of basic earnings per share and diluted earnings per share? 
Basic EPS Diluted EPS
a. $811,000 $1,051,000
b. $931,000 $1,045,000
c. $979,000 $1,147,000
d. $931,000 $1,099,000
 
 
 
 
 
 
 
 
 

33.
The following information has been provided to you by the Smith Corporation for the year ending December 31, 2018:
• The numerator used in the calculation of basic earnings per share was $797,000.
• Cash dividends were paid to the common shareholders.
• 8% convertible bonds with a par value of $1,000,000 were issued on July 1, 2018. 
• The corporation's marginal income tax rate is 40%.
• 6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year. 
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of diluted earnings per share? 
a. $893,000
b. $869,000
c. $773,000
d. $821,000
 
 
34.
If a company purchases treasury stock its earnings per share will increase.
true or false
 
 
35.
In discussing book value of common stock, which statement below is not correct?
a. Book value is also referred to as total equity of the firm.
b. The terms "issued" and "outstanding" are synonymous when discussing the number of common shares.
c. Book value per share is computed by dividing common equity by the number of common shares outstanding.
d. If any preferred stock were outstanding, its carrying amount would be deducted from the total equity to obtain the common equity.
 
 
36.
In the debate regarding whether stock options should be an expense, which of the following was not a reason supporting such an expense? 
a. Expensing stock options would yield more accurate earnings measurement and restore investor confidence.
b. Expensing stock options would reduce the dilution effect caused by the issuance of excessive grants to top executives.
c. Expensing stock options would spur risk-taking and entrepreneurship that are crucial to innovation.
d. Expensing stock options would reduce the incentive managers have to pump-up short term earnings for market price gains.
 
 
37.
Mandatorily redeemable preferred stock dividends are reported as interest expense on the income statement.
true or false
 
 
39.
Net income or loss generally arises from transactions with owners who provide net capital to the firm.
true or false
 
 
40.
Over the vesting period for employee stock options, current GAAP requires that the entire compensation expense be recognized
a. in the first year of the vesting period.
b. in the last year of the vesting period.
c. equally in each year of the vesting period.
d. only if the options are exercised.
 
 
41.
The presentation of the excess tax benefits related to stock options includes all of the following except:
a. Excess tax benefits are shown as a reduction of income tax expense.
b. Excess tax benefits are reflected in the cash from financing activities section of the statement of cash flows. 
c. Excess tax benefits must be shown in both the statement of shareholders' equity and the statement of cash flows.
d. Presentation of excess tax benefits is guided by ASU 2016-09.
 
 
42.
A reason prompting a firm to purchase treasury stock is that management believes the stock is undervalued in the marketplace and therefore represents a good investment opportunity.
true or false
 
 
 
 
 
 
 
 
 

43.
The Revised Model Business Corporation Act defines solvency as a situation where the fair value of
a. assets exceeds the book value of liabilities after a distribution to shareholders.
b. assets exceeds the fair value of liabilities after a distribution to shareholders.
c. liabilities exceeds the fair value of assets.
d. liabilities exceeds the fair value of assets after a distribution to shareholders.
 
 
44.
The Revised Model Business Corporation Act defines solvency as a situation where the fair value of assets exceeds the fair value of liabilities after a distribution to shareholders.
true or false
 
 
45.
The Revised Model Business Corporation Act would potentially allow a corporation to have negative book value of net assets after an asset distribution occurred.
true or false
 
 
46.
SFAS No. 123 was issued as a compromise to the FASB's original position regarding stock options as it
a. required companies to continue following the approach used in APB No. 25.
b. required companies to measure the fair value of stock options and charge this to expense.
c. allowed companies to choose either the APB No. 25 approach or expense the fair value of the options.
d. abandoned any reference to recognition of expense for options.
 
 
47.
Shareholders who sell their shares back to the company under a share repurchase program are
a. not taxed.
b. taxed at ordinary rates.
c. taxed at capital gains rates.
d. subject to tax penalties.
 
 
48.
Stock options are granted to the employees of Young Company on March 10, 2018. The employees must wait until March 10, 2022 to exercise the options. The four-year waiting period is the
a. expected life of the options.
b. grant period.
c. vesting period.
d. holding period
 
 
50.
Two companies, Company A and Company B, issue convertible bonds at par. If Company A uses IFRS and Company B follows U.S. GAAP, the amount Company A records for the debt will be greater than the amount Company B records for the debt.
true or false
 
 
51.
Under IFRS a company may report either a statement of financial position or a statement of changes in shareholders' equity but it need not provide both statements.
true or false
 
 
52.
When a company does not have any convertible securities or options or warrants outstanding, the company has 
a. a complex capital structure.
b. a simple capital structure.
c. to report only diluted earnings per share.
d. to report both basic and diluted EPS.
 
 
53.
When a company repurchases its own shares, the transaction may not result in treasury stock being reported on the balance sheet.
true or false
 
 
55.
When a loan agreement restricts a company from distributing its entire balance of retained earnings as dividends to shareholders, restricted retained earnings must be reported separately from unrestricted retained earnings on the face of the balance sheet.
true or false
 
 
56.
When a publicly traded company issues both common stock and preferred stock, the SEC requires that
a. preferred and common stock be combined in the equity section.
b. preferred and common stock be clearly differentiated on the balance sheet.
c. all preferred stock be shown as a liability.
d. mandatorily redeemable preferred stock be shown as a liability.
 
 
 
 
 
 
 
 
 

57.
Which item below is not one of the criteria used to qualify as an ISO?
a. The option is transferable.
b. The exercise price cannot be less than the fair value of the stock at the grant date.
c. The option is granted within 10 years from the date the plan is adopted. 
d. The option cannot be exercised after 10 years from the date of the grant.
 
 
58.
Which item goes not properly describe the par value of common stock? 
a. The par value of common stock is set by the state government.
b. A stock's par value does not necessarily have any relationship with a stock's market value. 
c. Par value refers to the nominal value or face value of a security.
d. Par value is an assigned amount (such as $1 per share) used to compute the dollar accounting value of the common shares on the company's balance sheet.
 
 
59.
Which of the following arguments was not used to support the continuation of the accounting for stock-based compensation plans as allowed under APB Opinion No. 25?
a. Stock options do not involve a cash flow; therefore, the recording of an expense would violate appropriate income measurement.
b. The Black-Scholes method of valuing stock options has not been widely accepted and is arbitrary.
c. The fair value approach could jeopardize compliance with contract terms and conditions.
d. The fair value approach would increase expenses and lower net income which would result in lower stock prices.
 
 
60.
Which of the following correctly describes U.S. GAAP accounting for convertible bonds and the implication of that requirement?
a. separation of debt and equity components; interest expense is overstated.
b. no separation of debt and equity components; interest expense is understated.
c. no separation of debt and equity components; interest expense is overstated.
d. separation of debt and equity components; interest expense is understated.
 
 
61.
Which of the following does not accurately describe the "ownership" perspective of the firm?
a. Its focus is on the firm's net capital deployed.
b. It is the prevailing view of GAAP.
c. Its focus is on owners' capital.
d. It requires that financing transactions generate income or loss.
 
 
62.
Which of the following is not a reason companies use stock options as a form of employee compensation?
a. As a means of attracting talented employees while attempting to conserve cash.
b. To ensure compliance with laws governing executive compensation.
c. To align employee's interests with the interest of the owners.
d. To provide tax savings.
 
 
63.
Which of the following is not a reason why a company would purchase its own stock?
a. The company needs shares in order to meet employee stock option plans. 
b. The company's management may have concluded that the company's stock is undervalued at the prevailing market price.
c. The company wants to increase its earnings per share.
d. The company wants to manipulate its net income.
 
 
65.
Which of the following is not typically disclosed in the financial statements regarding share repurchase programs?
a. The dollar amount of the board-approved share buyback.
b. The time period the repurchase program will be effective.
c. The dollar amount remaining under the share repurchase program.
d. The reason for the share repurchase program.
 
 
66.
Which of the following statements does not accurately reflect the financial accounting for compensatory stock option plans?
a. Compensation expensed is allocated equally over the service (vesting) period.
b. The compensation expense is not adjusted for changes in the market value of the stock options during the service (vesting) period.
c. The paid-in capital stock options account is credited when compensation expense is recorded each year. 
d. Total owners' equity is increased by the par value of the common stock issued when the options are converted.
 
 
67.
Which of the following statements is correct if treasury stock costing $25,000 was sold for $27,500? 
a. Total owners' equity increases $2,500.
b. Total owners' equity increases $27,500.
c. Net income increases $2,500.
d. Total owners' equity increases $25,000.
 
 
 

68.
Which of the following statements is correct when a company has a complex capital structure?
a. Diluted earnings per share must be shown on the income statement.
b. Diluted earnings per share and basic earnings per share must both be shown on the income statement.
c. The company might have convertible bonds outstanding.
d. The company must have participating preferred stock outstanding.
 
 
69.
Which of the following statements pertaining to preferred stock is not correct?
a. Preferred stock may have an adjustable rate which pays a dividend that is adjusted, usually on a quarterly basis.
b. Preferred stock dividends are contractual obligations that must be paid in profitable years. 
c. Most preferred stock issues are nonparticipating, meaning that the shareholders are entitled to receive only dividends based on the stated dividend rate.
d. Preferred shareholders are given preference with respect to both dividend distributions and in liquidation of the company.
 
 
70.
Which statement below does not represent the taxation of stock option plans?
a. Incentive Stock Options (ISO) provide tax benefits to employees.
b. Nonqualified stock option plans provide tax benefits to employers.
c. Tax law does not restrict the number of options that an employee can classify as ISOs in a given year.
d. Employers do not receive a tax deduction for ISOs.
 
 
71.
Which statement reflects how an employee handles tax on ISOs? 
a. Tax is due on the compensation calculated at the grant date.
b. Tax is due on the capital gain calculated at the exercise date.
c. Tax is due on the capital gain when the employee sells the stock. 
d. Compensation is taxed on the fair value of the stock as measured at the exercise date.
 
 
72.
With the development of modern option pricing methods, prior accounting standards setters would probably have reached the conclusion today that the conversion feature of convertible bonds
a. has no value.
b. has value.
c. has value, but should be ignored.
d. does not lend itself to these option pricing models.
 
 
 

 

1.
7) When independent measurers get similar results when using the same accounting measurement methods, the financial information is: 

A) faithfully represented. 
B) relevant. 
C) verifiable. 
D) timely.
 
 
2.
Ability to raise additional cash by selling assets, issuing stock or borrowing more is:

A) a stock price predictor. 
B) financial flexibility. 
C) a credit risk indicator.
D) one way to project earnings.
 
 
3.
Accrued liabilities represent:

A) expenses that have not yet been recognized on the income statement. 
B) income that has been recognized on the income statement but not yet collected. 
C) income that has not yet been recognized on the income statement. 
D) expenses that have been recognized on the income statement but not yet been paid
 
 
4.
Ace Industries has the following shareholders' equity accounts at December 31, 2018:

1) Preferred stock, $100 par value, 10% dividend, 50,000 shares issued and outstanding $ 5,000,000
2) Common stock, $6 par value, 1 million shares issued and outstanding 6,000,000
3) Paid-in capital in excess of par 119,000,000
4) Unrestricted retained earnings 7,500,000
5) Retained earnings restricted for plant expansion 2,500,000

On December 15, 2018 Ace Industries repurchased 200,000 shares of its common stock for $10 per share. Based on its shareholders' equity accounts, what can be inferred about this purchase:

A) Ace is reporting the shares as a $2,000,000 investment on the asset side of the balance sheet. 
B) Ace retired the shares by reducing the common stock and paid-in capital accounts. 
C) Ace is holding $2,000,000 of treasury stock which is being disclosed in the notes to the financial statements. 
D) Not enough information is provided to determine how Ace recorded the purchase.
 
 
5.
All of the following are used as financial analysis tools except:

A) trend statements. 
B) common-size statements. 
C) financial ratios. 
D) managements' discussion and analysis.
 
 
6.
All of the following disclosures would appear in the SUmmary of Significant Account Policies EXCEPT:

A) financing method. 
B) inventory method. 
C) depreciation method. 
D) revenue recognition method.
 
 
7.
Autumn Company uses IFRS to prepare its external financial reporting. During 2018, Autumn Company had the following transactions related to cash flows:
- Dividends paid 16,000
- Interest paid 20,000
- Interest received 42,000

With regard to the above information, which of the following is acceptable as part of preparation
of the statement of cash flows?

Cash from operating activities | Cash from/(used by) financing activities
A. $0 | ($42,000)
B. $26,000 | ($20,000)
C. ($20,000) | $26,000
D. $0 | ($46,000)
 
 
8.
Autumn Company uses IFRS to prepare its external financial reporting. During 2018, Autumn Company had the following transactions related to cash flows:

- Dividends received 16,000
- Interest paid 20,000
- Interest received 42,000

With regard to the above information, which of the following is an acceptable classification as
part of preparation of the statement of cash flows?

Cash from operating activities | Cash from/(used by)investing activities
A. $0 | $42,000
B. $58,000 | ($20,000)
C. $0 | $38,000
D. ($20,000) | $58,000
 
 
9.
Balance sheet amounts would not be measured as:

A) historical cost value. 
B) fair value. 
C) present value. 
D) effective value
 
 
10.
A balance sheet prepared in accordance with GAAP typically:

A) helps to determine the proper mix of debt and equity financing. 
B) reports common stock at the current market price of the stock. 
C) provides critical information for understanding a firm's capital structure. 
D) provides critical information for understanding a firm's profitability
 
 
11.
A balance sheet prepared under U.S. GAAP includes the following elements except:

A) a cash flow section 
B) an asset section 
C) a liabilities section 
D) an equity section
 
 
 
 
 
 
 
 
 
 

12.
The balance sheet provides information on all the following except:

A) how management invested its money. 
B) assessing rates of return. 
C) where the money came from. 
D) the market price of the company's stock.
 
 
13.
The Barden Company provides the following trial balance as of December 31, 2018.

Debit 
Cash and cash equivalents: $345,000
Accounts receivable: 115,000
Inventory: 120,000
Prepaid insurance: 7,500
Prepaid rent: 40,000
Equipment: 265,000
Total: $892,500

Credit
Accumulated depreciation — Equipment: 65,000
Accounts payable: 45,000
Accrued liabilities: 10,000
Notes payable, due in 2020: 135,000
Common stock: 300,000
Additional paid-in capital: 87,500
Retained earnings: 250,000
Total: $892,500

What would Barden report as current assets on its balance sheet?

A) $892,500 
B) $580,000 
C) $460,000 
D) $627,500
 
 
14.
The Barden Company provides the following trial balance as of December 31, 2018.

Debit 
Cash and cash equivalents: $345,000
Accounts receivable: 115,000
Inventory: 120,000
Prepaid insurance: 7,500
Prepaid rent: 40,000
Equipment: 265,000
Total: $892,500

Credit
Accumulated depreciation — Equipment: 65,000
Accounts payable: 45,000
Accrued liabilities: 10,000
Notes payable, due in 2020: 135,000
Common stock: 300,000
Additional paid-in capital: 87,500
Retained earnings: 250,000
Total: $892,500

What would Barden report as total stockholders' equity on its balance sheet?

A) $87,500 
B) $387,500 
C) $637,500 
D) $300,000
 
 
15.
Being verifiable and neutral is part of what makes financial information:

A) relevant. 
B) consistent. 
C) comparable. 
D) useful.
 
 
16.
The best measure of a firm's sustainable income is:

A) income from continuing operations. 
B) income before unusual items and change in accounting principle. 
C) net income. 
D) income before income tax
 
 
17.
The cash flow from operating activities:

A) is required to be presented using the direct method by U.S. GAAP and IFRS. 
B) can vary depending on whether the presentation is done under the direct method or the indirect method. 
C) can be presented by using either the direct method or the indirect method. 
D) comprises only the increase in cash arising from the firm's profit-making activities.
 
 
 
 
 
 
 
 
 

18.
Cash flows from operating activities include:

A) deferred income taxes.
B) increases in Accumulated Depreciation. 
C) cash payments received from customers. 
D) All of these would be included in cash flows from operating activities.
 
 
19.
The cash flow statement of the United Company is in process for 2019. The United Company is reporting the following balances:

12/31/18 
Equipment $ 100,000 
Loss on sale of equipment 0 
Accumulated depreciation—equipment 75,000 

12/31/19
Equipment $ 170,000
Loss on sale of equipment 10,000
Accumulated depreciation—equipment 95,000

During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.

Equipment purchases in 2019 were:

A) $ 120,000. 
B) $ 100,000. 
C) $ 30,000. 
D) $ 70,000
 
 
20.
The cash flow statement of the United Company is in process for 2019. The United Company is reporting the following balances:

12/31/18 
Equipment $ 100,000 
Loss on sale of equipment 0 
Accumulated depreciation—equipment 75,000 

12/31/19
Equipment $ 170,000
Loss on sale of equipment 10,000
Accumulated depreciation—equipment 95,000

During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.

If these were the only investing activities, the cash flow from investing activities is a net cash: 

A) outflow of $12,000. 
B) inflow of $88,000. 
C) outflow of $88,000. 
D) inflow of $12,000.
 
 
21.
CF arising from the acquisition and divestitures of other companies are CF from 

A) investing activities.
B) research activities. 
C) operating activities. 
D) financing activities.
 
 
22.
CF arising from the purchase or sale of productive assets are CF from:

A) operating activities. 
B) investing activities. 
C) research activities. 
D) financing activities
 
 
23.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

Increase
(Decrease)

Assets
- Cash $ 480,000
- Accounts receivable 200,000
-Inventory 300,000
- Long-term investments 200,000
-Equipment (200,000)
- Accumulated depreciation (60,000)

Liabilities and Stockholders' Equity
- Accounts payable $ (40,000)
- Dividends payable 400,000
- Notes payable—Current (200,000)
- Notes payable—Long-term 400,000
- Common stock, $1.00 par 300,000
- Additional paid-in capital 100,000
- Retained earnings 80,000

Additional Information for 2019:
- Net income was $480,000 and dividends of $400,000 were declared.
- Common stock was issued for cash.
- A new long-term investment was acquired for $360,000.
- A long-term investment was sold for $160,000.
- Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.

The cash flow from financing activities for 2019 is a:

A) $200,000 outflow. 
B) $700,000 inflow. 
C) $600,000 inflow. 
D) $400,000 inflow
 
 
 
 
 
 
 
 
 

24.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

Increase
(Decrease)

Assets
- Cash $ 480,000
- Accounts receivable 200,000
-Inventory 300,000
- Long-term investments 200,000
-Equipment (200,000)
- Accumulated depreciation (60,000)

Liabilities and Stockholders' Equity
- Accounts payable $ (40,000)
- Dividends payable 400,000
- Notes payable—Current (200,000)
- Notes payable—Long-term 400,000
- Common stock, $1.00 par 300,000
- Additional paid-in capital 100,000
- Retained earnings 80,000

Additional Information for 2019:
- Net income was $480,000 and dividends of $400,000 were declared.
- Common stock was issued for cash.
- A new long-term investment was acquired for $360,000.
- A long-term investment was sold for $160,000.
- Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.

The dividends actually paid during 2019 are: 

A) $ 300,000. 
B) $ 0. 
C) $ 270,000. 
D) $ 400,000.
 
 
25.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

Increase
(Decrease)

Assets
- Cash $ 480,000
- Accounts receivable 200,000
-Inventory 300,000
- Long-term investments 200,000
-Equipment (200,000)
- Accumulated depreciation (60,000)

Liabilities and Stockholders' Equity
- Accounts payable $ (40,000)
- Dividends payable 400,000
- Notes payable—Current (200,000)
- Notes payable—Long-term 400,000
- Common stock, $1.00 par 300,000
- Additional paid-in capital 100,000
- Retained earnings 80,000

Additional Information for 2019:
- Net income was $480,000 and dividends of $400,000 were declared.
- Common stock was issued for cash.
- A new long-term investment was acquired for $360,000.
- A long-term investment was sold for $160,000.
- Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.

The net cash flow from operating activities for 2019 is a:

A) $280,000 inflow. 
B) $200,000 outflow. 
C) $280,000 outflow. 
D) $400,000 inflow.
 
 
 
 
 
 
 
 
 

26.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

Increase
(Decrease)

Assets
- Cash $ 480,000
- Accounts receivable 200,000
-Inventory 300,000
- Long-term investments 200,000
-Equipment (200,000)
- Accumulated depreciation (60,000)

Liabilities and Stockholders' Equity
- Accounts payable $ (40,000)
- Dividends payable 400,000
- Notes payable—Current (200,000)
- Notes payable—Long-term 400,000
- Common stock, $1.00 par 300,000
- Additional paid-in capital 100,000
- Retained earnings 80,000

Additional Information for 2019:
- Net income was $480,000 and dividends of $400,000 were declared.
- Common stock was issued for cash.
- A new long-term investment was acquired for $360,000.
- A long-term investment was sold for $160,000.
- Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.

The purchase of equipment during 2019 is:

A) $250,000. 
B) $300,000. 
C) $400,000. 
D) $270,000.
 
 
27.
Common-sized balance sheets may be used for all the following except:

A) gaining insights into the nature of a company's operations. 
B) analyzing a company's asset and financial structure. 
C) learning about the underlying economics of an industry. 
D) determining how management assesses the risks a company faces.
 
 
28.
A company issued 1,000 shares of $10 par value common stock due to a previously declared stock dividend; the market value at both the date of declaration and distribution was $12 per share. Which of the following correctly describes the reporting of this stock issue within the financing activities section of the cash flow statement? 

A) A cash outflow of $10,000. 
B) A cash outflow of $12,000. 
C) A cash outflow of $2,000. 
D) There is no cash flow.
 
 
29.
A company's retained earnings on December 31, 2018 was $2,190,000 and its shareholders' equity was $8,760,000. During 2019 the company reported the following:

1. Net income $225,000
2. A sale of treasury stock costing $75,000 for $79,750
3. A treasury stock purchase costing $125,700
4. A cash dividend declaration of $73,200
5. A 10,000 share "small" common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share. 

What is the retained earnings balance on December 31, 2019?

A) $2,219,050 
B) $2,216,100 
C) $2,246,550 
D) $1,994,050
 
 
30.
A company's retained earnings on December 31, 2018 was $2,190,000 and its shareholders' equity was $8,760,000. During 2019 the company reported the following:

1) Net income $225,000
2) A sale of treasury stock costing $75,000 for $79,750
3) A treasury stock purchase costing $125,700
4) A cash dividend declaration of $73,200
5) A 10,000 share "small" common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share. 

What is the shareholders' equity balance on December 31, 2019?

A) $8,663,350 
B) $8,738,350 
C) $8,934,300 D) $8,865,850
 
 
31.
Contributed capital might be a negative dollar amount because:

A) treasury stock was in excess of stock originally issued.
B) excess liabilities reduced contributed capital. 
C) net losses exceeded net income over the years. 
D) dividends paid were in excess of net income accumulated in retained earnings
 
 
32.
A corporation reported the following during 2018:

1. Net income $175,250
2. Sale of 10,000 shares of $5 par value common stock for $8.75 per share
3. A repurchase of shares as treasury stock, costing $24,750
4. A resale of treasury stock for $14,695; the shares cost $15,500 when repurchased.
5. A declaration and distribution of a $39,000 cash dividend
6. A declaration and distribution of a "small" stock dividend of 5,000 shares of $5 par value common stock at a total market value of $50,000. 

What was the increase in shareholders' equity during 2018? 

A) $198,195 
B) $213,695 
C) $173,195 
D) $188,695
 
 
 
 
 
 
 
 
 

33.
Creditors assess credit risk by comparing a firms required principal interest payments to estimates of firm;s current and future

A) net assets. 
B) gross income. 
C) cash flows. 
D) net income.
 
 
34.
Current assets are assets expected to:

A) remain on the books for at least twelve months. 
B) remain on the books for at least twelve months or one operating cycle if the operating cycle is longer than twelve months. 
C) be converted to cash within twelve months. 
D) be converted to cash within twelve months or one operating cycle if the operating cycle is longer than twelve months.
 
 
35.
A debit does which of the following:

A) Decreases the value in a liability account.
B) Increases the value in an asset account and also decreases the value in a liability account. 
C) Increases the value in an asset account. 
D) Increased the value in a contra-asset account.
 
 
36.
A decrease in accounts receivable of $16,000 for the year: 

A) increases cash flow from operating activities by $8,000. 
B) decreases cash flow from operating activities by $8,000. 
C) decreases cash flow from operating activities by $16,000. 
D) increases cash flow from operating activities by $16,000.
 
 
37.
A decrease in prepaid expenses of $8,000 for the year: 

A) increases cash flow from operating activities by $8,000. 
B) increases cash flow from operating activities by $16,000. 
C) decreases cash flow from operating activities by $16,000. 
D) decreases cash flow from operating activities by $8,000.
 
 
38.
The denominator use in the calculation of basic EPS is the:

A) number of common shares outstanding at the end of the year. 
B) number of preferred shares outstanding at the end of the year. 
C) weighted average number of common shares and preferred shares outstanding during the year. 
D) weighted average number of common shares outstanding during the year
 
 
39.
Differences between IFRS and GAAP include all the following except:

A) Revenue recognition. 
B) Research and development costs. 
C) Reversal of inventory write-downs. 
D) Carrying value of investment property
 
 
40.
The expense matching principle states that:

A) Expenses are recognized when the invoice is received. 
B) All expenses are recognized when the corresponding revenue is recorded. 
C) Expenses are recognized when paid. 
D) Some expenses are recognized when the corresponding revenue is recognized and some are spread over time.
 
 
41.
The FASB has responsibility for the establishment of US accounting standards and:

A) full statutory power to enforce compliance with GAAP. 
B) authority from the SEC to enforce compliance with GAAP. 
C) responsibility imposed by AICPA to enforce compliance with GAAP. D) no authority or responsibility to enforce compliance with GAAP.
 
 
42.
Financial information capable of making a difference in a decision is 

A) verifiable. 
B) neutral. 
C) relevant. 
D) consistent.
 
 
43.
Financial information that is provided to decision makers before it loses its capacity to influence their decisions is:

A) consistent. 
B) neutral. 
C) verifiable. 
D) timely
 
 
44.
Financial information which does NOT favor one set of interested parites over another is

A) neutral. 
B) relevant. 
C) faithfully represented. 
D) verifiable.
 
 
45.
Financing activities include the cash effects of:

A) selling stocks and bonds to raise capital used to produce revenue. 
B) purchasing and disposing of productive assets used in production of revenue.
C) purchasing and disposing of debt securities of other companies. 
D) producing and delivering goods and services.
 
 
 
 
 
 
 
 
 

46.
The following data is for the Kris Company for 2018:

1) Gain on sale of equipment $ 8,000
2) Purchase of First Corp. bonds (face value $250,000) 275,000
3) Proceeds from sale of machinery 300,000
4) Dividends paid 50,000
5) Proceeds from sale of treasury stock 200,000

The amount reported as net cash provided by financing activities is: 

A) $ 150,000. 
B) $ 25,000. 
C) $ 30,000. 
D) $ 200,000.
 
 
47.
The following data is for the Kris Company for 2018:

1) Gain on sale of equipment $ 8,000
2) Purchase of First Corp. bonds (face value $250,000) 275,000
3) Proceeds from sale of machinery 300,000
4) Dividends paid 50,000
5) Proceeds from sale of treasury stock 200,000

The amount reported as net cash provided by investing activities is:

A) $ 275,000. 
B) $ 25,000. 
C) $ 300,000. 
D) $ 50,000.
 
 
48.
The following data is for the Matt Company for 2018:

1) Loss on sale of equipment $ 4,000
2) Purchase of Ithaca Corp. bonds (face value $400,000) 375,000
3) Proceeds from sale of machinery 200,000
4) Dividends paid 25,000
5) Proceeds from sale of treasury stock 100,000

The amount reported as net cash from financing activities is: 

A) $ (25,000). 
B) $ 30,000. 
C) $ 80,000. 
D) $ 75,000.
 
 
49.
The following data is for the Matt Company for 2018:

1) Loss on sale of equipment $ 4,000
2) Purchase of Ithaca Corp. bonds (face value $400,000) 375,000
3) Proceeds from sale of machinery 200,000
4) Dividends paid 25,000
5) Proceeds from sale of treasury stock 100,000

The amount reported as net cash from investing activities is: 

A) $ 575,000. 
B) $ 87,500. 
C) $ (175,000). 
D) $ (150,000).
 
 
50.
The following information has been provided to you by the Rae Corporation for the year ending December 31, 2018:

- Net income was $979,000.
- Cash dividends totaling $120,000 were paid to the common shareholders.
- 6% convertible bonds with a par value of $2,000,000 were issued on February 1, 2018.
- The corporation's marginal income tax rate is 40%.
- 6% convertible preferred stock with a par value of $800,000 was outstanding during the entire year.

Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of basic earnings per share and diluted earnings per share?

A) $931,000 $1,045,000 
B) $811,000 $1,051,000 
C) $979,000 $1,147,000 
D) $931,000 $1,099,000
 
 
51.
The following information has been provided to you by the Smith Corporation for the year ending December 31, 2018: 

1) The numerator used in the calculation of basic earnings per share was $797,000.
2) Cash dividends were paid to the common shareholders.
3) 8% convertible bonds with a par value of $1,000,000 were issued on July 1, 2018.
4) The corporation's marginal income tax rate is 40%.
5) 6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year.

Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of diluted earnings per share? 

A) $821,000 
B) $893,000 
C) $773,000 
D) $869,000
 
 
 
 
 
 
 
 
 

52.
The following information has been provided to you by Watts Corporation: 

Net income $ 175,300
Increase in accounts payable 18,500
Increase in inventory 17,500
Increase in accounts receivable 9,700
Increase in bonds payable 75,000
Amortization of bond premium 5,400
Depreciation expense 21,300
Decrease in income taxes payable 7,300

What is Watts Corporation's net cash flow from operating activities? 

A) $138,200 
B) $210,200 
C) $175,200 
D) $186,000
 
 
53.
The following information has been provided to you by your controller:

1) Net income $ 100,000
2) Decrease in accounts payable $ 38,000
3) Decrease in inventory $ 7,500
4) Increase in accounts receivable $ 8,000
5) Decrease in bonds payable $ 75,000
6) Amortization of bond discount $ 9,400
7) Depreciation expense $ 20,000
8) Increase in income taxes payable $ 6,000

What is the net cash flow from operating activities? 

A) $ 94,100 
B) $ 96,900 
C) $112,900 
D) $ 97,900
 
 
54.
The following information is available from Moran Industries' accounting system for the year ended December 31, 2018.

Cash received from customers $ 750,000
Cash paid to suppliers $ 300,000
Cash paid to employees $ 150,000
Taxes paid $ 25,000
Cash dividends paid $ 50,000

What would the company's statement of cash flows report as cash flow from operations? 

A) $250,000 
B) $275,000 
C) $225,000 
D) $300,000
 
 
55.
GAAP mandates that firms provide a:

A) cash flow statement. 
B) statement showing inflows and outflows of current assets and current liabilities. 
C) statement reporting changes in current operations. 
D) working capital statement
 
 
56.
The goal of GAAP is to ensure that a company's financial statements 

A) do not contain any representation that could jeopardize management. B) clearly represent its economic condition and performance of the company. 
C) are accurate and free from fraud. 
D) provide stockholders all of the information they need to assess management's
performance.
 
 
57.
Goodwill arising from a business combination is reported on the balance sheet as an:

A) current asset. 
B) intangible asset. 
C) impaired asset. 
D) fair value asset.
 
 
58.
The growth of global investing has spurred development of worldwide accounting standards that are written by the 

A) Global Committee on Accounting Standards. 
B) Institute of Global Auditors. 
C) International Accounting Standards Board. 
D) American Institute of Certified Public Accountants.
 
 
 
 
 
 
 
 
 

60.
The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December. 

The basic earnings per share for 2018 is:

A) $1.50 per share. 
B) $1.43 per share. 
C) $1.54 per share. 
D) $1.73 per share.
 
 
61.
Hickory Furniture Company paid for the following costs during the month of May:

Inventory purchases $ 40,000
Advertising costs 8,000
Delivery costs 2,000

Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June).

What is the amount of Hickory's May expenses when applying the matching principle?

A) $50,000 
B) $43,600 
C) $42,400 
D) $33,600
 
 
62.
If a company fails to disclose information about a lawsuit because it might be embarrassing to the company, it is violating

A) timeliness. 
B) neutrality. 
C) relevance. 
D) verifiability
 
 
63.
The IFRS are:

A) built on broad principles. 
B) narrowly defined, detailed standards. 
C) seldom different than those issued by the FASB. 
D) rules-based.
 
 
64.
IFRS frequently: 

A) follow a more generalized overview approach than do U.S. GAAP counterpart standards. 
B) allow firms less latitude when compared to U.S. GAAP. 
C) are automatically approved for any foreign listed company, as soon as a new standard is issued. 
D) permit only one accounting treatment for similar business transactions and events to promote comparability.
 
 
65.
In a common-size balance sheet, each balance sheet account is expressed as a percentage of total:

A) assets plus shareholders' equity. 
B) liabilities. 
C) shareholders' equity. 
D) assets.
 
 
66.
Income statements are classified into sections to:

A) distinguish between book income and taxable income. 
B) separate revenue recognized from deferred revenue. 
C) distinguish between sustainable and transitory income. 
D) separate real income from book income.
 
 
67.
An increase in accounts receivable of $6,000 for the year: 

A) decreases cash flow from operations by $3,000. 
B) decreases cash flow from operations by $6,000. 
C) increases cash flow from operations by $6,000. 
D) increases cash flow from operations by $3,000.
 
 
68.
An increase in inventory of $7,000 for the year: 

A) increases cash from operating activities by $7,000. 
B) decreases cash flow from operating activities by $14,000. 
C) increases cash flow from operating activities by $14,000. 
D) decreases cash flow from operating activities by $7,000
 
 
69.
Information found on a company's balance sheet can tell a story about:

A) the company's performance. 
B) the company's industry. 
C) the company and its strategies. 
D) All of these can be derived from the information on the balance sheet.
 
 
70.
International financial reporting standards are currently established by the:

A) PCAOB. 
B) IASC. 
C) FASB. 
D) IASB.
 
 
71.
Investing activities include the cash effects of: 

A) borrowing and repaying loans used to purchase equipment. 
B) selling stocks and bonds to raise capital to purchase land. 
C) producing and delivering goods and services. 
D) purchasing and disposing of productive assets used in production of revenue
 
 
 
 
 
 
 
 
 

72.
Liabilities represent amounts that are:

A) never shown on the balance sheet at historical cost. 
B) netted against assets on the balance sheet.
C) probable future economic benefits obtained or controlled by an entity as a result of past transactions or events. 
D) always classified as current on the balance sheet
 
 
73.
The matching principle requires that expenses be recognized:

A) when the costs are paid by the entity. 
B) in the same period in which all the assets are used up. 
C) in the same period in which the revenue generated by these expenses is recognized. 
D) in the same period in which the revenue generated by these expenses is received
 
 
74.
The network of conventions, rules, guidelines, and procedures used by the accounting profession is known as generally accepted:

A) accounting principles. 
B) auditing principles. 
C) accounting procedures. 
D) auditing standards.
 
 
75.
Non-current monetary liabilities are initially recorded at their:

A) historical value. 
B) undiscounted amount due. 
C) future value. 
D) present value when incurred.
 
 
76.
Notes to the financial statements typically contain all the following except:

A) management's discussion and analysis. 
B) disclosure of important subsequent events. 
C) related-party transactions. 
D) a summary of significant accounting policies
 
 
77.
Omissions or misstatements within a financial statement which could influence the decisions of the user of the statement violates: 

A) consistency. 
B) materiality. 
C) conservatism. 
D) neutrality.
 
 
78.
On balance sheets prepared in accordance with GAAP:

A) both tangible and intangible long-lived assets can be revalued upward periodically. 
B) liabilities are generally netted against assets. 
C) assets are generally listed from least liquid to most liquid. 
D) assets are generally listed from most liquid to least liquid.
 
 
79.
Operating activities result from the cash effects of:

A) producing and delivering goods. 
B) selling equipment. 
C) issuing long-term debt. 
D) paying dividends to shareholders.
 
 
80.
Operating activities result from the cash effects of: 

A) selling stocks and bonds to raise capital for the generation of revenue. 
B) purchasing and disposing of fixed assets used in production of revenue. 
C) borrowing and repaying loans used in the production of revenue. 
D) producing and delivering goods and services.
 
 
81.
The organization responsible for establishing auditing standards and inspecting and investigating auditing practices of public accounting firms is 

A) the American Institute of Certified Public Accountants (AICPA). 
B) the Securities and Exchange Commission (SEC). 
C) Congress under the authority of the Sarbanes-Oxley Act (SOX). 
D) the Public Company Accounting Oversight Board (PCAOB).
 
 
82.
Other comprehensive income:

A) is never adjusted for tax effects. 
B) does not include foreign currency gains and losses. 
C) is consistently defined in international balance sheet presentation. 
D) consists of certain gains and losses included in comprehensive income but not yet recognized in the income statement.
 
 
83.
Paying dividends to stockholders:

A) represents a financing activity. 
B) represents an operating activity. 
C) does not impact the period cash flows. 
D) represents an investing activity.
 
 
84.
Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events defines:

A) equity. 
B) liabilities. 
C) retained earnings. 
D) assets.
 
 
85.
A probable future sacrifice of an economic benefit arising from a present obligation to transfer assets or provide services to other entities in the future as a result of a past transaction is a/an

A) liability. 
B) asset. 
C) equity. 
D) expense.
 
 
 
 
 
 
 
 
 

86.
Probable future sacrifices of economic benefits arising from an entity's present obligations to transfer resources or provide services to other entities in the future as a result of past transactions or events defines:

A) equity. 
B) assets. 
C) liabilities. 
D) retained earnings.
 
 
87.
Relevant financial information:
A) is capable of making a difference in a decision. 
B) is measured in a similar manner among different companies. 
C) is free from bias and error. 
D) can be independently verified.
 
 
88.
The residual interest in the resources of an entity that remains after deducting its debts to third parties defines:

A) liabilities. 
B) equity. 
C) retained earnings. 
D) assets.
 
 
89.
The Retained Earnings account is comprised of:

A) the earnings of the corporation for the current year.
B) the cumulative earnings less dividends since the inception of the corporation. 
C) cash reinvested in the business by shareholders. 
D) cash retained in the business.
 
 
90.
The sale of productive assets:

A) is always considered a related party transaction. 
B) represents an investing activity. 
C) does not impact the period cash flows. 
D) represents an operating activity.
 
 
91.
The statement of CF is used by outside parties in all but which of the following ways

A) To assess whether to underwrite an issue of debt or equity securities, using the firm's expected operating cash flows in the analysis. 
B) To assess if the proper amount of income taxes is reported and can be paid from current funds. 
C) To assess credit risk, as cash flows provide the resources for periodic interest and principal repayment. 
D) To assess equity values since the firm's value is dependent on the discounted present value of its expected future cash flows
 
 
92.
Subsequent events:

A) are those significant events that occur in the last quarter of the reporting period. 
B) are subject to optional disclosure based on a recommendation from top management. 
C) are those significant events that occur after the financial statements are issued. 
D) are required to be disclosed if they are material and likely to influence investors' appraisal of the risk and return prospects of the reporting entity
 
 
93.
The Summary of Significant Accounting Policies:

A) is only required as part of a prospectus for the sale of new shares of stock. 
B) explains the important accounting choices the reporting entity uses to account for selected transactions and accounts. 
C) does not contain an explanation of the company's revenue recognition policies. 
D) is generally a part of the equity section of the balance sheet
 
 
94.
The summary of significant accounting policies does not help explain:

A) whether certain investments are accounted for using the equity method. 
B) the method used for determining depreciation expense. 
C) the cost flow assumptions for valuing inventory. 
D) management's assessment of the financial condition of the firm
 
 
95.
To achieve faithful representation account information presented must meet which of the following requirements

A)It must depict the underlying economic event, be complete, neutral, and free from material error. 
B) It must meet a materiality threshold. 
C) It must have predictive and confirmatory value. 
D) It must be comparable so that analysts can use it
 
 
96.
To achieve faithful representation, the financial information must be: 
A) consistent, unbiased, and relevant. 
B) relevant, consistent, and timely. 
C) relevant, comparable, and timely. 
D) complete, neutral, and free from material error.
 
 
97.
Treasury stock costing $89,050 was sold for $94,375 cash. Which of the following statements accurately describes the reporting of this transaction within the cash flow statement assuming that the indirect method is used to determine net cash flows from operating activities?

A) A gain of $5,325 is deducted from net income and a $94,375 cash inflow is reported within the investing activities section of the cash flow statement. 
B) There is no adjustment necessary to net income but a $94,375 cash inflow is reported within the financing activities section of the cash flow statement.
C) A gain of $5,325 is deducted from net income and a $94,375 cash inflow is reported within the financing activities section of the cash flow statement. 
D) There is no adjustment necessary to net income but a $94,375 cash inflow is reported within the investing activities section of the cash flow statement.
 
 
 
 
 
 
 
 
 

98.
Using the same accounting methods to record and report similar events from period to period demonstrates:

A) comparability. 
B) faithful representation. 
C) consistency. 
D) neutrality.
 
 
99.
Vent, Inc. reported net income of $770,000 for 2018. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.


If each share of preferred stock is convertible into 2 shares of common stock, the diluted earnings per share for 2018 is: 

A) $6.10 per share. 
B) $3.94 per share. 
C) $3.85 per share. 
D) $4.81 per share.
 
 
100.
Vent, Inc. reported net income of $770,000 for 2018. Vent sold 15,000 shares of treasury stock acquired in a previous year on July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of $100 par value 7% preferred stock outstanding all year. Vent paid dividends to the preferred shareholders.

The basic earnings per share for 2018 is (rounded):

A) $4.81 per share. 
B) $6.10 per share. 
C) $3.94 per share. 
D) $3.50 per share.
 
 
101.
When a company changes from straight-line to the declining balance method of accounting for depreciation, the financial statements lack: 

A) faithful representation. 
B) consistency. 
C) comparability. 
D) neutrality.
 
 
102.
When comparing GAAP and IFRS standard, which of the following is NOT correct

A) U.S. GAAP standards provide too many scope exceptions. 
B) IFRS provides more detailed guidance than U.S. GAAP. 
C) U.S. GAAP provides more detailed guidance than IFRS. 
D) IFRS is principles-based while U.S. GAAP is rules-based.
 
 
103.
When financial information is measured and reported in a similar manner across different companies in the same industry it is:
A) faithfully represented.
B) neutral. 
C) comparable. 
D) consistent.
 
 
104.
When transitory earnings are present, which of the following correctly depicts the order used on the income statement:

A) Income from continuing operations, discontinued operations, income tax expense, net income. 
B) Income from continuing operations, income tax expense, discontinued operations, net income. 
C) Income from continuing operations, unusual items, income tax expense, discontinued operations, net income. 
D) Income tax expense, income from continuing operations, unusual items, discontinued operations, net income.
 
 
105.
Which is NOT an accurate representation of the impact of convertible bonds on the computation of EPS

A) Current GAAP requires that convertible bonds should only be considered as-if converted for diluted earnings per share if the share price is more than the conversion price. 
B) A convertible bond's net-of-tax interest expense is added back to net income when determining diluted earnings per share only if the bond is known to be dilutive. 
C) If the convertible bonds have an antidilutive effect they are ignored in the computation of diluted EPS. 
D) Convertible bonds that were outstanding during the entire year will not have an impact on the weighted average number of common shares outstanding used in the calculation of basic earnings per share.
 
 
106.
Which of the following does not reflect disclosures in financial statements:

A) Related party transactions must be disclosed. 
B) GAAP disclosure by segment is required only for some companies. 
C) Management may disclose more than GAAP requires. 
D) GAAP limits how much a company can disclose in their financial statements.
 
 
107.
Which of the following has statutory authority to determine accounting rules for companies whose securities are owned by the general public:

A) Securities and Exchange Commission 
B) Financial Accounting Standards Board 
C) American Institute of Certified Public Accountants 
D) State Boards of Accountancy
 
 
 
 
 
 
 
 
 

108.
Which of the following is NOT correct with respect to an analyst's use of financial information?:

A) The first step to informed financial statement analysis is a careful examination of the auditor's opinion. 
B) Analysts need to understand what accounting data do and do not reveal about a company's economic activities and condition. 
C) Analysts must always be vigilant about the possibility that accounting distortions are present and complicate the interpretation of financial ratios, percentage relations, and trend indices. 
D) Analysts use financial statement information to assess the economic activities of a company and its condition.
 
 
109.
Which of the following properly represents the preparation of the statement of cash flows prepared using IFRS:

A) Firms using the direct method are not required to provide a reconciliation of net income to cash flows from operations. 
B) The presentation of the statement of cash flows is the same for all companies preparing statements under IFRS. 
C) The presentation of the statement of cash flows differs to those following U.S. GAAP as a result of prescribed classification differences under IFRS. 
D) The flexibility provided under IFRS guidance for the preparation of the statement of cash flows increases the comparability of results between companies.
 
 
110.
Which of the following statements best describes expenses?

A) They are the expired costs or assets "used up" during the accounting period. 
B) They consist of cash payments to employees during the period for services rendered. 
C) They are recorded in the accounting period when they are "earned" and become "measurable." 
D) They consist of amounts paid for consumable items and services rendered to the organization during the accounting period.
 
 
111.
Which of the following statements concerning IFRS and the statement of cash flows is correct

A) IFRS rules permits companies that use bank overdrafts repayable on demand as part of their normal cash management activities to include those amounts as a component of cash and cash equivalents. 
B) IFRS permits companies to classify interest paid, interest received, and dividends received as part of either investing or operating activities. 
C) When large foreign companies that follow IFRS prepare the statement of cash flows they overwhelmingly use the direct method to prepare the cash flow from operating activities section. 
D) IFRS rules require companies that use the direct method to also provide a reconciliation of net income to cash flows from operating activities (essentially the indirect method).
 
 
112.
Which of the following would ONLY be found in current liabilities on the balance sheet:

A) Deferred revenue. 
B) Derivative contracts. 
C) Income tax liabilities. 
D) Accrued compensation for services already rendered by employees.
 
 
113.
Which statement below best describes when to record an expense?

A) Always taken in one period only. 
B) When the resource paid for is consumed. 
C) Never is recognized before revenue is recognized. 
D) When the expense is paid.
 
 
114.
Whose responsibility is it to ensure that the company's financial information is properly assembled, classified, characterized and presented clearly and concisely in order to make it understandable

A) Management of the company publishing the statements. 
B) The public accounting firm performing the audit.
C) FASB when drafting generally accepted accounting principles. 
D) The SEC by enforcing reporting standards.
 
 
 
 
 
 
 
 
 

 

1.
A 3-for-1 stock split will reduce the per share par value and will: 143)
A) increase the total par value of the common stock. B) increase owners' equity.
C) decrease the number of shares proportionately. D) decrease earnings per share.
 
 
2.
78) If consideration is received before a contract is identified and the consideration is 78) nonrefundable, revenue may be recognized if:
A) the contract has been terminated.
B) there is no remaining obligation to transfer goods. C) goods have been delivered.
D) any of these answer choices is correct.
 
 
3.
The ability to raise additional cash by selling assets, issuing stock, or borrowing more is

A) a stock price predictor.
B) one way to project earnings. 
C) financial flexibility.
D) a credit risk indicator.
 
 
4.
Accounting errors or irregularities can occur for which reasons? 51) A) management exploitation of the flexibility in GAAP.
B) simple oversight.
C) misapplication of GAAP.
D) all of these answer choices are correct.
 
 
5.
Accounting treatment for changes in accounting principle are best described as: 65)
A) Changes in accounting principle that are only permitted when FASB issues a
standard that revises GAAP.
B) Changes in accounting principle that may require both a restatement of prior years'
financial information and the recording of a cumulative adjustment to retained
earnings.
C) Changes in accounting principle that are always accounted for using the
retrospective approach which requires only a restatement of prior years' presented
financial information.
D) Tax effects are ignored when reporting changes in accounting principles.
 
 
6.
Accrual accounting net income can differ from operating cash flows for all of the 168) following reasons except:
A) future pension and healthcare benefits. B) estimates of uncollectible accounts.
C) useful lives of assets.
D) dividend declaration and payment dates.
 
 
7.
Accrued liabilities represent: 104) A) expenses that have not yet been recognized on the income statement.
B) expenses that have been recognized on the income statement but not yet been paid.
C) income that has been recognized on the income statement but not yet collected.
D) income that has not yet been recognized on the income statement.
 
 
8.
Ace Industries has the following shareholders' equity accounts at December 31, 2018: 142) Preferred stock, $100 par value, 10% dividend, 50,000 shares
issued and outstanding
Paid-in capital in excess of par
Retained earnings restricted for plant expansion
$
5,000,000
119,000,000 2,500,000
Common stock, $6 par value, 1 million shares issued and
6,000,000
outstanding
Unrestricted retained earnings 7,500,000
Assuming that the preferred stock is cumulative, and that there are no dividends in arrears, what is the maximum dividend that may be distributed to common shareholders at December 31, 2018?
A) $2,000,000 B) $9,500,000 C) $7,500,000 D) $7,000,000
 
 
9.
All financial statements:
A) provide a picture of the company at a moment in time.
B) describe changes that took place over a period of time.
C) contain the most up to date information about the company.
D) help to evaluate what happened in the past.
 
 
10.
The amounts of executive compensation and bonuses are often determined by: 
A) company compensation contracts.
B) evaluations by subordinates.
C) auditor's recommendations.
D) industry guidelines.
 
 
11.
Analysts should expect to see stock option information in: 161) A) a separate report to the SEC.
B) a separate report to shareholders.
C) the auditor's report.
D) a note to the financial statements.
 
 
12.
The analyst would most likely understand that the change in the balance sheet account 191) for property, plant, and equipment does not reconcile with the account change included
in the statement of cash flows because of a write-off due to impairments which the
analyst discovered when examining the:
A) capital stock account.
B) notes to the financial statements. C) balance sheet.
D) investments account.
 
 
13.
An argument raised by opponents to the FASB's proposal that employee stock options 157) should be recognized as an expense was that it could:
A) violate the cost-benefit rule.
B) violate materiality concepts.
C) jeopardize compliance with contract terms and conditions. D) violate the historical cost principle.
 
 
14.
Assuming the requirements for recognizing revenue over time are met, and using the 79) percentage-of-completion method to recognize revenue, the measure of completion is computed by dividing:
A) profits earned to date by estimated total profits. B) costs incurred to date by the contract price.
C) profits earned to date by the contract price.
D) costs incurred to date by estimated total costs.
 
 
15.
Autumn Company uses IFRS to prepare its external financial reporting. During 2018, 198) Autumn Company had the following transactions related to cash flows:
Dividends received 16,000
Interest received 42,000
With regard to the above information, which of the following is an acceptable classification as part of preparation of the statement of cash flows?
Interest paid 20,000
Cash from operating activities
Cash from/(used by)investing activities
A. $0 C. $0
A) Option A. B) Option B. C) Option C. D) Option D.
 
 
 
 
 
 
 
 

16.
Autumn Company uses IFRS to prepare its external financial reporting. During 2018, 199) Autumn Company had the following transactions related to cash flows:
Dividends paid 16,000
Interest received 42,000
With regard to the above information, which of the following is acceptable as part of preparation of the statement of cash flows?
Interest paid 20,000
Cash from operating activities
Cash from/(used by) financing activities
A. C.
A) B) C) D)
$0 ($20,000)
($42,000) $26,000
B. $26,000
($20,000)
D. $0
($46,000)
Option A. Option B. Option C. Option D.
 
 
17.
Balance sheet amounts would not be measured as: 105) A) present value.
B) historical cost value. C) effective value.
D) fair value.
 
 
18.
A balance sheet prepared in accordance with U.S. GAAP typically: 124) A) provides critical information for understanding a firm's capital structure.
B) helps to determine the proper mix of debt and equity financing.
C) reports common stock at the current market price of the stock.
D) provides critical information for understanding a firm's profitability.
 
 
19.
A balance sheet prepared under U.S. GAAP includes the following elements except: 
A) an asset section
B) a cash flow section 
C) an equity section 
D) a liabilities section
 
 
20.
The balance sheet provides information on all of the following except: 102) A) where the money came from.
B) assessing rates of return.
C) how management invested its money.
D) the market price of the company's stock.
 
 
21.
Balance sheets prepared in compliance with U.S. GAAP reflect a mixture of: 108)
A) discounted cash flows and future values.
B) historical cost, fair value, net realizable value, and discounted present values. C) historical cost and future cash values.
D) current value and discounted future cash flows.
 
 
22.
Balance sheets prepared in other countries using international accounting standards 107) (IFRS) might use different account titles than are allowed for US. GAAP, such as:
A) Capital reserve.
B) Hedging reserve.
C) Share premium.
D) all of these answer choices might be used in balance sheets prepared using IFRS
 
 
23.
Balance sheets prepared under IFRS: 115) A) must list assets, but not liabilities in order of liquidity.
B) must list liabilities, but not assets, from most to least liquid.
C) may list assets and liabilities from least liquid to most liquid.
D) must list assets and liabilities from least liquid to most liquid.
 
 
24.
Being verifiable and neutral is part of what makes financial information: 
A) consistent. 
B) relevant.
C) useful.
D) comparable.
 
 
25.
The best measure of a firm's sustainable income is: 54) A) income before income tax.
B) income from continuing operations.
C) net income.
D) income before unusual items and change in accounting principle.
 
 
26.
Black and Decker decides to discontinue producing toasters in lieu of more versatile 55) toaster ovens. In the process of discontinuing this line, the company disposes of the old production equipment and buys new equipment. The disposal of the old equipment
would be reported in the income statement as:
A) gain or loss on the sale of production equipment as part of cost of goods manufactured and sold.
B) gain or loss on the disposal of discontinued business component.
C) income from operation of a discontinued business component.
D) gain or loss on the sale of equipment as part of continuing operations.
 
 
27.
A bond with a carrying value of $790,000 was converted into 100,000 shares of $5 per 163) share par value common stock at a time when the market value per share was $9.00 per
share. Which of the following statements does not accurately describe the financial
accounting for the conversion?
A) Total owners' equity increases $900,000 if the market value method of recording the conversion is used.
B) Total owners' equity increases $790,000 if the market value method of recording the conversion is used.
C) Total owners' equity increases $790,000 if the book value method of recording the conversion is used.
D) A loss of $110,000 will be recognized if the market value method of recording the conversion is used.
 
 
28.
Bruce Company reported net income for 2018 of $100,000. The company reported 171) depreciation expense of $17,500 and amortization of $5,000. The company also
reported a loss on the sale of equipment of $2,500. Based only on this information, the company would report cash flow from operating activities of:
A) $120,000. B) $125,000. C) $127,500. D) $117,500.
 
 
29.
The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000,
agreeing to pay the balance on November 10.
Using the accrual basis, which one of the following entries would properly record Canon's revenue recognition for October?
 
 
30.
The Canon Corporation sells ten copiers to the Title Company on October 15 for 46) $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000,
agreeing to pay the balance on November 10.
Under the accrual basis, how much revenue should Canon recognize in November?
A) $0
B) $16,000 
C) $40,000 
D) $24,000
 
 
31.
Cash collected from customers can be derived: 121) A) by appropriately adjusting revenue for changes in accounts receivable.
B) by appropriately adjusting revenue for changes in accounts payable.
C) by analyzing changes to the reserve for doubtful accounts.
D) by analyzing changes in the Accounts Payable balance.
 
 
 
 
 
 
 
 
 

32.
The cash flow from operating activities: 122) A) can vary depending on whether the presentation is done under the direct method or
the indirect method.
B) is required to be presented using the direct method by U.S. GAAP and IFRS. C) comprises only the increase in cash arising from the firm's profit-making
activities.
D) can be presented by using either the direct method or the indirect method.
 
 
33.
Cash flow from operating activities: 195)
A) is very comparable across all firms within the same industry regardless of whether they report under IFRS or U.S. GAAP.
B) is very comparable across firms within the same industry.
C) is very comparable across all firms reporting under U.S. GAAP.
D) may not be comparable across firms.
 
 
34.
The cash flow statement of the United Company is in process for 2019. The United 177) Company is reporting the following balances:
Equipment $ 100,000 $ 170,000
Accumulated depreciation—equipment 75,000 95,000
During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.
Equipment purchases in 2019 were:
A) $ 100,000. B) $ 30,000. C) $ 120,000. D) $ 70,000.
 
 
35.
The cash flow statement of the United Company is in process for 2019. The United 178) Company is reporting the following balances:
12/31/18
12/31/19
Equipment $ 100,000 $ 170,000
Accumulated depreciation—equipment 75,000 95,000
During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.
If these were the only investing activities, the cash flow from investing activities is a net cash:
A) inflow of $88,000. B) outflow of $88,000. C) outflow of $12,000. D) inflow of $12,000.
 
 
36.
Cash is always measured for the balance sheet at: 110) A) net transaction value.
B) realizable future value. C) current market value. D) future transaction value.
 
 
37.
Changes in balance sheet accounts from one year to the next may not map directly into 190) the corresponding account changes in the statement of cash flows. Which of the
following items is not a cause of such mapping differences?
A) Impairment charges
B) Retirement of fixed assets
C) Translation of all company subsidiaries using the temporal method D) Reclassification of assets held for sale
 
 
38.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker 181) Company are presented below:
Increase
(Decrease)
Assets
Accounts receivable
Long-term investments Accumulated depreciation Liabilities and Stockholders' Equity Dividends payable
Notes payable—Long-term Additional paid-in capital
Additional Information for 2019:
Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash.
A new long-term investment was acquired for $360,000.
A long-term investment was sold for $160,000.
200,000 200,000
(60,000 )
400,000 400,000 100,000
Cash $ 480,000
Inventory 300,000
Equipment (200,000
)

Accounts payable $ (40,000
)
Notes payable—Current (200,000
)
Common stock, $1.00 par 300,000
Retained earnings 80,000
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
The gain on the sale of equipment for 2019 is:
A) $ 50,000. B) $ 100,000.
91
C) $ 70,000. D) $ 150,000.
 
 
 
 
 
 
 
 
 

39.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker 182) Company are presented below:
Increase
(Decrease)
Assets
Accounts receivable
Long-term investments Accumulated depreciation Liabilities and Stockholders' Equity Dividends payable
Notes payable—Long-term Additional paid-in capital
Additional Information for 2019:
Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash.
A new long-term investment was acquired for $360,000.
A long-term investment was sold for $160,000.
200,000 200,000
(60,000 )
400,000 400,000 100,000
Cash $ 480,000
Inventory 300,000
Equipment (200,000
)
Accounts payable $ (40,000
)
Notes payable—Current (200,000
)
Common stock, $1.00 par 300,000
Retained earnings 80,000
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
The purchase of equipment during 2019 is:
A) $300,000. B) $250,000. C) $400,000. D) $270,000.
 
 
40.
Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker 183) Company are presented below:
Increase
(Decrease)
Assets
Accounts receivable
Long-term investments Accumulated depreciation Liabilities and Stockholders' Equity Dividends payable
Notes payable—Long-term Additional paid-in capital
Additional Information for 2019:
Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash.
A new long-term investment was acquired for $360,000.
200,000 200,000
(60,000 )
400,000 400,000 100,000
Cash $ 480,000
Inventory 300,000
Equipment (200,000
)
Accounts payable $ (40,000
)
Notes payable—Current (200,000
)
Common stock, $1.00 par 300,000
Retained earnings 80,000
94
A long-term investment was sold for $160,000.
Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000.
The cash flow from financing activities for 2019 is a: A) $700,000 inflow.
B) $400,000 inflow.
C) $200,000 outflow.
D) $600,000 inflow.
 
 
41.
Companies offering higher risk securities have incentives to mask their true condition 36) by:
A) including testimonials from well known executives in their financial statements. B) listing on foreign exchanges where reporting requirements are less stringent than
those in the U.S.
C) supplying overly optimistic financial information. D) not having their financial statements audited.
 
 
42.
Companies that have projected operating cash flows that are more than sufficient to 9) meet debt payments are:
A) financially flexible.
B) overvalued.
C) undervalued.
D) good credit risk companies.
 
 
43.
Companies with a history of net operating losses are prone to issue which one of the following to raise money?
A) Notes payable B) Debenture bonds C) Preferred stock D) Serial bonds
 
 
44.
A company's financial statements can be used for all of the following purposes except: 10) A) as a measure of accountability.
B) as a scorecard on the company's social responsibility.
C) as an early warning signal.
D) as a management report card.
 
 
45.
A company's financial statements reflect information about: 

A) economic events that affect a company that can be translated into accounting numbers.
B) product information and competitive positions.
C) the general economy of the industry in which the company operates.
D) future projections of sales, expenses, and other future economic events.
 
 
 
 
 
 
 
 
 

46.
A company's retained earnings on December 31, 2018 was $2,190,000 and its 139) shareholders' equity was $8,760,000. During 2019 the company reported the following:
Net income $225,000
A sale of treasury stock costing $75,000 for $79,750
A treasury stock purchase costing $125,700
A cash dividend declaration of $73,200
A 10,000 share "small" common stock ($10 par value) dividend was declared and distributed when the market value was $12.75 per share.
What is the shareholders' equity balance on December 31, 2019?
A) $8,865,850 B) $8,934,300 C) $8,663,350 D) $8,738,350
 
 
47.
A component of an entity may be a/an: 57)
A) subsidiary.
B) reportable or operating segment, subsidiary, or asset group. C) reportable or operating segment.
D) asset group.
 
 
48.
Contributed capital might be a negative dollar amount because: 103) A) treasury stock was in excess of stock originally issued.
B) dividends paid were in excess of net income accumulated in retained earnings.
C) net losses exceeded net income over the years.
D) excess liabilities reduced contributed capital.
 
 
49.
Convertible bonds are usually: 164)
A) callable.
B) senior bonds.
C) participating.
D) mortgage bonds.
 
 
50.
A corporation reported the following during 2018:
138)
Net income $175,250
Sale of 10,000 shares of $5 par value common stock for $8.75 per share
A repurchase of shares as treasury stock, costing $24,750
A resale of treasury stock for $14,695; the shares cost $15,500 when repurchased.
A declaration and distribution of a $39,000 cash dividend
A declaration and distribution of a "small" stock dividend of 5,000 shares of $5 par value common stock at a total market value of $50,000.
What was the increase in shareholders'equity during 2018?
A) $173,195 B) $213,695 C) $198,195 D) $188,695
 
 
51.
The costs of providing financial information is ultimately borne by: 

A) professional analysts. 
B) management.
C) auditors.
D) shareholders.
 
 
52.
CPA Now developed an app to help prepare for the CPA exam. Customers may 89) separately purchase (a) the app, (b) updates to the app, and (c) coaching support for the
exam, or a package that includes the app and free updates coaching support until they
pass the exam. The package deal includes performance obligation(s).
A) three B) two C) zero D) one
 
 
53.
A cumulative effect of a change in an accounting principle is measured as: 66)
A) the after-tax difference between prior periods' net income under the old method and what would have been reported if the new method had been used in the prior years.
B) the after-tax difference between prior periods' net income and current net income under the old method and what would have been reported if the new method had been used in the prior years and the current year.
C) the difference between prior periods' net income under the old method and what would have been reported if the new method had been used in the prior years.
D) the difference between prior periods' net income and current net income under the old method and what would have been reported if the new method had been used in the prior years and the current year.
 
 
54.
Current assets are assets expected to: 109)
A) remain on the books for at least twelve months or one operating cycle if the
operating cycle is longer than twelve months.
B) be converted to cash within twelve months or one operating cycle if the operating
cycle is longer than twelve months.
C) be converted to cash within twelve months.
D) remain on the books for at least twelve months.
 
 
55.
Current GAAP specifies that the compensation costs for stock options are measured: 159) A) at the grant date and again at the vesting date.
B) at the grant date and again at the exercise date.
C) at the grant date only.
D) at the vesting date only.
 
 
56.
Current liabilities are reported on the balance sheet at: 114)
A) current market value.
B) discounted present value. C) future value.
D) historical cost.
 
 
57.
A decrease in accounts receivable of $16,000 for the year: 172) A) increases cash flow from operating activities by $8,000.
B) increases cash flow from operating activities by $16,000.
C) decreases cash flow from operating activities by $8,000.
D) decreases cash flow from operating activities by $16,000.
 
 
58.
The denominator used in the calculation of basic earnings per share is the: 146) A) number of common shares outstanding at the end of the year.
B) weighted average number of common shares and preferred shares outstanding
during the year.
C) number of preferred shares outstanding at the end of the year.
D) weighted average number of common shares outstanding during the year.
 
 
59.
The discontinued operations section of the income statement is comprised of which one 59) of the following?
A) Income from the operation of a discontinued business component and gain or loss from the disposal of the discontinued component.
B) Gain or loss from the disposal of the discontinued component, net of tax.
C) Income from the operation of a discontinued business component, net of tax, and
gain or loss from the disposal of the discontinued component.
D) Income from the operation of a discontinued business component, net of tax, and
gain or loss from the disposal of the discontinued component, net of tax.
 
 
60.
Earnings management can occur through a variety of manipulations including: 76)
A) Misapplications of GAAP deemed immaterial on an account by account basis. B) Big bath restructuring charges.
C) Manipulating accrual estimates to impact expenses.
D) All of these answer choices are correct.
 
 
 
 
 
 
 
 
 

61.
Employees demand financial information for all of the following except: 
A) Monitoring how much the senior executives earn.
B) Monitoring union contracts that link negotiated wage increases to company
financial performance.
C) Monitoring profit sharing and stock ownership plans.
D) Monitoring the health of company pension plans.
 
 
62.
Employees demand financial statement information because the firm's performance is 29) often linked to all of the following except:
A) negotiated wage increases in union contracts. 
B) employee profit sharing.
C) social security benefits.
D) pension plan benefits.
 
 
63.
Examples of variable consideration include all of the following except: 94) A) bonuses for completing performance on a contract early.
B) discounts on transaction prices.
C) penalties for not completing performing on a contract on time.
D) all of the answer choices are correct.
 
 
64.
The expense matching principle states that: 45)
A) All expenses are recognized when the corresponding revenue is recorded.
B) Expenses are recognized when paid.
C) Some expenses are recognized when the corresponding revenue is recognized and
some are spread over time.
D) Expenses are recognized when the invoice is received.
 
 
65.
The FASB addressed simultaneous financing and investing activities by requiring they 186) be:
A) reported separately on the income statement.
B) ignored.
C) reported on the retained earnings statement.
D) reported separately on a supplemental schedule to the cash flow statement.
 
 
66.
Financial information capable of making a difference in a decision is: 20)
A) verifiable. B) consistent. C) neutral. D) relevant.
 
 
67.
Financial information which does not favor one set of interested parties over another is: 
A) faithfully represented.
B) verifiable.
C) relevant.
D) neutral.
 
 
68.
Financial statement users must recognize that interest expense may seriously: 166) A) overstate the true cost of debt financing when convertible debt is used.
B) understate the true cost of debt financing when convertible debt is used.
C) impact the amount of dividend declared.
D) impact the dividend rate.
 
 
69.
A firm's financial statements contain trends that give users insight into the firm's: 

A) current market price for common and preferred stock. B) future market share.
C) profitability, productivity, and liquidity.
D) position within its industry.
 
 
70.
The following data is for the Kris Company for 2018:
Gain on sale of equipment
Proceeds from sale of machinery Proceeds from sale of treasury stock
The amount reported as net cash provided by financing activities is: A) $ 200,000.
B) $ 30,000.
C) $ 25,000.
D) $ 150,000.
 
 
71.
The following data is for the Matt Company for 2018:
Loss on sale of equipment
Proceeds from sale of machinery Dividends paid
The amount reported as net cash from investing activities is: A) $ 87,500.
B) $ (175,000).
C) $ 575,000.
D) $ (150,000).
 
 
72.
The following information has been obtained from the Mastic Corporation: 152)
550,000 shares of common stock were outstanding on January 1, 2018. Bonds convertible into 50,000 shares of common stock were issued on July 1, 2018; the bonds have been determined to be dilutive.
36,000 shares of common stock were issued on November 1, 2018.
24,000 shares of common stock were purchased on December 1, 2018.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2018?
A) 579,000 B) 604,000 C) 612,000 D) 587,000
 
 
73.
The following information has been obtained from the Myers Corporation: 153)
300,000 shares of common stock were outstanding on January 1, 2018. 50,000 stock options were outstanding on January 1, 2018; each option allows the holder to acquire one share of common stock for $20 per share. The average market price of the common stock during 2018 was $25 per share. 48,000 shares of common stock were issued on February 1, 2018.
18,000 shares of common stock were purchased on August 1, 2018.
What is the weighted average number of shares to be used in the calculation of diluted earnings per share for 2018?
A) 386,500 B) 326,500 C) 346,500 D) 380,000
 
 
74.
The following information has been provided to you by the Rae Corporation for the 155) year ending December 31, 2018:
Net income was $979,000.
Cash dividends totaling $120,000 were paid to the common shareholders.
6% convertible bonds with a par value of $2,000,000 were issued on February 1, 2018.
The corporation's marginal income tax rate is 40%.
6% convertible preferred stock with a par value of $800,000 was outstanding during the entire year.
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of basic earnings per share and diluted earnings per share?
77
Basic EPS Diluted EPS
A) $931,000 $1,045,000 B) $931,000 $1,099,000 C) $979,000 $1,147,000 D) $811,000 $1,051,000
 
 
75.
The following information has been provided to you by the Smith Corporation for the 154) year ending December 31, 2018:
The numerator used in the calculation of basic earnings per share was $797,000.
Cash dividends were paid to the common shareholders.
8% convertible bonds with a par value of $1,000,000 were issued on July 1, 2018.
The corporation's marginal income tax rate is 40%.
6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year.
Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of diluted earnings per share?
A) $773,000 B) $821,000 C) $869,000 D) $893,000
 
 
 
 
 
 
 
 
 

76.
The following information has been provided to you by Watts Corporation:
180)
Net income
Increase in inventory Increase in bonds payable Depreciation expense
What is Watts Corporation's net cash flow from operating activities?
A) $186,000 B) $138,200 C) $210,200 D) $175,200
 
 
77.
The following information has been provided to you by your controller:
Net income $ Decrease in inventory $ Decrease in bonds payable $ Depreciation expense $
What is the net cash flow from operating activities? A) $ 96,900
B) $112,900
C) $ 94,100
D) $ 97,900
 
 
78.
For a disposal group to be considered held for sale, which of the following conditions 61) are required to be met?
A) The component is available for immediate sale in its present condition subject only to usual and customary terms for such sales.
B) Management has committed to a plan to see the component.
C) The sale is probable and is expected to be completed within one year.
D) All of these conditions must be met.
 
 
79.
Ford Appliance Center records revenue on the installment sales method, prior to ASC 86) Topic 606 for revenue recognition. The following information is available for the first
two years of business.
Sales $ 200,000 $ 250,000 Cash collections:
Year 2 sales 130,000
Assume that Ford Appliance Center has consistently recognized revenue on installment sales using the cost recovery method. How much realized gross profit on installment sales will Ford recognize in Year 1?
A) $0
B) $60,000 C) $30,000 D) $100,000
 
 
80.
Ford Appliance Center records revenue on the installment sales method, prior to ASC 87) Topic 606 for revenue recognition. The following information is available for the first
two years of business.
Sales $ 200,000 $ 250,000 Cash collections:
Year 2 sales 130,000
Which one of the following entries properly records the cost of installment goods sold for Year 2?
A) DR Cost of installment goods sold$302,500 CR Inventory$302,500 B) DR Cost of installment goods sold$302,500 CR Installment sales
revenue$302,500
C) DR Cost of installment goods sold$162,500 CR Inventory$162,500 D) DR Cost of installment goods sold$162,500 CR Installment sales
revenue$162,500
 
 
81.
For nonfinancial firms reporting using IFRS rules, which of the following is correct? 200)
A) In most cases, cash flows from income taxes must be reported separately as an operating activity.
B) Bank overdrafts repayable on demand used as part of normal cash management activities must include those overdrafts as part of financing activities.
C) Firms using the direct method must provide a schedule reconciling net income to cash flows from operating activities.
D) Interest and dividends paid may be reported as either operating or investing activities.
 
 
82.
The goal of generally accepted accounting principles is to ensure that a company's 32) financial statements:
A) provide stockholders all of the information they need to assess management's performance.
B) clearly represent its economic condition and performance of the company.
C) are accurate and free from fraud.
D) do not contain any representation that could jeopardize management.
 
 
83.
Goodwill: 
A) is a tangible asset recognized as part of a business combination.
B) is not subject to impairment.
C) is classified on the balance sheet as a current asset.
D) is initially measured as the difference between the consideration given in an
acquisition and the fair value of the separately identifiable net assets acquired on the acquisition date.
 
 
84.
Goodwill arising from a business combination is reported on the balance sheet as a(n): 106) A) intangible asset.
B) impaired asset. C) current asset. D) fair value asset.
 
 
85.
The growth of global investing has spurred development of worldwide accounting 43) standards that are written by the:
A) Institute of Global Auditors.
B) International Accounting Standards Board.
C) American Institute of Certified Public Accountants. D) Global Committee on Accounting Standards
 
 
86.
The Heath Corporation reported net income for 2018 of $177,500. Heath began the year 148) with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of
$100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000
shares of common stock for $6 per share. Heath paid dividends to the common
shareholders in December.
The weighted average number of common shares used to compute earnings per share for 2018 is
A) 102,500. B) 110,000. C) 105,000. D) 100,000.
 
 
87.
The Heath Corporation reported net income for 2018 of $177,500. Heath began the year 149) with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of
$100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000
shares of common stock for $6 per share. Heath paid dividends to the common
shareholders in December.
The basic earnings per share for 2018 is:
A) $1.50 per share. B) $1.73 per share. C) $1.43 per share. D) $1.54 per share.
 
 
88.
If the financial reporting environment were unregulated, disclosure would occur voluntarily:
A) only when managers wanted to raise additional capital.
B) as long as the incremental benefits to the company from supplying financial
information exceeded the incremental costs of providing the information.
C) as long as other companies in the reporting company's industry voluntarily
disclosed financial information.
D) only to analysts that the company believes will report favorably on the company's
prospects.
 
 
89.
In 2017, Borden Construction was contracted to build an apartment complex for its 92) client, Deer Park Realty Management. The project was estimated to cost $15 million; however, on December 31, 2017, when the project was 75% complete, Borden
estimated that the project costs would be much less, and agreed to adjust the contract
price to $10 million. Prior to December 31, 2017, Borden Construction had recognized revenue of $10 million. At year end, Borden should:
A) record additional $5 million in revenue.
B) make a correction for $5 million in over-recognized revenue. C) record nothing.
D) make a correction for $2.5 million in over-recognized revenue.
 
 
90.
An increase in accounts receivable of $6,000 for the year: 173)
A) increases cash flow from operations by $6,000. B) decreases cash flow from operations by $6,000. C) increases cash flow from operations by $3,000. D) decreases cash flow from operations by $3,000.
 
 
91.
In designing audit procedures the auditor will include all of the following except: 
A) Global economic trends.
B) Industry conditions.
C) Assessing the reasonableness of the numbers in relation to the company's
activities.
D) Fraud risk factors that may be present.
 
 
 
 
 
 
 
 
 

92.
The indirect method of presenting cash flow from operating activities: 125)
A) focuses on how cash flows deviate from a natural benchmark - net income.
B) is strongly recommended by both U.S. GAAP and IFRS.
C) is more difficult than the direct method to incorporate working capital changes
into a financial model.
D) presents cash transactions related to the determination of net income.
 
 
93.
In discussing book value of common stock, which statement below is not correct? 144)
A) If any preferred stock were outstanding, its carrying amount would be deducted
from the total equity to obtain the common equity.
B) The terms "issued" and "outstanding" are synonymous when discussing the
number of common shares.
C) Book value is also referred to as total equity of the firm.
D) Book value per share is computed by dividing common equity by the number of
common shares outstanding.
 
 
94.
Initial franchise fees should be recorded as revenue by the franchisor: 93)
A) in accordance with the franchise agreement.
B) when all material services relating to the sale have been performed. C) during the year the franchise agreement is signed.
D) when cash is received from the franchisee.
 
 
95.
Internet companies that simply act as agent or broker for the transfer of goods must 97) record revenue based on:
A) the gross profit of the product sold. B) the cost of the product sold.
C) the sales price of the product.
D) the fees it charges sellers.
 
 
96.
Investors and analysts must have certain capabilities regarding financial reporting which include:
A) an ability to recognize that financial statement information reported is grounded in judgment as well as facts.
B) recognition that management selects the financial reporting standards used.
C) an understanding of current financial reporting standards.
D) all of these answer choices are correct.
 
 
97.
Investors who follow a fundamental analysis approach: 
A) estimate the value of a stock by assessing the amount, timing, and uncertainty of future cash flows that will accrue to the issuing company.
B) assess the company's ability to meet its debt-related financial obligations.
C) assess the company's ability to raise additional cash by selling assets, issuing
stock, or borrowing more.
D) determine the value the company's assets would yield if sold individually.
 
 
98.
It is common for shareholders to initiate litigation when: 38)
A) there is a sudden drop in stock price shortly after the company released new
financial information.
B) the company reports record profits, but does not declare dividends.
C) the company introduces new products that are found to be harmful to the
environment.
D) rumors about the company appear in the media that, if true, would result in slower
growth in future profits.
 
 
99.
Joe Carie, head accountant, is using the indirect method and the account balance from 111) the balance sheet and income statement to prepare a statement of cash flows. An
increase in the Computer Equipment account would:
A) decrease cash flow from investing activities. B) increase cash flow from investing activities. C) increase cash flow from operating activities. D) decrease cash flow from financing activities.
 
 
101.
Joe Carie, head accountant, is using the indirect method and the account balance from 112) the balance sheet and income statement to prepare a statement of cash flows. A decrease
in the balance of the Accounts Receivable account would:
A) increase cash flow from operating activities. B) decrease cash flow from financing activities. C) increase cash flow from investing activities. D) decrease cash flow from operating activities.
 
 
102.
Long-term debt: 128) A) usually has an effective yield that is much different than the cost of borrowing.
B) consists of monetary obligations that fall due beyond two years from the balance
sheet date.
C) when issued, is carried at an amount based on the proceeds received. D) never has any portion classified as a current liability.
 
 
103.
The market analysis known as fundamental analysis: 

A) predicts future trends in the financial drivers of a company's economic success or
failure.
B) has no insights about company value beyond current market price.
C) relies on price and volume movement of stock.
D) uses microeconomic data to forecast stock values.
 
 
104.
The matching principle requires that expenses be recognized: 53)
A) in the same period in which the revenue generated by these expenses is received. B) in the same period in which all the assets are used up.
C) in the same period in which the revenue generated by these expenses is
recognized.
D) when the costs are paid by the entity.
 
 
105.
Misstatements of tax expense, improper restructuring charges, asset impairment charges 52) and gains/losses related to acquisitions are which type of restatement?
A) those related to revenue recognition
B) items related to non-core expense issues 
C) items related to core expense issues
D) reclassification and disclosure issues
 
 
106.
Net income recognition always increases:

A) net assets.
B) assets.
C) liabilities.
D) net liabilities.
 
 
107.
Net property, plant and equipment are reported on the balance sheet at: 113) A) historical cost minus accumulated depreciation.
B) historical cost.
C) net realizable value.
D) current market value.
 
 
108.
Noah Construction Company is building a large complex for a contract price of 80) $5,000,000. This is a three-year project and the requirements for recognizing revenue
over time are met. The total estimated cost of the project is $4,000,000 and the
following information is available:
Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 2?
A) $625,000 B) $250,000 C) $3,125,000 D) $375,000
 
 
 
 
 
 
 
 

109.
Noah Construction Company is building a large complex for a contract price of 81) $5,000,000. This is a three-year project and the requirements for recognizing revenue
over time are met. The total estimated cost of the project is $4,000,000 and the
following information is available:
Which one of the following entries would be made in Year 1 to record the costs incurred using the percentage-of-completion method of revenue recognition?
A) DR Inventory: Construction in progress $1,000,000 CR Accounts payable, cash, etc. $1,000,000
B) DR Income on long-term construction contract$1,000,000 CR Accounts payable, cash, etc.$1,000,000
C) DR Inventory: Construction in progress$1,000,000 CR Income on long-term construction contract$1,000,000
D) DR Inventory: Construction in progress$1,000,000 CR Billings on construction in progress$1,000,000
 
 
110.
Noah Construction Company is building a large complex for a contract price of 82) $5,000,000. This is a three-year project and the requirements for recognizing revenue
over time are met. The total estimated cost of the project is $4,000,000 and the
following information is available:
Using revenue recognition standards prior to ASC Topic 606, which one of the following entries would be made in Year 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition?
A) DR Billings on construction in progress$1,250,000 CR Inventory: Construction in progress$1,250,000
B) DR Inventory: Construction in progress$3,750,000 DR Income on long-term construction contract$1,250,000 CR Billings on construction in progress$5,000,000
C) DR Billings on construction in progress$5,000,000 CR Inventory: Construction in progress$3,750,000 CR Income on long-term construction contract$1,250,000
D) DR Inventory: Construction in progress$5,000,000 CR Billings on construction in
progress$5,000,000
 
 
111.
On a balance sheet prepared under U.S. GAAP: 127) A) any cash denominated in a foreign currency is disclosed in a footnote.
B) accounts receivable is presented at net realizable value.
C) inventories are presented at current market price.
D) most short-term investments are presented at historical cost.
 
 
112.
On balance sheets prepared in accordance with U.S. GAAP: 123)
A) assets are generally listed from least liquid to most liquid.
B) both tangible and intangible long-lived assets can be revalued upward periodically. C) liabilities are generally netted against assets.
D) assets are generally listed from most liquid to least liquid.
 
 
113.
One financial disclosure cost is the possibility that competitors may use the information 37) to harm the company providing the disclosure. All of the following disclosures might
create a competitive disadvantage except:
A) information about the company's technological and managerial innovations.
B) detailed information about company operations, such as sales and cost figures for
individual product lines.
C) information showing the company's amount of spending on research and
development.
D) details about the company's strategies, plans and tactics.
 
 
114.
On January 1, 2018, Monroe Contractors signed a contract to inspect and complete 83) needed repairs to the water lines for the town of Pleasantville. Because Monroe will not
know which water lines will need repairs until after it completes the inspections, it is
difficult to accurately estimate the amount it will charge the town. Therefore, Monroe
will recognize revenue for the contract using the completed-contract method. The work is expected to be completed in 2020.
Using a completed-contract method prior to ASC Topic 606 for revenue recognition, if Monroe had $1.5 million in its Construction In Progress Inventory account and billings to Pleasantville of $2 million as of December 31, 2018, how much net income should Monroe Construction recognize for 2018?
A) $2 million B) $1.5 million C) $0
D) $500,000
 
 
115.
On January 1, 2018, Monroe Contractors signed a contract to inspect and complete 84) needed repairs to the water lines for the town of Pleasantville. Because Monroe will not
know which water lines will need repairs until after it completes the inspections, it is
difficult to accurately estimate the amount it will charge the town. Therefore, Monroe
will recognize revenue for the contract using the completed-contract method. The work is expected to be completed in 2020.
Burgers and More operates a chain of fast-food restaurants across the United States. The restaurants are franchised operations. Under the franchise agreement, restaurant owners have the right to use the Burgers and More trade name, financing arrangements for franchisees, and management training at the corporate headquarters as well as the right to use training videos for their employees. The Burgers and More franchise contracts contain the following separate performance obligations:
A) financing and training
B) intellectual property, training
C) intellectual property
D) intellectual property, financing, and training
 
 
116.
On January 1, 2018, Monroe Contractors signed a contract to inspect and complete 85) needed repairs to the water lines for the town of Pleasantville. Because Monroe will not
know which water lines will need repairs until after it completes the inspections, it is
difficult to accurately estimate the amount it will charge the town. Therefore, Monroe
will recognize revenue for the contract using the completed-contract method. The work is expected to be completed in 2020.
Which of the following criteria must be met to recognize revenue under a bill-and-hold arrangement?
A) The product is ready for physical transfer to the customer.
B) The product is identified separately as belonging to the customer.
C) The reason for the bill-and-hold arrangement is substantive.
D) All of these criteria must be met to recognize revenue under a bill-and-hold
arrangement.
 
 
118.
The organization responsible for establishing auditing standards and inspecting and 44) investigating auditing practices of public accounting firms is:
A) the Securities and Exchange Commission (SEC).
B) Congress under the authority of the Sarbanes-Oxley Act (SOX). C) the American Institute of Certified Public Accountants (AICPA). D) the Public Company Accounting Oversight Board (PCAOB).
 
 
119.
Other comprehensive income: 130)
A) is never adjusted for tax effects.
B) consists of certain gains and losses included in comprehensive income but not yet
recognized in the income statement.
C) does not include foreign currency gains and losses.
D) is consistently defined in international balance sheet presentation.
 
 
 

120.
Other Comprehensive Income (OCI) is used both in U.S. GAAP and IFRS. Which of 74) the following statements is correct?
A) Both IFRS and U.S. GAAP require companies to report in other comprehensive income each period the valuation changes from changes in actuarial estimates affecting defined benefit pension plans.
B) As a general rule, U.S. GAAP allows more opportunities for managers to change balance sheet valuations of certain assets even when management has no intention to sell these assets.
C) Changes in the valuation of property, plant, and equipment create a Revaluation Surplus used in both IFRS and U.S. GAAP.
D) U.S. GAAP requires a separate statement of OCI to immediately follow the income statement in the financial reporting statement.
 
 
121.
Over the vesting period for employee stock options, current GAAP requires that the 160) entire compensation expense be recognized:
A) only if the options are exercised.
B) equally in each year of the vesting period. C) in the last year of the vesting period.
D) in the first year of the vesting period.
 
 
122.
Properly prepared statements of cash flows: 126)
A) are frequently used by investment analysts to cash flows from operations across two or more companies.
B) present depreciation as a subtraction from net income to arrive at a firm's cash flow from operations under the indirect method.
C) will show the change in cash during a period to be equal to the net income for the period.
D) include stock issued for cash as an investing activity.
 
 
123.
Recent changes in ________ accounting standards require companies to group items 75) within OCI based on ________:
A) U.S. GAAP; whether they will be reclassified subsequently into net income or whether they will be subsequently reclassified into income when specific conditions are met.
B) IFRS; whether they will be reclassified subsequently into net income or whether they will be subsequently reclassified into income when specific conditions are met.
C) IFRS; their expected future categorization on the income statement into income from continuing operations and discontinued operations.
D) U.S. GAAP; their expected future categorization on the income statement into income from continuing operations and discontinued operations.
 
 
124.
Revenue for goods to be sold under a consignment arrangement of a manufacturer and a 96) retail store should be recognized by the manufacturer when:
A) the seller receives payment for the goods.
B) the seller promises to pay the manufacturer.
C) the goods are sold by the retail store.
D) the manufacturer delivers the product to a retail store.
 
 
125.
The Revised Model Business Corporation Act defines solvency as a situation where the 141) fair value of:
A) assets exceeds the book value of liabilities after a distribution to shareholders. B) liabilities exceeds the fair value of assets.
C) assets exceeds the fair value of liabilities after a distribution to shareholders. D) liabilities exceeds the fair value of assets after a distribution to shareholders.
 
 
126.
A right of return exists when: 95) A) the customer is entitled to a full or partial refund.
B) the customer is entitled to another product in exchange.
C) the customer is entitled to a credit against amounts owed.
D) any one of these conditions is met.
 
 
127.
Royal, Inc. discovered that equipment purchased on January 1, 2018 for $300,000 will 72) not last as long as originally estimated. The firm was depreciating the equipment at the
rate of $40,000 per year with an estimated salvage value of $20,000. New estimates on January 1, 2021 indicate that the equipment will last a total of five years with no
salvage value. How much should Royal, Inc. record as depreciation in 2021?
A) $120,000 B) $40,000 C) $90,000 D) $60,000
 
 
128.
The rules used for determining taxable income in various countries: 132)
A) measure changes in a firm's underlying economic condition.
B) have the same objective as the rules used for determining income for financial
reporting purposes.
C) are not the result of a political process.
D) have an objective designed to provide a basis for funding government operations.
 
 
129.
Selected data for Kris Corporation's comparative balance sheets for Year 1 and Year 2 are as follows:
Assets
Accounts receivable (net) Equipment (net) Liabilities and Equity Income taxes payable Common stock
Total liabilities and Equity
116)
2
Year 1
Year
Cash $
100,000
$
(50,000 )
Inventory
100,000
250,000
Total assets $
550,000
$
650,000
Accounts payable $
150,000
100,000
Bonds payable
100,000
80,000
Retained earnings
120,000
240,000
$
50,000 300,000
80,000 100,000 550,000
100,000 350,000
30,000 200,000 $ 650,000
Using the indirect method to create the operating activities section
cash flows, the cash flow recorded based on the change in inventory would be:
A) an increase of $150,000 B) a decrease of $400,000 C) a decrease of $150,000. D) an increase of $400,000
 
 
 
 
 
 
 
 
 

130.
Selected data for Kris Corporation's comparative balance sheets for Year 1 and Year 2 are as follows:
Assets
Accounts receivable (net) Equipment (net) Liabilities and Equity Income taxes payable Common stock
Total liabilities and Equity
117)
2
Year 1
Year
Cash $
100,000
$
(50,000 )
Inventory
100,000
250,000
Total assets $
550,000
$
650,000
Accounts payable $
150,000
100,000
Bonds payable
100,000
80,000
Retained earnings
120,000
240,000
$
50,000 300,000
80,000 100,000 550,000 $
100,000 350,000
30,000 200,000 650,000
The change in the balance of the common stock account would be recorded on the statement of cash flows as:
A) an increase of $100,000 under operating activities. B) an increase of $100,000 under financing activities. C) an increase of $300,000 under financing activities. D) an increase of $100,000 under investing activities.
 
 
131.
Selected data for Kris Corporation's comparative balance sheets for Year 1 and Year 2 are as follows:
Assets
Accounts receivable (net) Equipment (net) Liabilities and Equity Income taxes payable Common stock
Total liabilities and Equity
118)
2
Year 1
Year
Cash $
100,000
$
(50,000 )
Inventory
100,000
250,000
Total assets $
550,000
$
650,000
Accounts payable $
150,000
100,000
Bonds payable
100,000
80,000
Retained earnings
120,000
240,000
$
50,000 100,000 300,000 350,000
80,000 30,000 100,000 200,000 550,000 $ 650,000
The changes in the Accounts Payable balance would be recorded on the statement of cash flows as:
A) a decrease of $50,000 under financing activities. B) an increase of $50,000 under financing activities. C) an increase of $50,000 under operating activities. D) an decrease of $50,000 under operating activities.
 
 
 
 
 
 
 
 
 

132.
Selected data for Kris Corporation's comparative balance sheets for Year 1 and Year 2 are as follows:
Assets
Accounts receivable (net) Equipment (net) Liabilities and Equity Income taxes payable Common stock
Total liabilities and Equity
119)
2
Year 1
Year
Cash $
100,000
$
(50,000 )
Inventory
100,000
250,000
Total assets $
550,000
$
650,000
Accounts payable $
150,000
100,000
Bonds payable
100,000
80,000
Retained earnings
120,000
240,000
$
50,000 300,000
80,000 100,000 550,000
100,000 350,000
30,000 200,000 $ 650,000
recorded on the
The change in the balance of the Bonds Payable account would be statement of cash flows as:
A) an increase of $20,000 under financing activities. B) a decrease of $20,000 under financing activities. C) an increase of $80,000 under investing activities. D) a decrease of $80,000 under operating activities.
 
 
133.
SFAS No. 123 was issued as a compromise to the FASB's original position regarding 158) stock options as it:
A) allowed companies to choose either the APB No. 25 approach or expense the fair value of the options.
B) required companies to continue following the approach used in APB No. 25.
C) required companies to measure the fair value of stock options and charge this to
expense.
D) abandoned any reference to recognition of expense for options.
 
 
134.
A special one-time charge resulting from corporate restructurings would be reported on 63) the income statement as a/an:
A) special item in discontinued operations, shown net of tax. B) special item in continuing operations, shown net of tax. C) special item in continuing operations.
D) operating item before gross profit.
 
 
135.
The statement of cash flows is used by outside parties in all but which of the following 169) ways?
A) To assess if the proper amount of income taxes is reported and can be paid from current funds.
B) To assess credit risk, as cash flows provide the resources for periodic interest and principal repayment.
C) To assess whether to underwrite an issue of debt or equity securities, using the firm's expected operating cash flows in the analysis.
D) To assess equity values since the firm's value is dependent on the discounted present value of its expected future cash flows.
 
 
136.
The summary of significant accounting policies does not help explain: 135)
A) the method used for determining depreciation expense.
B) whether certain investments are accounted for using the equity method. C) the cost flow assumptions for valuing inventory.
D) management's assessment of the financial condition of the firm.
 
 
137.
Timeliness is a qualitative characteristic of accounting information that indicates that 33) information should be provided to users:
A) before statutory deadlines.
B) every month.
C) before it loses its capacity to influence their decisions. D) within one month after the close of the books.
 
 
138.
To achieve Faithful Representation, accounting information presented must meet which 25) of the following requirements?
A) It must be comparable so that analysts can use it.
B) It must meet a materiality threshold.
C) It must have predictive and confirmatory value.
D) It must depict the underlying economic event, be complete, neutral, and free from
material error.
 
 
139.
To record newly issued stock shares upon conversion of debt, managers most often 165) choose the method known as the:
A) book value method.
B) Black-Scholes method. C) par value method.
D) market value method.
 
 
140.
The type of analysis that uses financial statements to assess a company's current market 21) price is:
A) valuation analysis.
B) fundamental analysis.
C) efficient market analysis. D) technical analysis.
 
 
141.
The U.K. Equity account "Share premium" is reported on U.S. GAAP balance sheets as: 120)
A) an accumulated other comprehensive income account. B) capital in excess of par.
C) revaluation reserve.
D) capital reserve.
 
 
 
 
 
 
 
 
 

142.
Under ASC Topic 606 for revenue recognition, a performance obligation is considered 91) satisfied when control over the goods and services is transferred to the customer. Which
of the following is not an indicator that control has transferred?
A) The customer is legally obligated to pay for the goods or services.
B) The customer has accepted the goods and has physical possession of the goods. C) The customer has legal title of the goods.
D) All of these are indicators that control has transferred.
 
 
143.
Under the indirect method, the gain on sale of equipment should be: 176) A) a source of funds from financing activities.
B) added back to net income to arrive at cash flow from operating activities.
C) subtracted from net income to arrive at cash flow from operating activities.
D) a source of funds from investing activities.
 
 
144.
Using the same accounting methods to record and report similar events from period to period demonstrates:
A) faithful representation. B) consistency.
C) comparability.
D) neutrality.
 
 
145.
Vent, Inc. reported net income of $770,000 for 2018. Vent sold 15,000 shares of 150) treasury stock acquired in a previous year on July 1 and 15,000 new shares on
November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of
$100 par value 7% preferred stock outstanding all year. Vent paid dividends to the
preferred shareholders.
The basic earnings per share for 2018 is (rounded)
A) $3.50 per share. B) $6.10 per share. C) $3.94 per share. D) $4.81 per share.
 
 
146.
Vent, Inc. reported net income of $770,000 for 2018. Vent sold 15,000 shares of 151) treasury stock acquired in a previous year on July 1 and 15,000 new shares on
November 1. At year-end, 180,000 shares were outstanding. Vent had 20,000 shares of
$100 par value 7% preferred stock outstanding all year. Vent paid dividends to the
preferred shareholders.
If each share of preferred stock is convertible into 2 shares of common stock, the diluted earnings per share for 2018 is
A) $4.81 per share. B) $3.94 per share. C) $3.85 per share. D) $6.10 per share.
 
 
147.
When a borrower violates a loan covenant that requires minimum achievement of an 30) accounting measure in the financial statements, the lender can:
A) call for immediate repayment of the loan.
B) report the borrower to the IRS.
C) immediately seize the loan collateral.
D) fire the chief operating officer of the borrower.
 
 
148.
When a company changes from any inventory method to LIFO, the change is reported 71) A) using the retrospective approach.
B) as an error correction.
C) as a change in an accounting estimate.
D) prospectively because it is usually impractical to determine the effects of this change on prior years' net income.
 
 
149.
When a company changes from LIFO to another inventory method, the change is 69) reported
A) as an error correction.
B) using the retrospective approach.
C) as a change in an accounting estimate.
D) prospectively because it is impractical to determine the effects of this change on
prior years' net income.
 
 
150.
When a company changes from straight-line depreciation to double-declining-balance 70) depreciation, the change is reported
A) prospectively because it is impractical to determine the effects of this change on prior years' net income.
B) using the retrospective approach.
C) as a change in an accounting estimate.
D) as an error correction.
 
 
151.
When a company does not have any convertible securities or options or warrants 145) outstanding, the company has:
A) to report both basic and diluted EPS.
B) a complex capital structure.
C) a simple capital structure.
D) to report only diluted earnings per share.
 
 
152.
When analysts provide basic EPS for income from continuing operations that exclude 73) the effects of special (i.e., nonrecurring) gains or losses and certain other non-cash
charges, such earnings are frequently referred to as:
A) pro forma earnings. B) real earnings.
C) normal earnings.
D) sustainable earnings.
 
 
153.
When comparing U.S. GAAP and IFRS standards, which of the following is not 39) correct?
A) U.S. GAAP standards provide too many scope exceptions. B) IFRS is principles-based while U.S. GAAP is rules-based. C) IFRS provides more detailed guidance than U.S. GAAP. D) U.S. GAAP provides more detailed guidance than IFRS.
 
 
154.
When financial statements are used by shareholders and investors to evaluate the 22) performance of a company's top executives it is referred to as the ________ function of financial reports.
A) fundamental. 
B) technical.
C) proxy.
D) stewardship.
 
 
155.
When independent measurers get similar results when using the same accounting 17) measurement methods, the financial information is:
A) timely.
B) faithfully represented. 
C) verifiable.
D) relevant.
 
 
156.
When reporting a change in an accounting principle, the general rule requires that the 64) current year's income from continuing operations reflect:
A) management's choice of either the old or newly adopted principle for the current year recognition.
B) FASB's designation of either the old or newly-adopted principle based on the item being changed.
C) use of the newly adopted principle for the current year recognition.
D) use of the old principle for the current year recognition.
 
 
 
 
 
 
 
 
 

157.
When reporting unusual or infrequent items in the income statement which of the 56) following is not correct?
A) If a material event is either unusual in nature or an infrequent occurrence—such as a one-time charge resulting from a major restructuring—it may be classified on the income statement as a special or unusual item in continuing operations or treated as an extraordinary item if it has been a number of years since the company's last major restructuring.
B) The write-off of obsolete inventory would be reported on the income statement as a special item in continuing operations.
C) Firms that use early debt retirement on a recurring basis as part of their ongoing risk management practices will report the associated gains and losses as part of income from continuing operations with separate line-item disclosure.
D) If a material event is either unusual in nature or an infrequent occurrence it is classified on the income statement as a special or unusual item in continuing operations.
 
 
158.
When the year-to-year changes in comparative balance sheet accounts do not coincide 192) with the changes implied from amounts reported on the statement of cash flows, the
analyst may find useful information for reconciliation in notes to the financial
statements and the:
A) balance sheet.
B) operating activities section of the cash flow statement. C) capital stock account.
D) investments account.
 
 
159.
When using the retrospective approach for a change in accounting principle, disclosure 67) rules require that:
A) no prior years' income statements be restated, but a pro forma net income figure be provided to reflect use of the new principle for each year presented.
B) no prior years' income statements be restated, and no pro forma net income figures be provided.
C) all prior years' income statements be restated to reflect use of the new principle, and include a pro forma net income figure of the previously reported income.
D) prior years' income statements presented for comparative purposes be restated to
reflect use of the new principle unless it is impractical to do so.
 
 
160.
Which is not correct regarding Regulation Fair Disclosure (Reg FD)? 8) A) It limits what management can say in private conversations with analysts and
investors.
B) It helps level the playing field between individual and insitutional investors.
C) It was passed by the SEC.
D) It does not limit what management can say in private conversations with analysts
or investors.
 
 
161.
Which of the following are primary qualitative characteristics of accounting 24) information?
A) Verifiability and Understandability.
B) Comparability and Timeliness.
C) Relevance and Timeliness.
D) Relevance and Faithful Representation.
 
 
162.
Which of the following best describes the reporting for discontinued operations? 58)
A) Discontinued operations presentation is used only when a component of an entity
has been sold.
B) Discontinued operations will not generate future cash flows and thus the results of
transactions related to operations the firm intends to discontinue, or has already discontinued, must be reported separately from other income items on the income statement.
C) Discontinued operations may generate future cash flows and thus there will be results of transactions related to operations the firm intends to discontinue. If the firm does generate future transactions before disposing of the disposal group, it will report that revenue in continuing operations revenue.
D) There are 4 criteria that must be met to classify a disposal group as held for sale.
 
 
163.
Which of the following correctly describes U.S. GAAP accounting for convertible 167) bonds and the implication of that requirement?
A) Separation of debt and equity components; interest expense is overstated.
B) No separation of debt and equity components; interest expense is overstated. C) No separation of debt and equity components; interest expense is understated. D) Separation of debt and equity components; interest expense is understated.
 
 
164.
Which of the following does not accurately describe the "ownership" perspective of the 136) firm?
A) Its focus is on owners' capital.
B) Its focus is on the firm's net capital deployed.
C) It is the prevailing view of GAAP.
D) It requires that financing transactions generate income or loss.
 
 
165.
Which of the following does not accurately describe the presentation of software 194) development costs on the statement of cash flows?
A) The presentation of software development costs is based upon the determination of technological feasibility.
B) Reclassifying software development costs from the investing to the operating section of the cash flow statement improves interfirm comparability.
C) GAAP contains bright-line criteria for determining technological feasibility which provides an opportunity for management to distort or manipulate results.
D) Reclassifying software development costs undoes the misleading effects for any firm that attempts to improve operating cash flows by lowering the technological feasibility threshold in the current period relative to prior periods.
 
 
166.
Which of the following does not describe how FASB endeavors to draft 42) pronouncements?
A) Avoid bright line rules.
B) Provide enough implementation guidance for consistent application. C) Clearly define bright-line rules.
D) Explain the accounting principles being applied.
 
 
167.
Which of the following does not reflect the accounting and impact on the statement of 196) cash flows for the sale or transfer of accounts receivable?
A) Receivable sales transfer future operating cash flows into the current period.
B) Receivable sales create an operating cash inflow on the cash flow statement.
C) Receivable transfers that are secured borrowings have no effect on operating cash
flows.
D) Receivable sales are not reported in the statement of cash flows as they do not
represent collections from the end customers and therefore are not part of operating cash flows.
 
 
168.
Which of the following is not a change in reporting entity? 50)
A) When there is a change in the subsidiaries to be consolidated or combined.
B) When combined statements replace statements of individual entities.
C) When a business combination is accounted for under the acquisition method. 
D) All of these answer choices are correct.
 
 
169.
Which of the following is not a factor that indicates multiple performance obligations in 88) a contract?
A) The goods or services in the contract are highly interdependent or interrelated.
B) The integration of multiple goods and services provides a significant service to the
customer.
C) One or more of the goods or services significantly modifies other goods or
services promised in the contract. D) All of these are factors.
 
 
170.
Which of the following is not an accurate statement related to the demand for financial 19) reporting?
A) Cross-country differences have no impact on capital funding opportunities and financial reporting practices.
B) Economically realistic reporting standards are low when there are few important capital providers.
C) External investors who provide capital demand a reporting system that accurately depicts a company past economic performance and its future prospects.
D) Comprehensive financial data is demanded when there is a broad base of external investors.
 
 
 
 
 
 
 
 
 

171.
Which of the following is not an action taken by shareholders when the earnings and 28) share price fall below acceptable levels?
A) Phone calls to management and outside directors. 
B) Filing a lawsuit for the lost value of the share price. 
C) Letters to management and outside directors.
D) Launching a proxy contest.
 
 
172.
Which of the following is not an indicator that operating activities cash flows might be 193) increased through distortion or manipulation?
A) A significantly large increase in accounts payable. B) Expensing expenditures that should be capitalized. C) A significantly large increase in accrued liabilities. D) A significantly large decrease in accounts receivable.
 
 
173.
Which of the following is not a reason why balance sheet changes do not map directly 188) into the corresponding account changes in the statement of cash flows?
A) Asset write-offs and impairments.
B) The effect of "playing the float" on accounts payable balances. C) Simultaneous noncash financing and investing activities.
D) Acquisitions of other companies.
 
 
174.
Which of the following is not considered an unusual or infrequently occurring item on 60) an income statement?
A) Corporate restructuring charges.
B) Operating income or loss from discontinued operations. C) Foreign currency transaction gains and losses.
D) Gains and losses from sales of investments.
 
 
175.
Which of the following is not correct with respect to accrual accounting? 48)
A) Accrual accounting does not decouple measured earnings from operating cash
inflows and outflows.
B) Reported accrual accounting net income for a period always provides an accurate
picture of underlying economic performance.
C) Accrual accounting can produce large discrepancies between the firm's reported
profit performance and the amount of cash generated from operations.
D) The principles that govern revenue and expense recognition under accrual
accounting are designed to alleviate the mismatching problems that exist under cash-basis accounting.
 
 
176.
Which of the following is not true regarding the tax note to the financial statements? 131)
A) The tax note can describe how financial reporting differs from tax accounting.
B) The tax note can explain how foreign tax rates affect income tax expense.
C) The tax note is never required to include any information on foreign tax rate
implications.
D) The tax note can describe how tax disputes may affect future tax payments.
 
 
177.
Which of the following items is not a type of accounting change? 68) A) Change in accounting principles used; for example, a change from LIFO to FIFO.
B) Change in accounting estimate; for example, a change in the useful life or salvage
value of a depreciable asset.
C) Change to consolidated financial statements from individual financial statements. D) Change in the majority owner of the company.
 
 
178.
Which of the following properly reflects the impact of foreign currency translations on 189) inventory valuations?
A) Differences in inventory valuation affect only firms using the temporal method.
B) The change in inventory value presented in the balance sheet and statement of
cash flows will map directly.
C) Differences in inventory valuation affect only firms using the current rate method
of translation.
D) Differences in inventory valuation occur under both the current and temporal
methods of translation.
 
 
179.
Which of the following statements concerning IFRS and the statement of cash flows is 197) correct?
A) When large foreign companies that follow IFRS prepare the statement of cash flows they overwhelmingly use the direct method to prepare the cash flow from operating activities section.
B) IFRS rules require companies that use the direct method to also provide a reconciliation of net income to cash flows from operating activities (essentially the indirect method).
C) IFRS rules permits companies that use bank overdrafts repayable on demand as part of their normal cash management activities to include those amounts as a component of cash and cash equivalents.
D) IFRS permits companies to classify interest paid, interest received, and dividends received as part of either investing or operating activities.
 
 
180.
Which of the following statements does not accurately describe issues pertaining to 185) preparation of the cash flow statement?
A) Changes in working capital accounts and fixed asset accounts will always have to correspond with the changes in these accounts within the statement of cash flows.
B) Simultaneous non-cash financing and investing activities such as the purchase of a building by incurring a mortgage do not need to be reported within the investing and financing activities sections of the cash flow statement.
C) The retirement of a fixed asset that is not fully depreciated resulting in a loss equal to the retired asset's book value creates a discrepancy with respect to changes in the balance sheet relative to what is reported in the investing activities section of the cash flow statement.
D) The increase in the fixed asset accounts due only to a translation adjustment resulting from the fall of the dollar will not create an investing cash flow within the investing activities section of the cash flow statement.
 
 
181.
Which of the following statements does not accurately reflect the financial accounting 162) for compensatory stock option plans?
A) The compensation expense is not adjusted for changes in the market value of the stock options during the service (vesting) period.
B) The paid-in capital stock options account is credited when compensation expense is recorded each year.
C) Total owners' equity is increased by the par value of the common stock issued when the options are converted.
D) Compensation expensed is allocated equally over the service (vesting) period.
 
 
182.
Which of the following statements does not apply to the installment sales method? 99)
A) The deferred gross profit account is generally classified as a contra-account to
accounts receivable.
B) The accounting system must match cash collections with the specific sales year to
which the cash collections relate.
C) Deferred gross profit on installment sales is generally treated as a deduction from
installment sales in calculating the gross profit percentage.
D) Selling, general and administrative expenses related to installment sales are treated
as period costs.
 
 
183.
Which of the following statements does not correctly describe an adjustment to net 175) income in determining cash flows from operating activities when using the indirect
method?
A) Amortization of bond premium will be deducted from net income. B) An increase in inventory will be added to net income.
C) An increase in accounts payable will be added to net income.
D) A decrease in accounts receivable will be added to net income.
 
 
184.
Which of the following statements is correct if treasury stock costing $25,000 was sold 137) for $27,500?
A) Total owners' equity increases $2,500. B) Total owners' equity increases $27,500. C) Total owners' equity increases $25,000. D) Net income increases $2,500.
 
 
 
 
 
 
 
 
 

185.
Which of the following statements is correct when a company has a complex capital 147) structure?
A) The company might have convertible bonds outstanding.
B) Diluted earnings per share and basic earnings per share must both be shown on the
income statement.
C) Diluted earnings per share must be shown on the income statement. D) The company must have participating preferred stock outstanding.
 
 
186.
Which of the following statements is not correct regarding a company's financial 7) statements?
A) They may present a picture of the company at a moment in time.
B) They reflect economic events that affect the company.
C) They are comparable to the statements of other companies as all publicly held
companies follow the very precise science of accounting.
D) They may describe changes that took place over a period of time.
 
 
187.
Which of the following statements is not true regarding cash flow from operating 133) activities?
A) The direct method begins with net income and then shows the differences between operating cash flow and net income.
B) Each line item in a direct method cash flow statement is actually a cash flow.
C) There are two methods for presenting cash flow from operating activities.
D) Most firms use the indirect method for presentation.
 
 
188.
Which of the following statements is not true regarding the adoption of ASC Topic 606 101) guidance for revenue recognition?
A) When using the cumulative approach, the prior three years of financial statements need to be restated.
B) Under the cumulative effect, the firm determines how the balance sheet would differ as of the first day of the year of adoption.
C) Upon adoption, entities can choose between the retrospective approach or the cumulative effect approach.
D) Under the retrospective approach, each period presented is restated to what the financial statements would have been had the new standard always been in place.
 
 
189.
Which of the following statements is not true regarding the treatment of warranties 100) under the new revenue recognition guidance in ASC Topic 606?
A) A warranty that covers services that are normally considered routine maintenance is an assurance warranty.
B) Warranties that provide services beyond assuring the product is defect-free at the time of sale are separate performance obligations.
C) The length of the warranty period should be considered.
D) A warranty that assures the product is free of defects is not a distinct performance
obligation.
 
 
190.
Which of the following transactions would be reported within the investing activities 184) section of the cash flow statement?
A) The sale of a building in exchange for a parcel of land.
B) The acquisition of treasury stock in exchange for cash.
C) The exchange of a stock investment in order to retire a long-term debt. D) The cash sale of a building at a loss.
 
 
191.
Which of the following would be included in the statement of cash flows in the 187) financing activities section?
A) Issuing common stock in exchange for a building.
B) Issuing a new class of common stock.
C) Issuing common stock in exchange for equipment will create a cash outflow in the
investing activities section of the cash flow statement and a cash inflow in the
financing activities section of the cash flow statement. D) Issuing common stock in exchange for land.
 
 
192.
Which of the following would not be considered a revenue recognition abuse? 77) A) Recording goods on layaway for a customer as a final sale.
B) Recording revenue on goods ready for delivery to the customers, segregated in the
company warehouse without a bill-and-hold arrangement in the contract.
C) Recording goods on consignment as part of inventory when there is a right of
return.
D) Recording revenue on a large shipment to a customer whose ability to pay is not
reasonably assured.
 
 
193.
Which one of the following events would be considered an unusual or infrequent event? 62) A) a tornado in Kansas.
B) an earthquake in southern California.
C) an earthquake in New York.
D) a flood in St. Louis near the Mississippi River.
 
 
194.
Which one of the following has statutory authority to determine accounting rules for 41) companies whose securities are owned by the general public?
A) State Boards of Accountancy
B) Securities and Exchange Commission
C) Financial Accounting Standards Board
D) American Institute of Certified Public Accountants
 
 
195.
Which one of the following types of disclosure costs is the cost of disclosing the 34) company's pricing strategies?
A) Litigation cost
B) Political cost
C) Competitive disadvantage cost
D) Information collection, processing, and dissemination cost
 
 
196.
Which statement below describes efficient market investors? 16)
A) They believe that any new development is quickly and correctly reflected in the
stock price.
B) They presume they have no insight beyond the share price.
C) They use financial statements to assess risk and dividend yields to make portfolio
decisions.
D) All of these answer choices are correct.
 
 
197.
Which statement is not true regarding the conservatism convention in accounting? 23) A) Conservatism is sometimes used to defend poor accounting judgments.
B) Conservatism strives to ensure that business risks and uncertainties are adequately
reflected in the financial statements.
C) Conservatism means we only record that of which we are 100% certain.
D) Conservatism guides us to choose the approach that leads to lower assets or higher
liabilities.
 
 
198.
Whose responsibility is it to ensure that the company's financial information is properly assembled, classified, characterized, and presented clearly and concisely in order to
make it understandable?
A) The SEC by enforcing reporting standards.
B) FASB when drafting generally accepted accounting principles. C) Management of the company publishing the statements.
D) The public accounting firm performing the audit.
 
 
 
 
 
 
 
 
 

199.
Wilson, Inc. sells, installs and maintains manufacturing equipment. The contract with 98) its customers to purchase equipment includes installation and includes a one-year maintenance contract, renewable for up to five years. Because the useful life of the
equipment is expected to be five years, the company can reasonably expect its
customers to renew the maintenance contracts for the full five years. Wilson records the cost of installation of the equipment as a capitalized contract and amortizes the cost over the five-year maintenance agreement period. Because of a defect in model A5403, Wilson anticipates that many of its customers will trade in the model and not renew the maintenance contracts. Wilson, Inc. should:
A) do nothing until the customers fail to renew the maintenance contracts.
B) write down the contract asset and recognize a loss equal to the difference between
the amount of maintenance contracts expected and the carrying amount.
C) write down the full amount of installation costs.
D) write down the full amount received for maintenance contracts for the full five
years.
 
 
200.
Yashito Corporation sells cameras and accessories. The company's newest model, 90) popular with preteens, takes wallet-sized instant photos. The wholesale price for this
camera is $50. In addition, the company sells carrying cases ($25), film cartridges
($15), and selfie lenses ($10) made especially for this camera. During the holiday
season, Yashito offers the camera, film, carrying case, and selfie lens as a package for $75. For each package sold, the transaction price allocated to the camera is:
A) $75.
B) $50.
C) $100.
D) $37.50.
 
 
 

 

Accrual accounting decouples measured earnings from operating cash inflows and outflows.

 

Cash-basis accounting provides the most useful measure of future operating performance.

 

Net asset valuation and net income determination are inextricably intertwined.

 

While the earnings process is the result of many separate activities, it is generally acknowledged that there is usually one critical event or key stage considered to be absolutely essential to the ultimate increase in net asset value of the firm.

 

The matching principle says that expenses are matched to the revenue recognized during the period, not that revenue is matched to the period’s expenses.

 

Period costs would include costs like advertising or insurance where the linkage between these costs and individual sales is difficult to establish.

 

Traditional financial reporting presents forecasted cash flow information.

 

Gains and losses from continuing operations that are not typical recurring costs are presented as a separate line in the income from continuing operations section of the income statement.

 

Each set of EPS numbers includes separately reported numbers for income from continuing operations and the items that appear below it on the income statement.

 

The change in equity of an entity during a period from transactions and other events from non-owner sources is known as comprehensive income.

 

Selected unrealized gains (or losses) sometimes bypass the income statement and are reported as direct adjustments to a stockholders’ equity account.

 

The basic accounting equation may be expressed as assets = liabilities – owners’ equity.

 

To get revenue and expense account balances to zero an adjusting entry is made.

 

For each transaction, the dollar total of the debits must equal the dollar total of the credits.

 

U. S. GAAP permits companies to report components of other comprehensive income (OCI) as part of the statement of changes in stockholders’ equity.

 

The point within the operating cycle when the company’s net assets have increased is the point when revenue should be recognized.

 

Which of the following statements best describes expenses?

 

The expense matching principle states that

 

The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10.

 

Under the cash basis, how much revenue should Canon recognize in October?

 

Under the accrual basis, how much revenue should Canon recognize in November?

 

Using the accrual basis, which one of the following entries would properly record Canon’s revenue recognition for October?

 

Hickory Furniture Company paid for the following costs during the month of May:

 

Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers.   These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June).

 

What is the amount of Hickory’s cash-basis expenses for the month of May?

 

What is the amount of Hickory’s May expenses when applying the matching principle?

 

Which statement below best describes when to record an expense?

 

Which of the following causes basic EPS to differ from fully diluted EPS?

 

Which of the following is not correct with respect to accrual accounting?

 

What type of cost is the advertising expense?

 

Revenue is recognized when

 

Net income recognition always increases

 

The real accounting issue in net income recognition is the

 

Which of the following is not a change in reporting entity?

 

Which of the following does not properly state the reporting requirements when a change in reporting entity occurs?

 

Accounting errors or irregularities can occur for which reasons?

 

Which of the following parties are responsible for the detection of errors and accounting irregularities in a company’s financial statements?

 

Restatements occur for a number of reasons. Which of the following is the most common type of restatement?

 

Misstatements of tax expense, improper restructuring charges, asset impairment charges and gains/losses related to acquisitions are which type of restatement?

 

The matching principle requires that expenses be recognized

 

Traceable costs are also called

 

The statement, “linkage between these costs and individual sales is difficult to establish,” refers to

 

Income statements are classified into sections to

 

Which item is not correct with respect to the treatment of sustainable and transitory items and a company’s income statement?

 

The rationale behind the rules for multiple-step income statements is to subdivide the income in a manner that facilitates

 

The best measure of a firm’s sustainable income is

 

On the income statement, income from discontinued operations is shown

 

When transitory earnings are present, which of the following correctly depicts the order used on the income statement?

 

Black & Decker decides to discontinue producing toasters in lieu of more versatile toaster ovens. In the process of discontinuing this line, the company disposes of the old production equipment and buys new equipment.  The disposal of the old equipment would be reported in the income statement as

 

When reporting unusual or infrequent items in the income statement which of the following is not correct?

 

A component of an entity may be a/an

 

Which of the following best describes the reporting for discontinued operations?

 

The discontinued operations section of the income statement is comprised of which one of the following?

 

Which of the following is not considered an unusual or infrequently occurring item on an income statement?

 

For a disposal group to be considered held for sale, which of the following conditions are required to be met?

 

Which one of the following events would be considered an unusual or infrequent event?

 

A special one-time charge resulting from corporate restructurings would be reported on the income statement as a/an

 

When reporting a change in an accounting principle, the general rule requires that the current year’s income from continuing operations reflect

 

Accounting treatment for changes in accounting principle are best described as:

 

A cumulative effect of a change in an accounting principle is measured as

 

When using the retrospective approach for a change in accounting principle, disclosure rules require that

 

Which of the following items is not a type of accounting change?

 

When a company changes from LIFO to another inventory method, the change is reported

 

When a company changes from straight-line depreciation to double-declining-balance depreciation, the change is reported

 

When a company changes from any inventory method to LIFO, the change is reported

 

Royal, Inc. discovered that equipment purchased on January 1, 2018 for $300,000 will not last as long as originally estimated. The firm was depreciating the equipment at the rate of $40,000 per year with an estimated salvage value of $20,000.  New estimates on January 1, 2021 indicate that the equipment will last a total of five years with no salvage value.  How much should Royal, Inc. record as depreciation in 2021?

 

For what reasons does management have incentive to meet analysts’ expectations?

 

Which statement below is not correct with respect to earnings management?

 

GAAP requires that each set of EPS numbers includes separately reported numbers for all of the following except

 

When analysts provide basic EPS for income from continuing operations that exclude the effects of special (i.e., nonrecurring) gains or losses and certain other non-cash charges, such earnings are frequently referred to as

 

The change in equity of an entity during a period from transactions and other events from non-owner sources is known as

 

Which one of the following is part of other comprehensive income (OCI)?

 

GAAP requires firms to report comprehensive income

 

Current U.S. GAAP permits firms to display the components of other comprehensive income in which of the following formats?

 

Other Comprehensive Income (OCI) is used both in U.S. GAAP and IFRS. Which of the following statements is correct?

 

The basic accounting equation may be expressed as

 

Any increase in an asset may be offset by

 

Which of the following statements is correct regarding revenue and expense accounts?

 

A debit

 

Adjusting entries must be made

 

Accumulated depreciation is a/an

 

Entering the DR or CR amount in the appropriate left or right side of the affected T-account is called

 

Which of the following situations may create an accounting error?

 

A debit does which of the following?

 

Which of the following is a true statement?

 

To get revenue and expense account balances to zero requires a/an

 

T-account analysis can be used to gain insights into why accrual basis earnings and cash basis earnings differ and to

 

Working capital accounts include

 

Adjusting entries are used in all but which of the following situations?

 

Recent changes in _______ accounting standards require companies to group items within OCI based on __________:

 

When actuarial estimates related to defined benefit pension plans are adjusted

 

Earnings management can occur through a variety of manipulations including:

 

Which of the following would not be considered a revenue recognition abuse?

 

For an investor each share of common stock and each share of preferred stock owned usually entitles the owner to one vote.

 

The realized gain on a passive investment in equitysecurities is calculated by comparing the selling price to the original cost.

 

The upward or downward adjustment to reflect fair value of equity investment securities is a direct debit or credit to a fair value adjustment account.

 

An unrealized loss on investment securities results in a deferred tax asset because the loss reduces pre-tax income but has no effect on taxable income.

 

When the ownership percentage of voting stock exceeds 20 percent, GAAP presumes that the investor is able to exert significant influence over the investee company.

 

When the investor pays $100,000 to acquire 40% of a company’s outstanding voting shares at a time when the fair value of the company’s net assets are $175,000, the resulting goodwill amount is $30,000.

 

When two companies form a joint venture and each company owns exactly 50% of the joint venture, both parents will account for the joint venture using the equity method.

 

Consolidated financial statements must always be prepared when a corporation acquires more than 50% of the voting stock of another corporation.

 

Under purchase method accounting for a business combination, the subsidiary’s assets and liabilities are reported on the consolidated balance sheet at 100 per cent of their fair values at the date of purchase regardless of whether there is a noncontrolling interest.

 

The amount of goodwill recognized on a consolidated balance sheet will always be the same when accounting for a business combination under either the acquisition method or the purchase method.

 

Foreign currency nonmonetary assets and liabilities for non-free-standing subsidiaries are translated using the current exchange rate at the balance sheet date.

 

Any foreign translation gains or losses using the current rate method should be reported as other comprehensive income.

 

IFRS does not permit use of the fair value option for equity-method investments.

 

While both IFRS and GAAP require companies to consolidate entities they control, IFRS defines control more narrowly than GAAP.

 

When a company has available-for-sale debt securities, the interest income pattern in the income statement is identical to the interest income pattern under the held-to-maturity classification.

 

A minority active ownership is represented by

 

Investments in debt securities that the investor intends to hold for a short time and that are purchased in an attempt to profit from near-term price changes are classified as

 

Prior to the 2018 effective date of accounting for minority passive equity investments, investments in stock securities designated by the investor to be held for the long-term are classified as

 

In 2018 under the rules for minority passive investments in equity securities, which of the following statements is not correct?

 

Which of the following statements regarding minority passive investments in equity securities is not correct for 2018 and thereafter?

 

Which of the following statements regarding minority passive investments in stock securities is correct for 2018 and thereafter?

 

Investments in debt securities made to generate trading gains are classified as

 

Minority active equity investments are accounted for by the

 

In accounting for minority passive equity investments in 2018 and thereafter, the unrealized holding gain or loss on equity securities is recorded on

 

A company purchased shares of stock of another company for $75,000 during 2018. The shares’ fair value was $79,000 at the end of 2018 and $81,000 at the end of 2019. Which of the following statements correctly describes the investor’s accounting for the investment?

 

Perry Investments bought 2,000 shares of Able, Inc. common stock on January 1, 20X1, for $20,000 and 2,000 shares of Baker, Inc. common stock on July 1, 20X1 for $24,000. Baker paid $2,400 of previously declared dividends to Perry on December 31, 20X1. At the end of 20X1, the fair value of the Able stock was $18,000 and the fair value of the Baker stock was $28,000. The stocks were purchased for short-term speculation prior to the effective date of the change in accounting rules for equity investments. Perry owns 10% of each company. 

 

Perry should record the receipt of the Baker dividend as

 

Perry should record the year-end adjustment as

 

Of the following items, which would not be a circumstance that may trigger goodwill impairment?

 

Central Investments bought 4,000 shares of Benet Company common stock on January 1, 2018, for $20,000, and 4,000 shares of Roy Company common on July 1, 2018, for $24,000. Benet declared dividends on December 31, 2018 of $3,000. At the end of 2018, the fair value of Roy was $30,000 and the fair value of Benet was $28,000. At the end of 2019, the fair value of Roy was $32,000 and the fair value of Benet was $24,000. These investments are reported in the long-term asset section of Central’s balance sheet. Central owns 8% of Benet Company and 12% of Roy Company.

 

Assume that the Roy Company stock was sold during 2020 for $31,000. The proper accounting recognition at the date of sale was

 

The 2019 year-end adjustment resulted in

 

How much income was reported on the 2018 income statement?

 

The Shasta Corporation began operations in 20X1. Shasta’s portfolio of minority passive investments reported the following on December 31, 20X1:

 

Which of the following is correct with respect to the accounting for Shasta’s investment portfolio?

 

Almond Industries owns an investment that experienced a decline during 2019 that has been judged to be “other than temporary”. The investment is held in Almond’s minority passive equity investment portfolio. It was purchased in March 2018 at a cost of $460,000.  At the end of 2018, the fair value of the investment was $520,000.  At the end of 2019, the fair value of the investment is $410,000.  What amount of loss will Almond Industries report on its income statement for the year ending December 31, 2019 related to this investment?

 

Which of the following statements does not properly reflect the new rules for accounting for minority equity investment securities, if fair value is not readily determinable?

 

Palmon Industries owns an investment that experienced a decline during 2019 that has been judged to be “other than temporary”. The investment is held in Palmon’s available-for-sale debt securities portfolio, and Palmon expects to sell the impaired security before recovery of its amortized cost basis less current-period credit loss. The debt security was purchased in March 2018 at a cost of $460,000.  At the end of 2018, the fair value of the investment was $520,000 and its amortized cost basis was $454,000.  At the end of 2019, the fair value of the investment is $410,000 and its amortized cost is $448,000.  What amount of loss will Palmon Industries report on its income statement for the year ending December 31, 2019 related to this investment?

 

Ralmond Industries owns an investment that experienced a decline during 2019 that has been judged to be “other than temporary”. The investment is held in Ralmond’s available-for-sale debt portfolio, and Ralmond does not expect to sell the security and it is unlikely that Ralmond will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. It was purchased in March 2018 at a cost of $460,000.  At the end of 2018, the fair value of the investment was $520,000 and its amortized cost basis was $454,000.  At the end of 2019, the fair value of the investment is $410,000 and its amortized cost is $448,000.  At the end of 2019, the present value of expected cash flows associated with the security discounted at the effective interest rate implicit when it was originally acquired is $432,000.  What amount of loss will Ralmond Industries report on its income statement for the year ending December 31, 2019 related to this investment?

 

When the ownership percentage of stock exceeds 20 percent but is less than 50 percent, GAAP presumes that the investor

 

When an investor owns less than 20 percent of the investee company, the investor may still be able to exert influence over the investee company if the other stock is

 

When an investor is capable of influencing the investee company’s dividend policy, the investor is able to augment its own reported income when using

 

A minority active investment is accounted for by the

 

On January 1, 2018, Ramsey Company purchased 35% of the outstanding common shares of the Vapor Company for $70,000 when the net assets were $200,000. During 2018, Vapor Company earned $80,000 and declared a dividend of $40,000. Ramsey accounted for the investment using the equity method.

 

Ramsey’s share of Vapor’s income for 2018 is

 

On January 1, 2018, Ramsey Company purchased 35% of the outstanding common shares of the Vapor Company for $70,000 when the net assets were $200,000. During 2018, Vapor Company earned $80,000 and declared a dividend of $40,000. Ramsey accounted for the investment using the equity method.

 

What is the balance in the investment account as of December 31, 2018?

 

On January 1, 2018, the Regal Company purchased 30% of the outstanding voting stock of the Air Corporation for $300,000; the book value of Air’s net assets at the date of purchase was $900,000. Regal was willing to pay more than the book value of the acquired shares because Air’s depreciable assets with a ten-year remaining life were undervalued. Regal uses straight-line depreciation.  During 2018, Air reported net income of $75,000 and paid dividends of $30,000.

 

The income reported by Regal during 2018 pertaining to the Air investment was

 

Regal has elected the fair value option to account for equity method investments. The fair value of the Air investment as of December 31,2018 was $295,000. The income reported by Regal during 2018 pertaining to the Air investment was

 

Regal has elected the fair value option to account for equity method investments. The fair value of the Air investment as of December 31,2018 was $295,000. The carrying value of the Air investment on December 31, 2018 was

 

At the acquisition date of an active investment, when the cost of the shares acquired exceeds the underlying book value, the investor is required to amortize any excess that is attributable to separately identifiable assets have an indefinite life. Which of the following is a separately identifiable asset that might not be recognized on the investee’s balance sheet?

 

On January 1, 20X1, Como Company purchased 45% of the outstanding common shares of the Lite Company for $200,000. The net assets of Lite Company totaled $400,000. The inventory had a book value of $100,000 and a fair value of $120,000. Excess cost attributable to inventory is written off in 20X1. During 20X1, Lite Company earned $200,000 and declared a dividend of $40,000 for the year.

 

The amount of goodwill implicit in Como’s transaction is:

 

The excess amount paid for Lite Company attributable to inventory is

 

The amount of the excess cost over book value attributable to inventory written off in 2018 is

 

The carrying value of the Lite investment at the end of 2018 is

 

The fair value of the Lite stock investment at the end of 2018 was $210,000. Which of the following amounts are correct assuming that Como elected to use the fair value option to account for the Lite investment?

 

Which of the following does not properly describe the accounting for an investment using the equity method when the fair value option has been elected?

 

If the parent company owns more than 50% of the subsidiary’s voting stock, and effectively has control of the subsidiary, consolidated financial statements are

 

When two companies form a joint venture and each company owns exactly 50% of the joint venture

 

Consolidation adjustments that are made to prepare consolidated financial statements of the parent and subsidiary are required in order to

 

Which of the following statements does not properly describe the accounting for business combinations?

 

The Parent Company acquired 80% of the Sub Corporation’s voting stock on January 1, 2018. Which of the following is not an accurate description of the consolidated balance sheet on January 1, 2018?

 

On January 1, 2018, the Shaw Corporation acquired 70% of the Ward Company’s voting stock for $1,050,000. Ward’s net assets had a book value of $1,200,000; the fair value of Ward’s equipment was $200,000 greater than its book value. The book value of Shaw’s assets immediately after the acquisition of Ward totaled $3,750,000 while Ward’s assets had a book value of $2,150,000. What was the amount of total consolidated assets as of January 1, 2018?

 

On January 1, 2018, the Knight Corporation acquired 80% of the Red Company’s voting stock for $1,500,000. Red’s net assets had a book value of $1,350,000; the fair value of Red’s land was $325,000 greater than its book value. The book value of Knight’s assets immediately after the acquisition of Red totaled $6,850,000 while Red’s assets had a book value of $1,350,000. What was the amount of goodwill reported on the January 1, 2018 consolidated balance sheet?

 

On January 1, 2018, the Husky Corporation acquired 90% of the Spartan Company’s voting stock for $2,700,000. Spartan’s net assets had a book value of $2,450,000; the fair value of Spartan’s building was $325,000 greater than its book value. The book value of Husky’s net assets immediately after the acquisition of Spartan totaled $6,850,000.

 

What is total stockholders’ equity on the January 1, 2018 consolidated balance sheet?

 

What is the amount of goodwill to be reported on the January 1, 2018 consolidated balance sheet?

 

Hill Company entered into the following inventory transactions with its investees during 2018:

 

Sold inventory to Grant Inc. for $150,000. The inventory originally cost Hill $120,000. Grant sold 75% of the inventory during 2018.
Hill owns 15% of the voting stock of Grant and does not use the equity method to account for the Grant investment.

Sold inventory to Thornton Inc. for $400,000. The inventory originally cost Hill $320,000. Thornton sold all of this inventory during 2018. Hill owns 100% of the voting stock of Thornton.
 

Which of the following adjustments is correct with respect to preparing Hill’s 2018 consolidated financial statements?

 

Which of the following statements does not accurately describe the current accounting standards for goodwill?

 

When a firm has noncontrolling interests, analysts may compute and review all except which of the following return on equity ratios?

 

The disclosure rules pertaining to GAAP accounting for business combinations complicates financial analysis for which of the following reasons?

 

Which of the following criteria is applicable with respect to determining when a variable interest entity (VIE) must be consolidated into the sponsoring firm’s financial statements?

 

Which of the following does not accurately inform about a variable interest entity (VIE)?

 

On December 1, 2018, a U.S. company sold merchandise to a foreign company for 750,000 yuan. The payment in yuan is due on January 31, 2019. The spot rate was as follows: $0.20 per yuan on December 1, 2018; $0.19 per yuan on December 31, 2018; and $0.21 per yuan on January 31, 2019 when the payment was received. Which of the following incorrectly describes the accounting for this foreign currency transaction?

 

On November 1, 2018, A U.S. company sold merchandise to a foreign company for 375,000 krone. The payment in krone is due on January 31, 2019. The spot rate was as follows: $0.20 per krone on November 1, 2018; $0.21 per krone on December 31, 2018; and $0.19 per krone on January 31, 2019 when the payment was received. Which of the following incorrectly describes the accounting for this foreign currency transaction?

 

Which of the following correctly describes the accounting for assets and liabilities that were created from foreign currency transactions?

 

When consolidating foreign subsidiaries, the foreign subsidiary’s financial numbers must be translated into the parents’ currency unit. Under U.S. GAAP if the foreign subsidiary is a self-contained unit the

 

Which of the following is not correct with regard to the translation of a self-contained foreign subsidiary?

 

When accounting for a non-free-standing foreign subsidiary, translation exchange rates are accounted for using the temporal method which involves reporting all revenue accounts at the

 

Which of the following does not accurately describe the accounting for debt securities under IFRS?

 

When accounting for a non-free-standing foreign subsidiary, translation exchange rates are accounted for using the temporal method which involves reporting all cost of goods sold accounts at the

 

When accounting for self-contained foreign subsidiaries, the parent company uses which one of the following methods for the translation of its financial statements into dollars?

 

Which of the following is not correct regarding IFRS with regard to accounting for investments?

 

Mesquite, Inc. has held-to-maturity debt securities it purchased in 2018. At December 31, 2019, the amortized cost basis of the securities is $220,000 and the fair value of the securities is $208,000. The present value of estimated future cash flows discounted at the original effective interest rate is $210,000.  Mesquite, Inc. uses IFRS for its external reporting.  What amount of loss, if any, will Mesquite, Inc. report related to these securities for 2019?

 

Susqua, Inc. has held-to-maturity debt securities it purchased in 2018. At December 31, 2019, Susqua, Inc. reported a $120,000 impairment loss related to these securities. During 2020, the debtor was successful in registering a new patent which improved the debtor’s operating outlook. This change of events resulted in a reversal of $45,000 of the impairment loss. At December 31, 2020, the fair value of the debt securities had increased by $68,000 over the impaired value previously recorded. Susqua, Inc. uses IFRS for its external reporting. How much, if any, of this reversal can Susqua, Inc. report in its income for 2020?

 

Under IFRS, SPEs are consolidated when evidence indicates that the reporting company “controls” the SPE. Control is presumed if which of the following conditions exist?

 

The reporting entity performs activities on behalf of the SPE.
The SPE has decision-making powers over the activities of the reporting entity.
The reporting company has exposure, or rights, to variable returns from its involvement with the investee
The reporting company has the ability to use its power over the investee to affect the amount of the firm’s returns
 

If Sun Company acquired Star, Inc. many years ago in a pooling of interests transaction, the entry would have used which one of the following to account for the pooling?

 

Pooling of interests method for accounting for business combinations was criticized because it tended to allow recording of acquisitions

 

Financial analysts must be wary of business acquisitions accounted for as pooling of interests because this method tends to inflate the

 

For debt securities, if a firm intends to sell the security or it is more likely than not that the firm will be required to sell the security before recovery of its amortized cost basis less current-period credit loss, then the amount of impairment

 

The difference between the amortized cost basis of a debt security and the present value of expected cash flows for that security discounted at the effective interest rate implicit in the debt instrument when it was originally acquired is called the

 

Accrual accounting involves subjective judgments that can introduce measurement errors and uncertainty into reported earnings.

 

The statement of cash flows provides relevant information to lenders, investment bankers, and investors to help them analyze a company's cash flows from its operating, investing, and financing activities.

The direct method and the indirect method are two alternative presentations for cash flows from investing activities.

 

A cash collection from a customer pertaining to a sale from the prior year will result in cash flow being reported in this year's statement of cash flows.

 

Both the direct method and indirect method will arrive at the same amount for cash flow from operating activities.

 

For a firm using the indirect method to prepare cash flows from operating activities, a decrease in a company's pension liability account should be deducted from net income to arrive at cash flow from operating activities.

 

An increase in cash flows from financing activities will occur when a company distributes a stock dividend.

 

The FASB addressed simultaneous financing and investing activities by requiring they be ignored.

 

For a firm using the indirect method, changes in inventories due to acquisition of another company are not included as part of the inventory adjustment to accrual-basis income.

 

A significant increase in capital expenditures reported in the investing section of the cash flow statement that coincides with a significant decrease in operating expenses as a percentage of sales may be an indication that the firm is improperly capitalizing costs that should be expensed.

 

If Firm A and Firm B are identical in every sense except that Firm A has a finance lease as defined under ASC 842 and Firm B an operating lease, the operating cash flows for Firm A will be greater than those for Firm B.

 

Delaying the payment of accrued expenses until a later period is a technique that management can use to manipulate the current year's cash flow from operating activities.

 

Under IFRS, firms that use bank overdrafts repayable on demand as part of their normal cash management activities must include those overdrafts as part of financing activities.

 

IFRS encourages firms to use the direct method. The result is that firms that follow IFRS rarely use the indirect method of presenting cash flows from operating activities.

 

Under IFRS rules, if a firm uses the direct method, a reconciliation of net income to cash flows from operating activities is not required.

 

Accrual accounting net income can differ from operating cash flows for all of the following reasons except:

 

GAAP mandates that firms provide a:

 

Cash flows arising from the acquisitions and divestitures of other companies are cash flows from:

 

Cash flows arising from the issuance of company bonds are cash flows from:

 

The statement of cash flows is used by outside parties in all but which of the following ways?

 

Which of the following would be reported in the cash flow from operating activities section of the cash flow statement under the direct method?

 

The method of preparing the statement of cash flows used by the majority of firms is the:

 

Which of the following adjustments is commonly made to the cash flow from operating activities under the indirect method because it does not cause cash to increase or decrease?

 

Some analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net operating cash flow provide a yardstick for measuring the:

 

Under U.S. GAAP, which of the following is not included in net cash flow from operating activities under the direct method?

 

Analysts' preferences regarding use of the direct method or indirect method may be based on all except which of the following reasons?

 

Which of the following is not an accurate description of the direct method?

 

The following data is for the Matt Company for 2018:

Loss on sale of equipment $ 4,000

Purchase of Ithaca Corp. bonds (face value $400,000) 375,000

Proceeds from sale of machinery 200,000

Dividends paid 25,000

Proceeds from sale of treasury stock 100,000

The amount reported as net cash from investing activities is:

 

The following data is for the Matt Company for 2018:

Loss on sale of equipment $ 4,000

Purchase of Ithaca Corp. bonds (face value $400,000) 375,000

Proceeds from sale of machinery 200,000

Dividends paid 25,000

Proceeds from sale of treasury stock 100,000

The amount reported as net cash from financing activities is:

A) $ (25,000).

 

Bruce Company reported net income for 2018 of $100,000. The company reported depreciation expense of $17,500 and amortization of $5,000. The company also reported a loss on the sale of equipment of $2,500. Based only on this information, the company would report cash flow from operating activities of:

 

A decrease in accounts receivable of $16,000 for the year:

 

An increase in inventory of $7,000 for the year:

 

A decrease in prepaid expenses of $8,000 for the year:

 

An increase in accounts receivable of $6,000 for the year:

 

The following data is for the Kris Company for 2018:

Gain on sale of equipment $ 8,000

Purchase of First Corp. bonds (face value $250,000) 275,000

Proceeds from sale of machinery 300,000

Dividends paid 50,000

Proceeds from sale of treasury stock 200,000

The amount reported as net cash provided by investing activities is:

 

The following data is for the Kris Company for 2018:

Gain on sale of equipment $ 8,000

Purchase of First Corp. bonds (face value $250,000) 275,000

Proceeds from sale of machinery 300,000

Dividends paid 50,000

Proceeds from sale of treasury stock 200,000

The amount reported as net cash provided by financing activities is:

 

Which of the following statements does not correctly describe an adjustment to net income in determining cash flows from operating activities when using the indirect method?

 

For a firm using the indirect method, which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities?

 

Under the indirect method, the gain on sale of equipment should be:

 

The cash flow statement of the United Company is in process for 2019. The United Company is reporting the following balances:

12/31/18 
12/31/19 
Equipment 
$ 
100,000 
$ 
170,000 
Loss on sale of equipment 
0 
10,000 
Accumulated depreciation—equipment 
75,000 
95,000 
 
 
 
 
 
 
 
 
During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash. Depreciation expense for 2019 is:

 

The cash flow statement of the United Company is in process for 2019. The United Company is reporting the following balances:

12/31/18 
12/31/19 
Equipment 
$ 
100,000 
$ 
170,000 
Loss on sale of equipment 
0 
10,000 
Accumulated depreciation—equipment 
75,000 
95,000 
 
 
 
 
 
 
 
 
During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.

Equipment purchases in 2019 were:

 

The cash flow statement of the United Company is in process for 2019. The United Company is reporting the following balances:

12/31/18 
12/31/19 
Equipment 
$ 
100,000 
$ 
170,000 
Loss on sale of equipment 
0 
10,000 
Accumulated depreciation—equipment 
75,000 
95,000 
 
 
 
 
 
 
 
 
During 2019, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash.

If these were the only investing activities, the cash flow from investing activities is a net cash:

 

The following information has been provided to you by your controller:

Net income $ 100,000 

Decrease in accounts payable $ 38,000 

Decrease in inventory $ 7,500 

Increase in accounts receivable $ 8,000 

Decrease in bonds payable $ 75,000 

Amortization of bond discount $ 9,400 

Depreciation expense $ 20,000 

Increase in income taxes payable $ 6,000 

What is the net cash flow from operating activities?

 

The following information has been provided to you by Watts Corporation:

Net income $ 175,300 

Increase in accounts payable 18,500 

Increase in inventory 17,500 

Increase in accounts receivable 9,700 

Increase in bonds payable 75,000 

Amortization of bond premium 5,400 

Depreciation expense 21,300 

Decrease in income taxes payable 7,300 

What is Watts Corporation's net cash flow from operating activities?

 

Under the indirect method, a loss on the sale of equipment should be:

 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below: 

Assets Increase(Decrease) 

Cash $ 480,000 

Accounts receivable 200,000 

Inventory 300,000 

Long-term investments 200,000 

Equipment (200,000 ) 

Accumulated depreciation (60,000 ) 

Liabilities and Stockholders' Equity 

Accounts payable $ (40,000 ) 

Dividends payable 400,000 

Notes payable—Current (200,000 ) 

Notes payable—Long-term 400,000 

Common stock, $1.00 par 300,000 

Additional paid-in capital 100,000 

Retained earnings 80,000 

Additional Information for 2019: 

Net income was $480,000 and dividends of $400,000 were declared. 

Common stock was issued for cash. 

A new long-term investment was acquired for $360,000. 

A long-term investment was sold for $160,000. 

Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000. The gain on the sale of equipment for 2019 is: 

 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below: 

Assets Increase (Decrease) 

****Same data as 51 

The depreciation expense for 2019 is: 

 

Explanation: The book value of equipment sold was $150,000 and the cost of the equipment was $600,000. 

Thus, the accumulated depreciation on equipment sold was $450,000. The accumulated depreciation balance decreased because the removal of equipment sold is more than the addition to accumulated depreciation for the expense for the year. Decrease in accumulated depreciation 
$ 
(60,000 
) 
Remove accumulated depr. of equipment sold 
450,000 
Depreciation expense 
$ 
390,000 
 
 
 
 
 
 
 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

Increase

(Decrease)

Assets 

Cash $ 480,000

Accounts receivable 200,000

Inventory 300,000

Long-term investments 200,000

Equipment (200,000 )

Accumulated depreciation (60,000 )

Liabilities and Stockholders' Equity 

Accounts payable $ (40,000 )

Dividends payable 400,000

Notes payable—Current (200,000 )

Notes payable—Long-term 400,000

Common stock, $1.00 par 300,000

Additional paid-in capital 100,000

Retained earnings 80,000

Additional Information for 2019:

Net income was $480,000 and dividends of $400,000 were declared.

Common stock was issued for cash.

A new long-term investment was acquired for $360,000.

A long-term investment was sold for $160,000.

Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000. The net cash flow from operating activities for 2019 is a:

 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below: 

 

The purchase of equipment during 2019 is: 

 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

 

The cash flow from investing activities for 2019 is a:

 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

 

The dividends actually paid during 2019 are:

 

Changes in the balance sheet accounts at June 30, 2018 and 2019 for the Poker Company are presented below:

 

The cash flow from financing activities for 2019 is a:

 

The Pulaski Corporation reported the following for the year ended December 31, 2018:

1/1/18 12/31/18

Premium on Bonds Payable $ 28,500 $ 25,750

Interest Payable $ 7,350 $ 9,500

Interest Expense $62,250

How much cash did Pulaski pay for interest during 2018?

 

How much cash did Keweenaw pay for interest during 2018?

 

Which of the following transactions would not be reported within the financing activities section of the cash flow statement?

 

Which of the following transactions would be reported within the financing activities section of the cash flow statement?

 

Which of the following transactions would be reported within the investing activities section of the cash flow statement?

 

A building costing $550,000 with accumulated depreciation of $225,000 was sold for $275,000 cash. Which of the following statements is correct with respect to preparing the cash flow statement if the indirect method is being used?

 

A company issued 1,000 shares of $10 par value common stock due to a previously declared stock dividend; the market value at both the date of declaration and distribution was $12 per share. Which of the following correctly describes the reporting of this stock issue within the financing activities section of the cash flow statement?

 

During 2018, Lang Corporation reported cost of goods sold of $775,000. During the year inventory decreased $25,000 and accounts payable increased $12,500. How much cash was paid to suppliers during 2018?

 

During 2018, Krug Company reported net sales of $1,025,000. During the year net accounts receivable increased $39,750 even though Krug wrote-off $7,150 of receivables as uncollectible; Krug uses the allowance method to account for bad debts. Krug's bad debt expense during 2018 was $20,500. How much cash was collected from customers during 2018?

 

The Superior Real Estate Corporation reported rental income totaling $175,000 for the year ending December 31, 2018. The following information was obtained from Superior Corporation's balance sheets:

1/1/18 12/31/18 

Unearned Rent $ 7,500 $ 6,750

Rent Receivable $ 9,250 $ 6,750

How much cash did Superior collect from its tenants during 2018?

 

Madrid Incorporated's 2018 income statement reported income tax expense of $635,375. During 2018, Madrid's income taxes payable account increased $19,735 while the deferred tax asset account increased $39,365. How much cash was paid for taxes during 2018?

 

Treasury stock costing $89,050 was sold for $94,375 cash. Which of the following statements accurately describes the reporting of this transaction within the cash flow statement assuming that the indirect method is used to determine net cash flows from operating activities?

 

Investing transactions that do not directly and immediately affect cash are:

 

Which of the following statements does not accurately describe issues pertaining to preparation of the cash flow statement?

 

The FASB addressed simultaneous financing and investing activities by requiring they be:

 

Which of the following would be included in the statement of cash flows in the financing activities section?

 

Which of the following is not a reason why balance sheet changes do not map directly into the corresponding account changes in the statement of cash flows?

 

Which of the following properly reflects the impact of foreign currency translations on inventory valuations?

 

Changes in balance sheet accounts from one year to the next may not map directly into the corresponding account changes in the statement of cash flows. Which of the following items is not a cause of such mapping differences?

 

When the year-to-year changes in comparative balance sheet accounts do not coincide with the changes implied from amounts reported on the statement of cash flows, the analyst may find useful information for reconciliation in notes to the financial statements and the:

 

Which of the following is not an indicator that operating activities cash flows might be increased through distortion or manipulation?

 

Which of the following statements does not correctly describe an issue pertaining to the comparability of the cash flow statement across firms?

 

Cash flow from operating activities:

 

Which of the following does not represent the impact of the use of stock options when comparing operating cash flows? 

 

Which of the following does not reflect the accounting and impact on the statement of cash flows for the sale or transfer of accounts receivable? 

 

Autumn Company uses IFRS to prepare its external financial reporting. During 2018, Autumn Company had the following transactions related to cash flows: 

Dividends received 16,000 

Interest paid 20,000 

Interest received 42,000 

With regard to the above information, which of the following is an acceptable classification as part of preparation of the statement of cash flows? Cash from operating activities 
Cash from/(used by)investing activities 
 

mpany uses IFRS to prepare its external financial reporting. During 2018, Autumn Company had the following transactions related to cash flows: 

Dividends paid 16,000 

Interest paid 20,000 

Interest received 42,000 

With regard to the above information, which of the following is acceptable as part of preparation of the statement of cash flows? Cash from operating activities 
Cash from/(used by) financing activities 
 

For nonfinancial firms reporting using IFRS rules, which of the following is correct?

 

Firms reporting using IFRS may present which of the following as either operating or investing cash flows?

 

Firms reporting using IFRS may present which of the following as financing cash flows?

 

Which of the following properly represents the preparation of the statement of cash flows prepared using IFRS rules?

 

The discounted cash flow valuation approach expresses current value of a firm as the discounted present value of expected future cash flows.

 

In applying the free cash flow valuation model, the discount rate used is the weighted-average cost of capital.

 

Accrual accounting produces an earnings number that depicts the effects of economic events on cash flows in the period in which the effects occur and provides an estimate of sustainable long-run future free cash flows.

 

In the flows to equity model of valuation, and using simplifying assumptions, the current stock price estimate can be expressed as a capitalization rate (1 × r) multiplied by a perpetuity equal to cash flow after paying debtholders and preferred shareholders.

 

The two most significant explanations for variations in the earnings multiple are risk differences and maturity of the firm.

 

The value of the future growth opportunities of a firm can be determined by considering the firm’s potential earnings from reinvesting current earnings in new projects that will eventually earn a rate of return more than the cost of equity capital.

 

Return on assets (ROA) can be used to assess whether a firm is likely to earn a return on reinvested earnings that exceeds its cost of equity capital.

 

A component that is unrelated to future free cash flows or future earnings and is not pertinent to assessing current share price is a noise component.

 

The degree of conservatism associated with a firm’s accounting choices will have a direct bearing on the relationships among share price, earnings, and the firm’s equity book value components of the abnormal earnings valuation approach.

 

Much of the information needed for assessing the quality and value-relevance of a company’s reported accounting numbers cannot be found in the company’s Form 10-K.

 

Under the GAAP hierarchy of approaches used in measuring fair value, Level 3 uses quoted prices from active markets for identical assets or liabilities to determine fair value.

 

Because income from discontinued operations is not likely to be recurring, it would be considered transitory earnings and be valued at a lower multiple than recurring components (such as income from operations).

 

If securities markets are rational and efficient in that they fully and correctly include all available information into a company’s stock price, the resulting price will reflect investors’ unbiased expectations about the company’s future earnings and cash flows.

 

Lenders form opinions about a firm’s credit risk by comparing current and future debt-service requirements to the estimates of the firm’s current and expected future cash flows.

 

The starting point for developing comprehensive financial statement forecasts is a detailed understanding of the company, its recent financial performance and its health.

 

The fundamental valuation approach to business valuation uses basic accounting measures to assess the amount, timing and

 

The steps involved in business valuation are forecasting the future values of a financial attribute that drives a company’s value, determining the risk associated with that forecasted value and determining the

 

Cash flow assessment plays a central role in analyzing

 

Valuing an entire company, an operating division of that company or its ownership shares involves three basic steps. These steps include all of the following except:

 

When using the discounted flows to equity valuation model, the market value of common shares depends upon investors’

 

A simplified version of the discounted free cash flow valuation model assumes a zero-growth perpetuity for future cash flows. This assumption is best applied to

 

To apply the discounted free cash flow model, the analyst needs to estimate

 

The FASB stresses that the primary objective of financial reporting is to provide information useful to investors and creditors in assessing the amount, timing and uncertainty of future net cash flows. The FASB contends that

 

By using accruals and deferrals, accrual accounting

 

Research indicates that stock returns correlate better with

 

The reciprocal of the risk-adjusted equity cost of capital used to discount future earnings is the

 

If a company currently earns $5.00 per share, and has a risk-adjusted equity cost of capital of 9%, a share of common stock should theoretically sell for approximately

 

If a company currently earns $6.00 per share and has a risk-adjusted equity cost of capital of 12.5%, a share of common stock should theoretically sell for

 

If most firms’ price/earnings ratios are between 10 and 15, what is the range of the risk-adjusted interest rate?

 

Risky firms have a higher risk-adjusted cost of capital. Which one of the following factors would contribute to a risky firm also having a relatively high price/earnings ratio?

 

To obtain a better current price, the net present value of future growth opportunities (NPVGO) can be calculated and

 

The net present value of future growth opportunities (NPVGO) will contribute to an above average P/E multiple when the additional share value created is

 

In general, the growth rate in earnings will depend on the portion of earnings reinvested each period and

 

A component that is valuation-relevant, but is not expected to persist into the future is a

 

Income from continuing operations, excluding special or nonrecurring items, is generally regarded as

 

Income or loss from discontinued operations is regarded as

 

An adjustment to income due to a non-recurring item is regarded as

 

The implied share price of Firm A’s stock is

 

The implied share price of Firm B’s stock is

 

The implied share price of Firm C’s stock is

 

The implied total earnings multiple of Firm A is

 

The implied total earnings multiple of Firm B is

 

The implied total earnings multiple of Firm C is

 

Reported earnings numbers often contain three distinctly different components possibly subject to different earnings capitalization rates. Which of the following is not one of these components?

 

Which one of the following is an example of sustainable earnings?

 

As transitory components become a more important part of a firm’s reported earnings, the reported earnings

 

The assessment of earnings quality to calculate an implied share price is best accomplished using which of the following?

 

As transitory or value-irrelevant components become a larger part of a firm’s reported earnings, which of the following effects would you not expect to witness?

 

Under the abnormal earnings approach of equity valuation, investors willingly pay a premium for those firms that

 

One popular approach to estimating the equity cost of capital is

 

When calculating forecasted cash flows available to common stockholders (CF) under the flows to equity model,

 

The expected abnormal earnings of a firm that has earnings of $40,000 with a required equity cost of capital of 8% and a beginning book value of $800,000 is

 

What are the abnormal earnings for Firm A?

 

What are the abnormal earnings for Firm B?

 

What are the abnormal earnings for Firm C?

 

Assume that Firm A can increase earnings $4,000 by cutting costs. Abnormal earnings would be

 

Assume that at the beginning of the year, Firm B divested itself of $20,000 of unproductive capital and earnings for the year fell by only $3,000. Abnormal earnings are

 

A company with a return on equity that consistently exceeds the industry average ROCE will generally have shares that sell at a

 

Per U.S. GAAP, fair value for accounting purposes is

 

Carrying amounts in a GAAP balance sheet are measured using all the following except

 

In the process of determining fair value, the exit price refers to

 

When determining the fair value of an asset using an exit price approach,

 

Prior to the announcement of unexpected bad earnings (a negative earnings surprise), a firm’s stock price will generally exhibit

 

An earnings surprise

 

The fact that a firm’s stock price does not change when earnings are announced indicates that

 

The interest rate on a revolving loan will usually

 

Short-term notes sold directly to investors by large, highly rated companies are called

 

A bond that is considered unsecured is referred to as a

 

A qualitative assessment of the business, its customers and suppliers, and management’s character and capability is known as

 

The degree to which cash needs can be satisfied during periods of fiscal stress is known as

 

The two ways to implement the discounted cash flow valuation approach are

 

The interest rate charged on bank loans must be sufficient to cover all the following except

 

Financial statement forecasts are

 

Preparing comprehensive financial statement forecasts involves six steps. Among these steps are all the following except:

 

Which of the following statements is false regarding the global vantage point of fair value measurement?

 

Common value-relevant attributes for determining the value of a company include all the following except:

 

Which of the following statements is false regarding the flows to equity model?

 

Which of the following statements is false regarding the FASB’S view on valuation?

 

Which of the following statements is false regarding the abnormal earnings approach to valuation?

 

Which of the following statements is false regarding credit risk analysis?

 

Which of the following statements is false regarding credit risk analysis?

 

Which of the following statements is false regarding traditional lending products?

 

Which of the following statements is false regarding the business valuation process?

 

Which of the following statements is false regarding the business valuation process?

 

Which of the following statements is false regarding the business valuation process?

 

Contract terms can be designed to eliminate or reduce conflicting incentives that arise in business relationships.

 

Contracts include financial reporting information and create incentives for earnings management.

 

Debt covenants help guard against conflicts of interest between creditors and bank regulators.

 

Some debt covenants preserve repayment capacity by preventing mergers and acquisitions unless the debt is first repaid.

 

Negative covenants tend to be less significant than affirmative covenants because they place direct restrictions on the actions lenders can take.

 

Managers wishing to avoid loan covenant violations may resort to making accounting changes that increase reported earnings.

 

Potential conflicts of interest between managers and owners can be overcome if compensation packages are tied to improvement in firm value.

 

Most compensation packages involve a base salary, an annual incentive, and a short-term incentive.

 

When restricted stock is granted as executive compensation, the recipient must wait for collecting dividends and exercising voting rights until the restriction period ends.

 

Research shows that managers sometimes use accounting flexibility to evade contract constraints in order to gain bonus benefits.

 

A factor that can affect managers’ incentives for short-term focus on performance is that a compensation committee oversees incentive plans and can intervene when circumstances warrant modification of the scheduled incentive award.

 

Banks and other financial institutions are required by federal and state regulatory agencies to meet minimum lending requirements.

 

Under RAP, loan charge-offs decrease bank capital and also reduce bank net income.

 

Many managers believe that meeting earnings benchmarks helps to build credibility with investors.

 

A difference of one penny between reported EPS and analysts’ expectations of EPS matters a lot to investors.

 

Loan provisions that are specifically designed to restrict dividend payments to shareholders are called

 

A borrower that violates one or more loan covenants but makes all interest and principal payments timely

 

Which of the following is not a purpose served by debt covenants?

 

When one party to a business relationship can make decisions that benefit him or her but harm another other party in the relationship

 

Potential conflicts of interest permeate

 

Contract terms

 

A typical rate formula for a public utility includes

 

When agents do not act in the best interest of their principals, the cost is borne by which of the following?

 

When conflicts of interest exist, lenders generally take all of the following actions at the creation of a contract except

 

A covenant that specifies a required minimum level of net worth and working capital is a/an

 

Affirmative covenants generally would not include which of the following stipulations?

 

Many loan agreements have financial covenants that rely on

 

What purpose is served by including covenants that place strict limits on new borrowing, prohibit stock repurchases and dividends without prior lender approval, or ensure that cash generated both from ongoing operations and from asset sales will not be diverted away from servicing debt?

 

Which of the following is not an example of a negative covenant provision?

 

Based on a comprehensive survey of U.S. companies, the most common financial performance measure used in annual and long-term incentive plans for senior executives is

 

Which of the following situations does not lead to default of a loan contract?

 

Debt covenants benefit

 

Which one of the following is not a broad function served by debt covenants?

 

A financial covenant would stipulate all of the following except

 

In the event of a default, lenders may do all of the following except

 

In using financial statements to monitor compliance with debt covenants

 

A lender’s requirement for a borrower to maintain a certain level of fixed charge coverage

 

Covenants that place direct restrictions on managerial decisions are called

 

Which one of the following is an example of a negative covenant?

 

Which of the following is not an example of an affirmative covenant?

 

A requirement that a company maintain a fixed-charge coverage ratio

 

The section of a loan agreement that describes circumstances in which the creditor obtains additional rights is called the

 

The failure of a company to pay other debts, such as payables or other loans, when due is called

 

Which statement below best describes a technical default?

 

According to the SEC, any breach of a loan covenant that existed at the balance sheet date that has not subsequently been cured should

 

When a debt covenant is violated, the related debt must be classified as current if it is

 

Company A’s interest ratio has fallen below the level required by its lender. The lender may not take which action?

 

When a borrower is unable to make a scheduled interest payment, the type of default that occurs is a

 

A study examining how incentives arising out of debt contracts affect managers’ accounting choices found that the most common violations of accounting-based covenants occurred with

 

Discretionary accounting accruals are

 

A study of discretionary accounting accruals found that abnormal accruals in the year prior to reporting covenant violations

 

Studies seem to suggest that management tends to make accounting changes and/or manipulate discretionary accruals to

 

Potential conflicts of interest between shareholders and managers may be overcome if managers are given incentives which cause them to behave as if they were

 

Firms must provide detailed disclosure of three broad executive pay categories. Which of the following is not one of these categories?

 

Information about a company’s executive compensation practices can be found in a company’s

 

A decrease in market-wide interest rates will result in a/an

 

Compensation incentives that motivate and reward executives for three to seven years of growth and prosperity are called

 

Which of the following is not an accurate statement regarding the compensation committee?

 

An award of stock that is not transferable or subject to forfeiture for a period of years is called

 

Most executive compensation plans link bonus awards to one or more

 

The widespread use of accounting-based incentives for executive compensation is controversial for which one of the following reasons?

 

Several studies show that incoming CEOs have an incentive to

 

Which statement best describes stock options?

 

Managers believe it is important to meet earnings benchmarks. When a number of executives were asked—within the parameters of GAAP—which choices your company might make to hit an earnings target, the most popular choice was to

 

A clawback provision in an employment contract

 

With respect to executive pay, which of the following is not correct?

 

Research has shown that research and development expenditures during the years immediately prior to a CEO’s retirement tend to

 

Compensation plans should

 

Long-term incentive components of executive compensation plans should include stock options

 

With respect to executive compensation, which statement is not valid?

 

A compensation committee should be comprised of

 

Regulatory accounting principles are important to those outside the regulatory agencies because

 

Banks that fail to comply with regulations, including the failure to maintain an adequate capital adequacy ratio, face

 

The use of a bank manager’s discretion in the timing and amount of loan loss provisions and loan charge-offs can falsely understate the losses and

 

In the banking industry, the ratio of investor capital/gross assets, as defined by RAP, is the

 

A bank’s estimated bad debt expense associated with its loan receivables is the

 

In the utilities industry, rate formulas are established to allow the utilities to set total allowed revenues to recover

 

In the utilities industry, image advertising and customer safety advertising are

 

Rate regulation provides incentives for public utility managers to

 

IRS regulations govern the

 

Regulatory Accounting Principles (RAP) can be used

 

Which of the following does not properly represent the relation of tax and GAAP accounting?

 

Which of the following statements does not reflect the provisions of ASU 2016-01 related to fair value measurement?

 

Which of the following did not contribute to the 2008 financial meltdown?

 

Banking regulators have a powerful weapon to encourage compliance with minimum capital guidelines as they can compel a noncomplying bank to do any or all of the following except

 

The prevalence of stock options in executive pay packages

 

Managers cater to Wall Street (i.e., try to meet earnings benchmarks) for which of the following reasons?

 

When faced with falling short of a desired earnings target, financial executives reportedly might consider any of the following actions except

 

Which of the following does not represent the impact of changes in EPS on the stock price?

 

Which of the following is an accounting strategy most likely used by management to meet EPS guidance?

 

 

1.
A 3-for-1 stock split will reduce the per share par value and will:
 
 
2.
According to current GAAP, the date when the terms for stock options are mutually agreed-upon and the stock options are awarded to employees is the:
 
 
3.
Call provisions on convertible bonds protect the:
 
 
4.
Companies with a history of net operating losses are prone to issue which one of the following to raise money?
 
 
5.
A company that has earnings in Year 2 equal to the earnings of Year 1 can improve its Year 2 reported earnings per share by:
 
 
6.
Current GAAP specifies that the compensation costs for stock options are measured:
 
 
7.
The denominator used in the calculation of basic earnings per share is the:
 
 
8.
The exercise price for stock option plans on the grant date is:
 
 
9.
The following information has been provided to you by the Smith Corporation for the year ending December 31, 2018:



The numerator used in the calculation of basic earnings per share was $797,000.
Cash dividends were paid to the common shareholders.
8% convertible bonds with a par value of $1,000,000 were issued on July 1, 2018.
The corporation's marginal income tax rate is 40%.
6% convertible preferred stock with a par value of $800,000 were outstanding during the entire year.


Assuming that both the bonds and preferred stock are dilutive, what is the numerator that should be used in the calculation of diluted earnings per share?
 
 
10.
The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.



The basic earnings per share for 2018 is:
 
 
11.
The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.



The weighted average number of common shares used to compute earnings per share for 2018 is
 
 
12.
In discussing book value of common stock, which statement below is not correct?
 
 
13.
Stock options are granted to the employees of Young Company on March 10, 2018. The employees must wait until March 10, 2022 to exercise the options. The four-year waiting period is the:
 
 
14.
Treasury stock is reported within the balance sheet as:
 
 
15.
The Vernon Corporation was formed on January 2, 2018. The company sold 20,000 shares of $8.00 par value stock for $20.00 per share. On July 1, 2018, Vernon bought back 4,000 shares of stock for $24.00 per share. The treasury stock was resold on September 1, 2018 for $32.00 per share.

Which one of the following is the correct entry to record the resale of treasury stock?
 
 
16.
The Vernon Corporation was formed on January 2, 2018. The company sold 20,000 shares of $8.00 par value stock for $20.00 per share. On July 1, 2018, Vernon bought back 4,000 shares of stock for $24.00 per share. The treasury stock was resold on September 1, 2018 for $32.00 per share.

 

Which one of the following is the correct entry to record when Vernon acquires its shares to hold as treasury stock?
 
 
17.
The Vernon Corporation was formed on January 2, 2018. The company sold 20,000 shares of $8.00 par value stock for $20.00 per share. On July 1, 2018, Vernon bought back 4,000 shares of stock for $24.00 per share. The treasury stock was resold on September 1, 2018 for $32.00 per share.

Which one of the following is the entry to record the original sale of the stock?
 
 
 
 
 
 
 
 
 
 
 
 
 

18.
When a company does not have any convertible securities or options or warrants outstanding, the company has:
 
 
19.
When a dividend is not declared on preferred stock, and the common shareholders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is:
 
 
20.
When a publicly traded company issues both common stock and preferred stock, the SEC requires that:
 
 
21.
Which item goes not properly describe the par value of common stock?
 
 
22.
Which of the following is not a reason companies use stock options as a form of employee compensation?
 
 
23.
Which of the following is not indicative of a complex capital structure?
 
 
24.
Which of the following statements is correct if treasury stock costing $25,000 was sold for $27,500?
 
 
25.
Which of the following statements is correct when a company has a complex capital structure?
 
 
 

1.
Amortization of discount on bonds payable (bond discount) results in what?
 
 
2.
Examples of items creating temporary differences
 
 
3.
Executory costs of a lease are treated by the lessee as:
 
 
4.
Floating-rate debt is the most common method for lenders to preotect themselves from losses that may arise as a result of:
 
 
5.
GAAP establishes specific criteria for the treatment of leases under ASC 840 and ASC 842. If any of the criteria are met, the lessee:
 
 
6.
If a lease contains a residual value guarantee, the lessee must:
 
 
7.
The market value of floating-rate debt of $200,000 will:
 
 
8.
The most straightforward method for making lessees' balance sheet data comparable is to treat all leases as if they were:
 
 
9.
Non current monetary liabilities are initially recorded at their:
 
 
10.
Some financial analysts contend that reporting debt at amortized historical cost rather than at fair value:
 
 
11.
A temporary difference created this year causes book income to be greater than taxable income; in future years, book income will be less tan taxable income. The temporary difference in future years' incomes is referred to as:
 
 
12.
Temporary differences that will case taxable income in future periods to be lower than pre-tax book income in future periods five rise to:
 
 
13.
Temporary differences that will cause taxable income in future periods to be higher than pre-tax book income in future periods give rise to :
 
 
14.
A temporary difference that causes book income to be greater than or less than taxable income when it is initially recorded is a/an:
 
 
15.
T/F: Amortization of discount on bonds payable (bond discount) results in an increase in a bond's carrying value
 
 
16.
Theta company has prepared to sell bonds with a stated rate of 6% when the market is 8%. These bonds will sell in the market at:
 
 
17.
Theta Company has prepared to sell bonds with a stated rate of 6% when the market rate is 5%. These bonds will sell in the market at:
 
 
18.
The two broad categories of differences that result from determining the re-tax book income and the taxable income are:
 
 
19.
When a bond is sold at a discount the effective interest rate is :
 
 
20.
When accounting for a capital lease under ASC 840, depreciation expense is equal to the:
 
 
21.
When a lessee has a capital lease under ASC 840, the amount shown for the asset and the amount shown for the related liability are equal:
 
 
22.
When computing the issue price of a bond that has a stated rate of 8% payable semiannually and a market rate of 10%, the discount rate used would be:
 
 
23.
When interest rates have increased and bonds are retired before maturity, market value is:
 
 
24.
When market rates of interest decrease, the use of floating-rate debt benefits:
 
 
25.
When the effective yield of a bond is the same as the stated rate on the bond is the same as the stated rate on the bond, the bond is sold at:
 
 
26.
When the market rate of interest is below the stated rate of interest, a bond sells at:
 
 
27.
Which one of the following is a permanent difference between book and taxable income?