1) When a company discontinues an operation and disposes of the discontinued
operation (component), the transaction should be included in the income statement as a
gain or loss on disposal reported as
a.a prior period adjustment
b.an extraordinary item
c.an amount after continuing operations but before extraordinary items
d.a bulk sale of plant assets included in income from continuing operations
2) In the diluted earnings per share computation, the treasury stock method is used for
options and warrants to reflect assumed reacquisition of common stock at the average
market price during the period. If the exercise price of the options or warrants exceeds
the average market price, the computation would
a.fairly present diluted earnings per share on a prospective basis
b.fairly present the maximum potential dilution of diluted earnings per share on a
prospective basis
c.reflect the excess of the number of shares assumed issued over the number of shares
assumed reacquired as the potential dilution of earnings per share
d.be antidilutive
3) Which of the following items would be reported net of tax on the face of the income
statement?
a.Prior period adjustment
b.Unusual gain
c.Change in realizability of receivables
d.Discontinued operations
4) David Company uses the gross method to record sales made on credit. On June 10,
2014, it sold goods worth $200,000 with terms 2/10, n/30 to Charles Inc. On June 19,
2014, David received payment for 1/2 of the amount due from Charles Inc. Davids
fiscal year end is on June 30, 2014 . What amount will be reported in the financial
statements for the accounts receivable due from Charles Inc.?
a.$98,000
b.$100,000
c.$200,000
d.$196,000
5) Which of the following is not an acceptable approach in applying the
lower-of-cost-or-market method to inventory?
a.Inventory location
b.Categories of inventory items
c.Individual item
d.Total of the inventory
6) Accounting information provides useful information about business transactions and
events. Those who provide and use financial reports must often select and evaluate
accounting alternatives. The FASB statement on qualitative characteristics of
accounting information examines the characteristics of accounting information that
make it useful for decision-making. It also points out that various limitations inherent in
the measurement and reporting process may necessitate trade-offs or sacrifices among
the characteristics of useful information.
Instructions.
(a)Describe briefly the following characteristics of useful accounting information.
(1)Relevance(4)Comparability
(2)Faithful representation(5)Consistency
(3)Understandability
(b)For each of the following pairs of information characteristics, give an example of a
situation in which one of the characteristics may be sacrificed in return for a gain in the
other.
(1)Relevance and faithful representation.(3)Comparability and consistency.
(2)Relevance and consistency.(4)Relevance and understandability.
(c)What criterion should be used to evaluate trade-offs between information
characteristics?
7) Which of the following is not a major challenge facing the accounting profession?
a.Nonfinancial measurements
b.Timeliness
c.Accounting for hard assets
d.Forward-looking information
8) When the double-extension approach to the dollar-value LIFO inventory cost flow
method is used, the inventory layer added in the current year is multiplied by an index
number. How would the following be used in the calculation of this index number?
Ending inventoryEnding inventory
at current year costat base year cost
a.NumeratorDenominator
b.NumeratorNot used
c.DenominatorNumerator
d.Not usedDenominator
9) Dexter purchases equipment from Ray Company for a price of $5,000,000 and
chooses Ray to do the installation. Ray doesn’t charge for the installation of equipment.
The price of the installation service is estimated to have a fair value of $60,000.
Assuming the transaction to be multiple-deliverable arrangement, compute the amount
to be allocated to installation.
a.$59,289
b.$60,720
c.$60,000
d.$61,457
10) The recoverability test is used to determine any impairment loss on which of the
following types of intangible assets?
a.Indefinite life intangibles other than goodwill
b.Indefinite life intangibles
c.Goodwill
d.Limited life intangibles