Archives: Quiz

Which of the following is not an external failure cost? a. warranty work b. processing returned merchandise c. rework d. correcting invoice errors The average rate of return method of capital investment analysis gives consideration to the present value of […]

Operational issues are made by managers closest to the operations Match each of the following phrases as describing (a) an advantage, (b) a disadvantage, or (c) neither of decentralization. a. Advantage of decentralization b. Disadvantage of decentralization c. Neither an […]

Which of the following would be included in the cost of a product manufactured according to variable costing? a. sales commissions b. office supply costs c. interest expense d. direct materials The anticipated purchase of a fixed asset for $400,000, […]

Chugalug Ltd has three subsidiary companies and is engaged in a joint venture with an Italian company called Intervole. It has an agreement with one of its major suppliers whereby they share information so they can arrange for materials deliveries […]

Project A requires an original investment of $50,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a calculated net present value of $13,500 over a 4-year life. Project A could be sold […]

Sifton Electronics Corporation manufactures and assembles electronic motor drives for video cameras. The company assembles the motor drives for several accounts. The process consists of a lean cell for each customer. The following information relates only to one customer’s lean […]

Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional […]

If income from operations for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment turnover is 1.3. a. True b. False Which of the following would not be considered an internal centralized service department? a. […]

occurs when a company abandons a segment Match each definition that follows with the term (a’“h) it defines. a. discontinued operations b. extraordinary items c. change from one generally accepted accounting principle to another d. horizontal analysis e. vertical analysis […]

Managerial accounting reports must be useful to the user of the information. a. True b. False A bottleneck begins when demand for the company’s product exceeds the ability to produce the product. a. True b. False Answer: True For a […]

State the advantages and disadvantages of a framework approach to corporate governance as opposed to a legislative approach Set out the rights and duties of auditors under the Companies Act 2006 Answer: Rights The auditor of a company’“ (a) has […]

You are reviewing the audit files of Monty Ltd with a view to finalising the audit. From your review of the files you identify the following factors . Identify whether or not they can be a) Ignored b) Whether the […]

Benefits in a defined benefit plan may be based on either career average or final average salary. The FASB took an enormous step in SFAS No. 106 by requiring the recognition and measurement of OPEB costs and obligations. Answer: TRUE […]

SFAS No. 87 is no longer in effect, having been replaced by SFAS 132. The continental model of financial reporting generally presents a strong accounting profession. Answer: FALSE Unrealized capital adjustments in owners’ equity are becoming more prevalent as a […]

Unused tax credits may generate deferred tax assets. In the United States, the term ‘present fairly’ in opinions of American auditing firms is the same as the ‘true and fair view’ of international financial reporting. Answer: FALSE[/cpmembership] A basic issue […]

Deductive reasoning analyzes empirical data to make inferences about a population. In ASR 190, the SEC reinforced its long-standing position of forbidding the presentation of information other than historical cost. Answer: FALSE The legal form of a lease is an […]

An exit-price accounting system provides an estimate of the cash conversion value of a firm’s resources. A FASB survey found that most enterprises entering into a pooling of interest believed that the combination would not have occurred if purchase accounting […]

An argument supporting accounting regulation is that it is better to force mandatory reporting than to have individuals competing to buy information privately. Tax allocation is made necessary by the permanent differences in financial statement income and tax income. Answer: […]

Relevance is considered the most important of the qualitative objectives of APB Statement 4. It can be argued that all leases over one year should be capitalized. Answer: TRUE Economic exposure directly affects consolidated cash flows. Answer: TRUE In a […]

The essence of SFAS No. 142 is that goodwill must now be amortized over 40 years. The stock market shows that people are willing to contract privately for information about a firm. Answer: True The assumption of the capital asset […]

A premise stating that accounting reports should be based on historical costs would indicate a normative approach. The proprietary theory approach largely coincides with the components of income measurement as it is presently construed in historical cost-based systems. Answer: TRUE […]

In the statement of changes in financial position, sources of resources are defined as transaction debits. The balance sheet gives insight into the cash-generating potential of the operations of a firm. Answer: FALSE The key group in Moonitz’s set of […]

Prior research studies have provided evidence that a firm’s unfunded pension benefits are interpreted as if they are liabilities. The main change brought about by SFAS No. 158 was to bring the overfunded or underfunded status of a defined benefit […]

A normal four-to-three majority vote is required for passing new accounting standards. The Litigation Reform Act of 1995 requires that an audit include procedures designed to guarantee that illegal acts that would materially affect financial statements will be detected. Answer: […]

An advantage of proportionate consolidation is that the minority interest category does not arise. ARB 43 recommended capitalization for leases that were, in substance, installment purchases. Answer: TRUE Throughout the financial history of the United States, current value has been […]

Inductive approaches to accounting theory usually attempt to be descriptive. The majority of exceptions to the general rule regarding revenue recognition have evolved because new transactions have emerged that do not fit the mold of traditional transactions. Answer: TRUE The […]

A chart of accounts is an example of an ordinal classification. Inflation has posed the single greatest problem that is faced in accounting theory. Answer: TRUE A sale and leaseback occurs when the owner of an asset sells it and […]

The underlying premise of the clean surplus accounting is that all profit and loss elements go through income. Hypotheses are conclusions derived from the research process. Answer: False The Accounting Standards Board (ASB) in the UK operates along the lines […]

Measurements based on the accountability objective would include earnings per share but not return on investment. SFAS No. 35 is considered a landmark standard because it set accounting and reporting standards for a new entity, the pension plan, as separate […]

The lower-of-cost or market valuation of inventories is an example of the disclosure principle. SPEs are designed to conduct just one well defined activity. Answer: TRUE The value of an asset may be determined by multiplying its historical cost by […]

The definition of assets establishes what types of economic factors will appear in the balance sheet. Accounting regulation prevents fraud. Answer: False There are only a few examples of accounting standards that emphasize the effects of transactions on the income […]

Management intent is an accepted basis for recognition of future events. In the cash flow statement, cash is defined as literal cash on hand or on demand deposit plus cash equivalents. Answer: TRUE Some capital leases are treated as loans […]

The key question addressed by SFAS No. 52 involves how to report exchange gains and losses on the income statement. Currently, there are moves to extend consolidated reporting. Answer: TRUE Under current requirements, the weak disclosures of noncapitalized leases create […]

In a sole proprietorship, there is a legal distinction between contributed capital and earned capital. A troubled debt restructuring occurs when a creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor […]

Timeliness and predictive value are the two main aspect of relevance. An important segment of accounting theory is derived from the research process. Answer: True APB Opinion No. 5 was criticized on the grounds that it excluded many leases that […]

Opinion is virtually unanimous that SFAC No. 5 on recognition and measurement is the low point of the conceptual framework. Positive accounting research attempts to be value-free, while normative accounting research is value judgment oriented. Answer: True Financial reporting for […]

Under SFAS No. 157, prices for assets include deductions for transaction costs. During periods of deflation, a firm’s net monetary liability position experiences a purchasing power gain. Answer: FALSE Management disclosures in the face of a major earnings surprise may […]

The initial impetus for lease capitalization was caused by concern over lessee balance sheets. Only firms that perform well have incentives to report their operating results. Answer: False Assessment measures are not concerned with particular attributes of objects. Answer: False […]

Only transactions having a direct effect on fund accounts were included in the statement of changes in financial position. Relevant circumstances are an important aspect of the uniformity issue. Answer: TRUE Empirical research shows that prices of publicly traded securities […]

Economic income is equal to residual income. Risk in investment can be eliminated by improved accounting and auditing procedures. Answer: False SFAS No. 142 converted goodwill into a nonamortizable asset subject to its own impairment rules. Answer: TRUE The discussion […]

The value to investors of the information in financial reporting lies in its role as an historical record. The responsibility of the Financial Accounting Foundation is to elect the board of trustees, which selects FASB members, funds the board’s activities, […]

Prior to SFAS No. 106, OPEB had been handled on a cash basis of accounting. The overriding message of SATTA is that current-cost should be accepted as the dominate valuation system. Answer: FALSE Postulates are generally defined as basic assumptions […]

A general price-level adjustment refers to the purchasing power of the monetary unitary unit relative to all goods and services in the economy. Using ratio scale measurement is possible in accounting. Answer: True One hypothesis of agency theory is that […]

The going-concern postulate states that unless there is evidence to the contrary, it is assumed that the firm will continue indefinitely. The current operating approach has led to the concept of comprehensive income. Answer: FALSE Partial allocation is an example […]

Under the temporal method of translation, all balance sheet items that are carried at current or future exchange prices are translated at the current exchange rate, while items carried at past prices are translated at exchange rates existing at the […]

The International Accounting Standards Committee was formed in an attempt at economic integration of member countries. Economic profit is equal to net operating profit less taxes paid minus a charge on invested capital. Answer: TRUE How did the definition of […]

SFAS No. 82 eliminated the constant dollar income disclosures required by SFAS No.33. The SEC requires disclose of both retrospective and prospective information in the Management’s Discussion and Analysis section of the annual report. Answer: TRUE SFAS No. 87 was […]

One consequence of the revenue-expense approach is to burden the balance sheet with by-products of income measurement rules. Assessment measures are concerned with particular attributes of objects and are always direct measurements. Answer: False Accountability refers to the responsibility of […]

Explain in not more than 500 words the role and function of an audit committee Sparkies has undergone a period of substantial growth following its establishment five years ago by two electricians who pooled their redundancy pay. Because of a […]

Explain the purpose of a ‘˜hot’ review and distinguish it from a ‘˜cold’ review Answer: A hot review is be carried out during the course of the engagement or audit (hence the use of ‘˜hot’) by a second partner not […]