Archives: Quiz

When a lease qualifies as a capital lease, what is the cost basis of the asset acquired? a. The present value of the minimum lease payments, exclusive of executory costs. b. The present value of the minimum lease payments plus […]

On June 30, 2016, Prego Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. […]

The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account. Fundamental qualitative characteristics of accounting information are: a. Relevance and comparability. b. Comparability and consistency. c. Faithful representation and relevance. […]

Total depreciation is the same over the life of an asset regardless of the method of depreciation used. The initial selling price of bonds represents the sum of all the future cash outflows required by the obligation. Answer: False A […]

If cash has been collected from a customer, recognizing estimated sales returns results in recognizing a refund liability. If a long-term noninterest-bearing note is received in exchange for merchandise sold, the amount of sales revenue recognized will be greater than […]

Once selected for existing assets, a company must consistently use the same method of depreciation for all subsequent fixed asset acquisitions. When available-for-sale securities are sold, the amount of gain or loss realized from the date of purchase is included […]

If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation. During periods of falling prices, […]

Purchases and sales of securities are always reported as investing activities in a statement of cash flows. The equity method is in many ways a partial consolidation. Answer: True Bonds will sell for a premium when the market rate of […]

The tax benefit of a net operating loss carried back two years represents a current receivable for income tax to be refunded. Transactions that represent noncash investing and financing activities must be reported in the statement of cash flows or […]

Debits increase asset accounts and decrease liability accounts. Revenue always is recognized once the buyer has physical possession of goods. Answer: False The expected postretirement benefit obligation (EPBO) is the discounted present value of the total benefits expected to be […]

Estimated losses on long-term contracts are recognized as ratable over the contract term regardless of whether revenue is recognized over time or upon contract completion. A temporary difference originates in one period and reverses, or turns around, in one or […]

Auditors play an important role in the resource allocation process by adding credibility to financial statements. The cost-to-retail percentage used in the retail method to approximate average cost incorporates both markdowns and markups. Answer: True Demolition costs to remove an […]

A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible. The FASB is currently the public-sector organization responsible for setting accounting standards in the United States. Answer: False If a company […]

Under group and composite depreciation methods, gains and losses on the disposal of individual assets need not be computed. All changes reported using the retrospective approach require prior period adjustments. Answer: False Pension expense and funding amounts are both accounting […]

A decrease in cash dividends payable means that dividends declared were less than dividends paid. Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS. Answer: True Comprehensive income is the total change in shareholders’ equity […]

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition. Most, but not all, liabilities are monetary liabilities. Answer: True Payment terms, interest rates, and other details of long-term […]

LIFO periodic and LIFO perpetual always produce the same dollar amounts for ending inventory. Under the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups. Answer: True The income statement summarizes the operating activity […]

The initial cost of property, plant, and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use. LIFO usually provides a better match of revenue and expense than does FIFO. Answer: […]

If the seller is an agent, the seller typically is vulnerable to risk associated with delivering the product or service. Use of the installment sales method indicates little uncertainty about collection of the receivable. Answer: False A change in accounting […]

Return on shareholders’ equity is increased if a firm can maintain its return on assets but increase its leverage. Revenue should be recognized over time for the construction of an annex to a building that the customer owns, even if […]

When the cost recovery method is used to account for a long-term construction contract under IFRS, an equal amount of cost and revenue is typically recognized during the early life of the contract, such that high initial gross profit is […]

The calculation of future value requires the removal of interest. Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities. Answer: True The primary motivation behind the […]

Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its book value on the declaration date. Using the balance sheet approach, bad […]

In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records. According to International Financial Reporting Standards (IFRS), the […]

Restrictions on retained earnings must be disclosed in the body of the balance sheet. A net pension asset is the excess of the projected benefit obligation over the plan assets. Answer: False A bargain purchase option is defined as the […]

An option for a customer to purchase additional goods at a discount from list price is only a performance obligation if the discount is a material right that the customer would not receive otherwise. A warranty that the customer can […]

According to International Financial Reporting Standards, all research and development expenditures are expensed in the period incurred. With an annuity due, a payment is made or received on the date the agreement begins. Answer: True Income statements prepared according to […]

Under IFRS No. 9, equity investments are classified as either “fair value through other comprehensive income (FVOCI)” or “fair value through profit and loss (FVPL).” Accruals occur when the cash flow precedes either revenue or expense recognition. Answer: False The […]

Revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about the expected collection of the asset received. Periodic interest expense is the stated interest rate times the […]

A distinguishing characteristic of intangible assets is the degree of uncertainty about when or if they will provide future benefits. Material restructuring costs are reported as an element of income from continuing operations. Answer: True Depending on the circumstances, the […]

An asset for a gain contingency should not be accrued unless it is probable that the gain contingency will be realized. All current assets are either cash or assets that will be converted into cash or consumed within 12 months […]

The FASB”s due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed. Some liabilities are not contractual obligations and may not be payable in cash. Answer: True Most changes in accounting principle […]

From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets. Sellers recognize revenue for gift cards at the point in time control […]

Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth. For a purchase commitment extending beyond the current […]

A liability for an unasserted claim must be accrued if it is reasonably possible that the claim will be asserted. When the right of return exists and a seller cannot make reliable estimates of future returns, the installment sales method […]

If the direct method is used to report cash flows from operating activities in the body of the statement of cash flows, a reconciliation of net income to net cash flows from operating activities also is required. The primary function […]

When interest is compounded, the stated rate of interest exceeds the effective rate of interest. Companies always recognize revenue when goods or services are transferred to customers for the amount the company expects to receive in exchange for those goods […]

In using a spreadsheet to prepare the statement of cash flows, the summary entries duplicate the actual journal entries used to record the transactions during the year. Subsequent events are significant developments that take place after a firm’s year-end, and […]

Over the life of a particular account receivable, the same total amount of gross profit is recognized under the installment sales method and the cost recovery method. No time-weighting of contingently issuable shares is required when computing basic EPS. Answer: […]

In a consignment arrangement, revenue typically should not be recognized until sale to a third party occurs, even though there has been a physical transfer of goods to the consignee, because the consignor still retains legal title to the goods. […]

All changes in estimate are accounted for retrospectively. If the estimate of a transaction price is revised, the price change is allocated entirely to the remaining performance obligations that are yet to be satisfied. Answer: False Earnings quality refers to […]

In a statement of cash flows prepared under International Financial Reporting Standards, interest received is most often classified as an operating cash flow. If a pension plan is underfunded, the company has a net loss-OCI. Answer: False Valuation allowances reduce […]

Revenue is recognized upon sale of gift cards, rather than being deferred. Stock options will be dilutive and included in the calculation of dilutive EPS if the exercise price is greater than the average market value of the stock. Answer: […]

The decomposition method attempts to isolate four separate portions of a time series, which are __________. A. The trend, numbers, fashions, and randomness B. The trend, cyclical, seasonal, and random factors C. The trend, effect, season, and random factors D. […]

_________ is a site’s ability to enable transactions. A. Connections B. Community C. Commerce D. Communication E. Content The basis of the gap model is the identification and measurement of differences in ____ key areas of the service delivery process. […]

In ________, two or more brands are directly compared against each other on certain attributes. A. Pioneering advertising B. Comparative advertising C. Competitive advertising D. Institutional advertising E. All of these Concentrated target marketing is often used by ________. A. […]

___________________ is a reason for Coke to invest in promotion. A. To maintain brand loyalty B. To reduce the tendency to switch to other brands C. To maintain corporate identity D. To encourage brand switching from competitors’ customers E. All […]

The primary responsibility of ______________ is to increase business from current or potential customers by providing them with merchandising and promotional assistance. A. Technical sellers B. Trade servicers C. Missionary sellers D. Solutions sellers E. All of these The best […]

Sometimes marketers are prone to overzealous sales pitches, coupon promotions with too little stock to handle the demand, and deceptive advertisements. These create a gap in the service that can be described as __________. A. Setting expectations that are too […]

CRM stands for _________________. A. Consumer retention management B. Customer related metrics C. Customer relationship management D. Consumer rights monitor E. Customer retention management Channel intermediaries enhance utilities by providing a wide array of specific functions including ________________. A. Physical […]