Tag: Financial Accounting

1) Various laws and contracts govern the rights and obligations of a shareholder. Which of the following istrue? A.Each type of capital stock has its own provisions on voting matters, only B.Each type of capital stock has its own provisions […]

1) U.S. GAAP or IFRS require firms to test A.annually for impairment losses on goodwill B.whenever there is an indication of impairment due to changes in the legal or economic climate C.whenever there is an indication of impairment due to […]

1) In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve ____ credit changes in operating working capital accounts, such as accounts receivable, inventories, or accounts payable. […]

1) Young Corporation’s capital stock at December 31 consisted of the following: (a) Common stock, $2 par value; 100,000 shares authorized, issued, and outstanding. (b) 10% noncumulative, nonconvertible preferred stock, $100 par value; 1,000 shares authorized, issued, and outstanding. Youngs […]

1) Allowance for Uncollectibles contra account appears among the _____ on a firms balance sheet as a(n) _____. A.liability; subtraction B.liability; addition C.assets; addition D.assets; subtraction E.shareholders equity; subtraction Answer: 2) (CMA adapted, Dec 95 #27) Somali Inc. is a […]

1) Notes to the financial statements provide additional information about income tax expense and deferred tax assets and deferred tax liabilities. Firms do not report which of the following? A.components of income before income taxes B.components of income tax expense […]

1) Which of the following is/are true? A.The more long-term debt in a firms capital structure, the less the risk that the firm will experience difficulty making the required payments when due B.The more long-term debt in a firms capital […]

1) Of the three cost-flow assumptions, FIFO usually results in the smallest net income when inventory costs are rising and the largest net income when inventory costs are falling. Answer: 2) Describe Current Replacement Cost, Net Realizable Value, Fair Value, […]

1) Total liabilities plus shareholders equity shows the sources of all the firms financing, and the assets show how the firm holds or has invested those funds. Answer: 2) The closing process involves reducing to zero the balance in each […]

1) Firms account for changes in estimates, such as for depreciable lives, uncollectible accounts, or warranty cost, prospectively, in current and future periods earnings. Answer: 2) As a basis for measuring performance for a particular accounting period, the cash basis […]

1) Firms account for changes in accounting principles required by a new reporting standard in accordance with the guidance specified in the standard. Answer: 2) A profitable firm can never run out of cash. Answer: 3) Describe the relationship between […]

1) The managers of a business prepare financial statements to present meaningful information about that businesss activities to external users. Answer: 2) Firms typically report cash flows from operations using the direct method. Answer: 3) Common terminology describes items whose […]

1) What is the purpose of using contra accounts? What is the alternative to using them? Answer: 2) Securities that firms expect to hold for more than one year from the date of the balance sheet appear in investments in […]

1) A potential investor can easily ascertain market value of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the […]

1) To study changes in ROA, the analyst can disaggregate ROA into the product of two other ratios: the profit margin for ROA ratio and the total assets turnover ratio. Answer: 2) Auditors are the agents of the shareholders and […]

1) U.S. GAAP and IFRS view ownership of more than 50% of an investee as implying an ability to control the investee, unless evidence indicates to the contrary. Answer: 2) Goals are the end results toward which the firm directs […]

1) What costs are included in inventory of manufacturing and merchandising firms? Answer: 2) Describe cash and cash equivalents. Answer: 3) Accounting does not normally recognize mutually unexecuted contracts as assets or liabilities. Answer: 4) The capitalization of interest in […]

1) How do Merchandising and Manufacturing firms report product costs and changes in Inventory? Answer: 2) Examples of restructuring activities include selling or closing divisions or plants, combining offices, moving operations from one location to another, terminating employees or leases, […]

1) Many off-balance-sheet financings fall into one of two categories that accounting typically does not recognize as liabilities: executory contracts and contingent obligations. Answer: 2) The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower […]

1) The amounts of individual assets that make up total assets, represented by accounts receivable, inventories, equipment, and other assets, reflect a firms financing decisions, each measured at the balance sheet date. Answer: 2) A firm makes investments to obtain […]

1) Marcus Corporation, a British firm, has an adjusted trial balance that contained the following liability accounts at December 31, Bonds Payable (due in 3 years) £100,000; Accounts Payable £72,000; Notes Payable (due in 90 days) £22,500; Accrued Salaries £4,000; […]

1) Financial information for Price Company at December 31, 2014, and for the year then ended, are presented below: Balance Sheet December 31, 2014 2013 Cash $ 31,000 $ 15,000 Accounts receivable 28,500 30,000 Allowance for doubtful accounts (2,000) (1,500) […]

1) Net income for a particular period will likely differ from cash flow from operations for the same period. Answer: 2) U.S. GAAP and IFRS require firms to disclose unrealized gains and losses that historically have bypassed the income statement […]

1) U.S. GAAP and IFRS on accounting for repurchases and reissuances of treasury shares follow the principle that treasury stock purchases and sales are operating transactions and therefore debits Cash (for economic gains) or credits Cash (for economic losses). Answer: […]

1) Most, but not all, firms report cash flows from operations using the indirect method. Answer: 2) All transactions that increase net assets affect income. Answer: 3) Given the following information, compute cost of goods sold and ending inventory for […]

1) Under U.S. GAAP, firms recognize restructuring costs when the firm has committed to and approved a restructuring plan that management will control. Answer: 2) Discuss corporate distributions to shareholders. Answer: 3) The balance sheet of a defined benefit pension […]

1) IFRS permits firms to classify cash from interest and dividend revenue as operating, investing, or financing activities, provided the classification is consistently applied across periods. Answer: 2) The disposal of equipment for an amount of cash greater than the […]

1) What is comprehensive income? Answer: 2) Gains and losses on effective cash flow hedges initially affect other comprehensive income, not net income. Answer: 3) How does the statement of cash flows helps readers understanding? Answer: 4) What are the […]

1) The current FASBs financial reporting objectives states that the principal purpose of financial reports is to provide information to make investment and credit decisions. Answer: 2) During the maturity phase, cash outflow typically exceeds cash inflow from operations because […]

1) Large, global enterprises typically have an equity interest in other entities throughout the world. Some of the interests represent wholly-owned (100%-owned) subsidiaries, while others represent lesser percentages of ownership. These large global conglomerates provide information on the percentage ownership […]

1) Describe the sources of long-term debt financing. Answer: 2) Describe the steps used for the accounting record-keeping process. Answer: 3) U.S. GAAP and IFRS require firms to recognize as an expense the cost of retirement benefits when the employees […]

1) Employer contributions to defined benefit pension plans are subject to several forms of government regulation. Answer: 2) Tangible long-lived assets typically appear under the title Property, Plant, and Equipment, among the current assets. Answer: 3) Discuss the definition, recognition, […]

1) Items classified as operating expenses reflect managements judgment that the item is a cost of the core business. Answer: 2) Items classified as operating expenses reflect managements judgment that the item is a cost of the core business. Answer: […]

1) Firms may not issue equity interests with different rights, such as one class of common stock with 10 votes per share and another class of common stock with one vote per share. Answer: 2) A balance sheet prepared according […]

1) As time passes, firms gain information about both actual warranty usage and actual warranty expenditures. Answer: 2) Firms initially record trading securities at fair value, excluding transactions costs (which firms expense as they incur them). Answer: 3) The acquisition […]

1) Gains/Losses arise from relatively infrequent transactions, and there can be no assurance that they will recur in any future period. Answer: 2) Authoritative guidance classifies gains and losses from the remeasurement of certain assets and liabilities as either net […]

1) How does the statement of cash flows explain the reasons for the change in cash between balance sheet dates? Answer: 2) Patents, licenses, and other contractual rights are tangible, in the sense that the rights have a physical existence. […]

1) Both U.S. GAAP and IFRS require that firms record derivatives at their fair values on the balance sheet date. Answer: 2) The beginning balance of the shareholders equity account Retained Earnings plus net income from the income statement less […]

1) Accounting records all executory promises. Answer: 2) Discuss the various laws and contracts that govern the rights and obligations of a shareholder. Answer: 3) Accrual accounting requires frequent, ongoing changes in estimates. Answer: 4) Describe the disaggregation of the […]

1) Describe the accrual basis of accounting. Answer: 2) Do firms confront ethical issues when engaging in off-balance-sheet financing? Answer: 3) The equity method of accounting should be applied by an investor to an investment in the voting stock of […]

1) In both U.S. GAAP and IFRS, hedge accounting is elective; firms need not designate any derivatives as accounting hedges, regardless of the degree to which the derivatives mitigate the volatility of outcomes of other arrangements. Answer: 2) Discuss the […]

1) Acquired in-process research and development (IPR&D) is never deductible for tax purposes and results in an increased effective tax rate. Answer: 2) Culinary Delites, a European food retailer engaged in the following three transactions during 2013: (1) purchased and […]

1) Under IFRS, assets and liabilities appear in the statement of financial position in order of decreasing closeness-to-cash. Answer: 2) Applying asset and liability definitions and recognition criteria under U.S. GAAP and IFRS results in the balance sheet including all […]

1) The accounting for investments in common stock depends on (1) the expected holding period, and (2) the purpose of the investment, as determined by both the percentage held and management intent. Answer: 2) The second section of the statement […]

1) Depreciation is the accounting term used to refer to the periodic write-off of intangible assets. Answer: 2) Nebraska Steakhouse opened a new restaurant on the site of an existing building. It paid the owner $520,000 for the land and […]

1) When examining the work an accountant performs for many organizations, many of the challenges revolve around creating adjusting entries that bring the accounts into an accrual accounting basis. Four such adjusting entries may include accounting for accrued revenues (unrecorded […]

1) Current assets, typically held and used for several years, include land, buildings, equipment, patents; and long-term investments in securities. Answer: 2) U.S. GAAP and IFRS require firms to retrospectively apply any changes in accounting principle by recalculating the income […]

1) The governing board, or board of directors, is responsible for selecting, compensating, and overseeing managers; for establishing dividend policy; and for making decisions on major issues such as acquisitions of other firms and divestitures of lines of business. Answer: […]

1) Describe the accounting for derivatives. Answer: 2) The accounting for transfers of receivables has come under the scrutiny of standard setters, as has the accounting for transfers involving inventories and research and development Answer: 3) Both U.S. GAAP and […]

1) Explain the accounting for redeemable preferred shares. Answer: 2) The balance sheet groups individual accounts by type (asset, liability, or shareholders equity) and lists these accounts with their balances as of the balance sheet date. Answer: 3) The notes […]