accounting final exam

Which of the following is considered a constraint on useful information by Statement of Financial Accounting Concepts No. 8?

benefits > costs

Accruing net losses on obsolete inventory is an example of the accounting concept of:

conservatism

A donated fixed asset (from a governmental unit) for which the fair value has been determined should be recorded as a debit to Fixed Assets and a credit to:

contributed capital

Which of the following is correct on a balance sheet prepared using IFRS?

current liabilities are listed last

A company receives an advance payment for special-order goods to be manufactured and delivered within 6 months. The advance payment should be reported on the company's balance sheet as a:

current liability

Advantages of using a general journal include all of the following except: a. Its use provides a chronological record of the company's financial activities. b. Its use helps prevent errors. c. When a general journal is used all the journal entry information, including the explanation, is recorded in one place. d. Its use simplifies the recording of subsequent transactions related to an adjusting entry.

d

For related-party transactions, a company must disclose: a. The name of the parties involved. b. A description of the transactions. c. The dollar amount of the transactions. d. Any amounts due to or from the related parties on the balance sheet date. a. II and IV only. b. I, II, and III only. c. I, II, III, and IV. d. II, III, and IV only.

d

How does the balance sheet at the end of an accounting period relate to the other four financial statements? a. The statement of shareholders' equity reports owners' claims on the company and how those claims changed during the period. b. The statement of cash flows explains changes in financial position in terms of cash inflows and outflows during the period. c. The elements of the income statement-revenues, expenses, gains and losses, and net income-are measured in terms of changes in assets and liabilities. d. All of the choices are correct.

d

In order to be considered a liability, a. The transaction, event, or arrangement obligating the company must have occurred. b. It must involve a responsibility that will be settled by a sacrifice (such as involving the transfer of assets). c. The company must be bound by a legal, equitable, or constructive responsibility to transfer assets or provide services. d. All of the choices are correct.

d

Intangible assets include all of the following except: a. Computer software. b. Licenses. c. Franchises. d. Natural resources.

d

Long-term liabilities include all of the following except: a. Capital lease obligations. b. Deferred revenue. c. Deferred tax liabilities. d. Pensions.

d

Reversing entries a. Allow a subsequent transaction to be recorded routinely, without the need to consider the possible impact of the prior adjusting entry. b. Are optional. c. Are usually made at the same time as closing entries but are dated the first day of the next accounting period. d. All of the choices are correct.

d

The Conceptual Framework is expected to do all of the following except: a. Provide a frame of reference for auditors for resolving accounting questions in situations where a standard does not exist. b. Increase users' understanding of and confidence in financial reporting. c. Enhance financial statement comparability across firms and over time. d. Ensure that CPAs act ethically in discharging their stewardship role

d

The five major steps in the accounting cycle include all of the following except: a. Prepare and post closing entries. b. Prepare the financial statements. c. Prepare and post adjusting entries. d. Prepare reversing entries.

d

The period-of-time assumption: a. Requires the accountant to measure the financial performance of the corporation during each period. b. Requires the accountant to measure the assets, liabilities and owners' equity on the balance sheet as of the last day of each period. c. Uses an annual reporting period that is called the accounting period or fiscal year. d. All of the choices are correct.

d

The required disclosures for a company's financial instruments include all of the following except: a. The company's risk management policy in regard to each type of instrument. b. The company's objectives in holding the instruments, and its strategies for achieving these objectives. c. The fair value of all its financial instruments. d. The historical cost of all its financial instruments.

d

The FASB is responsible for: a. Identifying financial accounting issues b. Conducting research to address financial accounting issues c. Issuing accounting standards to address governmental accounting issues d. Implementing accounting standards to ensure compliance

1 and 2

What drives the demand for financial accounting information? 1. The need for information to make resource allocation decisions. 2. The need to compete for and attract scarce economic resources.

1 and 2

Which of the following address issues that arise from biases in a self-reporting accounting system? 1. Professionally established accounting standards. 2. Independent audits.

1 and 2

The income statement measures and reports: a. The profits (or losses) the firm has generated during the period by conducting operating, investing, and financing activities b. The net cash flows from operating, investing, and financing activities. c. The financial results of a firm's performance for a period of time.

1 and 3

The FASB's process for issuing an Accounting Standard update is comprised of a series of steps. Arrange the following steps into its correct sequence in this process: 1. Appoints a task force 2. Conducts research 3. Issues Exposure Draft 4. Issues Discussion Memorandum or Invitation to Comment

1, 2, 4, 3 appoints a task force conducts research issues discussion memorandum and invitation to comment issues exposure draft

External stakeholders use information about a company's comprehensive income and its components to:

Assess the return a company has earned on its economic resources and form expectations about its future performance.

The balance sheet reports the following equality:

Assets - Liabilities = Shareholders' Equity

Items considered to be current liabilities include all of the following except: a. Deferred revenue. b. Short-term debt. c. Accumulated other comprehensive income. d. Taxes payable

C

The SEC has the legal authority to: a. Prescribe accounting principles and reporting practices for all corporations who use U.S. GAAP or IFRS. b. Prescribe income tax principles and reporting practices for all U.S. companies. c. Prescribe accounting principles and reporting practices for all corporations issuing publicly traded securities within the U.S. capital markets. d. All of the choices are correct regarding the SEC's legal authority.

C

The Noncontrolling Interests account:

Is the amount of equity capital attributable to minority investors.

The cost constraint:

Means the FASB must have reasonable assurance that the costs of implementing a standard will not exceed the benefits

Under cash-basis accounting,

Net income is the same as the net operating cash flow for the period

Common-size analysis:

Of income statement information typically expresses all of the amounts in terms of percentages of total revenues.

Which characteristic states that accounting information should be supported by sufficient evidence to allow two or more qualified individuals to arrive at similar measures and conclusions?

Verifiability

A violation of the going concern assumption: a. May prevent a company from recognizing assets that represent future economic benefits. b. Would occur if a company is expected to operate for the foreseeable future.

a

Assets may be measured or valued at 1. Current replacement cost. 2. Net realizable value. 3. Adjusted historical cost. 4. Adjusted present value. a. I, II, III, and IV. b. I, II, and IV only. c. II and III only. d. I, II, and III only.

a

The characteristics of faithful representation of accounting information include all of the following except: a. Material. b. Complete. c. Free from error. d. Neutral

a

The major sections of a company's balance sheet are: a. Assets, liabilities, and shareholders' equity. b. Assets, liabilities, and contributed capital. c. Assets, liabilities, and retained earnings.

a

The notes to the financial statements do all of the following except: a. Provides managers' insights into their strategies and their analysis of the company's exposure to risk factors. b. Explain assumptions the company has used to measure and report accounting information. c. Explain how the company values property, plant, and equipment, how it is being depreciated, how much depreciation has been accumulated to date, and the expected useful lives of the assets. d. Explain how the company accounts for inventory and what cost methods the company uses to value inventory

a

When are the measurement attributes historical cost and fair value the same? a. On the date a company acquires an asset by paying cash. b. At the settlement date of a financial liability. c. At each balance sheet date. d. All of the choices are correct.

a

Which of the following correctly represents the expanded accounting equation using the ten elements of financial accounting? a. Assets = Liabilities + (Contributed Capital + Beginning Retained Earnings + Revenues - Expenses + Gains - Losses - Dividends + Beginning AOCI + Other Comprehensive Income). b. Assets = Liabilities + (Common Stock + Beginning Inventory + Beginning Cash - Revenues + Expenses + Gains - Losses - Dividends - Ending Inventory). c. Assets = Liabilities - (Contributed Capital - Beginning Retained Earnings - Beginning AOCI + Revenues - Expenses + Gains - Losses + Dividends + Other Comprehensive Income). d. Assets = Liabilities + (Contributed Capital + Beginning Retained Earnings + Beginning Cash + Revenues - Expenses - Gains + Losses + Dividends - Ending Cash).

a

Which of the following is a characteristic of an asset? a. The company must be able to obtain the future benefit and control others' access to it. b. The transaction or event giving the company the right to the benefit or control over the benefit must occur within the next year or operating cycle, whichever is longer. c. The resource must contribute directly to the company's future net expenses. d. All of the choices are correct.

a

Which of the following is not a part of financial statements of a company? a. Adjusted Trial Balance b. Statement of Cash Flow c. Balance Sheet d. Income Statement

a

A company may decide not to disclose certain information because: a. The user has no need for the information. b. The amount is too small to make a difference.

a and b

A trial balance a. Is used to verify that the total of debit balances is equal to the total of credit balances. b. Lists all the company's general ledger accounts and their balances.

a and b

Under GAAP, the financial statements should include: a. Notes to explain the methods and estimates the company used. b. Required supplementary information.

a and b

Which of the following is/are true with respect to the income summary account: a. Closing entries utilize the Income Summary account as a temporary account during the closing process. b. A net credit balance in the Income Summary account is the net income for the period. c. In closing, temporary income statement accounts with credit balances (such as revenues) are credited, and the total of the credits to these accounts is debited to the Income Summary. Similarly, accounts with debit balances (such as expenses) are debited.

a and b

Which of the following measurement attributes are used in order to provide financial statement users with the most relevant and faithfully represented measures of companies' resources, obligations, and financial performance? a Net realizable value. b Fair value. c Future value of future cash flows.

a and b

Characteristics of relevant accounting information include: a. Information helps users form expectations about the future. b. Information is not biased, slanted, emphasized, or otherwise manipulated to achieve a predetermined result. c. Information provides feedback to confirm or correct prior predictions and expectations.

a and c

The FASB's and IASB's joint project to develop a common Conceptual Framework is essential for developing high-quality standards that are a. Internally consistent b. Precise c. Internationally converged

a and c

When is a company required to disclose in its annual report a description of all its significant accounting policies?

always

There are six levels in the framework of Codification, arrange the following levels into their correct sequence: 1. Topic 2. Paragraph 3. Area 4. Subtopic

area, topic, subtopic, paragraph

Assume ABC Company pays employees' salaries every Friday (5-day work week), the weekly payroll amounts to $6,000, and December 31 falls on Tuesday. Select the correct set of adjusting and a reversing entry for salaries payable. a. Dec. 31 Cash 2,400 Salaries Expense 2,400 Jan. 1 Salaries Payable 2,400 Cash 2,400 b. Dec. 31Salaries Expense 2,400 Salaries Payable 2,400 Jan. 1 Salaries Payable 2,400 Salaries Expense 2,400 c. Dec. 31 Salaries Expense 2,400 Salaries Payable 2,400 Jan. 1 Salaries Payable 2,400 Cash 2,400 d. Dec. 31 Salaries Payable 2,400 Salaries Expense 2,400 Jan. 1 Salaries Expense 2,400 Cash 2,400

b

Identify which of these measurement methods are not used in measuring liabilities a. Adjusted present value b. Acquisition cost c. Fair Value d. Originally incurred obligations

b

Information that would be useful to existing and potential investors in making decisions about buying, selling, or holding equity instruments is specifically covered by which of the following? a. Conceptual Framework b. Objective: Useful Information for Expected Returns to Investors, Lenders, and Other Creditors c. Accounting Standards Codification

b

Land reported in the property, plant, and equipment section of a manufacturing company's balance sheet is reported at: a. lower of cost or market value b. historical cost c. fair value d. historical cost, less accumulated depreciation

b

Research studies and other information cited in the text for changes in stock prices associated with changes in earnings show: a. The sign of the change in earnings (increase or decrease) was associated with a 10.0% stock return differential in one year. b.Analysts and investors spend enormous amounts of time and energy developing forecasts of earnings changes and making investment decisions in stocks on the basis of their earnings expectations.

b

Subsidiary ledgers a. Commonly include an inventory subsidiary ledger and a property, plant, and equipment subsidiary ledger. b. Are used to reduce the size of the general ledger. c. Are updated at the end of the accounting period based on the information contained in the control account. d. All of the choices are correct regarding subsidiary ledgers.

b

The Principles covered in the Code of Professional Conduct include all of the following except: a. Public interest. b. Ethical conduct. c. Scope and nature of services. d. Due care

b

The primary stakeholders that are important users of financial information include all of the following except: a. Tax authorities such as the IRS b. New York Stock Exchange (NYSE) c. Banks such as Bank of America d. Investors such as Warren Buffet

b

What are the two most common components of shareholders' equity? a. Contributed capital and investment by/distributions to owners. b. Contributed capital and earned capital. c. Common stock and retained earnings. d. Common stock and earned capital.

b

Which of the following is an adjusting entry? Land 5,000 Cash 5,000 Depreciation Expense 975 Accumulated Depreciation 975 Cash 1,000 Sales Revenue 1,000 Salaries Expense 500 Cash 500

b

Which of the following is an incorrect description of the account and its behavior? a. Accounts payable is a permanent account whose balance is carried forward into the next accounting period. b. Cash is a temporary account whose balance is carried forward into the next accounting period. c. Common Stock is a permanent account whose balance is carried forward into the next accounting period. d. Sales is a temporary account whose balance is not carried forward to the next accounting period.

b

Which of the following is an incorrect pairing of the term and its definition? a. Financial flexibility - the ability of a company to adapt to change. b. Liquidity - the ability of a company to produce goods and services for customers. c. Risk - the uncertainty or unpredictability of the future results of a company. d. Return on investment - a measure of overall company performance

b

Which of the following statements is correct regarding a perpetual accounting system? a. A company derives its cost of goods sold by first computing its cost of goods available for sale. b. When a sale is made an entry is recorded to increase the Cost of Goods Sold account. c. Purchases of inventory are recorded in a Purchases account. d. The Purchases account is closed into the Inventory account.

b

The balance sheet reports the financial position from which of the following perspectives? a. Specific resources the company owns. b. Claims on the company by the persons or entities that provided the resources, including the creditors, lenders, and investors. c. Specific resources the company controls.

b and c

The valuation of a promise to receive cash in the future at present value on the financial statements of a company is valid because of the accounting concept of:

going concern

A patent purchased in 2016 and being amortized over a 10-year life was determined to be worthless in 2019. The write-off of the asset in 2019 is an example of which of the following expense recognition principles?

immediate consumption

The FASB and IASB project to develop a joint Conceptual Framework

is on hold

A company's T-accounts a. Are all increased by debits and decreased by credits. b. Record debits on the right side or the left side of the T-account, depending on if the T-account represents an asset or a liability.

neither a or b

The average time taken by the company to spend cash for inventory, process and sell the inventory, and collect the receivables, converting them back into cash is called

operating cycle

According to Statement of Financial Accounting Concepts No. 8, to be relevant an earnings report is expected to have which of the following?

predictive value and confirmatory value

To accrue a loss contingency it must be:

probable and reasonably estimated

The quick ratio includes: Receivables. Cash equivalents. Inventory.

receivables and cash equivalents

Under the Statement of Financial Accounting Concepts No. 6, which of the following means the process of formally recording and reporting an item in the financial statements of a company?

recognition

Under the Statement of Financial Accounting Concepts No. 8, which of the following enhances decision-useful information?

timeliness

Which of the following statements most correctly describes the process being followed by the FASB and the IASB? 1. The two Boards collaborate through joint projects to develop common standards. 2. The two Boards are working separately on high-quality accounting standards for domestic financial reporting. 3. The IASB has reaffirmed its commitment to convergence with U.S. GAAP and has identified a number of major projects to achieve its goal of convergence.

1. the two boards collaborate through joint projects to develop common standards

Which of the following is correct regarding GAAP? 1. GAAP stands for generally accepted auditing practices. 2. U.S. companies subject to SEC regulation must follow GAAP.

2

Which of the following is/are not true with respect to the role that the ETF plays in assisting the FASB with standard setting? 1. Identifying significant emerging accounting issues (i.e., unique transactions and accounting problems), which it feels the FASB should address. 2. Developing consensus positions on the implementation issues involving the application of standards. 3. Simplifying user access by organizing and categorizing (codifying) all authoritative U.S. GAAP in one database. 4. Creating a codification research system that is up to date, including the most recently updated standards.

3 and 4

Conservatism is:

A practical approach to avoid misleading investors, lenders and other creditors when valuations are uncertain.

The return on common equity:

Can show that the company is effectively using financial leverage to generate higher returns for shareholders when this return is higher than the return on total assets.

The role(s) of financial accounting include to

Identify, measure, record, and report relevant and reliable financial information about companies

Investments by owners and distributions to owners are reported:

In the statement of shareholders' equity

An accrued expense is an expense:

Incurred but not paid

The information provided by financial reporting pertains to:

Individual companies, rather than to industries or the economy as a whole or to members of society as consumers.

What are the two primary qualities of the overall qualitative characteristic of useful accounting information?

Relevance and faithful representation

Information asymmetry arises from

The separation of ownership and control of resources.

What is the most general objective of financial reporting?

To provide information that is useful in making decisions about providing resources to the entity.

What is the purpose of the statement of shareholders' equity?

To report on the changes in a company's financial structure

A closing entry a. Is optional for a company to make at year-end. b. Reduces temporary and permanent accounts to zero at the end of the accounting period. c. Updates the Retained Earnings account. d. All of the choices are correct.

c

Adjusting entries a. Are made at the beginning of the accounting period to ready the books for the year's activity. b. Will affect two permanent accounts or two temporary accounts, but not one permanent and one temporary account. c. Are necessary because not all accounts are up to date at the end of the accounting period. d. All of the choices are correct regarding adjusting entries.

c

Information that would be useful to existing and potential investors to help them assess the amount, timing, and uncertainty of the prospects for future net cash inflows to the company is specifically covered by which of the following? a. Conceptual Framework b. Objective: Useful Information for Expected Returns to Investors, Lenders, and Other Creditors c. Objective: Useful Information about Net Cash Inflows to the Company

c

International Financial Reporting Standards (IFRS) are: a. Prohibited by the SEC for companies that list their shares in the U.S. b. Standards that address how auditors conduct their audits of financial statements of non-U.S. companies. c. Used by companies in 130 countries in the recording and reporting of accounting information. d. All of the choices are correct regarding IFRS

c

On October 2, 2017, a company borrowed cash and signed a 3-year, interest-bearing note on which both the principal and interest are payable on October 2, 2020. At December 31, 2019, the principal and accrued interest should: a. be reported on the balance sheet as long-term notes payable b. be reported on the balance sheet as noncurrent liabilities c. be reported on the balance sheet as current liabilities d. not be reported on the balance sheet as liabilities

c

Which of the following definitions is incorrect? a. Accumulated other comprehensive income is the cumulative amount of other comprehensive income (or loss) items. b. Retained earnings is the total amount of corporate net income that has not been distributed to shareholders as dividends. c. Treasury stock is the amount paid to the corporation by shareholders in excess of the par value of the stock issued. d. Common stock is the shares of stock that a corporation is authorized to issue as evidence of ownership in that corporation.

c

Which of the following is/are correct regarding the accounting equation and the double-entry system of recording journal entries? a. The accounting equation is represented by Assets + Liabilities = Owner's Equity. b. Debit or credit entries affect three or more accounts in the assets, liabilities, and owner's equity, excluding the temporary accounts. c. The dollar amount of the debits entered in all the related accounts must be equal to the total dollar amount of the credits. d. All of the choices are correct.

c

Which of the following may be used to determine fair value based on Level 3 inputs? a. Estimated Present Market value value Yes No b. Estimated Present Market value value No No c. Estimated Present Market value value Yes Yes d. Estimated Present Market value value No Yes

c

Which of the following pairings of a term and a definition is incorrect? a. Account - stores recorded monetary information from transactions and events. b. General ledger - entire set of accounts for a company. c. Posting - transferring debit or credit amounts from the general ledger to the appropriate financial statement. d. Contra account - an account created to show a reduction from a related account.

c

What kinds of subsequent events are disclosed by an adjustment to the company's financial statements? a. Those significant business events and transactions which occur between the end of a company's accounting period and the date when it issues its annual report. b. Those significant business events and transactions which provide evidence concerning conditions that did not exist on the balance sheet date but occurred after that date. c. Those significant business events and transactions which the company anticipates will occur during the coming year. d. Those significant business events and transactions which provide additional evidence about conditions that existed on the balance sheet date and significantly affect the estimates the company used in its financial statements.

d

Which of the following is an incorrect pairing of an enhancing characteristic and its definition? a. Understandability - accounting information should be comprehensible to users who have a reasonable knowledge of business and economic activities and who are willing to study the information carefully. b. Verifiability - different knowledgeable and independent observers can reach consensus that a particular representation is faithful. c. Timely - information is available to decision makers when they make their decisions. d. Comparability - accounting methods and procedures are applied in the same manner from period to period

d

Which of the following principles may a company use to determine which expenses to recognize in a particular period? a. Cause and effect. b. Systematic and rational allocation. c. Immediate consumption. d. All of the choices are correct.

d

Which of the following statements is correct regarding the inventory turnover ratio? a. Indicates the average number of times the inventory was sold during that period. b. Is determined by dividing a company's cost of goods sold for the accounting period by its average inventory. c. The higher the inventory turnover ratio, the more effectively the company is at managing its production and supply chains. d. All of the choices are correct.

d

Using a worksheet to prepare financial statements requires a series of steps. Place the following steps in the correct order: a. Year-end adjustments are entered on the worksheet. b. Each column is properly totaled and checked. c.Financial statements and closing entries are prepared. d. The trial balance is listed with the current accounts and balances.

d,a,b,c