Intermediate Accounting I

During the standard-setting process, an _________ is issued by the FASB to solicit input from financial statement preparers, auditors, and other users of Financial Statements. A. Exposure Draft B. Accounting Standards update C. Accounting research bulletin D. Accounting comment Letter

A. Exposure Draft

Which of the following errors would cause the adjusted trial balance to not balance? A. Failure to post one side of a journal entry B. omitting the adjusting entry for depreciation expense C. Posting the debit for accrued interest to insurance expense D. reversing the debits and credits in an adjusting entry

A. Failure to post one side of a journal entry

Which of the following is considered to be a limitation of income statements? A. Income statements depend on accounting methods selected. B. income statements evalute past performance C. Income statements assess uncertainties of achieving future cash flows D. income statements predict future performance

A. Income statements depend on accounting methods selected.

Which of the following is NOT a current trend in accounting - standards setting? A. Increase in political involvement? B. Move towards principles-based system C. Focus on asset/liabilities approach D. Emphasis on measuring fair value

A. Increase in political involvement

Johnson company neglected to accrue interest expense of 2,000 on its year-end trial balance. This results in a A. Overstatement of net income B. Overstatement of assets C. Overstatement of liabilities D. Understatement of shareholders' equity

A. Overstatement of net income

Judgments are important in determining which type of estimates used by accountants? A. bad debt expense B. Earnings per share C. net income D. computation of gains and losses

A. bad debt expense

Accounting changes detract from which one of the following enhancing qualitative characteristics fo accounting? A. comparability B. consistency C. representational faithfulness D. materiality

A. comparability

Which of the following errors will NOT be revealed by the unadjusted trial balance? A. incorrectly posting a debit for salaries expense to supplies expense B. failing to post one side of a journal entry C. posting a $50,000 debit to accounts receivables as $5,000 while recording the credit to revenue as $50,000 D. Posting a credit to cash for $5,400 as $4,500 while posting the debit to expense as $5,400

A. incorrectly posting a debit for salaries expense to supplies expense

The white boar pub purchased a two-year insurance policy for $9,600 on February 1 and recorded it as an asset. On June 30, the adjusting entry that should be made is A. Prepaid Insurance $7,600 Insurance Expense $7,600 B. Insurance Expense $2,000 Prepaid Insurance $2,000 C. Prepaid Insurance $2,000 Insurance Expense $2,000 D. Insurance Expense $7,600 Prepaid Insurance $7,600

B. Insurance Expense $2,000 Prepaid Insurance $2,000 9,600/24 mos = 400 / month x 5 = 2,000

On July 1, Madrid Corporation received 7,500 from New Iberia Company for six months rent on a factory building and recorded it as a revenue. What adjusting entry will Madrid make on August 31? A. Prepaid Rent 4,800 Rent Revenue 4,800 B. Rent Revenue 4,800 Unearned Rent 4,800 C. Unearned Rent 2,400 Rent Revenue 2,400 D. Rent Revenue 2,400 Unearned Rent 2,400

B. Rent Revenue 4,800 Unearned Rent 4,800 7,200 / 6 = 1,200 1,200*2= 2,400 7,200-2,400=4,800

Heartland Corporation records all insurance premiums as prepaid insurance. Additional Information for the current year is presented below Prepaid Insurance, January 1 64,000 Insurance expense for year 150,000 Prepaid Insurance, December 31 75,000 What were the total amount of insurance premiums paid during the year? A. 225,000 B. 161,000 C. 139,000 D. 150,000

B. 161,000

Jackson company records all insurance premiums as prepaid insurance. Additional information for the current year is presented below: Prepaid insurance January 1 60,000 Insurance premiums paid 250,000 Prepaid Insurance December 31 85,000 What was the total amount of insurance expense incurred during the year? A. 335,000 B. 225,000 C. 275,000 D. 310,000

B. 225,000

When developing a new proposed accounting standard, after FASB has determined that the proposed standard meets the objective of financial reporting, the next step in the development process is to ______. A. determined which elements of the financial statements are affected by the proposed standard B. Consider whether the proposed standard possesses the qualitative characteristics this make accounting information useful C. weigh constraints on issuing the new standard, which may deter requiring the new standards D. identify recognition and measurement concepts used to support the proposed standard

B. Consider whether the proposed standard possesses the qualitative characteristics this make accounting information useful

Mattox Corporation had a unadjusted balance of 5,4000 in supplies. The actual balance was 150. The accountant failed to make the adjusting entry. What is the effect on the current year financial statement? A. Net income is understated by 5,250 B. Current assets are overstated by 5,250 C. Current assets are understated by 5,400 D. Retained earnings is overstated by 5,400

B. Current assets are overstated by 5,250 5,400 - 150 = 5250

Which of the following accounts would NOT be shown on the post-closing trial balance? A. Dividends Payable B. Depletion C. Patent D. Investment in bonds

B. Depletion

Evaluating whether the disposal of a component of an entity constitutes a discontinued operation begins with A. Remeasuring the value of net assets held for disposal B. Identifying the cash flows that can be clearly distinguished operationally C. Segregating its operating revenues and expenses from those of continuing operations D. Assessing whether a strategic shift has occurred

B. Identifying the cash flows that can be clearly distinguished operationally

Which of the following income statement items is considered to be a characteristic of the usefulness of income statements? A. income statements require judgment B. Income statements evaluate past performance C. Income statements depend on the accounting methods selected D. Income statements exclude unreliable information

B. Income statements evaluate past performance

What are attributes of relevant information? A. Predictive value, timeliness, free from error B. Materiality, predictive value, and confirmatory value C. Comparability, verifiability and predictive value D. Complete, neutral, free from error

B. Materiality, predictive value, and confirmatory value

Which type of standard relies on theories and concepts that are linked to a well-developed theoretical framework? A. Objective based standard B. Principle-based standard C. Theories based standard D. Rules-based standard

B. Principle Based Standard

Which organization is responsible for setting auditing standards and oversees the audits of public companies in the United States? A. Financial Accounting Standards Board B. Public company accounting oversight board C. American Institute of certified public accountants D. Securities Exchange commision

B. Public Company accounting oversight board

Which of the following is NOT a characteristic that must be considered when determining that a business activity is a component of an entity for purposes of classifying that activity as a discontinued operation? A. The activity comprises operations and cash flows B. The activity constitutes a strategic advantage C. The activity can be clearly distinguished for financial reporting purposes. D. the activity is a portion of the entity

B. The activity constitutes a strategic advantage

If a company writes down the net assets of a discontinued operation from original carrying value to a remeasurement of fair value in one year, then in the net year the fair value changes A. The company will recognize any subsequent loss or gain for the difference between new fair value and prior year remeasured fair value. B. The company will recognize any subsequent loss but limited gains up to the original carrying value before remeasurement C. the company will recognize any subsequent loss but no gains for the difference between new fair value and prior year remeasured fair value D. The company cannot recognize any subsequent loss or gain

B. The company will recognize any subsequent loss but limited gains up to the original carrying value before remeasurement

Accounting changes are only permitted when A. the effect is material B. adequate disclosures are made C. the method used is perspective D. the company has not made prior changes

B. adequate disclosures are made

Poseidon Corp is aware that a large portion of receivables may become uncollectible because the customer is in talks for bankruptcy. By choosing not to disclose this information, the information provided in the statements A. is not verifiable B. Does not faithfully represent the firm's financial position C. both A & B D. neither A nor B

B. does not faithfully represent the firm's financial position

On May 1, Jonson industries decided to discontinue its prepackaged business segment. At the end of the year, the company is still holding the business segment for disposal, which is expected early in the following year. On its year-end income statement, Jonson industries will report as income from discontinued operations the profits generated by the prepackaged business segment A. for the entire year, before taxes B. for the entire year, net of taxes C. Since May 1, before taxes D. since May 1, net of taxes

B. for the entire year, net of taxes

The first financial statement prepared from the adjusted trial balance is A. Balance sheet B. Statement of net income C. Statement of cash flows D. Statement of retained earnings

B. statement of net income

Edmond Office Equipment borrowed $10,000 at 10% interest on July 1. Principal and interest are due on December 31. The company's fiscal year ends on October 31. What adjusting entry should be made on that date? A. No Entry B. Interest Expense 500 Interest Payable 500 C. Interest Expense 333 Interest Payable 333 D. Prepaid Interest 333 Interest Payable 333

C. Interest Expense 333 Interest Payable 333 10,000 * .10 * 4/12 = 333

On January 1, the Thunderball Hockey Association sold 300 season passes for 200 each. The season lasts from February through May. If the amount received was credited to unearned revenue, what adjusting entry will be made on February 28? A. Prepaid Subscription Revenue 15,000 Subscription Revenue 15,000 B. Subscription Revenue 45,000 Subscription payable 45,000 C. Unearned Subscription Revenue 15,000 Subscription Revenue 15,000 D. Unearned Subscription Revenue 45,000 Subscription Revenue 45,000

C. Unearned Subscription Revenue 15,000 Subscription Revenue 15,000 300*200=60,000 60,000 / 4=15,000

Bay City Corporation received $21,000 for 12 months rent in advance. What entry is used to record this transacton? A. Cash 21,0000 Prepaid Rent 21,000 B. Rent Expense 21,000 Cash 21,000 C. Cash 21,000 Unearned Revenue 21,000 D. Unearned Revenue 21,000 Rent Revenue 21,000

C. Cash 21,000 Unearned Revenue 21,000

Olympic Equipment borrowed 100,000 on November 1. The note matures in one year and the interest rate is 9%. What amount of interest expense will be accrued on December 31? A. 4,500 B. 750 C. 1,500 D. 9,000

C. 1,500 100,000 * 9% * 2/12 = 1,500

Brown furniture company decided to go after the younger market to create a newer customer base, In doing so Ms. Brown offered a liberal credit policy and estimated she would have a 4% bad debt expense. In 2016, sales under this promotion were $600,000. Accordingly, she estimated a bad debt expense of 24,000. Her actual bad debt expenses were far less than expected, at about 2%. Her 2017 sales under the program are 800,000. How much bad debt expense should be reported on comparative income statements based on this information? A. 2016, 12,000; 2017, 16,000 B. 2016, 24,000: 2017, 20,000 C. 2016, 24,000; 2017, 16,000 D. 2016, 24,000l 2017, 32,000

C. 2016, 24,000; 2017, 16,000

Humphrey contractors purchased customized equipment in January, 2015 for 500,000. The manufacturer warranted the equipment for six years. Humphrey used double declining balance depreciation with a useful life of eight years and no salvage value. After two full years, he now believes that the equipment will only last a total of five years. Compute his depreciation expense for 2017 if he switches to straight-line depreciation. A. 62,500 B. 75,000 C. 93,750 D. 100,000

C. 93,750

All of the following are enhancing characteristics except A. Understandability B. Verifiability C. consistency D. Comparability

C. Consistency

All of the following accounts are temporary accounts except A. Gain on Sale of Equipment B. Sales Revenue C. Dividends Payable D. Interest Expense

C. Dividends Payable

When developing new standards, the standard setters must first determine ________ A. which elements of the financial statements are affected by the proposed standard B. If the proposed standard possesses the qualitative characteristics that make accounting information useful C. If the proposed standard meets the objective of financial reporting D. Which recognition and measurement concepts are used to support the prosed standards

C. If the proposed standard meets the objective of financial reporting

According to the FASB, the primary users of Financial statements include: A. Creditors and management B. Government agencies and creditors C. Investors and Creditors D. All of these are primary users

C. Investors and Creditors

Which of the following represents a form of communication through financial reporting but not through financial statements? A. Balance sheet B. Income Statement C. Management discussion and analysis D. Statement of changes in shareholders' Equity

C. Management discussion and analysis

Which of the following items will not appear in the stockholders' equity statement? A. Net loss B. Prior period adjustment C. Net Assets or Discontinued operations held for disposal D. Dividends. declared

C. Net Assets or Discontinued operations held for disposal

Which of the following accounts is a permanent account? A. interest expense B. gain on sale of equipment C. Patents D. Bad Debt Expense

C. Patents

Which of the following best characterizes the current situation concerning revisions to the conceptual framework? A. The FASB is considering revisions to their conceptual framework bus IASB is not B. The IASB is considering a revision to the conceptual framework but FASB is not C. The FASB and the IASB are working independently on their conceptual frameworks D. The FASB and the IASB are not working cooperatively on a single conceptual framework

C. The FASB and the IASB are working independently on their conceptual frameworks

The conceptual framework assist with_____ A. the development of a set of standards which provide absolute answers for accounting questions B. the development of a set of standards for auditors to use when looking for material misstatements or fraud C. The development of a set of standards which ensures that financial reports meet the needs of investors and creditors D. All of the above

C. The development of a set of standards which ensure that financial reports meet the needs of investors and creditors

Retrospective changes require all but which of the following? A. restatement of all prior years presented B. adjustment to assets and liabilities for the first period presented C. detailed numerical comparisons of all prior periods to restated statements D. Retained earnings restated for the adjustments of the current period

C. detailed numerical comparisons of all prior periods to restated statements

The final statement prepared from the adjusted trial balance is the A. balance sheet B. statement of net income C. statement of cash flows D. statement of retained earnings

C. statement of cash flows

The employees or Lucid Laboratories are paid every 2 weeks on Friday. Total payroll is $25,000 and covers 10 workdays. The end of the current month falls on Tuesday of the pay period. What is the adjusting journal entry? A. Salaries Expense 7,500 Salaries Payable 7,500 B. Prepaid Salaries 7,500 Salaries Payable 7,500 C. Salaries Expense 17,500 Prepaid Salaries 7,500 Salaries Payable 25,000 D. Salaries Expense 17,500 Salaries Payable 17,500

D. Salaries Expense 17,500 Salaries Payable 17,500

Which of the following is an acceptable way of displaying the components of other comprehensive income? A. Only disclosed in the statement of shareholders' equity B. Including two statements, an income statement and a statement of comprehensive income C. Reporting a single, combined statement of comprehensive income D. Either (b) or (c) is correct

D. Either (b) or (c) is correct

The Two fundamental characteristics of financial information are A. comparability and understandability B. Relevance and timeliness C. Reliability and faithful representation D. Faithful representation and relevance

D. Faithful representation and relevance

Which organization is responsible for oversight, financing, and administration of all accounting standard setting organizations in the United States? A. American Institute of Certified Public Accountants (AICPA) B. Financial Accounting Foundation (FAF) C. Securities Exchange Commission (SEC) D. Financial Accounting Standards Advisory Council (FASAC)

D. Financial Accounting Standards Advisory Council (FASAC)

Which of the following income statement items is considered to be transitory? A. promotional costs for a new product B. Sales revenue from the general public C. Interest expense on short term loans D. Income from discontinued operations

D. Income from discontinued operations

Which of the following is NOT a drawback of the single step income statement? A. It does not separate operating and no operating items B. It combines revenues and gains without classification C. It does not classify expenses by function D. It misrepresents net income due to oversimplification

D. It misrepresents net income due to oversimplification

Which of the following is not a purpose of FASB's conceptual framework? A. aid in development of new standards B. Support understanding of accounting standards C. Assist with the revision of accounting standards D. Override existing accounting standards

D. Override existing accounting standards

Which of the following statements is False? A. The SEC permits the use of IFRS-based financial statements by international companies with shares trading on U.S. stock exchanges. B. Non-U.S. companies operate in the United States but prepare their financial statements using IFRS C. The SEC is currently deliberating if IFRS will be required to be used by the U.S. companies D. The accounting profession has determined that a working knowledge of IFRS is not important for accountants working in the United States.

D. The accounting profession has determined that a working knowledge of IFRS is not important for accountants working in the United States.

When a prepaid expense initially recorded as an asset is incurred, the adjusting entry includes A. A debit to an asset B. A credit to a liability C. a credit to an expense D. a debit to an expense

D. a debit to an expense

When a company decides to discontinue operation, it values the assets and liabilities of that operation at A. gross book value (historical cost) B. Net book value (historical cost less accumulated depreciation) C. gross current value (fair value) D. net current cost (fair value less selling cost)

D. net current cost (fair value less selling cost)

Which of the following recording errors will be revealed by the unadjusted trial balance? A. incorrectly posting a debit for supplies expense to salaries expense B. inadvertently omitting an entry recording the purchase of small tools from posting C. Posting a journal entry to record rent expense twice D. posting a $50,000 entry to accounts receivables as $5,000 while correctly recording the corresponding revenue correctly

D. posting a $50,000 entry to accounts receivables as $5,000 while correctly recording the corresponding revenue correctly

True or False If a company fails to adjust a deferred revenue recorded as a liability, revenues will be overstated on the income statement.

False

True or False If unearned revenue is initially recorded as a liability, the end of period adjusting entry records the unexpired portion.

False

True or False The adjusted trial balance includes only permanent accounts?

False

True or False? A firm may choose to apply the indirect effects of an accounting principle change either prospectively or retrospectively.

False

True or False? Accrued expenses are paid before they are incurred.

False

True or False? All changes in accounting methods are accounted for retrospectively.

False

True or False? Closing expense accounts results in a credit to income summary.

False

True or False? Comprehensive income includes all changes in equity during a period except those resulting from contributions by owners.

False

True or False? Disclosure requirements are met if we only disclose the change other comprehensive income in the statement of stockholders' equity.

False

True or False? Disclosures are required for all accounting estimates made in normal operations.

False

True or False? If a company initially records a deferred revenue as a liability, an adjusting entry must be made at the end of the period to increase the liability account.

False

True or False? If the total of all debit entries equals the total of all credit entries on the unadjusted trial balance, all transaction have been correctly recorded

False

True or False? Information has predictive value if it provides feedback about prior evaluations?

False

True or False? Information is relevant if it reliably the substance of an economic event.

False

True or False? Key performance measures on the statement of net income include gross profit and net assets, among others.

False

True or False? The adjusted trial balance proves the accuracy of the financial statements?

False

True or False? The single step income statement format combines all revenues and expenses into a single category and all gains and losses into another single category.

False

True or False? The two types of qualitative characteristics are the fundamental characteristics and primary characteristics

False

True or False? U.S. GAAP requires firms to classify revenues and expenses using the functional approach.

False

True or False? Sustainability reporting is required under GAAP.

False

True or false? The term financial information only refers to four basic financial statements and the footnotes to the financial statements.

False

True or False? Material error corrections are retrospectively applied but do not require disclosures for changes in retained earnings as prior-period adjustments.

Fasle

True or False? Prior period adjustments can either be added or subtracted on the statement of comprehensive income.

Fasle

True of False? When a significant operator that does not meet the definition of a discontinued operation is disposed of U.S. GAAP requires disclosure of the pre-tax profit (loss) of that operation

True

True or False Accrued revenues are earned before they are received

True

True or False? Accounting is subject to many environmental and social factors and as a result, reacts to this environment when developing accounting and reporting standards

True

True or False? An entity's critical accounting policies are disclosed in the financial statements.

True

True or False? Changes in accounting principles can be mandatory or voluntary.

True

True or False? Comprehensive income is comprised of elements explicitly excluded from net income.

True

True or False? Deferrals occur when a company receives or pays cash before recognizing the revenue or expense in the financial statements.

True

True or False? Deferred expenses may be initially recorded as assets or expenses

True

True or False? Earnings before interest and taxes is a critical performance measure because it provides information about returns to creditors.

True

True or False? Financial Acounting information assists in the capital allocation process.

True

True or False? Gain and losses from discontinued operations are shown on the income statement after the provision for income taxes is presented.

True

True or False? General purpose financial statements are designed to best satisfy the needs of multiple user groups.

True

True or False? If a company earns interest in June but does not receive it until December, this is referred to as an accrued revenue.

True

True or False? Indirect effects of changes in an accounting principle are those that change current or future cash flows and applied prospectively.

True

True or False? Materiality cannot always be expressed quantitatively but sometimes required judgment?

True

True or False? Revenues are both similar and different when compared to gains.

True

True or False? The FASB's decisions are often based on an investor's need to form an opinion about a company's future cash flows

True

True or False? The four income statement elements are gains, losses, revenues, and expenses.

True

True or False? The post-closing trial balance contains only permanent accounts.

True

True or False? To close out income summary account we debit income summary and credit retained earnings for net income; credit income summary and debit retained earnings for net loss?

True

True or False? To qualify discontinued operations treatment the segment must first be identified as a component of the entity.

True

True or False? Unearned revenues may be initially recorded as liabilities or revenues.

True

True to False? Most elements of operating income are permanent in nature?

True