Intermediate Accounting III (5-9) part 2

Requires an employer to contribute a certain sum each period based on the formula

25. In a defined-contribution plan, a formula is used that a. Defines the benefits that the employee will receive at the time of retirement b. Ensures that pension expense and the cash funding amount will be different c. Requires an employer to contribute a certain sum each period based on the formula d. Ensures that employers are at risk to make sure funds are available at retirement

The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan

26. Which of the following is not a characteristic of a defined-contribution pension plan? a. The employer's contribution each period is based on a formula b. The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan c. The accounting for a defined-contribution plan is straightforward and uncomplicated d. The benefit of gain or the risk of loss from the assets contributed to the pension fund is borne by the employee

Defines the benefits that the employee will receive at the time of retirement.

27. In a defined-benefit plan, a formula is used that a. Requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee. b. Defines the benefits that the employee will receive at the time of retirement. c. Requires that pension expense and the cash funding amount be the same. d. Defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees.

As a non-recognized subsequent event

A business learns of a material financial event after the balance sheet date which occurred after the balance sheet date and before financial statements are issued. How should this event be reported? a. As a non-recognized subsequent event b. As a recognized subsequent event c. As a current period non-adjusting event d. As a prior period non-adjusting event

As a recognized subsequent event

A business learns of a material financial event after the balance sheet date. The event existed prior to the balance sheet date and will provide evidence about the business's financial condition. How should this event be reported? a. As a non-recognized subsequent event b. As a recognized subsequent event c. As a current period non-adjusting event d. As a prior period non-adjusting event

As a recognized subsequent event

A business learns of a material financial event after the balance sheet date. The event existed prior to the balance sheet date and will provide evidence about the business's financial condition. How should this event be reported? a. As a recognized subsequent event b. As a current period non-adjusting event c. As a non-recognized subsequent event d. As a prior period non-adjusting event

As a non-recognized subsequent event that is disclosed in the financial statements

A company agrees to a merger after the balance sheet date but before the issue date. How should the merger be treated under these circumstances? a. As a recognized subsequent event that is disclosed in the financial statements b. As a recognized subsequent event with adjustments made to the financial statements c. As a non-recognized subsequent event with adjustments made to the financial statements d. As a non-recognized subsequent event that is disclosed in the financial statements

The relationship between the transacting parties

A company has material related-party transactions. Which disclosure note should be included in the financial statements? a. Identification of other parties that may be influenced b. The impact of taxes on the transactions c. Future proposed transactions between the parties d. The relationship between the transacting parties

Segment reporting for companies with multiple product lines

A company is considering changing from a public corporation to a private corporation but still wants to follow generally accepted accounting principles (GAAP). Which reporting requirement, according to the Financial Accounting Standards Board (FASB), will no longer apply if this change is made? a. Recognition and measurement of financial assets and liabilities b. Presentation and disclosure of financial assets and liabilities c. Segment reporting for companies with multiple product lines d. Effective dates of changes in accounting methods

Note receivable from the fourth-largest customer

A company is considering circumstances that will require related-party note disclosures and has identified four items for consideration: • Management requires that all purchases are made from a list of preapproved vendors, and there is only one vendor for some products. • The accounting software is programmed to permit adjusting journal entries only upon successful entry of the thumbprint of the CFO. • A noninterest-bearing note receivable from the fourth-largest customer is on the trial balance. • Minutes of the board of directors' meetings reveal that one director serves on the board of a local nonprofit, which accepts voluntary employee payroll contributions. Which circumstance will require this type of note disclosure in the financial statements? a. Existence of preapproved vendors b. Adjusting journal entries procedure c. Note receivable from the fourth-largest customer d. Director serving on a nonprofit to which employees contribute

Deferred taxes

A company is determining if a major disclosure must be made in the notes included with its financial statements. Which tax item requires this treatment? a. Tax expense b. Tax refunds c. Deferred taxes d. Taxes payable

Liens held against equipment

A company is determining whether a disclosure to the financial statements must be included in a note. Which of the following disclosures would be required? a. Method for how the equipment was acquired b. Liens held against equipment c. Average historical cost for all equipment in service d. Balance due for any equipment financed

All of the above

A company is determining whether a disclosure to the financial statements must be included in a note. Which of the following disclosures would be required? a. Outstanding stock options b. Outstanding convertible debt c. Restriction on dividend distributions d. All of the above

Changes in accounting principles

A company is making a major disclosure in the notes to its financial statements. Which change will require this action? a. Changes in oil and gas reserves b. Changes in accounting principles c. Changes in accounts payable balances d. Changes in the company's internal control procedures

The cost and fair value of the investment

A company made an investment that was recorded as an asset. Which financial statement note disclosure specification is required? a. The cost and fair value of the investment b. Revenues received from dividends on the investment c. The amortization calculation for the investment expenses d. Owners of the investment who have a controlling interest

Defined benefit plan

A company provides a pension plan to eligible new hires and bears all the costs and risks. Which type of plan is described in the scenario? a. Defined benefit plan b. Defined contribution plan c. Vested benefit obligation account d. Roth individual retirement account

Defined benefit plan

A company provides a pension plan to eligible new hires. Pension payments are typically based on the employee's years of service and the compensation level as the employee approaches retirement. It is the responsibility of the employer to pay any shortfall in the accumulated assets held by the trust. Which type of plan is described in the scenario? a. Roth individual retirement account b. Defined benefit plan c. Defined contribution plan d. Individual retirement account

The company is at risk for payments falling short of the future benefits.

A company provides employees with a noncontributory defined benefit plan as part of the overall compensation package. Which characteristic is associated with this type of plan? a. An asset is reported on the company's books if the contribution is less than the required amount. b. The employee bears part of the cost of the plan. c. The company is at risk for payments falling short of the future benefits. d. The benefits paid out are not guaranteed.

5

A company reports a total inventory of $75,000 on its balance sheet using the lower-of-cost-or-market (LCM) basis and determines cost using the first-in, first-out (FIFO) method. The balance sheet reports $8,000 in raw materials; $37,000 in work-in-process inventory; and $30,000 in finished goods. The company keeps $15,000 of finished goods inventory on hand as pledged collateral for a loan. A company is trying to determine how many years that the aggregate amount of maturities for all long-term borrowing must be reported. How many years should be disclosed? a. 3 b. 5 c. 7 d. 2

January 1, 2021 to April 5, 2021

A company reports financial statements on the calendar year ending December 31, 2020. It issues its financial statements on April 5, 2021. What is the company's subsequent events period? a. January 1, 2020 to December 31, 2020 b. January 1, 2021 to April 5, 2021 c. January 1, 2020 to April 5, 2021 d. January 1, 2021 to December 31, 2021

Issue date

A company using US GAAP accounting is trying to determine if a subsequent event should be disclosed in its financial statements. Management understands that the event must be disclosed if it happened before a key date. Which key date is being used for this decision? a. Issue date b. Audit date c. Year-end date d. Authorization date

No, because the condition of the loss did not exist at the balance sheet date

A manufacturing company operates on a fiscal year. In the early spring of Year 2, a fire destroys the factory and its contents. Despite an anticipated work stoppage for six months and a net loss from operations for Year 2, the manufacturer assesses that it is still an ongoing concern. The manufacturer has not issued financial statements for Year 1. Is the manufacturer required to adjust the financial statements related to the fire as a subsequent event? a. Yes, because the manufacturer anticipates a net loss from operations b. No, because creditors and industry experts will be aware of the fire c. No, because the condition of the loss did not exist at the balance sheet date d. Yes, because there is a loss on factory assets resulting from the fire

Disclosure of all dollar amounts of all transactions

A supermarket is owned by a sibling of the owner of a major seafood distributor. The supermarket purchases all of its seafood from the distributor. 90% of its seafood orders are placed by a salesperson with half of the orders receiving a discount. 10% of the orders are placed directly through the siblings, all at a discount. Which disclosure in the notes regarding seafood purchases should be made in the supermarket's financial statements? a. Disclosure of all dollar amounts of all transactions b. Disclosure of only the dollar amounts of all transactions between the siblings c. Disclosure of only dollar amounts of all transactions not receiving a discount d. Disclosure of only dollar amounts of all transactions receiving a discount

Non-recognized subsequent event

After a successful year, a company's board of directors votes to expand operations. The company sells 40,000 shares of $1 par value common stock for $60 per share to fund the $2.4 million dollar project in January of Year 2, weeks before issuing the financial statements for Year 1. Which type of transaction has occurred in this company? a. Stockholders' equity reduction b. Non-recognized subsequent event c. Recognized subsequent event d. Retained earnings increase

An employer

Commonly, in a defined benefit plan, who makes the contributions to the plan? a. The government b. An independent third party c. An employee d. An employer

An explanation that an estimate of the lawsuit contingency is unpredictable

During the current year, a manufacturer was served with a lawsuit, and the company's attorney predicts that it will most likely result in a loss, but the dollar amount is not estimable. The company does have a large line of credit available that they believe could cover any amount of loss. Additionally, the manufacturer guaranteed $1,000,000 in indebtedness of a smaller company in which it holds 50% stock, although the manufacturer does not think the smaller company will default. Which partial disclosure note for contingent liabilities is appropriate for this manufacturer? a. An explanation that the indebtedness of the smaller company is unrecorded because the loss is improbable b. A statement that a line of credit is available to pay for the lawsuit c. A statement of guarantee of indebtedness for half of the $1,000,000 loan of the smaller company d. An explanation that an estimate of the lawsuit contingency is unpredictable

Used to record an adjustment to Bad Debt Expense for the year ending December 31, 2021

Events that occur after the December 31, 2021 balance sheet date, but before the balance sheet is issued, and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be a. Discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report. b. Disclosed only in the Notes to the Financial Statements. c. Used to record an adjustment to Bad Debt Expense for the year ending December 31, 2021 d. Used to record an adjustment directly to the Retained Earnings account

Disclosure of any financial facts significant enough to influence the judgment of an informed reader should be disclosed

How is the full disclosure principle, as adopted by the accounting profession, described? a. Enough information should be disclosed in the financial statements so a person wishing to invest in the stock of the company can make a profitable decision b. Disclosure of any financial facts significant enough to influence the judgment of an informed reader should be disclosed c. All information related to an entity's business and operating objectives is required to be disclosed in the financial statements d. All information about each account balance appearing in the financial statements is to be included in the notes to the financial statements

Nature of any future transactions planned between the parties and the terms involved.

If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the a. Nature of the relationship between the parties to the transactions. b. Nature of any future transactions planned between the parties and the terms involved. c. Dollar amount of the transactions for each of the periods for which an income statement is presented. d. Amounts due from or to related parties as of the date of each balance sheet presented.

Yes, because the lawsuit was settled prior to issuing the financial statements for Year 1

In Year 2, a company receives notice of a $1,200,000 lawsuit relating to a customer's injury on company property in Year 1. The company decides to settle the lawsuit out of court before issuing financial statements for Year 1 Does the company need to adjust the financial statements for Year 1? a. No, because the lawsuit was settled after the date of the financial statements for Year 1 b. Yes, because the lawsuit was settled prior to issuing the financial statements for Year 1 c. Yes, because the lawsuit was filed prior to issuing the financial statements for Year 1 d. No, because the lawsuit was filed after the date of the financial statements for Year 1

Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims

In a defined benefit plan, what is meant by the process of funding? a. Determining the projected benefit obligation b. Determining the accumulated benefit obligation c. Determining the amount that might be reported for pension expense d. Making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims

an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised

In accounting for a defined benefit pension plan, a. an appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised b. the employer's responsibility is simply to make a contribution each year based on the formula established in the plan c. the expense recognized each period is equal to the cash contribution. d. the liability is determined based upon known variables that reflect future salary levels promised to employees.

An appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised

In accounting for a defined-benefit pension plan, a. An appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised b. The employer's responsibility is simply to make a contribution each year based on the formula established in the plan c. The expense recognized each period is equal to the cash contribution d. the liability is determined based upon known variables that reflect future salary levels promised to employees

Employer

In substance, who do the trust assets and liabilities belong to under a defined benefit plan? a. The trust b. Employee c. The government d. Employer

Qualitative and quantitative

Information in the notes to the financial statements is a. Only qualitative b. Only quantitative c. Qualitative and quantitative d. Neither

The inventory value stated at the lower of cost or market (LCM)

Manufacturers should report, either in the balance sheet or in a separate schedule in the notes, the inventory composition (finished goods, work in process, raw materials). Unusual or significant financing arrangements relating to inventories that may require disclosure include transactions with related parties, product financing arrangements, firm purchase commitments, involuntary liquidation of LIFO inventories, and pledging of inventories as collateral. A merchandising business maintains a significant level of inventory for goods to be sold to the public. Which financial statement disclosure is required? a. The highest price paid for the inventory during the period b. The amount of unpaid accounts receivable for the inventory c. The inventory value stated at the lower of cost or market (LCM) d. The purchase date of the oldest lot of inventory

George

On March 3, 2022, Phillips Inc.'s began preparing financial statements and the accompanying notes for the year ended December 31, 2021. On February 25, 2022, Allen Corporation, Phillips Inc.'s largest customer, informed Phillips that it was filing bankruptcy and would be unable to pay its balance due to Phillips. Phillips found that Allen Corporation owed $250,000 in accounts receivable as of December 31, 2021. Phillips Inc.'s CFO, Kellyn, has asked her four interns to determine how the information provided by Allen Corporation should be treated. Sarah indicates that the information did not require an adjustment but, instead, should be discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report. Josh suggests that the issue should be disclosed only in the Notes to the Financial Statements. George recommends that the information should be used to record an adjustment on the December 31, 2021 financial statements. Maggie advises that the information should be used to record an adjustment directly to the Retained Earnings account on February 25, 2022. Which intern is correct? a. Sarah b. Josh c. Maggie d. George

Differential disclosure

The decision-making needs between large, public companies and small, private companies have resulted in variations in how generally accepted accounting principles (GAAP) are applied. Which principle was modified by the Financial Accounting Standards Board (FASB) in response to this issue? a. Full transparency b. Differential disclosure c. Consistency d. Timeliness

Disclosure of any financial facts significant enough to influence the judgment of an informed reader

The full disclosure principle, as adopted by the accounting profession, is best described by which of the following? a. All information related to an entity's business and operating objectives is required to be disclosed in the financial statements b. Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements c. Enough information should be disclosed in the financial statements so a person wishing to invest in the stock of the company can make a profitable decision d. Disclosure of any financial facts significant enough to influence the judgment of an informed reader

Yes Yes

The use of a formula in developing the parameters of a pension fund is used when the plan is a Defined Benefit Plan Defined Contribution Plan a. Yes No b. No Yes c. Yes Yes d. No No

Increased costs of accounting personnel and task management Too much information for financial statement readers to absorb

What are two potential disadvantages of full disclosure? a. Increased costs of accounting personnel and task management b. Reduced discretion by management regarding disclosed material c. Too much information for financial statement readers to absorb d. Greater potential for accounting errors

To address the complexity of the business environment

What is a reason for the increase in disclosure requirements? a. To use accounting simply to provide reporting b. To provide for information overload c. To address the complexity of the business environment d. To avoid timely information that is often unnecessary

Pension plan

What is another name for a defined benefit plan? a. IRA plan b. 403(b) plan c. 401(k) plan d. Pension plan

Recognized subsequent events

What is the description given to events occurring after the balance sheet date, but before the financial statements are issued, and that provide additional evidence about conditions that existed on the balance sheet date? a. Non-recognzied subsequent events b. Recognized subsequent events c. Related party transactions d. Accounting policies

Contribute toward future obligations

What should companies do to fund a defined benefit plan? a. Calculate the benefit obligation b. Contribute toward future obligations c. Recognize pension expense d. Adjust fair value of plan assets

Complexity of the business environment

What would be a reason for this increase? a. Number of people employed by the company b. Competitive business environment c. Complexity of the business environment d. Sales revenue of the company

Either summary of significant accounting policies or other notes

Where are changes in accounting principles disclosed? a. Only summary of significant accounting policies b. Only in other notes c. Either summary of significant accounting policies or other notes d. No disclosure is required

All of the above

Which account is subject to common disclosures in the notes to the financial statements? a. Creditor claims b. Changes in accounting principles c. Fair values d. All of the above

Inventory

Which account is subject to common disclosures in the notes to the financial statements? a. Payroll taxes b. Supplies c. Inventory d. Wages

Informed readers

Which audience governs whether specific financial facts are subject to the full disclosure principle? a. Accountants b. Professional investors c. Creditors d. Informed readers

(ending balance - beginning balance) - (contributions - benefits paid)

Which calculation determines the actual return plan assets? a. (ending balance + beginning balance) - (contributions + benefits paid) b. (ending balance - beginning balance) - (contributions + benefits paid) c. (ending balance + beginning balance) + (contributions - benefits paid) d. (ending balance - beginning balance) - (contributions - benefits paid)

The relationship between the transacting parties

Which disclosure note should be included in the financial statements? a. The impact of taxes on the transactions b. Future proposed transactions between the parties c. The relationship between the transacting parties d. Identification of other parties that may be influenced

Employee's compensation level

Which factor is a function of the defined benefit plan funding model for each employee's benefit? a. Employer's net income for the current year b. Employer's total assets for the current year c. Employee's age at the time of hire d. Employee's compensation level

Employee's compensation level

Which factor is a function of the defined benefit plan funding model for each employee's benefit? a. Employer's total assets for the current year b. Employee's compensation level c. Employee's age at the time of hire d. Employer's net income for the current year

Length of service

Which factor is considered when calculating an employee's pension payment in a defined benefit plan? a. Length of service b. Employer profits c. Employee contributions d. Age at hiring

The first-in, first-out (FIFO) inventory method is used to report inventory. Inventory pledged as collateral is $15,000. Inventory provisions are recorded to reduce inventory to the lower of cost or market (LCM) based on assumptions about future demand and marketability

Which financial disclosure note is required? a. Raw materials inventory is $8,000; work-in-process inventory is $37,000; and finished goods inventory is $30,000. Inventory pledged as collateral is $15,000. Provisions are recorded to reduce inventory to the lower of cost or market (LCM) based on assumptions about future demand and marketability b. Raw materials inventory is $8,000; work-in-process inventory is $37,000, and finished goods inventory is $30,000. Inventory pledged as collateral is $15,000. The first-in, first-out (FIFO) inventory method is used, and provisions are recorded to reduce inventory to the lower of cost or market (LCM) based on assumptions about future demand and marketability c. The first-in, first-out (FIFO) inventory method is used to report inventory. Inventory pledged as collateral is $15,000. Inventory provisions are recorded to reduce inventory to the lower of cost or market (LCM) based on assumptions about future demand and marketability d. The first-in, first-out (FIFO) inventory method is used to report inventory, of which $60,000 is unpledged and available. Inventory provisions are recorded to reduce inventory to the lower of cost or market (LCM) based on assumptions about future demand and marketability

Creditor claims

Which information should companies disclose either as the first note to the financial statements or in a separate summary preceding the notes? a. Fair values b. Accounting policies c. Creditor claims d. Accounting principle changes

Pledges of inventory as collateral

Which inventory information should a company disclose in the notes to the financial statements? a. Cash flows generated by reductions in inventory b. Most profitable and least profitable inventory items c. Pledges of inventory as collateral d. Recent purchases and sales of inventory items

Issue of a large amount of capital stock

Which of the following post-balance-sheet events would generally require disclosure, but no adjustment of the financial statements? a. Retirement of the company president Settlement of litigation that existed prior to the balance sheet date. c. Employee strikes d. Issue of a large amount of capital stock

Loss on a lawsuit, the outcome of which was deemed uncertain at year end.

Which of the following post-balance-sheet events would require adjustment of the accounts before issuance of the financial statements? a. Loss of plant as a result of fire b. Changes in the quoted market prices of securities held as an investment c. Loss on an uncollectible account receivable resulting from a customer's major flood loss d. Loss on a lawsuit, the outcome of which was deemed uncertain at year end.

Defined benefit plan

Which plan outlines the payments that employees will receive when they retire? a. Contributory plan b. Defined contribution plan c. Defined benefit plan d. Noncontributory plan

Settlement payments paid on a lawsuit, the outcome of which was deemed uncertain at year end

Which post-balance-sheet event would require adjustment of the accounts before issuance of the financial statements? a. Loss of plant as a result of fire b. Receipt of an uncollectible account receivable resulting from a customer's major flood loss c. Settlement payments paid on a lawsuit, the outcome of which was deemed uncertain at year end d. A change in the quoted market prices of securities held as an

Increased complexity of the business environment

Which reason supports this trend? a. Expanded size of corporations b. Increased number of equity owners c. Expanded variety of products offered in the market d. Increased complexity of the business environment

Increased demand for transparency

Which reason supports this trend? a. Expanded size of corporations b. Increased number of equity owners c. Expanded variety of products offered in the market d. Increased demand for transparency

Necessity for timely and predictive information

Which reason supports this trend? a. Expanded size of corporations b. Increased number of equity owners c. Expanded variety of products offered in the market d. Necessity for timely and predictive information

Fair value of financial instruments

Which reporting requirement, according to the Financial Accounting Standards Board (FASB), will no longer apply if this change is made? a. Recognition and measurement of financial assets and liabilities b. Presentation and disclosure of financial assets and liabilities c. Fair value of financial instruments d. Effective dates of changes in accounting methods

The Securities and Exchange Commission (SEC) requires that companies report specific information in addition to the information provided in their annual reports The Financial Accounting Standards Board (FASB) excuses nonpublic companies from reporting fair value of financial instruments and segment reporting

Which two scenarios are examples of differential disclosure? a. The Securities and Exchange Commission (SEC) excuses small public companies from reporting financial instruments used for hedging at fair value b. The Securities and Exchange Commission (SEC) requires that companies report specific information in addition to the information provided in their annual reports c. The Financial Accounting Standards Board (FASB) excuses nonpublic companies from reporting fair value of financial instruments and segment reporting d. The Financial Accounting Standards Board (FASB) allows small public companies to follow other comprehensive bases of accounting principles on leases, pensions, and deferred taxes

A defined benefit plan

Which type of pension plan guarantees the benefits that employees will receive? a. A defined contribution plan b. A defined benefit plan c. A contributory plan d. A noncontributory plan

Depreciation method used

Which would be included in the Summary of Significant Accounting Policies note? a. Discussion about obsolete inventory b. Tax reporting method used c. Description of specific assets d. Depreciation method used

Discussion of amortization of intangible assets

Which would be included in the Summary of Significant Accounting Policies note? a. Discussion about obsolete inventory b. Tax reporting method used c. Description of specific assets d. Discussion of amortization of intangible assets

Inventory valuation method used

Which would be included in the Summary of Significant Accounting Policies note? a. Discussion about obsolete inventory b. Tax reporting method used c. Description of specific assets d. Inventory valuation method used

The employer

Who benefits from the gain (or risks the loss) from the assets contributed to a defined benefit plan? a. The defined benefit trust b. The employee c. An independent third party d. The employer