Wiley FAR Assessment MCQs
U Co. had cash purchases and payments on account during the current year totaling $455,000. U's beginning and ending accounts payable balances for the year were $64,000 and $50,000, respectively. What amount represents U's accrual-basis purchases for the year?
$441,000
Which one of the following levels of voting ownership is normally assumed to convey significant influence over an investee?
20% - 50%
An investor will report an investment in its financial statements using a different method than it uses to carry the investment on its books if its minimum ownership of the investee is:
50%+
Rent revenue collected 1 month in advance should be accounted for as
A current liability.
Which one of the following can be measured at fair value at the option of the reporting entity?
A debt investment classified as held-to-maturity
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification
A proposed accounting standards update
For which of the following circumstances is the guidance for determining fair value as provided in the fair value framework presented in ASC 820, "Fair Value Measurement," least likely to apply
Determination of the fair value of legal services received in exchange for an entity's common stock
For which of the following circumstances is the guidance for determining fair value as provided in the fair value framework presented in ASC 820, "Fair Value Measurement," least likely to apply?
Determination of the fair value of legal services received in exchange for an entity's common stock
The SEC is comprised of five commissioners, appointed by the President of the United States, and five divisions. Which of the following divisions is responsible for overseeing compliance with the securities acts?
Division of Corporate Finance.
On March 21, year 2, a company with a calendar year end issued its year 1 financial statements. On February 28, year 2, the company's only manufacturing plant was severely damaged by a storm and had to be shut down. Total property losses were $10 million and determined to be material. The amount of business disruption losses is unknown. How should the impact of the storm be reflected in the company's year 1 financial statements?
Do NOT accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements.
In determining the fair value of a nonfinancial asset, assessing the highest and best use of the asset must take into account all but which one of the following?
How the reporting entity would use the asset
In determining the fair value of a nonfinancial asset, assigning the highest and best use of the asset must take into account all but what?
How the reporting entity would use the asset
Which of the following statements concerning the determination of fair value at the date an asset is acquired or a liability is assumed is/are correct? I. The exit price is conceptually different than the entry price. II. The entry price and the exit price may be different amounts at the date an asset or liability is initially recognized.
I and II
In which of the following circumstances, if any, would an auditor be concerned as to whether or not the price paid to acquire an asset was the fair value of the asset? I. The asset was acquired from the acquiring firm's majority shareholder. II. The asset was acquired in an active exchange market.
I only
Which one of the following is not an other comprehensive basis of accounting (OCBOA)?
IFRS for SMEs
Which of the following statements concerning inputs used in ascertaining fair value is/are correct? I. Only observable inputs can be used. II. Inputs that incorporate the entity's assumptions may be used.
II Only
Under IFRS, a parent may exclude a subsidiary from consolidation if all of the following conditions exist, except:
It reports only one class of stock in its balance sheet.
Which of the following assumptions means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis?
Monetary unit.
Which of the following statements concerning the fair value hierarchy used in ascertaining fair value is/are correct? I. Quoted market prices should be adjusted for a "blockage factor" when a firm holds a sizable portion of the asset being valued. II. Quoted market prices in markets that are not active because there are few relevant transactions cannot be used.
Neither I nor II
On December 31, 20X2, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 20X2, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks' December 31, 20X2, Balance Sheet?
Net realizable value
On December 31, 20X2, Brooks Co. decided to end operations and dispose of its assets within three months. At December 31, 20X2, the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in Brooks' December 31, 20X2, Balance Sheet?
Net realizable value.
According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?
Replacement cost.
Which of the following must be included in the notes to the financial statements in a company's summary of significant accounting policies?
Revenue recognition policies.
When referring to IFRS, which of the following are NOT included?
SEC
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources
In determining the fair value of an asset in the most advantageous market, the market-based exit price should be adjusted for
Transportation costs
Which of the following is an appropriate market approach for determining fair value measurements?
Using relevant information from recent transactions
Water Co. owns 80% of the outstanding common stock of Fire Co. On December 31, 2005, Fire sold equipment to Water at a price in excess of Fire's carrying amount but less than its original cost. On a consolidated balance sheet on December 31, 2005, the carrying amount of the equipment should be reported at
Water's original cost less Fire's recorded gain
Which one of the following is not a characteristic of intercompany bonds?
When bonds become intercompany, they are written off of the books of the issuing affiliate and the investing affiliate.
Under IFRS the asset goodwill may be recognized
When it is acquired by purchase
There are two assumptions underlying the preparation and presentation of financial statements
accrual basis & going concern
Using a "blockage factor" would
adjust the market value for the impact of such a large block of securities being sold, but is not permitted in determining fair value.
In order to be recognized, an item must have
both the probability of future economic benefit associated with the item that will flow to or from the entity and a cost or value that can be measured with reliability
Under IFRS for SMEs, the FIFO and weighted average cost assumptions of cost flow may be used for inventory valuation purposes
but the LIFO cost flow assumption may not be used.
According to the FASB Conceptual Framework, which of the following relates to both relevance and faithful representation?
consistency and verifiability
Proceeds from a note payable is a
financing activity
Reporting inventory at the lower of cost or market is a departure from the accounting principle of:
historical cost
When a firm is in liquidation
historical cost and entry values (replacement cost) are no longer relevant.
In the consolidating process, the dividends recognized from the subsidiary as well as the income recognized from the subsidiary (and any other equity-based entries made by the parent)
must be reversed so that the elements that make up those entries (revenues, expenses, etc.) can be individually recognized on the consolidating worksheet and the consolidated financial statements.
The fair value option election applies to all of the following items except for
pensions
The FASB is a
private sector
If the parent uses the cost method to account for its investment in a subsidiary, the parent will recognize:
the parent's share of the subsidiary's dividends.
Per SFAC 5
the principle of immediate recognition requires that items carried as assets in prior periods that are discovered to be impaired in value be charged to expense (e.g., a patent that is determined to be worthless
A "blockage factor" occurs
when an entity holds a sizable portion of an asset (or liability) relative to the trading volume of the asset or liability in the market.
Reporting inventory at the lower of cost or market is a departure from the accounting principle of:
Historical cost
According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:
Cost-benefit
IFRS requires a classified Statement of Financial Position. What are the required classifications?
Current and non-current assets and liabilities
Which one of the following is not a required disclosure in annual financial reports for an entity that uses fair value measurement?
Combined disclosures about fair value measurements required by all pronouncements
Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of
Concentration of credit risk
Which of the following is not one of the concentrations about which disclosures are required?
Concentrations in investment in other firm's stock for which ownership is less than 20% in any specific investment
What is the underlying concept governing the GAAP pertaining to recording gain contingencies?
Conservatism
What is the underlying concept governing the Generally Accepted Accounting Principles pertaining to recording gain contingencies?
Conservatism
When the fair value of an asset is determined as the amount that currently would be required to replace the service capacity of the asset, which one of the following valuation techniques has been used?
Cost Approach
In which one of the following circumstances is the entry price to acquire an asset least likely to represent fair value of the asset?
A significant amount of raw material inventory is acquired for cash from a bankrupt supplier.
Changes and updates to the Codification are accomplished through the
Accounting Standards Updates (ASUs)
A private company decided to adopt one of the standards issued by the Private Company Council. What are the requirements upon adoption of the PCC standard?
Apply the new standard on a prospective basis.
For a firm that elects to measure certain of its financial assets and financial liabilities at fair value, required financial statement disclosures are intended to facilitate which of the following comparisons? I. Comparisons between entities that use different measurement methods for similar assets and liabilities. II. Comparisons between assets and liabilities of a single entity that uses different measurement methods for similar assets and liabilities.
Both I and II.
A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a Statement of Cash Flows, what amount is included in investing activities for the above transaction?
Cash payment
Which of the following would be reported as an investing activity in a company's statement of cash flows
Collection of a note receivable from a related party
Which of the following would be reported as an investing activity in a company's statement of cash flows?
Collection of a note receivable from a related party.
According to the conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of
Cost-benefit
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of:
Economic entity
Which of the following is not a source of risk and uncertainty for which disclosures are required by GAAP?
Effect of changes in government regulations
The SEC enforces the corporate registration requirements of the Securities Act of 1933 as one of its principal objectives. These requirements are intended to provide information that enables the SEC to:
Ensure that investors are provided with adequate information on which to base investment decisions.
Which one of the following is not a purpose of the fair value framework as set forth in ASC 820, "Fair Value Measurement"?
Establish new measurement requirements for financial instruments.
What group currently writes the Generally Accepted Accounting Principles
Financial Accounting Standards Board
Which of the following is included in other comprehensive income?
Foreign currency translation adjustments
Which of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method?
Gain on sale of plant asset
The Private Company Council has issued modified accounting for private companies for what aspect of Goodwill?
Goodwill amortization.
How should the amortization of a bond discount on long-term debt be reported in a Statement of Cash Flows prepared using the indirect method?
In operating activities as an addition to income
Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year. At the end of the year, the decline had not reversed. When should the loss be reported in Petal's interim income statements?
In the fourth quarter only.
According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants, is
Income
Giaconda, Inc. acquires an asset for which it will measure the fair value by discounting future cash flows of the asset. Which of the following terms best describes this fair value measurement approach?
Income
Which of the following is a benefit of the fair value framework with respect to fair value measurement and fair value reporting?
Increased consistency and increased comparability
Each of the following would be considered a Level 2 observable input that could be used to determine an asset or liability's fair value, except
Internally generated cash flow projections for a related asset or liability
Each of the following would be considered a Level 2 observable input that could be used to determine an asset or liability's fair value, except
Internally generated cash flow projections for a related asset or liability.
The treasury stock method of entering stock options into the calculation of diluted EPS:
Is called the treasury stock method because the proceeds from assumed exercise are assumed to be used to purchase treasury stock.
When a parent company uses the cost method on its books to carry its investment in a subsidiary, which one of the following will be recorded by the parent on its books?
Parent's share of subsidiary's cash dividends declared
Which of the following is not a required component of the 10-K filing?
Product market share.
If everything else is held constant, earnings per share is increased by:
Purchase of treasury stock.
Which of the following items would best enable Driver Co. to determine whether the fair value of its investment in Favre Corp. is properly stated in the balance sheet?
Quoted market prices on a stock exchange for an identical asset.
According to the IASB Framework, the process of reporting an item in the financial statements of an entity is:
Recognition
According to the conceptual framework, the process of reporting an item in the financial statements of an entity is:
Recognition
The Statement of Changes in Equity
Reconciles all of the beginning and ending balances in the equity accounts.
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X
Which of the following characteristics of accounting information allows users of financial statements to generate predictions about an organization?
Relevance
When an entity uses the fair value option for eligible financial assets and liabilities, which one of the following is not an expected outcome of the disclosures required of that entity?
Replace the kind and amount of information that would have been provided if the fair value option had not been used with information related to fair value
According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?
Replacement cost
The primary purpose of a Statement of Cash Flows is to provide relevant information about
The cash receipts and cash disbursements of an enterprise during a period
Wood Co.'s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated?
The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.
Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers?
The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues
In reference to proposed accounting standards, the term "negative economic consequences" includes:
The inability to raise capital
Which one of the following is not a characteristic of consolidated financial statements prepared following an operating period that occurred after the date of a business combination?
The method used by the parent to carry on its books its investment in the subsidiary will affect the final consolidated financial statements.
According to the conceptual framework, the objectives of financial reporting for business enterprises are based on:
The needs of the users of the information
What is the conceptual framework intended to establish
The objectives and concepts for use in developing standards of financial accounting and reporting.
Which of the following will best protect investors against fraudulent financial reporting by corporations?
The requirement that financial statements be audited
In which one of the following cases is the subsidiary most likely to be reported as an unconsolidated subsidiary?
The subsidiary is in legal bankruptcy
