ACC 4356 Exam 1 Ch 4

On a balance sheet prepared under U.S. GAAP: A) accounts receivable is presented at net realizable value. B) inventories are presented at current market price. C) any cash denominated in a foreign currency is disclosed in a footnote. D) most shortterm investments are presented at historical cost.

A) accounts receivable is presented at net realizable value.

When adjusting accrual earnings to obtain cash flows from operations, A) an increase in Accounts Payable is added to determine cash flow from operations. B) a decrease in Accounts Payable is added to determine cash flow from operations. C) an increase in Accounts Payable is deducted to determine cash flows from operations. D) it is not necessary to consider any changes to Accounts Payable.

A) an increase in Accounts Payable is added to determine cash flow from operations.

Which of the following regarding the recognition of contingencies is a correct statement? A) IFRS uses the term contingent liability to include possible but unrecognized contingent obligations. B) U.S. GAAP discloses contingent liabilities in the notes to the financial statements only for recognized contingent loss obligations. C) The threshold for recognition of a contingent obligation is the same under both GAAP and IFRS. D) If the estimated liability is a range in which no value is deemed more reliable than another - both IFRS and GAAP will record the mid-point of the range as the value.

A) IFRS uses the term contingent liability to include possible but unrecognized contingent obligations.

A temporary difference is the result of: A) a revenue or expense item reported in different periods for book purposes and tax purposes. B) fluctuations in the exchange rate. C) adjustments between the trial balance and general ledger. D) delays between the sale of a product and the recording of the account receivable.

A) a revenue or expense item reported in different periods for book purposes and tax purposes.

Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. Joe would use an increase in Accumulated Depreciation to: A) increase cash flow from operating activities. B) increase cash flow from investing activities. C) decrease cash flow from investing activities. D) decrease cash flow from operating activities.

A) increase cash flow from operating activities.

Under U.S. GAAP, assets are presented in decreasing order of liquidity. Under IFRS, A) tangible assets may be presented first followed by the current assets displayed in increasing order of liquidity. B) the current assets are displayed in increasing order of liquidity. C) investments are listed first in descending order of maturity. D) a company may present its assets in alphabetical order if it so desires.

A) tangible assets may be presented first followed by the current assets displayed in increasing order of liquidity.

The following information is available from Moran Industries' accounting system for the year ended December 31, 20X1. Cash received from customers $ 750,000 Cash paid to suppliers $ 300,000 Cash paid to employees $ 150,000 Taxes paid $ 25,000 Cash dividends paid $ 50,000 What would the company's statement of cash flows report as cash flow from operations? A) $225,000 B) $275,000 C) $300,000 D) $250,000

B) $275,000

Which one of the following contingencies must be accrued on the balance sheet? A) The likely loss on a lawsuit that the firm's attorneys believe will be dropped. B) The probable loss on a lawsuit that the firm's attorneys believe will be settled for $50,000. C) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be dropped. D) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $50,000.

B) The probable loss on a lawsuit that the firm's attorneys believe will be settled for $50,000.

A contingent liability that is probable and can be reasonably estimated will immediately result in: A) an increase in both liabilities and stockholders' equity. B) an increase in liabilities and a decrease in net income. C) an increase in liabilities without any need for financial statement disclosure. D) an increase in liabilities and a decrease in assets.

B) an increase in liabilities and a decrease in net income.

In a common-size balance sheet, each balance sheet account is expressed as a percentage of total: A) liabilities. B) assets. C) shareholders' equity. D) assets plus shareholders' equity.

B) assets.

Current assets are assets expected to: A) be converted to cash within twelve months. B) be converted to cash within twelve months or one operating cycle if the operating cycle is longer than twelve months. C) remain on the books for at least twelve months. D) remain on the books for at least twelve months or one operating cycle if the operating cycle is longer than twelve months.

B) be converted to cash within twelve months or one operating cycle if the operating cycle is longer than twelve months.

Cash collected from customers can be derived: A) by analyzing changes in the Accounts Payable balance. B) by appropriately adjusting revenue for changes in accounts receivable. C) by appropriately adjusting revenue for changes in accounts payable. D) by analyzing changes to the reserve for doubtful accounts.

B) by appropriately adjusting revenue for changes in accounts receivable.

Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. An increase in the Computer Equipment account would: A) decrease cash flow from financing activities. B) decrease cash flow from investing activities. C) increase cash flow from operating activities. D) increase cash flow from investing activities.

B) decrease cash flow from investing activities.

The indirect method of presenting cash flow from operating activities: A) is strongly recommended by both U.S. GAAP and IFRS. B) focuses on how cash flows deviate from a natural benchmark - net income. C) presents cash transactions related to the determination of net income. D) is more difficult than the direct method to incorporate working capital changes into a financial model.

B) focuses on how cash flows deviate from a natural benchmark - net income.

Current liabilities are reported on the balance sheet at: A) current market value. B) historical cost. C) discounted present value. D) future value

B) historical cost.

Peter Inc. currently holds cash denominated in Euros. In its consolidated balance sheet, Peter Inc. should report the cash A) in Euros. B) in Dollars. C) at its present value. D) at its future value.

B) in Dollars.

166) The Additional Paid-In Capital account is reported on the balance sheet at the A) current market value of the stock minus par value. B) original sales price of the stock minus the par value. C) net realizable value of the stock minus par value. D) discounted present value of the future dividends minus par value.

B) original sales price of the stock minus the par value.

Which of the following statements is not correct with respect to accounting for Guarantees? A) When one company guarantees the debt of another company, that contingency must be disclosed even if the contingency is only remotely possible. B) The Guarantee liability account represents deferred revenue associated with the stand ready fee. C) Both the "stand ready obligation" and the contingent future obligation are recorded at fair value. D) The Guarantee liability account decreases over the life of the loan as revenue is earned.

C) Both the "stand ready obligation" and the contingent future obligation are recorded at fair value.

The change in a firm's cash position between successive balance sheet dates will not equal the reported net income for that period for all the following reasons except: A) Reported net income usually will not equal cash flow from operating activities because noncash revenues and expenses are often recognized as part of accrual income. B) Reported net income usually will not equal cash flow from operating activities because certain operating cash inflows and outflows are not recorded as revenues or expenses under accrual accounting in the same period the cash flows occur. C) Changes in cash are also caused by nonoperatingrelated investing activities like the purchase of treasury stock. D) Additional changes in cash are caused by financing activities like the repayment of a bank loan.

C) Changes in cash are also caused by nonoperatingrelated investing activities like the purchase of treasury stock.

Which of the following statements is not true regarding the cash flow statement? A) The cash flow statement provides information about changes in all the balance sheet accounts. B) The change in cash is classified into cash flow from three categories: operating activities, investing activities and financing activities. C) The cash flow statement generally shows that cash flows and accrual earnings are substantially the same. D) The cash flow statement explains the causes for year-to-year changes in cash and cash equivalents.

C) The cash flow statement generally shows that cash flows and accrual earnings are substantially the same.

Which of the following statements is not true regarding cash flow from operating activities? A) Most firms use the indirect method for presentation. B) Each line item in a direct method Statement of Cash Flows is actually a cash flow. C) The direct method begins with net income and then shows the differences between operating cash flow and net income. D) There are two methods for presenting cash flow from operating activities.

C) The direct method begins with net income and then shows the differences between operating cash flow and net income.

Properly prepared statements of cash flows: A) include stock issued for cash as an investing activity. B) present depreciation as a subtraction from net income to arrive at a firm's cash flow from operations under the indirect method. C) are frequently used by investment analysts to cash flows from operations across two or more companies. D) will show the change in cash during a period to be equal to the net income for the period.

C) are frequently used by investment analysts to cash flows from operations across two or more companies.

On balance sheets prepared in accordance with U.S. GAAP: A) assets are generally listed from least liquid to most liquid. B) liabilities are generally netted against assets. C) assets are generally listed from most liquid to least liquid. D) both tangible and intangible long-lived assets can be revalued upward periodically.

C) assets are generally listed from most liquid to least liquid.

The U.K. Equity account "Share premium" is reported on U.S. GAAP balance sheets as: A) capital reserve. B) revaluation reserve. C) capital in excess of par. D) an accumulated other comprehensive income account.

C) capital in excess of par.

Common-size balance sheets may be used for all the following except: A) gaining insights into the nature of a company's operations. B) analyzing a company's asset and financial structure. C) determining how management assesses the risks a company faces. D) learning about the underlying economics of an industry.

C) determining how management assesses the risks a company faces.

Accrued liabilities represent: A) income that has not yet been recognized on the income statement. B) expenses that have not yet been recognized on the income statement. C) expenses that have been recognized on the income statement but not yet been paid. D) income that has been recognized on the income statement but not yet collected.

C) expenses that have been recognized on the income statement but not yet been paid.

Net property, plant and equipment are reported on the balance sheet at: A) current market value. B) historical cost. C) historical cost minus accumulated depreciation. D) net realizable value.

C) historical cost minus accumulated depreciation.

Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. He notices that the Retained Earnings account increased from the beginning of the year. This information is used to: A) increase cash flow from financing as it indicates receipt of payments from customers. B) decrease cash flow from investing as it indicates payment of debt. C) increase cash flow from operations as it signifies a net income. D) decrease cash flow from operations as it indicates a net loss.

C) increase cash flow from operations as it signifies a net income.

Goodwill: A) is a tangible asset recognized as part of a business combination. B) is not subject to impairment. C) is initially measured as the difference between the consideration given in an acquisition and the fair value of the separately identifiable net assets acquired on the acquisition date. D) is classified on the balance sheet as a current asset.

C) is initially measured as the difference between the consideration given in an acquisition and the fair value of the separately identifiable net assets acquired on the acquisition date.

Long-term debt is reported on the balance sheet at: A) current market value. B) net realizable value. C) present value. D) future value.

C) present value.

The Retained Earnings account is comprised of A) cash retained in the business. B) cash reinvested in the business by shareholders. C) the cumulative earnings less dividends since the inception of the corporation. D) the earnings of the corporation for the current year.

C) the cumulative earnings less dividends since the inception of the corporation.

Contributed capital might be a negative dollar amount because: A) net losses exceeded net income over the years. B) excess liabilities reduced contributed capital. C) treasury stock was in excess of stock originally issued. D) dividends paid were in excess of net income accumulated in retained earnings.

C) treasury stock was in excess of stock originally issued.

Which one of the following equations explains why successive balance sheets can be used to prepare a firm's cash flow statement? A) Assets = Liabilities − Equity B) Cash - Noncash assets = Liabilities − Equity C) Δ Cash = Δ Liabilities − Δ Noncash assets + Δ Stockholders' equity D) Δ Cash = Δ Liabilities + Δ Stockholders' equity

C) Δ Cash = Δ Liabilities − Δ Noncash assets + Δ Stockholders' equity

Which one of the following contingencies requires financial statement disclosure? A) A lawsuit that the firm's attorneys believe will be dropped. B) A lawsuit that the firm's attorneys believe will probably be settled for $75,000. C) A reasonably possible loss on a lawsuit that the firm's attorneys cannot estimate the loss. D) A reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $100,000.

D) A reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $100,000.

Cash flows from operating activities include: A) cash payments received from customers. B) increases in Accumulated Depreciation. C) deferred income taxes. D) All of these would be included in cash flows from operating activities.

D) All of these would be included in cash flows from operating activities.

Under U.S. GAAP, contingent gains are not recognized until certain. This is most consistent with the principle or concept of: A) Matching B) Relevance C) Consistency D) Conservatism

D) Conservatism

Which of the following statements regarding the recognition of contingencies is not correct? A) IFRS guidance is built around a balance sheet perspective. B) Both IFRS and U.S. GAAP require recognition of a contingent liability when it is both probable and can be reasonably estimated. C) U.S. GAAP relies on an income statement perspective. D) Only U.S. GAAP requires recognition of a contingent liability.

D) Only U.S. GAAP requires recognition of a contingent liability.

Balance sheets prepared in other countries using international accounting standards (IFRS) might use different account titles than are allowed for US. GAAP, such as: A) Capital reserve. B) Share premium. C) Hedging reserve. D) all of these answer choices might be used in balance sheets prepared using IFRS.

D) all of these answer choices might be used in balance sheets prepared using IFRS.

Cash interest from investments is recorded as _______ in statements of cash flows for U.S. GAAP, but can be recorded as ________ when using IFRS. A) cash flows from investing activities / cash flows from financing activities B) cash flows from financing activities / cash flows from operating activities C) cash flows from operating activities / cash flows from financing activities D) cash flows from operating activities / cash flows from investing activities

D) cash flows from operating activities / cash flows from investing activities

Balance sheets prepared in compliance with U.S. GAAP reflect a mixture of: A) historical cost and future cash values. B) current value and discounted future cash flows. C) discounted cash flows and future values. D) historical cost, fair value, net realizable value, and discounted present values.

D) historical cost, fair value, net realizable value, and discounted present values.

Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. A decrease in the balance of the Accounts Receivable account would: A) decrease cash flow from financing activities. B) increase cash flow from investing activities. C) decrease cash flow from operating activities. D) increase cash flow from operating activities.

D) increase cash flow from operating activities.

Goodwill arising from a business combination is reported on the balance sheet as a(n): A) current asset. B) fair value asset. C) impaired asset. D) intangible asset.

D) intangible asset.

A balance sheet prepared in accordance with U.S. GAAP typically: A) includes both "noncurrent liability" and "long-term obligation" sections. B) reports inventory at historical costs. C) reports cash at its current market value. D) reports retained earnings comprised of the cumulative earnings less dividends since the inception of the entity.

D) reports retained earnings comprised of the cumulative earnings less dividends since the inception of the entity.

Financing activities include the cash effects of: A) producing and delivering goods and services. B) purchasing and disposing of productive assets used in production of revenue. C) purchasing and disposing of debt securities of other companies. D) selling stocks and bonds to raise capital used to produce revenue.

D) selling stocks and bonds to raise capital used to produce revenue.

The balance sheet provides information on all of the following except: A) how management invested its money. B) where the money came from. C) assessing rates of return. D) the market price of the company's stock.

D) the market price of the company's stock.