FAR part 1

According to the FASB conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of A Consistency B Cost-benefit C Reliability D Representational faithfulness

B Cost-benefit A specific constraint in terms of the usefulness of information in financial statements pertains to the cost-benefit relationship. In determining the kind and amount of information to be provided, the cost of obtaining the information must be considered. Information is valuable only to the extent that the cost of procuring and analyzing it is less than the benefits derived from its use.

A U.S. publicly-traded company's second fiscal quarter ends on March 31. If the company is an accelerated filer, what is the latest date that the 10-Q should be filed with the U.S. SEC? A May 10. B May 15. C May 30. D June 29.

A Any publicly traded company in U.S. is required to file Form 10-Q which contains unaudited financial statements prepared using US GAAP which are reviewed by an independent auditor. If the company is a large accelerated or an accelerated company, the form is to be filed within 40 days of the end of the financial quarter.

For an OCBOA presentation, which of the following statements is false regarding the pure cash basis of accounting? A Revenues are recognized when cash is received, rather than when earned. B Expenses are recognized when cash is disbursed rather than when incurred. C Long-term assets are not capitalized, and, hence, no depreciation or amortization is recorded. D Accruals should be made for taxes.

Under the pure cash basis, revenues are recognized when cash is received, rather than when earned; expenses are recognized when cash is disbursed rather than when incurred; long-term assets are not capitalized, and, hence, no depreciation or amortization is recorded; and no accruals are made for taxes and no prepaid expenses are recorded.

Which of the following is the minimum reporting requirement for a company that is preparing its first IFRS financial statements? A Three statements of financial position. B Two statements of financial position. C One statement of comprehensive income. D One statement of cash flows.

A Three statements of financial position. A first time adopter of International Financial Reporting Standards (IFRS) will need to apply IFRS 1, First time adoption of International Financial Reporting Standards. The overriding principle of IFRS 1 is full retrospective application of all IFRS standards. The entity's first set of financial statements would include three Balance Sheets: Opening IFRS Balance Sheet. Comparative Balance Sheet (at least 2) Options (B), (C) and (D) are incorrect as per the above explanation.

Which of the following information should be disclosed as supplemental information in the statement of cash flows? #Cash flow per share/Conversion of debt to equity A Yes/Yes B Yes/No C No/Yes D No/No

C Financial statements shall not report an amount of cash flow per share. The conversion of debt to equity is a noncash financing activity because the transaction affects the enterprise's liabilities but it does not result in cash receipts or payments during the period. The conversion of debt to equity should be disclosed as supplemental information in the statement of cash flows.Options (a), (b) and (d) are incorrect as per above explanation.

When personal financial statements are prepared, a presentation of financial data that is intended to communicate an entity's economic resources or obligations on a specific date is referred to as which of the following? A Statement of Changes in Net Worth B Statement of Financial Condition C Statement of Economic Resources and Obligations D Statement of Personal Assets

When personal financial statements are prepared, a presentation of financial data that is intended to communicate a person's or family's economic resources or obligations on a specific date is referred to as a statement of financial condition.

Jane Co. owns 90% of the common stock of Dun Corp. and 100% of the common stock of Beech Corp. On December 30, Dun and Beech each declared a cash dividend of $100,000 for the current year. What is the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech? A $10,000 B $100,000 C $190,000 D $200,000

A $10,000 Jane Co., owns 90% of Dun Corp., so 10% NCI dividends payable $10,000 ($100,000 x 10%) should be included in consolidated financial statements. Dividends paid for Beech Corp., at $100,000 and Dun Corp at $90,000 ($100,000 x 90%) is eliminated. Dividends paid by the acquiree, to the acquirer must be completely eliminated in a consolidation, since an entity cannot pay dividends to itself. With non-controlling interest (NCI), dividends payable to the NCI shareholders are not eliminated, since they are actual amounts owed to outsiders.

The FASB's due process for setting accounting standards includes which of the following procedures? A The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft. B The FASB delegates topics to the Financial Accounting Foundation for research and reporting. C The FASB's Emerging Issues Task Force ratifies amendments to the Accounting Standards Codification. D The FASB obtains approval from the International Accounting Standards Board in setting its agenda.

A )The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft. After a project is added to the technical agenda, the FASB deliberates at one or more public meetings. If deemed necessary the FASB then issues an Exposure Draft to solicit broad stakeholder input and holds a public roundtable meeting on the Exposure Draft, if necessary. The FASB reports to the Financial Accounting Foundation (FAF), it does not delegate topics to the FAF for research and reporting. The FASB Board, not Emerging Issues Task Force, ratifies amendments to the Accounting Standards Codification by issuing an Accounting Standards Update. The FASB Chairman decides whether to add a project to the technical agenda, the FASB does not need to obtain approval from the International Accounting Standards Board (IASB) in setting its agenda.

Under IFRS, what are the required classifications of the Statement of Financial Position? A Current and non-current B Current and long-term C Cash, receivables, plant and equipment, other assets, payables, debt and other liabilities D Sales, cost of goods sold, gross profit, net income

A Current and non-current The classified Statement of Financial Position only requires the classifications of current and non-current. Asset and liabilities are both divided into these two classifications.

Savor Co. had $100,000 in accrual basis pretax income for the year. At year end, accounts receivable had increased by $10,000 and accounts payable had decreased by $6,000 from their prior year-end balances. Under the cash basis of accounting, what amount of pretax income should Savor report for the year? A $84,000 B $96,000 C $104,000 D $116,000

A Under cash basis accounting, the effects of transactions on the assets and liabilities of a business enterprise are recognized and reported only when cash is received or paid; while in accrual accounting, these effects are recognized and reported in the time periods to which they relate. Cash basis accounting does not attempt to match revenues and the expenses associated with those revenues. As such, both the $10,000 increase in accounts receivable and $6,000 decrease in accounts payable would reduce the pretax income under the cash basis of accounting. $100,000 - $10,000 - $6,000 = $84,000.

Hahn Co. prepared financial statements on the cash basis of accounting. The cash basis was modified so that an accrual of income taxes was reported. Are these financial statements in accordance with the modified cash basis of accounting? A Yes. B No, because the modifications are illogical. C No, because the modifications result in financial statements equivalent to those prepared under the accrual basis of accounting. D No, because there is no substantial support for recording income taxes.

A Yes A comprehensive basis of accounting other than generally accepted accounting principles is one of the following: (1) a basis of accounting used to comply with regulatory requirements; (2) a basis used for tax purposes; (3) a cash basis; (4) a definite set of criteria having substantial support, such as the price-level basis of accounting. Cash basis does not attempt to match revenues and the expenses associated with those revenues, therefore, conversion of income statement amounts from the cash basis to the accrual basis would be in accordance with the modified cash basis of accounting.

Which of the following is not a comprehensive basis of accounting other than generally accepted accounting principles? A Cash receipts and disbursements basis of accounting B Basis of accounting used by an entity to file its income tax return C Basis of accounting used by an entity to comply with the financial reporting requirements of a government regulatory agency D Basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution.

A comprehensive basis of accounting other than generally accepted accounting principles is one of the following: (1) a basis of accounting used to comply with regulatory requirements; (2) a basis used for tax purposes; (3) a cash basis; (4) a definite set of criteria having substantial support, such as the price-level basis of accounting. A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution does not fit any of the categories.

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 : A Concentration of credit risk. B Concentration of market risk. C Risk of measurement uncertainty. D Off-balance sheet risk of accounting loss.

A) Concentration of credit risk. Credit risk is the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract. An entity must disclose all concentrations of credit risk arising from all financial instruments. Group concentrations of credit risk exist if a number of counter parties are engaged in similar activities and have similar economic characteristics that would affect their ability to meet contractual obligations affected by changes in economic or other conditions. Market risk is the possibility that future changes in market prices may make a financial instrument less valuable or more onerous . An entity is encouraged,but not required,to disclose quantitative information about the market risks of financial instruments. There is no note disclosure for risk of measurement uncertainty here. Accounts receivable uses an allowance for doubtful accounts to account for uncertainty of collection. There is no off-balance sheet risk of accounting loss here. Off-balance sheet risk is the risk of accounting loss from a financial instrument that exceeds the amount recognized for the instrument in the balance sheet.

Strauch Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During the previous year, 100,000 shares of common stock were outstanding. In the current year, two distributions of additional common shares occurred: On April 1, 20,000 shares of treasury stock were sold, and on July 1, a 2-for-1 stock split was issued. Net income was $410,000 in the current year and $350,000 in the previous year. What amounts should Strauch report as earnings per share in its current and previous year comparative income statements? #Current Year/Previous Year A $1.78/$3.50 B $1.78/$1.75 C $2.34/$1.75 D $2.34/$3.50

B To compute earnings per share for the current year and the previous year, the weighted average number of common shares outstanding must be computed for each respective year. Current Previous Common shares outstanding at 1/1 100,000 100,000 Sale of additional shares, 4/1 of current year (20,000 × 9/12 of year) 15,000 2-for-1 stock split, 7/1 of current year(previous year: 100,000 × 100%) 100,000 (current year: 115,000 × 100%) 115,000 Weighted average common shares outstanding 230,000 200,000 Earnings per share for the current year is $1.78 ($410,000 ÷ 230,000 shares) and the previous year is $1.75 ($350,000 / 200,000 shares). Stock dividends, stock splits, and reverse splits are given retroactive recognition in the computation of earnings per share for all periods presented.

Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-forsale securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra's comprehensive income? A $4,000 B $10,000 C $11,000 D $17,000

B $10,000 Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is divided into net income and other comprehensive income (OCI). OCI includes revenues, expenses, gains, and losses that are excluded from net income. Instead, they are listed after net income on the income statement. These items have not yet been realized. In other words, the underlying transaction has not been completed or settled yet. Examples include: foreign currency items; certain pension adjustments; unrealized gains and losses on certain investments; and gains and losses on derivatives. Comprehensive income is $10,000 ($11,000 - 3,000 + 2,000). The cumulative effect of a change in accounting principle would be applied to beginning retained earnings. Increases in common stock are not reflected in income, but rather on the balance sheet.

On October 1, year 3, Wand, Inc. committed itself to a formal plan to sell its Kam division's assets. Wand estimated that the loss from the disposal of assets in February of year 4 would be $25,000. Wand also estimated that Kam would incur operating losses of $100,000 for the period of October 1 through December 31, year 3, and $50,000 for the period January through February 28, year 4. These estimates were materially correct. Disregarding income taxes, what should Wand report as loss from discontinued operations in its comparative year 3 and year 4 income statements? #Year 3/Year 4 A $175,000/$0 B $125,000/$50,000 C $100,000/$75,000 D $0/$175,000

B $125,000/$50,000 The income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. The impairment loss should be recognized in the period in which a sale at a loss is arranged; such a sale is evidence that the asset is impaired.

On January 2, year 3, Pare Co. purchased 75% of Kidd Co.'s outstanding common stock. Selected balance sheet data at December 31, year 3, is as follows: PareKiddTotal assets$420,000$180,000Liabilities120,00060,000Common stock100,00050,000Retained earnings200,00070,000 $420,000$180,000 During year 3, Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. In Pare's December 31, year 3, consolidated balance sheet, what amount should be reported as noncontrolling interest in net assets? A $0 B $30,000 C $45,000 D $105,000

B $30,000 Without any specific information provided about amounts on the acquisition date and reported net income you must infer the noncontrolling interest is worth 25% of Kidd's net assets. Kidd's net assets are $180,000 - $60,000 = $120,000. $120,000 × 25% = $30,000.

On April 30 of the current year, Carty Corp. approved a plan to dispose of a segment of its business. The estimated disposal loss is $480,000, including severance pay of $55,000 and employee relocation costs of $25,000, both of which are directly associated with the decision to dispose of the segment. Also included is the segment's estimated operating loss of $100,000 for the period from May 1 to the disposal date November 30. A $120,000 operating loss from January 1 to April 30 is not included in the estimated disposal loss of $480,000. Before income taxes, what amount should be reported in Carty's income statement for the current year ended December 31 as the loss from discontinued operations? A $700,000 B $600,000 C $480,000 D $455,000

B $600,000 In the period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the results of operations of the component in discontinued operations in the period(s) in which they occur. Thus, the $120,000 operating loss incurred before April 30 is included in the loss from discontinued operations as well as the $100,000 loss from May 1 to November 30. The $55,000 of severance pay and the $25,000 of employee relocation expenses are (1) clearly a direct result of the decision to dispose of the segment and (2) are clearly not the adjustments of carrying amounts or costs, or expenses that should have been recognized on a going-concern basis prior to the measurement date. Therefore, they are included in the loss from discontinued operations. Operating loss through April 30 ($120,000) + loss on disposal, including operations from May 1 to November 30 ($480,000) = pretax loss from discontinued operations ($600,000). As the loss on operations from May 1 to November 30 is included in the $480,000 loss on disposal, it should not be added in

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 A proposed statement of position B A proposed accounting standards update C A proposed accounting research bulletin D A proposed staff accounting bulletin

B A proposed accounting standards update. An overview of the FASB standards setting process as established by the Rules of Procedure includes: identify financial reporting issues based on recommendations from stakeholders or through other means; deliberate at one or more public meetings; issue an Exposure Draft to solicit broad stakeholder input; and finally, issue an Accounting Standards Update describing amendments to the Accounting Standards Codification.

According to the FASB conceptual framework, which of the following statements conforms to the realization concept? A Equipment depreciation was assigned to a production department and then to product unit costs. B Depreciated equipment was sold in exchange for a note receivable. C Cash was collected on accounts receivable. D Product unit costs were assigned to cost of goods sold when the units were sold.

B Depreciated equipment was sold in exchange for a note receivable. By definition, "realization" means the process of converting a noncash resource or right into cash. The sale of equipment (a noncash resource) for a note (a claim to cash) conforms to the realization concept. The other transactions indicated do not involve the conversion of a noncash resource or right into cash.

When an entity prepares a statement of cash flows, it should do which of the following? A Report significant noncash investing and financing activities in the body of the statement of cash flows B Provide a reconciliation of net income to net cash flow from operating activities in a separate schedule, if the direct method of reporting net cash flow from operating activities is used C Disclose amounts of interest paid (net of amounts capitalized) and income taxes paid during the period, if the direct method is used D None of the above

B If the direct method of reporting net cash flow from operating activities is used, an entity should provide a reconciliation of net income to net cash flow from operating activities in a separate schedule. An entity should report significant non cash investing and financing activities, and amounts of interest paid (net of amounts capitalized) and income taxes paid during the period in related disclosures.

As discussed in GASB Concepts Statement No. 3, note disclosures are considered essential for governmental financial reporting because of which of the following? A Information is measurable with sufficient reliability to be recognized. B Notes add descriptions and detail that have a clear and demonstrable relationship to the financial statements. C Auditing standards require note disclosures for GAAP reporting. D Rating agencies require additional detail to explain balances in the statement of financial position.

B Notes add descriptions and detail that have a clear and demonstrable relationship to the financial statements. Information in the notes does not meet the criteria for recognition. Notes add objective explanations for significant issues, and have a clear, demonstrable relationship to the financial statements. This information allows knowledgeable users to analyze the more complex components of financial position. Recognition is used to describe information presented in the basic financial statements, not the note disclosures. Governmental reporting standards are established by the Governmental Accounting Standards Board, not the audit standards bodies. Information required by rating agencies is a factor for analyzing the needs of users, but specific rating agency requirements are not outlined in the GASB reporting framework.

According to the FASB conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called A Feedback value B Predictive value C Representational faithfulness D Reliability

B Predictive value Relevance and faithful representation are fundamental qualitative characteristics. Information is relevant if it is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct prior expectations. Predictive, or confirmatory, value is the trait that allows financial information to make a difference. Information has predictive value if it can be useful in predicting future outcomes by users. Confirmatory value provides feedback (confirms or changes) about previous assessments.

Which is the most appropriate financial statement to use to determine if a company obtained financing during a year by issuing debt or equity securities? A Balance sheet B Statement of cash flows C Statement of changes in stockholders' equity D Income statement

B Statement of cash flows The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period.The information provided in a statement of cash flows helps investors, creditors, and others to assess the effects on an enterprise's financial position of both its cash and non-cash investing and financing transactions during the period.Related disclosures should report the effects of investing and financing transactions that affect an enterprise's financial position, but do not directly affect cash flows during the period.Neither the balance sheet nor the income statement would show changes in the balances of debt or equity accounts.The statement of changes in stockholders' equity would not indicate changes in debt accounts.

Which of the following is not commonly considered to be a part of the Basic Information Package (BIP) or required financial disclosures for SEC annual filings? A Management's discussion and analysis for financial condition and results of operations B Two-year comparative financial information C Indication of significant adverse contingencies D Data explaining the circumstances applicable to a change in independent accountant during the prior two years

B Two-year comparative financial information Financial disclosures for SEC filings are referred to as the Basic Information Package (BIP). BIP requirements are common to 10-K and to the annual report to shareholders. Two-year comparative financial information is not commonly considered to be part of the BIP. The BIP does consist of five-year comparative selected financial data, management's discussion and analysis of the financial condition and results of operations, and data explaining the circumstances applicable to a change in the registrant's independent accountant during the prior two years.

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? A Going concern B Periodicity C Monetary unit D Economic entity

C Monetary unit assumption implies that the economic activity should be measured in money.

King Corp. owns 80% of Lee Corp.'s common stock. During October of the current year, Lee sold merchandise to King for $100,000. At December 31, one-halfof the merchandise remained in King's inventory. For the year, gross profit percentages were 30% for King and 40% for Lee. The amount ofintercompany profit in ending inventory at December 31 that should be eliminated in consolidation is A $40,000 B $20,000 C $16,000 D $15,000

B. When one company sells merchandise to an affiliate at a price above cost, the ending inventory of the buyer contains an element of unrealized gross profit.The gross profit is not realized to the economic entity until the inventory is sold to an unaffiliated company. The unrealized gross profit in inventory must beeliminated in the preparation of consolidated financial statements. The amount of unrealized intercompany profit in ending inventory that should beeliminated for the consolidation in question is determined as follows: King's 12/31 inventory acquired from Lee ($100,000 × 50%) $50,000 Lee's gross profit percentage× 40% Unrealized intercompany profit in King's 12/31 inventory $20,000

Governmental financial reporting should provide information to assist users in which situation(s)? Making social and political decisions. Assessing whether current-year citizens received services but shifted part of the payment burden to future-year citizens. A I only B II only C Both I and II D Neither I nor II

C Governmental financial reporting is used in making social and political decisions. Because inter period equity is important, financial reporting should help users assess whether current-year revenues are sufficient to provide current services or whether future taxpayers are assuming the burden of previously provided services.

A Full Set of Financial Statements includes which of the following? A Statement of Financial Position, Statement of Earnings & Statement of Cash Flow B Statement of Financial Position, Statement of Earnings & Statement of Comprehensive Income C Statement of Financial Position, Statement of Earnings, Statement of Comprehensive Income, Statement of Cash Flow & Statement of Changes in Owners' Equity D Statement of Financial Position, Statement of Earnings & Statement of Changes of Owners Equity

C Statement of Financial Position, Statement of Earnings, Statement of Comprehensive Income, Statement of Cash Flow & Statement of Changes in Owners' Equity A Full Set of Financial Statements includes: Statement of financial position, Statement of earnings, Statement of comprehensive income, Statement of cash flows and Statement of changes in owners' equity

A company records items on the cash basis throughout the year and converts to an accrual basis for year-end reporting. Its cash-basis net income for the year is $70,000. The company has gathered the following comparative balance sheet information: Beginning of year End of year Accounts payable $3,000 $1,000 Unearned revenue 300 500 Wages payable 300 400 Prepaid rent 1,200 1,500 Accounts receivable 1,400 600 What amount should the company report as its accrual-based net income for the current year? A $68,800 B $70,200 C $71,200 D $73,200

C In cash-basis accounting, the effects of transactions and other events on the assets and liabilities of a business enterprise are recognized and reported only when cash is received or paid; while in accrual accounting, these effects are recognized and reported in the time periods to which they relate. Cash-basis accounting does not attempt to match revenues and the expenses associated with those revenues. If liabilities have a net decrease, then cash is assumed to have been used, and cash net income would be lower than accrual. The same logic holds true for the asset side. If current assets increase, cash was consumed, so cash net income is less than accrual. A short-cut method is to journalize the net change of each account, and plug the difference to cash, as follows: Dr. Accounts payable2,000 Dr. Prepaid Rent 300 Cr. Unearned revenue 200 Cr. Wages payable 100 Cr. Accounts receivable 800 Cr. Cash (plug) 1,200 Overall, net cash decreased by $1,200, so Cash Net Income is $1,200 less than Accrual Net Income; Accrual Net Income was $71,200.

Mare Co.'s December 31 year-end balance sheet reported the following current assets: Cash$ 70,000 Accounts receivable120,000 Inventories60,000Total$ 250,000 An analysis of the accounts disclosed that accounts receivable consisted of the following: Trade accounts$ 96,000 Allowance for uncollectible accounts(2,000) Selling price of Mare's unsold goods out on consignment, at 130% of cost, not included in Mare's ending inventory26,000Total$120,000 At December 31, the total of Mare's current assets is A $224,000 B $230,000 C $244,000 D $270,000

C 244,000 Since the goods out on consignment have not yet been sold, two adjustments are required. Accounts receivable decreases by the $26,000 selling price of the unsold goods that was included in its balance. Inventories increases by the $20,000 (i.e., $26,000 / 130%) cost of the unsold goods which was not included in its balance. Cash$ 70,000Accounts receivable ($120,000 - $26,000)94,000Inventories ($60,000 + $20,000)80,000Current assets, 12/31$ 244,000

Interim financial reporting should be viewed primarily in which of the following ways? A As useful only if activity is spread evenly throughout the year. B As if the interim period were an annual accounting period. C As reporting for an integral part of an annual period. D As reporting under a comprehensive basis of accounting other than GAAP.

C As reporting for an integral part of an annual period. Each interim period should be viewed as an integral part of an annual period. In order to maintain comparability, the principles and practices used to prepare the latest annual statements should also be used to prepare the interim statements.

Financial statements prepared under which of the following methods include adjustments for both specific price changes and general price-level changes? A Historical cost / nominal dollar. B Current cost / nominal dollar. C Current cost / constant dollar. D Historical cost / constant dollar.

C Current cost / constant dollar. Financial statements prepared under the current cost/constant dollar method of accounting include adjustments for both specific price changes and general price-level changes. Historical cost/nominal dollar is the generally accepted method of accounting based on measures of historical prices without restatement. Current cost/nominal dollar is a method of accounting in which adjustments for specific price changes are made but not for general price-level changes. Historical cost/constant dollar is a method of accounting in which adjustments are not made for specific price changes, but are made for general price-level changes.

Grid Corp. acquired some of its own common shares at a price greater than both their par value and original issue price but less than their book value. Griduses the cost method of accounting for treasury stock. What is the impact of this acquisition on total stockholders' equity and the book value per common share? #Total stockholders' equity/Book value per share A Increase/Increase B Increase/Decrease C Decrease/Increase D Decrease/Decrease

C Decrease/Increase When treasury stock is acquired, total stockholders' equity decreases by the cost of the treasury shares, regardless of the method used to account for thetreasury stock. The book value per common share is computed by dividing total stockholders' equity applicable to common stock by the number of commonstock shares outstanding. The acquisition of treasury shares at a price less than their book value will reduce both the numerator and denominator of the bookvalue ratio; however, the reduction of the numerator is less than the amount that was in there for these shares. Therefore, the excess book value for thoseshares would now be spread over the remaining common shares outstanding, resulting in an increase in the book value per common share.

Which of the following is a required additional disclosure or reconciliation for first-time adopters of International Financial Reporting Standards (IFRS)? A Reconciliation of equity reported under previous GAAP to equity under IFRS as of the date of transition to IFRSs and the end of the latest period presented in the entity's three most recent annual financial statements under previous GAAP B Reconciliation to total comprehensive income under IFRS for the two latest periods in the entity's most recent annual financial statements C Disclosure of an impairment loss recognized or reversed for the first time in preparing the opening statement of financial position D A combined reconciliation of any errors made under previous GAAP consolidated with additional adjustments arising due to changes in accounting policies due to the IFRS transition

C Disclosure of an impairment loss recognized or reversed for the first time in preparing the opening statement of financial position If an entity recognized or reversed any impairment losses for the first time in preparing its opening IFRS statement of financial position, the entity is required to provide the disclosures that IFRS would have required if the entity had recognized those impairment losses or reversals in the period beginning with the date of transition to IFRS.

Which of the following factors influences governmental generally accepted accounting and reporting principles? A The lack of SEC oversight for municipal financial instruments B State statutes that created the Governmental Accounting Standards Board (GASB) C Governmental structure and its mission to provide critical public services D Population levels for individual governments

C Governmental structure and its mission to provide critical public services U.S. state and local governments reflect the federal system of three branches of government plus the separation of powers. The essential mission of government is delivering services, financed with taxes.

A company is required to file quarterly financial statements with the United States Securities and Exchange Commission on Form 10-Q. The company operates in an industry that is not subject to seasonal fluctuations that could have a significant impact on its financial condition. In addition to the most recent quarter end, for which of the following periods is the company required to present balance sheets on Form 10-Q? A The end of the corresponding fiscal quarter of the preceding fiscal year. B The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the preceding fiscal year. C The end of preceding fiscal year. D The end of the preceding fiscal year and the end of the prior two fiscal years.

C The end of preceding fiscal year. The Form 10-Q is a report of a public company's performance that must be filed quarterly with the SEC. It includes unaudited financial statements and provides a continuing view of the company's financial position during the year. In addition to the most recent quarter end balance sheet, a company is required to present the balance sheet for the end of the preceding fiscal year on the Form 10-Q..

What are the Statements of Financial Accounting Concepts intended to establish? A Generally accepted accounting principles in financial reporting by business enterprises. B The meaning of "Present fairly in accordance with generally accepted accounting principles." C The objectives and concepts for use in developing standards of financial accounting and reporting. D The hierarchy of sources of generally accepted accounting principles.

C The objectives and concepts for use in developing standards of financial accounting and reporting. The Statements of Financial Accounting Concepts are intended by the FASB to set forth objectives and fundamentals that will be the basis for future development of financial accounting and reporting standards. SFACs do not establish, amend, supersede, or otherwise modify accounting standards and as such do not convey the meaning of generally accepted accouning principles (GAAP).

Which of the following is true regarding annual reporting and filing requirements in accordance with the SEC regulations? A Reporting companies must send annual reports to their shareholders when holding annual meetings to elect directors, which may not be satisfied by providing the Form 10-K to shareholders. B Form 10-K typically contains less detailed information about the company's financial condition than the traditional annual report to shareholders. C Large accelerated filers must file Form 10-K within 30 days after fiscal year end. D Companies with less than $75 million of average annual cash flow have 90 days after the fiscal year end to file Form 10-K.

D Non-accelerated filers (i.e., those that have less than $75 million of average annual cash flow) have 90 days after the end of the fiscal year to file the Form 10-K. Companies sometimes elect to send their Form 10-K to their shareholders in lieu of providing shareholders with an annual report. The Form 10-K typically contains more, not less, detailed information about the company's financial condition than the traditional annual report to shareholders. Large companies with an average annual cash flow of more than $700 million are considered to be "large accelerated filers." Large accelerated filers must file their 10-K within 60 days after their fiscal year ends.

Income tax-basis financial statements differ from those prepared under GAAP in that income tax-basis financial statements A Do not include nontaxable revenues and non-deductible expenses in determining income. B Include detailed information about current and deferred income tax liabilities. C Contain no disclosures about capital and operating lease transactions. D Recognize certain revenues and expenses in different reporting periods.

D Tax-basis financial statements recognize certain revenues and expenses in different reporting periods than GAAP financial statements. Nontaxable income and nondeductible expenses are still included in the determination of income in tax-basis statements. Detailed information about current and deferred income tax liabilities is included in GAAP financial statements. Income tax-basis financial statements may include disclosures about capital and operating lease transactions.

Which of the following is a true statement related to the responsibility for full and fair disclosure in a SEC registration statement? A It is the SEC's responsibility to ensure full and fair disclosure in a registration statement. B If important information is omitted from a registration statement, the SEC will not request an amendment be made to the registration statement. C Once a registration statement has become effective and securities have been sold, the SEC has no required recourse if the registration statement contains material omissions. D If a registration statement does not adequately disclose all material facts, the SEC may issue a stop-order to prevent the securities from being sold.

D If all material facts regarding a security are not adequately disclosed in the registration statement the SEC will require that the registration statement be corrected or expanded by means of *an amendment*. If the amendment does not resolve the deficiencies, *the SEC may exercise its "stop-order" or "refusal-order"* powers to prevent the registration statement from becoming effective and the securities from being sold until corrected. It is the issuer's responsibility, not the SEC's to ensure full and fair disclosure in a registration statement. Once a registration statement has become effective and securities have been sold, if the registration statement contains material omissions the SEC can still issue a stop-order to prevent further sales of the securities.

On January 16, Tree Co. paid $60,000 in property taxes on its factory for the current calendar year. On April 2, Tree paid $240,000 for unanticipated major repairs to its factory equipment. The repairs will benefit operations for the remainder of the calendar year. What amount of these expenses should Tree include in its third quarter interim financial statements for the three months ended September 30? A $0 B $15,000 C $75,000 D $95,000

D 95000 Tax 60000/4 = 15,000 Main 240000/3 = 80,000 For interim financial reporting, costs and expenses other than product costs should be charged to income in interim periods as incurred or be allocated among interim periods based on an estimate of time expired, benefit received, or activity associated with the periods. The $60,000 in property taxes is for the entire calendar year and would be allocated evenly as $15,000 of expenses for each quarter. The $240,000 for major repairs happened on April 2 and will benefit operations for just the remainder of the year. The $240,000 divided by the three remaining quarters equals $80,000 in expenses for each of those three quarters. The $15,000 plus $80,000 equals $95,000 in expenses to be reported in the third quarter of the interim financial statements for the three months ended September 30.

Arpco Inc., a for-profit provider of the healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative? A AICPA Statements of Positions. B AICPA Industry and Audit Guides. C FASB Statements of Financial Accounting Concepts. D FASB Statements of Financial Accounting Standards.

D FASB Statements of Financial Accounting Standards. In the hierarchy of authoritative Generally Accepted Accounting Principles (GAAP), the FASB Statements of Financial Accounting Standards (SFAS) has the highest authority. Options (A) and (B) are incorrect because the AICPA Statements of Positions and the Industry and Audit guides are the second level of GAAP pronouncements. Option (C) is incorrect because FASB Statements of Financial Accounting Concepts do not come under authoritative GAAP.

________________________ is a method of accounting based on measures of historical prices in units of a currency, each of which has the same general purchasing power. A Current cost/constant purchasing power accounting B Current market value C Historical cost accounting D Historical cost/constant purchasing power accounting

D Historical cost/constant purchasing power accounting Historical cost/constant purchasing power accounting is a method of accounting based on measures of historical prices in units of a currency, each of which has the same general purchasing power.

Each of the following is a characteristic of an operating segment, except A Its discrete financial information is available for review B It engages in business activities from which it may earn revenues and incur expenses C Its operating results are regularly reviewed by the entity's chief operating decision maker D It reports a measure of segment cash flows

D It reports a measure of segment cash flows An enterprise is required to report a measure of segment profit or loss, segment assets and certain related items, but not segment cash flow or segment liabilities. Discrete financial information being available, having revenue producing and expense incurring activities, and operating results being regularly reviewed by the entity's chief operating decision maker are all characteristics of an operating segment.

Which of the following is a true statement related to the SECs accounting standard setting process? A The SEC does not have statutory authority to prescribe accounting principles. B The SEC is not authorized to define accounting, technical, and trade terms used in the law. C The SEC may not prescribe methods for appraisal or valuation of assets and liabilities. D The SEC has broad statutory powers to make, amend, and rescind any rules and regulations that may be necessary to carry out the provisions of the law.

D The SEC has broad statutory powers to make, amend, and rescind any rules and regulations that may be necessary to carry out the provisions of the law. The SEC does have broad statutory powers to make, amend, and rescind any rules and regulations that may be necessary to carry out the provisions of the law. The SEC also has the statutory authority to prescribe the accounting principles to be followed in financial statements filed under the 1933 and 1934 Acts, is authorized to define accounting, technical, and trade terms used in the law, and may prescribe the methods to be followed in the preparation in the appraisal or valuation of assets and liabilities.

According to the FASB conceptual framework, the objective of general purpose financial reporting is based on A Generally accepted accounting principles B Reporting on management's stewardship C The need for conservatism D The needs of the users of the information

D The needs of the users of the information The primary function of accounting is to provide quantitative useful information, based on the needs of the users. The objective of general purpose financial reporting for business enterprises is not based on generally accepted accounting principles, reporting on management's stewardship, or the need for conservatism.

Bean Co. included interest expense and transactions from a customer accounting for 12% of total enterprise revenue in its determination of segment profit, which Bean's chief financial officer considered in determining the segment's operating budget. Which of the following items should Bean disclose in reporting segment data? #Interest expense/Segment customer comprising 12% of enterprise revenue A No/No B No/Yes C Yes/No D Yes/Yes

D Yes/Yes An enterprise shall report a measure of profit or loss and total assets for each reportable segment. These measures are generally based upon the measures as reported to, and used by, the chief operating decision maker, and may include revenues from external customers; revenues from transactions with other operating segments of the same enterprise; interest revenue; interest expense; depreciation, depletion, and amortization expense; unusual items; equity in the net income of investees accounted for by the equity method; income tax expense or benefit; and significant other noncash items.Additionally, if 10% or more of enterprise revenue comes from one customer, the segment making the sales must be disclosed.

In a statement of cash flows, which of the following items is reported as a cash outflow from financing activities? Payments to retire mortgage notes Interest payments on mortgage notes Dividend payments A I, II, and III B II and III C I only D I and III

D. I and III Cash flows from financing activities include issuing debt or equity. Proceeds from issuing or payments for retiring bonds. Issuance or re-acquisition of stock or treasury stock. Borrowing or repaying of loan. Dividends paid to shareholders. Bank overdrafts which are excluded from cash. Payments to retire mortgage notes and dividend payments will be considered as out flow under financing activities. Interest payments on mortgage notes will be considered as outflow from operating activities. Options (a), (b) & (c) are incorrect based on the above explanation.

West Co. had earnings per share of $15.00 for the current year before considering the effects of any convertible securities. No conversion or exercise of convertible securities occurred during the year. However, possible conversion of convertible bonds would have reduced earnings per share by $0.75. The effect of possible exercise of common stock options would have increased earnings per share by $0.10. What amount should West report as diluted earnings per share for the year? A $14.25 B $14.35 C $15.00 D $15.10

Dilutive securities are included in the calculation of diluted EPS; thus the convertible bonds would be included, reducing the $15.00 by $0.75. Antidilutive securities are excluded from dilutive EPS; thus the options are not included. $15.00 - $0.75 = $14.25.

Which of the following comprise the SEC's Codification of Financial Reporting Policies (FRP), which represent the principles of accounting to be followed by registrants? A Financial Reporting Releases (FRRs) B Staff Accounting Bulletins (SABs) C Accounting and Auditing Enforcement Releases (AAERs) D Concept releases

Financial Reporting Releases (FRRs) may require an additional disclosure or define accounting to be followed by issuers. The accounting principles are set forth by the SEC in FRRs that are codified in the FRP. Staff Accounting Bulletins are intended to achieve dissemination of administrative interpretations and practices of the SEC staff in reviewing financial information in SEC filings. Accounting and Auditing Enforcement Releases (AAERs) communicate enforcement actions involving accountants. Concept releases are published to solicit the public's views on securities issues so that it can better evaluate the need for future rulemaking.

Vane Co.'s trial balance of income statement accounts for the year ended December 31, included the following: Debit Credit Sales $575,000 Cost of sales $240,000 Administrative expenses 70,000 Loss on sale of equipment 10,000 Sales commissions 50,000 Interest revenue 25,000 Freight out 15,000 Loss retirement of long-term debt 20,000 Uncollectible accounts expense 15,000 Totals $420,000$600,000 Other information: Finished goods inventory: January 1$400,000 December 31360,000 Vane's income tax rate is 21%. In Vane's year-end multiple-step income statement, what amount should Vane report as income after income taxes from continuing operations? A $142,200 B $129,500 C $140,000 D $147,000

Income from continuing operations includes revenues and expense items (and gain and losses) is calculated as follows Sales $575,000 Interest Revenue 25,000 Cost of sales $240,000 Administrative expenses 70,000 Sales commissions 50,000 Freight out 15,000 Loss on early retirement of long term debt 20,000 Uncollectible ac exp 15,000 Less: Loss on Equipment Sales 10,000(420,000) Income from continuing operations before taxes $180,000 Income taxes (37,800) Income from continuing operations after taxes $142,200 Note: The opening and closing stock of finished goods inventory should not be considered as they would already be included in the cost of sales.(i.e. Cost of sales = Opening stock of finished goods + purchases - closing stock of finished goods).

In preparing its cash flow statement for the current year ended December 31, Reve Co. collected the following data: Gain on sale of equipment$ (6,000) Proceeds from sale of equipment10,000 Purchase of A.S., Inc. bonds (par value $200,000) (180,000) Amortization of bond discount 2,000 Dividends declared (45,000) Dividends paid (38,000) Proceeds from sale of treasury stock (carrying amount $65,000) 75,000 In its current year December 31 statement of cash flows, what amount should Reve report as net cash provided by financing activities? A $20,000 B $27,000 C $30,000 D $37,000

Proceeds from sale of treasury stock$ 75,000 Dividends paid (38,000) Net cash provided by financing activities $37,000

An increase in the cash surrender value of a life insurance policy owned by a company would be recorded by A Decreasing annual insurance expense. B Increasing investment income. C Recording a memorandum entry only. D Decreasing a deferred charge.

The amount that a company should recognize as insurance expense for a life insurance policy that it owns is the annual premium less (1) the increase in cash surrender value and (2) any dividends received.

Deficits accumulated during the development stage of a company should be A Reported as organization costs B Reported as a part of stockholders' equity C Capitalized and written off in the first year of principal operations D Capitalized and amortized over a five-year period beginning when principal operations commence

The balance sheet of a development stage enterprise should include any cumulative net losses reported with a caption such as "deficit accumulated during the development stage" in the stockholders' equity section. It is never acceptable to capitalize a deficit. A deficit is a debit item that belongs in the equity section of the balance sheet, not in the asset section. Note: A development stage enterprise is one that has just started operations and is not completely established yet. It meets one of the following criteria. 1. The intended main operations have not begun, or 2. Main operations have begun, but there has been no major income. Accounting for development stage enterprise is the same as any other company and follows US GAAP, with an exception: the financial statements indicate that the business is a development stage enterprise and net losses accumulated during the development stage are reported with a caption such as "deficit accumulated during the development stage" in the stockholders' equity section.

Swift Co. has identified three operating segments that may require separate disclosure in Swift's general-purpose financial statements for the year ended December 31, year 2. Information for year 2 follows: Segment (in thousands) ABCTotalReported revenue$42$121$14$177Reported profit(loss)$12$65$(3)$74Assets$470$800$80$1,350 Which of Swift's segments are required to be separately disclosed in its December 31, year 2, financial statements? A A and B only. B A and C only. C B and C only. D A, B, and C.

The correct answer is (A). An enterprise should separately report information about an operating segment that meets any of the following quantitative thresholds: Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss. Its assets are 10 percent or more of the combined assets of all operating segments ParticularsTotalThresholdABC Revenues 177 17.7 42 121 14 Combined reported profit of segments that did not report a loss (12+65) 77 7.7 12 65 3 Assets 1,350 135 470 800 80 As is evident from the above table, the segment 'C' does not cross the threshold in any of the criteria. As such, it is not a reportable segment.

Green Co. had the following equity transactions at December 31: Cash proceeds from sale of investment in Blue Co.(carrying value - $60,000) $75,000 Dividends received on Grey Co. stock 10,500 Common stock purchased from Brown Co.38,000 What amount should Green recognize as net cash from investing activities in its statement of cash flows at December 31? A $37,000 B $47,500 C $75,000 D $85,500

The correct answer is (A). Cash flows from investing activities include: (1) making and collecting loans (excluding those acquired specifically for resale) (2) acquiring and disposing of property, plant and equipment, and other productive assets (3) purchases, sales, and maturities of debt and equity securities (excluding those acquired specifically for resale). The sale of investment in Blue Co. would be an investing activity cash inflow of $ 75,000 and the common stock purchase from Brown Co. would be an investing activity cash outflow of $38,000. The $75,000 cash in less $38,000 cash out equals net $37,000 cash from investing activities. Dividends received on stock are classified as cash flows from operating activities.

Which of the following reports would a company file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant? A Form 10-Q B Form 10-K C 14A Proxy Statement D Form S-1

The correct answer is (A). Form 10-Q reports would be a report that a company would file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant.

Which of the following statements appropriately describes the financial statement presentation requirements of IFRS compared to US GAAP? A IFRS has less prescriptive standard financial statement presentation layouts than US GAAP. B Both US GAAP and IFRS allow the financial statements to be prepared on either the accrual basis or cash basis of accounting, at the sole option of the preparer. C Entities must present expenses based on nature under both US GAAP and IFRS. D Both US GAAP and IFRS allow LIFO for inventory valuation.

The correct answer is (A). IFRS has less prescriptive standard financial statement presentation layouts than US GAAP because it does not prescribe a standard layout, but includes a list of minimum items. Both US GAAP and IFRS require that the financial statements be prepared on the accrual basis of accounting (with the exception of the cash flow statement) except for rare circumstances. Under IFRS, entities may present expenses based on either function or nature, but under US GAAP, SEC registrants are required to present by function.

Sussman Co. prepared cash-basis financial statements for the month ended January 31. A summary of Sussman's January activities follows: Credit sales of $5,600.Collections of $1,900 relating to January credit sales.Accrued salaries of $1,200. By what amount will Sussman's cash-basis income for the month ended January 31 increase as a result of restating these activities to the accrual basis of accounting? A $2,500 B $3,700 C $4,400 D $4,900

The correct answer is (A). Income under Cash Basis:Income (Cash Collection from A/R)$1,900Expenses$0Profit$1,900Income under Accrual Basis:Income (Credit Sales)$5,600Expenses (Accrued Salaries)$1,200Profit$4,400 Increase in income as a result of changing to Accrual Basis from Cash Basis = $4,400 - $1,900 = $2,500.

Baler Co. prepared its statement of cash flows at year-end using the direct method. The following amounts were used in the computation of cash flows from operating activities: Beginning inventory$ 200,000 Ending inventory150,000 Cost of goods sold1,200,000 Beginning accounts payable300,000 Ending accounts payable200,000 What amount should Baler report as cash paid to suppliers for inventory purchases? A $1,200,000 B $1,250,000 C $1,300,000 D $1,350,000

The correct answer is (B). Accounts Payable decreased by $100,000 (from $300,000 to $200,000). That means Baler paid $100,000 more for goods than it actually purchased. Since Baler purchased $1,150,000 ($150,000+ $1,200,000 - $200,000), total cash paid to suppliers for inventory purchases must have been $1,250,000 ($1,150,000 + $100,000).

Toft Co. had 120,000 shares of common stock outstanding at January 1. On April 1, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible preferred stock on which a dividend of $5 per share was declared during the year. Net income for the year was $480,000. What should Toft report as earnings per share for the year? A $2.69 B $2.87 C $3.00 D $3.20

The correct answer is (B). Earnings per share can be calculated as = Earnings available for distribution to common stockholders / Weighted Average Outstanding Common Shares Earnings available for distribution to common stockholders = Net Income - Dividends to preferred stockholder 480,000 - (10,000 x 5)= $430,000 Weighted Average Outstanding Common Shares = 120,000 + (40,000 x 9/12) = 150,000 shares EPS = 430,000 / 150,000 = $2.87 per share

Weald Co. took advantage of market conditions to refund debt. This was the fifth refunding operation carried out by Weald within the last four years. Theexcess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a(an) A Deferred credit to be amortized over life of new debt B Part of continuing operations C Discontinued Operations, net of income taxes D Other Comprehensive Income.

The correct answer is (B). Since the carrying amount of the old debt is greater than the amount paid to extinguish the old debt, the transaction results in a gain. The gain is part of continuing operations.

How are amendments incorporated into the FASB Accounting Standards Codification? A By issuing an exposure draft B By releasing an accounting standards update C By producing a discussion paper D By publishing a statement of financial accounting standards

The correct answer is (B). The release of an Accounting Standards Update marks the incorporation of amendments into the FASB Accounting Standards Codification. FASB amends the ASC through the issuance of Accounting Standards Updates (ASU) which describes the amendment to the ASC and date from when the amendment will be effective. The other answers may be steps in the process, but the release of an accounting standards update makes it official.

Which of the following statements would most likely be included among a set of financial statements prepared in conformity with a special purpose framework? A The statement of comprehensive income. B The statement of operations. C The statement of cash receipts and disbursements. D The statement of financial position.

The correct answer is (C). A Special Purpose Framework is considered a financial reporting framework, other than GAAP, that is one of the following listed bases of accounting: cash basis, tax basis, regulatory basis, and other bases of accounting. These other bases are commonly referred to as other comprehensive bases of accounting (OCBOA). Cash basis is a basis of accounting that the entity uses to record cash receipts and disbursements and modifications of the cash basis having substantial support. When the cash basis is followed, the following statements are prepared: 1. *Statement of Cash and Equity* 2. *Statements of Cash Receipts and Disbursements* All other statements are prepared under US GAAP and not under special purpose frameworks.

For purposes of consolidating financial interests, a majority voting interest is deemed to be A 50% of the directly or indirectly owned outstanding voting shares of another entity B 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity. C Greater than 50% of the directly or indirectly owned outstanding voting shares of another entity. D Greater than 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity.

The correct answer is (C). For purposes of consolidating financial interests, a majority voting interest is deemed to be greater than 50% of the directly or indirectly owned outstanding voting shares of another entity. This indicates that the acquirer has control over the acquiree and the members of the acquirer company constitute a majority of the board of directors of the acquiree. (A) is incorrect because a majority voting interest means more than 50% of outstanding voting rights, not just 50%. (B) and (D) are incorrect because in order to determine majority voting interest only outstanding voting shares of the entity are taken into consideration, not outstanding non-voting shares. There is no requirement to own outstanding nonvoting shares of another entity.

Young & Jamison's modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses? A $125,000 B $135,000 C $165,000 D $175,000

The correct answer is (C). In converting cash paid for operating expenses from the modified cash-basis to accrual-basis adjustments must be made for the changes in prepaid expenses and accrued liabilities from the beginning of the year to the end of the year. An increase in prepaid expenses would require a minus $5,000 (the difference between $15,000 and $10,000) adjustment to derive the accrual basis. An increase in accrued liabilities would require a plus $20,000 (the difference between $25,000 and $5,000) adjustment to derive the accrual basis. [$150,000 - $5,000 + $20,000 = $165,000] Alternatively, use a T-Account to solve this problem: Prepaid Expenses (Beginning)$10,000Accrued Liabilities (Beginning)$5,000Cash$150,000Operating Expense (Plug)$165,000Accrued Liabilities (Ending)$25,000Prepaid Expenses (Ending)$15,000

The following information pertains to Deal Corp.'s current year cost of goods sold: Inventory, 12/31 of the previous year $ 90,000 Purchases 124,000 Write-off of obsolete inventory 34,000 Inventory, 12/31 of current year 30,000 The inventory written off became obsolete due to an unexpected and unusual technological advance by a competitor. In its year-end income statement, what amount should Deal report as cost of goods sold? A $218,000 B $184,000 C $150,000 D $124,000

The correct answer is (C). When closing inventory is subtracted from the total inventory available, the result would be the Cost of Goods Sold (COGS). Total inventory includes opening inventory and purchases, reduced by the write-off of obsolete inventory. COGS = Opening inventory + Purchases - Write-off of obsolete inventory - Closing inventory = $90,000 + $124,000 - $34,000 - $30,000 = $150,000.

Assets, Liabilities, and Equity describes the amount of resources and claims to resources that a company has at which times? I. At a moment in timeII. During a period of time A Both I and II B Neither I nor II C II but not I D I but not II

The correct answer is (D). Assets, Liabilities, and Equity are displayed on a company's Balance Sheet. Their balances are measured at a particular moment in time i.e. the Balance Sheet date.

Which of the following defines equity as it relates to a business entity? A Net revenues B Total revenues less total expenses C Total assets and liabilities D Total assets less total liabilities

The correct answer is (D). In a broad sense, equity is total assets less total liabilities. Equity means the ownership interest of investors in a business firm. It includes capital stock, additional paid-in capital, non-controlling interest, retained earnings and accumulated other comprehensive income. From these treasury stock is reduced.

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in A Regulation S-B B Regulation S-K C Regulation S-T D Regulation S-X

The correct answer is (D). Regulation S-X closely related to Regulation S-K and sets forth the form and content of and requirements for interim and annual financial statements to be filled with the SEC. Regulation S-K lays out the reporting requirements for various SEC filings by companies registered with the SEC