Intermediate Accounting III- Final EXam Chapters 22-24

On January 1, 2012, Nobel Corporation acquired machinery at a cost of $1,200,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2015, a decision was made to change to the double-declining balance method of depreciation for this machine. The amount that Nobel should record as depreciation expense for 2015 is Entry field with correct answer A. $240,000. B. $168,000. C. $120,000. D. none of these are correct.

A. $240,000. SOLUTION: {($1,200,000 - [($1,200,000 ÷ 10) × 3]} ÷ 7 × 2 = $240,000.

The profession requires disaggregated information in the following ways: A. All of these answers are correct. B. major customers. C. geographic areas. D. products or services.

A. All of these answers are correct.

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities? A. Amortization of patent. B. All of these are added to net income to arrive at cash flow from operating activities. C. Increase in accounts receivable. D. Gain on sale of land.

A. Amortization of patent.

Which of the following should be disclosed in a Summary of Significant Accounting Policies? A. Depreciation method followed B. Types of executory contracts C. Amount for cumulative effect of change in accounting principle D. Claims of equity holders

A. Depreciation method followed

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

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

Accounting principles are modified for the following at interim dates. Revenue Losses A. No No B. Yes No C. Yes Yes D. No Yes

A. No No

A financial forecast per professional pronouncements presents to the best of the responsible party's knowledge and belief, A. an entity's expected financial position, results of operations, and cash flows. B. an assessment of the company's ability to be successful in the future. C. an assessment of the company's ability to be successful in the future under a number of different assumptions. D. given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows.

A. an entity's expected financial position, results of operations, and cash flows.

An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n) A. deduction from net income in arriving at net cash flow from operating activities. B. addition to net income in arriving at net cash flow from operating activities. C. cash outflow from investing activities. D. cash outflow from financing activities.

A. deduction from net income in arriving at net cash flow from operating activities.

An example of a correction of an error in previously issued financial statements is a change A. from the cash basis of accounting to the accrual basis of accounting. B. in the tax assessment related to a prior period. C. from the FIFO method of inventory valuation to the LIFO method. D. in the service life of plant assets, based on changes in the economic environment.

A. from the cash basis of accounting to the accrual basis of accounting.

An example of a correction of an error in previously issued financial statements is a change A. from the cash basis of accounting to the accrual basis of accounting. B. in the service life of plant assets, based on changes in the economic environment. C. in the tax assessment related to a prior period. D. from the FIFO method of inventory valuation to the LIFO method.

A. from the cash basis of accounting to the accrual basis of accounting.

A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10 percent of the A. total revenues of all the enterprise's industry segments. B. total export and foreign sales. C. combined net income of all segments reporting profits. D. total combined revenues of all segments reporting profits.

A. total revenues of all the enterprise's industry segments.

Events that occur after the December 31, 2015 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be A. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2015 B. used to record an adjustment directly to the Retained Earnings account C. discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report. D. disclosed only in the Notes to the Financial Statements.

A. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2015

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities? A. A change in interest payable B. A change in dividends payable C. A change in income taxes payable D. All of these are adjustments.

B. A change in dividends payable

Which of the following describes a change in reporting entity? A. A company divests itself of a European branch sales office. B. Changing the companies included in combined financial statements. C.A company acquires a subsidiary that is to be accounted for as a purchase. D. A manufacturing company expands its market from regional to nationwide.

B. Changing the companies included in combined financial statements.

Which of the following describes a change in reporting entity? A. A manufacturing company expands its market from regional to nationwide. B. Changing the companies included in combined financial statements. C.A company divests itself of a European branch sales office. D. A company acquires a subsidiary that is to be accounted for as a purchase.

B. Changing the companies included in combined financial statements.

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities? A. Decrease in accounts receivable. B. Gain on sale of land. C. Amortization of patent. D. All of the above are deducted from net income to arrive at cash flow from operating activities.

B. Gain on sale of land.

Which of the following post-balance-sheet events would generally require disclosure, but no adjustment of the financial statements? A. Employee strikes B. Issue of a large amount of capital stock C. Retirement of the company president D. Settlement of litigation when the event that gave rise to the litigation occurred prior to the balance sheet date.

B. Issue of a large amount of capital stock

Of the following questions, which one would not be answered by the statement of cash flows? A. What was the change in the cash balance during the period? B. Were all the cash expenditures of benefit to the company during the period? C. What was the cash used for during the period? D. Where did the cash come from during the period?

B. Were all the cash expenditures of benefit to the company during the period?

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because A. cash was increased while cost of goods sold was decreased. B. cost of goods sold on an accrual basis is lower than on a cash basis. C. acquisition of inventory is an investment activity. D. inventory purchased during the period was less than inventory sold resulting in a net cash increase.

B. cost of goods sold on an accrual basis is lower than on a cash basis.

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) A. investing activity. B. deduction from net income. C. financing activity. D. addition to net income.

B. deduction from net income.

The estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should A. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. B.depreciate the remaining book value over the remaining life of the asset. C.adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. Dcontinue to depreciate the building over the original 50-year life.

B. depreciate the remaining book value over the remaining life of the asset.

An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the A. major backlogs of inventory orders. B. method used for pricing inventory. C. composition of inventory into raw materials, work-in-process, and finished goods. D. amount of income resulting from the involuntary liquidation of LIFO.

B. method used for pricing inventory.

An objective of the statement of cash flows is to A. disclose the change in working capital during the period. B. provide information about the operating, investing, and financing activities of an entity during a period. C. None of these answers are correct. D. disclose changes during the period in all asset and all equity accounts.

B. provide information about the operating, investing, and financing activities of an entity during a period.

Accounting principles are modified for the following at interim dates. Revenue Losses A. Yes No B. No Yes C. No No D. Yes Yes

C. No No

How should significant noncash transactions be reported in the statement of cash flows according to FASB Statement No. 95? A. They should be handled in a manner consistent with the transactions that affect cash flows. B. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. C. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials. D. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions."

C. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

In a statement of cash flows, the cash flows from investing activities section should report A. stock dividends received. B. the issuance of common stock in exchange for a factory building. C. a major repair to machinery charged to accumulated depreciation. D. the assignment of accounts receivable.

C. a major repair to machinery charged to accumulated depreciation.

Counterbalancing errors do not include A. an overstatement of unearned revenue. B. errors that correct themselves in two years. C. errors that correct themselves in three years. D. an understatement of purchases.

C. errors that correct themselves in three years.

According to GAAP, the disclosure of accounting policies adopted by a reporting entity is important to financial statement readers in determining A. whether the working capital position is adequate for future operations. B. net income for the year. C. whether accounting policies are consistently applied from year to year. B. the value of obsolete items included in ending inventory.

C. whether accounting policies are consistently applied from year to year.

Xanthe Corporation had the following transactions occur in the current year: 1. Cash sale of merchandise inventory. 2. Sale of delivery truck at book value. 3. Sale of Xanthe common stock for cash. 4. Issuance of a note payable to a bank for cash. 5. Sale of a security held as an available-for-sale investment. 6. Collection of loan receivable. How many of the above items will appear as a cash inflow from investing activities on a statement of cash flows for the current year? A. Four items B. Two items C.Three items D. Five items

C.Three items

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities? A. A change in income taxes payable B. All of these are adjustments. C. A change in interest payable D. A change in dividends payable

D. A change in dividends payable

In presenting segment information, which of the following items must be reconciled to the entity's consolidated financial statements? Revenues Operating Profit (Loss) Identifiable Assets A. Yes No Yes B. No Yes Yes C. Yes Yes No D. Yes Yes Yes

D. YES YES YES

Cash, short-term investments, and net receivables are the numerator for Acid-Test Ratio Current Ratio A. Yes Yes B. No Yes C. No No D. Yes No

D. Yes No

Presenting consolidated financial statements this year when statements of individual companies were presented last year is A. not an accounting change. B. a correction of an error. C. an accounting change that should be reported prospectively. D. an accounting change that should be reported by restating the financial statements of all prior periods presented.

D. an accounting change that should be reported by restating the financial statements of all prior periods presented.

The required approach for handling extraordinary items in interim reports is to A. disclose them only in the notes. B. prorate them over all four quarters. C. prorate them over the current and remaining quarters. D. charge or credit the loss or gain in the quarter that it occurs.

D. charge or credit the loss or gain in the quarter that it occurs.

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by A. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation. B. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. C. re-recording all income statement transactions that directly affect cash in a separate cash flow journal. D. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

D. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

According to GAAP, the disclosure of accounting policies adopted by a reporting entity is important to financial statement readers in determining A. the value of obsolete items included in ending inventory. B. whether the working capital position is adequate for future operations. C. net income for the year. D. whether accounting policies are consistently applied from year to year.

D. whether accounting policies are consistently applied from year to year.

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? A. Current period and retrospectively B. Current period only C. Retrospectively only D.Current period and prospectively

D.Current period and prospectively

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expenses for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expenses to the cash basis? Increase in Depreciation Prepaid Expenses Deducted From Deducted From Added To Added To Deducted From Added To Added To Deducted From

Deducted From Added To

Which of the following should be reported as a prior period adjustment? Change in Estimated Lives of Depreciable Assets Change from Unaccepted Principle to Accepted Principle Yes No No Yes No No Yes Yes

No Yes