FINA 4300 Exam 1
Which of the following statements is most accurate? - Operating and nonoperating transactions are usually reported separately in the balance sheet. - Nonoperating transactions result from investment income and financing expenses for all types of firm. - Nonoperating items are generally reported separately from operating items in the income statement.
- Nonoperating items are generally reported separately from operating items in the income statement.
Which of the following statements is most accurate in describing the measurement of assets and liabilities? - Whenever possible, fair values of assets should be used. - Assets should generally be stated at historical cost and liabilities at present value. - A company is permitted to use a number of different methods to calculate asset and liability values.
- A company is permitted to use a number of different methods to calculate asset and liability values.
The IASB is: - A standard-setting body that was set up to harmonize accounting standards internationally. - Responsible for developing international financial reporting and accounting standards outside the United States. - A regulatory body with responsibility for ensuring that companies adhere to IFRS.
- A standard-setting body that was set up to harmonize accounting standards internationally.
Which of the following statements is true? - According to the IFRS Conceptual Framework, information is faithfully represented if in addition to being complete, neutral, and free from error it has a confirmatory value. - According to the IFRS Conceptual Framework, information is reliable if it has predictive value, but does not have confirmatory value. - According to the IFRS Conceptual Framework, information is relevant if it has predictive value, confirmatory value, or both.
- According to the IFRS Conceptual Framework, information is relevant if it has predictive value, confirmatory value, or both.
Which of the following items would most likely be classified as an investing activity? - Issuance of debt. - Acquisition of a competitor. - Sale of automobiles by an automobile dealer.
- Acquisition of a competitor.
"A material exception to accounting standards was found; the financial statements are not a fair presentation..." most accurately describes which type of audit opinion? - Adverse. - Unqualified - Disclaimer of opinion.
- Adverse.
Under International Accounting Standards (IAS), which of the following is not required to be included in the financial statements? - An internal audit report. - Notes of significant accounting policies. - A statement of changes in stockholders' equity.
- An internal audit report.
Which of the following is not a desirable attribute of an accounting standards board? - The development of standards that are recognized and adopted by regulators. - Decisions that are made independently, but at the same time the decisions are consistent with the framework's objective. - An unwillingness to consider input from parties other than investors in order to avoid conflicts and to not allow pressure from external forces to influence decisions.
- An unwillingness to consider input from parties other than investors in order to avoid conflicts and to not allow pressure from external forces to influence decisions.
Common-size statements are an input for which step in the financial statement analysis framework? - Collecting data - Analyzing data - Processing data
- Analyzing data
A qualified accountant's report indicates that the financial statements: - Are not prepared completely in accordance with accounting standards. - Are prepared in a manner that is materially out of line with accounting standards. - Present a true and fair view of the company's performance and financial position.
- Are not prepared completely in accordance with accounting standards.
Which of the following statements does not refer to a general feature of financial statements? - Going concern is the assumption that the entity will continue in the operation for the foreseeable future. - Accrual basis is the reporting of income and expense when earned or incurred, regardless of cash flows. - Assets and liabilities, and income and expenses, are generally allowed to be offset.
- Assets and liabilities, and income and expenses, are generally allowed to be offset.
An analyst is required to understand a company's financial position as of a particular point in time. Which of the following statements should he refer to? - Income statement - Statement of cash flows - Balance sheet
- Balance sheet
Which of the following financial statements is the analyst least likely to review to assess a company's performance over a period of time? - Income statement - Balance sheet - Statement of cash flows
- Balance sheet
Under US GAAP minority interest appears in the: - Balance sheet as an asset. - Balance sheet as a stockholders equity. - Income statement as an expense.
- Balance sheet as a stockholders equity.
Under IFRS, which of the following financial statements most likelycomprises the results of a company's day-to-day business operations over a period of time? - Statement of financial position. - Statement of comprehensive income beginning with profit or loss from the income statement. - Cash flow statement.
- Cash flow statement.
Which transaction would best be classified as a gain or loss? - Match Tix was able to charge a 50 percent premium over face value for high demand concert tickets. - Jane Stores had slower than expected holiday sales and sold excess inventory at 25 percent below cost to reduce inventory stock. - Chase Crafters sold a large piece of equipment no longer used in its manufacturing process for 10 percent below its book value.
- Chase Crafters sold a large piece of equipment no longer used in its manufacturing process for 10 percent below its book value.
A company values its assets at the amount that would have to be paid to purchase it today. The company is most likely using which of the following measurement bases? - Realizable value - Fair value - Current cost
- Current cost
Richardson is preparing exhibits such as graphs and common-size balance sheet. At this point, Richardson is in what step in the financial statement analysis framework? - Data processing - Data analysis and interpretation - Data gathering
- Data processing
Which of the following is least likely to be important to an analyst when using financial reports? - Detail. - Relevance. - Materiality.
- Detail.
Which of the following is least likely to be an obstacle to convergence in global financial reporting standards? - Differing objectives between the IASB and FASB. - Political lobbying including pressure from listed companies. - Regulators have different views on accounting standards to standard-setting bodies.
- Differing objectives between the IASB and FASB.
Two country's standard-setting bodies are trying to achieve convergence and are currently working on merging their financial reporting frameworks into one comprehensive framework. Which of the following is not a potential barrier to this effort? - Differing measurement approaches, with one standard setter taking an asset/liability approach and the other taking a revenue/expense approach. - Differing standard-setting approaches, with one standard setter using a principles-based approach and the other using an objectives-oriented approach. - Differing structures for the standard setters, with one being an independent entity within a foundation and the other being an independent entity within an accounting industry association.
- Differing structures for the standard setters, with one being an independent entity within a foundation and the other being an independent entity within an accounting industry association.
The objective of an audit is most likely to: - State that the financial statements are correct. - Provide absolute assurance about the accuracy or precision of the financial statements. - Enable an auditor to express an opinion on the fairness and reliability of the financial statements.
- Enable an auditor to express an opinion on the fairness and reliability of the financial statements.
Which of the following is least likely to be identified as a main objective of the International Organization of Securities Commissions (IOSCO)? - Protecting investors. - Reducing systematic risk. - Ensuring harmonization of accounting standards globally.
- Ensuring harmonization of accounting standards globally.
General-purpose financial reports are prepared by Company X for the year ending 20X7. According to IASB Conceptual Framework for Financial Reporting, which of the following would not be a primary user of these? - Potential investors - Firm management - External creditors
- Firm management
Which of the following statements regarding the cash flow statement is least accurate? - The cash flow statement provides information on the sources and use of cash. - Firms are required to provide a reconciliation between cash flow and income statement items. - The total cash flow in a year is equal to the change in cash and cash equivalents recorded in the beginning and end-year balance sheets.
- Firms are required to provide a reconciliation between cash flow and income statement items.
John Arthur, CFA, of Hawk Eye LLP is analyzing the financial statements of Ceres Supply Inc., a retail behemoth in the United States. John suspects the client's executive management of inflating the company's profit figure as their remuneration is largely based on the performance and share price of the company. Which part of the financial reports will most likely assist John in understanding the management compensation scheme of the client? - Management's discussion and analysis (MD&A). - Footnotes to the financial statements. - Previous year's external audit report.
- Footnotes to the financial statements.
The International Accounting Standards Board (IASB) was established in order to: - Harmonize accounting standards worldwide. - Review disclosure standards for publicly owned companies. - Provide an alternative set of accounting standards to U.S. GAAP.
- Harmonize accounting standards worldwide.
Which of the following is not a critical assumption underlying financial statements? - Historical cost. - Going concern. - Accrual accounting.
- Historical cost.
An increase in earnings per share on the income statement is leastlikely to be explained by the firm: - Reducing its interest costs. - Increasing the prices of units sold. - Increasing the number of shares outstanding.
- Increasing the number of shares outstanding.
Where would an analyst most likely find recent information on a company's financial position? - Press releases. - Interim reports. - Proxy statements.
- Interim reports.
International financial reporting standards (IFRS) and U.S. generally accepted accounting standards (U.S. GAAP) are most likely developed by the: - IFRS Foundation and the Financial Accounting Foundation (FAF), respectively. - International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), respectively. - International Organization of Securities Commissions (IOSCO) and the Securities and Exchange Commission (SEC), respectively.
- International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), respectively.
Which of the following is mandated to develop international standards for auditing? - International Auditing and Attestation Standards Board - International Auditing and Assurance Standards Board - Public Company Auditing Oversight Board
- International Auditing and Assurance Standards Board
Information about extraordinary items and other unusual or infrequent events is most likely found in: - Supplementary schedules. - Financial statement footnotes. - Management Discussion & Analysis.
- Management Discussion & Analysis.
While conducting an audit of a publicly held company, an auditor is not required to give an opinion on the: - Internal controls of the company. - Management's discussion and analysis included in the annual report. - Footnotes to the financial statements.
- Management's discussion and analysis included in the annual report.
Which of the following statements is false? - Measurement bases for valuation that require little judgment, such as historical cost, are less reliable but more relevant than a basis such as fair value that requires more judgment. - IFRS employs a more principle-based approach. - U.S. GAAP's approach has been more rule-based.
- Measurement bases for valuation that require little judgment, such as historical cost, are less reliable but more relevant than a basis such as fair value that requires more judgment.
Given the differences between IFRS and GAAP, efforts have been made towards convergence or the development of one universally accepted set of accounting standards. Which of the following is nota barrier for this? - Different standard-setting bodies disagree on the best treatment of particular items. -Business groups and other people who will be affected by changes exert political pressures. - Most regulatory authorities do not require reconciliation of IFRS-compliant reports to U.S. GAAP.
- Most regulatory authorities do not require reconciliation of IFRS-compliant reports to U.S. GAAP.
The Statement of Changes in Owners' Equity would be least likely to include information on: - Net assets. - Net income. - Dividends distributed.
- Net assets.
Mike, an analyst, needs to understand the accounting policies, methods, and estimates used in the preparation of financial statements. Among the complete set of financial statements, which portion should he refer to? - Statement of cash flows - Financial review by the management - Notes to financial statements
- Notes to financial statements
The method by which a company calculates depreciation is usually described in its: - Balance sheet. - Auditor's report. - Notes to the financial statements.
- Notes to the financial statements.
The move toward a single accounting framework involves moving to an approach that is: - Rules based. - Principles based. - Objectives oriented.
- Objectives oriented.
Income that is independent of a firm's capital structure is: - Pre-tax income. - Operating income. - Comprehensive income.
- Operating income.
Which of the following is least likely to be reported as a line item in financial statements prepared as per IAS 1? - Finance costs. - Opportunity costs. - Share of profit or loss of joint venture accounted for using the equity method.
- Opportunity costs.
An auditor to a company is least likely to be responsible for: - Preparing the financial statements. - Examining a company's internal control systems. - Ensuring that the financial statements conform to generally accepted accounting principles (GAAP).
- Preparing the financial statements.
Which the following statements is true? - According to the IFRS, an entity should present the income statement and other comprehensive income separately, and cannot combine them into one statement. - Presentation of income statement and other comprehensive income is the same under both U.S. GAAP and IFRS, except that in U.S. GAAP, the firm could choose to report comprehensive income in the statement of shareholders' equity. - Presentation of income statement and other comprehensive income is the difference under U.S. GAAP and under IFRS, but both allow the reporting of comprehensive income in the statement of shareholders' equity.
- Presentation of income statement and other comprehensive income is the same under both U.S. GAAP and IFRS, except that in U.S. GAAP, the firm could choose to report comprehensive income in the statement of shareholders' equity.
Adjusting property, plant and equipment for differences in depreciation methods between peer companies is a step in which part of the financial statement analysis framework? - Collect data. - Process data. - Conduct analysis.
- Process data.
Equity valuation is usually part of which step in the financial analysis framework? - Follow-up. - Processing the data. - Analysis of the processed data.
- Processing the data.
The balance sheet is least likely to be used for information on a firm's: - Liquidity. - Profitability. - Owners' equity.
- Profitability.
The role of the IASB is most accurately described as: - Ensuring that differences between tax and financial statement accounting standards are minimized. - Providing accounting standards that can form a solid base for harmonization of accounting practices. - Ensuring that countries that adopt IFRS comply with the standards.
- Providing accounting standards that can form a solid base for harmonization of accounting practices.
Information about directors' compensation is most likely to be included in a firm's: - Auditor's report. - Proxy statement. - Management Discussion and Analysis.
- Proxy statement.
The production manager of Chovita Inc. decides to dispose of the drilling machine that has been in use for the past three years. Which of the following values will most likely be used to record the value of the machine on disposal? - Present value. - Realizable value. - Intrinsic value.
- Realizable value.
An auditor is most likely to issue a qualified opinion when the financial statements: - Reflect a true and fair representation of a firm's transactions. - Reflect a true and fair representation of a firm's transactions except for few material errors. - Do not reflect a true and fair representation of a firm's transactions.
- Reflect a true and fair representation of a firm's transactions except for few material errors.
Which of the following is a standard-setting approach likely to be adopted by a standard-setting body? - Rules-based approach. - Asset/liability approach. - Revenue/expense approach.
- Rules-based approach.
Executing the requirements of the Sarbanes-Oxley Act and overseeing the PCAOB is the responsibility of the: - FASB. - IASB. - SEC.
- SEC.
Which statement would an analyst find most useful in assessing a company's ability to react quickly to an opportunity that requires an immediate cash investment? - Balance sheet. - Income statement. - Statement of cash flows.
- Statement of cash flows.
Which statement would an analyst most likely use to evaluate additional financial performance aspects of a company? - Balance sheet. - Statement of cash flows. - Statement of changes in equity.
- Statement of cash flows.
An entity has prepared a statement of changes in fixed assets, statement of changes in equity, and a statement of changes in liabilities. To be in accordance with International Accounting Standard No. 1 (IAS 1), which, if any, of these already prepared statements is required? - Statement of changes in equity. - All three of the prepared statements are required. - None of the three prepared statements are required.
- Statement of changes in equity.
Which of the following financial statements shows the resources that a company controls? - Statement of comprehensive income. - Statement of financial position. - Cash flow statement.
- Statement of financial position.
According to the IASB's 2010 Conceptual Framework, the objective of general purpose financial reporting is to provide information to aid in the decisions of which of the following groups? - Industry regulators and compliance personnel. - Governmental taxing authorities. - Suppliers of trade credit.
- Suppliers of trade credit.
The Management Discussion and Analysis in a stockholder report is least likely to include: - The business outlook. - The background of the directors. - Results of operations and sales trends.
- The background of the directors.
When new accounting standards are issued that will be implemented in the future, which of the following best describes the requirements of a company under IFRS? - The company must disclose whether the new standards will or will not apply to its financial statements. - At present a company is not obliged to comment on new standards until they are actually implemented. - The company must provide a discussion on whether there will be any impact from the new standards on the financial statements.
- The company must provide a discussion on whether there will be any impact from the new standards on the financial statements.
Mode, owner of Moderate Company, firmly believes that because presentation of accurate financial statements is of primary importance, they see to it that effective internal control procedures are put in place. Which of the following is true? - The company's management is vested with the primary responsibility as to the design and implementation of internal control procedures. - More than checking the adequacy of internal controls, audit firms should also make sure that these controls are well implemented. - The audit committee is tasked to design and oversee the internal controls, financial reporting, and audit processes of the company.
- The company's management is vested with the primary responsibility as to the design and implementation of internal control procedures.
Notes are pertinent to the financial statements since they allow for a better evaluation of the estimates in terms of their amount, timing, and uncertainty. Which of the following is false and is not one of the purposes that notes serve? - It is in the notes to the financial statements that the basis of presentation, such as the fiscal period covered by the statements, is discussed. - Notes provide additional information on items such as business acquisitions or disposals, legal actions, employee benefit plans, contingencies, and commitments. - The effects of changing prices and inflation are explained in the notes, including an elaboration on future expenses.
- The effects of changing prices and inflation are explained in the notes, including an elaboration on future expenses.
Which of the following is least likely to be mentioned in the introductory paragraph of a standard independent audit report? - The nature of the audit process. - The responsibilities of both management and the independent auditor. - The financial statements that were audited.
- The nature of the audit process.
Which of the following statements are false? - The notes to financial statements include disclosures on commitments and contingencies. - The notes to financial statements exclude information on related-party transactions. - The notes to financial statements exclude management compensation.
- The notes to financial statements exclude information on related-party transactions.
Which of the following is a requirement of presentation under International Financial Reporting Standards (IFRS)? - Assets and liabilities for related items should be offset against each other. - Current and noncurrent assets should normally be combined unless IFRS requires otherwise. - The previous year's data should normally be provided for items in the financial statements.
- The previous year's data should normally be provided for items in the financial statements.
Which of the following is least likely to be a constraint in preparing useful financial statements? - The time taken to ensure information is accurate. - The cost of providing information that is accurate and useful. - The requirement to include information regardless of whether it is relevant or not.
- The requirement to include information regardless of whether it is relevant or not.
Which of the following statements is least accurate regarding U.S. GAAP? - The target is to replace U.S. GAAP with IFRS by 2016. - U.S. GAAP has a hierarchical structure with standards issued by the FASB holding the highest position. - U.S. GAAP includes standards established by a number of different organizations.
- The target is to replace U.S. GAAP with IFRS by 2016.
According to the Conceptual Framework for Financial Reporting (2010), which of the following is most likely considered to be a constraint on the financial statements? - The requirement for comparability. - The need to achieve faithful representation. - The tradeoff between timeliness and verifiability.
- The tradeoff between timeliness and verifiability.
Maynard, an analyst, would like to understand the constraints surrounding financial statement presentation. He then refers to the Conceptual Framework for guidance. Which of the following is not one of the constraints presented by the Conceptual Framework? - Benefits versus costs - Timeliness - Balancing of qualitative characteristics
- Timeliness
It would not always be the case that all qualitative characteristics of financial statements are fulfilled simultaneously. Take for example Lane Company, part of the FMCG industry, which is required to recognize an estimate of bad debts expense for all the sales for the whole year, regardless of the actual write-offs in its receivables. The trade-off that is apparent in this case is between what characteristics? - Materiality and timeliness - Timeliness and verifiability - Faithful representation and verifiability
- Timeliness and verifiability
Which of the following is least likely a goal of the IASB? - To develop country-specific accounting standards. - To promote the use of global accounting standards. - To take account of the special needs of small- and medium-sized entities and emerging economies.
- To develop country-specific accounting standards.
Clip Company is required to provide financial statements especially for an external audit. Which of the following statements is true regarding the objective of an audit of Clip? - To provide a reasonable, but not absolute, level of assurance about the fairness and reliability of the financial statements - To perform financial statement analysis and benchmark the company's performance as against industry averages - To provide absolute assurance by pointing out weaknesses in the company's operations and suggest viable improvement mechanisms
- To provide a reasonable, but not absolute, level of assurance about the fairness and reliability of the financial statements
The Financial Accounting Standards Board (FASB) is most likelyresponsible for: - U.S. generally accepted accounting principles (U.S. GAAP). - Advising the Financial Accounting Foundation, which develops U.S. generally accepted accounting principles (U.S. GAAP). - Advising the Securities and Exchange Commission, which develops U.S. generally accepted accounting principles (U.S. GAAP).
- U.S. generally accepted accounting principles (U.S. GAAP).
An analyst has described the desirable attributes that an accounting standards board should possess, but she is not accurately describing an attribute when stating that the board should: - not be influenced by self-interests. - be guided by a well articulated framework. - be subject to legislative oversight in developing standards.
- be subject to legislative oversight in developing standards.
An analyst observes that a company has included an estimate of its potential liability from an ongoing lawsuit in its financial statements. The financial reporting standards that apply to the company do not specifically require that this estimate be recorded; it is up to the judgment of the preparer. The company, in the notes to its financial statements, indicates that this is an estimate and may not be close to the ultimate outcome. The company is most likely including this estimate in its financial statement because: - it is specifically required to do so by the financial reporting standards. - it enhances comparability, which ranks the highest of the four enhancing characteristics. - circumstances warrant the disclosure, with the benefit from enhanced comparability and timeliness exceeding any weakness in verifiability.
- circumstances warrant the disclosure, with the benefit from enhanced comparability and timeliness exceeding any weakness in verifiability.
Paul Parker, CFA, is analyzing the financial statements of five companies. Four of the five companies prepare their financial statements based on IFRS. However, one company uses U.S. GAAP to prepare its accounts, and Paul made the necessary adjustments to make its financial statements consistent with IFRS. As per the IFRS Conceptual Framework, this adjustment will mostly enhance the qualitative characteristic of: - consistency. - comparability. - understandability.
- comparability.
An objective of financial statements is most likely to provide an entity's: - code of ethics and business practices. - level of expertise exhibited by the entity's workforce. - economic resources and claims; its financial position.
- economic resources and claims; its financial position.
A company lost a major lawsuit and is appealing the jury award, but expects little relief from a higher court. In its financial statements, the company has presented information on likely loss in a manner that likely makes the reader believe that the company will prevail. As a result, the company most likely has violated: - timeliness. - understandability. - faithful representation.
- faithful representation.
In preparing its financial statements, an underlying assumption for a company was going concern. This most likely means that the company is assuming: - it will continue to operate for the foreseeable future. - that its current cash flows will be sufficient to fund its needs for the foreseeable future. - that comparable amounts for past periods should be presented as the company has continued to operate.
- it will continue to operate for the foreseeable future.
Arnold Jones, CFA, notices in his review of Jamit Enterprises' income statement that the company reports various subtotals including gross profit. From his studies, he remembers this format is called: - multi-step format. - single-step format. - grouping by nature.
- multi-step format.
An analyst believes that a company has changed its accounting policy with respect to depreciation method used. The most likelybest way to confirm this belief is to review the company's: - recent press releases. - income statements for the past two years. - notes to the most recent financial statements.
- notes to the most recent financial statements.
The International Organization of Securities Commissions (IOSCO) most likely has regulatory authority over: - nothing, as it is a membership organization. - capital markets domiciled in European Union countries. - financial reporting requirements for companies domiciled in European Union countries.
- nothing, as it is a membership organization.
An analyst is describing the Conceptual Framework for Financial Reporting (2010) in a report. He states that there are four fundamental qualitative characteristics—relevance, comparability, timeliness, and faithful representation—that make financial information useful. To be correct, the analyst most likely needs to: - eliminate faithful representation. - only list relevance and faithful representation. - also include verifiability and understandability.
- only list relevance and faithful representation.
Convergence of global accounting standards is most likely slowed by: - the availability of accounting software to developing economies. - a lack of interest among investors and regulators. - political pressure from a large number of stakeholders.
- political pressure from a large number of stakeholders.
The amount of cash or cash equivalents that could be currently obtained by selling an asset in an orderly disposal is called: - fair value. - realizable value. - present value.
- realizable value.
The requirement for a company to prepare its financial reports in accordance with specified accounting standards is most likely the responsibility of: - accounting boards, only. - regulatory authorities, only. - both accounting boards and regulatory authorities.
- regulatory authorities, only.
International Accounting Standard No. 1 (IAS 1) most likely requires an entity to: - prepare financial statements quarterly, but only have the results audited annually. - separately present dissimilar items in its financial statements if the items are material. - offset assets and liabilities in its financial statements when they are due from and owed to the same party.
- separately present dissimilar items in its financial statements if the items are material.
Which of the following forms should be filed by a firm planning for an initial public offering? - Form S-1. - Form 144. - Form 8-K.
Form S-1.
If a user wants to measure the financial position of a company, she is least likely to refer to: - Equity. - Liabilities. - Gains.
Gains
Which of the following financial statement elements is part of the U.S. GAAP reporting framework, but not the IFRS framework? - Expenses. - Equity. - Gains.
Gains
Leonard, an investor, would like to understand the profitability of Three Piece Company. He then looks into the general-purpose financial statements. Why is this so? - General-purpose financial statements do not intend to satisfy the specialized needs of individual users. - General-purpose financial statements are a product of managerial accounting. - General-purpose financial statements do not intend to satisfy the common needs of individual users.
General-purpose financial statements do not intend to satisfy the specialized needs of individual users.
A consolidated income statement of Hillock Holding and Subsidiaries for the period January 1 to December 31 is presented below. Sales revenue $75,120 Cost of sales 17,250 Gross profit 57,870 Distribution expenses 1,250 Administrative expenses 2,451 Other operating income 500 Other operating expenses 1,119 Operating profit 53,550 Finance costs1,750 Profit before tax 51,800 Income tax income/expense Current 20,720 Deferred 10,000 Profit attributable to shareholders of Hillock group 21,080 Hillock groups owns a 76% share in Jammy Properties, and hence the income statement includes the profits of Jammy Properties for the period. Based solely on the information, which of the following statements is most likely true? - Hillock has incorrectly computed its deferred tax expense for the year. - Hillock is likely to overstate return on equity in its financial statements. - Hillock will not be able to meet its short-term obligations.
Hillock is likely to overstate return on equity in its financial statements.
Frog Company had a net income of $1,000,000 for 2010. It received dividends from available-for-sales securities for $60,000, paid cash dividends for $110,000, and reacquired common stock for $400,000. It also realized a gain on the sale of equipment for $65,000. Finally, it recorded unrealized loss from foreign currency translation for $15,000, unrealized loss from available-for-sale securities for $10,000, and unrealized gain from cash flow hedge for $30,000. What is the total comprehensive income? - $1,005,000 - $1,055,000 - $1,015,000
- $1,005,000
Arnold Jones, CFA, compiled the following information on Jamit Enterprises for the year ended 31 December 2012. He noted Jamit's tax rate was 28 percent and they paid cash dividends of $6 million in 2012. Revenue $4,000,000 Cost of goods sold 1,280,000 Other operating expenses 1,040,000 Interest expenses 320,000 Other comprehensive income 110,000 Jones calculated an operating profit for Jamit for 2012 of: - $979,200 - $1,680,000 - $2,720,000
- $1,680,000
During 2009, Solar Corporations earned profits amounting to $4.5 million and paid preference dividends amounting to $100,000. The company had 3.5 million shares outstanding throughout the year with an average market price of $50. It also had 50,000 stock options outstanding, which had an exercise price of $40. Given that the market price of the company's shares at year-end was $60 and that the company pays taxes at the rate of 35%, its diluted EPS using the treasury stock method is closest to: - $1.254 - $1.251 - $1.257
- $1.254
A company had 500,000 common shares and $2,500,000 of a 7% convertible bond issue outstanding throughout the last accounting period. The convertible bond is convertible into 6 shares per $1,000. If the company's net income was $5,500,000 and the tax rate was 30%, the diluted earnings per share was closest to: - $10.68. - $10.92. - $11.25.
- $10.92.
Assuming Max is a U.S. company and accordingly follows the U.S. GAAP, which of the following entities is tasked to develop the accounting standard to which Marie will refer? - Securities and Exchange Commission (SEC) - Financial Accounting Standards Board (FASB) - International Organization of Securities Commissions (IOSC)
- Financial Accounting Standards Board (FASB)
A company had 2 million common shares outstanding throughout the last year. Total dividends of $1 million were paid to common stockholders and dividends of $400,000 were paid to preferred stockholders. Net income was $6 million and the tax rate was 40%. The company also had 100,000 options on common stock outstanding throughout the period; the exercise price is $20.00. The average share price over the year was $27.00 and the end year price was $35.00. The diluted earnings per share was closest to: - $2.74. - $2.76. - $2.96.
- $2.76.
Luxury Mansions Corporation reported net earnings of $3 million for the year ended June 30, 2013. The company had 800,000 common shares and 10,000 shares convertible preferred, payable at $10 per share, at the beginning of the year. Each preferred share is convertible into two common shares. There were no other potentially dilutive securities, and the tax rate was 25%. The company's diluted EPS, using the if-converted method under U.S. GAAP and IFRS, is closest to: - $3.63. - $3.66. - $3.75.
- $3.66.
Mega Construction Pvt. Ltd. obtains a $75 million contract to construct a building. It estimates that it will take 4 years to complete the project. The estimated cost of the project is $60 million. Mega Construction incurs costs amounting to $20 million in Year 1, $15 million in Year 2, $13 million in Year 3, and $12 million in Year 4. Assuming that the outcome of the project can be estimated reliably and that Mega follows IFRS, the profit that the company should recognize in Year 1 is closest to: - $25 million - $0 - $5 million
- $5 million
Jones Construction takes on a new project that it anticipates will take 2 years to complete. It agrees to a total contract price of $4 million, and its expected operating costs are $3 million. In the first year, it incurs costs of $1.8 million and receives payments of $2 million. If it is using the percentage-of-completion method to recognize revenue, then the operating income recorded in the first year will be: - $200,000. - $600,000. - $1.8million.
- $600,000.
When Tync Sales Companies (TSC) launched, it agreed with its supplier to purchase 40 units of inventory at the beginning of each quarter at a predetermined price of $100, increasing $5 each quarter. Its supplier required notice of 90 days in advance to cancel the order. On 1 June 2012, TSC canceled the planned purchases for the fourth quarter because of lower than expected sales. In the first two quarters combined, TSC sold only 50 units at a price of $120 each. TSC had no inventory on hand at the beginning of the year. By the end of the year, TSC had sold an additional 20 units at the same price. Under the FIFO method, what is TSC's cost of goods sold? - $7,000. - $7,100. - $7,150.
- $7,150.
Bodoni Technologies Inc. reported net income of $4 million for the year ended December 31, 2013. At the beginning of the year, the company had 500,000 common shares and issued 20,000 warrants with an exercise price of $60 on July 1, 2013. The average market price of the company's common stock during the year was $80 per share. Assuming there were no other potentially dilutive securities, the company's diluted earnings per share (EPS) using the treasury stock method is closest to: - $8.00. - $7.96. - $7.92.
- $7.92.
The following information is available for Bear Company for the year 2015: Ordinary shares issued and outstanding (January 1): 220,000 Average Market price of the share over the year: $25 Net income for the year: $1,100,000 Unexercised stock options to purchase 40,000 ordinary shares at a strike price of $20 exist for the whole year. What amount should be reported as diluted earnings per share? - 4.90 - 4.79 - 4.82
- 4.82
A U.S. consultancy company discovers that a transaction that took place last year was incorrectly recorded and in fact a client paid an additional $10,000 of fees over that recorded as a bonus based on the benefits he received from the consultancy provided in that period. The company should: - Increase the income received in the current year's accounts. - Adjust the retained earnings in the previous year's balance sheet. - Recognize the $10,000 as an extraordinary profit in the current year.
- Adjust the retained earnings in the previous year's balance sheet.
Information on the relationships between the elements of financial performance for Lioness Company is as follows: Revenue is 100%, Cost of Goods Sold is 67%, Administrative expense is 15%, and Training expense is 8%. What can be concluded from this? - Assuming an operating profit of $80,000, gross profit must be $53,600. - Assuming a gross profit of $100,000, administrative expenses must be $24,243. - Assuming an operating profit of $30,000, training expenses must be $24,000.
- Assuming an operating profit of $30,000, training expenses must be $24,000.
If payment is received in advance of transferring the goods, the seller will most likely report a: - Contract asset - Receivable - Contract liability
- Contract liability
Which of the following statements is false? - A horizontal common-size statement expresses items as a percentage of base year values. - A vertical common-size statement expresses items as a percentage of revenue or total assets. - In all cases, expressing expenses as a percentage of revenue is appropriate.
- In all cases, expressing expenses as a percentage of revenue is appropriate.
The information from the financial statements of Erbium Products Inc. for the year 2013 is as follows: Total assets $10,750 Total liabilities 3,000 Total revenues 2,100 Total expenses 2,200 Contributed capital 6,750 Gross profit 200 Operating profit (200) Dividends 100 Based on the information provided, which of the following is the most likely reason for the difference in operating profit and net income? - Loss from operating activities. - Income from investing activities. - Loss from financing activities.
- Income from investing activities.
According to IFRS, expenses include decreases in economic benefits from: - Decreases in liabilities, other than those related to owners' equity. - Decreases in owners' equity related to distributions made to them. - Incurrence of liabilities, other than those related to owners' equity.
- Incurrence of liabilities, other than those related to owners' equity.
The comprehensive income statement contains: -Details of income from subsidiaries. - Information on changes in stockholders' equity. - A detailed breakdown of cost of goods sold and other expenses.
- Information on changes in stockholders' equity.
TAC Party Inc. (TPI) made the following purchases during the year. TPI had no inventory on hand at the beginning of the year. At the end of the year, TPI has 50 units still in inventory. Inventory PurchasesUnitsPrice/Unit1st Quarter 100 $482nd Quarter 200 $503rd Quarter 100 $544th Quarter 75 $58 Total475 Which of the following methods would result in the highest cost of goods sold? - First in, first out (FIFO). - Last in, first out (LIFO). - Weighted average method.
- Last in, first out (LIFO).
The costs of long-lived assets are usually allocated: - Over 5 years. - Over a period that is chosen by the firm. - When the impairment of the assets takes place.
- Over a period that is chosen by the firm.
The following information relates to MY Traders for the year ended 2009: Net income = $3,540,000 10% preferred stock = $1,000,000 Dividends paid to common shareholders = $45,000 Weighted average number of common shares outstanding = 3,000,000 The company also has $200,000 par of 12% convertible bonds outstanding, which are convertible into 10,000 shares of common stock. Given that MY Traders pays taxes at the rate of 35%, its basic and diluted earnings per share are closest to: Basic EPS ($) Diluted EPS ($) A 1.15 1.14 B 1.18 1.14 C 1.15 1.15 - Row A - Row B - Row C
- Row C
Simple Times Limited purchased 1,000 units throughout the year at an average price of $50. The account manager has detailed records and the company has an advanced inventory management system in place tracking information about each unit's purchase price, time in inventory, sales price, etc. At the end of the year, there are 125 units remaining in inventory. The accounting manager identified the purchase date and price for each unit to calculate ending inventory. The dates of the purchases span the entire year. Which inventory valuation method does this company most likelyuse? - First in, first out (FIFO). - Weighted average method. - Specific identification method.
- Specific identification method.
Statement 1: Revenues are the amounts reported from the sale of goods and services in the ordinary course of business. Statement 2: Gross profit is the amount that remains after the direct costs of producing a product or service are subtracted from revenue. Statement 3: Grouping expenses by nature is sometimes referred to as the cost of sales method. Which statement(s) is/are true? - Statement 1 only. - Statements 1 and 2 only. - All statements are true.
- Statements 1 and 2 only.
The basic EPS of a company is equal to its diluted EPS when: - The company has no debt. - The capital structure has no potentially dilutive securities. - The dilutive securities and nondilutive securities are equal in number.
- The capital structure has no potentially dilutive securities.
When a company recognizes a warranty expense in the same accounting period as the sale of a good, this is an application of: - Accrual accounting. - The matching principle. - The cost recovery method.
- The matching principle.
Which of the following statements is true? - A line of business is considered as a discontinued operation once management decides to dispose of it in the current year before generating either income or loss. - The phaseout period for discontinued operations is the time between the measurement period and the actual disposal date. - A discontinued operation is one that the management has decided to dispose of early the following year.
- The phaseout period for discontinued operations is the time between the measurement period and the actual disposal date.
The following are transactions for Clear Water Company. Which of the following is not part of other comprehensive income (OCI)? - Unrealized gains and losses from available-for-sale securities - Unrealized gains and losses from trading securities - Adjustments for minimum pension liability
- Unrealized gains and losses from trading securities
Retrospective application is least likely to be used for accounting: - changes in accounting policies. - changes in accounting estimates. - correction of an error for a prior period.
- changes in accounting estimates.
A subtotal that is least likely to be shown on both the single-step and the multi-step format income statements is: - gross profit. - net profit. - income from discontinuing operations.
- gross profit.
Financial reporting standards can be established by applying an asset/liability approach or a revenue/expense approach. For a single coherent financial reporting framework, this conflict creates the inherent limitation of: - measurement. - standard-setting approach. - verifiability.
- measurement.
For the year ended 31 December 2012 Skyline Products reported net income of €1,300,000. At the beginning of that fiscal year, the company had 750,000 shares of common stock outstanding. On 1 April 2012, the company repurchased 150,000 common shares. That year the company also paid its common shareholders dividends in the amount of $325,000. What was the basic EPS Skyline reported on its income statement for 2012? - €1.53. - €2.04. - €2.17.
- €2.04.
On 1 January 2010 Visionary Toys purchased advanced 3D printers for their design studio at a cost of €820,000. The printers have an estimated useful life of four years and an estimated salvage value of €60,000. Assuming Visionary Toys uses the straight-line method of depreciation for reporting purposes, what will be the net book value of the printers at the end of 2012? - €190,000 - €205,000 - €250,000
- €250,000
On 1 January 2010 Visionary Toys purchased advanced 3D printers for their design studio at a cost of €820,000. The printers have an estimated useful life of four years and an estimated salvage value of €60,000. What depreciation expense would the company report for financial reporting purposes under the double-declining balance method in year 1? - €190,000 - €380,000 - €410,000
- €410,000
Rising Stars Limited (RSL) reported revenue of $3,120,000 and net income of $546,000 for the fiscal year end 30 June 2012. At 1 June 2011, RSL had 465,000 common shares outstanding and 60,000 common stock options outstanding with an exercise price of $14 each. During that fiscal year, the average market price for RSL's shares was $24 per share. RSL had no other potentially dilutive securities. What amount of shares would be used for the weighted average number of common stock in the calculation of diluted EPS for the 2012 fiscal year? - 490,000 - 500,000 - 525,000
490,000
Here are the transactions for Forrest Company for the year 2011: Received dividends of $100 from investments in held-for-trading securities Recorded an unrealized loss from foreign currency transaction of $300 Received dividends of $200 from investments in AFS securities Purchased treasury stocks for $500 Paid dividends to shareholders of $450 Recorded a gain of $800 on sale of equipment Arrived at a net income figure of $10,000 What is the total comprehensive income? - $ 9,700 - $ 10,800 - $ 8,750
9,700
A company had 60,000 shares outstanding on January 1 and issues a 50% stock dividend on June 30. The weighted average number of shares outstanding over the year ending December 31 is: - 75,000. - 90,000. - 120,000.
90,000
According to IAS 1, the accounting principles and procedures used as basis for preparation of financial statements must be similar across different firms in order to aid the users in finding similarities and differences among them for purposes of financial decision making. Which of the following features in financial statement preparation is described by this statement? - Consistency - Comparability - Verifiability
Comparability
A financial reporting framework has principles universal enough to guide preparers dealing with new and existing transactions. This framework is most likely exhibiting which characteristic commonly found in a coherent framework? -Consistency. - Transparency. - Comprehensiveness.
Comprehensiveness
Which accounting equation embodies the principle that transactions are always recorded such that accounts balance out? - Equity = Assets - Liabilities - Assets + Equity = Liabilities - Liabilities = Equity - Assets
Equity = Assets - Liabilities
Triblaze Shipping Inc., a Canadian company, changes its depreciation method from straight-line depreciation to double-declining-balance depreciation. Which of the following sections of the annual report will most likely discuss this change? - Footnotes. - Form 20-F. - Proxy statements.
Footnotes
A proxy statement was released by Zoom Company to its shareholders before its annual meeting on October 19, 2010. The contents of the proxy statement include the details of the upcoming meeting and the agenda, which includes: Election of board members Compensation Management qualifications Issuance of stock options This proxy statement is required to be filed with the SEC in a document called: - Form 10-K - Form 144 - Form DEF-14A
Form DEF-14A
Because of differences in opinions, there are barriers on the convergence of the IFRS and U.S. GAAP. Which of the following is not an area of conflict regarding the creation of a single coherent framework? - Valuation - Standard-setting approach - Transparency
Transparency
Rising Stars Limited (RSL) reported revenue of $3,120,000 and net income of $546,000 for the fiscal year end June 30, 2012. At June 1, 2011, RSL had 465,000 common shares outstanding and 60,000 common stock options outstanding with an exercise price of $14 each. During that fiscal year, the average market price for RSL's shares was $24 per share. RSL had no other potentially dilutive securities. If the average market price increased to $30 per share, diluted EPS would most likely: - increase. - decrease. - remain the same.
decrease
The financial report, which summarizes a company's economic resources and the claims against those resources, will most likely be used by an analyst to determine a company's financial: - position. - flexibility. - performance
position
