Test Prep FINANCIAL-ACCOUNTING-AND-REPORTING Online Practice Questions and Exam Preparation

Test Prep FINANCIAL-ACCOUNTING-AND-REPORTING Online Questions & Answers

• Question 101:

  On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before,

  and instituted new accounting policies.

  Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.

  This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial

  statements, or neither an accounting change nor an accounting error.

  Item to Be Answered

  Quo sells extended service contracts on its products. Because related services are performed over several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income from these service contracts.

  List A (Select one)

  A. Change in accounting principal.
  B. Change in accounting estimate.
  C. Correction of an error in previously presented financial statements.
  D. Neither an accounting change nor an accounting error.
  C. Correction of an error in previously presented financial statements.

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  Choice "c" is correct. Change from the cash method to the accrual method is a correction of an error in previously presented financial statements.

• Question 102:

  Which of the following statements regarding fair value is/are correct?

  I. The fair value of an asset or liability is specific to the entity making the fair value measurement.

  II. Fair value is the price to acquire an asset or assume a liability.

  III. Fair value includes transportation costs, but not transaction costs.

  IV.

  The price in the principal market for an asset or liability will be the fair value measurement.

  A. I and II
  B. I and IV
  C. II and III
  D. III and IV
  I. The fair value of an asset or liability is specific to the entity making the fair value measurement. II. Fair value is the price to acquire an asset or assume a liability. III. Fair value includes transportation costs, but not transaction costs. IV. The price in the principal market for an asset or liability will be the fair value measurement.
  D. III and IV

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  Choice "d" is correct. Statements III and IV are correct. Statement I is incorrect because fair value is a market-specific measure, not an entity-specific measure. Statement II is incorrect because fair value is an exit price (the price to sell an

  asset or transfer a liability), not an entrance price.

  Choices "a", "b" and "c" are incorrect, per the above Explanation: .

• Question 103:

  Which of the following statements best describes an operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement?

  A. The emerging issues task force must approve a discussion memorandum before it is disseminated to the public.
  B. The exposure draft is modified per public opinion before issuing the discussion memorandum.
  C. A new statement is issued only after a majority vote by the members of the FASB.
  D. A new FASB statement can be rescinded by a majority vote of the AICPA membership.
  C. A new statement is issued only after a majority vote by the members of the FASB.

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  Choice "c" is correct. A new statement from the FASB is issued only after a majority vote of the members of the FASB.

  Choice "a" is incorrect. There is no necessity for the EITF to approve a discussion memorandum

  (presumably the question means a discussion memorandum of the FASB statement itself and not an EITF statement) before it is disseminated to the public.

  Choice "b" is incorrect. There is no necessity for an exposure draft to be modified per public opinion before issuing the discussion memorandum (a question can be raised here as to "what" discussion memorandum"). Exposure drafts are

  quite/most often modified before they are issued as FASB statements, but they do not have to be. Whether they are or are not modified is a function of whether the FASB thinks they should be modified, partly due to the public comments that

  have been received.

  Choice "d" is incorrect. There is no way to rescind a new FASB statement, although, in reality, a FASB statement can be rescinded by the issuance of a new statement on the same subject. However, even if there was a way to rescind a new

  FASB statement, it would not be by a majority vote of the AICPA membership, but by a majority vote of the members of the FASB.

  Reporting Net Income

• Question 104:

  In general, an enterprise preparing interim financial statements should:

  A. Defer recognition of seasonal revenue.
  B. Disregard permanent decreases in the market value of its inventory.
  C. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.
  D. Use the same accounting principles followed in preparing its latest annual financial statements.
  D. Use the same accounting principles followed in preparing its latest annual financial statements.

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  Choice "d" is correct. Generally accepted accounting principles that were used in the most recent annual report of an enterprise should be applied to interim financial statements of the current year, unless a change in accounting principle is

  adopted in the current year.

  Choices "a", "b", and "c" are incorrect, per above.

• Question 105:

  On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before,

  and instituted new accounting policies.

  Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.

  This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial

  statements, or neither an accounting change nor an accounting error.

  Item to Be Answered

  During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.

  List A (Select one)

  A. Change in accounting principal.
  B. Change in accounting estimate.
  C. Correction of an error in previously presented financial statements.
  D. Neither an accounting change nor an accounting error.
  C. Correction of an error in previously presented financial statements.

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  Choice "c" is correct. Expensing insurance premiums when paid (rather than allocating them to the periods benefited) is a correction of an error in previously presented financial statements.

• Question 106:

  On December 2, 20X1, Flint Corp.'s board of directors voted to discontinue operations of its frozen food division and to sell the division's assets on the open market as soon as possible. The division reported net operating losses of $20,000 in December and $30,000 in January. On February 26, 20X2, sale of the division's assets resulted in a gain of $90,000. Assuming that the frozen foods division qualifies as a component of the business and ignoring income taxes, what amount of gain/loss from discontinued operations should Flint recognize in its income statement for 20X2?

  A. $0
  B. $40,000
  C. $60,000
  D. $90,000
  C. $60,000

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  Choice "c" is correct. The $60,000 gain from discontinued operations would be reported in Flint's 20X2 income statement. The operating loss for January would offset the gain from disposal in February, and the net amount would be reported

  as a gain (in this case) from discontinued operations.

  The operating losses for December would have been reported in Flint's 20X1 income statement.

  Choice "a" is incorrect per the above. It would be correct if all of the gains and losses were included in 20X1 instead of 20X2. However, gains and losses from discontinued operations are included in the year they occur.

  Choice "b" is incorrect. It includes the operating loss for December, 20X1 in with the 20X2 amounts.

  Choice "d" is incorrect. It ignores the January operating loss. Operating losses are included in gain/loss from discontinued operations, along with impairment losses and gains/losses on disposal.

• Question 107:

  According to the FASB conceptual framework, an entity's revenue may result from:

  A. A decrease in an asset from primary operations.
  B. An increase in an asset from incidental transactions.
  C. An increase in a liability from incidental transactions.
  D. A decrease in a liability from primary operations.
  D. A decrease in a liability from primary operations.

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  Rule: Revenues are inflows or other enhancements of assets and/or settlements (decreases) in liabilities resulting from the entity's ongoing major operations, not from "incidental" operations. Choice "d" is correct. An entity's revenue may result from a decrease in a liability from primary operations.

• Question 108:

  Tack, Inc. reported a retained earnings balance of $150,000 at December 31,1990. In June 1991, Tack discovered that merchandise costing $40,000 had not been included in inventory in its 1990 financial statements. Tack has a 30% tax rate. What amount should Tack report as adjusted beginning retained earnings in its statement of retained earnings at December 31, 1991?

  A. $190,000
  B. $178,000
  C. $150,000
  D. $122,000
  B. $178,000

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  Choice "b" is correct. $178,000.

• Question 109:

  On January 1, 1991, Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for five years. Brecon's 1991 multi-step income statement should include:

  A. One-fifth of the cabinet costs in cost of goods sold.
  B. One-fifth of the cabinet costs in selling, general, and administrative expenses.
  C. All of the cabinet costs in cost of goods sold.
  D. All of the cabinet costs in selling, general, and administrative expenses.
  B. One-fifth of the cabinet costs in selling, general, and administrative expenses.

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  Choice "b" is correct. One-fifth of the cabinet costs (depreciation expense) should be included in selling, general, and administrative expenses for 1991. Choice "a" is incorrect. Merchandise display cabinets in stores relate to selling activities, not to the purchase cost of goods sold. Choices "c" and "d" are incorrect. Merchandise display cabinets are fixed assets whose cost should be allocated systematically over their five-year useful life.

• Question 110:

  In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment?

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  A. Option A

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  Choice "a" is correct. A segment is considered reportable if its reported revenue, including sales to unaffiliated customers and intersegment sales, is 10% or more of the combined revenue (unaffiliated and intersegment) of all operating

  segments.

  Choices "b", "c", and "d" are incorrect, per the above Explanation.