Quiz
C249 - Int. Accounting II
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Questions in this quiz (80)
1What are two descriptions of preemptive stock rights?
- AA privilege often referred to as a warrant
- BA means of protecting stockholders from involuntary dilution of ownership
- CA class of corporate ownership interest that has the highest levels of risk and reward
- DA class of corporate ownership interest in which some rights are exchanged for other rights or privileges
2A corporation issues 1,000 shares of $10 par value common stock for $12,000. Paid issuance costs are $500. How should the issuance be accounted for?
- ADebit cash $12,000; credit common stock $10,000; credit additional paid-in capital $2,000
- BDebit cash $12,000; debit additional paid-in capital $500; credit common stock $11,500
- CDebit cash $12,000; debit operating expenses $500; credit common stock $11,500
- DDebit cash $12,000; credit common stock $9,500; credit additional paid-in capital $2,500
3Why would a corporation reacquire stock by using the cost method rather than the par value method?
- ATo make the stock available for future re-issue
- BTo evaluate the stock’s actual market value
- CTo permanently retire the stock
- DTo eliminate competition in the marketplace
4A company uses the cost method of accounting for treasury stock. On January 1, the company repurchases 1,000 shares of stock at $10 per share. On December 31, the company sells the repurchased shares back to its stockholders for $15 per share. The cash account is debited for the transaction. Which two credits should be recorded?
- ATreasury stock for $10,000
- BPaid-in capital from treasury stock for $5,000
- CGain on sale of treasury stock for $15,000
- DGain on sale of treasury stock for $5,000
- EPaid-in capital from treasury stock for $15,000
5What is a stockholder benefit of preferred stock?
- AManagement control through voting rights
- BBasic ownership interest
- CPreferential payment of dividends
- DGuaranteed payment of dividends
6A corporation distributes its ownership stake in a subsidiary corporation to its shareholders through a property dividend payment. The subsidiary ownership stake represents 200,000 shares, has a market value of $450,000, and has a carry value of $325,000. How should this dividend distribution be recorded?
- ADebit retained earnings for $325,000.
- BDebit retained earnings for $450,000.
- CCredit investments for $325,000.
- DCredit investments for $450,000.
7 Match each International Financial Reporting Standards (IFRS) element to its equivalent generally accepted accounting principles (GAAP) element.
Answer options may be used more than once or not at all.
Share Capital—Ordinary [blank_start]Common Stock[blank_end]
Share Premium Additional [blank_start]Paid-In Capital[blank_end]
Statement of Changes in Equity [blank_start]Statement of Stockholders' Equity[blank_end]
Preference Shares [blank_start]Preferred Stock[blank_end]- ACommon Stock
- BPaid-In Capital
- CStatement of Stockholders' Equity
- DPreferred Stock
8A company issues 1,000 shares of preferred stock at face value. The preferred stock shares have a par value of $2 per share and are convertible into 1,000 shares of common stock with a par value of $5 per share. What is the effect on the retained earnings of this company if the preferred stock holders convert these shares?
- AA decrease of $3,000
- BAn increase of $3,000
- CA decrease of $5,000
- DAn increase of $5,000
9A company issues 1,000 bonds, each with a face value of $1,000, for $1.1 million. Each bond has a detachable warrant that allows the holder to purchase common stock for $20 per share. The market value of the bonds without the warrants is $950,000. The fair market value of the warrants is $50,000. How much should the company record as the value of the warrants?
- A$20,000
- B$50,000
- C$55,000
- D$100,000
10A company compensates a senior executive with 1,000 stock options. The options have a value of $3 each and enable the executive to purchase shares of $2 par value common stock at $30 each. The following year, the executive exercises 500 of the options. Which journal entry correctly records the exercise of these options?
- ADebit cash $15,000; debit paid-in capital – stock options $1,500; credit common stock $1,000; credit paid-in capital in excess of par $15,500
- BDebit cash $30,000; debit paid-in capital – stock options $3,000; credit common stock $2,000; credit paid-in capital in excess of par $31,000
- CDebit compensation expense $15,000; credit paid-in capital – stock options $15,000
- DDebit compensation expense $30,000; credit paid-in capital – stock options $30,000
11On January 1, a company has 700,000 shares of issued and outstanding common stock. On March 1, the company repurchases 60,000 shares. On June 1, it effects a 2-for-1 stock split. On November 1, it issues 240,000 shares. The company has a net income for the year of $2,720,000. What is the basic earnings per share of common stock for the year (rounded to the nearest cent)?
- A$1.79
- B$2.03
- C$3.89
- D$4.06
12On January 1, a company establishes an executive compensation plan that includes a stock-appreciation rights (SARs) plan consisting of 200,000 SARs. The plan allows executives to receive cash payouts of the difference between the current market price at the time of exercise and an exercise price of $30, any time in the next two years. On January 1, the market price of the company’s stock is $42, and on December 31, of the same year the market price is $47. The company uses the percentage approach for recording compensation expense. What compensation expense should be recorded for the year?
- A$1,200,000
- B$1,7000,000
- C$2,400,000
- D$3,400,000
13How are changes in the fair value of share options recorded under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?
- AIncreases and decreases in fair value are recorded under both GAAP and IFRS.
- BDecreases in fair value are recorded under both GAAP and IFRS, but only GAAP permits increases.
- CDecreases in fair value are recorded under both GAAP and IFRS, but only IFRS permits increases.
- DIncreases in fair value are recorded under both GAAP and IFRS, but only GAAP permits reductions.
14On January 1, 2014, Corporation A purchases bonds in Corporation B. The bonds have a par value of $50,000 and a stated interest rate of 6%, with annual interest payments on December 31 and a maturity date of December 31, 2023. Corporation A purchases the bonds for $43,290 to yield 8% interest, and holds the bonds in its trading account.
On December 31, 2014, the fair value of the bonds is $45,000. When the bond market opens on January 2, 2015, Corporation B sells the bonds for an amount intended to achieve a 7% yield for Corporation A. Disregarding accrued interest, what gain (rounded to whole dollars) should Corporation A recognize on the bonds in 2015?- A$1,742
- B$2,014
- C$2,989
- D$3,452
15Company A has 3,000 common shares issued and outstanding. On June 1, Company B purchases 1,000 common shares of Company A for $12,000. Company B records the purchase in its available-for-sale account. On December 31, Company A reports a net income of $1 per share and pays a dividend of $0.25 per share. The shares have a fair market value of $10 per share. Which journal entries should Company B record on December 31?
- ADebit cash $250; debit unrealized holding gain or loss-equity $2,000; credit equity investments $250; credit fair value adjustment (available-for-sale) $2,000
Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit dividend revenue $250; credit fair value adjustment (available-for-sale) $2,000
Debit cash $250; debit equity investments $1,000; credit dividend revenue $250; credit investment income $1,000
Debit cash $250; debit equity investments $1,000; credit equity investments $250; credit investment income $1,000 - BDebit cash $250; debit unrealized holding gain or loss-equity $2,000; credit dividend revenue $250; credit fair value adjustment (available-for-sale) $2,000
- CDebit cash $250; debit equity investments $1,000; credit dividend revenue $250; credit investment income $1,000
- DDebit cash $250; debit equity investments $1,000; credit equity investments $250; credit investment income $1,000
- ADebit cash $250; debit unrealized holding gain or loss-equity $2,000; credit equity investments $250; credit fair value adjustment (available-for-sale) $2,000
16Which two circumstances represent the significant influence of an investor over an investee that requires use of the equity method of accounting for an equity investment rather than the fair value method? Choose 2 answers
- AOwnership of 15% of the investee’s voting stock
- BInterchange of managers between investor and investee companies
- CPurchase of the majority of the investee’s products or services
- DClassification of the investment as available-for-sale
17A company has a 30% stake in another company. The investment is on the company’s books for $560,000. At the end of the current fiscal year, the investment has a fair value of $510,000. Which method should this company use to adjust the book value?
- AEquity method
- BBook value method
- CFair value method
- DCurrent method
18How should a company account for transfers of investment securities between categories?
- AWhen transferring available-for-sale securities to held-to-maturity investments, record the investments on the transfer date at historical cost.
- BWhen transferring held-to-maturity investments to available-for-sale securities, record any gain or loss on the income statement.
- CWhen transferring held-to-maturity investments to available-for-sale securities, record any unrealized gain or loss in stockholders’ equity.
- DWhen transferring available-for-sale securities to held-to-maturity investments, record the investments on the future sale date at fair value.
19Which derivative instrument protects an investment against a price decrease and preserves its ability to appreciate in value if the price increases?
- ASwap
- BPut Option
- CCall Option
- DForward Contract
20An oil refinery plans to purchase raw materials on March 1. On December 1 of the preceding year, the refinery considers locking in the current market price for the purchase of one million barrels of oil. The spot price for a barrel of oil is $100. The refinery purchases 1,000 futures contracts for 1,000 barrels per contract at a price of $100 per barrel as a cash flow hedge. On December 31, the price of oil rises to $108 per barrel. How should the company record this change in the value of the futures contracts on December 31?
- ADebit cash; credit futures contracts
- BDebit cash; credit gain on futures contracts
- CDebit futures contracts; credit unrealized holding gain or loss - equity
- DDebit futures contracts; credit unrealized holding gain or loss - income
21What are two conditions that must be met to qualify a financial instrument for hedge accounting? Choose 2 answers
- AThe company documents the hedging relationship, including identification of the hedged transaction or item.
- BThe financial instrument meets the definition of a derivative, and the underlying security is documented.
- CThe company evaluates the hedging relationship at inception and on an ongoing basis and finds it to be highly effective.
- DThe hedging instrument is shown to produce either a gain or an immaterial loss.
22Which party must consolidate its financial statements to include a variable interest entity?
- AThe party that is exposed to the majority risks and rewards of the variable interest entity
- BThe party that holds more voting rights by stock ownership of the variable interest entity
- CThe party that controls a majority of the managerial positions of the variable interest entity
- DThe party that exerts control by performing day-to-day operations of the variable interest entity
23Which fair value disclosure is true for impaired, long-lived assets that are held and used?
- ASignificant, observable inputs other than quoted prices are considered Level 1 measurements.
- BImpairment charges resulting from write-down to fair value are included in earnings for the period.
- CFully depreciated fixed assets should be evaluated to determine disclosure as an impaired asset.
- DQuoted prices in active markets for identical assets are considered Level 3 measurements.
24In which situation should gains or losses be charged to other comprehensive income?
- AUnder generally accepted accounting principles (GAAP), when changes in value on derivatives are used as cash flow hedges
- BUnder International Financial Reporting Standards (IFRS), when changes in value on derivatives are used as cash flow hedges
- CUnder generally accepted accounting principles (GAAP), when changes in value on derivatives are classified as trading
- DUnder International Financial Reporting Standards (IFRS), when changes in value on derivatives are classified as trading
25What is a difference between the recognition of revenue and the recognition of gain?
- ARevenue must be recognized immediately; gains can be recognized at any time.
- BRevenue results from ordinary operations; gains occur outside of ordinary operations.
- CRevenue results from selling products; gains result from permitting others to use enterprise assets.
- DRevenue results from the provision of services; gains result from the sale of inventory.
26Company A sells $100,000 of its product to Company B and transfers all risks of ownership. Company A records the following journal entry for the transaction:
Debit accounts receivable: $100,000
Credit sales revenue: $100,000
Later in the same accounting period, Company B returns $10,000 of the equipment to Company A for credit. Which journal entry should Company A record for the returned equipment?- ADebit inventory $10,000; credit accounts receivable $10,000
- BDebit sales revenue $10,000; credit accounts receivable $10,000
- CDebit sales returns and allowances $10,000; credit accounts receivable $10,000
- DDebit sales revenue $10,00; credit cost of goods sold $10,000
27A company uses the completed-contract method of accounting for long-term contracts. The company completes all deliverables for a two-year contract. The contract generates a total revenue of $500,000 and a gross profit of $50,000. How much revenue should the company recognize in the current reporting period?
- A$500,000
- B$450,000
- C$250,000
- D$50,000
28A company uses the percentage-of-completion method of accounting for long-term contracts. When should the company recognize losses on an unprofitable contract?
- AWhen the contract is completed
- BAmortized over the life of the contract
- CWhen a loss is first incurred
- DWhen the loss amount is estimated
29A company repossesses goods that it sold to another company under an installment sales contract. The contract has an outstanding receivables balance of $15,000 and a deferred gross profit of $4,000. The fair value of the repossessed goods is $8,000. Which journal entry should the company record for the repossession?
- ADebit repossessed merchandise $8,000; debit loss on repossession $7,000; credit accounts receivable $15,000
- BDebit repossessed merchandise $15,000; debit deferred gross profit $4,000; credit accounts receivable 15,000; credit gain on repossession $4,000
- CDebit deferred gross profit $4,000; debit repossessed merchandise $11,000; credit accounts receivable $15,000
- DDebit deferred gross profit $4,000; debit repossessed merchandise $8,000; debit loss on repossession $3,000; credit accounts receivable $15,000
30How is revenue recognized under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?
- ABoth GAAP and IFRS define revenue as including income and gains.
- BUnder GAAP, revenue recognition is principle-based; under IFRS, it is rules-based.
- CGAAP uses concepts such as realizable revenue and earned revenue; IFRS bases revenue on the probability of economic benefits.
- DGAAP has only one standard for revenue recognition; IFRS has multiple standards.
31 What is one way that a temporary difference between taxable income and financial income can become a deferred tax asset or liability?
- AExpenses or losses are deductible before they are recognized in financial income, resulting in deferred tax asset.
- BExpenses or losses are deductible before they are recognized in financial income, resulting in deferred tax liability.
- CRevenues or gains are taxable after they are recognized in financial income, resulting in deferred tax asset.
- DRevenues or gains are taxable before they are recognized in financial income, resulting in deferred tax liability.
32A company has a deductible temporary difference of $5 million. The tax rate is 40%. The company determines that it is unlikely to realize $500,000 of that amount. Which journal entry correctly records this adjustment?
- ADebit income tax expense $500,000; credit allowance to reduce deferred tax asset to expected realizable value $500,000
- BDebit income tax expense $1,500,000; credit allowance to reduce deferred tax asset to expected realizable value $1,500,000
- CDebit income tax expense $1,500,000; credit deferred tax asset $1,500,000
- DDebit loss on unrealizable deferred tax asset $500,000; credit deferred tax asset $500,000
33What is a permanent difference between financial reporting income and taxable income?
- AStock-based compensation expense
- BDepletion of natural resources beyond historical cost
- CAccrued expense pending outcome of civil litigation
- DDepreciation using sum-of-the-years'-digits method
34Which tax rate applies when calculating a deferred income tax asset or liability?
- AThe average tax rate for periods with deferred tax balances
- BThe effective tax rate enacted for the applicable future period
- CThe marginal tax rate for the applicable future period
- DThe estimated average tax rate over the period of deferral
35A company reports the income and taxes shown in the following table.
Taxable income Tax rate Tax paid
or (loss)
Year 1 $5,000 30% $1,500
Year 2 $30,000 35% $10,500
Year 3 $40,000 40% $16,000
Year 4 ($50,000)
The company chooses to carry back the Year 4 tax loss. How much should this company claim as a tax refund for Year 3?- A$6,500
- B$8,000
- C$16,000
- D$20,000
36To which categories should companies allocate income tax expense on income statements?
- AContinuing operations, discontinued operations, extraordinary items, and prior period adjustments
- BContinuing operations, discontinued operations, profitable operations, and unprofitable operations
- CCurrent operations, extraordinary items, long term operations, and prior period adjustments
- DExtraordinary items, prior period adjustments, profitable operations, and unprofitable operations
37Which accounting entry implements a principle of the asset-liability method of income tax accounting?
- ARecognizing a contra expense account for future tax benefits attributable to a carryforward
- BRecognizing a short-term capital gain for refunds on the current year's tax return
- CRecognizing a current tax liability for taxes payable on the current year's tax return
- DRecognizing a current tax liability for expected future tax benefits
38The following table illustrates the differences between a company’s contract revenue and recognized revenue for a four-year contract.
Contract revenue source Year 1 Year 2 Year 3 Year 4
Financial statements $40,000 $0 $0 $0
Tax return $10,000 $10,000 $10,000 $10,000
Assume tax rates of 40% in Year 1 and 50% in all other years.
How much deferred income tax liability should the company recognize at the end of Year 1? 50% * $10,000 * 3 years- A$12,000
- B$15,000
- C$16,000
- D$20,000
39Which classification of deferred taxes imposed by International Financial Reporting Standards (IFRS) further restricts the classification used by generally accepted accounting principles (GAAP)?
- ANoncurrent asset or liability
- BStockholders’ equity
- CCurrent asset or liability
- DTax expense
40When should a company report a pension liability?
- AWhen the projected obligation is greater than the fair value of the plan assets
- BWhen the pension expense is less than the funding level
- CWhen the projected obligation is less than the fair value of the plan assets
- DWhen the pension expense is greater than the funding level
41Which type of pension plan guarantees the benefits that employees will receive?
- AA defined contribution plan
- BA defined benefit plan
- CA contributory plan
- DA noncontributory plan
42Which measurement of a pension obligation is computed by using vested and non-vested benefits at current salary levels?
- AVested benefit obligation
- BProjected benefit obligation
- CAccumulated benefit obligation
- DNon-vested benefit obligation
43Which calculation determines the actual return on the plan assets component of the pension expense?
- A(ending balance – beginning balance) × net present cash value
- B(ending balance – beginning balance) × settlement interest rate
- C(ending balance – beginning balance) + (current investment income – contributions)
- D(ending balance – beginning balance) – (contributions – benefits paid)
44A company has an unexpected gain of $1,000 on pension plan assets. Which journal entry should the company use to account for the gain?
- ACredit gain on pension assets; debit pension expense
- BDebit other comprehensive income; credit pension expense
- CCredit other comprehensive income; debit pension expense
- DDebit pension expense; credit gain on pension assets
45A company determines that its pension benefit obligation for the period is overfunded. How should the company report this overfunding on the financial statements?
- AAs a current liability
- BAs a noncurrent asset
- CAs a current asset
- DAs a noncurrent liability
46How does the accounting for postretirement healthcare benefits differ from accounting for pensions?
- AHealthcare benefits are generally funded future liabilities; pension benefits are generally not funded.
- BHealthcare benefits are paid monthly; pensions are paid as used.
- CHealthcare benefit obligations are generally uncapped; pensions are a well-defined obligation.
- DHealthcare benefits are reasonably predictable; pensions vary over geography and time.
47How do generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) differ regarding the recognition of pension liability and asset gains and losses?
- AUnder IFRS, they are recognized directly to income.
- BUnder GAAP, they remain in other comprehensive income.
- CUnder GAAP, they are amortized over their remaining service lives by using the corridor approach, from accumulated other comprehensive income into income.
- DUnder IFRS, they are amortized over their remaining service lives by using the corridor approach, from other comprehensive income or equity into income.
48 A company leases equipment from another company. The lease meets the criteria for a capital lease. The lease terms are as follows:
• Term: 5 years
• Annual lease payment: $14,980
• Total minimum lease payments: $74,900
• Present value of minimum lease payments: $62,465
• Fair market value of equipment: $80,000
• Incremental borrowing rate: 10%
Which journal entry is required by the lessee to establish the lease as a capital lease?- ADebit leased equipment $80,000; credit lease liability $80,000
- BDebit leased equipment $62,465; credit lease liability $62,465
- CDebit leased equipment $80,000; credit lease liability $74,900; credit interest payable $5,100
- DDebit leased equipment $74,900; credit lease liability $62,465; credit interest payable $12,435
49A company leases equipment from another company through an operating lease. The lease terms are as follows:
• Term: 5 years
• Annual lease payment: $14,980
• Fair market value of equipment: $80,000
• Incremental borrowing rate: 10%
Which journal entry should the lessee record for its first lease payment?- ADebit lease liability $14,980; debit interest payment $ 8,000; credit cash $22,980
- BDebit rent expense $14,980; credit cash $14,980
- CDebit lease liability $14,980; credit cash $14,980
- DDebit leased equipment $14,980; credit accumulated depreciation $14,980
50From a lessor’s perspective, what is the difference between a direct-financing lease and a sales-type lease?
- AA direct-financing lease is for a shorter period than a sales-type lease.
- BA direct-financing lease involves a dealer’s profit; a sales-type lease does not.
- CA sales-type lease is for a shorter period than a direct-financing lease.
- DA sales-type lease involves a dealer’s profit; a direct-financing lease does not.
51A leasing company enters into a direct-financing lease agreement that includes a guaranteed residual value. The lease terms are as follows:
• Fair value of leased equipment: $80,000
• Cost of equipment to lessor: $75,000
• Present guaranteed residual value: $2,150
Which basis should the lessor use to calculate the required periodic lease payment?- A$72,850
- B$75,000
- C$77,850
- D$80,000
52Which lease element should increase the present value of the lessee’s total minimum lease payments?
- AGuaranteed residual value
- BLessor’s internal direct costs
- CUnguaranteed residual value
- DLessor’s internal indirect costs
53What does the guaranteed residual value of an asset represent?
- AThe fair market value of the asset at the end of the lease
- BThe book value of the asset at the end of the lease
- CAn amount determined at the beginning of the lease that will be due to the lessor at the end of the lease
- DAn amount determined at the end of the lease to be due to the lessor
54Which lease obligation disclosures are required in the financial statements?
- ASpecific and separate descriptions of the nature of each individual leasing arrangement
- BDescriptions and amounts of leased assets by major balance sheet classification and related liabilities
- CThe names and addresses of individual lessors for whom a current lease exists
- DThe amount of equity included in all leased assets under current lease agreements
55Which criteria must be met for a sale-leaseback to be considered a minor leaseback?
- AThe present value of the rental payments are 10% or less of the fair value of the asset.
- BThe lease term is less than 10% of the useful life of the asset.
- CThe lease includes a bargain-purchase option.
- DThe book value of the asset is less than the present value of the rental payments.
56How does lease accounting under generally accepted accounting principles (GAAP) differ from lease accounting under International Financial Reporting Standards (IFRS)?
- AGAAP uses additional criteria for the lessor such as collectability of payments and additional cost.
- BGAAP requires the lessee to record the lease at the higher of the implicit rate and the incremental rate.
- CGAAP requires that the total net present value of lease payments be disclosed for future years.
- DGAAP is more general in its approach to determining whether a lease arrangement transfers reward of ownership.
57Which type of accounting change results when the life of a fixed asset is extended?
- APrinciple
- BEstimate
- CEntity
- DBasis
58Which accounting decision should be reported as a change in accounting principle?
- ADeferring marketing costs that were previously expensed but are now material
- BAdopting the percentage-of-completion method of recognizing the revenue of newly acquired contracts
- CChanging from the average cost method of inventory valuation to the first-in, first-out (FIFO) method of inventory valuation
- DChanging the method used to determine the salvage values of fixed assets for the purpose of reporting depreciation expense
59A company uses straight-line depreciation. On January 1, the company purchases fixed assets that cost $50,000. At the time of purchase, the company estimates that the assets have a useful life of 10 years. During the third year of owning the assets, the company changes its estimate of the useful life of the assets to 15 years.
How much depreciation has accumulated at the end of the fourth year of owning the assets?- A$10,667
- B$12,266
- C$13,333
- D$16,154
60Which information should a company disclose when a reporting entity changes?
- AThe effect of the change on cash flows for all reported years
- BThe effect of the change on net income for current and subsequent years
- CThe effect of the change on income tax payable for the current year
- DThe effect of the change on earnings per share for the current year
61A company discovers that it did not record a rent payment it made last year. This error results in an overstatement of last year’s net income in the company’s financial statements. Which account should the company debit to account for the impact of this error on net income?
- ANet income
- BRent expense
- CCurrent liabilities
- DRetained earnings
62International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) provide guidance for reporting accounting changes and errors. Which guideline applies only under International Financial Reporting Standards (IFRS)?
- AThe impracticality exception applies to the correction of errors.
- BThe impracticality exception applies to changes in accounting principles.
- CCompanies must report direct effects of accounting policy changes retrospectively.
- DCompanies must report indirect effects of accounting policy changes in the current period.
63Which section of the statement of cash flows displays the cash generated from normal day-to-day business activities?
- ACurrent cash flows
- BOperating cash flows
- CInvesting cash flows
- DFinancing cash flows
64Which transactions are reported in the investing section of a cash flow statement?
- ARevenues and expenses
- BPurchases and sales of long-term assets
- CLoan payments
- DPurchases and sales of current assets
65A company has an inventory value that is greater at the end of the year than it was at the beginning of the year. What is the effect on the company’s indirect cash flow statement?
- ACash from operations increases compared to net income.
- BCash from operations decreases compared to net income.
- CCash from operations is equal to net income.
- DCash from operations is equal to the change in inventory value.
66Which adjustments are required as a result of a decrease in accounts receivable during the accounting period, under the direct and indirect methods of calculating the cash flow from operations?
- AAn increase under the direct method, and a decrease under the indirect method
- BAn increase under the direct method, and an increase under the indirect method
- CA decrease under the direct method, and an increase under the indirect method
- DA decrease under the direct method, and a decrease under the indirect method
67Which account provides the information for calculating net cash flow from operating activities?
- ACommon stock
- BDepreciation
- CWages
- DSales
68In its second year of business, a company has a net income of $120,000. The following table provides year-end account information.
Account Year 1 Year 2
Accounts payable $5,000 $4,000
Accumulated depreciation $65,000 $85,000
Prepaid expenses $20,000 $15,000
Fixed assets $250,000 $255,000
The company uses the indirect method to prepare a statement of cash flows for Year 2. How much should the company report as net cash provided by operating activities?- A$91,000
- B$96,000
- C$119,000
- D$124,000
69How does the reporting of taxes, interest, and dividends on the statement of cash flows differ under generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS)?
- AIFRS offers multiple options; GAAP dictates that taxes and interest must be reported as operating activities and dividends must be reported as financing activities.
- BIFRS offers multiple options; GAAP dictates that interest and dividends must be reported as financing activities and taxes must be reported as operating activities.
- CGAAP offers multiple options; IFRS dictates that taxes and interest must be reported as operating activities and dividends must be reported as financing activities.
- DGAAP offers multiple options; IFRS dictates that interest and dividends must be reported as financing activities and taxes must be reported as operating activities.
70A creditor is reviewing a company’s financial statements.
Which ratio provides the information necessary for the creditor to assess the company’s ability to meet its current obligations?- ALiquidity ratio
- BActivity ratio
- CProfitability ratio
- DCoverage
71What is a key difference between financial forecasts and financial projections?
- AForecasts provide expected results; projections provide possible results.
- BForecasts provide possible results; projections provide expected results.
- CForecasts are created by external analysts; projections are created by company management.
- DForecasts are created by company management; projections are created by external analysts.
72 On December 31 of Year 1, a company reports accounts receivable of $110,000. During Year 2, the company has net credit sales of $1 million. On December 31 of Year 2, the company reports accounts receivable of $140,000.
What is this company’s accounts receivable turnover ratio for Year 2?- A7.14
- B8.00
- C8.33
- D9.09
73 A company reports the following financial information:
Year 1 Year 2 Difference
Sales $20,000 $25,000 $5,000
Expenses $10,000 $12,000 $2,000
Profit $10,000 $13,000 $3,000
Which analysis technique determines that sales have increased by 25% by dividing the sales difference by the Year 1 sales?- AHorizontal analysis
- BVertical analysis
- CPercentage analysis
- DRatio analysis
74What are two potential disadvantages of full disclosure? Choose 2 options
- AIncreased costs of accounting personnel and task management
- BReduced discretion by management regarding disclosed material
- CToo much information for financial statement readers to absorb
- DGreater potential for accounting errors
75Which information does the Financial Accounting Standards Board (FASB) require a company to disclose about each of its operating segments?
- ARevenues from transactions with other operating segments if the revenue is included in calculations of the operating segment’s profit or loss
- BThe allocation of joint, common, and company-wide costs incurred for the benefit of more than one operating segment
- CAll depreciation, depletion, and amortization expenses
- DRevenue per customer for each customer from which 5% or more of the total company revenue is derived
76Which inventory information should a company disclose in the notes to the financial statements?
- ACash flows generated by reductions in inventory
- BMost profitable and least profitable inventory items
- CPledges of inventory as collateral
- DRecent purchases and sales of inventory items
77How should interim reports account for costs that are uncertain until year-end?
- AIgnore the costs for the interim periods.
- BInclude the budgeted amounts until the final amounts are known.
- CEstimate the costs and their allocation to interim periods.
- DExpense the costs in the current interim period.
78An auditor’s opinion contains an exception that does not invalidate the overall financial statements. Which type of opinion should this auditor issue?
- AUnqualified
- BQualified
- CAdverse
- DException
79Who is ultimately responsible for the financial statements of a company?
- AIndependent auditor
- BInternal auditor
- CCorporate accounting department
- DCorporate management
80 How often are interim reports usually provided under generally accepted accounting principles (GAAP) and under International Financial Reporting Standards (IFRS)?
- AEvery three months under GAAP; every four months under IFRS
- BEvery three months under GAAP; every six months under IFRS
- CEvery four months under GAAP; every three months under IFRS
- DEvery six months under GAAP; every three months under IFRS
Information
- Description
- WGU C249 - Intermediate Accounting II
- Author
- Valerie Tyson
- Language
- English
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