Multiple Choice Questions

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Investors and creditors can use the information in the Income Statement to: a) b) c) d) Evaluate the past performance of the enterprise Provide a basis information for predicting future performance. Help assesses the risk or uncertainty of achieving future cash flows All of these

Expenses include all of the following except: a) b) c) d) Salaries and wages Loss on sale of investments Depreciation Cost of goods sold

In the single-step income statement a) b) c) d) Just two grouping exist – revenues and expenses Interest revenue and rental revenue are reported as other revenues and gains An income from operations figure is presented Expenses are classified by functions, such as merchandising, selling and administration

A separation of operating and nonoperating activities of company exists in: a) b) c) d) A multiple-step but not single income statement A single—step but not multiple income statement Neither a single-step nor a multiple-step income statement Both a multiple-step and single-step income statement

Irregular transactions such as discontinued operations and extraordinary items should be reported separately in: a)

A single-step income statement only b) Neither a single-step nor a multiple-step income statement c) A multiple-step income statement only d) Both single-step and multiple step income statement
All of the following would meet the criteria for an extraordinary item except gains or losses from: a)

A major casualty b) Prohibition under a newly enacted law or regulation c) An expropriation of assets d) Exchange of translation of foreign currencies
A change in the method of inventory pricing from FIFO to average cost would be accounted for as a (an): a)

Extraordinary item

b)

Change in accounting principle c) Change in estimate d) Part of discontinued operations
Intraperiod tax allocation is used for all of the following except: a) b) c) d) Discontinued operations Unusual gains/losses Changes in accounting principle Extraordinary items

Which of the following statements related to extraordinary items and intraperiod tax allocation is correct? a) b) c) d) Extraordinary gains, but no extraordinary losses, are reported net of tax Extraordinary losses, but not extraordinary gains, are reported net of tax Neither extraordinary gains or losses are reported net of tax Both extraordinary gains and losses are reported net of tax

Earnings per share are reported for: discontinued operations and extraordinary items, but not unusual gains/losses. discontinued operations. extraordinary items. unusual gains/losses.

Prior period adjustments are reported as: an addition to (or deduction from) net income in the income statement. an addition to (or a deduction from) the beginning balance of retained earnings. an addition to (or deduction from) the ending balance of retained earnings. an extraordinary item in the income statement.

Gains and losses that bypass net income but affect stockholders' equity are referred to as: comprehensive income. other comprehensive income. prior period income. unusual gains and losses.

The FASB decided that the components of other comprehensive income must be displayed:

in a second separate income statement. in a combined statement of comprehensive income. as a part of the statement of stockholders' equity. Any of these options is permissible.

U.S. GAAP allows all of the following statement formats to be used for reporting comprehensive income except:

Single Income Statement. Statement of Recognized Income and Expense. Combined Income Statement of Comprehensive Income. Statement of Stockholders' Equity.

Which of the following statements about the balance sheet is incorrect?

It helps in predicting the amounts, timing, and uncertainty of future cash flows. It is sometimes referred to as the statement of financial position. It provides information about the nature and amounts of investments in resources, obligations to creditors, and the owners' equity. It reports the assets, liabilities, and stockholders' equity of a company for a period of time.

Major limitations of the balance sheet include all of the following except:

judgments and estimates are used in determining many of the items reported. most assets and liabilities are stated at historical cost. it necessarily omits many items that are of financial value but cannot be recorded objectively. only amounts known with certainty are reported.

Current assets are presented in the balance sheet in order of:

the alphabet. solvency. dollar amounts. liquidity.

Which of the following investments should always be reported as current assets?

Trading securities. Held-to-maturity securities. Long-term investments. Available-for-sale securities.

The balance sheet format listing liabilities and stockholders' equity directly below assets is called the:

solvency form. account form. report form. financial position form.

Which of the following is not a type of information that is supplemental to amounts presented in the balance sheet?

Contractual situations. Contingencies. Accounting policies. Balance sheet format.

ompanies are not required to disclose information about:

depreciation methods.

the use of estimates. the identity of all stockholders. inventory cost flow methods.

If additional explanations cannot be conveniently shown as parenthetical explanations, the information should be disclosed by:

a contra account. cross reference. notes. supporting schedules.

The primary purpose of a statement of cash flows is to report the:

cash effects of operations during a period. investing and financing transactions. relevant information about the cash receipts and cash payments during a period. net increase or decrease in cash during the period.

Activities that involve the cash effects of transactions entering into the determination of net income are classified as:

investing activities. financing activities. noncash activities. operating activities.

The last step in preparing the statement of cash flows is to:

determine the cash provided by or used in investing and financing activities. determine the cash provided by operations.

reconcile the change in cash with the beginning and the ending cash balances. determine the change in cash during the period.

Free cash flow is calculated as net cash provided by operating activities less:

dividends. capital expenditures. capital expenditures and dividends. capital expenditures and interest.

Similarities between iGAAP and U.S. GAAP requirements for balance sheet presentation include all of the following except:

both require disclosure of significant accounting policies. both generally require the use of the current/ non-current classification for both assets and liabilities. both require the preparation of financial statements annually. both require that changes to the valuation reserve be disclosed in the notes to the financial statements Accounting topics where present value-based accounting measurements are relevant include all of the following except:

environmental liabilities. stockholders' equity. leases. long-term assets.

Which of the following is not a component of an interest rate?

Expected inflation rate. Opportunity cost rate.

Credit risk rate. Pure rate.

The table that would show the smallest value for 5 periods at 8% is the:

present value of 1 table. present value of an ordinary annuity table. future value of 1 table. present value of an annuity due table.

The amounts to which periodic rents of 1 will accumulate if the payments are invested at the end of each period are contained in the:

future value of an ordinary annuity of 1 table. future value of 1 table. present value of an ordinary annuity of 1 table. present value of an annuity due of 1 table.

The amounts that must be deposited now to permit withdrawals of 1 at the beginning of each period are contained in the:

present value of an ordinary annuity of 1 table. present value of an annuity due of 1 table. present value of 1 table. future value of an ordinary annuity of 1 table.

The process of discounting involves determining:

present value. future value. future value or present value.

the number of time periods.

In order to determine how much to deposit now to have $10,000, 5 years from now, one would use the:

present value of an ordinary annuity of 1 table. present value of an annuity due of 1 table. future value of 1 table. present value of 1 table.

In solving single-sum problems, which of the following values can be calculated?

Future value, present value, and interest rate. Future value, present value, number of periods and interest rate. Future value and present value. Number of periods and interest rate.

Which of the following statements related to an annuity is incorrect?

An annuity can be classified as an ordinary annuity or an annuity due. The interval between payments must always be the same. The interest must be compounded annually. The periodic payments must always be the same amount.

When the future value of an ordinary annuity is computed, the number of compounding periods will always be:

less than the number of rents. equal to the number of rents. greater than the number of rents. less than or equal to the number of rents.

The future value of an annuity due will always be:

greater than the future value of an ordinary annuity. equal to the future value of an ordinary annuity. greater than or equal to the future value of an ordinary annuity. less than the future value of an ordinary annuity.

When the present value of an ordinary annuity is computed, the number of discount periods will always be:

greater than the number of rents. equal to the number of rents. less than the number of rents. less than or equal to the number of rents.

Kingston Company, a company who maintains its accounting records using iGAAP, manufactures equipment. Kingston sells a $75,000 order to Townson Industries in exchange for a zero interestbearing note due from the customer in two years. Since there is no stated interest rate on the note, the controller uses the current market rate of 8% to derive the present value factor. Based on this information and the incorporation of the time value of money, which of the following would be recorded by Kingston to recognize this sale?

A credit to Sales for $75,000. A debit to Notes Receivable for $64,301. A credit to Discount on Notes Receivable for $10,699. A debit to Discount on Notes Receivable for $6,000.

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