Question 1

Which statement is correct about expenses in the income statement?

Accepted Answer

A) Some function of expense categories are depreciation or employee costs. 
B) Expenses can be classified in any manner under IFRS. 
C) The function of expense format classifies expenses based on their use. 
D) Expenses should be classified based on their materiality. 
A) Some function of expense categories are depreciation or employee costs. 
B) Expenses can be classified in any manner under IFRS. 
C) The function of expense format classifies expenses based on their use. 
D) Expenses should be classified based on their materiality.

Question 2

What is classified as a "current" liability?

Accepted Answer

A) An obligation where the lender has waived the company's covenant violations before the balance sheet date. 
B) An obligation where the company has breached its covenant violations. 
C) An obligation not expected to be settled within the ordinary operating cycle of the business. 
D) An obligation where the lender has waived the company's covenant violations before the balance sheet date, and an obligation where the company has breached its covenant violations. 
A) An obligation where the lender has waived the company's covenant violations before the balance sheet date. 
B) An obligation where the company has breached its covenant violations. 
C) An obligation not expected to be settled within the ordinary operating cycle of the business. 
D) An obligation where the lender has waived the company's covenant violations before the balance sheet date, and an obligation where the company has breached its covenant violations.

Question 3

Changes in accounting estimates are based on

Accepted Answer

A) new information that has now become available. 
B) management bias. 
C) information available from the use of hindsight. 
D) comparable industry practice. 
A) new information that has now become available. 
B) management bias. 
C) information available from the use of hindsight. 
D) comparable industry practice.

Question 4

What is meant by "earnings quality"?

Accepted Answer

A) A measure of how closely expense accruals correspond to actual expenses without management bias. 
B) A measure to determine management bias by comparing actual reported profits with "true" earnings. 
C) A measure to determine management bias by comparing reported income to actual cash flows. 
D) A measure of how closely earnings correspond to earnings reported without management bias. 
A) A measure of how closely expense accruals correspond to actual expenses without management bias. 
B) A measure to determine management bias by comparing actual reported profits with "true" earnings. 
C) A measure to determine management bias by comparing reported income to actual cash flows. 
D) A measure of how closely earnings correspond to earnings reported without management bias.

Question 5

The Rihanna Company owns 1,000 shares in Abhay Corp, a public company listed on the stock exchange. The share price was as follows: - At date of purchase, July 2, 2012 = $100/share
- At year end, June 30, 2013 = $100/share
- At start of next fiscal year, July 1, 2013 = $95/share
- At date financial statements authorized for issue, September 1, 2013 = $90/share
Materiality for the Rhianna's financial statements is $500,000. What is the appropriate treatment of the subsequent event in the June 30, 2013 financial statements?

Accepted Answer

A) Adjustment in the financial statement for the decline in value of $10,000. 
B) No adjustment is needed for the subsequent decline in share price to $90/share. 
C) Note disclosure in the financial statements for the decline in value of $5,000. 
D) Both an adjustment and note disclosure in the financial statements for the decline to $90/share. 
A) Adjustment in the financial statement for the decline in value of $10,000. 
B) No adjustment is needed for the subsequent decline in share price to $90/share. 
C) Note disclosure in the financial statements for the decline in value of $5,000. 
D) Both an adjustment and note disclosure in the financial statements for the decline to $90/share.

Question 6

Lee Limited began operations on January 1, 2010. The following data relate to the company's first 2 years in business:   What is the correct cost of goods sold amount for 2011?

Accepted Answer

A) $400,000 
B) $405,000 
C) $450,000 
D) $460,000 
A) $400,000 
B) $405,000 
C) $450,000 
D) $460,000

Question 7

Which statement is correct?

Accepted Answer

A) Accounting policy changes should reflect changes in economic circumstances. 
B) Accounting errors are corrected prospectively in the financial statements. 
C) Changes in accounting estimates are corrected retrospectively in the statements. 
D) Correction of accounting errors proves that management bias exists in reporting. 
A) Accounting policy changes should reflect changes in economic circumstances. 
B) Accounting errors are corrected prospectively in the financial statements. 
C) Changes in accounting estimates are corrected retrospectively in the statements. 
D) Correction of accounting errors proves that management bias exists in reporting.

Question 8

Correction of an error is based on

Accepted Answer

A) new information that has now become available. 
B) information available at the time of preparing the financial statements. 
C) the use of hindsight. 
D) comparable industry practice. 
A) new information that has now become available. 
B) information available at the time of preparing the financial statements. 
C) the use of hindsight. 
D) comparable industry practice.

Question 9

Mandel Corp. repaid a bank loan for $980,000. What effect does this transaction have on these accounts?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 10

Explain why estimates are necessary in accrual accounting and why a "true" measure of income cannot be provided.

Accepted Answer

•Since accrual accounting includes infor

Question 11

The following event occurred after the company's year-end but before the completion of the audit. For this subsequent event, determine whether the event:
•requires an adjustment to the year-end financial statements,
•requires note disclosure, or
•requires neither adjustment to recognized amounts nor disclosure.
New technology makes a major capital asset redundant or causes it to lose significant fair market and salvage value. (Justify your recommendation).

Accepted Answer

Due to the new technology, the assumptio

Question 12

Mandel Corp. retired bonds payable with a carrying value of $980,000. What effect does this transaction have on these accounts?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 13

What is an "operating" cycle?

Accepted Answer

A) A cycle of transactions that converts cash inflows to cash outflows, or vice versa. 
B) A cycle where there is receipt of funding from investors, those funds are used to generate returns from investments and operations, and then the funds are returned to investors. 
C) A cycle where a property is purchased that has long-term future benefits for the enterprise, which ultimately results in cash inflows, and then the property is disposed of. 
D) A cycle that involves the purchase of items such as inventory; production, sales, delivery of goods or provision of services; and receipts from customers. 
A) A cycle of transactions that converts cash inflows to cash outflows, or vice versa. 
B) A cycle where there is receipt of funding from investors, those funds are used to generate returns from investments and operations, and then the funds are returned to investors. 
C) A cycle where a property is purchased that has long-term future benefits for the enterprise, which ultimately results in cash inflows, and then the property is disposed of. 
D) A cycle that involves the purchase of items such as inventory; production, sales, delivery of goods or provision of services; and receipts from customers.

Question 14

Which statement is correct?

Accepted Answer

A) Lower amounts of excessive accruals results in higher earnings quality. 
B) Excessive accruals are directly observable in financial reporting. 
C) It is easy to determine the contractual incentives causing excessive accruals. 
D) Excessive accruals improve the comparability of financial reporting. 
A) Lower amounts of excessive accruals results in higher earnings quality. 
B) Excessive accruals are directly observable in financial reporting. 
C) It is easy to determine the contractual incentives causing excessive accruals. 
D) Excessive accruals improve the comparability of financial reporting.

Question 15

Changes in accounting estimates are based on

Accepted Answer

A) information available from the use of hindsight. 
B) information available at the time financial statements are prepared. 
C) providing comparable information in the financial statements. 
D) low quality of professional judgment being exercised. 
A) information available from the use of hindsight. 
B) information available at the time financial statements are prepared. 
C) providing comparable information in the financial statements. 
D) low quality of professional judgment being exercised.

Question 16

Dexter Corp. received cash for a service that is to be performed in the next accounting period. How should this transaction be accounted for?

Accepted Answer

A) As accrued revenue. 
B) As an expense. 
C) As a prepaid expense. 
D) As a liability. 
A) As accrued revenue. 
B) As an expense. 
C) As a prepaid expense. 
D) As a liability.

Question 17

Information on the cash flow statement is categorized into

Accepted Answer

A) operating, investing and financing activities. 
B) current and non-current activities. 
C) operating, non-operating and discontinued activities. 
D) nature and function activities. 
A) operating, investing and financing activities. 
B) current and non-current activities. 
C) operating, non-operating and discontinued activities. 
D) nature and function activities.

Question 18

Which of the following would be accounted for on a prospective basis? (More than one answer may be correct.)
A. A furniture maker decreases bad debts expense from 3% to 2% of credit sales.
B. A manufacturer determines that credit losses are becoming material due to deteriorating economic conditions. As a result, it decides to set up an allowance for doubtful accounts at 5% of amounts over 90 days.
C. A parking service estimates bad debts to be 10% of the value of parking violations issued. In the current year, it changes to estimating the allowance for bad debts to be equal to 20% of accounts 30 to 90 days and 50% of accounts over 90 days.
D. A shipbuilder changes its revenue recognition policy from the point of receipt by the customer to when the ship leaves the factory shipyard. This change results from a change in shipping policy from f.o.b. destination to f.o.b. shipping point. (Recall from introductory accounting that f.o.b. means "free on board," and it refers to the point at which ownership transfers from seller to buyer.)
E. An electronics retailer has never accrued for warranties or product guarantees. A new consumer protection law comes into effect, giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
F. A clothing company that has been operating for 20 years decides to obtain an external audit for the first time in order to meet the bank's demands. The audit firm recommends that management report inventories at the lower of cost and net realizable value, whereas the company has previously only tracked and reported inventory figures at cost.

Accepted Answer

The answer of Which of the following would be accounted...

Question 19

Which statement is correct about the statement of comprehensive income?

Accepted Answer

A) Entities using the nature format for expenses must provide additional disclosure. 
B) The single-step format provides more information than the multiple-step format. 
C) The multiple-step format must be used in financial reporting. 
D) Entities using the function format for expenses must provide additional disclosure. 
A) Entities using the nature format for expenses must provide additional disclosure. 
B) The single-step format provides more information than the multiple-step format. 
C) The multiple-step format must be used in financial reporting. 
D) Entities using the function format for expenses must provide additional disclosure.

Question 20

Which cycle is being described in the following situations?

Accepted Answer

The answer of Which cycle is being described in the...

Which statement is correct about expenses in the income statement?

What is classified as a "current" liability?

Changes in accounting estimates are based on

What is meant by "earnings quality"?

Lee Limited began operations on January 1, 2010. The following data relate to the company's first 2 years in business: What is the correct cost of goods sold amount for 2011?

Which statement is correct?

Correction of an error is based on

Mandel Corp. repaid a bank loan for $980,000. What effect does this transaction have on these accounts?

Explain why estimates are necessary in accrual accounting and why a "true" measure of income cannot be provided.

Mandel Corp. retired bonds payable with a carrying value of $980,000. What effect does this transaction have on these accounts?

What is an "operating" cycle?

Which statement is correct?

Changes in accounting estimates are based on

Dexter Corp. received cash for a service that is to be performed in the next accounting period. How should this transaction be accounted for?

Information on the cash flow statement is categorized into

Which statement is correct about the statement of comprehensive income?

Which cycle is being described in the following situations?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Revenue Recognition

Cash and Receivables

Inventories

Financial Assets

Property, Plant, and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 3: Accrual Accounting

Which statement is correct about expenses in the income statement?

What is classified as a "current" liability?

Changes in accounting estimates are based on

What is meant by "earnings quality"?

Lee Limited began operations on January 1, 2010. The following data relate to the company's first 2 years in business: What is the correct cost of goods sold amount for 2011?

Which statement is correct?

Correction of an error is based on

Mandel Corp. repaid a bank loan for $980,000. What effect does this transaction have on these accounts?

Explain why estimates are necessary in accrual accounting and why a "true" measure of income cannot be provided.

Mandel Corp. retired bonds payable with a carrying value of $980,000. What effect does this transaction have on these accounts?

What is an "operating" cycle?

Which statement is correct?

Changes in accounting estimates are based on

Dexter Corp. received cash for a service that is to be performed in the next accounting period. How should this transaction be accounted for?

Information on the cash flow statement is categorized into

Which statement is correct about the statement of comprehensive income?

Which cycle is being described in the following situations?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Revenue Recognition

Cash and Receivables

Inventories

Financial Assets

Property, Plant, and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters