Question 1

Which statement is incorrect about the cash flow statement?

Accepted Answer

A) The cash flow statement can be prepared using the direct method. 
B) The cash flow statement can be prepared using the indirect method. 
C) The cash flow statement provides information on the economic performance of the company. 
D) The cash flow statement shows the change in cash and cash equivalents over the year. 
A) The cash flow statement can be prepared using the direct method. 
B) The cash flow statement can be prepared using the indirect method. 
C) The cash flow statement provides information on the economic performance of the company. 
D) The cash flow statement shows the change in cash and cash equivalents over the year.

Question 2

Hatcher Limited, a private company, was started on January 1, 2011. For the first year, the chief accountant prepared the financial statements and a local accountant completed the necessary review of these statements. However, for the year ended December 31, 2012, an external auditor was appointed. For each situation outlined below, determine the correct accounting treatment and prepare the corrected statements of comprehensive income for 2011 and 2012.
1)Long-term contracts: Hatcher used the completed contract method for revenue recognition in 2011. Management now believes that the percentage of completion method would be better. Income under the completed contract method for 2011 was $3,800,000 and for 2012 it was $3,600,000. If the percentage of completion method had been used, the incomes would have been $5,800,000 (2011)and $3,400,000 (2012).
2)Accounts receivable: The accounts receivable on December 31, 2011, included a $30,000 account which was not provided for but subsequently was written off during 2012 as the customer went bankrupt after the issuance of the financial statements. Hatcher would like to adjust 2011 for this oversight as it sees this as an error.
3)Machine depreciation: Hatcher has a machine that cost $500,000 and has been depreciated over an estimated useful life of 10 years. Upon reviewing the manufacturer's reports in 2012, management now firmly believes the machine will last a total of 15 years from date of purchase. They would like to change last year's depreciation charge based on this analysis. Depreciation expense of $50,000 has been recorded for 2012.
4)Building depreciation: The company's building (cost $5,000,000, estimated salvage value $0, useful life 20 years)was depreciated last year using the 10% declining-balance method. The company and auditor now agree that the straight-line method would be a more appropriate method to use. A depreciation provision of $450,000 has been made for 2012.
5)Inventories: The accountant last year failed to apply the lower of cost or net realizable value to ending inventory. Upon review, the inventory balance for last year should have been reduced by $250,000. The closing inventory allowance for this year-end should be $370,000. No entry has been made for this.
6)Warranties: Hatcher does not accrue for warranties; rather it records the warranty expense when amounts are paid. Hatcher provides a one-year warranty for defective goods. Payments to satisfy warranty claims in 2011 were $160,000, and $370,000 in 2012. Out of the $370,000 paid in 2012, $170,000 related to 2011 sales. A reasonable estimate of warranties payable at the end of 2012 is $270,000.

Accepted Answer

The answer of Hatcher Limited, a private company, was started...

Question 3

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies:
   Explain why the net incomes would not be the same under both accounting options.

Accepted Answer

Net incomes would be different between m

Question 4

What is a "cash" 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 5

Which statement is correct?

Accepted Answer

A) The income statement tracks the flow in assets and liabilities on the balance sheet. 
B) The balance sheet reports the economic performance of the company. 
C) The income statement reports performance of the company. 
D) The cash flow statement tracks the flow of revenues and expenses in the income statement. 
A) The income statement tracks the flow in assets and liabilities on the balance sheet. 
B) The balance sheet reports the economic performance of the company. 
C) The income statement reports performance of the company. 
D) The cash flow statement tracks the flow of revenues and expenses in the income statement.

Question 6

A change in accounting policy should

Accepted Answer

A) be based on changes in the underlying economics of business transactions. 
B) not be based on management's best discretion. 
C) be based on improving the comparability of financial reporting. 
D) not be based on changes to accounting standards. 
A) be based on changes in the underlying economics of business transactions. 
B) not be based on management's best discretion. 
C) be based on improving the comparability of financial reporting. 
D) not be based on changes to accounting standards.

Question 7

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.
A major client unexpectedly goes bankrupt and it is determined that you will get only 30% of the value of their account receivable as full and final settlement. (Justify your recommendation.)

Accepted Answer

For the bankruptcy of a client, recogniz

Question 8

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies:
   Using the information provided below, discuss whether the cumulative cash flows will be the same or different each accounting option.

Accepted Answer

Cumulative operating cash flows for all

Question 9

Which one of the following errors would cause a company's unadjusted trial balance to be out of balance?

Accepted Answer

A) Overstating an asset balance by $100 and a revenue balance by the same amount. 
B) Failure to post the debit portion of a journal entry to the proper account (recorded, for example, in a revenue rather than an expense account). 
C) Recording a $5,000 revenue transaction by crediting the accounts receivable account and debiting the revenue account. 
D) Recording $1,000 cash collected from a customer as a debit to the cash account and a debit to the accounts receivable account. 
A) Overstating an asset balance by $100 and a revenue balance by the same amount. 
B) Failure to post the debit portion of a journal entry to the proper account (recorded, for example, in a revenue rather than an expense account). 
C) Recording a $5,000 revenue transaction by crediting the accounts receivable account and debiting the revenue account. 
D) Recording $1,000 cash collected from a customer as a debit to the cash account and a debit to the accounts receivable account.

Question 10

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies:
   Using the following information about activities for 2010-2012, derive the net income for each year under both accounting options:

Accepted Answer

Accounting Option 1

Question 11

Explain why companies prepare financial statements on an annual basis.

Accepted Answer

Both business and regulations respond to

Question 12

The following entry was recorded by Hollow Inc.:   What is the effect on Hollow's financial statements?

Accepted Answer

A) A cash inflow from investing activities of $70,000. 
B) Net assets decreased by $10,000. 
C) A decrease of $10,000 in using the indirect method of determining cash flows from operating activities. 
D) Retained earnings decreased by $10,000. 
A) A cash inflow from investing activities of $70,000. 
B) Net assets decreased by $10,000. 
C) A decrease of $10,000 in using the indirect method of determining cash flows from operating activities. 
D) Retained earnings decreased by $10,000.

Question 13

Changes in accounting estimates are

Accepted Answer

A) accounted for in the same manner as accounting policy changes. 
B) accounted for on a prospective basis. 
C) applied to current and past reporting periods. 
D) accounted for in the same manner as error corrections. 
A) accounted for in the same manner as accounting policy changes. 
B) accounted for on a prospective basis. 
C) applied to current and past reporting periods. 
D) accounted for in the same manner as error corrections.

Question 14

What are biased accruals?

Accepted Answer

A) Accruals based on applying GAAP. 
B) Accruals based on overly optimistic estimates. 
C) Accruals based on ethical considerations. 
D) Accruals based on applying professional judgment. 
A) Accruals based on applying GAAP. 
B) Accruals based on overly optimistic estimates. 
C) Accruals based on ethical considerations. 
D) Accruals based on applying professional judgment.

Question 15

Information on the balance sheet is categorized into

Accepted Answer

A) operating, investing and financing activities. 
B) current and non-current elements. 
C) continuing and discontinued activities. 
D) profit or loss and other comprehensive income. 
A) operating, investing and financing activities. 
B) current and non-current elements. 
C) continuing and discontinued activities. 
D) profit or loss and other comprehensive income.

Question 16

Which statement is correct about expenses in the income statement?

Accepted Answer

A) The nature of expense format classifies expenses based on their source. 
B) Some nature of expense categories are cost of sales, administration or warehouse. 
C) Expenses must be classified by their function. 
D) Expenses should be classified in decreasing order of magnitude. 
A) The nature of expense format classifies expenses based on their source. 
B) Some nature of expense categories are cost of sales, administration or warehouse. 
C) Expenses must be classified by their function. 
D) Expenses should be classified in decreasing order of magnitude.

Question 17

Which statement correctly explains the relationship between cash flows, accruals and reported earnings?

Accepted Answer

A) Cash flows are the best representation of a company's financial position and performance because of excessive accruals. 
B) The cash basis of accounting provides the best representation of a company's financial position and performance. 
C) The accrual basis of accounting provides the best representation of a company's financial position and performance. 
D) Accruals reduce earnings quality but are needed in financial reporting because GAAP is founded on professional judgment. 
A) Cash flows are the best representation of a company's financial position and performance because of excessive accruals. 
B) The cash basis of accounting provides the best representation of a company's financial position and performance. 
C) The accrual basis of accounting provides the best representation of a company's financial position and performance. 
D) Accruals reduce earnings quality but are needed in financial reporting because GAAP is founded on professional judgment.

Question 18

What is the difference between accrual accounting and cash accounting?

Accepted Answer

Accrual accounting is a method of accoun

Question 19

Which statement is not correct about expenses in the income statement?

Accepted Answer

A) The function of expense format classifies expenses based on their use. 
B) Some nature of expense categories are depreciation, employee costs, raw materials consumed. 
C) The nature of expense format classifies expenses based on their source. 
D) Some nature of expense categories are cost of sales, administration or warehouse. 
A) The function of expense format classifies expenses based on their use. 
B) Some nature of expense categories are depreciation, employee costs, raw materials consumed. 
C) The nature of expense format classifies expenses based on their source. 
D) Some nature of expense categories are cost of sales, administration or warehouse.

Which statement is incorrect about the cash flow statement?

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies: Explain why the net incomes would not be the same under both accounting options.

What is a "cash" cycle?

Which statement is correct?

A change in accounting policy should

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies: Using the information provided below, discuss whether the cumulative cash flows will be the same or different each accounting option.

Which one of the following errors would cause a company's unadjusted trial balance to be out of balance?

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies: Using the following information about activities for 2010-2012, derive the net income for each year under both accounting options:

Explain why companies prepare financial statements on an annual basis.

The following entry was recorded by Hollow Inc.: What is the effect on Hollow's financial statements?

Changes in accounting estimates are

What are biased accruals?

Information on the balance sheet is categorized into

Which statement is correct about expenses in the income statement?

Which statement correctly explains the relationship between cash flows, accruals and reported earnings?

What is the difference between accrual accounting and cash accounting?

Which statement is not correct about expenses in the income statement?

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 incorrect about the cash flow statement?

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies: Explain why the net incomes would not be the same under both accounting options.

What is a "cash" cycle?

Which statement is correct?

A change in accounting policy should

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies: Using the information provided below, discuss whether the cumulative cash flows will be the same or different each accounting option.

Which one of the following errors would cause a company's unadjusted trial balance to be out of balance?

Sing Songs Ltd. started operations on January 1, 2010. During its first year of operations, the company had a choice of accounting policies: Using the following information about activities for 2010-2012, derive the net income for each year under both accounting options:

Explain why companies prepare financial statements on an annual basis.

The following entry was recorded by Hollow Inc.: What is the effect on Hollow's financial statements?

Changes in accounting estimates are

What are biased accruals?

Information on the balance sheet is categorized into

Which statement is correct about expenses in the income statement?

Which statement correctly explains the relationship between cash flows, accruals and reported earnings?

What is the difference between accrual accounting and cash accounting?

Which statement is not correct about expenses in the income statement?

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