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Financial Accounting An Introduction to Concepts Methods and Uses 14th Edition Roman L Weil Katherine Schipper Jennifer Francis- Test Bank
Sample Questions
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Chapter 2: The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet
TRUE/FALSE
- The T-account looks like the letter T, with a horizontal line bisected by a vertical line. Increases in shareholders’ equity appear on the right side, and decreases in shareholders’ equity appear on the left side of T-accounts.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The T-account looks like the letter T, with a horizontal line bisected by a vertical line. Increases in liabilities appear on the right side, and decreases in liabilities appear on the left side of T-accounts.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The T-account looks like the letter T, with a horizontal line bisected by a vertical line. Increases in assets appear on the left side, and decreases in assets appear on the right side of T-accounts.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- A T-account is a device or convention for organizing and accumulating the accounting entries of transactions that affect an individual account, such as cash, accounts receivable, bonds payable, or additional paid-in capital.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The balance sheet equation maintains equality by reporting the financial statement effects of each event and transaction in a dual manner, or what are termed the dual effects of transactions.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The balance sheet equation shows the equality of assets with liabilities plus shareholders’ equity. This equation requires that an entity’s assets exactly balance, or offset, an equal amount of financing provided by creditors and owners of the corporation.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The balance sheet equation underlies the recording of transactions and events. It captures the financial statement effects of operating, investing, and financing transactions—three key activities of business firms.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The balance sheet equation provides the analytical framework to understand the effects of transactions and events on the financial statements.
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The balance sheet groups individual accounts by type (asset, liability, or shareholders’ equity) and lists these accounts with their balances as of the balance sheet date.
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Knowledge
- The date of the balance sheet appears at the bottom of the balance sheet.
ANS: F PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-15-Current Assets Reporting
KEY: Bloom’s: Knowledge
- The asset and liability categories group individual accounts by the expected timing of cash receipts (for assets) or cash payments (for liabilities).
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-13-Long-term Assets Reporting
KEY: Bloom’s: Knowledge
- If the firm expects to collect or pay more than one year after the balance sheet date, the balance sheet classifies these as noncurrent assets and noncurrent liabilities, respectively.
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom’s: Knowledge
- The balance sheet begins with a list of assets and then lists liabilities and shareholders’ equity.
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Both U.S. GAAP and IFRS require firms to report balance sheet accounts for the prior year in addition to the current year.
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- Under U.S. GAAP, assets and liabilities in the balance sheet appear in order of increasing closeness-to-cash.
ANS: F PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- Common terminology describes items whose cash receipts or payments the firm expects will occur within one year as current assets or current liabilities, respectively.
ANS: T PTS: 1 DIF: 3 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Application
- Under IFRS, assets and liabilities appear in the statement of financial position in order of decreasing closeness-to-cash.
ANS: F PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- Total liabilities plus shareholders’ equity shows the sources of all the firm’s financing, and the assets show how the firm holds or has invested those funds.
ANS: T PTS: 1 DIF: 1 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- The beginning balance of the shareholders’ equity account Retained Earnings plus net income from the income statement less dividends equals the ending balance of Retained Earnings.
ANS: T PTS: 1 DIF: 1 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The equation that describes the relationship between the balance sheet and the income statement through the Retained Earnings account is as follows:
Retained Earnings (beginning) + Net Income – Dividends = Retained Earnings (ending)
ANS: T PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Retained earnings measures the cumulative excess of net income over dividends for the life of a firm. Cumulative means that retained earnings aggregates all undistributed earnings.
ANS: T PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Income statement accounts are temporary accounts and, as such, will have beginning and ending balances of zero.
ANS: T PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- The closing process involves reducing to zero the balance in each income statement account by debiting the revenue accounts and crediting the expense accounts, and transferring to Retained Earnings the differences between total revenues and total expenses.
ANS: T PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- A balance sheet account with a debit balance requires a closing entry that credits that account, because a credit closing entry will result in a zero ending balance in the account.
ANS: F PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- A balance sheet account with a credit balance requires a closing entry that debits that account, because a debit closing entry will result in a zero ending balance in the account.
ANS: F PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- The first step in the accounting record-keeping process is recording each transaction in a file or other record in the form of a journal entry.
ANS: T PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- A balance sheet prepared according to U.S. GAAP lists assets from most liquid to least liquid, where liquid refers to the ease of converting the asset into cash.
ANS: T PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- A balance sheet prepared according to U.S. GAAP lists liabilities starting with those that the firm will discharge soonest (the most current or closest to maturity liabilities) and ending with those that it will pay latest (the most noncurrent or distant to maturity liabilities).
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Firms that use International Financial Reporting Standards (IFRS) may, but need not, list their assets from least liquid to most liquid, with the same ordering used to list liabilities.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Depreciation allocates the asset’s cost to the periods of benefit in some systematic and rational way, and it attempts to track changes in the asset’s fair value.
ANS: F PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Shareholders’ equity is a residual interest or claim—that is, the owners (shareholders) of a firm have a claim on assets not required to meet the claims of creditors.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- The amounts that firms report as received from owners are equal to the amounts the firm received when it originally issued the shares of stock.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- The balance sheet amount of shareholders’ equity does not, and is not intended to, provide the user of the financial reports with a measure of the market value of common equity.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- A potential investor can easily ascertain market value of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the number of common shares outstanding, as reported on the balance sheet.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The balance sheet provides all the information an analyst wants or needs about a firm’s resources and the claims on those resources.
ANS: F PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Accounting does not normally recognize mutually unexecuted contracts as assets or liabilities.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Both U.S. GAAP and IFRS require the disclosure, in the notes to the financial statements, of selected information about business segments.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- In computerized systems, posting occurs instantly and automatically after journalizing.
ANS: T PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
MULTIPLE CHOICE
- Accounting is governed by the balance sheet equation, which shows the equality of
- assets with liabilities plus shareholders’ equity.
- assets plus liabilities with shareholders’ equity.
- assets plus shareholders’ equity with liabilities.
- assets with liabilities minus shareholders’ equity.
- assets with shareholders’ equity minus liabilities.
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- To maintain the balance sheet equality, it is necessary to report every event and transaction in a dual manner. If a transaction results in an increase in the left hand side of the balance sheet, dual transactions recording requires that which of the following must occur, to maintain the balance sheet equation?
- decrease another asset
- increase a liability
- increase shareholders equity
- all of the above will maintain the balance sheet equation
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- A detailed system of accounts allows the preparer of financial statements to decompose,
or __________, each transaction to convey information about the effects of the transaction.
- mixup
- disaggregate
- aggregate
- share
- combine
ANS: B PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- To maintain balance sheet equality, it is necessary to report every event and transaction in a dual manner. If a transaction results in an increase in a Liability account, then which of the following must occur, to maintain the balance sheet equation?
- decrease another liability.
- decrease shareholders’ equity.
- increase an asset.
- all of the above will maintain the balance sheet equation
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-08-Closing Entries
KEY: Bloom’s: Comprehension
- T-accounts
- summarize the effects of transactions on specific accounts.
- show all the accounts affected by a single event or transaction.
- provide a record of transactions.
- all of the above
- none of the above
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- A T-account is a device or convention for organizing and accumulating the accounting entries of transactions that affect an individual account. Which of the following is/are true?
- Increases in assets appear on the left side, and decreases in assets appear on the right side of T-accounts.
- Increases in liabilities appear on the right side, and decreases in liabilities appear on the left side of T-accounts.
- Increases in shareholders’ equity appear on the right side, and decreases in shareholders’ equity appear on the left side of T-accounts
- all of the above are true
- none of the above are true
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Brice Foods Group, a European food retailer that operates supermarkets in seven countries, engaged in the following transaction during 2013: purchased and received inventory costing €500 million on account from various suppliers. Indicate the effects of the transaction on the balance sheet equation. Brice Foods Group applies IFRS, and reports its results in millions of euros.
- Assets + €500 million; Liabilities + €500 million
- Assets + €500 million; Shareholders’ Equity + €500 million
- Liabilities + €500 million; Shareholders’ Equity + €500 million
- Liabilities + €500 million; Shareholders’ Equity – €500 million
- Assets + €500 million; Shareholders’ Equity – €500 million
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Composite, Inc., a firm specializing in building materials, engaged in the following transaction during 2013: issued 2,000 shares of common stock for $7,500 million in cash. Indicate the effects of the transaction on the balance sheet equation. (Composite Inc. applies U.S. GAAP financial reporting standards, and reports its results in millions of dollars.)
- Liabilities +$7,500 million; Shareholders’ Equity -$7,500 million
- Liabilities +$7,500 million; Shareholders’ Equity +$7,500 million
- Assets +$7,500 million ; Liabilities +$7,500 million
- Assets +$7,500 million ; Shareholders’ Equity +$7,500 million
- Assets -$7,500 million ; Liabilities -$7,500 million
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- The equation that describes the relationship between the balance sheet and the income statement through the Retained Earnings account is as follows:
- Retained Earnings (beginning) – Net Income = Retained Earnings (ending)
- Retained Earnings (beginning) + Net Income + Dividends = Retained Earnings (ending)
- Retained Earnings (beginning) – Net Income – Dividends = Retained Earnings (ending)
- Retained Earnings (beginning) – Net Income + Dividends = Retained Earnings (ending)
- Retained Earnings (beginning) + Net Income – Dividends = Retained Earnings (ending)
ANS: E PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Any single event or transaction will have which of the following effect(s) on the balance sheet?
- It increases an asset and increases either a liability or shareholders’ equity.
- It decreases an asset and decreases either a liability or shareholders’ equity.
- It increases one asset and decreases another asset.
- It increases one liability or shareholders’ equity and decreases another liability or shareholders’ equity.
- all of the above
ANS: E PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Which of the following is/are true regarding the T-account?
- Actual practice does not use this form of the account, except perhaps for memoranda or preliminary analyses
- looks like the letter T, with a horizontal line bisected by a vertical line.
- satisfies the requirement of an account and is easy to use.
- all of the above
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Which of the following is/are true regarding the T-account?
- the name or title of the account appears on the horizontal line.
- dates and other information can appear in T-accounts.
- one side of the space formed by the vertical line records increases in the item and the other side records decreases.
- all of the above
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Which of the following is/are true regarding T-accounts?
- for each transaction, the amount entered on the left side of (or debited to) the accounts for each transaction equals the amount entered on the right side of (or credited to) the accounts.
- recording equal amounts of debits and credits for each transaction ensures that the balance sheet equation will always balance.
- one side of the space formed by the vertical line records increases in the item and the other side records decreases.
- all of the above
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Horton Company reports the following:
Contributed Capital $ 200
Total Revenues $ 800
Total Liabilities $1,200
Beginning Retained Earnings ($ 100)
Total Expenses $ 500
Dividends $ 0
What are Total Assets?
- $2,600
- $1,600
- $1,400
- $1,000
- $800
ANS: B PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Conrad Company reports the following:
Total Assets $800
Contributed Capital $300
Total Revenues $600
Beginning Retained Earnings $200
Total Expenses $700
Dividends $100
What are Total liabilities?
- $600
- $500
- $400
- $300
- $200
ANS: B PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- The accounting system uses a device called an account. An account
- is created each time a transaction takes place.
- accumulates the increases and decreases that occur during the period for a single item.
- is created only for income statement items.
- is created only for balance sheet items.
- is created only for statement of cash flows items.
ANS: B PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Marianne Company reports the following:
Total Assets $1,200
Total Revenues $ 800
Total Liabilities $ 500
Beginning Retained Earnings $ 200
Total Expenses $ 400
Dividends $ 0
What is Contributed Capital?
- $300
- $200
- $100
- $0
- $400
ANS: C PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Journal entries
- show all the accounts affected by a single event or transaction.
- provide a record of transactions.
- have the characteristics presented in choices a and b.
- summarize the effects of transactions on specific accounts.
- none of the above
ANS: C PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Temporary accounts are for recording
- revenues and expenses.
- assets.
- liabilities.
- shareholders’ equity.
- assets, liabilities, and shareholders’ equity.
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Current assets are expected to be converted to cash within
- a week.
- a month.
- a quarter.
- a year.
- two years.
ANS: D PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Noncurrent assets are expected to be converted to cash over
- a month.
- a quarter.
- a half of a year.
- a year.
- a period of time greater than a year.
ANS: E PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Retained Earnings measures the cumulative excess of _____ for the life of a firm
- dividends over net income
- net income over dividends
- assets over liabilities
- liabilities over shareholders’ equity
- shareholders’ equity over liabilities
ANS: B PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- _____ accounts provide disaggregated information concerning the net amount of an asset, liability, or shareholders’ equity item. Note that the use of such accounts does not affect the total of assets, liabilities, shareholders’ equity, revenues, or expenses, but only the balances in various accounts that comprise the totals for these items.
- Reversing
- Temporary
- Contra
- Closing
- None of the above
ANS: C PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Benezra S.A., a large Brazilian petrochemical company, reported a balance of R$1,600 million in Accounts Receivable at the beginning of 2013 and R$1,500 million at the end of 2013. Its income statement reported total Sales Revenue of R$12,000 million for 2013. Assuming that Benezra makes all sales on account, compute the amount of cash collected from customers during 2013. Benezra applies Brazilian accounting standards, and reports its results in thousands of reals (R$), the Brazilian currency. (In answering this question, assume that Benezra uses either U.S. GAAP or IFRS; for purposes of this problem, this choice will not matter.)
- 12,000
- 11,900
- 12,100
- 13,600
- 13,500
ANS: C PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Skyway Company, a U.S. airplane manufacturer, reported a balance of $8,100 million in Inventory at the beginning of 2013 and $9,600 million at the end of 2013. Its income statement reported Cost of Products Sold of $45,400 million for 2013. Compute the cost of inventory either purchased or manufactured during 2013. (Skyway Company applies U.S. GAAP, and reports its results in millions of U.S. dollars.)
- $49,500 million
- $39,900 million
- $46,900 million
- $39,900 million
- none of the above
ANS: C PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- C-Swiss, a Swedish firm specializing in communication networks, reported a balance in Inventories of SEK21,500 million at the beginning of 2013 and SEK22,500 million at the end of 2013. During 2013, C-Swiss reported SEK114,100 million in Cost of Sales. How much was C-Swisss’ inventory purchases during 2013? [Assume that all of C-Swisss’ inventory purchases are made on account and C-Swiss applies IFRS, as well as reports its results in millions of Swedish kronor (SEK).]
- SEK115,300 million
- SEK115,200 million
- SEK115,100 million
- SEK113,100 million
- none of the above
ANS: C PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Ying Corporation, a Japanese construction firm, reported a balance in Income Taxes Payable of ¥3,700 million at the beginning of 2013 and ¥14,300 million at the end of 2013. Net income before income taxes for 2013 totaled ¥73,000 million. Assume that the firm is subject to an income tax rate of 43%. Compute the amount of cash payments made for income taxes during 2013. (Ying Corporation applies Japanese accounting standards, and reports its results in millions of yen (¥). In answering this question, assume that Ying Corporation uses either U.S. GAAP or IFRS; for purposes of this problem, this choice will not matter.)
- ¥10,600 million
- ¥17,090 million
- ¥20,790 million
- ¥73,000 million
- none of the above
ANS: C PTS: 1 DIF: 2 REF: pp. 43-51
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Energy Corporation, a U.S. diversified power management company, reported a balance in Retained Earnings of $2,800 million at the beginning of 2013 and $3,300 million at the end of 2013. Based on Energy Corporation’s financial reports for fiscal 2013, it reported dividends declared and paid of $250 million for 2013. Compute the amount of net income for 2013. (Energy Corporation applies U.S. GAAP, and reports its results in millions of U.S. dollars.)
- -$250 million
- $250 million
- $550 million
- $750 million
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- On December 31, 2013, the Merchandise Inventories account of the Japanese electronics firm Flower Limited (Flower) had a balance of ¥408,700 million, based on Flower’s financial reports for fiscal 2013. Assume that during 2014, Flower purchased merchandise inventories on account for ¥1,456,400 million. On December 31, 2014, it finds that merchandise inventory on hand is ¥412,400 million. Select the correct journal entries to account for all changes in the Inventories during 2014. (Flower applies Japanese accounting standards, and reports its results in millions of yen (¥). In answering this question, assume that Flower uses either U.S. GAAP or IFRS; for purposes of this problem, this choice will not matter.)
- Cost of Goods Sold ¥1,452,700 million
Merchandise Inventories ¥1,452,700 million
- Merchandise Inventories ¥1,452,700 million
Cost of Goods Sold ¥1,452,700 million
- Cost of Goods Sold ¥1,449,000 million
Merchandise Inventories ¥1,449,000 million
- Merchandise Inventories ¥1,449,000 million
Cost of Goods Sold ¥1,449,000 million
- none of the above
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-05-Accounting Cycle
KEY: Bloom’s: Comprehension
- Klothing Company, a U.S. clothing designer, manufacturer, and retailer, reported a balance in prepaid insurance of $90.7 million, based on its financial reports dated March 31, 2013, the end of its fiscal year. Assume that of this balance, $24 million relates to an insurance policy with two remaining months of coverage. Select the correct journal entries that Klothing would make on April 30, 2013 (Assume that the firm closes its books monthly. Klothing applies U.S. GAAP, and reports its results in millions of U.S. dollars.)
- Insurance Expense $ 24 million
Prepaid Insurance $24 million
- Prepaid Insurance $24 million
Insurance Expense $24 million
- Insurance Expense $12 million
Prepaid Insurance $12 million
- Prepaid Insurance $12 million
Insurance Expense $12 million
- none of the above
ANS: C PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- ABC Group (ABC), headquartered in Switzerland, is one of the world’s largest engineering companies. ABC applies U.S. GAAP, and reports its results in millions of U.S. dollars. Based on ABC’s financial reports for fiscal 2013, at January 1, 2013, ABC reported a balance in its Prepaid Rent account of $247 million; assume that this amount reflects its prepayments of rent on factory and office space for the next month. Assume also that on January 31, 2013, ABC paid $3,200 million as the annual rent for the period from February 1, 2013, to January 31, 2014. ABC has a calendar year reporting period. Select the correct journal entries that ABC Group would make during January 2013 that affect the Prepaid Rent account.
- Rent Expense $3,200 million
Cash $3,200 million
Prepaid Rent $247 million
Rent Expense $247 million
- Rent Expense $3,200 million
Prepaid Rent $3,200 million
Prepaid Rent $247 million
Cash $247 million
- Rent Expense $3,200 million
Prepaid Rent $3,200 million
Prepaid Rent $247 million
Cash $247 million
- Rent Expense $247 million
Prepaid Rent $247 million
Prepaid Rent $3,200 million
Cash $3,200 million
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Tokyo Motor Company (Tokyo), a Japanese car manufacturer, reported Sales of Products of ¥22,670 billion for the year ended March 31, 2014. The Cost of Products Sold was ¥18,356 billion. Assume that Tokyo made all sales on credit. Select the correct journal entries that Tokyo made during the fiscal year ended March 31, 2014, related to these transactions. [Tokyo applies U.S. GAAP, and reports its results in millions of yen (¥).]
- Accounts Receivable ¥22,670 billion
Inventories ¥22,670 billion
Cost of Goods Sold ¥18,356 billion
Revenues ¥18,356 billion
- Accounts Receivable ¥18,356 billion
Inventories ¥18,356 billion
Cost of Goods Sold ¥22,670 billion
Revenues ¥22,670 billion
- Accounts Receivable ¥18,356 billion
Revenues ¥18,356 billion
Cost of Goods Sold ¥22,670 billion
Inventories ¥22,670 billion
- Accounts Receivable ¥22,670 billion
Revenues ¥22,670 billion
Cost of Goods Sold ¥18,356 billion
Inventories ¥18,356 billion
- none of the above
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Under U.S. GAAP, assets and liabilities in the balance sheet appear in order of
- decreasing closeness-to-cash.
- increasing closeness-to-cash.
- alphabetical order.
- numerical order.
- all of the above.
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Under IFRS, assets and liabilities in the statement of financial position appear in order of
- decreasing closeness-to-cash.
- increasing closeness-to-cash.
- alphabetical order.
- numerical order.
- all of the above.
ANS: B PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- The first step in the accounting record-keeping process is:
- recording each transaction in a file or other record in the form of a journal entry.
- posting the amounts from the journal entries to individual balance sheet and income statement accounts in a general ledger.
- making adjusting journal entries to the accounts to correct errors and to reflect the financial statement impacts of items that occur because of usage or the passage of time.
- preparing the income statement for the period from amounts in the income statement accounts.
- preparing the balance sheet from amounts in the balance sheet accounts.
ANS: A PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Assets are classified as current for reporting purposes when
- shares of common stock in a company’s important supplier are acquired to ensure continued availability of raw materials.
- shares of common stock in another company are acquired to diversify operations.
- expenditures are made in developing new technologies or advertising products.
- they are reasonably expected to be turned into cash or to be sold or consumed during the normal operating cycle of the business.
- they are reasonably expected to be turned into cash or to be sold or consumed within the next three years.
ANS: D PTS: 1 DIF: 2 REF: pp. 52-56
OBJ: LO: 2-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom’s: Comprehension
- Before preparing the balance sheet and income statement, an accountant would use what accounting record to first record the firm’s transactions?
- the trial balance
- the adjusting entry
- the general ledger
- the subsidiary ledger
- the journal
ANS: E PTS: 1 DIF: 3 REF: pp. 52-56
OBJ: LO: 2-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Application
- Current liabilities
- are obligations that a firm expects to pay or discharge during the normal operating cycle of the firm, usually one year.
Chapter 4: Balance Sheet: Presenting and Analyzing Resources and Financing
TRUE/FALSE
- Accounting does not normally recognize mutually unexecuted contracts as assets or liabilities.
ANS: T PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Acquisition cost includes all costs required to prepare an asset for its intended use.
ANS: T PTS: 1 DIF: 1 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Investors would view measurements that reflect current conditions as the most relevant for making investment decisions.
ANS: T PTS: 1 DIF: 1 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The principal objective of accounting reports as currently prepared is to present accurately the results of operations and the financial condition of the firm.
ANS: F PTS: 1 DIF: 1 REF: pp. 115-116 | p. 122
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Conservatism emphasizes the early recognition of losses and delayed recognition of gains.
ANS: T PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Accounting records all executory promises.
ANS: F PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The current replacement cost of an asset is the amount a firm would have to pay to obtain another asset with identical service potential; it is an entry value that reflects economic conditions at the measurement date.
ANS: T PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The same asset can have different measurements for tax purposes, for financial reporting purposes, and for internal managerial decision-making purposes.
ANS: T PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Depreciation allocates the asset’s cost to the periods of benefit in some systematic and rational way, and it attempts to track changes in the asset’s fair value.
ANS: F PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Realization is the presumption that a firm will remain in operation long enough to carry out its current plans. and in the normal course of its operations, realize changes in the fair values of its assets either by using those assets or selling them.
ANS: F PTS: 1 DIF: 2 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Historically, recognition has described a preference for financial reporting such “that possible errors in measurement be in the direction of understatement rather than overstatement of net income and net assets.”
ANS: F PTS: 1 DIF: 1 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- Shareholders’ equity is a residual interest or claim—that is, the owners (shareholders) of a firm have a claim on assets not required to meet the claims of creditors.
ANS: T PTS: 1 DIF: 1 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- The amounts that firms report as received from owners are equal to the amounts the firm received when it originally issued the shares of stock.
ANS: T PTS: 1 DIF: 1 REF: pp. 114-118 | pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The balance sheet amount of shareholders’ equity does not, and is not intended to, provide the user of the financial reports with a measure of the market value of common equity.
ANS: T PTS: 1 DIF: 1 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- A potential investor can easily ascertain market value of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the number of common shares outstanding, as reported on the balance sheet.
ANS: T PTS: 1 DIF: 1 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- One can analyze the financial health of a business from a single financial statement considered in isolation such as the balance sheet.
ANS: F PTS: 1 DIF: 1 REF: pp. 112-118 | p. 122 | p. 126
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- The balance sheet portrays the effects of a firm’s investing and financing decisions.
ANS: T PTS: 1 DIF: 1 REF: pp. 112-120
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- The balance sheet does provides all the information an analyst wants or needs about a firm’s resources and the claims on those resources.
ANS: F PTS: 1 DIF: 1 REF: pp. 119-120 | pp. 124-125
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Authoritative accounting guidance precludes the recognition of some resources as assets and some obligations as liabilities.
ANS: T PTS: 1 DIF: 1 REF: p. 122
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The amounts reported on the balance sheet for assets, liabilities, and shareholders’ equity reflect current market conditions.
ANS: F PTS: 1 DIF: 1 REF: p. 122
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- In assessing the financial condition of a firm, an astute analyst recognizes that historical costs are reflected on the balance sheet and adjusts the reported numbers.
ANS: T PTS: 1 DIF: 1 REF: p. 123
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- The balance sheet perfectly describes both resources and financing (claims on those resources).
ANS: F PTS: 1 DIF: 1 REF: p. 112 | p. 123
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- Applying asset and liability definitions and recognition criteria under U.S. GAAP and IFRS results in the balance sheet including all economic benefits (resources) and obligations.
ANS: F PTS: 1 DIF: 1 REF: p. 112
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Knowledge
- Balance sheets based on U.S. GAAP and IFRS omit some items and measure others with bias, relative to measurements based on current economic conditions.
ANS: T PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Both U.S. GAAP and IFRS require reporting that results in the more conservative measurement of earnings.
ANS: T PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- In the recognition criteria for liabilities with uncertain amount and/or timing, “probable” is used in U.S. GAAP to refer to a relatively high threshold of likelihood—a rule of thumb used in practice is approximately 80%.
ANS: T PTS: 1 DIF: 1 REF: p. 116
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- In IFRS, “probable” as recognition criterion for liabilities with uncertain amount and/or timing means “more likely than not”—approximately 51%.
ANS: T PTS: 1 DIF: 1 REF: p. 116
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Firms that use International Financial Reporting Standards (IFRS) may, but need not list their assets from least liquid to most liquid, with the same ordering used to list liabilities.
ANS: T PTS: 1 DIF: 1 REF: pp. 116-117
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- A balance sheet prepared according to U.S. GAAP lists liabilities starting with those that the firm will discharge soonest (the most current or closest to maturity liabilities) and ending with those that it will pay latest (the most noncurrent or distant to maturity liabilities).
ANS: T PTS: 1 DIF: 1 REF: p. 117
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Under U.S. GAAP, assets and liabilities are listed on the balance sheet in order of decreasing liquidity, so the most liquid assets (liabilities) are shown first, under their respective categories.
ANS: T PTS: 1 DIF: 1 REF: p. 117
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- A balance sheet prepared according to U.S. GAAP lists assets from most liquid to least liquid, where liquid refers to the ease of converting the asset into cash.
ANS: T PTS: 1 DIF: 1 REF: p. 119
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
MULTIPLE CHOICE
- What is a probable future economic benefit that a firm controls because of a past event or transaction?
| a. | asset |
| b. | liability |
| c. | shareholders’ equity |
| d. | revenue |
| e. | expense |
ANS: A PTS: 1 DIF: 1 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The criteria for asset recognition include(s):
| a. | the firm owns or controls the right to use the item. |
| b. | the right to use the item arises as a result of a past transaction or exchange. |
| c. | the future benefit has a relevant measurement attribute that can be quantified with sufficient reliability. |
| d. | Answers a, b and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 1 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Which of the following is/are true?
| a. | Not all future benefits qualify as assets. |
| b. | All assets provide future benefits. |
| c. | Not all future benefits are assets. |
| d. | Answers a, b, and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 1 REF: p. 120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The _____ of an asset is the amount a firm would have to pay to obtain another asset with identical service potential; it is an entry value that reflects economic conditions at the measurement date.
| a. | Current Replacement Cost |
| b. | Net Realizable Value |
| c. | Fair Value |
| d. | Present Value of Future Net Cash Flows. |
| e. | Acquisition cost |
ANS: A PTS: 1 DIF: 1 REF: p. 120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Which of the following is a measurement attribute used in U.S. GAAP to measure inventories whose usefulness (typically, in terms of salability) to the firm has declined below the cost of the inventories?
| a. | Current Replacement Cost |
| b. | Net Realizable Value |
| c. | Fair Value |
| d. | Present Value of Future Net Cash Flows |
| e. | Acquisition cost |
ANS: A PTS: 1 DIF: 1 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ is the net cash (selling price less selling costs) that the firm would receive if it sold the asset today, in orderly fashion in an arm’s-length transaction. It is an example of an exit value, because it reflects a price that the firm would receive in a transaction in which an asset leaves the firm.
| a. | Current Replacement Cost |
| b. | Net Realizable Value |
| c. | Fair Value |
| d. | Present Value of Future Net Cash Flows |
| e. | Acquisition cost |
ANS: B PTS: 1 DIF: 1 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- IFRS defines _____ as a current exchange value, which can mean either a current entry price or a current exit price.
| a. | Current Replacement Cost |
| b. | Net Realizable Value |
| c. | Fair Value |
| d. | Present Value of Future Net Cash Flows |
| e. | Acquisition cost |
ANS: C PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ is the amount that results from using an appropriate interest rate to discount one or more future cash flows to the present. It is the sum of the present values of the individual future cash inflows and outflows associated with an asset. It is not, in and of itself, a measurement attribute. Rather, it is a means of arriving at a measurement attribute.
| a. | Current Replacement Cost |
| b. | Net Realizable Value |
| c. | Fair Value |
| d. | Present Value of Future Net Cash Flows |
| e. | Acquisition cost |
ANS: D PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Which of the following terms describes the presumption that a firm will remain in operation long enough to carry out its current plans, and will, in the normal course of its operations, realize changes in the fair values of its assets either by using those assets or selling them?
| a. | going concern |
| b. | relevance |
| c. | reliability |
| d. | recognition |
| e. | realization |
ANS: A PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The distinction between recognition and realization is essential to accrual accounting, hence the importance accorded to recognition criteria. Firms recognize items that qualify for inclusion in the financial statements when they enter the financial statements. In the case of value decreases, the firm
| a. | recognizes the decreases as impairment expenses when it realizes the collection of the reduced cash flows. |
| b. | recognizes the decreases as cost of goods sold when the decreases occur before it realizes the collection of the reduced cash flows. |
| c. | recognizes the decreases as impairment expenses when the decreases occur before it realizes the collection of the reduced cash flows. |
| d. | recognizes the decreases as cost of goods sold when it realizes the collection of the reduced cash flows. |
| e. | None of these answer choices is correct. |
ANS: C PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ means that the information is pertinent to the decisions of users of financial reports, in the sense that the information can make a difference in those decisions.
| a. | Conservatism |
| b. | Realization |
| c. | Recognition |
| d. | Relevance |
| e. | Reliability |
ANS: D PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ means that the information presented is reasonably free from error and bias and faithfully represents what it purports to represent.
| a. | Conservatism |
| b. | Realization |
| c. | Relevance |
| d. | Reliability |
| e. | Recognition |
ANS: D PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Historically, _____ has described a preference for financial reporting such “that possible errors in measurement be in the direction of understatement rather than overstatement of net income and net assets.”
| a. | conservatism |
| b. | reliability |
| c. | realization |
| d. | recognition |
| e. | relevance |
ANS: A PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ is the basis for the practice of reporting certain assets at the lower of acquisition cost or fair value. The requirement to test assets for impairment and to record impairment charges rests on the notion that balance sheet carrying values of assets should not exceed the amount of cash that the firm expects to receive by using or selling the asset.
| a. | Conservatism |
| b. | Reliability |
| c. | Relevance |
| d. | Recognition |
| e. | Realization |
ANS: A PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- An accounting _____ arises when a firm incurs an obligation to make a future sacrifice that, because of a past event or transaction, it has little or no discretion to avoid.
| a. | asset |
| b. | liability |
| c. | shareholders’ equity |
| d. | revenue |
| e. | expense |
ANS: B PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Which of the following is/are true regarding accounting liabilities?
| a. | All accounting liabilities are obligations. |
| b. | Not all obligations are accounting liabilities. |
| c. | An item must meet the definition of a liability. |
| d. | An item must recognition criteria. |
| e. | All of these answers are correct. |
ANS: E PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of a past event or transaction.
| a. | Assets |
| b. | Liabilities |
| c. | Shareholders’ equity |
| d. | Revenues |
| e. | Expenses |
ANS: B PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The criteria for liability recognition include(s):
| a. | the item represents a present obligation, not a potential future commitment or intent. |
| b. | the obligation must exist as a result of a past transaction or exchange, called the obligating event. |
| c. | the obligation must require a probable future economic resource that the firm has little or no discretion to avoid. |
| d. | the obligation must have a relevant measurement attribute that the firm can quantify with sufficient reliability. |
| e. | All of these answers are correct. |
ANS: E PTS: 1 DIF: 1 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- _____ is a residual interest or claim—that is, the owners (shareholders) of a firm have a claim on assets not required to meet the claims of creditors.
| a. | Retained Earnings |
| b. | Shareholders’ equity |
| c. | Additional Paid-in-Capital |
| d. | Deficit |
| e. | Par Value |
ANS: B PTS: 1 DIF: 1 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The measurement of the assets and liabilities on the balance sheet also determines the measurement of ______________.
| a. | additional paid-in-capital |
| b. | common stock |
| c. | retained earnings |
| d. | total shareholders’ equity |
| e. | par value |
ANS: D PTS: 1 DIF: 1 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Corporate laws within many jurisdictions require that, within _____, firms distinguish between amounts received from owners and amounts generated by operations which the firm has not distributed to owners.
| a. | cash |
| b. | shareholders’ equity |
| c. | retained earnings |
| d. | paid-in-capital |
| e. | par value |
ANS: B PTS: 1 DIF: 1 REF: pp. 116-120
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Many firms disaggregate the initial amounts they received from shareholders for common shares into the _____ and the amounts received in excess of this value, called additional paid-in capital (APIC), share premium, or capital contributed in excess of par value.
| a. | par value of the shares |
| b. | nominal value of the shares |
| c. | stated value of the shares |
| d. | Choices a, b, and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 1 REF: pp. 116-120
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Many firms disaggregate the initial amounts they received from shareholders for common shares into the par or nominal or stated value of the shares and the amounts received in excess of this value, called:
| a. | additional paid-in capital (APIC). |
| b. | share premium. |
| c. | capital contributed in excess of par value. |
| d. | Choices a, b, and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 1 REF: pp. 121-123
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Which of the following is/are true about amounts received from shareholders for the firm’s shares when the firm first issued them?
| a. | The firm assigns the par value of a share of stock at an amount it chooses. |
| b. | Par values are typically small, often $1 or less per share. |
| c. | Par values are rarely equal the amounts the firm receives when it issues the shares. |
| d. | The sum of the par value amount and the additional paid-in capital amount is the total amount received from shareholders. |
| e. | All of these answers are true. |
ANS: E PTS: 1 DIF: 1 REF: pp. 116-120
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- The sum of the par value amount and the additional paid-in capital amount is the total amount received from shareholders for the shares when the firm first issued them. This total amount is also called _____.
| a. | contributed capital |
| b. | paid-in capital. |
| c. | treasury stock |
| d. | Both answer choices a and b are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 1 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- Any subsequent sale of a firm’s previously issued common shares from one investor to another (such as occurs on public stock exchanges):
| a. | increases the recorded amounts of shareholders’ equity. |
| b. | decreases the recorded amounts of shareholders’ equity. |
| c. | has as no effect on the recorded amounts of shareholders’ equity. |
| d. | increases or decreases the recorded amounts of shareholders’ equity depending on the facts and circumstances. |
| e. | None of these answer choices is correct. |
ANS: C PTS: 1 DIF: 1 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-16-Current Liabilities Reporting
KEY: Bloom’s: Knowledge
- In a rising stock market, the result of any subsequent sale of a firm’s previously issued common shares from one investor to another (such as occurs on public stock exchanges):
| a. | the total paid-in capital amount reported on a balance sheet will usually be less than the current market value of the common shares. |
| b. | the total paid-in capital amount reported on a balance sheet will usually be greater than the current market value of the common shares. |
| c. | the total paid-in capital amount reported on a balance sheet will usually be equal to the current market value of the common shares. |
| d. | the total paid-in capital amount reported on a balance sheet will be eliminated. |
| e. | None of these answer choices is correct. |
ANS: A PTS: 1 DIF: 1 REF: p. 122
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Knowledge
- An investor can easily ascertain the _____ of common equity for a given publicly traded firm by looking up the most recent share price (as reported in various online services) and then multiplying this share price times the number of common shares outstanding, as reported on the balance sheet.
| a. | market value |
| b. | state value |
| c. | par value |
| d. | nominal value |
| e. | liquidation value |
ANS: A PTS: 1 DIF: 2 REF: pp. 115-116 | p. 122
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- _____ measures the net assets generated by a firm from operations exceeding dividends declared.
| a. | Assets |
| b. | Liabilities |
| c. | Shareholders’ equity |
| d. | Additional Paid-in-Capital |
| e. | Retained earnings |
ANS: E PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The _____ account accumulates the amounts of the undistributed earnings over time.
| a. | Treasury Stock |
| b. | Cash |
| c. | Additional Paid-in-Capital |
| d. | Retained Earnings |
| e. | Common Stock |
ANS: D PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- When a firm has accumulated losses, rather than profits, the Retained Earnings account is typically called:
| a. | Negative cash balance |
| b. | Ordinary Loss |
| c. | Accumulated Excess |
| d. | Accumulated Deficit |
| e. | Insolvency |
ANS: D PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Retained earnings are
| a. | a source of financing for assets. |
| b. | cash. |
| c. | other non-cash assets. |
| d. | the sum of a firm’s dividend declarations. |
| e. | the source of net assets generated by the earnings process. |
ANS: A PTS: 1 DIF: 2 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- Retained earnings represent the source of net assets generated by the earnings process that exceed the firm’s dividend declarations. Common practice refers to the process of curtailing dividends to accumulate assets, represented by retained earnings, as _____.
| a. | operating activities |
| b. | investing activities |
| c. | external financing |
| d. | internal financing |
| e. | dividend seizure |
ANS: D PTS: 1 DIF: 2 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Firms use short-term financing for
| a. | assets they expect to convert to cash in the short run. |
| b. | assets to be used over long periods. |
| c. | liabilities they expect to convert to cash in the short run. |
| d. | liabilities to be used over long periods. |
| e. | shareholders’ equity they expect to convert to cash in the short run. |
ANS: A PTS: 1 DIF: 2 REF: pp. 116-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Firms use long-term financing for
| a. | assets they expect to convert to cash in the short run. |
| b. | assets to be used over long periods. |
| c. | liabilities they expect to convert to cash in the short run. |
| d. | liabilities to be used over long periods. |
| e. | shareholders’ equity they expect to convert to cash in the short run. |
ANS: B PTS: 1 DIF: 2 REF: p. 113
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Long-term debt imposes financing risk because it
| a. | decreases the need for shareholders’ equity. |
| b. | requires principal and interest payments. |
| c. | requires a default before filing for bankruptcy. |
| d. | can result in default, creditor or regulatory intervention in the management of the firm. |
| e. | None of these answer choices is correct. |
ANS: B PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The more variable the firm’s cash flows from operating activities, the more risk that the firm will not have sufficient cash to meet the required payments. Failure to meet these obligations can result in
| a. | default. |
| b. | creditor intervention in the management of the firm. |
| c. | regulatory intervention in the management of the firm. |
| d. | bankruptcy. |
| e. | All of these answer choices are correct. |
ANS: E PTS: 1 DIF: 2 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Which of the following is/are true regarding the balance sheet?
| a. | The balance sheet does not provide all the information an analyst wants or needs about a firm’s resources and the claims on those resources. |
| b. | Authoritative accounting guidance precludes the recognition of some resources on the balance sheet as assets and some obligations as liabilities |
| c. | Amounts reported on the balance sheet for assets, liabilities, and shareholders’ equity do not necessarily reflect current market conditions. |
| d. | Astute analysts recognize the features of the balance sheet and adjust the reported numbers. |
| e. | All of these answer choices are correct. |
ANS: E PTS: 1 DIF: 2 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Key factors in preparing a balance sheet is/are deciding
| a. | whether items meet the definitions for assets and liabilities. |
| b. | whether items meet the recognition criteria for assets and liabilities. |
| c. | how to measure the items. |
| d. | Answers a, b, and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 2 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- For a firm to recognize an asset
| a. | a resource must represent a future economic benefit that the firm controls as a result of a past transaction or exchange. |
| b. | the firm must be able to measure the resource with sufficient reliability. |
| c. | must impose a future economic sacrifice because of a past event or transaction that the firm has little or no discretion to avoid. |
| d. | Both choices a and b are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 2 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The principal objective of accounting reports as currently prepared is to present ______ the results of operations and the financial condition of the firm.
| a. | fairly |
| b. | accurately |
| c. | objectively |
| d. | subjectively |
| e. | correctly |
ANS: A PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Accountants record assets at
| a. | acquisition cost |
| b. | the present value of the future net cash flows based on estimated receipts
and operating expenses |
| c. | current economic value |
| d. | current replacement cost |
| e. | appraised value |
ANS: A PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Assume that Trader Pete’s, an organic food retailer in the United States, recently purchased a new refrigeration system for its Washington, DC, store. Trader Pete’s paid $1.3 million for the refrigeration unit and paid an additional $120,000 to modify the unit to meet its specific needs. Trader Pete’s paid $55,000 for the transportation and installation of the unit, plus $48,000 for an annual insurance premium for the first year, which begins next month. Finally, assume that Trader Pete’s hired a refrigeration technician, who is charged with the maintenance of the unit; that technician’s annual salary is $80,000. How much should Trader Pete’s record as the acquisition cost of the refrigeration unit?
| a. | $1,300,000 |
| b. | $1,420,000 |
| c. | $1,475,000 |
| d. | $1,523,000 |
| e. | $1,603,000 |
ANS: C PTS: 1 DIF: 2 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Comprehension
- On January 1, Year 3, All Business Machines (ABM) issued 1,000 shares of its common stock for a building. Real estate appraisers estimated the building to have a market value of $55,000 on the date of acquisition. The common stock of ABM sold for $50 per share on the date of the acquisition. On January 1, Year 3, ABM paid $650 in real estate transfer taxes, $500 in real estate legal fees for recording the transaction, $1,750 in property taxes for Year 3, and $2,000 for a two-year insurance policy beginning January 1, Year 3. At what amount should the building appear in the Building account of ABM on January 1, Year 3?
| a. | $51,150 |
| b. | $52,900 |
| c. | $56,150 |
| d. | $59,900 |
| e. | $61,900 |
ANS: A PTS: 1 DIF: 2 REF: pp. 112-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The acquisition cost for nonmonetary assets includes
| a. | invoice price, only. |
| b. | invoice price and transportation costs, only. |
| c. | invoice price, transportation costs, and installation costs, only. |
| d. | invoice price, transportation costs, installation costs, and handling charges, only. |
| e. | invoice price, transportation costs, installation costs, handling charges, and first year’s maintenance cost. |
ANS: D PTS: 1 DIF: 2 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- When analyzing a balance sheet
| a. | one looks for a reasonable match between the nature and mix of assets and mix of liabilities plus shareholders’ equity. |
| b. | the proportion of short-term versus long-term financing should match the proportion of current assets versus noncurrent assets. |
| c. | the mix of long-term debt versus shareholders’ equity should reflect the degree of operating risk. |
| d. | Answers a, b, and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 2 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Which of the following is not cash?
| a. | coins and currency |
| b. | bank checks and money orders |
| c. | bank deposits and time deposits |
| d. | corporate stocks and bonds that the firm plans to hold for a relatively short period of time |
| e. | All of these answer choices are categorized as cash. |
ANS: D PTS: 1 DIF: 2 REF: pp. 112-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- At December 31, Year 1, Adam Corporation has 5,000 shares of par value common stock, additional paid-in capital of $25,000, total shareholders’ equity of $80,000, and retained earnings of $45,000. What is the par value per share?
| a. | $1.00 |
| b. | $1.50 |
| c. | $2.00 |
| d. | $2.50 |
| e. | $3.00 |
ANS: C PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- At December 31, Year 1, Bolton Corporation has par value common stock with a par value of $1.50 per share, Additional paid-in capital of $60,000, total shareholders’ equity of $100,000, and retained earnings of $25,000. What is the number of common stock shares?
| a. | 5,000 |
| b. | 10,000 |
| c. | 15,000 |
| d. | 20,000 |
| e. | 25,000 |
ANS: B PTS: 1 DIF: 2 REF: pp. 111-113
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- At the end of the third year of operation, Alger Corporation has total assets equal to $100,000, liabilities totaling $90,000, and contributed capital of $30,000. What is the balance in retained earnings?
| a. | $40,000 (Dr) |
| b. | $40,000 (Cr) |
| c. | $20,000 (Dr) |
| d. | $10,000 (Cr) |
| e. | $20,000 (Cr) |
ANS: C PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- On December 30, Year 1, Plank Company entered into a contract to purchase inventory over the next year. This is an example of a(n)
| a. | debit to an intangible asset. |
| b. | debit to a tangible asset. |
| c. | credit to a current liability. |
| d. | executory contract. |
| e. | anticipatory contract. |
ANS: D PTS: 1 DIF: 2 REF: pp. 116-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-09-Financial Statements
KEY: Bloom’s: Comprehension
- A prefabricated steel storage shed is purchased for $20,000 cash and a $80,000 interest-bearing note payable over a 5-year period at an annual interest rate of 10 percent per annum. The cost to be recorded as an asset (in addition to the $100,000 purchase price) should include all of the following except
| a. | shipping and handling charges. |
| b. | insurance while in transit. |
| c. | interest on the note payable. |
| d. | reassembly and installation costs. |
| e. | All of these answer choices are costs to be recorded as assets. |
ANS: C PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The value of fixed assets (such as plant, property, and equipment) included in total assets on the statement of financial position is the
| a. | loan value |
| b. | wholesale or liquidation value |
| c. | real estate tax basis assessment |
| d. | acquisition cost reduced by accumulated deprecation |
| e. | current net realizable value |
ANS: D PTS: 1 DIF: 2 REF: pp. 121-123
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- (CMA adapted, Dec 94 #5) Several alternatives have been identified for measuring items on the statement of financial position. Which of the following alternatives may be used?
Present Value Current Cost Net Realizable Value
| a. | No No No |
| b. | No Yes Yes |
| c. | Yes Yes No |
| d. | Yes Yes Yes |
| e. | Yes No Yes |
ANS: D PTS: 1 DIF: 2 REF: pp. 124-125
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Assets are classified as current for reporting purposes when
| a. | shares of common stock in a company’s important supplier are acquired to ensure continued availability of raw materials. |
| b. | shares of common stock in another company are acquired to diversify operations. |
| c. | expenditures are made in developing new technologies or advertising products. |
| d. | they are reasonably expected to be turned into cash or to be sold or consumed during the normal operating cycle of the business. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- A liability arises when a firm
| a. | signs a new labor union contract which includes a 6% pay raise for its union employees. |
| b. | issues a purchase order for 100,000 units of inventory from a supplier over the next two years. |
| c. | receives inventory previously ordered. |
| d. | Both answers b and c are correct. |
| e. | None of these answer choices is correct. |
ANS: C PTS: 1 DIF: 2 REF: pp. 119-120
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The stockholders’ equity of a firm can be defined as
| a. | net current assets |
| b. | a residual interest |
| c. | total assets plus total liabilities |
| d. | the owners’ claim to the assets and liabilities |
| e. | None of these answer choices is correct. |
ANS: B PTS: 1 DIF: 2 REF: p. 122
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- The shareholders’ equity section of the balance sheet for a corporation generally does not include
| a. | dividends paid |
| b. | retained earnings |
| c. | par or stated value of common stock |
| d. | amounts contributed in excess of par or stated value |
| e. | None of these answer choices is correct. |
ANS: A PTS: 1 DIF: 2 REF: pp. 116-120
OBJ: LO: 4-02 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- A cereal company issues coupons that can be exchanged for boxes of cereal. It issues two million coupons that promise the retailer who redeems the coupons $1 per coupon. The probability of redemption of any one coupon is 10%. What is the amount of the liability that the company recognizes?
| a. | $2,000 |
| b. | $20,000 |
| c. | $100,000 |
| d. | $200,000 |
| e. | $2,000,000 |
ANS: D PTS: 1 DIF: 2 REF: pp. 114-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-15-Current Assets Reporting
KEY: Bloom’s: Comprehension
- Grand Metropolitan is a consumer foods company headquartered in the United Kingdom. It has followed the common practice in the U.K. of treating expenditures on product development, quality control, and advertising as an expense each year. Grand Metropolitan has now decided to recognize the full value of its brand names as an asset on the balance sheet as of September 30, Year 6. To keep the balance sheet in balance and in accordance with U.K. practice, Grand Metropolitan will likely
| a. | decrease some other asset. |
| b. | increase a current liability. |
| c. | increase a noncurrent liability. |
| d. | increase shareholders’ equity. |
| e. | decrease shareholders’ equity. |
ANS: D PTS: 1 DIF: 2 REF: pp. 116-118
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-15-Current Assets Reporting
KEY: Bloom’s: Comprehension
- Generally accepted accounting principles in the United States require firms to
| a. | capitalize and amortize all research and development costs over the future expected benefit period. |
| b. | capitalize and amortize all research and development costs over a period no greater than 5 years. |
| c. | capitalize and amortize all research and development costs over a period no greater than 10 years. |
| d. | expense all research and development costs in the period incurred. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 2 REF: pp. 119-120
OBJ: LO: 4-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | ACBSP: APC-02-GAAP KEY: Bloom’s: Comprehension
- Which of the following is/are true regarding the “reliability” of a reported amount?
| a. | that the amount corresponds to what it purports to represent |
| b. | is reasonably free from error and bias in the sense that multiple independent measurers would agree on the amount. |
| c. | neither U.S. GAAP nor IFRS specifies what amount of reliability is “sufficient,” suggesting that this judgment is context-specific and subjective, not quantifiable. |
| d. | Answers a, b, and c are correct. |
| e. | None of these answer choices is correct. |
ANS: D PTS: 1 DIF: 2 REF: pp. 124-125
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