352180209 Test Bank Financial Accounting Theory PDF

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TEST BANK – FINANCIAL ACCOUNTING THEORY Which of the following accounts is reported under equity of the statement of financial position? a. Dividend declared and paid b. Share capital–ordinary c. Revenue d. All of the choices are reported in the equity section of the statement of financial position ...

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TEST BANK – FINANCIAL ACCOUNTING THEORY 1. Which of the following accounts is reported under equity of the statement of financial position? a. Dividend declared and paid b. Share capital–ordinary c. Revenue d. All of the choices are reported in the equity section of the statement of financial position 2. Revenue is a. Impacted by debit and credit in the same way that expenses are impacted by debit and credit. b. A subdivision of equity, providing information about why equity increased. c. Reported in the statement of financial position as a current item. d. All of the choices are correct regarding revenue. 3. A document prepared to prove the equality of debits and credits after all adjustments is the a. Adjusted statement of financial position b. Adjusted trial balance c. Adjusted financial statements d. Postclosing trial balance 4. A cash refund to a customer for merchandise returned should be entered in a. Sales journal b. Purchases journal c. Cash payments journal d. Cash receipts journal 5. All of the following adjusting entries affect both the statement of financial position and income statement, except a. Accrued expenses b. Prepaid expenses using the asset method c. Unearned income using the income method d. All of these affect both the statement of financial position and income statement. 6. The second level of the Conceptual Framework a. Provides conceptual building blocks that explain the qualitative characteristics of accounting information b. Defines the elements of financial statements c. Serves as a bridge between the “why” and the “how” of accounting d. All of the choices are correct 7. The IASB has given entities the option of using fair value to report all of the following, except a. Receivables b. Investments c. Financial liabilities d. All of the choices can be measured at fair value. 8. Which of the following is a benefit of providing financial information? a. Potential litigation b. Auditing c. Disclosure to competition d. Improved allocation of resources 9. Which statement is incorrect in relation to the concept of capital? a. The selection of the appropriate concept of capital should be based on the needs of the users of financial statements. b. The principal difference between the financial capital concept and the physical capital concept is the treatment of the effects of changes in the prices of assets and liabilities. c. The concept of capital maintenance determines the accounting model used in the preparation of the financial statements.

d. The physical capital concept is adopted by most entities in preparing financial statements.

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10. Which of the following represents a form of communication through financial reporting but not through financial statements? a. Statement of financial position b. President's letter c. Income statement d. Notes to financial statements 11. What would be an advantage of having all countries adopt and follow the same accounting standards? a. Consistency b. Comparability c. Lower preparation costs d. Comparability and lower preparation costs 12. An objective of financial reporting is to provide a. Information about the investors in the business entity. b. Information about the liquidation value of the resources held by the entity. c. Information that is useful in assessing cash flow prospects. d. Information that will attract new investors. 13. The statement of financial position information is useful for all of the following, except a. Assessing risk b. Evaluating liquidity c. Evaluating financial flexibility d. Determining free cash flows 14. The statement of financial position a. Omits many items that are of financial value. b. Makes very limited use of judgment and estimate c. Uses fair value for most assets and liabilities. d. All of the choices are correct regarding the statement of financial position. 15. Which is a noncurrent asset? a. Amount due from customer within a period of 12 to 18 months in accordance with normal credit terms. b. Equity investment acquired principally for generating a profit from short-term fluctuation in price c. Goods in process of production for sale in the ordinary course of business d. Cash fund set aside for payment of equipment to be delivered a month after reporting period. 16. Limitations of the income statement include all of the following, except a. Items that cannot be measured reliably are not reported. b. Only actual amounts are reported in determining net income. c. Income measurement involves judgment. d. Income numbers are affected by the accounting method employed. 17. The income statement information would help in which of the following tasks? a. Evaluate the liquidity of an entity b. Evaluate the solvency of an entity c. Estimate future cash flows d. Estimate future financial flexibility 18. Which of the following is an example of managing earnings down? a. Changing estimated bad debts from higher percent to lower percent of sales. b. Revising the estimated life of equipment from ten years to five years. c. Not writing off obsolete inventory. d. Reducing research and development expenditures.

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19. Which of the following is an example of managing earnings up? a. Decreasing estimated residual value of equipment. b. Writing off obsolete inventory. c. Underestimating warranty claims. d. Accruing a contingent liability for an ongoing lawsuit. 20. What might a manager do during the last quarter of a fiscal year if the intent is to improve current annual net income? a. Increase research and development activities. b. Relax credit policies for customers. c. Delay shipments to customers until after the end of the fiscal year. d. Delay purchases from suppliers until after the end of the fiscal year. 21. Investors and creditors use income statement information for each of the following, except a. To evaluate the future performance of the entity. b. To provide a basis for predicting future performance. c. To help assess the risk and uncertainty of achieving future cash flows. d. All of these are provided by an income statement. 22. IFRS requires that a single amount be disclosed within the income statement for a. The post-tax profit or loss on discontinued operations and the pretax gain or disposal of discontinued operational assets. b. The pretax profit or loss on discontinued operations and the post-tax gain or disposal of discontinued operational assets. c. The pretax profit or loss on discontinued operations and the pretax gain or disposal of discontinued operational assets. d. The post-tax profit or loss on discontinued operations and the post-tax gain or disposal of discontinued operational assets.

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23. Which statement is correct in relation to the income statement? a. Additional disclosure is required for the function of expense when the nature of expense classification is used. b. Additional disclosure is required for the nature of expense when the function of expense classification is used. c. No additional disclosure is required for nature of expense under any circumstance d. Additional disclosure is always required for the function of expense. 24. The results of discontinued operations should be presented as a single amount after tax in a. Statement of financial position b. Statement of changes in equity c. Income statement separately from income from continuing operations d. Income statement as component of income from continuing operations 25. Which criterion is not required to be met in order for an operation to be classified as discontinued? a. The operation should represent a separate major line of business or geographical area. b. The operation is part of a single plan to dispose of a separate major line of business or geographical area. c. The operation is a subsidiary acquired exclusively with a view to resale. d. The operation must be sold within three months after the reporting period. 26. Disposal group is defined to include a. Current assets and directly associated liabilities b. Noncurrent assets and directly associated liabilities c. Current assets and noncurrent assets d. Current assets, noncurrent assets and directly associated liabilities

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27. All of the following are required to appear in the statement of changes in equity, except a. Cumulative effect of change in accounting policy and correction of error b. Total comprehensive income c. Profit or loss d. Net cash received from issue of shares during the period 28. Financing cost is reported in which section of the statement of comprehensive income? a. Gross profit b. Noncontrolling interest c. Operating activities d. Income from continuing operation. 29. Application of the full disclosure principle a. Is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits. b. Is violated when important financial information is buried in the notes. c. Is demonstrated by supplementary information presenting the effects of changing prices. d. Requires that the financial statements be consistent and comparable. 30. The full disclosure principle is best described by which of the following? a. All information related to an entity's business and operating objectives is required to be disclosed in the financial statements. b. Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements. c. Enough information should be disclosed in the financial statements so a person wishing to invest in the shares of the company can make a profitable decision. d. Disclosure of any financial facts significant enough to influence the judgment of an informed reader. 31. Which of the following is not commonly required disclosure of accounting policies? a. The measurement basis used in the financial statements b. Personnel involved in drafting the summary of significant accounting policies c. Disclosures required by other IFRS d. The nature of an entity’s operations and the policies that the users need to know 32. The disclosure of accounting policies is important to financial statement readers in determining a. Net income for the year. b. Whether accounting policies are consistently applied from year to year. c. The value of obsolete items included in ending inventory. d. Whether the working capital position is adequate for future operations. 33. If a business entity entered into certain related party transactions, it would be required to disclose all of the following information, except a. Nature of the relationship between the parties to the transactions. b. Nature of any future transactions planned between the parties and the terms involved. c. Peso amount of the transactions. d. Amounts due from or to related parties at the end of reporting period. 34. Events that occur after the end of current period but before the financial statements are issued and provide evidence about conditions that existed at year-end and affect the realizability of accounts receivable should be a. Discussed only in the management commentary section of the annual report. b. Disclosed only in the notes to the financial statements. c. Used to record an adjustment to bad debt expense for the year. d. Used to record an adjustment directly to the retained earnings account

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35. Which of the following subsequent events would generally require disclosure but no adjustment of the financial statements? a. Retirement of the company president b. Settlement of litigation when the event that gave rise to the litigation occurred prior to the statement of financial position date. c. Employees strike d. Issue of a large amount of ordinary shares. 36. Which should be disclosed in the summary of significant accounting policies? a. Executory contract b. Cumulative effect of change in accounting policy c. Claim of equity holders d. Depreciation method followed 37. An entity changed the method of pricing inventories from average cost to FIFO. What type of accounting change does this represent? a. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. b. A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. c. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated. d. A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be restated. 38. All of the following statements are true regarding a change in accounting policy as preferable or as an improvement, except a. Diversity in situations and characteristics of the items encountered in practice require the use of professional judgment. b. Changes in accounting policy are appropriate only when the newly adopted generally accepted accounting policy is more relevant and reliable than the existing one. c. Changes in accounting policy are appropriate only when an entity demonstrates an improved income tax effect. d. All of the statements are true. 39. A required format for the presentation of statement of financial position is a. Prescribed by the standard. b. Not prescribed but details are found in the Conceptual Framework c. Not prescribed and no guidance is provided in the standard. d. Not prescribed but guidance is provided in the standard for a suitable format 40. Which is not a line item in the statement of comprehensive income? a. Revenue b. Profit or loss of discontinued operations c. Profit or loss attributable to noncontrolling interest d. Ending inventory 41. A Cash Over and Short account a. Is not generally accepted. b. Is debited when the petty cash fund proves out over. c. Is debited when the petty cash fund proves out short. d. Is a contra account to cash. 42. Under the imprest petty cash system, expenses out of the petty cash fund are recorded a. Wherever the entity wishes b. Upon replenishment c. At the end of reporting period d. Upon disbursement

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43. Which of the following statements is incorrect regarding receivables? a. Receivables are a financial asset b. Receivables are financial instruments. c. Nontrade receivables are generally reported as separate items in the statement of financial position. d. Accounts receivable are written promises of the purchaser to pay for goods or services. 44. Why do entities provide trade discounts? a. To avoid frequent changes in catalogs. b. To induce prompt payment. c. To easily alter prices for different customers. d. To avoid frequent changes in catalogs and to easily alter prices for different customers. 45. What is the normal journal entry when writing off an account as uncollectible under the allowance method? a. Debit allowance for doubtful accounts, credit accounts receivable. b. Debit allowance for doubtful accounts, credit bad debt expense. c. Debit bad debt expense, credit allowance for doubtful accounts. d. Debit accounts receivable, credit allowance for doubtful accounts. 46. Which of the following statements is incorrect regarding the classification of accounts and notes receivable? a. Segregation of the different types of receivables is required if material. b. Disclose any loss contingencies that exist on the receivables. c. Any discount or premium resulting from the determination of present value of notes receivable is an asset or liability, respectively. d. Valuation accounts should be appropriately offset against the proper receivable accounts. 47. An entity is a retailer specializing in selling computers and related equipment. Which of the following would not be reported in the merchandise inventory account at year-end? a. Computer purchased for resale b. Shelving materials purchased c. Freight costs related to the computers purchased d. All of the choices are included in the merchandise inventory account 48. How is a significant amount of consignment inventory reported in the statement of financial position? a. The inventory is reported separately in the consignor's statement of financial position. b. The inventory is combined with other inventory in the consignor's statement of financial position. c. The inventory is reported separately in the consignee's statement of financial position. d. The inventory is combined with other inventory in the consignee's statement of financial position. 49. During the year, an entity transferred inventory to another entity and agreed to repurchase the merchandise early in next year. The transferee used the inventory as collateral to borrow from a bank, remitting the proceeds to the transferor. When the transferor repurchased the inventory, the transferee used the proceeds to repay the bank loan. This transaction is known as a. Consignment b. Installment sale c. Assignment for the benefit of creditors d. Product financing arrangement 50. When inventory is misstated, the presentation lacks a. Relevance b. Faithful representation c. Comparability d. All of the choices are correct

Page 7 51. Costs which are inventoriable include all of the following, except a. Costs that are directly connected with the bringing of goods to the place of business. b. Costs that are directly connected with the converting of goods to a salable condition. c. Buying costs of a purchasing department. d. Selling costs of a sales department. 52. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the average cost method? a. Prices decreased. b. Prices remained unchanged. c. Prices increased. d. Price trend cannot be determined from information given. 53. Which of the following is likely to be a circumstance where the specific identification criteria can be met? a. Unit price is low. b. Inventory turnover is low. c. Inventory quantities are large. d. All of the choices are circumstances where the criteria are likely to be met. 54. What is a LIFO reserve? a. The difference between the LIFO inventory and the amount used for internal reporting purposes. b. The tax savings attributed to using the LIFO method. c. The current effect of using LIFO on net income. d. Change in the LIFO inventory during the year. 55. Which of the following is not an accurate statement concerning revenue recognition? a. Revenue from selling products is recognized at the date of sale. b. Revenue from services rendered is recognized when cash is received or when services have been performed. c. Revenue from permitting others to use entity assets is recognized as time passes or as the assets are used. d. Revenue from disposing of assets other than products is recognized at the date of sale. 56. Revenue from layaway sales is recognized a. When the first installment is made b. When the final installment is made. c. Upon delivery of the goods d. When substantial payment is made 57. What is generally the most uncertain factor in the revenue recognition process? a. Measurability of the resource received by the seller. b. Realizability of the resource to be received by the seller. c. Fulfillment of the seller’s responsibility in the transaction d. Relevance of the resource received by the seller. 58. When activities involve production through natural growth or aging of biological assets, revenue is earned as the plant or living animal grows. a. Completion of production basis b. Multiple-deliverable arrangements approach c. Accretion approach d. Cost-recovery or zero-profit approach 59. The criteria for recognition of revenue at the completion of production of precious metals include which of the following? a. Sale price is reasonably assured. b. No significant costs are involved in distributing the product. c. Units are interchangeable....