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What are the four financial statements that are needed for an annual report to be complete?
A balance sheet
A combined income and other comprehensive income statement
A statement of cash flows
A statement of shareholders’ equity
The FASB’s standard setting process begins when the board adds a project to its technical agenda. What are the steps in the FASB’s accounting standard setting process?
1. The board deliberates at one or more public meetings.
2. The board issues an Exposure Draft or Discussion Paper.
3. The staff analyzes comment letters.4. The board issues an Accounting Standards Update. (ASU)
Match the fair value hierarchy level of input with its definition
Level __ Quoted market prices in active markets for identical assets or liabilities
Level __ Inputs other than quoted prices that are observable for the asset or liability.
Level __ Unobservable inputs that reflect the entity’s own assumptions.
Enhancing qualitative characteristics
The IASB’s main objective is to develop a single set of standards that have what characteristic?
Which accounting model best meets the primary goal of users of financial reporting?
Which criteria must be met for the realization principle to be satisfied?
-The earnings process is virtually complete.
-There is reasonable certainty as to the collectability of the assets to be received.
________ reporting fosters the efficient allocation of resources in capital markets.
If a company elects the fair value option for a financial asset or financial liability, how are the changes in fair value reported in the financial statements?
1. Determine the facts of the situation.
2. Identify the ethical issue and stakeholders.
3. Identify the values related to the situation.
4. Specify the alternative courses of action.
5. Evaluate the courses of action in terms of their consistency.
In developing standards, the FASB considers the:
Concerns and opinions of constituents
Economic transactions that standards will address
Select the four criteria used to determine if an item is recognized in the financial statements according to SFAC 5.
The cost approach determines fair value by estimating the amount that would be required to buy or construct an _____ of similar quality or condition.
Which other sources, in addition to financial statements, can external users of an enterprise consult for their financial information needs?
List the private accounting standard setting bodies in chronological order beginning with the oldest organization.
Committee on Accounting Procedure
Accounting Principles Board
Financial Accounting Standards Board
The requirement that the economic activities of a business owner should be separated from the activities of the business is an example of which accounting assumption?
What are the basic assumptions underlying U.S. GAAP?
What element of financial statements is described by the following definition? “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 past transactions or events.”’
Match the market with its type of transactions
Initial market – Secondary market
Stocks and bonds are traded between individuals and institutional investors.
Cash is provided to the corporation through the sale of shares and bonds to investors.
Initial market – Cash is provided to the corporation through the sale of shares and bonds to investors.
Secondary market – Stocks and bonds are traded between individuals and institutional investors.
Which of the following organizations has the legal authority to require or permit the use of IFRS in the U.S.?
Which organizations provide financial information to external users?
-the company’s financial performance.
-revenues and expenses for the period.
List the financial statements in the order they are prepared.
1. Income Statement
2. Statement of Owners’ Equity
3. Balance Sheet
4. Statement of Cash Flows
A proper journal entry contains the ____, the account and amount debited, the account and amount credited, and a brief explanation of the transaction.
The components of the income statement are usually classified according to:
1. Prepare an unadjusted trial balance.
2. Prepare adjusting entries.
3. Prepare an adjusted trial balance.
4. Prepare financial statements.
5. Close the temporary accounts.
Accumulated depreciation is:
a ________ account and a ________ account
The third step in the accounting process cycle is to:
The financial statement where the deferred revenue account is found is the
On October 1, 2011, Arcelia Corp. pays $24,000 for two years insurance. The transaction is appropriately recorded in a prepaid insurance account. On December 31, 2011, Arcelia should make an adjusting entry for the insurance expired, which includes a
The payment of employee salaries for the week and borrowing $10,000 from the bank are examples of
A _________ is an event that has a dual effect on the accounting equation.
Prepayments occur when
To increase the accumulated depreciation account, you would ______ the account.
Loss from sale of long-term investment and interest expense are classified as what on the income statement?
_________ are expensed in a later period than cash was paid
The primary function of financial accounting is to provide financial information to ________ users.
Millburg Corp. uses the periodic inventory method. Millburg’s beginning inventory is $10,000. During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is
Accrued liabilities are costs incurred in an accounting period..
after expense recognition or after revenue recognition
Mann Corporation signed a note with the principal and interest due in 6 months. The stated rate of interest on the note was 8%. If Mann accrues three months of interest at year-end, the formula Mann will use will be:
Which of the following represents the net income earned by a corporation and not yet paid to shareholders?
What is the order of current assets on the balance sheet?
Cash and cash equivalents
U.S. GAAP – _________ liabilities are presented first
IFRS – _________ liabilities are presented first
Finished goods, goods directly consumed in production, goods in production are included in
Quick assets divided by current liabilities is which ratio?
Note receivable due in 5 years and cash reserved to purchase land are included in
Trademarks, copyrights, and patents may be recorded on the __________ as ____________
U.S. GAAP – _______ a minimum list of items to be presented
IFRS – _______ a minimum list of items to be presented
Long-lived, used in normal operations, tangible are common characteristics of what?
The effectiveness of internal control and the fairness of the financial statements are included in the
Investments in stock and debt securities of other corporations are included as ______ investments if the company has the ability and intent to sell those securities within the next 12 months.
How are current liabilities satisfied?
The creation of other current liabilities
The use of current assets
The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on account receivable is referred to as the
Common stock and additional paid-in capital represent
________ lists the assets, liabilities, and stockholders’ equity as of a specific date.
Salaries payable, warranty liabilities, and interest payable are
Accrued compensation, utilities payable, and taxes payable are
The SEC requires disclosures on compensation to
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes
A ____ is an increase in equity from a peripheral or incidental transaction.
How are discontinued operations reported?
Below income from continuing operations,
With tax applied to the discontinued operation,
As a separate line item on the income statement
Where are the effects of discontinued operations reported on the income statement?
net income less any preferred stock dividends is divided by the weighted average common shares outstanding.
provides information about the cash receipts and disbursements of a company that occurred during a period.
-An impairment loss for the asset
-Operating income or loss of the component during the reporting period
The three types of accounting changes are a change in accounting ______, a change in accounting ______, and a change in reporting ______.
all revenues, expenses, gains, and losses must be removed from continuing operations and the tax expense effect is removed from continuing operations.
Which of the following terms is also used as a heading for an income statement?
outflows of resources incurred while generating revenue
In which section of the income statement is income tax expense reported?
Gains, income tax expense, expenses are included in calculating what on the income statement
Revenues, expenses, gains, losses, and income tax related to a _________ operation must be removed from continuing operations and reported separately on the income statement.
The matching principle requires that expenses are recorded in the
Management’s assessment of permanent earnings are referred to as what?
Income from continuing operations includes the revenues, expenses, gains, and losses that are likely to
Below income from continuing operations, with tax applied to the discontinued operation, and as a separate line item on the income statement are the ways ______________ are reported
Investing activities involve the acquisition and sale of
Non-operating investment assets,
Long-lived assets used in business operations
summarizes the profit-generating activities that occurred during the reporting period?
If discontinued operations have a material effect on the income statement, they must be reported
Accounting standards in the United States are currently set by
Which of the following is not a component of relevance as defined in the FASB’s conceptual framework?
a. Free from error.
c. Predictive value.
d. Confirmatory value.
Which of the following is not a measurement attribute defined in the FASB’s conceptual framework?
a. Net realizable value.
b. Historical cost.
c. List price.
d. Fair value.
Which of the following is not true?
a. The fair value hierarchy reflects the subjectivity of inputs used to compute fair values.
b. Level 1 of the fair value hierarchy refers to quoted market prices that can be directly observed.
c. Level 3 of the fair value hierarchy refers to inputs that are not directly observable, and so must be based on the entity’s own assumptions.
d. Level 3 inputs are preferred to Level 2, which are preferred to Level 1.
Level 1 inputs are most preferable because they are the least subjective. Level 3 inputs are the least preferable because they are based on the entity’s own assumptions.
Temporary accounts would not include:
a. Salaries expense.
b. Accounts receivable.
c. Rent revenue.d. All of these answers are incorrect
Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability.
b. Debiting an expense.
c. Debiting cash.
d. Crediting an expense.
When an expense is incurred, it is recorded as a debit to temporary owners equity account which is in this case salaries expense.
The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash.
b. A debit to cash and credits to common stock and retained earnings.
c. A debit to cash and a credit to common stock.
d. All of these answer choices are incorrect.
The Contra Costa Times Company reported an $17,200 liability in its 2016 balance sheet for subscription revenue received in advance. During 2017, $68,000 was received from customers for subscriptions and the 2017 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2017 balance sheet?
If expenses exceed revenues for the accounting period, the income summary account:
a. Will have a debit balance after closing.
b. Will have a debit balance prior to closing.
c. Will have a credit balance prior to closing.
d. All of these answer choices are incorrect.
Dan White Draperies maintains its records on a cash basis. During 2016, the company collected $75,000 from customers and paid $21,000 in expenses. Depreciation expense of $8,000 would have been recorded on an accrual basis. Over the course of the year, accounts receivable increased $7,000, prepaid expenses decreased $5,000, and accrued liabilities decreased $4,000. Dan's accrual basis net income was:
Current assets include cash and all other assets expected to become cash or be consumed:
a. Within one year.
b. Within one operating cycle.
c. Within one year or one operating cycle, whichever is shorter.
d. Within one year or one operating cycle, whichever is longer.
Which of the following is most likely to be reported as a noncurrent asset:
a. Accounts receivable
c. Prepaid rent
Which of the following represents tangible, long-lived assets used in the operations of the business?
a. Current assets
c. Property, plant, and equipment
d. Intangible assets
Which of the following transactions would increase a company’s liquidity ratios?
a. Receive cash from customers on accounts receivable.
b. Purchase office supplies with cash.
c. Pay dividends to shareholders.
d. Borrow cash by signing a three-year note.
Which of the following captions would more likely be found in a single-step income statement?
a. Total revenues and gains.
b. Gross profit.
c. Operating income.
d. All of these answers are incorrect.
A single-step income statement groups together all revenues and gains.
The Cansela Baseball Bat Company reported income before taxes of $375,000. This amount included a $75,000 loss on discontinued operations. The amount reported as income from continuing operations, assuming a tax rate of 40%, is:
[$375,000 (income before income taxes) + $75,000 (loss on discontinued operations)] = $450,000
$450,000 × [1.0 – 0.4 (tax rate)] = $270,000
The Trident Corporation’s results for the year ended December 31, 2016, include the following material items:
Sales rev: $8,200,000. COGS: $4,800,000. S&A exp: $2,000,000. Gain on sale of investments: $300,000. Loss on disc. ops: $1,200,000. Restructuring costs: $280,000Trident Corporation’s income from continuing operations before income taxes for 2016 is:
$8,200,000 – 4,800,000 -2,000,000 + 300,000 – 280,000 = $1,420,000
Each of the following would be reported as an item of other comprehensive income except:
a. Gains from and amendments to postretirement benefit plans.
b. Foreign currency translation gains.
c. Gains on sale of investments.
d. Unrealized losses on investments accounted for as securities available for sale.
Bledsoe Motors reported revenue of $7,500,000 for its year ended December 31, 2016. Accounts receivable at December 31, 2015 and 2016, were $480,000 and $532,500, respectively. Using the direct method for reporting cash flows from operating activities, Bledsoe Motors would report cash collected from customers of:
$480,000 + 7,500,000 – 532,500 = $7,447,500
Kringle Pastries reported net income of $432,000 for its year ended December 31, 2016. Purchases of merchandise totaled $304,000. Accounts payable balances at the beginning and end of the year were $72,000 and $66,000, respectively. Beginning and ending inventory balances were $88,000 and $92,000, respectively. Assuming that all relevant information has been presented, Kringle Pastries would report operating cash flows of:
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