Accounting Theory Practice Questions
Course Introduction
Accounting Theory explores the fundamental principles, concepts, and frameworks that underpin the practice of accounting. This course examines the philosophical and conceptual foundations of accounting, the development and application of accounting standards, and contemporary issues shaping the evolution of the discipline. Students will analyze the impact of social, ethical, and economic factors on accounting decision making, and evaluate competing accounting theories in the context of financial reporting and disclosure. Emphasis is placed on critical thinking and the ability to interpret and critique accounting practices within a theoretical framework.
Recommended Textbook
Advanced Accounting Updated 1st Canadian Edition by Gail Fayerman
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10 Chapters
580 Verified Questions
580 Flashcards
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Page 2
Chapter 1: Accounting for Investments
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) Leno Ltd. has invested in several domestic manufacturing corporations. Which of the following investments would most likely be accounted for under the equity method on Leno's financial statements?
A)A holding of 20,000 of the 25,000 outstanding common shares of Riser Co.
B)A holding of 3,000 of the 10,000 outstanding preferred shares of Riser Co.
C)A holding of 15,000 of the 50,000 outstanding common shares of Riser Co.
D)A holding of 5,000 of the 60,000 outstanding common shares of Riser Co.
Answer: C
Q2) What is a joint operation?
Answer: In a joint operation, the investor has a contractual right or obligation to the assets and liabilities of the operation.
A joint arrangement that is not structured as a separate entity is a joint operation. However, a separate entity could still be a joint operation. A joint operation is usually a joint arrangement that involves the use of the assets and other resources of the parties, often to manufacture and sell joint products.
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3
Chapter 2: Business Combinations
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55 Flashcards
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Sample Questions
Q1) At the acquisition date, the contingent consideration is:
A)Measured at book value.
B)Classified either as equity or as a liability.
C)Classified as equity.
D)Classified as a liability.
Answer: B
Q2) Where the acquirer buys shares of the acquiree from the shareholders, there is _____ effect on the acquiree records.
A)considerable
B)minimal
C)contingent
D)no
Answer: D
Q3) Having recognized any contingent liabilities of the acquiree as liabilities, the acquirer must then determine a subsequent measurement for the liability. The liability is initially recognized at book value.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Consolidation: Wholly Owned Subsidiaries
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Sample Questions
Q1) Carson Company purchased 100% of the outstanding common shares of Towson Company on December 31, 2011 for $170,000. At that date, Towson had $100,000 of outstanding common stock and retained earnings of $30,000. It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000. The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value. Inventory turns over four times a year. Both companies pay tax at the rate of 30%. It is now 2014 and Carson has been very pleased with how profitable its investment in Towson has been. On Carson's consolidated financial statements at December 31, 2014, what balance should be reported for goodwill?
A)$30,000.
B)$33,000.
C)$19,000.
D)$40,000.
Answer: B
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Chapter 4: Consolidations: Intragroup Transactions
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Sample Questions
Q1) According to IFRS principles, revenues and expenses resulting from intragroup transactions that require consolidation adjustments are to be made as follows:
A)In the current period only.
B)In the prior period.
C)Recognized in assets only.
D)None of the above.
Q2) Consolidated financial statements are prepared for:
A)Management of the consolidated company.
B)Shareholders of the parent.
C)Creditors of the consolidated company.
D)All of the above.
Q3) Generally dividends paid and received between entities within a group do not require tax-effect adjustments upon consolidation.
A)True
B)False
Q4) Interest payments result in revenues in one member of the group and expenses in another.
A)True
B)False
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Chapter 5: Consolidation: Non-Controlling Interest
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Sample Questions
Q1) Which of the following statements regarding the partial goodwill method is FALSE?
A)The NCI is measured at the NCI's proportionate share of the fair value of the acquiree's identifiable net assets.
B)The NCI does not get a share of any equity relating to goodwill.
C)Goodwill consists of the consideration transferred plus previously acquired investment by parent plus parent's share of the net fair value of the identifiable net assets of the subsidiary.
D)The only goodwill recognized is that acquired by the parent in the business combination.
Q2) There are three main concepts of consolidation - proprietary, entity and parent entity.
A)True
B)False
Q3) Ownership interests in a subsidiary entity that do not belong to the parent entity are known as un-owned interests.
A)True
B)False
Q4) Describe the key characteristics of the entity concept of consolidation.
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Chapter 6: Accounting for Investments in Associates and Joint Ventures
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58 Flashcards
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Sample Questions
Q1) Describe how dividends from a subsidiary, associate and joint venture are accounted for by a parent (entity).
Q2) Where dividends are paid/declared by an associate or joint venture and the entity prepares consolidated financial statements, the dividend revenue recognized in the ______________ accounts is eliminated on consolidation.
A)parent's
B)associate's
C)subsidiary's
D)joint venturer's.
Q3) All dividends paid or payable by an investee to an investor are to be recognized as revenue by the investor when the investor is also a parent company and will be preparing consolidated financial statements.
A)True
B)False
Q4) Adjustments for any goodwill arising on acquisition would occur on impairment of goodwill.
A)True
B)False
Q5) Describe how to account for losses incurred by associate and joint venturers.
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Chapter 7: Accounting for Foreign Currency
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57 Flashcards
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Sample Questions
Q1) Non-monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in other comprehensive income.
A)True
B)False
Q2) What is the effect of fluctuations in exchange rates on accounts payable?
A)Deferred and amortized.
B)Recognized immediately in income.
C)Recognized if losses, deferred if gains.
D)Deferred to maturity.
Q3) What are the steps involved in the translation of the financial statements into a presentation currency?
Q4) How does a company establish the currency in which its books and records should be maintained?
Q5) Which of the following items is a non-monetary item?
A)Accounts receivable.
B)Inventory.
C)Accounts payable.
D)Cash.
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Chapter 8: Accounting for Foreign Investments
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Sample Questions
Q1) A functional currency is a reflection of the primary economic environment in which an entity operates.
A)True
B)False
Q2) Fair value adjustments must be reflected on the balance sheet at the closing rate for the year.
A)True
B)False
Q3) Hedging transactions with other entities within the group qualify for hedge accounting in the consolidated financial statements of the group.
A)True
B)False
Q4) Under ASPE, the ______________ is assumed to be the reporting currency, although any currency can be determined to be the ______________ currency.
A)Canadian dollar; reporting
B)U)S. dollar; foreign
C)Canadian dollar; functional
D)U)S. dollar; reporting.
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Page 10
Chapter 9: Reporting for Not-For-Profit Organizations
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Sample Questions
Q1) Under the CICA Handbook, a large not-for-profit museum or art gallery ________.
A)must capitalize the cost of collections.
B)must only disclose the cost of collections in the notes to the financial statements.
C)must expense the cost of collections.
D)may capitalize the cost of collections.
Q2) Which of the following would result in higher income under the restricted fund basis as compared to the deferral method for a not-for-profit organization in its first year of operations?
A)When unrestricted cash donations are received.
B)When funds are expended on capital assets.
C)Where pledges are received for a building to be constructed in a future year.
D)When cash donations are received for land to be purchased in a future year.
Q3) A not-for-profit organization may disaggregate its financial statements into funds based on legal, contractual or voluntary actions of the entity.
A)True
B)False
Q4) What is Encumbrance Accounting?
Q5) What is a restricted fund?
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Chapter 10: Reporting for Public Sector Entities
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Sample Questions
Q1) A government business enterprise's net income or loss is reported on the government's statement of operations. In addition, ________.
A)the accounting principles are not adjusted to government accounting principles.
B)the investment should be reported using the cost method.
C)the investment account should not be adjusted for the net income or loss.
D)its assets and liabilities are added to the government's statement of financial position.
Q2) Regarding the qualitative characteristics of public sector reporting, which of the following items apply to "relevance?"
A)Representational faithfulness.
B)Completeness.
C)Neutrality.
D)Timeliness.
Q3) Which of the following is a non-financial asset?
A)Investment in a government enterprise.
B)Crown land.
C)Available-for-sale investment.
D)Tangible capital asset.
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