Advanced Financial Reporting
Exam Answer Key
Course Introduction
Advanced Financial Reporting focuses on complex financial accounting and reporting issues faced by corporations. This course delves into topics such as consolidated financial statements, foreign currency transactions, accounting for business combinations, segment and interim reporting, and the analysis of financial statements under International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). Emphasis is placed on understanding advanced measurement and disclosure issues, interpreting financial information for stakeholders, and applying regulatory and ethical considerations in financial reporting. Through problem-solving and case studies, students develop analytical skills to tackle real-world financial reporting challenges.
Recommended Textbook
Intermediate Accounting 8th Edition by J.
David Spiceland
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Page 2
Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Q1) Materiality can be affected by the dollar amount of an item,the nature of the item,or both.
A)True
B)False
Answer: True
Q2) If a company has declared bankruptcy,its financial statements likely violate:
A)The fair value measurement approach.
B)The present value measurement approach.
C)The stable monetary unit assumption.
D)The going concern assumption.
Answer: D
Q3) Compute Amazon's balance in cash at the beginning of the year.
Answer: Beginning balance in Cash + Net increase in Cash = Ending balance in Cash Therefore,Beginning balance in Cash = Ending balance in Cash - Net increase in Cash = $1,022 - 9 = $1,013
Q4) Compute net income for the first year for Tri Fecta.
Answer: 11ea906f_5651_c386_a7a0_1fc292a03eb4_TB2444_00
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Chapter 2: Review of the Accounting Process
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Q1) Supplies expense
Answer: 11ea906f_564c_450e_a7a0_6528e8fc03e3_TB2444_00
Q2) Sold inventory for cash.
Answer: 11ea906f_564d_086b_a7a0_03e8047045f2_TB2444_00
Q3) Temporary accounts would not include:
A)Salaries payable.
B)Depreciation expense.
C)Supplies expense.
D)Cost of goods sold.
Answer: A
Q4) What is an accrued liability?
Answer: An accrued liability results from an expense being incurred prior to cash payment.Examples include interest and salaries and wages payable.
Q5) When converting an income statement from a cash basis to an accrual basis,expenses:
A)Exceed cash payments to suppliers.
B)Equal cash payments to suppliers.
C)Are less than cash payments to suppliers.
D)May exceed or be less than cash payments to suppliers.
Answer: D
4
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Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) What is the amount of working capital for Symphony?
A)$ 98.
B)$143.
C)$128.
D)$113.
Answer: C
Q2) Altoid Co.'s acid-test ratio.Round your answer to two decimal places.
Answer: ($150 + 200 + 300)/$450 = 1.44 Acid-test ratio
Q3) Horizontal analysis involves expressing each item in the financial statements as a percentage of an appropriate total,or base amount,within the same year.
A)True
B)False
Answer: False
Q4) What would Symphony report as total current assets?
A)$823.
B)$838.
C)$843.
D)$1,696. Answer: A
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Chapter
the Statement of Cash Flows
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Q1) Briefly define discontinued operations and explain how they are reported according to U.S.GAAP.
Q2) Rowdy's would report net cash inflows (outflows)from operating activities in the amount of:
A)$(80).
B)$120.
C)$200.
D)$420.
Q3) Cash flows from investing activities do not include:
A)Proceeds from issuing bonds.
B)Payment for the purchase of equipment.
C)Proceeds from the sale of marketable securities.
D)Cash outflows from acquiring land.
Q4) Cash flows from investing do not include cash flows from:
A)Lending money to another corporation.
B)The sale of equipment.
C)Borrowing.
D)The purchase of other corporation's securities.
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Q5) Required: Prepare a 2016 separate statement of comprehensive income for Kroeger Inc.
Chapter 5: Income Measurement
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Q1) CompuTime Center sells a full assortment of computer parts,including motherboards,video cards,and cables.It also offers complementary computer assembly services.A customer places an order for an advanced workstation,and CompuTime asks for $3,500.If CompuTime were to sell only the parts in an advanced workstation,with no assembly,the price would be $3,300.
Required: Assuming that computer parts and assembly service are separate performance obligations,estimate the stand-alone selling price of the assembly service based on the residual approach.
Q2) In 2018,Lake would record a loss on repossession of:
A)$45,000.
B)$200,000.
C)$120,000.
D)$80,000
Q3) The transaction price is only allocated to goods and services that are both capable of being distinct and that are separately identifiable.
A)True
B)False
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Chapter 6: Time Value of Money Concepts
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Q1) The total cash interest payments in 2016 for these notes.
Q2) Claudine Corporation will deposit $5,000 into a money market sinking fund at the end of each year for the next five years.How much will accumulate by the end of the fifth and final payment if the sinking fund earns 9% interest?
A)$32,617.
B)$29,924.
C)$27,250.
D)$26,800.
Q3) A deferred annuity is one in which interest charges are deferred for a stated time period.
A)True
B)False
Q4) With an ordinary annuity,a payment is made or received on the date the agreement begins.
A)True
B)False
Q5) Prepare a time diagram for the future value of an annuity due with three payments of $400.Be sure to indicate the periods in which interest is added.
Q6) Briefly describe the difference between simple interest and compound interest.
Page 8
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Chapter 7: Cash and Receivables
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Q1) Companies can have accounts receivable from ordinary trade customers and from related parties (e.g. ,directors,employees or large shareholders).How does U.S.GAAP differ from IFRS in its requirements regarding separate disclosure of trade receivables and related-party receivables? Why might separate disclosure of related party receivables be useful?
Q2) In a bank reconciliation,adjustments to the book balance could include adding or subtracting company errors.
A)True
B)False
Q3) Rahal's adjusted allowance for uncollectible accounts at December 31,2016,is:
A)$4,340.
B)$4,100.
C)$3,800.
D)$4,040.
Q4) If Wilson reports under U.S.GAAP,its 12/31/2016 balance sheet would show what cash balance?
A)($5,000).
B)$55,000.
C)$60,000.
D)None these answer choices are correct.
Page 9
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) Compared to dollar-value LIFO,unit LIFO is:
A)Less costly to implement.
B)Less susceptible to LIFO liquidation.
C)More costly to implement.
D)More concerned with cost indexes.
Q2) If a company uses LIFO,a LIFO liquidation causes a company's income taxes to increase:
A)When inventory purchase costs are rising.
B)When inventory purchase costs are declining.
C)Whether inventory purchase costs are declining or rising.
D)LIFO liquidations have no effect on a company's income taxes.
Q3) Shipping charges on outgoing goods are included in either cost of goods sold or selling expenses.
A)True
B)False
Q4) The ending inventory assuming LIFO and a periodic inventory system is:
A)$1,580.
B)$1,510.
C)$1,575.
D)$1,470.
Page 10
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) Inventory is valued at:
A)Net realizable value.
B)Cost.
C)Replacement cost.
D)Lower of cost and net realizable value.
Q2) Retrospective treatment of prior years' financial statements is required when there is a change from:
A)Average cost to FIFO.
B)FIFO to average cost.
C)LIFO to average cost.
D)All of these answer choices are correct.
Q3) Lower of cost and net realizable value can be applied to individual inventory items,to logical categories of inventory,or to the entire inventory.
A)True
B)False
Q4) A change from LIFO to any other inventory method is accounted for retrospectively.
A)True
B)False
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11
Chapter 10: Property, plant, and Equipment and Intangible
Assets: Acquisition and Disposition
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Sample Questions
Q1) Show the journal entry to record Boston Beer's sale of property,plant and equipment during 2013.
Q2) Property,plant,and equipment and intangible assets are:
A)Created by the normal operation of the business and include accounts receivable.
B)All assets except cash and cash equivalents.
C)Current and long-term assets used in the production of either goods or services.
D)Long-term revenue-producing assets.
Q3) During 2016,Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2016.Of the 15 wells drilled,10 were dry holes.Prospect uses the successful efforts method of accounting.Assuming that Prospect depletes 30% of the oil discovered in 2016,what amount of these exploration costs would remain in its 12/31/16 balance sheet?
A)$ 6 million.
B)$14 million.
C)$20 million.
D)$42 million.
Q4) Briefly explain how R&D is reported in financial statements.
Q5) How are donated assets recorded?
Page 12
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Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Q1) International Financial Reporting Standards (IFRS)require goodwill to be tested for impairment at least annually.
A)True
B)False
Q2) The three factors in cost allocation of a depreciable asset are service life,allocation base,and allocation method.
A)True
B)False
Q3) Which of the following types of subsequent expenditures normally is capitalized?
A)Additions.
B)Improvements.
C)Rearrangements.
D)All of these answer choices are normally capitalized.
Q4) An asset should be written down if there has been an impairment of value that is:
A)Relevant and objectively determined.
B)Material and market driven.
C)Unplanned and sudden.
D)Significant.
Page 13
Q5) Briefly differentiate between activity-based and time-based allocation methods.
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Chapter 12: Investments
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Q1) On April 1,2016,BigBen Company acquired 30% of the shares of LittleTick,Inc.BigBen paid $100,000 for the investment,which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets.BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2016,and the rest to goodwill.LittleTick recognized a total of $20,000 of net income for 2016,and paid total dividends for the year $10,000;these dividends were issued quarterly.BigBen's investment in LittleTick will affect BigBen's 2016 net income by:
A)A loss of $10,500.
B)Earnings of $4,500.
C)Earnings of $1,125.
D)Earnings of $3,450.
Q2) Which of the following investment securities held by Zoogle Inc.are not reported at fair value in its balance sheet?
A)Common stock held as available for sale securities.
B)Debt securities held to maturity.
C)Preferred stock held as trading securities.
D)All of these answer choices are reported at fair value.
Q3) What was the after-tax realized gain or loss on the sale of available-for-sale securities in 2016? Assume a 40% tax rate.
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Page 14
Chapter 13: Current Liabilities and Contingencies
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Q1) What was General's coupon promotional expense in 2017?
A)Zero,since all the expense should be reflected in 2016.
B)$1.5 million.
C)$7.5 million.
D)$9.0 million.
Q2) An asset for a gain contingency should not be accrued unless it is probable that the gain contingency will be realized.
A)True
B)False
Q3) A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired and the amount of potential loss can be reasonably estimated.
A)True
B)False
Q4) Which of the following is not a current liability?
A)Accounts payable.
B)A note payable due in two years.
C)Accrued interest payable.
D)Sales tax payable.
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Chapter 14: Bonds and Long-Term Notes
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Q1) Required: What was the annual effective interest rate in the market when the bonds were issued?
Q2) How are bonds and notes the same? How do they differ?
Q3) During the year,Hamlet Inc.paid $20,000 to have bond certificates printed and engraved,paid $100,000 in legal fees,paid $10,000 to a CPA for registration information,and paid $200,000 to an underwriter as a commission.What is the amount of bond issue costs?
A)$330,000.
B)$300,000.
C)$120,000.
D)$ 20,000.
Q4) Tru Fashions has bonds outstanding during a year in which the market rate of interest has declined.If Tru has elected the fair value option for the bonds,will it report a gain or a loss on the bonds for the year? Explain.
Q5) What is the book value of the bonds as of December 31,2017?
A)$8,834,770.
B)$8,686,606.
C)$8,734,070.
D)$8,783,433.
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Chapter 15: Leases
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Q1) Capital leases are agreements that are formulated outwardly as leases,but are installment purchases in substance.
A)True
B)False
Q2) What is the total interest paid over the term of the lease?
A)$42,000.
B)$ 8,200.
C)$ 7,400.
D)$ 3,460.
Q3) What would the lessee record as annual depreciation on the asset using the straight-line Method?
A)$ 5,328.
B)$ 6,328.
C)$ 6,392.
D)$10,000.
Q4) How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to classifying a lease as a capital lease?
Q5) What is meant by the term "minimum lease payments"?
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Chapter 16: Accounting for Income Taxes
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Q1) Pocus Inc.reports warranty expense when related products are sold.For tax purposes,the warranty costs are deductible as incurred.At the end of the current year,Pocus has a warranty liability of $500,000 and taxable income of $50,000,000.At the beginning of the current year,Pocus reported a deferred tax asset of $210,000 related to the difference in reporting warranty expense,its only temporary difference.The enacted tax rate is 40% each year.
Required:
Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year.Show well-labeled computations to support the three amounts in your journal entry.
Q2) Plutonic Inc.had $400 million in taxable income for the current year.Plutonic also had a decrease in deferred tax assets of $50 million and recognized tax expense of $80 million.The company is subject to a tax rate of 40%.The change in deferred tax asset was a/an:
A)increase of $30 million.
B)increase of $130 million.
C)decrease of $30 million.
D)decrease of $130 million.
Q3) What is a valuation allowance for deferred tax assets and when is it used?
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) What are the possible components of pension expense? Which of these elements would exist in every defined benefit plan?
Q2) According to generally accepted accounting principles,accounting for postretirement benefits other than pensions must adhere to the:
A)Accrual basis of accounting.
B)Cash basis of accounting.
C)Modified accrual basis.
D)Modified cash basis.
Q3) The net pension liability (PBO minus plan assets)is increased by:
A)Service cost.
B)Expected return on plan assets.
C)Amortization of prior service cost.
D)Cash contributions to plan assets.
Q4) Revenue and expense items and components of other comprehensive income can be reported in the statement of shareholders' equity using: A)U.S.GAAP.
B)IFRS.
C)Both U.S.GAAP and IFRS.
D)Neither U.S.GAAP nor IFRS.
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Chapter 18: Shareholders Equity
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Q1) Accumulated other comprehensive income:
A)is a liability.
B)might include prior service cost from pension plan amendments.
C)includes accumulated pension expense.
D)is reported in the income statement.
Q2) In 2016,Southwestern Corporation completed the treasury stock transactions listed below.
February 2: Reacquired 70,000 shares at $12.
March 17: Sold 20,000 shares at $14.
May 17: Sold 25,000 shares at $8.
Southwestern had issued 100,000 shares of its $1 par common stock for $10 several months ago.
Required: Prepare the journal entries to record the above transactions using the cost method.
Q3) How many shares of treasury stock were removed for use during 2015,and for what purpose(s)?
Q4) What is the difference between a stock split and a stock split effected in the form of a stock dividend?
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20
Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Assume that all compensation expense from the stock options granted by Wilson already has been recorded.Further assume that 200,000 options expire in 2021 without being exercised.The journal entry to record this would include:
A)Debit to paid-in capital-stock options for $8 million.
B)A debit to common stock for $5 million.
C)A debit to paid-in capital-expiration of stock options for $8 million.
D)None of these answer choices is correct.
Q2) If a stock split occurred,when calculating the current year's EPS,the shares are treated as issued:
A)At the end of the year.
B)On the first day of the next fiscal year.
C)At the beginning of the year.
D)On the date of distribution.
Q3) Wilson's compensation expense in 2016 for these stock options was:
A)$0.
B)$200 million.
C)$400 million.
D)$800 million.
Q4) What is an antidilutive security?
Page 21
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Chapter 20: Accounting Changes
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Q1) Cooper Inc.took physical inventory at the end of 2015.Purchases that were acquired FOB destination were in transit,so they were not included in the physical count.
A)Cooper needs to correct an accounting error.
B)Cooper has made a change in accounting principle,requiring retrospective adjustment.
C)Cooper is required to adjust a change in accounting estimate prospectively.
D)Cooper is not required to make any accounting adjustments.
Q2) A company failed to record unrealized gains of $20 million on its available for sale security investments.Its tax rate is 30%.As a result of this error,comprehensive income would be:
A)Understated by $14 million.
B)Understated by $6 million.
C)Understated by $20 million
D)Unaffected.
Q3) A change to the LIFO method of valuing inventory usually requires use of the retrospective method.
A)True
B)False
Q4) How may accounting changes detract from accounting information?
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Chapter 21: The Statement of Cash Flows
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Q1) Did accounts receivable increase or decrease during 2016? Explain.
Q2) Cash equivalents have each of the following characteristics except:
A)Little risk of loss.
B)Highly liquid.
C)Maturity of at least three months.
D)Short-term.
Q3) What was most responsible for the negative cash flow from financing activities during 2014? What amount was paid?
Q4) Assuming the decrease in accrued expenses during fiscal year 2015 included a $14,000 reduction due to interest on debt,compute the interest expense (net)for Kinney in that year.
Q5) Which of the following is reported as an operating activity in the statement of cash flows?
A)The purchase of long-lived assets.
B)The acquisition of treasury stock.
C)The retirement of bonds.
D)The payment of prepaid insurance.
Q6) Which type of activity (operating,investing,financing)was most responsible for the cash flow experienced by Henchman & Co.during 2015?
Page 23
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