Corporate Accounting Study Guide
Questions
Course Introduction
Corporate Accounting is a comprehensive study of the accounting principles, standards, and practices applied in the context of corporate entities. The course covers the preparation and analysis of financial statements in accordance with regulatory requirements, the treatment of share capital, debentures, and reserves, as well as corporate restructuring activities such as amalgamations, mergers, and acquisitions. Emphasis is placed on key topics such as dividend distribution, profit appropriation, internal and external reporting, and the interpretation of relevant financial data for decision-making. Through a blend of theoretical frameworks and practical applications, students gain a robust understanding of how accounting informs the management and governance of modern corporations.
Recommended Textbook
Intermediate Accounting 9th Edition by J. David Spiceland
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Page 2
Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Sample Questions
Q1) The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises.
A)True
B)False
Answer: True
Q2) Financial Accounting Standards Board
A)Its EITF Issues are GAAP when entered in the Accounting Standards Codification.
B)It is the national organization for CPAs in the United States.
C)It has the authority to set U.S. accounting standards.
D)It established GAAP before the FASB.
E)Undermines representational faithfulness by being inconsistent with neutrality.
Answer: A
Q3) The asset/liability approach emphasizes matching to determine what assets and liabilities should be reflected on the balance sheet.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Review of the Accounting Process
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Sample Questions
Q1) Collected cash on account from customers.
Answer: \[\begin{array} { | l | c | c | c | }
\hline { \text { TRANSACTION } } & \begin{array} { c }
\text { Account(s) } \\
\text { debited }
\end{array} & \begin{array} { c }
\text { Account(s) } \\
\text { credited }
\end{array} & \begin{array} { c }
\text { Transaction } \\
\text { type }
\end{array} \\
\hline \text { Collected cash on account from } & 1100 & 1140 & 1 \\
\text { customers. } & & & \\
\hline \end{array}\]
Q2) The sale of merchandise on account would be recorded in a sales journal.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) The compensation of top executives is disclosed in the proxy statement.
A)True
B)False
Answer: True
Q2) Acid-test ratio
A)Also know as the quick ratio.
B)Current assets divided by current liabilities.
C)Refers to riskiness of a company with regard to the amount of liabilities in its capital structure.
D)Relates to the amount of time before an asset is converted to cash or a liability is paid.
E)If four to one, 80% of assets are debt-financed.
Answer: A
Q3) Lack of long-term solvency refers to:
A) Risk of nonpayment of long-term liabilities.
B) The length of time before long-term debt becomes due.
C) The ability to refinance long-term debt when it becomes due.
D) Long-term assets.
Answer: A
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Chapter 4: The Income Statement, Comprehensive Income, and
the Statement of Cash Flows
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Sample Questions
Q1) Reporting comprehensive income according to International Financial Reporting Standards (IFRS) can be accomplished by each of the following methods except:
A) in the statement of shareholders' equity.
B) a combined statement of income and comprehensive income.
C) in two separate statements.
D) the entity may choose either a combined statement of income and comprehensive income or two separate statements.
Q2) Change statements include a:
A) retained earnings statement, balance sheet, and cash flow statement.
B) balance sheet, cash flow statement, and income statement.
C) cash flow statement, income statement, and retained earnings statement.
D) retained earnings statement, balance sheet, and income statement.
Q3) Income from continuing operations consists only of those items expected to be permanent components of earnings.
A)True
B)False
Q4) Explain, using an example, how a company can use earnings management and justify it by conservatism.
Page 6
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Chapter 5: Revenue Recognition
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Sample Questions
Q1) Bull'sEye sells gift cards redeemable for Bull'sEye products either in-store or online. During 2018, Bull'sEye sold $2,000,000 of gift cards, and $1,800,000 of the gift cards were redeemed for products. As of December 31, 2018, $150,000 of the remaining gift cards had passed the date at which Bull'sEye concludes that the cards will never be redeemed. How much gift card revenue should Bull'sEye recognize in 2018?
A) $2,000,000
B) $1,950,000
C) $1,850,000
D) $1,800,000
Q2) Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.
Required:
Prepare all journal entries to record costs, billings, collections, and profit recognition.
Q3) Prepare Romano's April 30 journal entry to account for the revenue earned in April.
Q4) Prepare Portelli's May 31 journal entry to record the revenue earned in May, as well as any appropriate adjustments to the revenue earned in April.
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Page 7
Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) First Financial Auto Loan Department wishes to know the payment required at the first of each month on a $10,500, 48-month, 11% auto loan. To determine this amount, First Financial would:
A) Multiply $10,500 by the present value of $1.
B) Divide $10,500 by the future value of an ordinary annuity of $1.
C) Divide $10,500 by the present value of an annuity due of $1.
D) Multiply $10,500 by the present value of an ordinary annuity of $1.
Q2) Column 4 is an interest table for the:
A) Present value of an ordinary annuity of $1.
B) Future value of an ordinary annuity of $1.
C) Present value of an annuity due of $1.
D) Future value of an annuity due of $1.
Q3) Column 6 is an interest table for the:
A) Present value of an ordinary annuity of $1.
B) Future value of an ordinary annuity of $1.
C) Present value of an annuity due of $1.
D) Future value of an annuity due of $1.
Q4) Prepare a time diagram for the future value of an ordinary annuity with three payments of $300. Be sure to indicate the periods in which interest is added.
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) Guido Properties owes First State Bank $60 million under a 7% note with two years remaining to maturity. Due to financial difficulties of Guido, the previous year's interest ($4.2 million) was not received. The bank agrees to settle the note receivable and accrued interest receivable in exchange for land having a fair value of $44 million. Required: Compute the loss on troubled debt restructuring that the bank would record.
Q2) Tom's Textiles shipped the wrong material to a customer, who refused to accept the order. Upon receipt of the material, Tom's would credit accounts receivable and debit: A) Sales.
B) Sales discount.
C) Sales returns.
D) Sales allowances.
Q3) Sales returns and trade discounts are both examples of variable consideration that must be accounted for when receivables are recognized.
A)True
B)False
Q4) Describe some key elements of an internal control system for cash.
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) Gross method
A)Most recent purchases will be included in ending inventory.
B)1 - (Cost of goods sold Net sales).
C)Purchase discounts not taken are included in inventory.
D)Products that are not yet complete.
E)Purchase discounts not taken are considered interest expense.
Q2) A company's estimate of merchandise that will be returned by customers should be:
A) Included in inventory at an amount equal to the selling price of the merchandise.
B) Included in inventory at an amount equal to the cost of the merchandise.
C) Excluded from inventory but deducted from sales revenue and accounts receivable.
D) None of these answer choices are correct.
Q3) In periods when costs are rising, LIFO liquidations:
A) Can't occur.
B) Are used to reduce tax liabilities.
C) Are a source of off-balance-sheet financing.
D) Distort the net income.
Q4) What additional income tax payments did the 2014 liquidation cost SUPERVALU?
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) Losses on reduction to NRV may be charged to either cost of goods sold or to a line item among operating expenses.
A)True
B)False
Q2) Briefly explain the financial reporting required when a company changes to or from the LIFO inventory method.
Q3) For a purchase commitment contained within a single fiscal year, if the market price is less than the contract price, the purchase is recorded at the contract price.
A)True
B)False
Q4) Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $20 was marked up $12, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is: A) $23.
B) $26.
C) $29.
D) $35.
Q5) Determine the inventory book value for Products A, B, and C.
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Chapter 10: Property, Plant, and Equipment and Intangible Assets:
Acquisition
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Sample Questions
Q1) Sales tax paid on equipment acquired for use in the business is not capitalized.
A)True
B)False
Q2) Which of the following should be included in the journal entry on July 1, 2018?
A) Credit: Notes payable, $609,523.
B) Debit: Equipment, $800,000.
C) Debit: Discount on notes payable, $30,477.
D) Credit: Notes payable, $609,523 and Debit: Discount on notes payable, $30,477.
Q3) Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of:
A) $26,000.
B) $8,000.
C) ($8,000).
D) $0.
Q4) For what amount will Markwell record the purchase of equipment?
A) $761,905.
B) $769,523.
C) $609,523.
D) $800,000.
Page 12
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Chapter 11: Property, Plant, and Equipment and Intangible
Assets: Utilization and Disposition
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Sample Questions
Q1) Murgatroyd Co. purchased equipment on January 1, 2016, for $500,000, estimating a four-year useful life and no residual value. In 2016 and 2017, Murgatroyd depreciated the asset using the sum-of-years'-digits method. In 2018, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2018 on this equipment?
A) $75,000.
B) $125,000.
C) $150,000.
D) None of these answer choices are correct.
Q2) If a material error is discovered in an accounting period subsequent to the period in which the error is made:
A) No adjustments are made.
B) No prior years' financial statements are restated but corrections are made in future years.
C) Any previous years' financial statements are retrospectively restated to reflect the correction.
D) No prior years' financial statements are restated but prior effects are corrected in the current balance of retained earnings.
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Chapter 12: Investments
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Sample Questions
Q1) Prepare appropriate entry(s) at December 31, 2018, and indicate how the scenario will affect net income, OCI, and comprehensive income.
Q2) What total unrealized holding gain would Beresford report in its 2019 income statement relative to its investments in debt securities?
A) $55,900.
B) $36,000.
C) $80,900.
D) $48,200.
Q3) Which of the following is not true about the "fair value through profit and loss" approach for accounting for investments under IFRS?
A) Allowed under both IAS No. 39 and IFRS No. 9.
B) Includes unrealized holding gains in earnings.
C) Requires reclassification of realized gains from other comprehensive income.
D) Not vulnerable to other-than-temporary impairments.
Q4) Prepare appropriate entry(s) at December 31, 2020, and indicate how the scenario will affect net income, OCI, and comprehensive income.
Q5) How much did Cold Cat actually receive from the sale of available-for-sale securities during 20X5?
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Chapter 13: Current Liabilities and Contingencies
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Sample Questions
Q1) Which of the following is not true about deferred revenue?
A) Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire.
B) Deferred revenue is a liability.
C) Deferred revenue is recognized on credit sales when collectibility can be estimated.
D) Customer prepayments typically require recognition of deferred revenue.
Q2) Of the following, which typically would not be classified as a current liability?
A) Estimated liability from cash rebate program.
B) A long-term note payable maturing within the coming year.
C) Rent revenue received in advance.
D) A six-month bank loan to be paid with the proceeds from the sale of common stock.
Q3) Under IFRS, a liability that is refinanced after the balance sheet date but before the financial statements are issued would typically be classified as a current liability.
A)True
B)False
Q4) How are customer advances and refundable deposits similar and yet different?
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Page 15
Chapter 14: Bonds and Long-Term Notes
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Sample Questions
Q1) Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each matures in 10 years. Bond X pays 8% interest while bond Y pays 9% interest. The current market rate of interest is 8%. Which of the following is correct?
A) Both bonds sell for the same amount.
B) Bond X sells for more than bond Y.
C) Bond Y sells for more than bond X.
D) Both bonds sell at a discount.
Q2) Warrants
A)No gain or loss recorded when convertible bond option is exercised.
B)Requires(s) no cash outflow before maturity.
C)Often traded separately from associated bonds.
D)A practical expediency when not misleading.
E)Additional consideration is recorded as an expense.
Q3) Book value method
A)No gain or loss recorded when convertible bond option is exercised.
B)Requires(s) no cash outflow before maturity.
C)Often traded separately from associated bonds.
D)A practical expediency when not misleading.
E)Additional consideration is recorded as an expense.
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Chapter 15: Leases
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Sample Questions
Q1) What is the amount of residual value guaranteed by Reagan to the lessor?
A) $1,385.
B) $34,615.
C) $36,000.
D) Cannot be determined from the given information.
Q2) Diablo Company leased a machine from Juniper Corporation on January 1, 2018. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year in the amount of $6,309,410. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Required:
Round your answers to the nearest whole dollar amounts.
1. Prepare the journal entry for Diablo Company at the beginning of the lease.
2. Prepare the journal entry for the first lease payment (ignore amortization).
3. Prepare the journal entry for the second lease payment (ignore amortization).
Q3) When the lessee guarantees an estimated residual value of $75,000, the amount the lessee records as a right-of-use asset and as a lease liability is increased by $75,000.
A)True
B)False
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Page 17
Chapter 16: Accounting for Income Taxes
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Sample Questions
Q1) Premiums paid on life insurance policies covering key corporate executives.
A)A
B)N
C)L
Q2) The nondeductible portion of travel and entertainment expenses. A)A
B)N
C)L
Q3) Indicate why LMC lists net operating loss carryforwards as a component of deferred tax assets.
Q4) Ignoring operating expenses and additional sales in 2019, what deferred tax liability would Isaac report in its year-end 2019 balance sheet?
A) $54 million.
B) $144 million.
C) $126 million.
D) $180 million.
Q5) Why are the depreciation and patent amortization listed as deferred tax liabilities?
Q6) 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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Sample Questions
Q1) To help assess the uncertainties that surround a defined benefit pension plan, corporations frequently hire a(n):
A) CPA.
B) Attorney.
C) Investment analyst.
D) Actuary.
Q2) What is the 2018 pension expense for Havana's plan?
A) $594 thousand.
B) $606 thousand.
C) $678 thousand.
D) None of these answer choices is correct.
Q3) Which of the above constitutes the projected benefit obligation?
A) III only.
B) I, II.
C) I, II, III.
D) II only.
Q4) An upward revision of inflation and compensation trends would likely cause a gain in the pension benefit obligation.
A)True
B)False
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Chapter 18: Shareholders Equity
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Sample Questions
Q1) Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth.
A)True
B)False
Q2) Retained earnings might be reduced by each of the following except:
A) stock split not effected in the form of a stock dividend.
B) property dividend.
C) treasury stock.
D) cash dividend.
Q3) R Co. has outstanding 100 million shares, $1 par common stock, selling for $8 per share. After a 1 for 4 reverse stock split:
A) R would have 25 million shares, $4 par per share.
B) The market price per share would be about $2.
C) Fractional shares would be issued.
D) Retained earnings would be reduced.
Q4) The costs of legal, promotional, and accounting services necessary to effect the sale of shares are referred to as share issue costs. How are these costs recorded? Compare this approach to the way debt issue costs are recorded.
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Sample Questions
Q1) Which of the following statements is true regarding share appreciation rights (SAR) payable in cash?
A) Any change in estimated total compensation is recorded as a prior adjustment.
B) The total amount of compensation is not known for certain until the date the SAR is exercised.
C) The liability is adjusted only to reflect each additional year of service.
D) None of these answer choices are correct.
Q2) XYZ paid $10,000 in dividends in January of the current year to its preferred shareholders. The preferred stock is nonconvertible and noncumulative. The dividend:
A) Will be added to the denominator of the earnings per share fraction for the current year.
B) Will be added to the numerator of the earnings per share fraction for the current year.
C) Will be subtracted from the numerator of the earnings per share fraction for the current year.
D) May not affect earnings per share depending on the declaration date.
Q3) When the income statement includes discontinued operations, which amounts require per share presentation?
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Page 21
Chapter 20: Accounting Changes and Error Corrections
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Sample Questions
Q1) In the previous year, a firm failed to record premium amortization of $40,000 and $30,000, respectively, on its bonds payable and held to maturity bond investments. These errors affect both income before tax and taxable income. The firm's tax rate is 30%.
As a result of this error, net income was:
A) Understated by $7,000.
B) Overstated by $7,000.
C) Understated by $33,000.
D) Overstated by $33,000.
Q2) Z Company acquired a subsidiary several years ago that was appropriately excluded from consolidation last year. This year Z has consolidated the subsidiary in its financial statements. This results in:
A) An accounting change that should be reported prospectively.
B) A correction of an error.
C) An accounting change that should be reported by restating the financial statements of all prior periods presented.
D) Neither an accounting change nor a correction of an error.
Q3) What is the difference between U.S. GAAP and IFRS with regard to the correction of accounting errors?
Q4) How are accounting errors treated?
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Chapter 21: The Statement of Cash Flows Revisited
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Sample Questions
Q1) Partial balance sheets and additional information are listed below for Julius Company. Julius Company
Partial Balance Sheets as of December 31
\(\begin{array}{|l|r|r|}
\hline \text { Assets } & 2018 & 2017 \\
\hline \text { Cash } & \$ 20,000 & \$ 40,000 \\
\hline \text { Accounts receivable } & 90,000 & 60,000 \\
\hline \text { Inventory } & 40,000 & 25,000 \\
\hline \mathbf { Liabilities } & & \\
\hline \text { Accounts payable } & \$ 72,000 & \$ 58,000 \\
\hline
\end{array}\) Additional information for 2018:
Net income was $70,000.
Depreciation expense was $30,000.
Sales totaled $600,000.
Cost of goods sold totaled $325,000.
Required:
Prepare the summary entry for the amount of cash received from customers during 2018.
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