Corporate Financial Reporting
Chapter Exam Questions
Course Introduction
Corporate Financial Reporting explores the principles, standards, and regulations guiding the preparation and presentation of financial statements for corporations. The course emphasizes understanding and interpreting financial reports in accordance with
International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). Topics include income measurement, asset and liability recognition, equity reporting, disclosures, and the analysis of annual reports. Students will develop skills to critically assess financial information and communicate findings to internal and external stakeholders, aiding informed decision-making in a corporate environment.
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) Which of the following is not an identified valuation technique in GAAP regarding fair value measurement?
A)Cost approach.
B)Market approach.
C)Cost-benefit approach.
D)Income approach.
Answer: C
Q2) The recognition of which of the following expenses exemplifies the application of matching expenses with the revenues they produced?
A)President's salary.
B)Research and development.
C)Cost of goods sold.
D)Advertising.
Answer: C
Q3) According to the FASB's Statements of Financial Accounting Concepts,conservatism is a desired qualitative characteristic of accounting information.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Review of the Accounting Process
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Q1) Carolina Mills purchased $270,000 in supplies this year.The supplies account increased by $10,000 during the year to an ending balance of $66,000.What was supplies expense for Carolina Mills during the year?
A)$300,000.
B)$280,000.
C)$260,000.
D)$240,000.
Answer: C
Q2) Sold merchandise to a customer in exchange for a promissory note.
Answer: 11ea906f_564c_ba47_a7a0_67dd83749add_TB2444_00
Q3) Eve's Apples opened business on January 1,2016,and paid for two insurance policies effective that date.The liability policy was $36,000 for 18 months,and the crop damage policy was $12,000 for a two-year term.What is the balance in Eve's prepaid insurance as of December 31,2016?
A)$ 9,000.
B)$18,000.
C)$30,000.
D)$48,000.
Answer: B
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Page 4
Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) Compute the return on shareholders' equity ratio for Marjoram Company.Round your answer to two decimal places.
Answer: $73,080 / ($70,000 + 157,000)= 32% Return on shareholders' equity
Q2) Altoid Co.'s times interest earned ratio.Round your answer to two decimal places. Answer: ($350 + 150 + 90)/$90 = 6.56 Times interest earned ratio
Q3) What would Symphony report as total current assets?
A)$823.
B)$838.
C)$843.
D)$1,696.
Answer: A
Q4) Long-term assets generally include:
A)Inventory held for sale.
B)Prepaid rent.
C)Accounts receivable.
D)Land held for a possible future plant site.
Answer: D
Q5) Long-term liabilities
Answer: 11ea906f_5646_5262_a7a0_8bf3cbe70a46_TB2444_00
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Chapter 4: The Income Statement, comprehensive Income, and
the Statement of Cash Flows
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Q1) Expenses in an income statement prepared under International Financial Reporting Standards:
A)Must be classified by function.
B)Must be classified by natural description.
C)Can be classified either by function or by natural description.
D)None of the other answers is correct.
Q2) The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000,respectively.What before-tax amount(s)should Mercedes report as loss on discontinued operations in its 2016 income statement?
A)$2,000,000 loss.
B)$2,500,000 loss.
C)No loss would be reported.
D)$500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.
Q3) Earnings quality refers to the ability of reported earnings (income)to predict future earnings.
A)True
B)False
Q4) Briefly explain why the income statement is referred to as a change statement.
Page 6
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Chapter 5: Income Measurement
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Q1) Johnson sells $100,000 of product to Robbins,and also purchases $10,000 of advertising services from Robbins.The advertising services have a fair value of $8,000.Johnson should record revenue on its sale of product to Robbins of:
A)$100,000
B)$98,000
C)$92,000
D)$90,000
Q2) A company could improve its return on assets by increasing its income or by increasing its total assets.
A)True
B)False
Q3) CompuLand Center sells a full assortment of computer parts,including motherboards,video cards,and cables,and also offers complementary computer assembly services.The assembly service is offered by other vendors for $100 on average,and CompuLand typically charges approximately 20% more than other vendors for similar services on a stand-alone basis.Required: Estimate the stand-alone selling price of the assembly service using the adjusted market assessment approach.
Q4) Required: Compute the profit margin on sales for 2016.
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Chapter 6: Time Value of Money Concepts
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Q1) How much must be deposited at the beginning of each year to accumulate to $10,000 in four years if interest is at 9%?
A)$1,671.
B)$2,570.
C)$2,358.
D)$2,006.
Q2) How much must be invested now at 9% interest to accumulate to $10,000 in five years?
A)$9,176.
B)$6,499.
C)$5,500.
D)$5,960.
Q3) Compound interest includes interest earned on interest.
A)True
B)False
Q4) Column 1 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.
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Chapter 7: Cash and Receivables
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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) Accounting for the pledging of accounts receivable as collateral for a loan requires:
A)Reporting the receivables net of the borrowed amount.
B)Removal of the pledged receivables from current assets and including them with noncurrent investments.
C)Disclosure of the arrangement in notes to the financial statements.
D)None of these answer choices are correct.
Q3) Is there any evidence in HP's disclosures above that are consistent with earnings management?
Q4) Using a T-account for the allowance for doubtful accounts,identify the changes in the account during fiscal year 2013.
Q5) Define what it is meant by internal control.
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) The average days inventory for ATC (rounded)for 2016 is:
A)Less than 100 days.
B)114 days
C)132 days.
D)151 days.
Q2) The use of LIFO in accounting for a firm's inventory:
A)Usually matches the physical flow of goods through the business.
B)Is usually used for internal management purposes.
C)Usually provides a better match of expenses with revenues.
D)None of these answer choices is correct.
Q3) The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.
A)True
B)False
Q4) 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.
Q5) Briefly explain the advantages of dollar-value LIFO (DVL).
Page 10
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) To the nearest thousand,estimated ending inventory using the conventional retail method is:
A)$37,000.
B)$32,000.
C)$34,000.
D)$30,000.
Q2) International Financial Reporting Standards allow the reversal of an inventory write-down.
A)True
B)False
Q3) Briefly explain the financial reporting required when material misstatements are found in previous years' financial statements that are included for comparative purposes in the current year's financial statements.
Q4) 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
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 and Disposition
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Q1) The balance sheets of Davidson Corporation reported net fixed assets of $320,000 at the end of 2016.The fixed-asset turnover ratio for 2016 was 4.0,and sales for the year totaled $1,480,000.Net fixed assets at the end of 2015 were:
A)$470,000.
B)$370,000.
C)$420,000.
D)None of these answer choices are correct.
Q2) Show the journal entry to record Boston Beer's sale of property,plant and equipment during 2013.
Q3) The exclusive right to display a symbol of product identification is a:
A)Patent.
B)Copyright.
C)Trademark.
D)Franchise.
Q4) Briefly explain the differences between U.S.GAAP and International Financial Reporting Standards in accounting for research and development expenditures other than software development costs.
Q5) Why would an oil company argue to use the full-cost method of accounting for oil and gas exploration costs?
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Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Q1) Assume the same facts as above,except that the fair value of Oxford (the reporting unit)is $225 million.
Required: Determine the amount,if any,of the goodwill impairment loss that Dooling must recognize on these assets.
Q2) The legal life of a patent is:
A)40 years.
B)20 years.
C)Life of the inventor plus 50 years.
D)Indefinite.
Q3) Using the double-declining balance method,depreciation for 2017 and book value at December 31,2017,would be:
A)$10,000 and $5,000.
B)$10,000 and $10,000.
C)$11,250 and $6,250.
D)$11,250 and $11,250.
Q4) Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,2016 and 2017,assuming the sum-of-the-years'-digits method is used.
Page 13
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Chapter 12: Investments
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Q1) Prepare appropriate entry(s)at December 31,2016,and indicate how the scenario will affect net income,OCI,and comprehensive income.
Q2) Assume Arctic Cat did not purchase any trading securities during 20X5.Write a journal entry to record any unrealized holding gains or losses on trading securities during 20X5.
Q3) If an available-for-sale investment is sold for which there are unrealized losses in accumulated other comprehensive income (AOCI),the total effect on total comprehensive income is:
A)An increase.
B)A decrease.
C)No effect.
D)Cannot be determined given this information.
Q4) Trading securities,by definition,are properly classified in the balance sheet as:
A)Shareholders' equity.
B)Intangibles.
C)Current assets.
D)Other assets.
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14
Chapter 13: Current Liabilities and Contingencies
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Sample Questions
Q1) Peterson Photoshop sold $1,000 in gift cards on a special promotion on October 15,2016,and sold $1,500 in gift cards on another special promotion on November 15,2016.Of the cards sold in October,$100 were redeemed in October,$250 in November,and $300 in December.Of the cards sold in November,$150 were redeemed in November and $350 were redeemed in December.Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months.At 12/31/2016,Peterson would show an deferred revenue account for the gift cards with a balance of:
A)$0.
B)$1,000.
C)$1,350.
D)$1,500.
Q2) Texon Oil is being sued for price fixing and environmental damage.The litigation started this year and is expected to last five years.There is no doubt that Texon is guilty,but the settlement cost will be between $3 billion and $22 billion.Briefly explain how Texon would address this in its current year financial statements.
Q3) Revenue is recognized upon sale of gift cards,rather than being deferred.
A)True
B)False
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Chapter 14: Bonds and Long-Term Notes
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Q1) 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.
Q2) The method used to pay interest depends on whether the bonds are:
A)Registered or coupon.
B)Mortgaged or unmortgaged.
C)Indentured or debentured.
D)Callable or redeemable.
Q3) The rate of return on assets indicates:
A)The margin of safety provided to creditors.
B)The extent of "trading on the equity" or financial leverage.
C)Profitability without regard to how resources are financed .
D)The effectiveness of employing resources provided by owners.
Q4) Griggs Co.failed to amortize the premium on an outstanding five-year bond issue.What is the resulting effect on interest expense and the bond book value,respectively?
A)Understated,understated.
B)Understated,overstated.
C)Overstated,understated.
D)Overstated,overstated.
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Chapter 15: Leases
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Q1) One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:
A)90% of the cost of the asset.
B)75% of the fair value of the asset.
C)90% of the fair value of the asset.
D)75% of the cost of the asset.
Q2) Technoid would account for this as:
A)A capital lease.
B)A direct financing lease.
C)A sales-type lease.
D)An operating lease.
Q3) On September 1,2016,Custom Shirts Inc.entered into a lease agreement appropriately classified as an operating lease.The lease term is three years.The annual payments are (a)$20,000 for year 1, (b)$24,000 for year 2,and (c)$28,000 for year 3.How much rent expense will Custom Shirts recognize for 2016?
A)$ 6,667.
B)$24,000.
C)$20,000.
D)$ 8,000.
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Chapter 16: Accounting for Income Taxes
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Q1) Explain why LMC has a $209.4 million valuation allowance for its deferred tax assets.
Q2) For the current year ($ in millions),Centipede Corp.had $80 in pretax accounting income.This included warranty expense of $6 and $20 in depreciation expense.Two million of warranty costs were incurred,and MACRS depreciation amounted to $35.In the absence of other temporary or permanent differences,what was Centipede's taxable income?
A)$73 million.
B)$69 million.
C)$63 million.
D)$49 million.
Q3) Suppose that,in 2017,legislation revised the income tax rates so that Isaac would be taxed in 2018 and beyond at 40%,rather than 30%.Assume that there were no other differences in income for financial statement and tax purposes.Ignoring operating expenses and additional sales in 2017,what deferred tax liability would Isaac report in its year-end 2017 balance sheet?
A)$168 million
B)$144 million
C)$126 million
D)$240 million.
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) Which of the following is not a way of measuring the pension obligation?
A)Accumulated benefit obligation.
B)Vested benefit obligation.
C)Retiree benefit obligation.
D)Projected benefit obligation.
Q2) Pension expense is decreased by:
A)Amortization of prior service cost.
B)Amortization of net gain.
C)Benefits paid to retired employees.
D)Prior service cost.
Q3) What is Havana's 2016 gain or loss on plan assets?
A)$115.2 thousand.
B)$160.8 thousand.
C)$276 thousand.
D)None of these answer choices is correct.
Q4) What is the theoretical and practical trade-off when measuring the pension liability using the projected benefit obligation compared to the accumulated benefit obligation?
Q5) Why did the loss result in a reduction in accumulated other comprehensive income?
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Chapter 18: Shareholders Equity
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Q1) Authorized common stock refers to the total number of shares:
A)Outstanding.
B)Issued.
C)Issued and outstanding.
D)That can be issued.
Q2) On October 1,2016,Chief Corporation declared and issued a 10% stock dividend.Before this date,Chief had 80,000 shares of $5 par common stock outstanding.The market value of Chief Corporation on the date of declaration was $10 per share.As a result of this dividend,Chief's retained earnings will:
A)Decrease by $80,000.
B)Not change.
C)Decrease by $40,000.
D)Increase by $80,000.
Q3) Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.
A)True
B)False
Q4) What was the average exercise price per share of stock issued under option plans in 2016?
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) What is an antidilutive security?
Q2) How many types of potential common shares must a corporation have in order to be said to have a complex capital structure?
A)Three.
B)Two.
C)One.
D)Zero.
Q3) If a company reports discontinued operations,EPS must be disclosed for both income from continuing operations and net income.
A)True
B)False
Q4) If convertible bonds were issued at a discount,when computing diluted EPS,the amortization of the bond discount:
A)Will have no effect.
B)Will decrease the numerator.
C)Will increase the numerator.
D)May increase or decrease the numerator,depending on the amortization method used.
Q5) What is the advantage of stock appreciation rights over stock options?
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Chapter 20: Accounting Changes
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Questions
Q1) How many acceptable approaches are there for changes in accounting principles?
A)One.
B)Two.
C)Three.
D)Four.
Q2) A company overstated its liability for warranties by $200,000.Its tax rate is 30%.As a result of this error,income tax expense is:
A)Unaffected.
B)Overstated by $60,000.
C)Understated by $60,000.
D)Understated by $140,000.
Q3) If inventory is understated at the end of 2015 and the error is not discovered,how will net income be affected in 2016?
Q4) Prior years' financial statements are restated under the:
A)Current approach.
B)Prospective approach.
C)Retrospective approach.
D)None of these answer choices is correct.
Q5) Name and briefly describe the three categories of accounting changes.
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Chapter 21: The Statement of Cash Flows
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Q1) In its 2016 income statement,WME reported $695,000 for service revenue earned from membership fees.WME received $681,000 cash in advance from members during 2016.In its reconciliation schedule,WME should:
A)Show a $14,000 negative adjustment to net income under the indirect method for the increase in unearned revenue.
B)Show a $14,000 negative adjustment to net income under the indirect method for the decrease in unearned revenue.
C)Show a $14,000 positive adjustment to net income under the indirect method for the increase in unearned revenue.
D)Show a $14,000 positive adjustment to net income under the indirect method for the decrease in unearned revenue.
Q2) Is depreciation a source of cash? Explain.
Q3) Which of the following would not be a component of cash flows from investing activities?
A)Sale of land.
B)Purchase of securities.
C)Purchase of equipment.
D)Dividends paid.
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