Corporate Financial Reporting
Final Test Solutions
Course Introduction
Corporate Financial Reporting examines the principles, standards, and processes involved in the preparation and interpretation of financial statements for corporations. The course covers key topics such as accounting principles, financial statement analysis, regulatory frameworks, and the role of financial reporting in decision-making for stakeholders. Students learn how financial information is disclosed to external users, including investors, creditors, and regulatory bodies, and how transparency in reporting contributes to corporate governance and market efficiency. Emphasis is placed on understanding the implications of financial reporting choices and ethical considerations in the preparation of corporate financial statements.
Recommended Textbook
Financial Accounting 2nd Edition by
J. David Spiceland
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15 Chapters
1948 Verified Questions
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Page 2
Chapter 1: Accounting Information and Decision Making
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Sample Questions
Q1) If a company has gone bankrupt,its financial statements likely violate the:
A)Periodicity assumption.
B)Monetary unit assumption.
C)Going concern assumption.
D)Economic entity assumption.
Answer: C
Q2) The conceptual framework's qualitative characteristic of faithful representation includes:
A)Predictive value.
B)Neutrality.
C)Confirmatory value.
D)Comparability.
Answer: B
Q3) The primary purpose(s)of financial accounting is (are)to:
A)Measure and record business transactions.
B)Prepare federal and state tax returns.
C)Communicate financial results to investors and creditors.
D)a and c
Answer: D
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Page 3
Chapter 2: The Accounting Information System
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Sample Questions
Q1) Incurring employees' salaries but not paying them causes no change to stockholders' equity.
A)True
B)False
Answer: False
Q2) Receiving assets from customers before services are performed results in:
A)Prepaid Assets.
B)Service Revenue.
C)Unearned Revenues.
D)Accounts Receivable. Answer: C
Q3) A company provides services to customers on account,$3,500.Record the transaction.
Answer: Accounts Receivable \(\quad 3,500\) Service Revenue\(\quad 3,500\)
Q4) Amounts owed from customers are recorded in the Accounts Receivable account. A)True
B)False Answer: True
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Chapter 3: The Financial Reporting Process
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Sample Questions
Q1) At December 31,2012,a company has received,but not paid,a utility bill for $250.The amount of utility expense for the current period equals $250.
A)True
B)False
Answer: True
Q2) Unearned revenues occur when cash is received after the revenue is earned.
A)True
B)False
Answer: False
Q3) Under cash-basis accounting,if a company provides services to a customer in the current year but does not collect cash until the following year,the company should report the revenue in the current year.
A)True
B)False
Answer: False
Q4) Once the adjusted trial balance is complete,financial statements are prepared. A)True
B)False Answer: True
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Chapter 4: Cash and Internal Controls
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Sample Questions
Q1) One benefit of internal control is greater reliance by investors on reported financial statements.
A)True
B)False
Q2) The petty cash fund should have just enough cash to make minor expenditures over a reasonable period (such as a week or a month).
A)True
B)False
Q3) Checks outstanding are checks the company has written that have not been subtracted from the bank's record of the company's balance.
A)True
B)False
Q4) Cash receipts of the company that have not been added to the bank's record of the company's balance are referred to as checks outstanding. These are referred to as deposits outstanding.
A)True
B)False
Q5) Describe the procedures used to reconcile a company's cash balance.
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Chapter 5: Receivables and Sales
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Sample Questions
Q1) The direct write-off method is used for tax purposes but is generally not permitted for financial reporting.
A)True
B)False
Q2) At December 31,Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970 (credit)in Allowance for Uncollectible Accounts.An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable.Bad debt expense for the year should be:
A)$6,220.
B)$6,450.
C)$5,250.
D)$7,190.
Q3) A credit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts may have been too high.
A)True
B)False
Q4) Give three examples of contra revenue accounts and the transactions with which they are associated.
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Inventory records for Marvin Company revealed the following:
\[\begin{array} { c l c r }
\text { Date } & { \text { Transaction } } & \begin{array} { c }
\text { Number } \\
\text { of Units }
\end{array} & \begin{array} { r }
\text { Unit } \\
\text { Cost }
\end{array} \\
\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\
\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\
\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\
\text { Mar. 23 } & \text { Purchase } & 600 & 7.35
\end{array}\]
Marvin sold 2,300 units of inventory during the month.Cost of goods sold assuming FIFO would be:
A)$16,800.
B)$16,760.
C)$16,540.
D)$16,660.
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Page 8
Chapter 7: Long-Term Assets
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Sample Questions
Q1) With the straight-line depreciation method,we allocate an equal amount of the depreciable cost to each year of the asset's service life.
A)True
B)False
Q2) Soccer Wholesale purchased land and a warehouse for $800,000.In addition to the purchase price,Soccer Wholesale makes the following expenditures related to the acquisition: broker's commission,$48,000; title insurance,$3,000; and miscellaneous closing costs,$8,000.The warehouse is immediately demolished at a cost of $80,000 in anticipation of building a new warehouse.Determine the amount Soccer Wholesale should record as the cost of the land.
Q3) Declining-balance depreciation will be lower than straight-line depreciation in earlier years,but higher in later years.
Declining-balance depreciation will be higher than straight-line depreciation in earlier years,but lower in later years.
A)True
B)False
Q4) Contrast the effects of the straight-line,declining-balance,and activity-based depreciation methods on annual depreciation expense.
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Page 9
Chapter 8: Current Liabilities
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Sample Questions
Q1) All states impose a state income tax.
A)True
B)False
Q2) Which of the following is not a current liability?
A)Accounts payable.
B)A note payable due in 2 years.
C)Current portion of long-term debt.
D)Sales tax payable.
Q3) When a company borrows cash from a bank promising to repay the amount borrowed plus interest,the borrower reports its liability as notes payable.
A)True
B)False
Q4) Sales taxes collected from customers by the seller are not an expense,instead they represent current liabilities payable to the government.
A)True
B)False
Q5) If the likelihood of loss is remote,disclosure usually is not required.
A)True
B)False
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Serial bonds are:
A)bonds backed by collateral.
B)bonds that mature in installments.
C)bonds with greater risk.
D)bonds issued below the face amount.
Q2) Which of the following is not true regarding callable bonds?
A)This feature allows the borrower to repay the bonds before their scheduled maturity date.
B)This feature helps protect the borrower against future decreases in interest rates.
C)Callable bonds benefit the bond investor.
D)A bond can be both callable and convertible.
Q3) The THA bonds have a life of:
A)2 years.
B)3 years.
C)6 years.
D)Cannot be determined from the given information.
Q4) The market value of bonds moves in the opposite direction of interest rates.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Earnings per share is useful in comparing earnings performance across companies.
A)True
B)False
Q2) The par value of shares issued is normally recorded in the:
A)Additional Paid-in Capital account.
B)Common Stock account.
C)Retained Earnings account.
D)Treasury Stock account.
Q3) Treasury Stock:
A)has a normal credit balance.
B)decreases stockholders' equity.
C)is recorded as an investment.
D)increases stockholders' equity.
Q4) Prom Night Formal Wear has the following stockholders' equity accounts at December 31,2012: Common Stock,$1 par value,2,000,000 shares; Additional Paid-in Capital,$22 million; Retained Earnings,$15 million; and Treasury Stock,50,000 shares,$1.25 million.Prepare the stockholders' equity section of the balance sheet.
Q5) Par value has a direct relationship to the market value of the common stock. A)True B)False
Page 12
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Chapter 11: Statement of Cash Flows
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Sample Questions
Q1) During 2012,Smithson Corp.had the following cash flows: receipt from customers,$10,000; receipt from the bank for long-term borrowing,$6,000; payment to suppliers,$5,000; payment of dividends,$1,000,payment to workers,$2,000; and payment for machinery,$8,000.What amount would be reported for investing cash flows on the Statement of Cash Flows?
A)$5,000.
B)$2,000.
C)$6,000.
D)($8,000).
Q2) Dividends received from an investment is classified as a(an)__________ cash flow,and paying dividends on stock issued is classified as a(an)____________ cash flow on the Statement of Cash Flows.
A)Operating; Operating.
B)Operating; Financing.
C)Financing; Operating.
D)Investing; Financing.
Q3) Wilson Electric reports income tax expense of $150,000.Income tax payable at the beginning and end of the year are $20,000 and $25,000,respectively.What is the cash paid for income taxes during the year?
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Page 13
Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Horizontal analysis examines trends in a company:
A)Over time.
B)Between income statement accounts in the same year.
C)Between balance sheet accounts in the same year.
D)Between income statement and balance sheet accounts in the same year.
Q2) The acid-test ratio is always smaller than the current ratio.
A)True
B)False
Q3) Richard's Sporting Goods reports net income of $100,000,net sales of $500,000,and average assets of $1,000,000.The asset turnover is:
A)0.1 times.
B)0.5 times.
C)2 times.
D)5 times.
Q4) The price-earnings (PE)ratio compares a company's share price with its earnings per share.
A)True
B)False
Q5) Explain the difference between vertical and horizontal analysis.
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Chapter 13: Time Value of Money
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Sample Questions
Q1) The present value of $1,000 received three years from today with a discount rate of 10% is less than the present value of a $500 annuity with the same discount rate over the same period.
The three-year annuity represents three payments of $500 (= $1,500),so the present value of the annuity is greater.
A)True
B)False
Q2) Carol wants to invest money in a 6% CD that compounds semiannually.Carol would like the account to have a balance of $50,000 five years from now.How much must Carol deposit to accomplish her goal?
A)$35,069.
B)$43,131.
C)$37,205.
D)$35,000.
Q3) Samson Inc.is contemplating the purchase of a machine that will provide it with net after-tax cash savings of $100,000 per year for 8 years.Assuming a 10% discount rate,calculate the present value of the cash savings.
Q4) Explain the difference between present value and future value.
Q5) Briefly describe the difference between simple interest and compound interest.
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Chapter 14: Investments
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Sample Questions
Q1) Investments in equity securities for which the investor has insignificant influence over the investee are classified for reporting purposes under the fair value method in one of two categories.What are these two categories? How do we report unrealized holding gains and losses under each of these two categories?
Q2) When the investor has significant influence,the receipt of cash dividends is recorded as dividend revenue.
A)True B)False
Q3) Sandy Sensations purchases twenty,$1,000,7%,10-year bonds issued by Pizza Pier for $21,488 on January 1,2012.The market interest rate for bonds of similar risk and maturity is 6%.Interest is received semi-annually on June 30 and December 31.
1.Record the investment in bonds.
2.Record receipt of the first interest payment on June 30,2012.
Q4) Investments are reported at fair value when a company has an insignificant influence over another company in which it invests.
A)True B)False
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Page 16
Chapter 15: International Financial Reporting Standards
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Sample Questions
Q1) In common law countries (such as the U.S.,the U.K.,and Canada),greater emphasis is placed on public information than in code law countries (such as France and Germany).
A)True
B)False
Q2) Describe at least five reasons why accounting practices differ across countries.Which reason do you think is most important? Explain why.
Q3) When preparing a statement of cash flows,IFRS allows companies to report cash outflows from interest payments as either operating or financing cash flows,while U.S.GAAP requires these outflows to be reported as only operating activities.
A)True
B)False
Q4) Which of the following characteristics of a country most likely affects the extent of companies' financial disclosure practices?
A)Inflation.
B)Tax laws.
C)Population.
D)Culture.
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