Corporate Financial Reporting
Final Test Solutions
Course Introduction
Corporate Financial Reporting is a foundational course that explores the principles and practices underlying the preparation, analysis, and interpretation of financial statements for corporations. Students will learn about the regulatory environment governing corporate reporting, including accounting standards and disclosure requirements. Key topics include the measurement and recognition of assets, liabilities, equity, revenues, and expenses, as well as the presentation and interpretation of income statements, balance sheets, and cash flow statements. Through real-world case studies and analysis of annual reports, the course emphasizes the importance of transparency, ethical considerations, and the impact of financial information on stakeholders decision-making processes.
Recommended Textbook
Intermediate Accounting Vol. 1 4th Edition by Kin Lo
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10 Chapters
1100 Verified Questions
1100 Flashcards
Source URL: https://quizplus.com/study-set/3461
Page 2
Chapter 1: Fundamentals of Financial Accounting Theory
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) Discuss three reasons why it is important to understand accounting theory.
Answer: In order to make the best decisions possible, external investors as well as internal managers need to interpret financial and accounting information about the state of the business.
There is a misunderstanding that accounting standards are simply proclamations issued by government or quasi-governmental regulatory agencies such as the International Accounting Standards Board (IASB)that have no economic benefit to society.
Rather, financial reporting is an economic good and is therefore subject to the laws of supply and demand. Accounting standards reflect and respond to, although imperfectly, the demand for financial information and the ability of enterprises to supply that information. Financial accounting theory helps us to understand the complexities in the production and consumption (use)of accounting information. Viewed in this way, financial information can be, and is, a subject of rigorous economic analysis.
Q2) Explain the meaning of generally accepted accounting principles (GAAP).
Answer: GAAP refers to broad principles and conventions of general application as well as rules and procedures that determine accepted accounting practices.
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Page 3
Chapter 2: Conceptual Frameworks for Financial Reporting
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) JP Corporation had net income of $1,000,000 for 2020. After issuing its financial statements, the company realized that it had failed to include inventory from one of its small warehouses for several years. Specifically, it forgot to include $20,000 on December 31, 2019 and $30,000 on December 31, 2020. Which of the following is TRUE regarding JP's 2020 net income?
A)Net income was understated by $10,000.
B)Net income was overstated by $10,000.
C)Net income was understated by $30,000.
D)Net income was overstated by $30,000.
Answer: A
Q2) When actual financial statements routinely report results that overstate or understate a company's financial position, which qualitative characteristic is violated?
A)Relevance.
B)Neutrality.
C)Conservatism.
D)Reliability.
Answer: B
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Chapter 3: Accrual Accounting
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) Which asset groups do not need to be presented separately in the balance sheet?
A)Asset groups that differ in their function or nature.
B)Liabilities that are due to different banks.
C)Asset groups that are material.
D)Investment properties.
Answer: B
Q2) Why are excessive accruals a concern for accounting and financial reporting?
A)They improve the quality of earnings of the company.
B)They may represent unethical practices by the company.
C)They require too much professional judgment.
D)They result in standards overload.
Answer: B
Q3) Which statement is correct about expenses in the income statement?
A)Some function of expense categories are depreciation or employee costs.
B)Expenses can be classified in any manner under IFRS.
C)The function of expense format classifies expenses based on their use.
D)Expenses should be classified based on their materiality.
Answer: C
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Chapter 4: Revenue and Recognition
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Tradel Construction Company entered into a contract to build a condominium building for $1,800,000. Construction commenced on July 1, 2020, with a planned completion date of December 31, 2022. A summary of the related accounting information is provided below: \[\begin{array} { | l | r | r | r | }
\hline & \mathbf { 2 0 2 0 } & \mathbf { 2 0 2 1 } & \mathbf { 2 0 2 2 } \\
\hline \text { Costs incurred during the year } & 400,000 & 500,000 & 650,000 \\
\hline \text { Estimated costs to complete at year end } & 1,200,000 & 600,000 & 0 \\
\hline \text { Billings during the year } & 360,000 & 440,000 & 1,000,000 \\
\hline \text { Cash collections during the year } & 300,000 & 410,000 & 1,090,000 \\
\hline
\end{array}\] How much gross profit would be recognized in 2022 if Tradel uses the completed contract method?
A)$0
B)$120,000
C)$220,000
D)$250,000
Q2) List the five key steps in the revenue recognition process.
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Chapter 5: Cash and Receivables
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) What is one way to segregate duties to improve controls over cash?
A)Request all customers to pay in cash.
B)Separate sales employees from employees who book the accounting entries.
C)Request all customers to pay by cheques made payable to "CASH."
D)Have the employee who is responsible for making cash deposits to the bank also do the bank reconciliations.
Q2) Jackie Co.'s allowance for doubtful accounts was $15,000 at the end of 2022 and $205,000 at the end of 2021. For the year ended December 31, 2022, Jackie reported bad debt expense of $48,000 in its income statement. What amount did Jackie debit to the appropriate account in 2022 to write off actual bad debts?
Q3) Spiders Geophysics issues an invoice to Huslia Goldmines for $150,000 on August 5, 2021. The invoice states the payment terms are 5/10, net 30. Huslia pays the invoice on August 14, 2021. How should Spiders record the invoice and its subsequent collection if it uses (a)the gross method or (b)the net method?
Q4) Explain some controls that can be used in an organization to safeguard cash and other assets.
Q5) Explain two problems associated with the direct write-off method.
Q6) Explain why a bank reconciliation is necessary.
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Chapter 6: Inventories
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) Which statement best explains the difference between the retail inventory and gross margin methods?
A)The gross margin method estimates cost of goods sold by applying an average gross margin to the amount of sales recorded for the period.
B)The gross margin method estimates ending inventory cost using retail prices and an average gross margin.
C)The retail inventory method estimates cost of goods sold by applying an average gross margin to the amount of sales recorded for the period.
D)The retail inventory method estimates ending inventory cost using purchase prices and an average gross margin.
Q2) Explain why the absorption costing method is appropriate under GAAP.
Q3) What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.
Q4) Explain what problems are created for the auditor by the use of the absorption costing method under GAAP.
Q5) What is the difference between the gross margin and the retail method for estimating ending inventory?
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Chapter 7: Financial Assets
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) Which statement is correct about non-strategic investments?
A)IFRS carries FVOCI investments at fair value with only unrealized losses going to net income.
B)ASPE carries FVOCI investments at fair value with only unrealized losses going to net income.
C)IFRS carries FVOCI investments at fair value with unrealized gains and losses going to OCI.
D)ASPE carries FVOCI investments at fair value with unrealized gains and losses going to OCI.
Q2) Refer to the above table. If Satellite classifies its investment in Davenport at fair value through profit or loss, what amount will be reported for the investment at September 30, 2020?
A)$1,000
B)$18,000
C)$19,000
D)$20,000
Q3) Explain the nature of and the appropriate accounting treatment for investments in subsidiaries, joint ventures, and associates.
Q4) Explain the meaning of the "effective interest method."
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Chapter 8: Property, Plant and Equipment
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) The following entry was recorded by Alex Corp.: \[\begin{array} { | l | r | r | }
\hline \text { Cash } & 80,000 & \\
\hline \text { Accumulated depreciation } & 50,000 & \\
\hline \text { Loss on disposal of property, plant, and } & 20,000 & \\
\text { equipment (PPE) } & & \\
\hline \text { PPE } & & 150,000 \\
\hline
\end{array}\] What is the effect of this entry on the financial statements?
A)Current assets decreased by $80,000.
B)Net assets decreased by $20,000.
C)Net PPE decreased by $130,000.
D)Income decreased by $30,000.
Q2) What is a monetary item?
A)An asset that has a fixed or determinable cash flow.
B)Assets such as land and buildings.
C)An asset arising from contractual agreements on future cash flows.
D)An asset that does not have a fixed or determinable cash flow.
Q3) Discuss how inappropriate capitalization of costs during the acquisition of PPE can manipulate earnings.
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Page 10
Chapter 9: Intangible Assets, Goodwill, Mineral Resources,
and Government Grants
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Calculate the missing amounts by completing the table below.
\[\begin{array} { | l | r | r | }
\hline \$ 000 ' s ) & \text { Carrying value } & \text { Fair value } \\
\hline \text { Pash } & \$ ( \mathrm {~A} ) & \$ 62,000 \\
\hline \text { Accounts receivable } & 30,000 & 28,000 \\
\hline \text { Inventories } & 55,000 & 52,000 \\
\hline \text { PPE, net } & 175,000 & 148,000 \\
\hline \text { Intangible assets } & 100 & \underline { 25,000 } \\
\hline \text { Total assets } & 322,100 & \text { (C) } \\
\hline \text { Total liabilities } & \underline { 116,000 } & \underline { 202,000 } \\
\hline \text { Net assets } & \$ \mathbf ({ B } ) & \text { (D) } \\
\hline \text { Purchase price } & & \mathbf { \text { (E) } } \\
\hline \text { Accounting goodwill } & & \underline { \$ 19,000 } \\
\hline
\end{array}\]
Q2) Explain four differences in the recognition of externally acquired intangibles versus internally developed intangibles.
Q3) Why is it important to understand the difference between research costs and development costs?
Page 11
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Chapter 10: Applications of Fair Value to Non-Current Assets
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121 Flashcards
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Sample Questions
Q1) What is a "component" of an entity?
A)A division of an entity that either has been disposed of or is classified as held for sale.
B)A group of assets and liabilities to be disposed of together in a single transaction.
C)A part of an entity with operations and cash flows distinguishable from the rest of the entity.
D)A group of non-current assets that have been disposed or are classified as held for sale.
Q2) What is "fair value less costs to sell"?
A)The present value of the future cash flows expected to be derived from an asset.
B)The amount obtainable from the sale of an asset in an arm's-length transaction less the costs of disposal.
C)The higher of an asset's fair value less costs to sell and its value in use.
D)The amount obtainable from the sale of an asset in an arm's-length transaction between knowledgeable, willing parties.
Q3) Explain how an impairment loss is recorded for non-current assets.
Q4) Explain the accounting for assets related to the agricultural industry.
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Page 12