Corporate Financial Reporting
Test Questions
Course Introduction
Corporate Financial Reporting explores the principles, standards, and practices used by corporations to communicate financial information to stakeholders. This course covers the preparation, analysis, and interpretation of financial statements, emphasizing the application of Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Topics include balance sheets, income statements, cash flow statements, equity reporting, revenue recognition, and the role of financial disclosures in decision-making. Through case studies and real-world examples, students develop critical skills in evaluating corporate performance and addressing reporting challenges in a dynamic global business environment.
Recommended Textbook
Intermediate Accounting 9th Edition by J.
David Spiceland
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Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Q1) The FASB's conceptual framework's qualitative characteristics of accounting information include:
A) Historical cost.
B) Realization.
C) Faithful representation.
D) Full disclosure.
Answer: C
Q2) The periodicity assumption requires that present value calculations take into account the number of compounding periods in each year.
A)True
B)False
Answer: False
Q3) Disclosure notes to a company's financial statements:
A) Are relatively unimportant facts that don't belong in the basic financial statements.
B) Document the source of financial statement facts, like literary footnotes.
C) Are an integral part of a company's financial statements.
D) Are irrelevant facts that are immaterial in amount.
Answer: C
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Chapter 2: Review of the Accounting Process
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Q1) The balance sheet can be considered a change or flow statement.
A)True
B)False
Answer: False
Q2) Owners' equity can be expressed as assets minus liabilities. A)True
B)False Answer: True
Q3) The sale of merchandise on account would be recorded in a sales journal.
A)True
B)False
Answer: True
Q4) Prepare the closing entries for China Tea Company for the year ended December 31, 2018.
Answer: 11ea937b_366c_02b4_a419_e76a0cfa01ec_TB2599_00
Q5) Purchased building and equipment for $10,000,000, paying 20% cash and issuing a 30-year note for the balance.
Answer: 11ea937b_366a_54df_a419_5307f1e09116_TB2599_00
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Chapter 3: The Balance Sheet and Financial Disclosures
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Q1) Long-term liabilities
Answer: 11edd44e_1731_a3da_b540_fb7a5d2f077b_TB2599_00
(1) Total debt + Total equity = Total assets (given) = $720,000
(2) Debt/Equity = 1.4; therefore, Total debt = 1.4 Equity
1.4 Equity + 1 Equity = $720,000
2.4 Equity = $720,000; Shareholders' equity = $300,000
(3) Current assets (CA/Current Liabilities (CL)) = 2.75; therefore, CA = 2.75CL
Quick assets (QA/Current Liabilities) = 1.5; therefore, QA = 1.5CL
QA = CA Inventory = CA $180,000
1.5CL = 2.75CL $180,000 (inventories)
1.25CL = $180,000
CL = $144,000
Q2) Vertical 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: True
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Chapter 4: The Income Statement,
and the Statement of Cash Flows
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Sample Questions
Q1) Intraperiod income tax presentation is primarily a matter of:
A) Valuation.
B) Going concern.
C) Periodicity.
D) Allocation.
Q2) Hulkster's 2018 receivables turnover is:
A) 2.85.
B) 4.70.
C) 5.00.
D) 10.63.
Q3) Its asset turnover ratio for 2018. Round your answer to two decimal places.
Q4) A primary advantage of the multiple-step format of the income statement over the single-step format is that the multiple-step format:
A) classifies expenses by function.
B) results in a higher amount of net income.
C) separately lists income tax expense.
D) lists revenues and expenses in order of their dollar amount.
Q5) What limitations exist in drawing meaningful comparisons about the performance of Uncle Joe's from the data above?
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Chapter 5: Revenue Recognition
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Q1) Prepare Romano's May 30 journal entry to record the revenue earned in May, as well as any appropriate adjustments to the revenue earned in April.
Q2) 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
Q3) Holmgren Seafoods, Inc. catches and processes salmon and tuna caught off the coast of Maine. In May 2018, it placed 100 freshly caught wild salmon with a retail price of $75 each in Joe's Fish Shop. Holmgren's contract with the shop stipulates that the shop will earn a 15% commission on each salmon sold. Joe's is responsible for purchasing any fish that remain unsold at the end of a three-day period.
Required:
During the three-day period, Joe's Fish Shop was able to sell 88 of the 100 salmon. How much revenue should Holmgren recognize with respect to this transaction?
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Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) To determine the future value factor for an annuity due for period n when given tables only for an ordinary annuity:
A) Obtain the FVA factor for n + 1 and deduct 1.
B) Obtain the FVA factor for n and deduct 1.
C) Obtain the FVA factor for n - 1 and add 1.
D) Obtain the FVA factor for n + 1 and add 1.
Q2) Jose wants to cash in his winning lottery ticket. He can either receive five $5,000 annual payments starting today, or he can receive one lump-sum payment today based on a 3% annual interest rate. What would be the lump-sum payment?
A) $23,586.
B) $22,899.
C) $21,565.
D) $23,000.
Q3) An annuity is a series of equal periodic payments.
A)True
B)False
Q4) Briefly describe the difference between simple interest and compound interest.
Q5) Provide two examples of the use of present value techniques in accounting.
Q6) The total cash interest payments in 2018 for these notes.
Page 8
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) The allowance method for estimating bad debts requires an adjusting entry at the end of the period to reduce receivables to their appropriate carrying value.
A)True
B)False
Q2) Belushi, Inc. owes Cusack County Trust $40 million under an 5% note with six years remaining to maturity. Due to financial difficulties of Belushi, the previous year's interest ($2.5 million) was not received. Cusack believes there is a 20% chance that Belushi will default on the note, and that, if Belushi defaults, the present value of all amounts Cusack eventually will collect is $22.5 million.
Required:
1. Compute the impairment loss that Cusack would record.
2. Assume Cusack is reporting under ASU 2016-13 and therefore using the CECL model. Compute the impairment loss that Cusack would record.
Q3) Briefly compare and contrast the two approaches to estimating bad debt expense. In your answer, indicate which approach, if either, is superior.
Q4) Describe some key elements of an internal control system for cash.
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) The inventories disclosure note in the 2014 financial statements for SUPERVALU Inc., one of the largest grocery chains in the United States, included the following ($ in millions):
"Inventories are valued at the lower of cost or market. Substantially all of the Company's inventory consists of finished goods. As of February 22, 2014 and February 23, 2013, approximately 57 percent and 60 percent, respectively, of the Company's inventories were valued under the LIFO method. If the FIFO method had been used to determine cost of inventories for which the LIFO method is used, the Company's inventories would have been higher by approximately $202 and $211 as of February 22, 2014 and February 23, 2013, respectively."
Cost of goods sold for the fiscal year ended February 22, 2014 was $14,623 million.
Required:
If SUPERVALU had used FIFO for all of its LIFO inventories, what would its cost of goods sold have been for 2014?
Q2) Dollar-value LIFO eliminates the risk of LIFO liquidations.
A)True
B)False
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) In applying the lower of cost or net realizable value rule, the inventory of apparel would be valued at:
A) $108,000.
B) $90,000.
C) $110,000.
D) $99,000.
Q2) Lower of cost or net realizable value can be applied to individual inventory items, to logical categories of inventory, or to the entire inventory.
A)True
B)False
Q3) In applying the lower of cost or market rule, the inventory of apparel would be valued at:
A) $108,000.
B) $ 90,000.
C) $110,000.
D) $115,000.
Q4) Briefly explain the financial reporting required when a company changes to or from the LIFO inventory method.
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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Q1) The interest capitalization period for a self-constructed asset ends either when the asset is substantially complete and ready for use or when interest costs no longer are being incurred.
A)True
B)False
Q2) The capitalized cost of land excludes:
A) The purchase price of the land.
B) Title insurance paid at the time of purchase.
C) Real estate commissions associated with the sale.
D) Property taxes for the first year owned.
Q3) It's not unusual for one company to buy another company in order to obtain technology that the acquired company has developed or is in the process of developing. Required:
Explain the accounting treatment of purchased technology.
Q4) Dreamworld's capitalized interest in 2018 was:
A) $72,000.
B) $63,000.
C) $54,000.
D) $36,000.
12
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Chapter 11: Property, Plant, and Equipment and Intangible
Assets: Utilization and Disposition
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Sample Questions
Q1) On February 20, 2018, Genoa Mining Company incurred costs of $3,600,000 to acquire and prepare to extract an estimated 4,000,000 tons of mineral deposits. In 2018, 450,000 tons of ore were mined. At the beginning of 2019, Genoa geologists estimated that 3,900,000 tons of ore still remained. In 2019, 700,000 tons of ore were mined.
Required:
Compute depletion for 2018 and 2019.
Q2) A company made the following expenditures related to its restaurant:
1. Replaced the heating and air conditioning equipment a cost of $15,000.
2. Remodeled the restaurant building. The total cost of the project was $150,000.
3. Performed annual building maintenance at a cost of $47,000.
4. Paid annual insurance premium on the property for the coming year, $7,700.
5. Purchased a new delivery truck, $22,500.
6. Landscaped the property and added outdoor lights, $9,000.
Required:
Assume the company credits cash for each of these expenditures. Indicate the account to be debited for each of these expenditures.
Q3) Briefly explain how to account for a change in depreciation method.
Q4) Briefly differentiate between activity-based and time-based allocation methods.
Page 13
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Chapter 12: Investments
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Q1) If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity, Dinsburry would:
A) Not reclassify the investment, as original classifications are irrevocable.
B) Reclassify the investment as held to maturity and immediately recognize in net income all unrealized holding gains and losses that have not already been recognized as of the reclassification date.
C) Reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investment's amortized cost basis for future amortization.
D) Reclassify the investment as held to maturity, but there would be no income effect.
Q2) All securities considered available for sale should be reported as current assets in a classified balance sheet.
A)True
B)False
Q3) 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) Indicate how TinyPart would disclose or account for the lawsuit described in part (d) under U.S. GAAP and under IFRS in the financial statements for the year ended December 31, 2018.
Q2) 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
Q3) Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:
A) Matching.
B) Consistency.
C) Materiality.
D) Conservatism.
Q4) What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP.
Q5) How are customer advances and refundable deposits similar and yet different?
Q6) Define a loss contingency and give two examples that almost always are accrued.
Q7) Define and distinguish between current and noncurrent liabilities.
Page 15
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Chapter 14: Bonds and Long-Term Notes
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Sample Questions
Q1) On January 1, 2018, Mania Enterprises issued 12% bonds dated January 1, 2018, with a face amount of $20 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond issuance by Mania on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2018, using the effective interest method.
Q2) An amortization schedule for bonds issued at a premium:
A) Summarizes the amortization of the premium, a contra-asset account with a credit balance.
B) Is reported in the balance sheet.
C) Is a schedule that reflects the changes in the debt over its term to maturity.
D) All of these answer choices are correct.
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Chapter 15: Leases
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Questions
Q1) Jacobs Eatery leased restaurant equipment from Gamma Leasing. Gamma earns interest under such arrangements at a 6% annual rate. The lease term is eight months with monthly payments of $20,000 due at the end of each month. Jacobs Eatery elected the short-term lease option. What is the effect of the lease on Jacobs Eatery's earnings during the eight-month term (ignore taxes)?
A) An initial expense of $160,000.
B) An expense of $20,000 initially and $20,000 at the end of 7 months.
C) An expense of $20,000 at the end of each of the 8 months.
D) No expense within the 8 month period.
Q2) For companies that prepare their financial statements in accordance with IFRS, a lessee will reassess variable lease payments that depend on an index or a rate:
A) not just when the lessee remeasures the right-of-use asset and lease liability for other reasons, but also whenever there is a change in the cash flows resulting from a change in the reference index or rate.
B) only when the lessee remeasures the right-of-use asset and lease liability for other reasons.
C) using the discount rate in effect at the beginning of the lease.
D) only when the terms of the lease are modified by the lessee and lessor.
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Chapter 16: Accounting for Income Taxes
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Q1) Changes in enacted tax rates that do not become effective in the current period affect deferred tax accounts only after the new rates take effect.
A)True
B)False
Q2) Revenues from installment sales of property reported on financial statements in prior years and currently reported in the tax return create deferred tax assets.
A)True B)False
Q3) Which of the following usually results in an increase in a deferred tax asset?
A) Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting.
B) Prepaid insurance.
C) Subscriptions delivered for which customers had paid in advance.
D) None of these answer choices are correct.
Q4) How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?
Q5) 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 is Havana's 2018 actual return on plan assets?
A) $504 thousand.
B) $618 thousand.
C) $1,128 thousand.
D) None of these answer choices is correct.
Q2) Which of the above constitutes the projected benefit obligation?
A) III only.
B) I, II.
C) I, II, III.
D) II only.
Q3) Postretirement health care
A)The portion of the EPBO attributed to employee service to date.
B)Portion of the EPBO attributed to the current period.
C)Process of assigning the cost of benefits to the years during which those benefits are assumed to be earned by employees.
D)Related to need, not service.
E)Discounted present value of total postretirement benefit costs.
F)Discount rate times beginning APBO.
Q4) 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) When preferred stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, the transaction:
A) Increases net income for the year.
B) Increases retained earnings.
C) Increases revenue for the year.
D) Increases paid-in capital--share repurchase.
Q2) Heidi Aurora Imports applies International Financial Reporting Standards (IFRS) in preparing its financial statements. The company issued shares of the company's Class B stock. Heidi Aurora Imports should report the stock in the company's statement of financial position:
A) Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.
B) As equity unless the shares are mandatorily redeemable.
C) As equity unless the shares are redeemable at the option of the issuer.
D) Among liabilities unless the shares are mandatorily redeemable.
Q3) When stock is issued for consideration other than cash, what is the measurement objective?
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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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Reacting to opposition to the FASB's "Share-Based Payment" Exposure Draft, Senator Carl Levin stated, "Stock options are the 800-pound gorilla that has yet to be caged by corporate reform." In reference to a bill that would thwart the FASB's position, Senator John McCain said, "This legislation blocking stock option expensing not only undermines FASB's independence, but undermines the effort to restore confidence in our financial markets as well." Discuss what these two senators meant by their statements.
Q2) 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.
Q3) Vesting period
A)Expensed as compensation in the period earned
B)Benefit period over which stock option compensation expense is spread.
C)Paid-in capital effectively renamed under the fair value approach
D)Shares given for achieving financial goals
E)A right to buy shares of stock in the future.
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Chapter 20: Accounting Changes and Error Corrections
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Q1) Red Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $4 million. At the beginning of 2018, Red decided to change to the sum-of-the-years'-digits method. Ignoring income taxes, what will be Red's depreciation expense for 2018?
A) $4.80 million.
B) $5.40 million.
C) $6.60 million.
D) $11.55 million.
Q2) Ignoring taxes, the 2018 adjusting entry will include a debit to depreciation expense of:
A) $3.6 million
B) $4 million
C) $4.3 million
D) $34 million
Q3) If inventory is understated at the end of 2017 and the error is not discovered, how will net income be affected in 2018?
Q4) Describe briefly the approaches of reporting changes in accounting principles.
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Chapter 21: The Statement of Cash Flows Revisited
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Q1) If bond interest expense is $800,000, bond interest payable increased by $8,000 and bond discount decreased by $2,000, cash paid for bond interest is:
A) $790,000.
B) $784,000.
C) $806,000.
D) $910,000.
Q2) What was the net change in cash and cash equivalents experienced by Henchman & Co. during 2018? Was it positive or negative?
Q3) In determining cash flows from operating activities (indirect method), adjustments to net income should not include:
A) An addition for depreciation expense.
B) An addition for bond discount amortization.
C) An addition for a gain on sale of equipment.
D) An addition for patent amortization.
Q4) Assuming the decrease in accrued expenses during fiscal year 2018 included a $20,000 reduction due to taxes, compute the income tax expense for Kinney in that year.
Q5) What are the general guidelines for an investment to be considered a cash equivalent?
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