Corporate Financial Reporting
Textbook Exam Questions
Course Introduction
Corporate Financial Reporting explores the principles and practices involved in preparing and analyzing financial statements for corporations. The course examines the regulatory environment, including key accounting standards and the role of institutions such as the SEC and FASB. Students learn to interpret balance sheets, income statements, and cash flow statements, as well as disclosures related to equity, liabilities, and assets. Emphasis is placed on understanding how financial reporting supports decision-making by investors, managers, and other stakeholders, ensuring transparency and accountability in corporate financial communications.
Recommended Textbook
Intermediate Accounting 1st Edition by Elizabeth
A. Gordon
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Page 2
Chapter 1: The Financial Reporting Environment
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Q1) Which organization is responsible for setting auditing standards and oversees the audits of public companies in the United States?
A)Financial Accounting Standards Board
B)Public Company Accounting Oversight Board
C)American Institute of Certified Public Accountants
D)Securities Exchange Commission
Answer: B
Q2) Rules-based standards rely on theories and concepts that are linked to a well-developed theoretical framework.
A)True
B)False
Answer: False
Q3) Official U.S.GAAP consist of the bulletins,opinions,and statements issued by the CAP,the APB,and the FASB.
A)True
B)False
Answer: False
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Chapter 2: Financial Reporting Theory
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Q1) What drives the measurement and timing of revenue recognition?
Answer: Companies should recognize revenue to record the transfer of control of goods or services that reflects the consideration to which the company expects to be entitled.This occurs when a company satisfies its performance obligations specified in the contract with a customer.
Q2) Which of the following is not considered to be a primary user of financial information for which financial reporting standards are designed?
A)supplier
B)investor
C)regulator
D)lender
Answer: C
Q3) According to IFRS,there are two types of capital maintenance adjustments: financial and physical.
A)True
B)False
Answer: True
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Chapter 3: Judgment and Applied Financial Accounting Research
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Q1) The final step in the accounting research process is to develop conclusions.
A)True
B)False
Answer: False
Q2) The Codification subtopics are generally distinguished by accounting area or scope.
A)True
B)False
Answer: True
Q3) In ASC 450-20-35-2,2 represents the ________.
A)topic
B)paragraph
C)section
D)subsection
Answer: B
Q4) The final step in the accounting research process is to communicate the results.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Review of the Accounting Cycle
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Q1) Which of the following transactions would never be reversed in the following period?
A)accrual of interest revenue
B)accrual of wages expense
C)assignment of depreciation expense
D)accrual of interest expense
Q2) The adjusted trial balance proves the accuracy of the financial statements.
A)True
B)False
Q3) If a prepaid expense is initially recorded as an asset,the end-of-period adjusting entry records the unexpired portion.
A)True
B)False
Q4) Each of the following accounts has a normal credit balance except ________.
A)Sales Revenue
B)Accumulated Depreciation
C)Investments
D)Accounts Payable
Q5) What are the common errors that a trial balance will not reveal?
Q6) List and define the elements of the accounting equation.
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Chapter 5: Statements of Net Income and Comprehensive
Net
Income
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Q1) Identify and describe the two primary factors that impact earnings quality.
Q2) The two parts that compose comprehensive income are operating income and net income.
A)True
B)False
Q3) Evaluating whether the disposal of a component of an entity constitutes a discontinued operation begins with ________.
A)remeasuring the value of net assets held for disposal
B)identifying the cash flows that can be clearly distinguished operationally
C)segregating its operating revenues and expenses from those of continuing operations
D)assessing whether a strategic shift has occurred
Q4) The "cookie jar reserves" earnings management technique involves increasing earnings so as to increase managers' compensation.
A)True
B)False
Q5) Currently,under U.S.GAAP,what are the four items of other comprehensive income? Why should these items not flow through net income?
Page 7
Q6) What is earnings per share and how is it reported in the financial statements?
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Chapter 6: Statements of Financial Position and Cash Flows and
the Annual Report
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Q1) The account format lists assets on the left side and liabilities and stockholders' equity on the right side of the statement.
A)True
B)False
Q2) The financial leverage for Teague Industries is ________.
A)2)95
B)3)15
C)3)60
D)3)84
Q3) Working capital for Matthews Corporation is ________.
A)$1,473
B)$5,000
C)$3,952
D)$7,479
Q4) What is ending retained earnings for San Marcos Corporation?
A)$108
B)$173
C)$353
D)$413
Q5) What are three limitations associated with the balance sheet?
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Chapter 7: Accounting and the Time Value of Money
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Q1) Which of the following must be known to compute the interest rate paid from financing an asset purchase with an annuity?
A)fair value of the asset purchased,number and dollar amount of the annuity payments
B)present value of the annuity,dollar amount and number of the annuity payments
C)fair value of the asset and timing of the annuity payments
D)future value of the annuity and number of the annuity payments
Q2) A deferred annuity is an annuity for which payments are delayed until the end of each period.
A)True
B)False
Q3) Jenks Company financed the purchase of a machine by paying $24,000 a year for the next five years,with the first payment due one year from today.The purchase cost of the machine is considered to be the present value of those payments.What was the purchase cost of the machine to Jenks assuming a discount rate of 8%?
A)$35,264
B)$95,825
C)$120,000
D)$140,800
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Chapter 8: Revenue Recognition
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Sample Questions
Q1) What are the requirements for a performance obligation to be distinct?
Q2) Refer to Tullis Construction.How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method?
A)asset of $0
B)liability of $250,000
C)asset of $3,000,000
D)liability of $4,000,000
Q3) What are the issues to consider when determining the transaction price?
Q4) Refer to Camey Corporation.How much gross profit should Camey recognize in Year 1 assuming the use of the completed-contract method?
A)$-0-
B)$2,500,000
C)$3,500,000
D)$5,000,000
Q5) Under the completed-contract method,revenues are only reported in the last year.
A)True
B)False
Q6) When may companies use the completed-contract method?
Page 10
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Chapter 9: OL: Revenue Recognition
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Q1) Refer to Brutus Construction.Calculate gross profit or loss for each year using the completed-contract method.
Q2) Installment receivables may be reported on the balance sheet net of deferred gross profit.
A)True
B)False
Q3) Refer to Tullis Corporation.How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method?
A)$0
B)$500,000
C)$4,000,000
D)$5,000,000
Q4) Refer to Thompson Industries.Assume that Thompson Industries uses the installment sales method.The buyer of the land defaulted on the sales agreement after making the down payment and the first installment.At the time of repossession,the land was worth $500,000.
Required:
Prepare the journal entry to record the repossession.
Q5) Explain a bill-and-hold arrangement.
11
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Chapter 10: Short-Term Operating Assets: Cash and Receivables
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Q1) Why are trade discounts not recorded in the accounts like sales discounts?
Q2) Prior to adjustments,Willett Company's account balances at December 31,2017,for Accounts Receivable and the related Allowance for Uncollectible Accounts were $2,400,000 and $120,000,respectively.An aging of accounts receivable indicated that $212,000 of the December 31,2017,receivables may be uncollectible.The net realizable value of accounts receivable at December 31,2017,was ________.
A)$2,308,000
B)$2,280,000
C)$2,188,000
D)$2,068,000
Q3) Which ratio indicates the effectiveness of a company's credit extension policy?
A)inventory turnover
B)accounts payable turnover
C)days sales outstanding
D)days inventory on hand
Q4) The inventory turnover ratio is equal to 365 divided by the number of days of inventory on hand.
A)True
B)False
Page 12
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Chapter 11: Short-Term Operating Assets: Inventory
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Q1) If costs are declining,using LIFO will result in lower cost of goods sold and a higher net income as compared to FIFO and moving-average methods.
A)True
B)False
Q2) When following U.S.GAAP,the lower-of-cost-or-market rule for inventory requires a firm to report ________.
A)the inventory at the higher amount of cost or market on the balance sheet
B)the difference between the cost basis and the market-based measure of inventory as a gain on the income statement
C)the inventory at cost if the market value of inventory is higher than its cost basis
D)the inventory at cost if the market value of inventory is lower than its cost basis
Q3) 1.What is the LIFO conformity rule?
2.Why is LIFO used by so many companies?
3.What is the disadvantage of LIFO?
Q4) The gross profit method may not be used for budgeting purposes.
A)True
B)False
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Chapter 12: Long-Term Operating Assets: Acquisition, cost
Allocation, and Derecognition
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Q1) Alzparker Company constructed a building at a total actual cost of $24,000,000.Average accumulated expenditures during the construction period amounted to $17,000,000.As a result of financing arrangements,actual interest was $2,120,000,and avoidable interest was $1,600,000.What is the capitalizable cost of the equipment?
A)$19,120,000
B)$25,600,000
C)$26,120,000
D)$27,720,000
Q2) Which of the following is a finite-life intangible asset?
A)goodwill
B)building
C)trademark
D)copyright
Q3) U.S.GAAP allows a firm to record a half year of depreciation expense for any asset acquired at any time during the year.
A)True
B)False
Q4) Under what circumstances does derecognition of an asset occur?
Page 14
Q5) List and briefly describe five types of finite-life intangible assets.
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Chapter 13: Long-Term Operating Assets: Departures From
Historical Cost
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Q1) In 2010,Bambung Corporation acquired production machinery at a cost of £410,000,which now has a book value of £190,000.The undiscounted cash flows from use of the machinery is £175,000.and it's fair value in use is £155,000.What amount should Bambung recognize as a loss on impairment?
A)£35,000
B)£20,000
C)£15,000
D)-0-
Q2) When assessing assets for impairment in asset groups,the firm groups assets at the lowest level of identifiable and independent cash flows.
A)True
B)False
Q3) After recognizing the impairment,the firm carries the asset at its fair value less previously accumulated depreciation.
A)True
B)False
Q4) List the four key steps related to accounting for impairments of long-term operating assets.
Q5) List four impairment indicators.
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Chapter 14: Operating Liabilities and Contingencies
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Q1) How does IFRS accounting for asset retirement obligations different from U.S.GAAP accounting?
Q2) Mingle,Inc.,a manufacturer of cleaning products,is preparing annual financial statements at December 31,2016.Because of a recently proven health hazard in one of its cleaning products,the U.S.government has clearly indicated its intention of having Mingle recall all bottles of that product sold in the last six months.The management of Mingle estimates that this recall would cost $880,000.What accounting recognition,if any,should be accorded this situation?
A)expense and equity restriction of $880,000
B)expense and liability of $880,000
C)note disclosure only
D)no recognition
Q3) Under IFRS,asset retirement obligations are considered loss contingencies.
A)True
B)False
Q4) Dismantling an ocean oil-rig platform is an example of an asset retirement obligation.
A)True
B)False
Q5) What are compensated absences? How does a company account for them?
Page 16
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Chapter 15: OL: Operating Liabilities and Contingencies
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Q1) When a company sells the extended warranty contract,it records a liability for unearned revenue.
A)True
B)False
Q2) Which of the following best describes the accounting for base warranty costs?
A)expensed when paid
B)expensed when obligations are probable and estimable
C)expensed based on estimate in year of sale
D)expensed when warranty claims are certain
Q3) Big Dots provides a one-year warranty with all its products it sells.It estimates that it will sell 350,000 units of its product for the year ended December 31,2016,and that its total revenue for the product will be $105,000,000.It also estimates that 75% of the product will have no defects,5% will have major defects,and 20% will have minor defects.The cost of a minor defect is estimated to be $6 for each product repaired,and the cost for a major defect cost is about $21.The company also estimates that the minimum amount of warranty expense will be $1,500,000 and the maximum will be $6,000,000.Prepare the journal entry for 2016 under the warranty.
Q4) Describe how to account for warranty costs if the warranty is determined to be a extended warranty? A base warranty?
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Chapter 16: Financing Liabilities
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Q1) Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars.The press was installed on January 2,2016.The press had a market value of $300,000.Hornet agreed to pay for the press in three equal installments beginning December 31,2016.At the time,Hornet's incremental borrowing rate was 7%.
Required: Compute the installment payments and prepare the three year amortization table for the note payable.Prepare the journal entries to record the purchase of the machine,the first annual payment,and the final payment on the note.
Q2) Short-term debt typically carries a higher interest rate than long-term notes. A)True
B)False
Q3) When exercising the warrants,the firm removes the additional paid-in capital-stock warrants account,credits common stock for the par value,and credits the remainder to additional paid-in capital.
A)True
B)False
Q4) The stated interest rate is also referred to as the yield rate.
A)True
B)False
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Chapter 17: Accounting for Stockholders Equity
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Q1) If a corporation wishes to change the par value on its common stock,it must amend its articles of incorporation.
A)True
B)False
Q2) Danio Fisheries issued 200,000 shares of $2 par value stock.The book value of Danio's common stockholders' equity is equal to $20 million.On August 1,Danio Fisheries implements a two-for-one stock split.After the stock split,the par value per share is ________ and the total book value is ________.
A)$4; $20 million
B)$1; $40 million
C)$2; $10 million
D)$1; $20 million
Q3) IFRS requires a company to disclose information that enables users to assess its objectives,policies,and processes for managing capital.
A)True
B)False
Q4) Why would a company issue a stock split?
Q5) Explain the benefit to reporting other comprehensive income separately from net income.
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Chapter 18: Investing Assets
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Q1) On July 1,Year 1,Fairfield Company purchased $2 million of Hampton Corporation's 6% bonds for $1,731,590.The bonds were purchased to yield 8% interest and were classified as held-to-maturity securities.The bonds mature in 10 years and pay interest annually on July 1.Assuming that Fairfield uses the effective interest method of amortization,what amount should it report for its investment in bonds on December 31,Year 1?
A)$1,747,695
B)$1,740,854
C)$1,750,117
D)$2,000,000
Q2) Where are changes in fair value for available for sale securities reported?
A)as operating income or loss on the income statement
B)as income or loss from peripheral activities on the income statement
C)as a component of accumulated other comprehensive income on the balance sheet
D)as a prior period adjustment to retained earnings on the balance sheet
Q3) Can impairment losses recorded on investment assets be reversed at a later date?
A)Yes,all impairment loss can be reversed.
B)No,impairment losses cannot be reversed.
C)Yes,but only non-credit losses recorded in Other Comprehensive Income.
D)Yes,but only credit losses recorded in a previous period can be reversed.
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Chapter 19: Accounting for Income Taxes
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Q1) Caesar Corporation reported income before taxes of $200,000 for the years 2013,2014,and 2015.In 2016 they experienced a loss of $200,000.The company had a tax rate of 25% in 2013 and 2014,and a rate of 35% is 2015 and 2016.Assuming Caesar uses the carryback provisions for the net operating loss,by what amount will the income tax benefit reduce the net loss in 2016?
A)$50,000
B)$60,000
C)$70,000
D)$200,000
Q2) When a company adjusts the balance of a deferred tax account to reflect changes in their tax rate,this impacts ________.
A)income tax expense
B)income tax payable
C)effective tax rate
D)both A and C
Q3) Piper Inc.'s income before taxes is $550,000 and its tax rate is 40%.Piper included $30,000 of interest from municipal bonds in the $550,000.There are no other book-tax differences.Prepare the journal entry to record income tax expense and a reconciliation of the statutory tax rate to the effective tax rate.
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Chapter 20: Accounting for Employee Compensation and Benefits
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Q1) Which of the following statements about defined benefit pension plans is correct?
A)Deferring actuarial gains and losses tends to smooth earnings.
B)An overfunded pension plan increases a company's leverage.
C)When the settlement rate is higher,the computed pension obligation increases.
D)Expected return on plan assets increases pension costs.
Q2) When a company grants a liability-classified award,it does not make an entry at the grant date.
A)True
B)False
Q3) What is the most important accounting objective for equity classified awards?
A)Measuring their fair value for balance sheet purposes.
B)Determining the correct amount of compensation expense during the service period.
C)Disclosing increases and decreases in the value of the stock options held at the end of each accounting period.
D)Determining the change in the number of stock options that will eventually be exercised.
Q4) In what ways must an accountant exercise judgment in relation to stock-based compensation plans?
Page 22
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Chapter 21: Earnings Per Share
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Q1) Earnings per share is the most-often quoted financial statistic in the business media.
A)True
B)False
Q2) US GAAP assumes that all potential shares in diluted earnings per share computations use the treasury stock method.
A)True
B)False
Q3) Normally dilutive securities will become antidilutive if income from continuing operations is a net loss.
A)True
B)False
Q4) Managers can be motivated to manage EPS when ________.
A)the national economy is in a downturn
B)the country is in armed combat
C)the company is newly formed
D)their compensation is based on net income or stock price
Q5) How can managers manipulate EPS?
Q6) When is a potentially dilutive antidilutive?
Q7) Why should shareholders pay attention to the diluted EPS?
Page 23
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Chapter 22: Accounting Corrections and Error Analysis
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Q1) Which of the following costs are excluded from a minimum lease payment?
A)a guaranteed residual value
B)a bargain purchase option
C)executory costs
D)a penalty for failure to renew the lease
Q2) Under a capital lease,the lessee reports rent expense on the income statement.
A)True
B)False
Q3) Humphrey Contractors purchased customized equipment in January,2015 for $500,000.The manufacturer warranted the equipment for six years.Humphrey used double-declining balance depreciation with a useful life of eight years and no salvage value.After two full years,he now believes that the equipment will only last a total of five years.Compute his depreciation expense for 2017 if he switches to straight-line depreciation.
A)$62,500
B)$75,000
C)$93,750
D)$100,000
Q4) What disclosures must a lessor include on its financial statements for all leases to which it has entered?
Page 24
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