Financial Reporting I Exam Review
Course Introduction
Financial Reporting I is an introductory course that explores the foundational principles and practices of financial accounting. Students learn how to analyze, record, and report business transactions in accordance with generally accepted accounting principles (GAAP). The course emphasizes the preparation and interpretation of key financial statements, including the balance sheet, income statement, and statement of cash flows. Topics include the accounting cycle, accrual accounting, and the correct classification of assets, liabilities, and equity. By the end of the course, students develop a thorough understanding of how financial information is communicated to stakeholders and its impact on business decision-making.
Recommended Textbook
Intermediate Accounting 1st Edition by Elizabeth
A. Gordon
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Chapter 1: The Financial Reporting Environment
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Q1) The Private Company Council has authority to make the final decision about changing U.S.GAAP for private companies.
A)True
B)False
Answer: False
Q2) Financial accounting standards influence the behavior of managers and other internal users.
A)True
B)False
Answer: True
Q3) Which of the following is not a current trend in accounting-standards setting?
A)increase in political involvement
B)move toward principles-based system
C)focus on asset/liability approach
D)emphasis on measuring fair value
Answer: A
Q4) Contrast the differences between rules-based standards and principles-based standards.
Answer: 11ea822b_79fc_1769_bbd8_21c943c239f0_TB3884_00
Page 3
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Chapter 2: Financial Reporting Theory
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Q1) Shadow's Cleaning Service provides weekly cleaning services for $40 per week.In January,they collected payments from 50 customers for 3 months (12 weeks)of service each.For the month of February they will recognize ________ of revenue under the cash basis,and ________ under the accrual basis.
A)$0,$8,000
B)$8,000,$8,000
C)$8,000,$24,000
D)$24,000,$8,000
Answer: A
Q2) According to IFRS,period-of-time elements include income,expenses,performance,and transactions with owners.
A)True
B)False Answer: False
Q3) Publicly traded U.S.companies are required to comply with IFRS.
A)True
B)False
Answer: False
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Page 4
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) ________ is the systematic investigation into an issue.
A)Interpretation
B)Judgment
C)Research
D)Analysis
Answer: C
Q3) The Codification is divided into ________.
A)chapters,topics,sections,and paragraphs
B)topics,subtopics,sections,and paragraphs
C)chapters,sections,subsections,and paragraphs
D)topics,sections,subsections,and paragraphs
Answer: B
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Chapter 4: Review of the Accounting Cycle
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Q1) The first step in the accounting cycle is to ________.
A)journalize transactions
B)analyze transactions
C)post transactions to the general ledger
D)prepare a worksheet
Q2) Decreases in equity that result from peripheral transactions of an entity are referred to as ________.
A)liabilities
B)expenses
C)losses
D)dividends
Q3) Liabilities represent claims of third parties against the assets of a business.
A)True
B)False
Q4) The accounting equation is correctly stated as ________.
A)A = L + E
B)A + L = E
C)A = L - E
D)A = L = E
Q5) List and define the elements of the accounting equation.
Page 6
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Chapter 5: Statements of Net Income and Comprehensive
Net Income
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Q1) In what ways do the accounting standards allow companies to present their report about comprehensive income in the financial statements?
Q2) Which of the multi-step income statement reports revenues and expenses related to secondary operations of the entity?
A)discontinued operations section
B)secondary section
C)non-operating section
D)operating section
Q3) Which of the following is the key performance measure reported on the income statement that is typically presented last in sequence?
A)earnings per share
B)income from continuing operations
C)net income
D)operating income
Q4) IFRS requires companies to report specific items on the income statement including finance costs.
A)True
B)False
Page 7
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Chapter 6: Statements of Financial Position and Cash Flows and
the Annual Report
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Q1) A subsequent event is one that takes place after a company's year end and after the financial statements are issued.
A)True
B)False
Q2) Accumulated Other Comprehensive Income is reported on the statement of comprehensive income.
A)True
B)False
Q3) Which financial is the first to be prepared?
A)balance sheet
B)statement of income
C)statement of shareholders' equity
D)statement of comprehensive income
Q4) There is a direct relationship between a company's interest coverage ratio and degree of solvency.
A)True
B)False
Q5) Define the term subsequent event,explain the two types of subsequent events and provide an example of each.
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Chapter 7: Accounting and the Time Value of Money
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Q1) Each quarter for the next 10 years,Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly.
a.How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the end of each quarter?
b.How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the beginning of each quarter?
Q2) You have discovered an investment opportunity that earns a 6% rate of interest compounded semiannually.What amount should you deposit today to have $5,000 in three years?
A)$3,832
B)$4,100
C)$4,187
D)$4,237
Q3) List the variables in a single-sum problem.
Q4) A deferred annuity is an annuity for which the first payment is delayed until a future period.
A)True
B)False
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Chapter 8: Revenue Recognition
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Sample Questions
Q1) Refer to Kramer Iron Works.Allocate the transaction price using the standalone approach.
Q2) Which one of the following approaches is not a method for allocating a transaction price to multiple performance obligations?
A)adjusted market assessment
B)expected-cost-plus-a-margin
C)residual
D)present cost basis
Q3) Refer to Tullis Corporation.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 completed-contract method?
A)liability of $1,000,000
B)asset of $1,000,000
C)asset of $500,000
D)liability of $500,000
Q4) A good or service must be explicitly identified in a contract.
A)True
B)False
Q5) When may companies use the completed-contract method?
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Chapter 9: OL: Revenue Recognition
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Q1) Refer to Camey Construction.How should Camey 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 $120,000
C)asset of $1,500,000
D)liability of $2,000,000
Q2) Under IFRS,if a firm cannot reliably estimate the outcome of a construction contract,it uses the zero-gross profit approach.
A)True
B)False
Q3) Refer to LaGrow Developers.Assume that LaGrow uses the installment sales method.The buyer defaulted on the note receivable after making the down payment.At the date of repossession,the land had a fair value of $5,000,000.What will be the gain or loss on repossession?
A)$0 gain or loss
B)$1,000,000 loss
C)$1,000,000 gain
D)$2,000,000 gain
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Chapter 10: Short-Term Operating Assets: Cash and Receivables
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Q1) Frigart Company sold goods for $1,000 with terms 2/10,n/30.How much would Frigart receive if the account were paid within the discount period?
A)$998
B)$980
C)$970
D)$900
Q2) Accounts receivable turnover measures ________.
A)how long it takes to sell merchandise
B)the relationship between credit sales and cash sales
C)the length of time it takes a company to generate cash from its operations
D)how many times average receivables are collected during the year
Q3) Gappule Corp.made a $10,000 sale on account with terms: of 1/15,n/30.If the company uses the net method,which of the following will be included in the journal entry to record customer payment within the discount period?
A)credit Accounts Receivable $10,000
B)debit Sales Discounts Forfeited $100
C)credit Sales Revenue $9,900
D)debit Cash $9,900
Q4) Why are trade discounts not recorded in the accounts like sales discounts?
Page 12
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Chapter 11: Short-Term Operating Assets: Inventory
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Q1) The work-in-process inventory is found on the books of a merchandising concern.
A)True
B)False
Q2) A periodic inventory system is used by most companies today due to the proliferation of computers.
A)True
B)False
Q3) Following IFRS,which of the following statements is not correct?
A)Firms determine the lower-of-cost-or-market value of inventory using individual-items or groups of items.
B)IFRS inventory write-downs can be reversed later if the net realizable value of inventory increases.
C)The net realizable value of inventory is calculated as the estimated selling price plus the estimated costs of completion and sale.
D)IFRS-reporting firms determine if a write-down for inventory is needed by comparing the historical cost and the net realizable value of inventory.
Q4) What is a LIFO liquidation? In a period of rising costs,why is a LIFO liquidation feared?
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Chapter 12: Long-Term Operating Assets: Acquisition, cost
Allocation, and Derecognition
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Q1) How is derecognition of an asset recognized in the financial statements?
Q2) The cost of land includes the purchase price and land improvement costs.
A)True
B)False
Q3) Which of the following is a characteristic of intangible assets?
A)held for resale
B)long-lived
C)monetary asset
D)physical existence
Q4) IFRS permits the use of full-cost accounting to allocate a proportionate share of indirect costs to a constructed asset.
A)True
B)False
Q5) U.S.GAAP requires companies to reconcile the historical cost and accumulated depreciation at the beginning of the period with amounts at the end of the period.
A)True
B)False
Q6) What is goodwill and how is it accounted for?
14
Q7) Under what circumstances does derecognition of an asset occur?
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Chapter 13: Long-Term Operating Assets: Departures From
Historical Cost
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Q1) Briefly describe the process for determining impairment losses on property,plant,and equipment and finite-life intangible assets.
Q2) IFRS requires an impairment test for goodwill at least annually.
A)True
B)False
Q3) In 2011,Diller Company acquired production machinery at a cost of $860,000,which now has a book value of $380,000.The undiscounted cash flows from use of the machinery is $335,000.and it's fair value is $290,000.
a.Determine if an impairment loss has occurred.Explain.
b.If an impairment loss has occurred,provide the journal entry to record the impairment loss.
Q4) How do the standards specifying when to test for impairment for indefinite-life intangible assets differ from those standards for finite-life intangible assets?
Q5) Firms assess assets for impairment ________.
A)as individual assets only
B)in asset groups only
C)as either individual assets or in asset groups
D)as both individual assets and in asset groups
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Chapter 14: Operating Liabilities and Contingencies
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Q1) If management can only estimate a range for the loss,but cannot identify a single most likely outcome within that range,it should accrue the midpoint of the range.
A)True
B)False
Q2) Under IFRS,asset retirement obligations are considered loss contingencies.
A)True
B)False
Q3) Onopea Inc.considered two contingencies at the end of 2016: ** a probable loss in the range of $300,000 to $500,000 ** a reasonably possible loss of $150,000
Under U.S.GAAP,what is the balance for contingent liabilities at the end of 2016?
A)$300,000
B)$400,000
C)$450,000
D)$550,000
Q4) By recording a contingent gain,a company recognizes revenue when it is realized. A)True
B)False
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Chapter 15: OL: Operating Liabilities and Contingencies
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Q1) In an extended warranty,warranty revenue is ________.
A)not recognized
B)recognized equally over the warranty period
C)recognized only in the last year of the warranty period
D)recognized in the year of sale
Q2) If the warranty is required by law,it is more likely to be an base warranty.
A)True
B)False
Q3) A extended warranty exists if the customer has the option to purchase the warranty separately.
A)True
B)False
Q4) Because the sale of a extended warranty increases sales revenue,the seller should recognize the expense of providing that warranty in the year of sale.
A)True
B)False
Q5) Warranties that cover longer time periods are more likely to be base warranties.
A)True
B)False
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Chapter 16: Financing Liabilities
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Q1) The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note.Each note payment is $47,690.How much interest is Hudson paying over the life of the loan?
A)$23,860
B)$36,140
C)$40,000
D)$60,000
Q2) Over the life of a bond,the interest expense is the ________.
A)total cash interest payments to the bondholders
B)difference between the selling price and the amount repaid plus interest payments
C)difference between the selling price and the amount repaid less interest payments
D)total cash paid to the bondholders over the life of the bonds
Q3) The debt component of convertible bonds issued using IFRS is the ________.
A)present value of the future cash flows at the market interest rate
B)present value of the future cash flows at the stated interest rate
C)market value of similar bonds without a conversion feature
D)same as the calculation for GAAP
Q4) Discuss what causes bonds to sell at par,a premium,or a discount.
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Chapter 17: Accounting for Stockholders Equity
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Q1) Fancy Flights has 100,000 common shares outstanding,they are currently trading at $21 per share.Net income is $175,000.What is the Price-to-Earnings Ratio?
A)10
B)12
C)14
D)16
Q2) Betta Corp.has 65,000 shares of $3 par common stock and 25,000 shares of $17 par fully participating 7% cumulative preferred stock.The company declares cash dividends of $50,000 during the current year and there are $7,000 dividends in arrears.What will be the total dividend payment to common stockholders?
A)$13,250
B)$20,250
C)$36,750
D)$50,000
Q3) Discuss how stock is valued when issued in exchange for noncash consideration.
Q4) The number of outstanding shares of common stock may be reduced by shares held in the treasury.
A)True
B)False
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Chapter 18: Investing Assets
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Q1) Investor companies may elect to value their held-to-maturity investments at fair value instead of unamortized cost.
A)True
B)False
Q2) When a note's stated interest rate is less than the market rate,the note is valued at a premium.
A)True
B)False
Q3) Only debt securities can be classified as held-to-maturity securities.
A)True
B)False
Q4) If a company deems an asset to be impaired,it still may not record an impairment loss.
A)True
B)False
Q5) What types of gains and losses resulting from the change in the value of investments must companies report?
Q6) Summarize the the financial disclosure requirements for investments accounted for under the equity method.
Page 20
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Chapter 19: Accounting for Income Taxes
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Q1) A deferred tax asset represents a future reduction in income taxes payable.
A)True
B)False
Q2) Clunker Car Corporation reported a $3 million contingent liability on its 2015 financial statements from a lawsuit over faulty ignition switches.The tax rate for 2015 is 40%; however the enacted tax rates for the following three years is 37%,35%,and 33% respectively.
How will the deferred tax asset be measured if the case is resolved in 2016? How will it be measured if the case is resolved in 2018?
What accounts for this difference?
Q3) Income tax rate reconciliation under IFRS begins with the U.S.statutory income tax rate.
A)True
B)False
Q4) The amount of income that a company reports on its tax return is know as
A)refundable income
B)taxable income
C)deductible income
D)net income
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Chapter 20: Accounting for Employee Compensation and Benefits
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Questions
Q1) When a pension plan is amended to recognize previous service of currently enrolled employees,what component of pension expense is created?
A)transition costs
B)amendment costs
C)past service costs
D)prior service costs
Q2) What is the total compensation cost for this plan?
A)$80,000
B)$160,000
C)$240,000
D)$480,000
Q3) Net pension liability is increased by ________.
A)employer contributions to plan assets
B)service costs
C)expected return on plan assets
D)amortization of prior service costs
Q4) Prior service cost is recognized as pension expense over a period of several years under US GAAP.
A)True
B)False
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Chapter 21: Earnings Per Share
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Q1) Gray Corporation reported $200,000 in interest expense for the current year for bonds that were issued in prior years.Gray's tax rate is 40%.By what amount is the numerator of diluted EPS positively adjusted?
A)$0
B)$80,000
C)$120,000
D)$200,000
Q2) When computing diluted EPS,only the denominator is affected by ________.
A)warrants and options
B)convertible preferred stock
C)preferred stock
D)convertible bonds
Q3) If a company provides basic and diluted EPS on the income statement for each year presented,it has no further information requirements.
A)True
B)False
Q4) Antidilutive securities are excluded from the diluted EPS equation.
A)True
B)False
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Chapter 22: Accounting Corrections and Error Analysis
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Q1) Which one of the following would not be a required disclosure for a change in accounting principle?
A)description of the nature of the change
B)management's justification for the change
C)the estimated effect on future earnings per share
D)cumulative effect of the change on retained earnings for the first year presented
Q2) Which of the following statements concerning the statement of cash flows is true?
A)When pension expense exceeds cash funding,the difference is deducted from investing activities on the statement of cash flows.
B)IFRS requires companies to classify all income taxes paid as operating cash outflows.
C)Companies may report the cash flows from purchases and sales of trading investments as cash flows from operating activities.
D)Under IFRS,the purchase of land by issuing ordinary shares will be shown as a cash outflow under investing activities and a cash inflow under financing activities.
Q3) Determine the required disclosures for this series of errors.
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