Fin statement exam 1 practice

Which of the following statements is least likely to be discussed on the management's commentary?

Basis of presentation such as the fiscal period covered by the statements and the inclusion of consolidated entities

The objective of financial reporting, according to the IASB framework, is to:

Provide information about the firm to current and potential investors

Which of the following statements is incorrect?

The statement of comprehensive income reports all changes in equity and shareholder transactions

Which of the following statements is likely to be on the standard auditor's opinion?

Unqualified opinion

Which of the following is likely to be prepared by the firm's management team?

earning guidance

Which of the following statements least accurately describes a role of financial statement analysis?

Provide reasonable assurance that the financial statements are free of material errors

A firm's financial position at a specific point in time is reported in the

Balance sheet

Information about accounting estimates, assumptions, and methods chosen for reporting is most likely found in

Financial statement notes

If an auditor finds that a company's financial statements have made a specific exception to applicable accounting principles, she is most likely to issue a

Qualified opinion

Information about elections of members to a company's Board of Directors is most likely found in

A proxy statement

Which of these steps is least likely to be a part of the financial statement analysis framework

Determine whether the company's securities are suitable for the client

Which of the following is NOT recorded under operating cash flows?

All of the above

Which of the following statements is most likely to be on the financial statement notes?

Information about accounting methods, assumptions, and estimates used by management

Which of the following organizations is least likely involved with enforcing compliance with financial reporting standards

International Accounting Standards Board

Standard-setting bodies are responsible for:

Establishing financial reporting standards only

Dawn is writing an article about international financial reporting standards. In her article she states, "despite strong support from business groups for a universally accepted set of financial reporting standards, disagreements among the standard-setting bodies and regulatory authorities of various countries remain a barrier to developing one." Dawn's statement is

Incorrect, because business groups have not supported a uniform set of financial reporting standards

According to the IASB Conceptual Framework, the fundamental qualitative characteristics that make financial statements useful are

Relevance and faithful representation

Which of the following most accurately lists a required reporting element that is used to measure a company's financial position and one that is used to measure a company's performance?

Position

Performance

a.

Assets

Liabilities

b.

Income

Expense

c.

Liabilities

Income

C

International Accounting Standards (IAS) No. 1 least likely requires which of the following?

Audited financial statements and disclosures, along with updated information about the firm and its management, must be filed at least quarterly

Which of the following statements about the FASB conceptual framework, as compared to the IASB conceptual framework, is most accurate?

The FASB framework lists revenue, expenses, gains, losses, and comprehensive income related to financial performance

Rules-based and principles-based approaches to standard setting are:

An example of barriers to creating a coherent financial reporting framework

Which is least likely one of the conclusions about the impact of a change in financial reporting standards that might appear in management's discussion and analysis?

Management has chosen not to implement the new standard

Reporting standards are designed to

Ensure that different firms' statements are comparable to one another and to narrow the range of reasonable estimates on which financial statements are based

Which of the following is not an underlying assumption of financial statements?

Qualified opinion

For a nonfinancial firm, are depreciation expense and interest expense included or excluded from operating expenses in the income statement?

Depreciation expense Interest expenseA. Included IncludedB. Included ExcludedC. Excluded Included

B. Included ; Excluded

Are income taxes and cost of goods sold examples of expenses classified by nature or classified by function in the income statement?

Income taxes Cost of goods soldA. Nature FunctionB. Function NatureC. Function Function

A. Nature ; Function

Which of the following is least likely a condition necessary for revenue recognition?

A. Cash has been collected.

AAA has a contract to build a building for $ 1 00,000 with an estimated time to completion of three years. A reliable cost estimate for the project is $60,000. In the first year of the project, AAA incurred costs totaling $24,000. How much profit should AAA report at the end of the first year under the percentage-of-completion method and the completed-contract method?

Percentage-of-completion Completed-contractA. $16,000 $0B. $16,000 $40,000c. $40,000 $0

A. $16,000 ; $0 (lowest)

Which principle requires that cost of goods sold be recognized in the same period in which the sale of the related inventory is recorded?

C. Matching.

Which of the following would least likely increase pretax income?

C. Decreasing the residual value of a depreciable tangible asset.

When accounting for inventory, are the first-in, first-out (FIFO) and last-in, first-out (LIFO) cost flow assumptions permitted under U.S. GAAP?

FIFO LIFOA. Yes YesB. Yes No C. No Yes

A. Yes ; Yes

Which of the following best describes the impact of depreciating equipment with a useful life of 6 years using the declining balance method as compared to the straight-line method?

B . Depreciation expense will be higher in the first year.

CC Corporation reported the following inventory transactions (in chronological order) for the year:

Purchase Sales40 units at $30 13 units at $3520 units at $40 35 units at $45 90 units at $50 60 units at $60

Assuming inventory at the beginning of the year was zero, calculate the year-end inventory using FIFO and LIFO. FIFO LIFOA. $5,220 $1,040B. $2,100 $1,280C. $2,100 $1,040

B. $2,100 ; $1,280 (low, high)

At the beginning of the year, Triple W Corporation purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment was $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. Depreciation expense to be reported for the second year using the double-declining-balance method is closest to:

B. $6,250. (mid)

Which of the following is least likely considered a nonoperating transaction from the perspective of a manufacturing firm?

C. Accruing bad debt expense for goods sold on credit.

Changing an accounting estimate:

A. is reported prospectively.

Which of the following transactions would most likely be reported below income from continuing operations, net of tax?

C. The operating income of a physically and operationally distinct division that is currently for sale, but not yet sold.

Which of the following statements about nonrecurring items least accurate?

C. A change in accounting principle is reported in the income statement net of taxes after extraordinary items and before net income.

The Hall Corporation had 100,000 shares of common stock outstanding at the beginning of the year. Hall issued 30,000 shares of common stock on May 1. On July 1 , the company issued a 10% stock dividend. On September 1, Hall issued 1 ,000, 10% bonds, each convertible into 21 shares of common stock. What is the weighted average number of shares to be used in computing basic and diluted EPS, assuming the convertible bonds are dilutive?

A. 132,000 ; 139,000 (lowest)

Given the following information, how many shares should be used in computing diluted EPS?

• 300,000 shares outstanding.• 100,000 warrants exercisable at $50 per share.• Average share price is $55.• Year-end share price is $60.

C. 309,091 . (highest)

An analyst gathered the following information about a company:

• 100,000 common shares outstanding from the beginning of the year.• Earnings of $ 125,000.• 1,000, 7% $ 1 ,000 par bonds convertible into 25 shares each, outstanding as of the beginning of the year.• The tax rate is 40%.

The company's diluted EPS is closest to:

B. $1.25. (mid)

An analyst has gathered the following information about a company:

• 50,000 common shares outstanding from the beginning of the year.• Warrants outstanding all year on 50,000 shares, exercisable at $20 per share.• Stock is selling at year end for $25.• The average price of the company's stock for the year was $15 .

How many shares should be used in calculating the company's diluted EPS?

B. 50,000. (mid)

Which of the following transactions affects owners' equity but does not affect net income?

A. Foreign currency translation gain.

Which of the following is least likely to be included when calculating comprehensive income?

C. Dividends paid to common shareholders.

A vertical common-size income statement expresses each category of the income statement as a percentage of:

C. revenue.

Which of the following would most Likely result in higher gross profit margin, assuming no fixed costs?

B. A 5% decrease in production cost per unit.

Which of the following is most likely an essential characteristic of an asset?

C. An asset provides future benefits.

Which of the following statements about analyzing the balance sheet is most accurate?

C. The balance sheet can be used to measure the firm's capital structure.

Century Company's balance sheet follows:

Century Company Balance Sheet (in millions)

20X7 20X6Current assets $340 $280Noncurrent assets 660 630Total assets $1,000 $910

Current liabilities $170 $110Noncurrent liabilities 50 50Total liabilities $220 $160

Equity $780 $750Total liabilities and equity $1,000 $910

Century's balance sheet presentation is known as a(n)?

A. classified balance sheet.

Which of the following would most likely result in a current liability?

C. Estimated income taxes for the current year.

How should the proceeds received from the advance sale of tickets to a sporting event be treated by the seller, assuming the tickets are nonrefundable?

C. Revenue is deferred until the sporting event is held.

A vertical common-size balance sheet expresses each category of the balance sheet as a percentage of:

A. assets.

Which of the following inventory valuation methods is required by the accounting standard-setting bodies?

A. Lower of cost or net realizable value.

SF Corporation has created employee goodwill by reorganizing its retirement benefit package. An independent management consultant estimated the value of the goodwill at $2 million. In addition, SF recently purchased a patent that was developed by a competitor. The patent has an estimated useful life of five years. Should SF report the goodwill and patent on its balance sheet?

Goodwill PatentA. Yes NoB. No YesC. No No

B. No ; Yes

At the beginning of the year, Parent Company purchased all 500,000 shares of Sub Incorporated for $ 1 5 per share. Just before the acquisition date, Sub's balance sheet reported net assets of $6 million. Parent determined the fair value of Sub's property and equipment was $ 1 million higher than reported by Sub. What amount of goodwill should Parent report as a result of its acquisition of Sub?

B. $500,000. (mid)

Use the following information to answer Questions 10 and 11.

At the beginning of the year, Company P purchased 1,000 shares of Company S for $80 per share. During the year, Company S paid a dividend of $4 per share. At the end of the year, Company S's share price was $75.

What amount should Company P report on its balance sheet at year-end if the investment in Company S is considered a trading security, and what amount should be reported if the investment is considered an available-for-sale security?

Trading Available-for-saleA. $75,000 $75,000B. $75,000 $80,000

A. $75,000 ; $75,000 (low)

se the following information to answer Questions 10 and 11.

At the beginning of the year, Company P purchased 1,000 shares of Company S for $80 per share. During the year, Company S paid a dividend of $4 per share. At the end of the year, Company S's share price was $75.

What amount of investment income should Company P recognize in its income statement if the investment in Company S is considered trading, and what amount should be recognized if the investment is considered available-for-sale?

Trading Available-for-saleA. ($1 ,000) ($1 ,000)B. ($1 ,000) $4,000C. ($5,000) $4,000

B. ($1,000) ; $4,000 (low, high)

Miller Corporation has 160,000 shares of common stock authorized. There are 92,000 shares issued and 84,000 shares outstanding. How many shares of treasury stock does Miller own?

A. 8,000. (low)

Selected data from Alpha Company's balance sheet at the end of the year follows:

Investment in Beta Company, at fair value $150,000

Deferred taxes $86,000

Common stock, $1 par value $550,000

Preferred stock, $100 par value $175,000

Retained earnings $893,000

Accumulated other comprehensive income $46,000

The investment in Beta Company had an original cost of $ 120,000. Assuming the investment in Beta is classified as available-for-sale, Alpha's total owners' equity at year-end is closest to:

B. $1,664,000. (mid)