FINANCIAL-ACCOUNTING-AND-REPORTING Online Practice Questions and Answers
Income tax-basis financial statements differ from those prepared under GAAP in that income tax-basis financial statements:
A. Do not include nontaxable revenues and nondeductible expenses in determining income.
B. Include detailed information about current and deferred income tax liabilities.
C. Contain no disclosures about capital and operating lease transactions.
D. Recognize certain revenues and expenses in different reporting periods.
According to the FASB conceptual framework, comprehensive income includes which of the following?
A. Option A
B. Option B
C. Option C
D. Option D
Conceptually, interim financial statements can be described as emphasizing:
A. Timeliness over reliability.
B. Reliability over relevance.
C. Relevance over comparability.
D. Comparability over neutrality.
During the first quarter of 1993, Tech Co. had income before taxes of $200,000, and its effective income tax rate was 15%. Tech's 1992 effective annual income tax rate was 30%, but Tech expects its 1993 effective annual income tax rate to be 25%. In its first quarter interim income statement, what amount of income tax expense should Tech report?
A. $0
B. $30,000
C. $50,000
D. $60,000
Which of the following should be disclosed for each reportable operating segment of an enterprise?
A. Option A
B. Option B
C. Option C
D. Option D
In single period statements, which of the following should not be reflected as an adjustment to the opening balance of retained earnings?
A. Effect of a failure to provide for uncollectible accounts in the previous period.
B. Effect of a decrease in the estimated useful life of depreciable equipment.
C. Cumulative effect of a change from the percentage of completion to the completed contract method of accounting for long-term construction projects.
D. Cumulative effect of a change from LIFO to FIFO in valuing merchandise inventory.
On March 15, 1992, Krol Co. paid property taxes of $90,000 on its office building for the calendar year 1992. On April 1, 1992, Krol paid $150,000 for unanticipated repairs to its office equipment. The repairs will benefit operations for the remainder of 1992. What is the total amount of these expenses that Krol should include in its quarterly income statement for the three months ended June 30, 1992?
A. $172,500
B. $97,500
C. $72,500
D. $37,500
Grum Corp., a publicly-owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, 1991, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $ 15,000,000. Grum's combined identifiable assets of all industry segments at December 31, 1991, were $40,000,000. In its 1991 financial statements, Grum should disclose major customer data if sales to any single customer amount to at least:
A. $300,000
B. $1,500,000
C. $4,000,000
D. $5,000,000
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment
required for these transactions. These treatments are:
•
Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.
•
Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.
•
Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.
Item to Be Answered As a result of a production breakthrough, Quo determined that manufacturing equipment previously depreciated over 15 years should be depreciated over 20 years.
List B (Select one)
A. Cumulative effect approach.
B. Retroactive or retrospective restatement approach.
C. Prospective approach.
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with
Quo's president and outside accountants, made changes in accounting policies, corrected several errors
dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List B represents the general accounting treatment
required for these transactions. These treatments are:
•
Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.
•
Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.
•
Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.
During 1993, Quo increased its investment in Worth, Inc. from a 10% interest, purchased in 1992, to 30%, and acquired a seat on Worth's board of directors. As a result of its increased investment, Quo changed its method of accounting for investment in Worth, Inc. from the cost method to the equity method.
List B
A. Cumulative effect approach.
B. Retroactive or retrospective restatement approach.
C. Prospective approach.