FINANCIAL-ACCOUNTING-AND-REPORTING Online Practice Questions and Answers

Correct Answer: D

Choice "d" is correct. The present value of future cash flows is used to measure long-term receivables or payables, not inventory, because inventory is a short-term asset, which has more immediate cash flows.

SFAC 5 para. 67 Choice "a" is incorrect. Historical cost can be used to measure inventory because it is a relevant and reliable measurement attribute of current assets such as inventory. Choice "b" is incorrect. Replacement (or current) cost can be used to measure inventory because it is a relevant and reliable measurement attribute of current assets such as inventory. Choice "c" is incorrect. Net realizable value can be used to measure inventory because it is a relevant and reliable measurement attribute of current assets such as inventory.

Correct Answer: D

Choice "d" is correct. A change in the method of depreciation is now considered to be both a change in method and a change in estimate. These changes should be accounted for as changes in estimate and handled prospectively. The new depreciation method should be used as of the beginning of the year of change and should start with the current book value of the underlying asset. No retroactive or retrospective

calculations should be made, and no adjustment should be made to retained earnings.

The cumulative effect treatment on the income statement was the treatment of most changes in accounting

principle prior to SFAS No. 154. The adjustment to beginning retained earnings is the treatment now given

to changes in accounting principle by SFAS No. 154. However a change in depreciation method is no

longer accounted for as a change in accounting principle.

Choices "a", "b", and "c" are incorrect, per the above Explanation: .

Correct Answer: A

Choice "a" is correct. In order to conform to GAAP, financial statements for public business enterprises

must report segment information about a company's major customers if that customer provides 10% or

more of the combined revenue, internal and external, of all operating segments.

Choice "b" is incorrect. Revenue is 10% of ALL operating segments not "a particular" segment.

Choice "c" is incorrect. Disclosure is not at management's discretion.

Choice "d" is incorrect. Disclosure is required.

Correct Answer: A

Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more than 10% of

the combined assets of all operating segments, the segment should be reported. The same rule does not

apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of

"what."

Choice "b" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

of the combined assets of all operating segments, the segment should be reported. The same rule does

not apply for the segment's liabilities.

Choice "c" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

of the combined assets of all operating segments, the segment should be reported. The same rule does

not apply for the segment's liabilities, so the correct answer cannot be "Both."

Choice "d" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

of the combined assets of all operating segments, the segment should be reported. The correct answer

cannot be "Neither."

Correct Answer: D

Choice "d" is correct. FASB interpretations of the "statements of financial accounting standards" (SFAS) have the same authority as the FASB statements of financial accounting standards (SFAS), which by themselves determine GAAP. Choice "a" is incorrect. Statements of financial accounting concepts (FAC's) have much less authority (fifth floor) and do not by themselves determine GAAP as is the case with SFASs and interpretations of SFASs. Choice "b" is incorrect. Emerging issues task force (EITF) consensus is in the nature of a "third floor" authority. The EITF was established in 1984 to aid the FASB in identifying and implementing emerging issues before they become widespread and ultimately require action by the FASB. After discussing the issues and the relevant accounting pronouncements, the group can sometimes reach a consensus on an issue, in which case no action by the FASB is usually needed. Choice "c" is incorrect. Technical bulletins of the FASB (second floor) do not by themselves determine GAAP.

Correct Answer: B

Choice "b" is correct. $5,000.

The steel forming segment's hurricane damage (4th in 5 years) of $255,000 is only "unusual in nature" and

does not occur infrequently, therefore, it is not an "extraordinary item," and should be reported separately

as a component of "income from continuing operations."

The retirement of debt, although unusual, is not infrequent for the company; therefore, the gain does not

qualify for classification as an extraordinary item per APBO No. 30 (and SFAS No. 145).

Correct Answer: C

Choice "c" is correct. Yes - No. Rule: Losses arising from a company's first (and probably "last") "anti-trust" action are unusual and extraordinary and should be reported as an extraordinary item. Losses resulting from additional costs caused by a strike at a major supplier or even at one's own company are not extraordinary and should be disclosed as a separate component of "income from continuing operations."

Correct Answer: A

Choice "a" is correct. $5,000 decrease. The cumulative effect of change in accounting principle is determined as of the beginning of the year of change if comparative financial statements are not presented. In this case, the year of change is 1990, so the cumulative effect is the difference in inventory as of the end of 1989. [Note that inventory is a balance sheet item, so the change is based on the balances at the end of the last year the prior method was used. Had this question shown annual income statement amounts of cost of goods sold, we would have had to look at all the past years in the aggregate.] This will allow us to arrive at the adjustment to obtain the amount of retained earnings that would have been reported at the beginning of the period of change if the new accounting principle had been used for all prior periods.

Correct Answer: C

Choice "c" is correct. No - Yes.

Comprehensive income may be shown on the face of a combined "statement of income and

comprehensive income" a separate section below net income, or in:

1.

Separate "statement of comprehensive income," or as a

2.

Component of the "statement of changes of owners' equity."

The income tax expense or benefit allocated to components must be disclosed, either on the face of the

statement or in notes to the statement.

Choices "a", "b", and "d" are incorrect, per the above rules.

Correct Answer: A

Choice "a" is correct. $91,000 net income for the third quarter ended 9-30-90.

Rules: The entire amount of an "extraordinary" item should be reported during the period incurred.

A "cumulative effect" type accounting change is not included in the net income of the period of change;

instead, the beginning of the year retained earnings is restated.

Expenses, which benefit more than one interim period, such as property taxes, are allocated among the

periods benefited.