55 NINJA MCQ

Question 1

According to the FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or its equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?

B Current market value
C Historical cost
D Net realizable value

A Replacement cost

Answer 1

A Replacement cost

The replacement cost is the cost to replace an asset or the current acquisition cost. In other words, cash or cash equivalents that would be paid to acquire the asset.
Option (B) is incorrect because current market value is the price receivable to sell an asset.
Option (C) is incorrect because historical cost is the amount originally paid to acquire an asset.
Option (D) is incorrect because net realizable value is the amount that would be currently obtained by settling the asset in an orderly disposal.

Question # 63 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 2

According to the FASB’s conceptual framework, asset valuation accounts are

A Assets

C Part of stockholders’ equity
D Liabilities

B Neither assets nor liabilities

Answer 2

B Neither assets nor liabilities

A separate item that reduces or increases the carrying amount of an asset is sometimes found in financial statements.

For example, an estimate of uncollectible amounts reduces receivables to the amount expected to be collected, or a premium on a bond receivable increases the receivable to its cost or present value.

Those ‘valuation accounts’ are part of the related asset or liability and do not stand on their own.

Question # 61 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 3

Accumulated Other Comprehensive Income is reported in which of the following financial statements?

A The income statement
B The statement of comprehensive income
C The statement of cash flows
D The statement of financial position

Answer 3

The statement of financial position
The correct answer is (D).

An entity is required to report Accumulated Other Comprehensive Income separately from Retained Earnings, Capital Stock, and Additional Paid-In Capital in the Equity section of the Statement of Financial Position (Balance Sheet).

It is not reported in the Income Statement, Statement of Comprehensive Income, or Statement of Cash Flows.

Accumulated Other Comprehensive Income is a component of equity that includes the total of Other Comprehensive Income for the current period and previous periods. Total Shareholders’ Equity is reported in the Statement of Financial Position.

Question # 78 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 4

Assets, Liabilities, and Equity describes the amount of resources and claims to resources that a company has at which times?

I. At a moment in time
II. During a period of time

A Both I and II
B Neither I nor II
C II but not I
D I but not II

Question # 76 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Answer 4

I but not II
The correct answer is (D).

Assets, Liabilities, and Equity are displayed on a company’s Balance Sheet. Their balances are measured at a particular moment in time i.e. the Balance Sheet date.

Question # 76 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 5

At October 31 of the current year, Dingo, Inc. had cash accounts at three different banks. One account balance is segregated solely for a November 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo’s October 31 classified balance sheet?

B The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability.
C The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft.
D The segregated and regular accounts should be reported as current assets net of the overdraft.

A The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

Answer 5

A The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

Cash that is segregated for the liquidation of long-term debts should be excluded from current assets. Hence, the account balance at the first bank which is segregated solely for payment into the bond sinking fund should be reported as a noncurrent asset. The bank overdraft at the second bank should be reported as a current liability because there is no available cash in another account at that bank to offset the overdrawn account (i.e., the bank overdraft should not be netted against the account used for regular operations held at the third bank). The cash in the regular account at the third bank is to be used for current operations, hence it should be reported as a current asset.

Question # 70 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 6

Bake Co.’s trial balance included the following at December 31, Year 3:

Accounts payable $ 80,000
Bonds payable, due Year 4 300,000
Discount on bonds payable 15,000
Deferred income tax liability 25,000
The deferred income tax liability is not related to an asset for financial accounting purposes and is expected to reverse in Year 4. What amount should be included in the current liability section of Bake’s December 31, year 3, balance sheet (statement of financial position)?

B $390,000
C $395,000
D $420,000

A $365,000

Answer 6

A $365,000

Accounts payable $80,000
Bonds payable $300,000
Discount on bonds payable $(15,000)
Total $ 365,000

Deferred Tax Liability of $25,000 will not be included as FASB issued Accounting Standards Update 2015-17 requires companies to classify all deferred tax assets and liabilities as non-current on the balance sheet.

The Board released the new guidance as part of its simplification initiative, which, as explained in the ASU, is intended to “identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of the financial statements”. This is effective from December 15, 2016 for public companies and December 15, 2017 for non-public companies.

Earlier: Deferred tax assets and liabilities were segregated into current and non-current amounts.

Question # 60 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 7

Clear Co.’s trial balance has the following selected accounts:

Cash (includes $10,000 in bond-sinking fund for long-term bond payable) $50,000
Accounts receivable 20,000
Allowance for doubtful accounts 5,000
Deposits received from customers 3,000
Merchandise inventory 7,000
Unearned rent 1,000
Investment in trading debt securities 2,000
What amount should Clear report as total current assets in its balance sheet?

A $64,000
B $67,000
C $72,000
D $74,000

A $64,000

Answer 7

A $64,000

Current assets are economic benefits owned by a firm that are reasonably expected to be converted into cash or consumed during the entity’s operating cycle or one year, whichever is longer. Current assets include cash available for current operations; temporary investments in marketable securities; trade accounts and notes receivable, receivables from officers, employees, affiliates, and others if collectible in the ordinary course of business within a year; inventories; most prepaid expenses; and property held for resale. The deposits received from customers and unearned rent are liabilities.

Current Assets
Unrestricted Cash $40,000
Accounts receivable $20,000
Less: Allowance for Uncollectible $(5,000) $15,000
Inventory $7,000
Investment in Trading Debt Securities $2,000
Total Current Assets $64,000

Current Liability
Refundable Deposits from Customers $3,000
Unearned rent $1,000
Total Current Liability $4,000

Non-Current Assets
Restricted Cash in the bond-sinking fund for long-term bond payable $10,000
Total Non-Current Assets $10,000

Question # 69 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 8

For a company to obtain a retail business license in a particular state, the company is required to pay the state the equivalent of three months of sales taxes on its projected retail sales. This amount is fully refundable after five years, provided the company has filed all required sales tax returns and paid all sales taxes due. Initially the company should report the payment related to this licensing requirement as
A An expense
B A current asset
C A noncurrent liability
D A noncurrent asset

Answer 8

A noncurrent asset
Initially, the company should report the payment related to the licensing requirement as a noncurrent asset. The company will receive the monies back, provided it meets the requirements, so it is considered an asset. Because the refund period is in 5 years, not within one year, it is considered a noncurrent asset.

Question # 65 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 9

Mare Co.’s December 31 year-end balance sheet reported the following current assets:

Cash $ 70,000
Accounts receivable 120,000
Inventories 60,000
Total $ 250,000

An analysis of the accounts disclosed that accounts receivable consisted of are the following:
Trade accounts $ 96,000
Allowance for uncollectible accounts (2,000)

Selling price of Mare’s unsold goods out on consignment, at 130% of cost, not included in Mare’s ending inventory 26,000

Total $120,000

At December 31, the total of Mare’s current assets is
A $224,000
B $230,000
D $270,000
C $244,000

Answer 9

C $244,000

Since the goods out on consignment have not yet been sold, two adjustments are required. Accounts receivable decreases by the $26,000 selling price of the unsold goods that was included in its balance. Inventories increases by the $20,000 (i.e., $26,000 / 130%) cost of the unsold goods which was not included in its balance.
Cash $ 70,000
Accounts receivable ($120,000 - $26,000) 94,000
Inventories ($60,000 + $20,000) 80,000
Current assets, 12/31 $ 244,000

Question # 68 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 10

On January 1, Year 1, Sip Co. signed a 5-year contract enabling it to use a patented manufacturing process beginning in year 1. A royalty is payable for each product produced, subject to a minimum annual fee. Any royalties in excess of the minimum will be paid annually. On the contract date, Sip prepaid a sum equal to two years’ minimum annual fees. In year 1, only minimum fees were incurred. The royalty prepayment should be reported in Sip’s December 31, Year 1, financial statements as
A An expense only.
C A current asset and noncurrent asset.
D A noncurrent asset.

B A current asset and an expense.

Answer 10

B A current asset and an expense.

Royalties were prepaid equal to the sum of two year’s minimum annual fees on the contract date. Only the minimum annual fees were incurred in the first year of the contract. Since the second year’s minimum annual fees will be consumed in the upcoming year, half of the royalty prepayment should be reported as an expense and half should be reported as a current asset at the end of the first contract year.

Question # 74 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 11

Ral Corp.’s checkbook balance on December 31, year 8 was $5,000. In addition, Ral held the following items in its safe on that date:
1. Check payable to Ral Corp., dated January 2, year 9, in payment of a sale made in December year 8, not included in December 31 checkbook balance $2,000
2. Check payable to Ral Corp., deposited December 15 and included in December 31 checkbook balance, but returned by Bank on December 30 stamped “NSF.” The check was redeposited on January 2, year 9, and cleared on January 9 500
3. Check drawn on Ral Corp.’s account, payable to a vendor, dated and recorded in Ral’s books on December 31 but not mailed until January 10, year 9 300The proper amount to be shown as Cash on Ral’s balance sheet at December 31, year 8 is

B $5,300
C $6,500
D $6,800
A $4,800

Answer 11

A $4,800

To determine the cash balance to be reported at year-end, the checkbook balance must be adjusted as follows:

The $2,000 check payable to Ral, dated 1/2, year 9, properly is not included in the 12/31, year 8 checkbook balance. Because the check is dated after the balance sheet date, the amount of the check should be reported as a receivable at 12/31, year 8.

Checkbook balance, 12/31, year 8 $ 5,000
Add check payable to vendor recorded on 12/31, year 8 but not mailed until 1/10, year 9 300
Less check payable to Ral returned by bank on 12/30, year 8 marked NSF, not redeposited until 1/2, year 9 (500)
Cash balance, 12/31, year 8 $ 4,800

Question # 72 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 12

The following is Gold Corp.’s June 30, current year trial balance:
Cash overdraft $ 10,000
Accounts receivable, net $ 35,000
Inventory 58,000
Prepaid expenses 12,000
Land held for resale 100,000
Property, plant, and equipment, net 95,000
Accounts payable and accrued expenses 32,000
Common stock 25,000
Additional paid-in capital 150,000
Retained earnings 83,000
$300,000 $300,000

Additional information:
Checks amounting to $30,000 were written to vendors and recorded on June 29 resulting in a cash overdraft of $10,000. The checks were mailed on July 9.
Land held for resale was sold for cash on July 15.
Gold issued its financial statements on July 31.

In its June 30 current year balance sheet, what amount should Gold report as current assets?

B $205,000
C $195,000
D $125,000
A $225,000

Answer 12

The cash account at 6/30 is increased by $20,000; the $30,000 of checks, less the $10,000 overdraft, written to vendors and recorded on 06/29 but not mailed until after the balance sheet date on 07/09. The land held for resale is reported as a current asset at 06/30 since it was sold for cash prior to the date the financial statements were issued.

Cash 20,000
Accounts receivable, net 35,000
Inventory 58,000
Prepaid expenses 12,000
Land held for resale 100,000
Total current assets $225,000

Question # 66 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 13

The following trial balance of Trey Co. at December 31 of the current year has been adjusted except for income tax expenses.

Dr. Cr.
Cash $ 550,000
Accounts receivable, net 1,650,000
Prepaid taxes 300,000
Accounts payable $ 120,000
Common stock 500,000
Additional paid-in capital 680,000
Retained earnings 630,000
Foreign currency translation adjustment 430,000
Revenues 3,600,000
Expenses 2,600,000
$5,530,000 $5,530,000
During the year, estimated tax payments of $300,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between financial statement and income tax income, and Trey’s tax rate is 30%.
Included in accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payment in equal semi-annual installments of $125,000 every April 1 and October 1.
In Trey’s December 31 year-end balance sheet, what amount should be reported as total current assets?

B $2,200,000
C $2,250,000
D $2,500,000

A $1,950,000

Answer 13

A $1,950,000

The operating cycle of an enterprise is the average period of time between expenditures for goods and services and the date those expenditures are converted into cash. Since there is no indication that Trey’s operating cycle is greater than one year, a twelve-month time period should be used as the basis for determining the amount to be reported as total current assets. Included in Trey’s accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payment in equal semiannual installments of $125,000 every April 1 and October 1. Therefore, $250,000 (i.e., $125,000 semiannual payments to be received on 4/1 and 10/1 in two years) of this receivable should be excluded from current assets at 12/31 of the current year because this amount would be received after 12/31 of the following year. During the year, estimated tax payments of $300,000 were charged to prepaid taxes. Since Trey’s income tax expense for the current year is also $300,000 [i.e., ($3,600,000 - $2,600,000) × 30%], there are, in fact, no net pre-paid taxes at 12/31.

Cash $ 550,000
Accounts receivable, net ($1,650,000 - $250,000) 1,400,000
Current assets, 12/31 $ 1,950,000

Question # 67 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 14

The premium on a three-year insurance policy expiring on December 31, Year 3, was paid in total on January 2, Year 1. If the company has a six-month operating cycle, then on December 31, Year 1, the prepaid insurance reported as a current asset would be for

6 months

18 months
24 months

12 months

73

Answer 14

12 months

The operating cycle of an enterprise is the average period of time between the expenditure of cash for goods and services and the date those goods and services are converted into cash. Thus, it is the average length of time from cash expenditure, to inventory, to sale, to accounts receivable, and back to cash. A one-year time period is to be used as a basis for the segregation of current assets in cases where there are several operating cycles occurring within a year.
Since the company in question has a six-month operating cycle, it has two operating cycles within a year. Therefore, the one-year (i.e., twelve month) time period should be used as the basis for determining the amount of prepaid insurance to be reported as a current asset; the remaining 12 months of prepaid insurance would be considered a long-term asset.

Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 15

When a firm pays in advance for a good or service, the cost of the item is first recorded as an ____________ called a ________________________.
A Expense; revenue expenditure
B Expense, prepaid expense

D Asset; revenue expenditure

C Asset; prepaid expense

Answer 15

C Asset; prepaid expense

When a firm pays in advance for a good or service, the cost of the item is first recorded as an asset: Prepaid Expense.

Question # 75 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 16

When computing purchasing power gain or loss on net monetary items, which of the following accounts is classified as nonmonetary?
A Advances to unconsolidated subsidiaries.
B Allowance for uncollectible accounts.
C Unamortized premium on bonds payable.
D Accumulated depreciation of equipment.

Answer 16

D Accumulated depreciation of equipment.

In classifying balance sheet accounts as monetary or nonmonetary, a valuation account is classified the same as the account to which it relates. Accumulated depreciation of equipment is classified as nonmonetary because it is a valuation account to equipment which is nonmonetary.

Question # 77 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 17

When preparing a draft of its year-end balance sheet, Mont, Inc., reported net assets totaling $875,000. Included in the asset section of the balance sheet were the following:

Treasury stock of Mont, Inc., at cost, which approximates market value on December 31 $24,000
Idle machinery 11,200
Cash surrender value of life insurance on corporate executives 13,700
Allowance for decline in market value of available-for-sale debt investments 8,400
At what amount should Mont’s net assets be reported in the December 31 year-end balance sheet?

B $850,100
C $842,600
D $834,500
A $851,000

Question # 62

Answer 17

A $851,000

The idle machinery, the cash surrender value of the life insurance on the corporate executives, and the contra account, Allowance for Decline in Market Value of Available-for-Sale Debt Securities, are all properly included in assets. The treasury stock is not an asset and should not be included in the computation.

Net assets, before adjustments $875,000
Less cost of treasury stock (24,000)
Net assets, 12/31 $851,000

Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 18

Which of the following defines equity as it relates to a business entity?

A Net revenues
B Total revenues less total expenses
C Total assets and liabilities
D Total assets less total liabilities

Answer 18

D Total assets less total liabilities
The correct answer is (D).

In a broad sense, equity is total assets less total liabilities. Equity means the ownership interest of investors in a business firm. It includes capital stock, additional paid-in capital, non-controlling interest, retained earnings and accumulated other comprehensive income. From these treasury stock is reduced.

Question # 79 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 19

__________ are assets that are held for control, appreciation, regular income, or a combination of the these.
A Current assets
C Operational assets
D Valuation accounts
B Investments

Answer 19

Investments are assets that are held for control, appreciation, regular income, or a combination of the these. Examples include stocks, bonds, subsidiaries, land held as a future plant site, and the cash surrender value of life insurance. Also in this category are special purpose funds such as bond sinking funds and plant expansion funds.

Question # 59 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 20

________________ is (are) an economic benefit(s) owned by a firm that is (are) reasonably expected to be converted into cash or consumed during the entity’s operating cycle or one year, whichever is longer.

A Restricted cash

C Notes receivable
D Accounts receivable

B Current assets

Answer 20

B Current assets

Current assets are economic benefits owned by a firm that are reasonably expected to be converted into cash or consumed during the entity’s operating cycle or one year, whichever is longer. Restricted cash is cash held for a particular purpose and based upon the date of availability or disbursement. Notes receivable are claims usually not arising from sales in the ordinary course of business. Accounts receivable are used for claims arising from the sale of goods or the performance of services.

Question # 64 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet

Question 21

_________________ is (are) classified as current liabilities.

A Restricted cash
B IOUs from officers
D All of the above
C Overdrafts in accounts with no available cash in another account in the same bank to offset

Answer 21

C Overdrafts in accounts with no available cash in another account in the same bank to offset

Overdrafts in accounts with no available cash in another account at the same bank to offset are classified as current liabilities.

**Restricted cash is classified based upon the date of availability or disbursement. If restricted for a current asset or current liability, the restricted cash is classified as a current asset, but segregated from unrestricted cash. If restricted for a noncurrent asset or noncurrent liability (e.g., cash to be used for plant expansion or the retirement of long-term debt), the restricted cash is classified as a noncurrent asset in either the investments or other assets section regardless of whether the cash is expected to be disbursed within one year of the financial statement date.

uestion # 71 | Blueprint Area: 1 A ii : Balance Sheet/Statement of Financial PositionRelated Chapter: FAR-3 : Balance Sheet