Chapter 4 multiple choice Post Test

Question 1

The use of the physical capital maintenance concept for measuring income involves many practical difficulties, including:

Answer 1

Difficulty in obtaining fair market values of assets and liabilities

Question 2

What assumption is made regarding financial capital maintenance?

Answer 2

. Income at the end of a period exceeds the dollar amount of net assets at the beginning of the period less the effects of the transactions with owners.

Question 3

Income tax regulations typically require that unearned revenues be reported as income

Answer 3

When cash is received.

Question 4

From a legal standpoint, countries are typically separated into two groups with legal practices that may affect accounting practices. In what type of setting are financial accounting numbers used more for informational purposes, rather than deciding how the economic pie gets split among taxes, dividends, and wages?

Answer 4

Common Law

Question 5

The revenue principle states that revenue should be recognized at a point when

Answer 5

an exchange transaction involving goods and services has occurred and the earnings process is essentially complete.

Question 6

Costs that can be reasonably associated with specific revenues but not with specific products should be

Answer 6

expensed in the period in which the related revenue is recognized.

Question 7

Which of the following items is reported only in current and future periods? Change in estimate, Effects of changing prices, change in accounting principle, or prior period adjustment.

Answer 7

Change in Estimate

Question 8

Which of the following would not be reflected in the income statement?

Answer 8

Correction of an error in previously issued financial statements

Question 9

Changes in accounting principles generally are reported as

Answer 9

adjustments to prior period statements

Question 10

Ramos Manufacturing Company sold plant assets at a gain of $205,000 less related taxes of $62,500. Assuming the gain is not considered unusual or infrequent, Ramos’ income statement for the period should report

Answer 10

a gain of $205,000 and an increase in income tax expense of $62,500

Question 11

Comprehensive income is typically reported as part of:

Answer 11

the statement of stockholders’ equity

Question 12

All of the following are common adjustments made in arriving at comprehensive income except:

Answer 12

unrealized gains and losses on trading securities.

Question 13

All of the following are common adjustments made in arriving at comprehensive income:

Answer 13

foreign currency translation adjustments, deffered gains and losses on derivative financial intruments, unrealized gains and losses on available for-sale securities

Question 14

All of the following indicate a natural increase when it comes to forecasting except: If sales volume increases, the company will need more cash.As sales volume increases, the company will experience an increase in current operating liabilities. As sales volume increases, the company will experience an increase in current operating assetsIf sales volume increases, the company will need more property plant and equipment.

Answer 14

If sales volume increases, the company will need more property plant and equipment.

Question 15

When forecasting income statements, all of the following typically maintain a constant relationship with the level of sales except

Answer 15

Depreciation expense.

Question 16

When forecasting income statements, all of the following typically maintain a constant relationship with the level of sales

Answer 16

Wages, shipping costs, cost of goods sold.