Conceptual Framework, Standard-Setting and Financial Reporting Flashcards
Financial Statements serve as:
A. A snapshot in time of the financial condition of the entity.
B. The principal tool for managing the entity.
C. The primary source for financial information about the entity to the primary users since the information cannot be provided directly to these users.
D. The only source of financial information for those outside the entity.
C. The primary source for financial information about the entity to the primary users since the information cannot be provided directly to these users.
According to the FASB’s conceptual framework, the objectives of financial reporting for business enterprises are based on:
A. Generally Accepted Accounting Principles.
B. Reporting on Management’s Stewardship.
C. The need for Conservatism.
D. The Needs of the users of the information.
D. The Needs of the users of the information.
According to the FASB’s conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:
A. Comparability
B. Cost-Benefit
C. Faithful Representation
D. Relevance
B. Cost-Benefit
The FASB’s conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?
A. Physical capital is applied to currently reported net income; financial capital is applied to comprehensive income.
B. Financial capital is applied to currently reported net income, physical capital is applied to comprehensive income.
C. Physical capital is applied to both currently reported net income and comprehensive income.
D. Financial capital is applied to both currently reported net income and comprehensive income.
D. Financial capital is applied to both currently reported net income and comprehensive income.
According to the FASB conceptual framework, which of the following is an essential characteristic of an asset.
A. The claims to an asset’s benefits are legally enforceable.
B. An asset is tangible.
C. An asset is obtained at a cost.
D. An asset provides future benefits.
D. An asset provides future benefits.
According to the FASB conceptual framework, an entity’s revenue may result from:
A. A decrease in an asset from primary operations
B. An increase in an asset from incidental transactions
C. An increase in a liability from incidental transactions
D. A decrease in a liability from primary operations
D. A decrease in a liability from primary operations
The basic accounting principle that states that an entity is assumed to have a life that is indefinite is the principle of:
A. Periodicity
B. Continuity
C. Separate entity
D. Consistency
B. Continuity
Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of:
A. Consistency
B. Going Concern
C. Matching
D. Substance over form
C. Matching
Which of the following statements most correctly describes the SEC’s standard-setting authority.
A. The SEC has the authority to establish accounting standards, but it has generally deferred to the FASB to generate US GAAP
B. The SEC generates US GAAP
C. The SEC deals only with exports
D. None of the answer choices are correct
A. The SEC has the authority to establish accounting standards, but it has generally deferred to the FASB to generate US GAAP
Mirr, Inc. was incorporated on January 1, 2020 with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, 2020, Mirr declared a $3,000 cash dividend, payable to stockholders on January 1, 2021. No additional activities affected owner’s equity in 2020. Mirr’s liabilities increased to $120,000 by December 31, 2020. On Mirr’s December 31, 2020 balance sheet (statement of financial position), total assets should be reported at:
A. $885,000
B. $882,000
C. $878,000
D. $875,000
A. $885,000
Issuance of stock on 1/1/2020 750,000 Revenues 82,000 Expenses (64,000) Declaration of Cash Dividend (3,000) Equity 12/31/2020 $765,000
Assets = Liabilities + Equity Assets = 120,000 + 765,000 Assets = 885,000
When preparing a draft of its 2020 balance sheet (statement of financial position), 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, 2020 24,000
Idle Machinery 11,200
Cash surrender value of life insurance on corporate executives 13,700
Investment in equity securities 8,400
At what amount should Mont’s net assets be reported in the December 31, 2020 balance sheet (statement of financial position):
A. 851,000
B. 850,000
C. 842,600
D. 834,500
A. 851,000
Total Net Assets 875,000
Less Treasury Stock (24,000)
Net Assets reported on balance sheet 851,000
An analysis of Thrift Corp’s unadjusted prepaid expense account on December 31, 2020 revealed the following:
- An operating balance of $1,500 for Thrift’s comprehensive insurance policy. Thrift had paid an annual premium of $3,000 on July 1, 2020.
- A $3,200 annual insurance premium payment made July 1, 2021.
- A $2,000 advance rental payment for a warehouse Thrift leased for one year beginning January 1, 2022.
In its December 31, 2021 balance sheet, what amount should Thrift report as prepaid expenses?
A. 5,200
B. 3,600
C. 2,000
D. 1,600
B. 3,600
Comprehensive Insurance Policy (1/2 was expensed in 2020, remainder expensed in first half of 2021) 0
Insurance paid July 1, 2021 (1/2 remaining) 1,600
Advance rental payment (applies to 2022) 2,000
Total prepaid expenses as of December 31, 2022 $3,600
Palymyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of a change in accounting principle, a $3,000 unrealized loss on available-for-sale debt securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in its common stock. What amount is Palmyra’s comprehensive income?
A. $4,000
B. $10,000
C. $11,000
D. $17,000
B. $10,000
Net Income 11,000
Unrealized loss on available-for-sale debt securities (3,000)
Foreign currency translation adjustment 2,000
Comprehensive Income 10,000
In Baer Food Co.’s 2022 single-step income statement (statement of profit or loss), the section titled “Revenues” consisted of the following:
-Net sales revenue 187,000
-Results from discontinued operations:
Loss from operations of component (net of $1,200 tax effect (2,400)
Gain on disposal of component (net of $7,200 tax effect 14,400
- Interest revenue 10,200
- Gain on sale of equipment 4,700
- Cumulative change in 2020 and 2021 income due to change in inventory method (net of $750 tax effect) 1,500
Total Revenues 215,400
In the revenues section of the 2022 income statement, Baer Food should have reported total revenue of:
A. 216,300
B. 215,400
C. 203,700
D. 201,900
D. 201,900
Net Sales Revenue 187,000
Interest Revenue 10,200
Gain on sale of Equipment 4,700
Total Revenue 201,900
Which of the following is included on a statement of changes in equity?
A. Column headings identify individual stockholders’ equity accounts
B. Events changing stockholders’ equity accounts are listed chronologically to the left
C. The impact of the transactions on the number of shares of stock, if any, is presented in the descriptions to the left
D. All of the items listed are included on a statement of changes in equity
D. All of the items listed are included on a statement of changes in equity
A company’s activities for Year 2 included the following:
- Gross Sales 3,600,000
- Cost of Goods Sold 1,200,000
- Selling and administrative expenses 500,000
- Adjustment for prior-year understatement of amortization expense 9,000
- Sales returns 34,000
- Gain on sale of investments in equity securities 8,000
- Gain on disposal of a discontinued business segment 4,000
The company has a 30% effective income tax rate. What is the company’s net income for Year 2?
A. 1,267,700
B. 1,273,300
C. 1,314,600
D. 1,316,000
C. 1,314,600
Gross Sales 3,600,000
Less: Sales Returns 34,000
Net Sales 3,566,000
Cost of Goods Sold 1,200,000
Gross Profit 2,366,000
Selling and administrative expenses 500,000
Operating income 1,866,000
Other income:
-Gain on sale of investments in equity securities 8,000
Income before taxes 1,874,000
Provision for income taxes ($1,874,000 x.30) (562,200)
Income from continuing operations:
-Gain from disposal of discontinued business segment, net of applicable tax savings of $1,200 ($4,000 x.30) 2,800
Net Income $1,314,600
Burns Corp. had the following items:
- Sales Revenue 45,000
- Loss on early extinguishment of bonds 36,000
- Realized gain on sale of investment in equity securities 28,000
- Unrealized holding loss on available-for-sale debt securities 17,000
- Loss on write-down of inventory 3,100
Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss?
A. 11,000 other comprehensive income
B. 16,900 other comprehensive income
C. 17,000 other comprehensive loss
D. 28,100 other comprehensive loss
C. 17,000 other comprehensive loss
When a full set of general purpose financial statements are presented, comprehensive and its components should:
A. appear as a part of discontinued operations and cumulative effect of a change in accounting principle
B. be reported net of related income tax effect, in total and individually
C. appear in a supplemental schedule in the notes to the financial statements
D. be displayed in a financial statement that has the same prominence as other financial statements
D. be displayed in a financial statement that has the same prominence as other financial statements
Zinc Co.’s adjusted trial balance on December 31, 2020, includes the following account balances:
- Common stock ($3 par) 600,000
- Additional paid in capital 800,000
- Treasury stock (at cost) 50,000
- Net unrealized loss on available-for-sale debt securities 20,000
- Net unrealized loss on investment in equity securities 15,000
- Retained earnings appropriated for uninsured earthquake losses 150,000
- Retained earnings (unappropriated) 200,000
What amount should Zinc report as total stockholders’ equity in its December 31, 2020, balance sheet?
A. 1,665,000
B. 1,680,000
C. 1,685,000
D. 1,780,000
B. 1,680,000
Contributed Capital:
- Common Stock 600,000
- Additional paid in capital 800,000
Total contributed capital 1,400,000
Retained earnings ($150,000 appropriated) 350,000
less accumulated comprehensive income (20,000)
less treasury stock at cost (50,000)
Total stockholders’ equity 1,680,000
Bear Co prepares its statement of cash flows using the indirect method. Bear sold equipment with a carrying value of $500,000 for cash of $400,000. How should Bear report the transaction in the operating and investing activities sections of its statement of cash flows?
A. Operating activities: $100,000 addition to net income; Investing activities: $400,000 cash inflow
B. Operating activities: $100,000 subtraction from net income; Investing activities: $400,000 cash inflow
C. Operating activities: $100,000 addition to net income; Investing activities: $500,000 cash inflow
D. Operating activities: $100,000 subtraction from net income; Investing activities: $500,000 cash inflow
A. Operating activities: $100,000 addition to net income; Investing activities: $400,000 cash inflow
Net loss ($400,000 - $500,000 = $100,000)
The following information was taken from the current-year financial statements of Planet Corp:
- Accounts receivable, January 1 21,600
- Accounts receivable, December 31 30,400
- Sales on account and cash sales 438,000
- Uncollectible accounts 1,000
No accounts receivable were written off or recovered during the year. If the direct method is used in the current-year statement of cash flows. Planet should report cash collected from customers as:
A. 447,800
B. 446,800
C. 429,200
D. 428,200
C. 429,200
Sales 438,000
Increase in accounts receivable ($30,000 - $21,600) 8,800
Cash collected from customers 429,200
Lino Co.’s worksheet for the preparation of its statement of cash flows included the following:
December 31 January 1
Accounts Receivable 29,000 23,000
Allowance for uncollectible accounts 1,000 800
Prepaid Rent Expense 8,200 12,400
Accounts Payable 22,400 19,400
Lino’s net income is $150,000. What mount should Lino include as net cash provided by operating activities in the statement of cash flows?
A. 151,400
B. 151,000
C. 148,600
D. 145,400
A. 151,400
Net Income 150,000
Increase in accounts receivable ($23,000 - $29,000) (6,000)
Increase in allowance for uncollectible accounts ($800 - $1,000) 200
Decrease in prepaid rent expense ($12,400 - $8,200) 4,200
Increase in accounts payable ($22,400 - $19,400) 3,000
Cash provided by operating activities $151,400
Rory Co.’s prepaid insurance was $50,000 at December 31, Year 2, and $25,000 at December 31, Year 1. Insurance expense was $20,000 for Year 2 and $15,000 for Year 1. What amount of cash disbursements for insurance would be reported in Rory’s Year 2 net cash flows from operating activities presented on a direct basis?
A. 55,000
B. 45,000
C. 30,000
D. 20,000
B. 45,000
Insurance expense - Year 2 20,000
Increase in prepaid insurance ($50,000 - $25,000) 25,000
Total 45,000
During the current year, Xan, Inc., had following activities related to its financial operations:
- Payment for the early retirement of long-term bonds payable (carrying amount $370,000) 375,000
- Distribution of cash dividend declared in previous year to preferred shareholders 31,000
- Carrying amount of convertible preferred stock in Xan, converted into common shares 60,000
- Proceeds from sale of treasury stock (carrying amount at cost, at $43,000) 50,000
In Xan’s current-year-statement of cash flows, net cash used in financing operations should be:
A. 265,000
B. 296,000
C. 356,000
D. 358,000
C. 356,000
Payment for the early retirement of long-term bonds 375,000
Dividend Paid 31,000
Proceeds from sale of treasury stock (50,000)
Net cash used 356,000
How should a gain from the sale of used equipment for cash be reported in a statement of cash flows using the indirect method?
A. In investment activities as a reduction of the cash inflow from the sale
B. In investing activities as a cash outflow
C. In operating activities as a deduction from income
D. In operating activities as an addition to income
C. In operating activities as a deduction from income
Which of the following should be disclosed as supplemental information in the statement of cash flows?
A. Cash flow per share
B. Conversion of debt to equity
C. Both cash flow per share and conversion of debt to equity
D. Neither cash flow per share nor conversion of debt to equity
B. Conversion of debt to equity
Which of the following information should be disclosed in the summary of significant accounting policies?
A. Refinancing of debt subsequent to the balance sheet date
B. Guarantees of indebtedness of others
C. Criteria for determining which investments are treated as cash equivalents
D. Adequacy of pension plan assets relative to vested benefits
C. Criteria for determining which investments are treated as cash equivalents
