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FAIS 3 > Final Exam Review Questions > Flashcards

Final Exam Review Questions Flashcards

1
Q
  1. Which of the following could explain why accounting is more conservative in some countries than in others?
    A. Accounting is oriented toward stockholders as a major source of financing.
    B. Published financial statements are the basis for taxation
    C. A common law legal system is used.
    D. Full disclosure in financial statements is emphasized.
A

Published financial statements are the basis for taxation

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2
Q
  1. Which of the following is not a problem caused by the difference in financial reporting practices across countries?
    A. Consolidation of financial statements by firms with foreign operations is more difficult.
    B. Firms incur additional costs when attempting to obtain financing in foreign countries.
    C. Firms face double taxation on income earned by foreign operations.
    D. Comparisons of financial ratios across firms in different countries may not be meaningful.
A

Firms face double taxation on income earned by foreign operations.

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3
Q
  1. Which of the following is not a reason for establishing international accounting standards?
    A. Some countries do not have the resources to develop accounting standards on their own.
    B. Comparability is needed between companies operating in different areas of the world.
    C. It would simplify the preparation of consolidated financial statements by multinational corporations.
    D. Demand in the United States is heavy for an alternative to U.S. generally accepted accounting principles.
A

Demand in the United States is heavy for an alternative to U.S. generally accepted accounting principles.

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4
Q
  1. According to the IASB, IFRS are composed of
    A. International financial reporting standards issued by the IASB only.
    B. International accounting standards issued by the IASC only.
    C. International financial reporting standards issued by the IASB and international accounting standards issued by the IASC.
    D. International financial reporting standards issued by the IASB and statements of financial accounting standards issued by the FASB.
A

International financial reporting standards issued by the IASB and international accounting standards issued by the IASC.

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5
Q
  1. What is the so-called Norwalk Agreement?
    A. An agreement between the FASB and SEC to allow foreign companies to use IFRS in their filing of financial statements with the SEC.
    B. An agreement between the U.S. FASB and the U.K. Accounting Standards Board to converge their respective accounting standards as soon as practicable.
    C. An agreement between the SEC chairman and the EU Internal Market commissioner to allow EU companies to list securities in the United States without providing U.S. GAAP reconciliation.
    D. An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future.
A

An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future.

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6
Q
  1. Which of the following is not one of the FASB’s initiatives to converge with IASB standards?
    A. The FASB eliminates differences between FASB and IASB standards by adopting IASB requirements, or vice versa, in a short-term convergence project.
    B. The FASB considers the possibility of convergence with IASB standards when deciding which topics to add to its work agenda.
    C. A member of the FASB serves as a liaison with the IASB by working out of the IASB’s offices in London.
    D. A joint project develops a common conceptual framework that both the FASB and IASB could use as a basis for future standards.
A

A member of the FASB serves as a liaison with the IASB by working out of the IASB’s offices in London.

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7
Q
  1. IAS 1, “Presentation of Financial Statements,” does not provide guidance with respect to which of the following?
    A. The statements that must be included in a complete set of financial statements.
    B. The basic principles and assumptions to be used in preparing financial statements.
    C. The importance of prudence in preparing financial statements.
    D. The items that must be presented on the face of the financial statements.
A

The importance of prudence in preparing financial statements.

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8
Q
  1. Revenue from property taxes should be recorded in the General Fund
    A) when received.
    B) when there is an enforceable legal claim
    C) when they are available for recognition
    D) in the period for which they are required or permitted to be used
    E) in the period in which they are consumed
A

in the period for which they are required or permitted to be used

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9
Q 
Which type of fund is not included in the Government-Wide Financial Statements? 
A)  Governmental Funds 
B)  Proprietary Funds 
C)  Fiduciary Funds 
D)  Debt Service Funds 
E)   Special Revenue Funds
A

Fiduciary Funds

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10
Q 
A city received a grant of $5,000,000 from a private agency.  The money was to be used to build a new city library.  In which fund should the money be recorded for the Fund-Based Financial Statements? 
A)  the General Fund. 
B)  an Expendable Trust Fund. 
C)  a Capital Projects Fund. 
D)  an Agency Fund. 
E)   a Special Revenue Fund.
A

a Capital Projects Fund.

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11
Q 
When a city received a federal grant for providing food and other assistance to the homeless, the money should have been recorded in 
A)  the General Fund.
B)  an Expendable Trust Fund. 
C)  a Capital Projects Fund. 
D)  an Agency Fund. 
E)   a Special Revenue Fund.
A

a Special Revenue Fund

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12
Q

. Bay City received a federal grant to provide health care services to low income mothers and children. When should the revenues be recognized?
A) as health care services are provided.
B) when the awarding of the grant is announced.
C) when the grant money is received.
D) at the end of Bay City’s fiscal year.
E) when the grant money is receivable.

A

as health care services are provided

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13
Q 
Which of the following is a governmental fund? 
A)  Enterprise fund. 
B)  Internal service fund. 
C)  Permanent fund. 
D)  Investment trust fund. 
E)   Agency fund.
A

Permanent fund

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14
Q 
.  Which of the following is a fiduciary fund? 
A)  Pension trust fund. 
B)  Debt service fund. 
C)  Permanent fund. 
D)  Enterprise fund. 
E)   Capital projects fund.
A

Pension trust fund.

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15
Q

According to GASB Concepts Statement No. 1, what are the three groups of primary users of external state and local governmental financial reports?
A) The Securities Exchange Commission, the citizenry, and legislative and oversight bodies.
B) The Securities Exchange Commission, legislative and oversight bodies, and investors and creditors.
C) The Securities Exchange Commission, the citizenry, and investors and creditors.
D) The citizenry, legislative and oversight bodies, and investors and creditors.
E) None of the above.

A

The citizenry, legislative and oversight bodies, and investors and creditors.

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16
Q

Which of the following statements is true regarding fund-based financial statements?
A) Fund-based financial statements report a government’s activities and financial position as a whole.
B) Fund-based financial statements should tell the amount spent this year on such services as public safety, education, health and sanitation, and the construction of a new road.
C) Fund-based financial statements utilize the accrual basis of accounting much like any for-profit entity.
D) Fund-based financial statements help to determine whether the government’s overall financial position improved or deteriorated.
E) Fund-based financial statements report all assets, liabilities in a way comparable to business-type accounting.

A

Fund-based financial statements should tell the amount spent this year on such services as public safety, education, health and sanitation, and the construction of a new road.

17
Q

Which of the following statements is false regarding government-wide financial statements?
A) Government-wide financial statements report a government’s activities and financial position as a whole.
B) The government-wide financial statement approach helps users make long-term evaluations of the financial decisions and stability of the government.
C) Government-wide financial statements focus on the short-term instead of the long-term.
D) Government-wide financial statements assess the finances of the government in its entirety, including the year’s operating results.
E) The measurement focus of government-wide financial statements is on all economic resources and utilizes accrual accounting.

A

Government-wide financial statements focus on the short-term instead of the long-term.

18
Q

Why do the balance sheet and statement of revenues, expenditures, and changes in fund balances of governmental funds differ from those presented for the governmental activities in the government-wide statement of net assets and statement of activities?
(I.) Internal service funds are not included in these statements but in separate fund-based financial statements for proprietary funds.
(II.) The economic resources measurement basis is used instead of the current financial resources measurement basis.
(III.) Modified accrual accounting is used to time revenues and expenditures rather than accrual accounting.
A) I and II.
B) II and III.
C) I and III.
D) I, II, and III.
E) None of the above.

A

I and III.

19
Q

The capital balance for Messalina is $210,000 and for Romulus is $140,000. These two partners share profits and losses 60 percent (Messalina) and 40 percent (Romulus). Claudius invests $100,000 in cash in the partnership for a 20 percent ownership. The bonus method will be used. What are the capital balances for Messalina, Romulus, and Claudius after this investment is recorded?

a. $216,000,$144,000, $90,000.
b. $218,000,$142,000,$88,000.
c. $222,000,$148,000,$80,000.
d. $240,000,$160,000,$100,000.

A

$216,000,$144,000, $90,000.

20
Q

A partnership begins its first year with the following capital balances:

	Arthur, Capital			$60,000
	Baxter, Capital			$80,000
	Cartwright, Capital			100,000

The articles of partnership stipulate that profits and losses be assigned in the following manner:
• Each partner is allocated interest equal to 10 percent of the beginning capital balance.
• Baxter is allocated compensation of $20,000 per year.
• Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.
• Each partner is allowed to withdraw up to $5,000 cash per year.

Assuming that the net income is $50,000 and that each partner withdraws the maximum amount allowed, what is the balance in Cartwright’s capital account at the end of that year?

a. $105,800.
b. $106,200.
c. $106,900.
d. $107,400.

A

$107,400.

21
Q 
.  	In a purchase where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?
	Parent	Subsidiary 
A)	BV	        BV 
B)	BV	        FMV 
C)	FMV	FMV 
D)	FMV	BV 
E)	Cost	Cost
A

B) BV FMV

22
Q 
Dombers Co. and Munn Corp. engaged in a business combination.  In accounting for the combination, goodwill of $400,000 was recognized. What is the maximum period over which the goodwill can be amortized? 
	A)	0 years 
	B)	10 years 
	C)	20 years 
	D)	30 years 
	E)	40 years
A

0 years

23
Q

Medium Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Journal entries for the consolidation of Lisa and Victoria would be recorded in
A) a worksheet.
B) Lisa’s general journal.
C) Victoria’s general journal.
D) Victoria’s secret consolidation journal.
E) the general journals of both companies.

A

a worksheet.

24
Q

Goodwill is generally defined as:
A) Cost of the investment less the subsidiary’s book value at the beginning of the year.
B) Cost of the investment less the subsidiary’s book value at the acquisition date.
C) Cost of the investment less the subsidiary’s Fair Market Value at the beginning of the year.
D) Cost of the investment less the subsidiary’s Fair Market Value at acquisition date.
E) is no longer allowed under federal law.

A

Cost of the investment less the subsidiary’s Fair Market Value at acquisition date.

25
Q

. Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. How should those costs be accounted for in an acquisition transaction?
Direct Combination Costs Stock Issuance Costs
A) Increase Investment Decrease Investment
B) Increase Expenses Decrease Paid-In Capital
C) Increase Investment Increase Expenses
D) Decrease Paid-In Capital Increase Investment
E) Increase Expenses Decrease Investment

A

Direct Combination Costs: Increase Expenses

Stock Issuance Costs:
Decrease Paid-In Capital

26
Q

A company is not required to consolidate a subsidiary in which it holds more than 50% of the voting stock when
A) the subsidiary is located in a foreign country.
B) the subsidiary in question is a finance subsidiary.
C) the company holds more than 50% but less than 60% of the subsidiary’s voting stock.
D) the company holds less than 75% of the subsidiary’s voting stock.
E) majority ownership is temporary

A

majority ownership is temporary

27
Q 
The capital balance for Bolcar is $110,000 and for Neary is $40,000.  These two partners share profits and losses 70 percent (Bolcar) and 30 percent (Neary).  Kansas invests $50,000 in cash into the partnership for a 30 percent ownership.  The bonus method will be used.  What is Neary’s capital balance after Kansas’s investment?
	A) $35,000
	B) $37,000
	C) $40,000
	D) $43,000
A

$37,000

28
Q

Which of the following is not a reason for the popularity of partnerships as a legal form for businesses?
A. Partnerships may be formed by an oral agreement
B. Partnerships can more easily generate significant amounts of capital
C. Partnerships avoid the double taxation of income
D. In some cases, losses may be used to offset gains for tax purposes

A

Partnerships can more easily generate significant amounts of capital

29
Q

How does partnership accounting differ from corporate accounting?
A. The matching principle is not considered appropriate for partnership accounting
B. Revenues are recognized at a different time by a partnership than is appropriate for a corporation
C. Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting
D. Partnerships report all assets at fair value as of the latest balance sheet date

A

Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting

30
Q

Which of the following best describes the articles of partnership agreement?
A. The purpose of the partnership and partners’ rights and responsibilities are required elements of the articles of partnership
B. The articles of partnership are a legal covenant and must be expressed in writing to be valid
C. The articles of partnership are an agreement that limits partners’ liability to partnership assets
D. The articles of partnership are a legal covenant that may be expressed orally or in writing and forms the central governance for a partnership’s operations

A

The articles of partnership are a legal covenant that may be expressed orally or in writing and forms the central governance for a partnership’s operations

FAIS 3 (17 decks)

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