Financial statements Flashcards
Which of the following is not normally an example of an exit activity?
Sale or termination of a line of business.
Changes in management structure.
Relocation of business activities from one location to another.
Outsourcing a customer service.
Outsourcing a customer service.
This answer is correct. This would normally not be of sufficient significance to constitute an exit activity.
During a period of inflation, an account balance remains constant. When supplemental statements are being prepared, a purchasing power gain is reported if the account is a Monetary asset. Monetary liability. Nonmonetary asset. Nonmonetary liability.
Monetary liability
This answer is correct. Per ASC Topic 255, the dollar amounts of monetary assets and liabilities are fixed or determinable without reference to future prices or specific goods or services. If the general price level changes, a purchasing power gain (loss) may occur on monetary items. A monetary liability held constant during a period of inflation creates a purchasing power gain because the liability could be paid using a fixed amount of cash which is worth less than the cash borrowed earlier.
IAS 1 requires a complete set of financial statements to be prepared annually. A complete set of financial statements includes
Statement of financial position, statement of comprehensive income, statement of changes in equity, and notes.
Statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows.
Statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes.
Statement of financial position, statement of changes in equity, statement of cash flows, and notes.
Statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes.
This answer is correct because a complete set of IFRS financial statements includes the following: statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes.
Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of
Concentration of credit risk.
Concentration of market risk.
Risk of measurement uncertainty.
Off-balance-sheet risk of accounting loss.
Concentration of credit risk.
This answer is correct because the company has a concentration of credit risk in one industry. Credit risk is the risk of loss due to a particular borrower’s nonpayment of a loan.
Comprehensive income can be disclosed in various formats. Which of the following is an acceptable format for disclosing comprehensive income?
I. At the bottom of the income statement, continue from net income and add other comprehensive income to arrive at comprehensive income for the year.
II. In a separate statement, start with net income and add other comprehensive income to arrive at comprehensive income for the year.
III. In the statement of stockholders’ equity, net income is adjusted for other comprehensive income to arrive at comprehensive income for the year.
IV. After retained earnings in the stockholders’ equity section of the statement of financial position, start with net income and add other comprehensive income to arrive at comprehensive income for the year.
I and II
II and III
III and IV
All of the above are acceptable
I and II
This answer is correct. Comprehensive income can be disclosed in one of the following two ways:
- On a combined income statement where other comprehensive income is added to net income to arrive at comprehensive income for the period; or
- On a two income statement format in which a separate statement follows the typical income statement. The separate statement starts with net income and adds other comprehensive income to arrive at comprehensive income for the period.
Reporting comprehensive income on the statement of financial position after retained earnings is not an acceptable format for displaying comprehensive income for the period, nor is displaying it on the statement of stockholders’ equity.
Which of the following is false?
The components of other comprehensive income may be displayed before tax-related effects with the aggregate income tax effects shown as one amount.
Reclassification adjustments shall be made in order to avoid double counting of items included in other comprehensive income and also in net income.
Components of other comprehensive income may not be shown net of tax-related effects.
Other comprehensive income includes revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income.
Components of other comprehensive income may not be shown net of tax-related effects.
This answer is correct. Components of other comprehensive income can be shown either net of tax-related effects or before tax-related effects with the aggregate income tax effects shown as one amount.
A transaction that is unusual in nature or infrequently occuring should be reported as a(n)
Component of income from continuing operations, net of applicable income taxes.
Extraordinary item, net of applicable income taxes.
Component of income from continuing operations, but not net of applicable income taxes.
Extraordinary item, but not net of applicable income taxes.
Component of income from continuing operations, but not net of applicable income taxes.
This answer is correct because an item not meeting the unusual or infrequently occurring definition would be recorded as a component of income from continuing operations.
Comprehensive income can be displayed in the financial statements in
I. A separate statement that begins with other comprehensive income.
II. A separate statement that begins with net income.
III. A continuation of net income presented at the bottom of the income statement.
IV. Part of the statement of changes in stockholders’ equity
I and II
I and III
II and III
III and IV
II and III
This answer is correct. Comprehensive income can be displayed in the financial statements either as a separate statement that begins with net income or as a continuation of net income presented at the bottom of the income statement. Comprehensive income can no longer be displayed as part of the statement of changes in stockholders’ equity.
Which of the following should be disclosed in a summary of significant accounting policies?
Basis of profit recognition on long-term construction contracts.
Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years.
Depreciation expense.
Composition of sales by segment.
Basis of profit recognition on long-term construction contracts.
This answer is correct because the summary of significant accounting policies should include the basis of profit recognition on long-term construction contracts.
According to ASC Topic 820, the fair value of an asset should be based upon
The price that would be paid to acquire the asset.
The price that would be paid to replace the asset.
The price that would be received to sell the asset.
The price that the item is appraised at balance sheet date.
The price that would be received to sell the asset.
This answer is correct. ASC Topic 820 requires that the fair value of an asset be based upon the price that would be received to sell the asset, which is an exit price.
In accordance with ASC Topic 255, the Consumer Price Index for All Urban Consumers is used to compute information on a Historical cost basis. Current cost basis. Constant dollar basis. Nominal dollar basis.
Constant dollar basis.
A constant dollar is an adjusted value of currency used to compare dollar values from one period to another. Due to inflation, the purchasing power of the dollar changes over time, so in order to compare dollar values from one year to another, they need to be converted from nominal (current) dollar values to constant dollar values. Constant dollar value may also be referred to as real dollar value.
Which one of the following areas does not require disclosures about the risks and uncertainties that exist?
Nature of operations.
Use of estimates in preparation of financial statements.
Current vulnerability due to a possible recession.
Current vulnerability due to concentrations
Current vulnerability due to a possible recession
This answer is correct. Current vulnerability due to a possible recession is not a required disclosure regarding risks and uncertainties. The nature of operations, the use of estimates in preparation of financial statements, and current vulnerability due to concentrations are all required disclosures according to ASC Topic 275, Risks and Uncertainties.
ASC Topic 220, Comprehensive Income, applies to which of the following entities?
I. Enterprises that develop a full set of financial statements which report cash flows, results of operations, and financial position.
II. All enterprises even if no items classified as other comprehensive income exist for the periods presented.
III. Not-for-profit organizations that follow the reporting requirements of ASC Topic 958 (SFAS 117).
I
I and II.
I and III.
I, II, and III.
I
This answer is correct. ASC Topic 220 applies to enterprises that develop a full set of financial statements which report cash flows, results of operations, and financial position.
