MCQ Review 2

Question 1

A statement of cash flows is to be presented in general-purpose external financial statements by which of the following?

Answer 1

A statement of cash flows is required as part of a full set of financial statements of all business entities (both publicly held and privately held) and nongovernmental not-for-profit entities.

Question 2

What is Goodwill?

Answer 2

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized

Question 3

Criterion for lease to be classified as a capital lease

Answer 3

(1) the lease provides for the transfer of ownership of the leased property
(2) the lease contains a bargain purchase option
(3) the lease term is 75% or more of the estimated economic life of the leased property
(4) the present value of the minimum lease payments (excluding executory costs) is at least 90% of the fair value

Question 4

Proper accounting for nonmonetary exchange with commercial substance

Answer 4

-it recognizes gains and losses immediately.
When the fair value of both assets in a nonmonetary exchange is determinable, the transaction is treated as a monetary exchange. Thus, it is measured at the fair value of the assets given up, and any gain or loss is recognized immediately.

Question 5

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting. This statement is an example of the concept of

Answer 5

Conservatism

Question 6

In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment

Answer 6

-Plus gain

Assuming a sale for cash, the cash inflow must equal the carrying amount plus the gain, that is, the total cash receipt.

Question 7

Items reported only in the fund financial statements of the primary government

Answer 7

-Fiduciary activities

Question 8

Most authoritative financial accounting guidance for nongovernmental entities in the U.S.

Answer 8

The Accounting Standards Codification
; the FASB’s Accounting Standards Codification and SEC pronouncements are the only sources of authorative financial accounting guidance

Question 9

Nongovernmental not-for-profit organizations are required to provide which of the following external financial statements?

Answer 9

Statement of financial position, statement of activities, statement of cash flows

Question 10

Nack City received a donation of a valuable painting. Nack planned to add the painting to its collection and display it in the protected exhibition area of city hall. Nack had a policy that if such donated art works were sold, the proceeds would be used to acquire other items for its collections. What is the proper accounting treatment?

Answer 10

Individual items or collections of works of art, historical treasures, and similar assets ordinarily must be capitalized. However, if a collection is (1) held in furtherance of public service and not for gain; (2) protected, preserved, cared for, and kept unencumbered; and (3) subject to a policy that sale proceeds are to be used to obtain other collection items, capitalization is not required. If capitalized collections or individual items are exhaustible, for example, because their useful lives are reduced by display, educational, or research uses, they must be depreciated.