MCQ Review 7

Question 1

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of

Answer 1

• Economic entity
• Consolidated financial statements should reflect the economic activities of an entity measured without regard to the boundaries of the legal entity

Question 2

In Government reporting, is notes to the financial statements required supplementary information?

Answer 2

• No.
• Notes to the financial statements are an integral part of the basic financial statements. They disclose information essential to fair presentation that is not reported on the face of the statements. The focus is on the primary government’s (1) governmental activities, (2) business-type activities, (3) major funds, and (4) nonmajor funds in the aggregate

Question 3

What is Times-interest-earned ratio?

Answer 3

• It is a ratio to measure of the firms’ ability to pay interest on debt.
• Earnings before interest and taxes divided by interest expense.

Question 4

Reporting of cash flows of proprietary funds and entities engaged in business-type activities

Answer 4

-Cash inflows are classified : 1. operating, noncapital financing, capital and related financing, and investing.

Question 5

What’s included in investing activities?

Answer 5

• Making and collecting loans
• Acquiring and disposing of debt and equity instruments.
• Interest and dividends received as returns on loans, debt of other entities, equity securities, and cash management or investment pools

Question 6

What is special revenue fund?

Answer 6

It is a governmental fund that accounts for the proceeds of specific revenue sources legally restricted to expenditure for specified purposes.

Question 7

Where the foreign currency re-measurement gains or losses on monetary assets and liabilities are reported?

Answer 7

They are reported in current earnings as part of continuing operations

Question 8

What is the primary of a statement of cash flows?

Answer 8

• The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash disbursements of an entity during the period
• It helps investors, creditors, and other users to assess the entity’s ability to generate net cash inflows, meet its obligations, pay dividends, and secure external financing

Question 9

Explain what is an exchange that lacks commercial substance

Answer 9

When a nonmonetary exchange of assets that is not expected to change the entity’s cash flows significantly is considered to be an exchange that lacks commercial substance.

Question 10

Explain for the nonmonetary exchange accounting

Answer 10

The accounting for a nonmonetary exchange is based on the carrying amount of the assets given up, unless boot is received, no gain is recognized.