MDS F1 - Follow Up MCQs

Question 1

What two components does Comparability relate to?

Answer 1

Relevance and Reliability

Question 2

According to FASB conceptual framework, an entity’s revenue may result from:

Answer 2

Decrease in liability from primary operations

A deferred revenue (liability), receiving cash in advance of work, would result in a revenue if the liability was decreased or earned.

Question 3

Financial Capital Vs. Physical Capital

Answer 3

Financial Capital - If financial amount of business’ net assets at the end of a period exceeds net assets at beginning of the period

Physical capital - if physical capacity of a plant were to increase during the period

Holding gains and losses are excluded from concept of physical capital, BUT
included for financial capital including Net Income and Comprehensive Income

Question 4

Bank Statement Reconciliation

Answer 4

Bank Balance
Plus: Deposits in transit
Less: Checks outstanding

Question 5

Nonmarketable AFS where portfolio cost exceeds market cost

Answer 5

Unrealized Loss OCI XX

Allow. for Unrealized Loss - Noncurrent AFS Asset XX

Question 6

Equity Investments - Preferred Dividends are considered ?

Answer 6

Pref. Div treated as income

Question 7

Cash collections from customers plus the addition and deduction of Accounts Written Off and Increase in A/R would be:

Answer 7

Accounts Written Off - Deduction

Increase in A/R - Deduction

Question 8

If PV of series of payments is is equal to Payment X Annuity, then Amt of Payment must equal….

Answer 8

Payment X Annuity Factor

Question 9

Comprehensive Income excludes

Answer 9

Transactions with owners

Div. are paid to owners

Question 10

Recognizing contingent losses is application of…

Answer 10

Conservatism

Question 11

Summary of Significant Accounting Policies should include:

Answer 11

Describing a method, not the factual info or results.

Question 12

Accum. OCI reported in which F/S?

Answer 12

In the shareholder’s equity section similar to RE on the Balance Sheet

Question 13

Segregated account used to pay long-term bond sinking fund should be classified as:

Answer 13

Noncurrent asset

Question 14

Liquidating dividend is…

Answer 14

Return of investor funds in excess of earnings since acquisition

Under the cost method, dividends are income

Question 15

If Fair Value option is chosen, then…

Answer 15

Gains and losses go to the income statement and revenue is recognized when dividends are declared.

Question 16

Note receivable: Proceeds received equal

Answer 16

Maturity value less the discount at discount rate

Question 17

In period of rising prices, FIFO switch to LIFO will have what impact on Ending Inventory and Net Income?

Answer 17

LIFO includes the most recent costs in COGS and keeps the older items in inventory.

FIFO includes the older costs in COGS and keeps the recent purchases in inventory. Thus, ending inventory approximates replacement cost.

Switching from transferring the old ones to transferring the new costs will increase COGS and lower net income.

Switching from keeping the new costs in inventory to keeping the old costs in inventory will lower ending inventory.