Multiple Choice Questions Flashcards
What is the primary protection for investors against fraudulent financial reporting by Corporations?
The requirement that financial statements be audited
What best describes the operating procedure for issuing a new financial accounting standards Board statement?
A new statement is issued only after a majority vote by the members of the FASB.
Ie. 4 out of 7
What has the FASB maintained about GAAP?
New GAAP should be neutral and not favor any particular reporting objective
A deferred revenue is what type of account.
Liability
FASB statements are no longer included in GAAP. True or false.
False
The FASB accounting standards codification presents relevant SEC guidance for publicly traded firms. True or false
True
July 1, 03 Roxy Co. obtained fire insurance @ annual premium of 72k.
Oct 1, 03 Roxy paid 24k real estate taxes to cover period ending 9/30/04.
In 12/31/03 balance sheet, report prepaid expenses of:
54k
72k.5=36k
24k.75=18k
Total 54k
Toro paid $7200 to renew only insurance policy for 3years ($200/mo) on 3/1/05 effective date. At 3/31/05 unadjusted trial balance showed $300 prepaid and $7200 ins expense.
What should be reported at 3/31/05?
$7000 prepaid ins, $500 ins expense
The $300 orig represents unexpired policy. One month or $200 used from new policy = $500. Prepaid remaining is 7200 - 200=$7000.
Company has the following accrual basis balances at the end of its first year of operation:
Unearned consulting fees 2,000
Consulting fees receivable 3,500
Consulting fee revenue 25,000
What is the company’s cash basis consulting revenue?
23,500
Cash basis revenue is the amount of cash collected for the period. 25,000 of accrual basis revenue was recognized + 2,000 in unearned fees minus the 3,500 receivable which was not collected.
Bird corp's trademark was licensed to Brian for royalties of 15% of sales. royalties are payable semi annually on 3/15 for sales July to Dec of the prior year and 9/15 for sales in Jan to June of the same year. Bird received the following royalties: 3/15/04 5k; 9/15/04 7.5k 3/15/05 6k; 9/15/05 8.5k Estimated sales $30,000 July to Dec05 Royalty Revenue for 05 should be...?
$13,000
Sept receipt $8,500 (1st half of 05) +
.15*$30,000
In financial statements prepared on the income tax basis, how should the nondeductible portion of expenses, such as meals and entertainment, be reported?
Included in the expense category in the determination of income.
Hahn Co. prepared financial statements on the cash basis of accounting. The cash basis was modified so that an accrual of income taxes was reported. Are these financial statements in accordance with the modified cash basis of accounting?
Yes.
Under a strict cash basis of accounting, revenues and expenses are recorded only when cash is received or paid. Under a modified cash basis of accounting, certain accruals and or deferrals are recorded for financial statement purposes. The most common modifications are the capitalization and amortization of long-lived assets and the accrual for income taxes
Under royalty agreement with another company, Wand company will pay royalties for the assignment of a patent for three years. When should the royalties paid be reported as an expense?
In the period incurred. The period to which specific royalty amounts relate is the period for expense recognition. Often royalty payments occur at specified intervals that do not correspond to the period in which the royalties were earned.
Doren Co’s officers compensation expense account had a balance of $490,000 at December 31, 2004 before any y/e adjustments related to the following:
Salary accrual was not made for 12/25-31, salaries totaled $18,000 and were paid January 5, 2005
Bonuses to officers for 2004 total $175,000 and were paid on 1.31.05
What is the adjusted balance for compensation expense?
$683,000 which is composed of $490,000 plus $18,000 plus $175,000
Under East co’s accounting system, all paid insurance premiums are debited to prepaid insurance. For interim financial reports, East makes monthly estimated charges to insurance expense with credits to prepaid insurance.
Prepaid ins 12/31/04 $105,000
Charges to ins exp in 2005 $437,500 incl. $17,500 y/e adjustment
Prepaid ins 12/31/05 $122,500
What was total amount of premiums paid during 2005?
$455,000
Beg balance + premiums pd - expense charges = end balance
105,000 + prem paid - 437,500 = 122,500
What is the general rule to convert from cash basis to accrual basis?
It is to add the beginning liability balances and subtract the ending liability balances; also, subtract beginning asset balances and add ending asset balances.
Sanni Co. had $150,000 in cash basis pretax income for the year. At the current year end, Accounts Receivable decreased by $20,000 and accounts payable increased by $16,000 from the previous year. How much higher or lower is the cash basis from accrual basis?
Higher by $36,000
The $20,000 AR ⬇️ implies that cash received on acct was 20,000 ⬆️ than accrual sales. Cash basis income I s therefore $20,000 greater than accrual income for this difference. The $16,000 accounts payable ⬆️ implies that more inventory was purchased and included in accrual cost of goods sold than was paid. Cash basis income is therefore 16,000 more than accrual income. For a total of $36,000 more than accrual income.
An analysis of thrift corporations unadjusted prepaid expense account at 12/31/04 revealed the following:
Thrift had a beginning balance of $1500 for it’s insurance policy. They had paid an annual premium of $3000 on July 1, 2003. A $3,200 annual insurance premium payment made 7/1/04 was unadjusted. A $2,000 advance rental payment for a warehouse lease for one year beginning in 2005 was included. What amount should Thrift report as prepaid expenses on it’s 2004 balance sheet?
$3,600
Beg Bal $1,500
- amort no longer prepaid ($1,500)
+ 1/2 of 3,200 pmt 1,600
+ warehouse pmt 2,000
= 3,600
Accounting records maintained on cash basis but restated to accrual for financial statements to. Class had $60,000 in cash basis pretax income for 2002. The following information pertains to class operations for the years ended December 31, 2002 and 2001:
A/R 40,000; 20,000
A/P 15,000; 30,000
Under the accrual method what amount of income before taxes should be reported in the 2002 income statement?
$95,000
60k plus 20k plus 15k
20 represents sales not collected
15 represents add back excess pmts
On November 1, 2005 Key company paid $3600 to renew its insurance policy for three years. At December 31, 2005 keys unadjusted trial balance showed a balance of $90 for prepaid and $4410 for insurance expense. What amount should be reported for prepaid insurance and insurance expense in keys December 31, 2005 financial statements?
Prepaid $3,400; ins exp $1,100
PPins at y/e is $3,400 from new policy
Ins exp incl. $90 PP expired, $200 from new policy, & expense portion of $4,410 expense amount. (4,410-3,600)
90+200+810=1,100
Collection of a note receivable for a related party would be what kind of activity in a company’s statement of cash flow’s?
Investing
What would be the balance sheet classification of treasury stock?
Contra equity
What would be the balance sheet classification of accounts payable or notes payable, due in nine months?
Current liabilities
What would be the balance sheet classification of allowance for uncollectible accounts?
Contra asset
