Accounting final exam week A disclosure note is required for all material loss contingencies

Subject: Business    / Accounting
Question

Question 1

A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible.

True

False

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Question 2

P Corp. leased an asset to L Corp. using an operating lease in February. P Corp.’s December 31 statement of cash flows will report:

A cash outflow from investing activities.

A cash outflow from financing activities.

A cash inflow from operating activities.

No cash outflow.

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Question 3

When a company’s only potential common shares are convertible bonds:

Diluted EPS will be greater if the bonds are actually converted than if they are not converted.

Diluted EPS will be smaller if the bonds are actually converted than if the bonds are not converted.

Diluted EPS will be the same whether or not the bonds are converted.

The effect of conversion on diluted EPS cannot be determined without additional information.

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Question 4

For the lessee to account for a lease as a capital lease, the lease must meet:

All four of the criteria specified by GAAP regarding accounting for leases.

Any one of the six criteria specified by GAAP regarding accounting for leases.

Any two of the criteria specified by GAAP regarding accounting for leases.

Any one of the four criteria specified by GAAP regarding accounting for leases.

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Question 5

Authorized common stock refers to the total number of shares:

Outstanding.

Issued.

Issued and outstanding.

That can be issued.

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Question 6

The Model Business Corporation Act:

Uses the words “common” and “preferred” in describing distinguishing characteristics of stock.

Defines legal capital as the amount of net assets not available for distribution to shareholders.

Provides guidance for choosing an appropriate par value for new issues of stock.

Has affected the laws of most states.

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Question 7

Which of the following is the best definition of a current liability?

An obligation payable within one year.

An obligation payable within one year of the balance sheet date.

An obligation payable within one year or within the normal operating cycle, whichever is longer.

An obligation expected to be satisfied with current assets or by the creation of other current liabilities.

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Question 8

According to GAAP for accounting for income taxes, when a company has a net operating loss carryforward:

A deferred tax liability is recognized.

A receivable is created.

A deferred tax equity account is created.

A deferred tax asset is recorded along with any applicable valuation allowance.

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Question 9

Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt.

True

False

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Question 10

A discount on a noninterest-bearing note payable is classified in the balance sheet as:

An asset.

A component of shareholders’ equity.

A contingent liability.

A contra liability.

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Question 11

If the direct method is used to report cash flows from operating activities in the body of the statement of cash flows, a reconciliation of net income to net cash flows from operating activities also is required.

True

False

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Question 12

Which of the following changes should be accounted for using the retrospective approach?

A change in the estimated life of a depreciable asset.

A change from straight-line to declining balance depreciation.

A change to the LIFO method of costing inventories.

A change from the completed-contract method of accounting for long-term construction contracts.

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Question 13

Which of the following accounting changes should not be accounted for prospectively?

The correction of an error.

A change from declining balance to straight-line depreciation.

A change from straight-line to declining balance depreciation.

A change in the expected salvage value of a depreciable asset.

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Question 14

Charlene Company sold a printer with a cost of $68,000 and accumulated depreciation of $23,000 for $20,000 cash. This transaction would be reported as:

An operating activity.

An investing activity.

A financing activity.

None of these answer choices is correct.

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Question 15

Which of the following never requires an outflow of cash?

Early extinguishment of debt.

Retirement of common stock.

Payment of dividends.

Amortization of patent.

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Question 16

During 2016, Hoffman Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO.

Hoffman is not required to make any accounting adjustments.

Hoffman has made a change in accounting principle requiring retrospective adjustment.

Hoffman has made a change in accounting principle requiring prospective application.

Hoffman needs to correct an accounting error.

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Question 17

Cash equivalents have each of the following characteristics except:

Little risk of loss.

Highly liquid.

Maturity of at least three months.

Short-term.

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Question 18

Which of the following is always reported as an outflow of cash?

The accrual of warranty expense.

The declaration of a cash dividend.

The purchase of equipment for cash.

Amortization expense.

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Question 19

Which one of the following financial statements does not report amounts primarily on an accrual basis?

Income statement.

Balance sheet.

Statement of cash flows.

Statement of shareholders’ equity.

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Question 20

Which of the following would be reported as a cash outflow from investing activities?

Issuance of bonds.

Purchase of land.

Payment of dividends.

Retirement of common stock.

1

How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet? Provide a sample balance sheet showing how these items are reported.

Question 2

Distinguish between: (a) Secured and unsecured bonds. (b) Coupon and registered bonds.

AND give an example of when you would use each of these.

Question 3

If inventory is understated at the end of 2015 and the error is not discovered, how will net income be affected in 2016? Give a specific example, showing the effect on income.

Question 4

Do the statement of cash flows and its related disclosure note report only transactions that cause an increase or decrease in cash? Explain using a specific example related to each section of the statement of cash flows.