Intermediate Accounting Volume 1, 7th Edition By Spiceland – Test Bank

 

 

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Sample Questions

 

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Student: ___________________________________________________________________________

1.	The close family of a company’s president owns a small (insignificant) amount of the company’s shares. The president’s family is deemed to be related parties and these holdings should be disclosed. True    False

 

2.	Under IFRS, balance sheet items may be classified as current/non-current or by order of liquidity (or reverse liquidity). True    False

 

3.	For financial statement purposes, a company’s operating cycle is deemed to be at least one year. True    False

 

4.	Monetary items are usually fixed in amount while non-monetary items are not. True    False

 

5.	In order to classify an asset as current, it is to be converted to cash within one year or its operating cycle, whichever is longer. True    False

 

6.	Owners’ Equity items are classified and presented based on time to maturity. True    False

 

7.	Assets must be classified as current or non-current on the balance sheet. True    False

 

8.	Assets must be presented before liabilities and equities under IFRS. True    False

 

9.	Biological assets, Investment Properties and Provisions must all be shown separately under IFRS (wherever applicable) but not under ASPE. True    False

 

10.	Accounts Receivable and Inventories must always be shown as current assets on the balance sheet. True    False

 

11.	An investor seeking a return on invested capital would be most concerned with a company’s liquidity. True    False

 

12.	Accounts Receivable pledged as collateral must be shown separately from other receivables on the face of the balance sheet. True    False

 

13.	Deferred Income Tax Assets and Liabilities must be presented as non-current under IFRS. True    False

 

14.	Strategic investments are not considered financial assets. True    False

 

15.	Liabilities such as contingent liabilities that are not probable, or are probable but not measurable, do not qualify for recognition in the financial statements. True    False

 

16.	With respect to biological assets under IFRS, bearer plants are the only category that need not be measured at their fair value less costs to sell. True    False

 

17.	A statement of changes in Equity is mandatory under both IFRS and ASPE. True    False

 

18.	Investment properties under IFRS must be shown at Fair Value. True    False

 

19.	When material, prepaid expenses must be shown separately on the face of the balance sheet. True    False

 

20.	The balance sheet reports on the operations of the company for a given period of time. True    False

 

21.	For simplicity, all strategic investments may be combined into a single line item on the face of the balance sheet. True    False

 

22.	A restriction on Retained Earnings is usually the result of a contractual or legal obligation and is intended to limit the amount of dividends paid. True    False

 

23.	ABC Inc. has an overdraft (negative) balance with Bank A and a positive balance in its account with Bank B. These accounts may be offset. True    False

 

24.	A long-term bond payable is reported on the balance sheet at its maturity amount plus any unamortized premium or minus any unamortized discount. True    False

 

25.	Retained earnings appropriations are the result of decisions made by management. True    False

 

26.	Monetary assets should be disclosed at their fair value on the Balance Sheet. True    False

 

27.	Retained earnings restrictions and appropriation both limit the amount of dividends that a company can pay. True    False

 

28.	By grouping assets in decreasing order of liquidity, the accounts receivable account will almost always be the first item on the balance sheet. True    False

 

29.	A statement of compliance and summary of significant accounting policies are often among the first notes to be disclosed in annual report. True    False

 

30.	Current liabilities are short-term liabilities whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabilities. True    False

 

31.	In financial reporting it is improper to offset current assets with current liabilities unless there is a legal right of offset. Answer: True    False

 

32.	The Return on Assets (ROA) and Return on Equity (ROE) ratios measure a company’s liquidity. True    False

 

33.	Guarantees are always recorded as liabilities in the financial statements. True    False

 

34.	Appropriated retained earnings are those earnings that have been set aside for a specific purpose (other than the payment of dividends). True    False

 

35.	Deferred charges are distinguished from prepaid expenses on the basis of the time over which their benefits will be realized. True    False

 

36.	Non-controlling interest will appear as a component of shareholder equity on the consolidated statements when a company has subsidiaries that it does not fully own. True    False

 

37.	All assets having any future benefit to the company will be disclosed on the Balance Sheet. True    False

 

38.	Guarantees and contingencies do not necessarily need to be accrued, but they may have to be disclosed in certain instances. True    False

 

39.	The declaration (but not payment) of common share dividends will have an adverse effect on ROA (Return on Assets). True    False

 

40.	Subsequent events are those which occur after the release of the financial statements. True    False

 

41.	Accounting errors and policy changes are handled retrospectively, with an adjustment to opening Retained Earnings to correct for the effects of these, while changes in accounting estimates are handled prospectively. True    False

 

42.	Current assets are cash and those items, which are reasonably expected to be realized in cash, or to be sold or consumed during the normal operating cycle or within one year from the balance sheet, date, whichever is longer. True    False

 

43.	Interest-bearing investments with a maturity within six months of the balance sheet date are effectively cash equivalents. True    False

 

44.	The shareholders’ equity section of a consolidated statement of financial position shows the shareholder equity attributable to the parent. True    False

 

45.	Under ASPE, Biological Assets are always shown separately from Property, Plant & Equipment at their Fair Value less costs to sell. True    False

 

46.	Investments being held-to-maturity must be accounted for using Amortized Cost under IFRS. True    False

 

47.	Most balance sheets do not have a separate caption “Deferred Credits” because they are disclosed under liabilities or owners’ equity. True    False

 

48.	Under ASPE, a change in accounting policy may be voluntary or compulsory. True    False

 

49.	Corrections of errors made in prior periods as well as the cumulative effect of retrospective changes in accounting policy are both shown as an after-tax adjustment to opening retained earnings. True    False

 

50.	Counter-balancing inventory errors have no effect of the statement of comprehensive income. True    False

 

51.	Held-for-sale assets are carried at the lower of amortized cost or estimated net realizable value. True    False

 

52.	Contingent gains are never disclosed in the notes to the financial statements, no matter how likely. True    False

 

53.	The designation “reserve for bad debts” is an appropriate alternative title for “allowance for doubtful accounts”. True    False

 

54.	“Reserve for depreciation” is an appropriate alternative designation for “accumulated depreciation”. True    False

 

55.	Contingent losses should only be accrued if it is likely that a loss will arise due to events that existed at the date of the financial statements and the loss can be reasonably estimated. True    False

 

56.	The balance sheet and cash flow statement represent the assets, liabilities, owners’ equity, and cash flows at a specific point in time; whereas, the income statement encompasses a specific period of time. True    False

 

57.	Accumulated Other Comprehensive Income is essentially a deferred credit which appears under the Liabilities section of the Balance Sheet. True    False

 

58.	The statement of significant accounting policies, which is included in the notes to the financial statements, must include reasons for the selection of one generally accepted accounting method over another generally accepted accounting method. True    False

 

59.	A balance sheet is not particularly useful for determining the current market value of the assets of an entity. True    False

 

60.	Other Contributed Capital can arise when shares are retired for more than the original amount paid for the shares. True    False

 

61.	Only unrealized changes in the fair values of certain assets or liabilities are included in Accumulated Other Comprehensive Income. True    False

 

62.	In general, financial instruments should be classified according to their form, regardless of the instrument’s substance. True    False

 

63.	Errors are normally unintentional, but may on occasion be intentional. True    False

 

64.	Capital transactions are essentially transaction between owners and as a result, must never appear on the income statement. True    False

 

65.	When a company depends heavily on one or a few customer(s) for its business, this must be disclosed in the notes to the financial statements. True    False

 

66.	All items in Accumulated Other Comprehensive Income must eventually be recycled to the income statement. True    False

 

67.	A contingency is an event or transaction that will occur only if some other uncertain event happens. True    False

 

68.	Certain types of contingencies neither need to be accrued nor disclosed in the notes to the financial statements. True    False

 

69.

Which of the following must a company NOT disclose with regards to any financial instruments which it may possess? A. Amortized cost.   B. Accounting policy used for reporting purposes.   C. The fair value of each class of financial asset or liability.   D. The nature and extent of risks arising from the instruments.

 

70.	Public companies must identify their various operating segments when each of them contributes to at least what percentage of total revenues? A. 50%.   B. 60%.   C. 10%.   D. 100%.

 

71.	Related party transactions, not in the normal course of business, must be recorded at: A. book value.   B. fair value.   C. amortized cost.   D. carrying value.

 

72.

A corporation paid a six-year insurance premium on January 1, year 1, for $12,000. It recorded the prepayment in two asset accounts–one with a $2,000 debit balance and one with a $10,000 debit balance. Under which of the following captions should the account be with the $10,000 balance be classified on a balance sheet dated January 1, year 1? A. Capital assets.   B. Other assets.   C. Deferred charges.   D. Current assets.

 

73.	The cash surrender value of an insurance policy should be classified on the balance sheet under the caption: A. capital assets.   B. other assets.   C. current assets.   D. investments and funds.

 

74.

Which of the following would be non-adjusting subsequent event(s)? A. An insure fire loss shortly after the company’s year-end.   B. Bankruptcy filing by the company’s major customer, which accounted for 60% of the company’s receivables at the balance sheet date.   C. The company announces restructuring plans shortly before its year-end.   D. Sale of goods to Company with good current ratio.

 

75.

Z corporation owed the following notes payable, which will mature during the coming year. The corporation plans to settle the notes as follows: Note payable A: Refinance by issuing a new 10-year bond. Note payable B: Give the holder merchandise inventory. Note payable C: Give the creditor their long-term investment in Z Corporation common shares. Which note is properly classified as a current liability? A. Note payable A   B. Note payable B   C. Note payable C   D. All are current liabilities.

 

76.

Which of the following should not be considered as a current asset in the balance sheet? A. The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.   B. Marketable securities purchased with cash as a short-term investment.   C. Instalment notes receivable due within 12 months in accordance with normal trade practice.   D. Prepaid taxes which cover assessments of the following operating cycle of the business.

 

77.	Deferred charges: A. are current assets.   B. are expenses incurred but not yet paid.   C. are items such as the prepayment of rent on an office.   D. involve a longer period of time than do prepaid expenses.

 

78.

Bonds payable due in six months and for which an adequate bond sinking fund exists is not a current liability because: A. the sinking fund is a current asset.   B. of the length of the operating cycle.   C. they are due within six months.   D. the bonds will be settled with an asset that is not a current asset.

 

79.	Which of the following is not a negative element under the “capital assets, tangible” classification? A. Accumulated depletion of mineral-bearing property.   B. Accumulated depreciation of paved parking lot.   C. Accumulated depreciation of buildings.   D. Reserve for plant expansion.

 

80.	Which of the following would NOT appear under the Equity section of a Balance Sheet prepared under ASPE? A. Share Capital.   B. Retained Earnings.   C. Accumulated Other Comprehensive Income.   D. Contributed Capital.

 

81.

If the operating cycle of a business is fifteen months, which of the following statement is true? A. Cash set aside for a purchase of equipment will be shown as a current asset.   B. A note receivable that is due one year and two months from the balance sheet date will be shown as a current asset.   C. Balance sheets should be prepared more often than income statements.   D. A note, that is payable by the business two years from the balance sheet date, will be shown as a current liability.

 

82.

When the account receivable of an individual customer has a credit balance of a material amount, this amount: A. must be included separately in the liability section of the balance sheet.   B. may be deducted from the debit balances in other customers’ accounts on the balance sheet.   C. may be shown under “credit balances of customers’ accounts” in the current asset section of the balance sheet.   D. should be omitted from the current balance sheet.

 

83.

During the current year, a corporation purchased a parcel of land located in downtown Winnipeg. The company is not currently operating in Manitoba. However, the management expects to be operating at that location within twenty years. If the company does not buy the land now, it would be unable to find suitable land when needed later. The land should be classified on the current balance sheet under the caption: A. Capital assets.   B. Other assets.   C. Deferred charges.   D. Investments.   E. Current assets.

 

84.

Where on the statement of financial position would a company’s total comprehensive income for the year be included under IFRS? A. The entire amount will be included in Retained Earnings.   B. The entire amount will be included in Accumulated Comprehensive Income.   C. The amount will be split; Net income will be included in Retained Earnings and Other Comprehensive Income will be included in Accumulated Other Comprehensive Income.   D. The entire amount will be included in Contributed Capital.

 

85.

A company’s main inventory warehouse burned down a few days after the company’s fiscal year end – well before the financial statements for the last year were issued. The company’s insurer will only cover a portion of the estimated losses. Given this event, what should the company do from an accounting/financial reporting standpoint? A. Will not disclose the event and the estimated amount of the loss in a note to the financial statements.   B. No action is required.   C. Both disclose the event and the estimated amount of the loss in a note to the financial statements and accrue for the estimated amount of the loss.   D. Disclose the event as part of management’s M, D & A (Management Discussion and Analysis).

 

86.	Preferred shares which guarantee the shareholder only a fixed annual dividend should be classified as: A. Expense.   B. equity.   C. both debt and equity.   D. deferred charges.

 

87.

ABC Inc’s largest customer declared bankruptcy shortly after the company’s fiscal year end but well before the financial statements for the last year were issued. The company accounted for roughly 80% ABC’s revenues. On the date of bankruptcy, the company owed ABC Inc. $500,000 for purchases it made from ABC Inc during the preceding fiscal year. Given the above, what should the company do from an accounting/financial reporting standpoint? A. Will not disclose the event and the estimated amount uncollectible in a note to the financial statements.   B. Disclose the event as part of management’s M, D & A (Management Discussion and Analysis).   C. Both disclose the event and the estimated amount uncollectible in a note to the financial statements and accrue for the estimated amount uncollectible.   D. No action is required.

 

88.	Accounts receivable are reported at: A. Cost.   B. Current value.   C. Fair market value.   D. Net realizable value.

 

89.	The income statement is related to the balance sheet because: A. Income increases owners’ equity and total assets (or reduces liabilities).   B. Income increases only owners’ equity.   C. Assets and expenses have debit balances.   D. Liabilities and revenue have credit balances.

 

90.

Ambo Inc. earned $200,000 for the current year. This means: A. Ambo’s total assets increased $200,000 during the year.   B. Ambo’s earnings increased Ambo’s net assets $200,000 during the year.   C. Ambo’s cash increased $200,000 during the year.   D. Ambo’s retained earnings must be $200,000 more at December 31 than it was at January 1.

 

91.	Which of the following need not appear as a stand-alone item on the statement of financial position under IFRS? A. Liabilities forming part of a disposal group (held-for-sale).   B. Deferred Tax Liabilities.   C. Provisions.   D. Asset Retirement Obligations.

 

92.	Assets and liabilities on the balance sheet are valued at: A. Historical cost.   B. Fair value.   C. Net realizable value.   D. all of these.

 

93.	Which item below is not a current asset? A. Prepaid expense.   B. Unearned revenue.   C. Short-term investment.   D. Work-in-process inventory.

 

94.	Which of the following MAY NOT appear on a company’s statement of financial position? A. Accounts receivable.   B. Prepaid insurance.   C. Equipment under long-term capital leases.   D. Short-term investment in common stock.

 

95.	Prepaid insurance usually should be classified on the balance sheet under the caption: A. Capital assets.   B. Other assets.   C. Current assets.   D. Investments and funds.   E. Deferred charges.

 

96.

The current asset section of a balance sheet includes: A. All future income taxes resulting from inter-period income tax allocation.   B. Goodwill arising in a business combination accounted for as a purchase.   C. Rent receivable.   D. A receivable from a customer not collectible for over one year.

 

97.	The party responsible for the financial statements of a company is the: A. Shareholders of the company.   B. Management of the company.   C. Independent auditor.   D. Government.

 

98.	Events that occur after the balance sheet date but prior to its issuance are called: A. Prior events.   B. Post-closing events.   C. Subsequent events.   D. Unaudited events.