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Question # 1
Gown, Inc. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a(an):
A. Extraordinary gain, net of income taxes.
B. Part of continuing operations.
C. Gain from discontinued operations, net of income taxes.
D. Reduction of the cost of the new warehouse.
Question # 2
Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle. Which of the following should the auditor consider the most authoritative?
A. FASB Technical Bulletins.
B. AICPA Accounting Interpretations.
C. FASB Statements of Financial Accounting Concepts.
D. AICPA Technical Practice Aids.
Question # 3
Which of the following information should be included in Nlelay, |nc.'s 1992 summary of significant accounting policies?
A. Property, plant, and equipment is recorded at cost with depreciation computed principally by thestraight-line method.
B. During 1992, the Delay component was sold.
C. Business segment 1992 sales are Alay $1M, Belay $2M, and Celay $3M.
D. Future common share dMdends are expected to approximate 60% of earnings.
Question # 4
The summary of significant accounting policies should disclose the:
A. Maturity dates of noncurrent debts.
B. Terms for convertible debt to be exchanged for common stock.
C. Concentration of credit risk of all financial instruments by geographical region.
D. Criteria for determining which investments are treated as cash equivalents.
Question # 5
Which of the following should be disclosed in a summary of significant accounting policies? I. NIanagement's intention to maintain or vary the dMdend payout ratio. II. Criteria for determining which investments are treated as cash equivalents. III. Composition of the sales order backlog by segment.
A. I only.
B. I and III.
C. II only.
D. II and III.
Question # 6
Which of the following accounting pronouncements is the most authoritative?
A. FASB Statement of Financial Accounting Concepts.
B. FASB Technical Bulletin.
C. AICPA Accounting Principles Board Opinion.
D. AICPA Statement of Position.
Question # 7
On January 1, 1991, Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for five years. Brecon's 1991 multi-step income statement should include:
A. One-fifth of the cabinet costs in cost of goods sold.
B. One-fifth of the cabinet costs in selling, general, and administrative expenses.
C. All of the cabinet costs in cost of goods sold.
D. All of the cabinet costs in selling, general, and administrative expenses.
Question # 8
FASB Interpretations of Statements of Financial Accounting Standards have the same authority as the FASB:
A. Statements of Financial Accounting Concepts.
B. Emerging Issues Task Force Consensus.
C. Technical Bulletins.
D. Statements of Financial Accounting Standards.
Question # 9
According to the FASB conceptual framework, an entity's revenue may result from:
A. A decrease in an asset from primary operations.
B. An increase in an asset from incidental transactions.
C. An increase in a liability from incidental transactions.
D. A decrease in a liability from primary operations.
Question # 10
According to the FASB conceptual framework, which of the following is an essential characteristic of an asset?
A. The claims to an asset's benefits are legally enforceable.
B. An asset is tangible.
C. An asset is obtained at a cost.
D. An asset provides future benefits.
Question # 11
Under FASB Statement of Financial Accounting Concepts #5, which of the following items would cause earnings to differ from comprehensive income for an enterprise in an industry not having specialized accounting principles?
A. Unrealized loss on investments in noncurrent marketable equity securities available for sale.
B. Unrealized loss on investments in current marketable equity securities held for trading.
C. Loss on exchange of nonmonetary assets without commercial substance.
D. Loss on exchange of nonmonetary assets with commercial substance.
Question # 12
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.This question represents one of Quo's transactions. List B represents the general accounting treatment required for these transactions. These treatments are:. Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.. Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.. Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.Item to Be AnsweredQuo manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long-term contracts was switched from the completed-contract method to the percentage-of-completion method.List B (Select one)
A. Cumulative effect approach.
B. Retroactive or retrospective restatement approach.
C. Prospective approach.
Question # 13
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies. Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements. This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.Item to Be AnsweredAs a result of a production breakthrough, Quo determined that manufacturing equipment previously depreciated over 15 years should be depreciated over 20 years.List A (Select one)
A. Change in accounting principal.
B. Change in accounting estimate.
C. Correction of an error in previously presented financial statements.
D. Neither an accounting change nor an accounting error.
Question # 14
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.This question represents one of Quo's transactions. List B represents the general accounting treatment required for these transactions. These treatments are:. Cumulative effect approach - Include the cumulative effect of the adjustment resulting from the accounting change or error correction in the 1993 financial statements, and do not restate the 1992 financial statements.. Retroactive or retrospective restatement approach - Restate the 1992 financial statements and adjust 1992 beginning retained earnings if the error or change affects a period prior to 1992.. Prospective approach - Report 1993 and future financial statements on the new basis but do not restate 1992 financial statements.Item to Be AnsweredAs a result of a production breakthrough, Quo determined that manufacturing equipment previously depreciated over 15 years should be depreciated over 20 years.List B (Select one)
A. Cumulative effect approach.
B. Retroactive or retrospective restatement approach.
C. Prospective approach.
Question # 15
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements. This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.Item to Be AnsweredThe equipment that Quo manufactures is sold with a five-year warranty. Because of a production breakthrough, Quo reduced its computation of warranty costs from 3% of sales to 1% of sales.List A (Select one)
A. Change in accounting principal.
B. Change in accounting estimate.
C. Correction of an error in previously presented financial statements.
D. Neither an accounting change nor an accounting error.
