ACCT211 Intermediate Accounting
CH 1, 2 and 4 Exam
Question 1If plant assets of a manufacturing company are sold at a gain of $1,800,000 with related taxes of $540,000, and the gain is not considered unusual or infrequent, the income statement for the period would disclose these effects as
operating income net of applicable taxes, $1,260,000.
a prior period adjustment net of applicable taxes, $1,260,000.
a gain of $1,800,000 and an increase in income tax expense of $540,000.
a discontinued operations gain net of applicable taxes, $1,260,000.
Question 2When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of
None of these answer choices are correct.
relevance.
consistency.
faithful representation.
Question 3Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as
a component of income for the year in which the error is discovered, but separately listed on the income statement and fully explained in a note to the financial statements.
an increase in depreciation expense for the year in which the error is discovered.
a prior period adjustment.
a change in accounting principle for the year in which the error was made.
Question 4Gross billings for merchandise sold by Lang Company to its customers last year amounted to $12,720,000; sales returns and allowances were $370,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Lang Company were
$12,035,000.
$12,175,000.
$12,720,000.
$12,350,000.
Question 5Arreaga Corp. has a tax rate of 20 percent and income before non-operating items of $1,392,000. It also has the following items (gross amounts).
Unusual loss $222,000
Discontinued operations loss 606,000
Gain on disposal of equipment 48,000
Change in accounting principle
increasing prior year's income 318,000
What is the amount of income tax expense Arreaga would report on its income statement?
$297,600
$243,600
$186,000
$278,400
Question 6Which of the following earnings per share figures must be disclosed on the face of the income statement?
The effect on EPS from unusual items.
EPS for gross profit.
EPS for income from continuing operations.
EPS for income before taxes.
Question 7Lantos Company had a 20 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement?
Sales revenue $ 1,000,000
Cost of goods sold 600,000
Salaries and wages expense 80,000
Depreciation expense 110,000
Dividend revenue 90,000
Utilities expense 10,000
Discontinued operations loss 100,000
Interest expense 20,000
$54,000
$16,000
$34,000
$36,000
Question 8Which of the following is true of accounting for changes in estimates?
Changes in estimates are not carried back to adjust prior years.
A company recognizes a change in estimate by making a retrospective adjustment to the financial statements.
A company accounts for changes in estimates only in the period of change, even though it affects the future periods.
Changes in estimates are considered as errors.
Question 9Which of the following is an example of managing earnings up?
Writing off obsolete inventory.
Decreasing estimated salvage value of equipment.
Accruing a contingent liability for an ongoing lawsuit.
Underestimating warranty claims.
Question 10What is prudence or conservatism?
Recognizing revenue when earned and realized
Understating assets and net income
When in doubt, recognizing the option that is least likely to overstate assets and income
Recognizing the option that is least likely to overstate assets and liabilities
Question 11Moorman Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax $ 1,290,000
Dividends declared 960,000
Net income 3,000,000
Retained earnings, 1/1/20, as reported 6,000,000
Moorman should report retained earnings, 12/31/20, at
$6,750,000.
$8,040,000
$4,710,000.
$9,330,000
Question 12All the following are ways in which accounting information is used by financial accounting users except to
buy, sell, hold equity and debt instruments.
decide whether to invest in the company.
plan and control company's operations.
evaluate borrowing capacity to determine the extent of a loan to grant.
Question 13Which of the following serves as the justification for the periodic recording of depreciation expense?
Association of efforts (expense) with accomplishments (revenue)
Systematic and rational allocation of cost over the periods benefited
Immediate recognition of an expense
Minimization of income tax liability
Question 14The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is
a majority of the members of the FASB are CPAs who are drawn from public practice.
all members of the FASB possess extensive experience in financial reporting.
all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
the FASB issues exposure drafts of proposed standards.
Question 15What is the relationship between the Securities and Exchange Commission and accounting standard setting in the United States?
The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction.
The SEC coordinates with the AICPA in establishing accounting standards.
The SEC reviews financial statements for compliance.
The SEC requires all companies listed on an exchange to submit their financial statements to the SEC.
Question 16What is meant by comparability when discussing financial accounting information?
Information is reasonably free from error.
Information is timely.
Information is measured and reported in a similar fashion acorss companies.
Information has predictive or confirmatory value.
Question 17A company issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information?
Comparability
Understandability
Verifiability
Timeliness
Question 18What would be an advantage of having all countries adopt and follow the same accounting standards?
Lower preparation costs.
Comparability and lower preparation costs.
Comparability.
Agreement.
Question 19Madsen Company reported the following information for 2020:
Sales revenue $2,040,000
Cost of goods sold 1,400,000
Operating expenses 220,000
Unrealized holding gain on available-for-sale debt securities 120,000
Cash dividends received on the securities 8,000
For 2020, Madsen would report other comprehensive income of
$128,000
$428,000.
$120,000
$420,000.
Question 20A correction of an error in prior periods' income will be reported
In the income statement Net of tax
Yes No
No No
Yes Yes
No Yes
Question 21A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to:
stockholders’ equity of the period in which the change occurred.
comprehensive income for the earliest period presented.
net income of the period in which the change occurred.
beginning retained earnings of the earliest period presented.
Question 22Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?
Results of operations of a discontinued component should be disclosed immediately before income from continuing operations.
The gain or loss on disposal should not be segregated, but should be reported together with the results of continuing operations.
The gain or loss on disposal should be reported as an unusual gain or loss.
Earnings per share from continuing operations, discontinued operations, and net income should be disclosed on the face of the income statement.
Question 23At Ruth Company, events and transactions during 2020 included the following. The tax rate for all items is 20%.
(1) Depreciation for 2018 was found to be understated by $120,000.
(2) A strike by the employees of a supplier resulted in a loss of $100,000.
(3) The inventory at December 31, 2018 was overstated by $160,000.
(4) A disposal of a component of the business resulted in a $2,000,000 loss.
The effect of these events and transactions on 2020 net income net of tax would be
($1,680,000).
($47,000).
($1,904,000).
($1,776,000).
Question 24Which of the following is of interest to investors in decision-making?
Both assessing the company’s ability to generate net cash inflows and assessing management’s ability to protect and enhance the capital provider’s investments.
Assessing the company’s ability to collect debts.
Assessing management’s ability to protect and enhance the capital providers’ investments.
Assessing the company’s ability to generate net cash inflows.
Question 25The objective of general-purpose financial reporting is?
to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers
to provide users with financial information that implies total freedom from error.
to provide companies with the option to select information that favors one set of interested parties over another
to provide a metric for financial information used to determine when the boundary between two or more entities should be disregarded and the entities considered to be a licensing arrangement.
Question 26For the year ended December 31, 2020, Transformers Inc. reported the following:
Net income $300,000
Preferred dividends declared 50,000
Common dividend declared 10,000
Unrealized holding loss, net of tax 5,000
Retained earnings, beginning balance 400,000
Common stock 200,000
Accumulated Other Comprehensive Income,
Beginning Balance 25,000
What would Transformers report as total stockholders' equity?
$640,000
$840,000
$600,000
$860,000
Question 27In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting?
Objective of financial reporting
Elements of financial statements
Qualitative characteristics of accounting information
Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
Question 28Which of the following is not true of generally accepted accounting principles?
GAAP is influenced by pronouncements of the SEC.
GAAP changes over time as the nature of the business environment changes.
GAAP does not have substantial authoritative support.
GAAP includes detailed practices and procedures as well as broad guidelines of general application.
Question 29Income taxes are allocated to each of the following except
continuing operations.
discontinued operations.
prior period adjustments.
balance sheet adjustments.
Question 30Which of the following is not a generally practiced method of presenting the income statement?
The consolidated statement of income
Including gains and losses from discontinued operations of a component of a business in determining income.
The single-step income statement
Including prior period adjustments in determining net income
Question 31A statement of stockholders’ equity includes a column for each of the following except
net income.
accumulated other comprehensive income.
retained earnings.
common stock.
Question 32Which of the following elements of financial statements is not a component of comprehensive income?
Distributions to owners
Losses
Expenses
Revenues
Question 33Which of the following is false about an income statement?
Income measurement involves judgment.
Items that cannot be measured reliably are not reported in the income statement.
Income numbers are affected by the accounting methods employed.
It is used to measure the solvency of a company.
Question 34Which of the following is not an acceptable way of displaying the components of other comprehensive income?
Combined statement of retained earnings
One statement approach
Two statement approach
One and Two statement approach
Question 35At Ruth Company, events and transactions during 2020 included the following. The tax rate for all items is 20%.
(1) Depreciation for 2018 was found to be understated by $150,000.
(2) A strike by the employees of a supplier resulted in a loss of $125,000.
(3) The inventory at December 31, 2018 was overstated by $200,000.
The effect of these events and transactions on 2020 income from continuing operations net of tax would be
($220,000).
($280,000).
($100,000).
($380,000).
Question 36Moorman Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax $ 1,290,000
Dividends declared 960,000
Net income 3,000,000
Retained earnings, 1/1/20, as reported 6,000,000
Moorman should report retained earnings, 1/1/20, as adjusted at
$4,710,000
$6,750,000
$9,330,000
$8,040,000
Question 37Application of the full disclosure principle
requires that the financial statements be consistent and comparable.
is violated when important financial information is buried in the notes to the financial statements.
is demonstrated by the use of supplementary information explaining the effects of financing arrangements.
is theoretically desirable but not practical because the costs of complete disclosure exceed the benefits.
Question 38Korte Company reported the following information for 2020
Sales revenue $2,500,000
Cost of goods sold 1,750,000
Operating expenses 275,000
Unrealized holding gain on available-for-sale debt securities 85,000
Cash dividends received on the securities 10,000
For 2020, Korte would report comprehensive income of
$570,000
$560,000
$485,000
$85,000
Question 39The accounting principle of expense recognition is best demonstrated by
establishing an Appropriation for Contingencies account.
recognizing prepaid rent received as revenue.
matching effort (expense) with accomplishment (revenue).
not recognizing any expense unless some revenue is realized.
Question 40For the year ended December 31, 2020, Transformers Inc. reported the following:
Net income $300,000
Preferred dividends declared 50,000
Common dividend declared 10,000
Unrealized holding loss, net of tax 5,000
Retained earnings 400,000
Common stock 200,000
Accumulated Other Comprehensive Income,
Beginning Balance 25,000
What would Transformers report as its ending balance of Accumulated Other
Comprehensive Income?
$25,000
$5,000
$20,000
$30,000
Question 41The major elements of the income statement are
revenues, expenses, gains, and losses.
revenues, irregular items, and general expenses.
revenue, cost of goods sold, selling expenses, and general expense.
operating section, nonoperating section, discontinued operations, and cumulative effect.
Question 42The purpose of the International Accounting Standards Board is to:
develop a single set of high-quality financial reporting standards,
regulate stock prices at the international level.
develop a uniform currency in which the financial transactions occur.
arbitrate accounting disputes between auditors and international companies.
Question 43Accounting information is considered to be relevant when it
is understandable by reasonably informed users of accounting information.
is verifiable and neutral.
can be depended on to represent the economic conditions and events that it is intended to represent.
is capable of making a difference in a decision.
Question 44In 2020, Esther Corporation reported net income of $600,000. It declared and paid preferred stock dividends of $150,000 and common stock dividends of $60,000. During 2020, Esther had a weighted average of 300,000 common shares outstanding. Compute Esther's 2020 earnings per share.
$2.50
$2.00
$1.50
$1.30
Question 45For Mortenson Company, the following information is available:
Cost of goods sold $390,000
Dividend revenue 15,000
Income tax expense 36,000
Operating expenses 138,000
Sales revenue 600,000
In Mortenson’s single-step income statement, gross profit
should be reported at $51,000.
should be reported at $210,000.
should be reported at $225,000.
should not be reported.
