Financial Accounting MCQs

When classifying assets as current and noncurrent for reporting purposes,

The amounts at which current assets are carried and reported must reflect realizable cash values.
Prepayments for items such as insurance or rent are included in an â€™other assetsâ€™ group rather than as current assets as they will ultimately be expensed
The time period by which current assets are distinguished from noncurrent assets is determined by the seasonal nature of the business.
Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the normal operating cycle.

The purchase of treasury stock is recorded on the statement of financial position as a(n

Increase in assets.
Decrease in liabilities.
Increase in shareholdersâ€™ equity.
Decrease in shareholdersâ€™ equity.

Current assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. Current assets ...

Intangible assets
Purchased goodwill
Organizational costs
Trading securities

The accounting measurement that is not consistent with the going concern concept is

Historical cost.
Realization.
The transaction approach.
Liquidation value

A manufacturer receives an advance payment for special-order goods that are to be manufactured and delivered within the next year. The advance payme...

Current liability
Noncurrent liability.
Contra asset amount.
Accrued revenue.

A cable television entity receives deposits from customers that are refunded when service is terminated. The average customer stays with the entity ...

Operating revenue.
Other revenue.
Paid-in capital.
Liability.

A statement of financial position provides a basis for all of the following except

Computing rates of return.
Evaluating capital structure.
Assessing liquidity and financial flexibility.
Determining profitability and assessing past performance.

Noncurrent debt should be included in the current section of the statement of financial position if

It is to be converted into common stock before maturity.
It matures within the year and will be retired through the use of current assets.
Management plans to refinance it within the year.
A bond retirement fund has been set up for use in its scheduled retirement during the next year.

A receivable classified as current on the statement of financial position is expected to be collected within

The current operating cycle.
1 year
The current operating cycle or 1 year, whichever is longer.
The current operating cycle or 1 year, whichever is shorter

A company pays more than the fair value to acquire treasury stock. The difference between the price paid to acquire the treasury stock and the fair ...

An asset
A liability
Shareholders’ equity
An expense

Careful reading of an annual report will reveal that off-balance-sheet debt includes

Amounts due in future years under operating leases
Transfers of accounts receivable without recourse.
Current portion of long-term debt.
Amounts due in future years under capital leases.

Which one of the following is not a form of off-balance-sheet financing?

Sale of receivables
Foreign currency translations
Operating leases
Special purpose entities

In a multiple-step income statement for a retail company, all of the following are included in the operating section except

Sales.
Cost of goods sold.
Dividend revenue.
Administrative and selling expenses.

When reporting extraordinary items,

Each item (net of tax) is presented on the face of the income statement separately as a component of net income for the period.
Each item is presented exclusive of any related income tax.
Each item is presented as an unusual item within income from continuing operations.
All extraordinary gains or losses that occur in a period are summarized as total gains and total losses, then offset to present the net extraordinary gain or loss.

The major segments of the statement of retained earnings for a period are

Dividends declared, prior period adjustments, and changes due to treasury stock transactions.
Before-tax income or loss and dividends paid or declared.
Prior-period adjustments, before-tax income or loss, income tax, and dividends paid.
Net income or loss, prior-period adjustments, and dividends paid or declared.

In recording transactions, which of the following best describes the relation between expenses and losses?

Losses are extraordinary charges to income, whereas expenses are ordinary charges to income.
Losses are material items, whereas expenses are immaterial items.
Losses are expenses that may or may not arise in the course of ordinary activities.
Expenses can always be prevented, whereas losses can never be prevented.

An entity has a 50% gross margin, general and administrative expenses of $50, interest expense of $20, and net income of $10 for the year just ended. ...

$90
$135
$150
$180

Assume that employees confessed to a $500,000 inventory theft but are not able to make restitution. How should this material fraud be shown in the com...

Classified as a loss and shown as a separate line item in the income statement.
Initially classified as an accounts receivable because the employees are responsible for the goods. Because they cannot pay, the loss would be recognized as a write-off of accounts receivable.
Included in cost of goods sold because the goods are not on hand, losses on inventory shrinkage are ordinary, and it would cause the least amount of attention.
Recorded directly to retained earnings because it is not an income-producing item.

An entity had the following opening and closing inventory balances during the current year: ................................1/1............ ...

$1,480,000
$1,500,000
$1,610,000
$1,650,000

If the beginning balance for May of the materials inventory account was $27,500, the ending balance for May is $28,750, and $128,900 of materials were...

$101,400
$127,650
$130,150
$157,650

Given the following data for Scurry Company, what is the cost of goods sold? Beginning inventory of finished goods.. $100,000 Cost of goods manufa...

$500,000
$600,000
$800,000
$950,000

The financial statement that provides a summary of the firmâ€™s operations for a period of time is the

Income statement.
Statement of financial position.
Statement of shareholdersâ€™ equity.
Statement of retained earnings.

Unless the shares are specifically restricted, a holder of common stock with a preemptive right may share proportionately in all of the following exce...

The vote for directors.
Corporate assets upon liquidation.
Cumulative dividends.
New issues of stock of the same class.

Which one of the following statements is correct regarding the effect preferred stock has on a company?

The firm’s after-tax profits are shared equally by common and preferred shareholders.
Control of the firm is now shared by the common and preferred shareholders, with preferred shareholders having greater control.
Preferred shareholders’ claims take precedence over the claims of common shareholders in the event of liquidation.
Nonpayment of preferred dividends places the firm in default, as does nonpayment of interest on debt

On February 1, Year 1, a computer software firm agrees to program a software package. Twelve payments of $10,000 on the first of each month are to be ...

$0
$100,000
$110,000
$120,000

An airline should recognize revenue from airline tickets in the period when

Passenger reservations are booked.
Passenger reservations are confirmed.
Tickets are issued.
Related flights occur.

A department store sells gift certificates that may be redeemed for merchandise. Each certificate expires 3 years after issuance. The revenue from the...

Evenly over 3 years from the date of issuance.
In the period the certificates are sold.
In the period the certificates are sold.
In the period the certificates are redeemed or in the period they expire if they are allowed to lapse.

To comply with the matching principle, the cost of labor services of an employee who participates in the manufacturing of a product normally should be...

Work is performed.
Employee is paid.
Product is completed.
Product is sold.

Revenues of an entity are usually measured by the exchange values of the assets or liabilities involved. Recognition of revenue does not occur until

The revenue is realizable.
The revenue is realized and earned.
Products or services are exchanged for cash or claims to cash.
The entity has substantially accomplished what it agreed to do.

Robin Gavaskar, who recently founded a company that produces baseball bats and balls, wants to determine her companyâ€™s policy for revenue recog...

The sale occurs.
Cash is received.
Production is completed
Quarterly financial statements are prepared.

DEF is the consignee for 1,000 units of product X for ABC Company. ABC should recognize the revenue from these 1,000 units when

The agreement between DEF and ABC is signed.
ABC ships the goods to DEF.
DEF receives the goods from ABC.
DEF sells the goods and informs ABC of the sale.

A physical inventory count showed an entity had inventory costing $1,000,000 on hand at December 31, Year 1. Excluded from this amount were the follow...

$1,000,000
$1,082,000
$1,122,000
$1,204,000

Vadis Co. sells appliances that include a 3-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract...

Evenly over the life of the warranty.
When the service calls are performed.
When payments are made to the mechanic.
When the machines are sold.

East Corp. manufactures stereo systems that carry a 2-year warranty against defects. Based on past experience, warranty costs are estimated at 4% of ...

$52,500
$60,000
$67,500
$120,000

On April 1, Ash Corp. began offering a new product for sale under a 1-year warranty. Of the 5,000 units in inventory at April 1, 3,000 had been sold b...

$9,000
$16,000
$17,000
$33,000

Management accounting differs from financial accounting in that financial accounting is

More oriented toward the future
Primarily concerned with external financial reporting.
Primarily concerned with non quantitative information.
Heavily involved with decision analysis and implementation of decisions.

Companies characterized by the production of heterogeneous products will most likely use which of the following methods for the purpose of averaging ...

Job-order costing.
Relevant costing.
Process costing.
Direct costing.

Companies characterized by the production of heterogeneous products will most likely use which of the following methods for the purpose of averaging ...

Job-order costing.
Relevant costing.
Process costing.
Direct costing.

When should an anticipated loss on a long-term contract be recognized under the percentage-of-completion method and the completed-contract method, r...

Over life of project Contract complete
Immediately Contract complete
Over life of project Immediately
Immediately Immediately

In accounting for a long-term construction contract using the percentage-of-completion method, the progress billings on contracts account is a

Contra current asset account.
Contra noncurrent asset account.
Noncurrent liability account.
Revenue account.

Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel contributed $100,000 and Carr contributed $84,000 ...

$46,000
$16,000
$ 8,000
$0

When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner’s c...

Fair value at the date of contribution.
Contributing partner’s original cost.
Assessed valuation for property tax purposes.
Contributing partner’s tax basis.

Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, year 1, their respective capital accounts were ...

$50,000
$54,000
$56,667
$60,000

Kern and Pate are partners with capital balances of $60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Kern an...

$12,000
$15,000
$16,000
$19,000

Dunn and Grey are partners with capital account balances of $60,000 and $90,000, respectively. They agree to admit Zorn as a partner with a one-thir...

$0
$33,333
$50,000
$66,667

In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively. The bonus method was used...

Adel and Brick’s new relative capital ratio.
Adel and Brick’s new relative profit and loss ratio.
Adel and Brick’s old capital ratio.
Adel and Brick’s old profit and loss ratio.

Allen retired from the partnership of Allen, Beck, and Chale. Allen’s cash settlement from the partnership was based on new goodwill determined at...

No Yes
No No
Yes Yes
Yes No

When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill’s interest exceeded Mill’s capital balance. Under t...

Was recorded as goodwill.
Was recorded as an expense.
Reduced the capital balances of Yale and Lear.
Had no effect on the capital balances of Yale and Lear.

Currency with public - Rs. 120000 Crores Demand deposit with banking system - Rs. 200000 Crores Time deposits with banking system - Rs. 250000 Crore...

Rs. 570000 Crores
Rs. 620000 Crores
Rs. 670000 Crores
Rs. 720000 Crores

Currency with public - Rs. 120000 Crores Demand deposit with banking system - Rs. 200000 Crores Time deposits with banking system - Rs. 250000 Crore...

570000 Crores
620000 Crores
670000 Crores
720000 Crores

Currency with public - Rs. 120000 Crores Demand deposit with banking system - Rs. 200000 Crores Time deposits with banking system - Rs. 250000 Crore...

Rs. 570000 Crores
Rs. 620000 Crores
Rs. 670000 Crores
Rs. 870000 Crores

Mr x is to receive Rs. 10000, as interest on bonds by end of each year for 5 years @ 5% roi. Calculate the present value of the amount he is to rece...

43925
43295
49325
49235

Calculate Standard Error from the given data : X = 10, 20,30,40,50

6.1071
6.0711
7.1071
7.0711

Quantity supplied of a product at Rs. 8 per unit is 200 Units. If the price elasticity of supply is 1.5, what will be the quantity supplied at Rs. 1...

150
175
250
275

My grandfather, starts giving me gifts of Rupees 1 lakh for the next 4 years. If the interest rate is 10 per cent pa, how much will I get at the end...

414600
416400
461400
464100

Account credited when assets are donated to a corporation.

Revenue-donation of asset
Goodwill
Donation expense
Asset retirement expense

Measured at fair value and recognized as a liability.

Average accumulated expenditures
The present value of the expected cash flows
Asset retirement obligations
Land improvements

The basic principle is to value assets acquired using fair value of consideration given

Noninterest-bearing notes
Nonmonetary exchange
Generally pertain to activities that occur prior to the start of production.
Expected cash flow approach

Goodwill is:

Amortized over the greater of its estimated life or forty years.
Only recorded by the seller of a business.
The excess of the fair value of a business over the fair value of all net identifiable assets.
None of the above.

Costs of providing useful information include: Select one:

verification costs.
dissemination costs.
all of these options are costs of providing useful information.
collection and processing costs.

Which of the following statements about the Conceptual Framework is true? Select one:

The Conceptual Framework for Financial Reporting provides guidelines intended to meet the information needs of a range of users who are able to command that reports be prepared to their own particular needs.
The Conceptual Framework deals only with the objective of general purpose financial statements.
The Conceptual Framework deals only with the objective of special purpose financial statements.
the Conceptual Framework for Financial Reporting, provides guidelines on the preparation of financial statements for a specific group of users.

In measuring the value of a liability, which measurement base uses the discounted future net cash outflows that are expected to settle the obligation ...

Historical cost.
Present value.
Realisable value.
Current cost

Which of the following statements is correct? Select one:

Equity is defined as 'the residual interest in the assets of the entity after deducting all its expenses'.
Equity is decreased by an entity's income.
Equity is increased by profit and owner contributions.
Equity cannot be sub-classified in the statement of financial position.

If different independent observers could reach the same general conclusions that the information represents then the quality of the information has ac...

comparability
verifiability
neutrality
understandability.

For information to be considered material: Select one:

it must not include any bias.
it must be complete.
it has a predictive or confirmatory value.
its omission or misstatement could influence usersâ€™ decision-making.

The market value of a company often: Select one:

Is less than its book value because certain assets are not recognised under accounting rules.
None of the above.
Exceeds its book value because certain assets are not recognised under accounting rules.
Appears to be random distributed with regards to book value.

Which of following methods have NOT been proposed to measure the value of Heritage Assets? Select one:

Valuation at nominal amounts.
None of the above, i.e. they are all proposed measurement approaches.
Contingent valuation.
Travel cost method.

Which part of the Conceptual Framework definition of an asset makes recognition of Heritage Assets difficult? Select one:

Past transaction or event.
Control
Both future economic benefit and control.
Future economic benefit.

Which of the following is NOT a feature of intangibles that differentiates them from other assets? Select one:

None of the above, i.e. they are all features of intangible assets.
They often do not have well-defined property rights.
Many are not separable items.
They are largely knowledge based assets.

Differential treatment of purchased versus internally generated intangible assets is said to not make economic sense because: Select one:

It creates information asymmetry.
It violates the efficient market hypothesis.
All of the others.
It isn't economically rational.

Which part of the Conceptual Framework definition of a liability makes it unlikely that Heritage Assets should be recognised as liabilities? Select o...

Future economic sacrifice.
Measurability
Past transaction or event.
Present obligation.

Which of the following is NOT part of the definition of a heritage asset? Select one:

Of historic, artistic, scientific etc. value.
Intangible
Held and maintained for its contribution to knowledge and culture.
None of the others, i.e. they are all part of the definition.

The balance in the retained earnings account is affected by: I. Issued share capital II. Dividends paid or provided for III. Transfers to or from o...

II and III only.
I, II and III only.
II, III and IV only
I, II, III and IV.

Which of the following is not a reason that companies may undertake a share buy-back? Select one:

To manage the capital structure.
To efficiently manage surplus funds.
As a defence against a hostile takeover.
To increase the value per share of the remaining shares.

How does a bonus issue of shares impact the equity of a company? Select one:

Total equity decreases.
Total equity increases.
One equity account increases and another equity account decreases by an equal amount.
Only the amount of issued share capital changes.

Retained earnings are a component of: Select one:

other equity.
comprehensive income.
contributed equity.
reserves

The appropriate journal entry to recognise the accounting treatment for share issue costs is: Select one:

DR Cash: CR Deferred asset.
DR Share capital: CR: Cash.
DR Deferred asset: CR Cash.
DR Cash: CR Share capital.

Dividends declared after the balance date but before the financial statements are authorised for issue: Select one:

do not meet the IAS 137 criteria of a present obligation.
satisfy the recognition criteria for an expense.
are recognised in the statement of financial position as they meet the definition of equity.
meet the recognition criteria for a liability.

Which account represents excess proceeds received and retained by a company from an oversubscription to a share offer application? Select one:

Forfeited shares account.
Share issue costs account.
Calls in advance account.
Share capital account.

How does the conceptual framework differ from an accounting standard?

The principles in the conceptual framework are specific in nature while accounting standards provide more general requirements for financial reporting.
The principles in the conceptual framework are general concepts while accounting standards provide specific requirements for a particular area of financial reporting.
The principles in the conceptual framework are designed to provide guidance and apply to a limited range of decisions relating to the preparation of financial reports while accounting standards apply to a wider range of decisions relating to the preparation of financial reports.
None of the above.

Bibby Limited has an accounting profit before tax of $200 000. All of the following items have been included in the accounting profit: depreciation of...

$81 300
$50 700
$69 300
$38 700.

At reporting date for Year 1, Edward Limited had a loan from its bankers that it expected to settle within three months. The loan term was renegotiate...

a non-current liability
a current liability
a contingent liability
an off-statement of financial position liability

M. Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2017 as $720 000. The number of ordinary sha...

$4.80
$6.17
$7.20
$9.60

A taxable temporary difference is expected to lead to the payment of:

more tax in the future and gives rise to a deferred tax asset.
less tax in the future and gives rise to a deferred tax asset.
more tax in the future and gives rise to a deferred tax liability.
less tax in the future and gives rise to a deferred tax liability.

An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

liability
accrual
provision
contingent liability.

Retained earnings are a component of

Contributed equity.
Reserves
Other equity.
Comprehensive income.

Which of the following is NOT a feature of intangibles that differentiates them from other assets?

They are largely knowledge based assets.
Many are not separable items.
They often do not have well-defined property rights.
None of the above, i.e. they are all features of intangible assets.

On 15 January 2017, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery dat...

recorded on 15 January 2017.
recorded on 31 March 2017.
recorded on 1 March 2017.
recorded on 30 April 2017

The bonus issue of shares has the following impact on the equity of a company:

total equity increases.
total equity decreases.
one equity account increases and another equity account decreases by an equal amount.
only the amount of issued share capital changes.

The conceptual framework states that it is concerned with general purpose financial reports. What are general purpose financial reports?

Financial reports that are tailored to the particular information needs of users.
Financial reports which do not meet the needs of users.
Financial reports intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.
None of the other choices are correct.

Which of the following statements is INCORRECT?

Each share in a company carries a right to share in the assets on the liquidation of the company.
Each share in a company carries a right to share proportionately in all new share issues of a company.
A share represents an ownership right in a company.
Each share in a company carries a right to vote for directors of the company

Which of the following types of employee benefits may be conditional upon the continuation of employment? Select one:

Annual leave.
Long service leave.
Maternity leave.
Accumulating non-vesting sick leave.

In the event that an employer pays an amount to the defined contribution fund that is less than the amount payable: Select one:

a liability is to be recognised to the extent that the entity is entitled to a refund or a reduction in future contributions.
an asset is to be recognised at the end of the reporting period for the unpaid contributions.
an asset is to be recognised to the extent that the entity is entitled to a refund or a reduction in future contributions.
a liability is to be recognised at the end of the reporting period for the unpaid contributions.

IAS19 requires an entity to record a liability for long service leave: Select one:

when the employee becomes legally entitled to the leave.
in a consistent manner from year to year.
when the leave is taken by the employee.
as the employee provides service to the entity even though they may have no legal entitlement to the leave

The key steps involved in accounting by the employer for a defined benefit post-employment fund in accordance with IAS 19 include: I. Determining the...

II, III and IV only
I, II, III and IV
I, III and IV only
I, II and III only

An entity is able to record a provision for termination benefits when it: Select one:

has developed a formal plan for redundancies.
has received Board approval for the termination benefits.
can no longer withdraw the offer of the benefits.
has decided to undertake a termination program.

Under IAS 19, leave entitlements that may be carried forward to a future financial period if unused are referred to as: Select one:

non-accumulating paid absences.
accumulating unpaid absences.
accumulating paid absences.
non-accumulating unpaid absences.

At the commencement of the lease agreement the lessor recognises the balance of the lease receivable as the: Select one:

the present value of the lease payments receivable from the lessee and the present value of the unguaranteed residual value.
the nominal value of the lease payments receivable from the lessee.
the present value of the lease payments receivable from the lessee.
the present value of the residual value of the asset.

Which of the following is not an example of a risk of ownership of an asset? Select one:

Idle capacity.
Technical obsolescence.
Changing economic conditions.
Gains on the future sale of the asset.

IFRS 16 Leases requires lessors to account for lease receipts from operating leases as: Select one:

revenue, on a reducing balance basis over the lease term.
income, on inception date of the lease.
income, on a straight-line basis over the lease term.
revenue, at the end of the lease term.

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Financial Accounting MCQs