CMA USA Part 1 External Financial Reporting Decisions MCQs

Gleim 2015 | Part 1 | Online MCQs | Unit 001A primary objective of external financial reporting is A. Direct measurement of the value of a business enterprise. B. Provision of information that is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise. Answer (B) is correct. According to the FASB’s Conceptual Framework, the objectives of external financial reporting are to provide information that (1) is useful to present and potential investors, creditors, and others in making rational financial decisions regarding the enterprise; (2) helps those parties in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from sale, redemption, or maturity of securities or loans; and (3) concerns the economic resources of an enterprise, the claims thereto, and the effects of transactions, events, and circumstances that change its resources and claims thereto. C. Establishment of rules for accruing liabilities. D. Direct measurement of the enterprise’s stock price. Question: 2 Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The notes should not be used to A. Describe significant accounting policies. B. Describe depreciation methods employed by the company. C. Describe principles and methods peculiar to the industry in which the company operates, when these principles and methods are predominantly followed in that industry. D. Correct an improper presentation in the financial statements. Answer (D) is correct. Financial statement notes should not be used to correct improper presentations. The financial statements should be presented correctly on their own. Notes should be used to explain the methods used to prepare the financial statements and the amounts shown. The first footnote typically describes significant accounting policies. Question: 3 An objective of financial reporting is A. Providing information useful to investors, creditors, donors, and other users for decision making. 1Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 Answer (A) is correct. The objective is to report financial information that is useful in making decisions about providing resources to the reporting entity. Primary users of financial information are current or prospective investors and creditors who cannot obtain it directly. Their decisions depend on expected returns. B. Assessing the adequacy of internal control. C. Evaluating management results compared with standards. D. Providing information on compliance with established procedures. Question: 4 The management of ABC Corporation is analyzing the financial statements of XYZ Corporation because ABC is strongly considering purchasing a block of XYZ ordinary shares that would give ABC significant influence over XYZ. Which financial statement should ABC primarily use to assess the amounts, timing, and certainty of future cash flows of XYZ Company? A. Income statement. B. Statement of changes in equity. C. Statement of cash flows. Answer (C) is correct. A statement of cash flows provides information about the cash receipts and cash payments of an entity during a period. This information helps investors, creditors, and other users to assess the entity’s ability to generate cash and cash equivalents and the needs of the entity to use those cash flows. Historical cash flow data indicate the amount, timing, and certainty of future cash flows. It is also a means of verifying past cash flow assessments and of determining the relationship between profits and net cash flows and the effects of changing prices. D. Statement of financial position. Question: 5 An entity that sprays chemicals in residences to eliminate or prevent infestation of insects requires that customers prepay for 3 months’ service at the beginning of each new quarter. Select the term that appropriately describes this situation from the viewpoint of the entity. A. Deferred income. Answer (A) is correct. The future inflow of economic benefits is not sufficiently certain given that the entity has not done what is required to be entitled to those benefits. Thus, the receipt of cash in anticipation of goods to be delivered or services to be performed must be recognized as a liability, usually called deferred (or unearned) revenue or deferred (or unearned) income. B. Earned income. C. Accrued income. D. Prepaid expense. 2Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 6 Which of the following is true regarding the comparison of managerial and financial accounting? A. Managerial accounting is generally more precise. B. Managerial accounting has a past focus, and financial accounting has a future focus. C. The emphasis on managerial accounting is relevance, and the emphasis on financial accounting is timeliness. D. Managerial accounting need not follow generally accepted accounting principles (GAAP), while financial accounting must follow them. Answer (D) is correct. Managerial accounting assists management decision making, planning, and control. Financial accounting addresses accounting for an entity’s assets, liabilities, revenues, expenses, and other elements of financial statements. Financial statements are the primary method of communicating to external parties information about the entity’s results of operations, financial position, and cash flows. For general-purpose financial statements to be useful to external parties, they must be prepared in conformity with accounting principles that are generally accepted in the United States. However, managerial accounting information is primarily directed to specific internal users. Hence, it ordinarily need not follow such guidance. Question: 7 The financial statements included in the annual report to the shareholders are least useful to which one of the following? A. B. C. D. Stockbrokers. Bankers preparing to lend money. Competing businesses. Managers in charge of operating activities. Answer (D) is correct. Accrual-basis amounts used in financial reporting are not useful to managers making day-to-day operating decisions. The practice of management accounting fulfills the needs of these users. Question: 8 The accounting measurement that is not consistent with the going concern concept is A. B. C. D. Historical cost. Realization. The transaction approach. Liquidation value. Answer (D) is correct. Financial accounting principles assume that a business entity is a going concern in the absence of evidence to the contrary. The concept justifies the use of depreciation and amortization schedules, and the recording of 3Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ and net worth. Liquidity and financial flexibility of the enterprise. Answer (D) is correct. and equity (net worth). C. Thus. Equity is the residual interest in the assets after deduction of liabilities. The balance sheet presents three major financial accounting elements: assets (items of value). B. Liabilities are probable future sacrifices of economic benefits arising from present obligations as a result of past transactions or events. Prepaid expenses.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Assets are usually measured at original historical cost in a statement of financial position. are reported on the balance sheet at cost minus the expired or used portion. The status of the firm’s assets in case of forced liquidation of the firm. Net realizable value of enterprise assets. Question: 10 Prepaid expenses are valued on the statement of financial position at the A. According to the FASB’s Conceptual Framework. These are typically current assets. D. C. Capital structure of the enterprise. Answer (D) is correct. The fair value of the firm’s assets at some moment in time. Face amount collectible at maturity. For example. D. D. such as supplies. Question: 11 A statement of financial position allows investors to assess all of the following except the A. Cost to acquire minus accumulated amortization. Question: 9 The primary purpose of the statement of financial position is to reflect A. liabilities (debts). some short-term receivables are reported at their net realizable value. Items of value. Cost less expired or used portion. and prepaid insurance. B. C. B.facebook. Efficiency with which enterprise assets are used. the statement of financial position cannot be relied upon to assess NRV. 4Page www.com/CMA. Cost to acquire the asset. assets are probable future economic benefits resulting from past transactions or events. prepaid rent. although some exceptions exist.Gleim 2015 | Part 1 | Online MCQs | Unit 001 assets and liabilities using attributes other than liquidation value. Answer (D) is correct. The success of a company’s operations for a given amount of time. debt. 5Page www. Proprietary point of view. Contingent liabilities until the violation is corrected. Current liabilities unless the creditor has waived the right to demand repayment for more than 1 year from the balance sheet date. Question: 14 When classifying assets as current and noncurrent for reporting purposes. D. D. C. Long-term liabilities. B. Long-term obligations that are or will become callable by the creditor because of the debtor’s violation of a provision of the debt agreement at the balance sheet date normally are classified as current liabilities. The equation is based on the proprietary theory. Current liabilities unless the debtor goes bankrupt. C. Equity in an enterprise is what remains after the economic obligations of the enterprise are deducted from its economic resources. D. Question: 13 Long-term obligations that are or will become callable by the creditor because of the debtor’s violation of a provision of the debt agreement at the balance sheet date should be classified as A. C. B.facebook. the debt need not be reclassified if the violation will be cured within a specified grace period or if the creditor formally waives or subsequently loses the right to demand repayment for a period of more than a year from the balance sheet date (also.com/CMA. B.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 12 The accounting equation (assets – liabilities = equity) reflects the A. A. However. Enterprise theory. Answer (C) is correct. Entity point of view. The time period by which current assets are distinguished from noncurrent assets is determined by the seasonal nature of the business. Answer (D) is correct. Prepayments for items such as insurance or rent are included in an “other assets” group rather than as current assets as they will ultimately be expensed. Answer (C) is correct. Fund theory. Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the normal operating cycle. The amounts at which current assets are carried and reported must reflect realizable cash values.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . reclassification is not required if the debtor expects and has the ability to refinance the obligation on a long-term basis). or consumed during the longer of 1 year or the normal operating cycle of the business. C.Gleim 2015 | Part 1 | Online MCQs | Unit 001 For financial reporting purposes. A. Is reduced by the proportionate change in the working capital ratio. 6Page www. These criteria are that the agreement does not expire within 1 year. B. Classified as a long-term liability on the statement of financial position at December 31. Classified as a current liability on the statement of financial position at December 31. or by entering into a financing agreement that meets certain criteria. Year 1. Short-term obligations expected to be refinanced should be reported as current liabilities unless the firm both plans to refinance and has the ability to refinance the debt on a long-term basis. D. May exceed the amount available for refinancing under the agreement.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . This debt is to be A. By January 10. Retired as of December 31. The ability to consummate the refinancing may be demonstrated by a post-balance-sheet-date issuance of a long-term obligation or equity securities. and the lender is financially capable of honoring the agreement. Year 2. Year 1.com/CMA. Year 1. Year 1. Considered off-balance-sheet debt. current assets consist of cash and other assets or resources expected to be realized in cash. Question: 16 Lister Company intends to refinance a portion of its short-term debt in Year 2 and is negotiating a long-term financing agreement with a local bank.facebook. it is noncancelable by the lender. If an enterprise intends to refinance short-term obligations on a long-term basis and demonstrates an ability to consummate the refinancing. Answer (B) is correct. sold. Is zero unless the refinancing has occurred by year end. The ability to refinance on a long-term basis is evidenced by a post-balance-sheet date issuance of long-term debt or a financing arrangement that will clearly permit long-term refinancing. Abernathy intends to refinance this debt with new long-term mortgage bonds and has entered into a financing agreement that clearly demonstrates its ability to consummate the refinancing. Answer (B) is correct. Year 2. no violation of the agreement exists at the balance sheet date. B. D. This agreement would be noncancelable and would extend for a period of 2 years. Question: 15 Abernathy Corporation uses a calendar year for financial and tax reporting purposes and has $100 million of mortgage bonds due on January 15. The amount of short-term debt that Lister Company can exclude from its statement of financial position at December 31. C. Depends on the demonstrated ability to consummate the refinancing. the obligations should be excluded from current liabilities and classified as noncurrent. The advance payment should be reported in the manufacturer’s current-year statement of financial position as a(n) A. B. B. Accordingly. financial flexibility. timing. the settlement of which is expected to result in an outflow of resources embodying economic benefits.facebook. usually called deferred (or unearned) revenue or deferred (or unearned) income. The average customer stays with the entity 8 years. Customers’ deposits must be returned or credited to 7Page www. creditors. Evaluate economic resources and obligations of a firm. Answer (D) is correct. The statement of financial position. Evaluate changes in the ownership equity of a firm. and uncertainty of prospective net cash inflows of a firm. C. and the receipt of future economic benefits is not sufficiently certain to justify income recognition. Current liability. Answer (B) is correct. B. Accrued revenue. C. D. D. the statement of financial position does not purport to show the value of a business. Other revenue. Because the manufacturer must deliver the goods within the next year.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 17 A statement of financial position is intended to help investors and creditors A. Noncurrent liability. and risk. Evaluate economic performance of a firm. How should these deposits be shown on the financial statements? A.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . or balance sheet. Liability. but it enables investors. Paid-in capital. this liability is current. provides information about an entity’s resource structure (assets) and financing structure (liabilities and equity) at a moment in time. the receipt of cash in anticipation of goods to be delivered or services to be performed must be recognized as a liability. According to the FASB’s Conceptual Framework. Contra asset amount. and other users to make their own estimates of value. Operating revenue. Question: 18 A manufacturer receives an advance payment for special-order goods that are to be manufactured and delivered within the next year. Answer (A) is correct. Liabilities are present obligations arising from past events. The entity has not substantially completed what it must do to be entitled to the benefits of the advance payment. Assess the amount. C. profitability. D.com/CMA. Question: 19 A cable television entity receives deposits from customers that are refunded when service is terminated. It helps users to assess liquidity. the entity records current liabilities of $30. C. Current liabilities include those obligations that are expected to be satisfied by the (1) payment of cash. B.000. reports an entity’s financial position at a moment in time. Answer (C) is correct. Accordingly. Current liabilities of $30. It is to be converted into common stock before maturity. B. noncurrent liabilities of $100. Noncurrent liabilities of $130.000.Gleim 2015 | Part 1 | Online MCQs | Unit 001 their accounts.000 at year end. D. How should these liabilities be recorded in the balance sheet? A. The loan was refinanced through issuance of long-term bonds after year end but before issuance of financial statements. The deposits should therefore be recorded as liabilities.000. financial flexibility. C. and risk. A balance sheet can be used to help users assess liquidity.000.000. The statement of financial position.000 and a short-term construction loan in the amount of $100. Computing rates of return. or (3) creation of new current liabilities within 1 year from the 8Page www. also known as the balance sheet. Assessing liquidity and financial flexibility. Answer (B) is correct. D. (The ability to refinance on a longterm basis has been demonstrated. It is therefore not useful for assessing past performance for a period of time.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 and noncurrent liabilities of $100. Short-term debt that is refinanced by a post-balance-sheet-date issuance of long-term debt should be classified as noncurrent. the short-term construction loan is classified as noncurrent. Current liabilities of $130.facebook. with required footnote disclosure of the refinancing of the loan.com/CMA. (2) use of current assets other than cash. Accounts payable are properly classified as current liabilities because they are for items entering into the operating cycle. Current liabilities of $130. Question: 21 A statement of financial position provides a basis for all of the following except A. Question: 20 A company has outstanding accounts payable of $30.000. Evaluating capital structure.) Thus. B. Answer (D) is correct. Question: 22 Noncurrent debt should be included in the current section of the statement of financial position if A. It matures within the year and will be retired through the use of current assets. Determining profitability and assessing past performance. 000 C. $700.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . The total of the assets reported is therefore $600. Answer (C) is correct. Management plans to refinance it within the year. The difference between the price paid to acquire the treasury stock and the fair value should be recorded as A. Shareholders’ equity. C. The current operating cycle. but treasury stock is an equity item. whichever is longer. Question: 23 Dixon Company has the following items recorded on its financial records: Available-for-sale securities $200.000 Question: 24 A receivable classified as current on the statement of financial position is expected to be collected within A. sold.000 ($200. B. C. $500. The current operating cycle or 1 year. if longer).000 Prepaid expenses 400. Question: 25A company pays more than the fair value to acquire treasury stock. $600. C.000 The total amount of the above items to be shown as assets on Dixon’s statement of financial position is A. A bond retirement fund has been set up for use in its scheduled retirement during the next year. D. $400. 9Page www. whichever is shorter.000 + $400.com/CMA. The operating cycle is the time between the acquisition of materials or services and the final cash realization from the earning process.000). A liability. whichever is longer. 1 year. Current assets are reasonably expected to be realized in cash. D. The current operating cycle or 1 year.000 B. An asset.facebook.000 Answer (C) is correct.000 Treasury stock 100. D.Gleim 2015 | Part 1 | Online MCQs | Unit 001 balance sheet date (or operating cycle. B. Available-for-sale securities (an investment) and prepaid expenses are assets. or consumed during the normal operating cycle of the business or within 1 year. Trading securities are expected to be sold in the near term. available-for-sale. and prepaid expenses.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Answer (C) is correct. Treasury stock is reported on the balance sheet as a subtraction from equity. Question: 26 The purchase of treasury stock is recorded on the statement of financial position as a(n) A. Current assets include. Rice’s liabilities had increased to $94. $617. Apart from cash paid or received. Rice paid a $2. Purchased goodwill. $598.000 from issuance of stock + $25.000 cash dividend. D. An expense.facebook.000. in descending order of liquidity. a firm cannot recognize assets.000.com/CMA.000 cash dividend). On December 15.000 net income – $2. Year 6. and held-tomaturity securities.000 ($500. inventories. No additional activities affected equity in Year 6.000). total assets should be reported at A.000 B. cash and cash equivalents. Intangible assets. B. was incorporated on January 1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . B.000 from the issuance of stock and borrowed funds of $75. receivables.000 + $94. net income was $25.000 C. Answer (D) is correct. During the first year of operations. $600. gains. Increase in assets. C. D. C. Increase in shareholders’ equity. At December 31.000 ($523. Total assets equal the sum of total liabilities and equity. and equity amounted to $523. with $500. Question: 27 Current assets are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. so they are likely to be classified as current. Total liabilities were $94. Organizational costs. Total assets are therefore $617. certain individual trading. liabilities. The purchase of treasury stock is recorded on the statement of financial position as a decrease in shareholders’ equity. Trading securities. Decrease in liabilities. Question: 28 Rice Co. Year 6.000.000 at year end. 11Page www. or losses from transactions in its own stock. Current assets most likely include A. Decrease in shareholders’ equity. In Rice’s December 31. Year 6 balance sheet. D. Answer (D) is correct.000 Answer (C) is correct. Current portion of long-term debt. sales.Gleim 2015 | Part 1 | Online MCQs | Unit 001 D.. 11Page www. however. Question: 30 Which one of the following is not a form of off-balance-sheet financing? A.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Capital leases (those similar to a purchase) must be capitalized and reported as liabilities.g. Answer (A) is correct. D. administrative expenses. Transfers of accounts receivable without recourse. B. Dividend revenue. Amounts due in future years under operating leases. instead. and selling expenses. Answer (B) is correct.S. is classified under other revenues. D. Foreign currency translations. B. special purpose entities. cost of goods sold. C. Amounts due in future years under capital leases. cash dividends received are considered an operating cash flow. operating leases are not capitalized. Off-balance-sheet financing takes four principal forms: investments in unconsolidated subsidiaries. e. The most common example is the amount due in future years on operating leases. only the periodic payments of rent are reported when actually paid.000 Question: 29 Careful reading of an annual report will reveal that off-balance-sheet debt includes A. Cost of goods sold. C. Sale of receivables. all of the following are included in the operating section except A. Dividend revenue. Administrative and selling expenses. Under U. Sales. $692. Answer (C) is correct. Question: 31 In a multiple-step income statement for a retail company. C. Special purpose entities. B. GAAP. Operating leases. The operating section of a retailer’s income statement includes all revenues and costs necessary for the operation of the retail establishment. and factoring receivables with recourse. Off-balance-sheet debt includes any type of liability for which the company is responsible but that does not appear on the balance sheet. In a statement of cash flows.com/CMA.facebook. operating leases. D. Answer (D) is correct. 12Page www. combines all expenses and losses. and subtracts the latter from the former in a “single step” to arrive at net income. D. disposal of a business segment. B. strikes. A single-step income statement combines all revenues and gains. Gross profit. B. Certain items ordinarily are not to be treated as extraordinary gains and losses. Answer (A) is correct. A write-down of inventory is therefore included in the computation of income from continuing operations. being the difference between sales revenue and cost of goods sold.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 32 When reporting extraordinary items. All extraordinary gains or losses that occur in a period are summarized as total gains and total losses. Each item is presented as an unusual item within income from continuing operations. Rather. Unusual loss from a write-down of inventory. B. translation of foreign currency amounts.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . A. Discontinued operations. Question: 34 Which one of the following would be shown on a multiple-step income statement but not on a single-step income statement? A. Each item (net of tax) is presented on the face of the income statement separately as a component of net income for the period. D.com/CMA. Gross profit. and accruals on long-term contracts. C. Question: 33 Which one of the following items is included in the determination of income from continuing operations? A. Loss from discontinued operations. sale of productive assets. does not appear on a single-step income statement. D. C. Answer (B) is correct. Net income from continuing operations. Extraordinary loss. Extraordinary gain. Cumulative effect of a change in an accounting principle. then offset to present the net extraordinary gain or loss. C. they are included in the determination of income from continuing operations. Each item is presented exclusive of any related income tax. Extraordinary items are reported net of tax after discontinued operations. These gains and losses include those from writedowns of receivables and inventories.facebook. Revenues occur in the course of ordinary activities. Losses are extraordinary charges to income. Gains may or may not occur in the course of ordinary activities. C. The statement of retained earnings is a basic financial statement. a fully depreciated asset was sold in the current year at a material gain. dividends. As an adjustment to prior periods’ depreciation on the statement of changes in equity. Together with the income statement. quasireorganizations. Prior-period adjustments. whereas expenses are ordinary charges to income. Before-tax income or loss and dividends paid or declared. the gain on the sale of a plant asset is not an operating item and should be classified in an income statement with separate operating and nonoperating sections in the other revenues and gains section. The final figure is ending retained earnings. Thus. Dividends declared.facebook. Question: 36 Because of inexact estimates of the service life and the residual value of a plant asset. Answer (C) is correct. 13Page www. The statement of retained earnings consists of beginning retained earnings adjusted for any prior period adjustment (net of tax).. Answer (A) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 35 The major segments of the statement of retained earnings for a period are A. In the extraordinary item section of the current income statement. C. Net income or loss. For example. e. This gain most likely should be reported A. B. gains may occur from the sale of noncurrent assets.g. B. and dividends paid. with further adjustments for income (loss). In the other revenues and gains section of the current income statement. Losses are expenses that may or may not arise in the course of ordinary activities. income tax.com/CMA. D. and changes due to treasury stock transactions. Question: 37 In recording transactions. Answer (D) is correct. and in certain other rare adjustments. D. and dividends paid or declared. C. prior-period adjustments.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . which of the following best describes the relation between expenses and losses? A. Losses are material items. As part of sales revenue on the current income statement. the statement of retained earnings is meant to broadly reflect the results of operations. whereas expenses are immaterial items. before-tax income or loss. B. prior period adjustments. Losses are similar to expenses but generally do not occur in ordinary activities.g. interest. and tax. Question: 39Assume that employees confessed to a $500. If the corporate tax rate is 50%. the level of sales revenue for the year just ended was A. 14Page www.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Expenses are outflow or other usage of assets or incurrences of liability (or both) from activities that qualify as ongoing major or central operations. For example. general and administrative expenses of $50. whereas losses can never be prevented. 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. income before tax must have been $20 [$10 net income ÷ (1. Answer (A) is correct. a sale of plant assets). Accordingly. G&A expenses. Included in cost of goods sold because the goods are not on hand. losses on inventory shrinkage are ordinary. the loss would be recognized as a write-off of accounts receivable.g. B.0 – 0. and the gross margin (sales – cost of sales) must have been $90 ($40 income before interest and tax + $50 G&A expenses)..Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Recorded directly to retained earnings because it is not an income-producing item. they may result from nonreciprocal transactions (e.. Expenses can always be prevented.facebook. C. reciprocal transactions (e. and it would cause the least amount of attention.com/CMA. income before interest and tax must have been $40 ($20 income before tax + $20 interest). and net income of $10 for the year just ended. If the gross margin is 50% of sales. C.5 tax rate)]. $90 $135 $150 $180 Answer (D) is correct. interest expense of $20. B. Because they cannot pay. theft).000 inventory theft but are not able to make restitution. sales equals $180 ($90 gross margin ÷ 0.5). Losses may or may not occur in the course of ordinary activities. For example. or from holding assets or liabilities. losses may result from the sale of noncurrent assets or from natural disasters. How should this material fraud be shown in the company’s financial statements? A. Given a 50% tax rate. Question: 38 An entity has a 50% gross margin. D. Net income equals sales minus cost of sales. D. D. Losses are typically displayed separately. 000 ($1.000 D.000 Raw materials 105. Cost of goods sold equals cost of goods manufactured (COGM) adjusted for the change in finished goods. $49.000 of raw materials were purchased.000 OH + $220.190 The cost of goods manufactured by Madengrad for the current fiscal year is A. B. Raw materials used equals $255.000 Answer (A) is correct.000 RM + $600.890 C. and COGS equals $1. Madengrad’s cost of goods manufactured can be calculated as follows: 15Page www.000 purchases – $20.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .com/CMA.000 The following transactions and events occurred during the current year:  $300.480.000 Year-end finished goods inventory 58.000 COGM + $90.650.000 BFG – $260.000 BWIP – $175.000 Question: 41 The profit and loss statement of Madengrad Mining includes the following information for the current fiscal year: Sales $160.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 40 An entity had the following opening and closing inventory balances during the current year: 1/1 12/31 Finished goods $ 90.000 $260.  $600.000 EFG). and production overhead.facebook. $110.000 DL + $750. adjusted for the change in work-in-progress.000 Gross profit 48. Thus.  $750.000 ($105. COGM equals the sum of raw materials used.000 were returned because of defects.610. direct labor costs.000 of direct labor costs were incurred.000 BI + $300.500. The cost of goods sold for the current year ended December 31 would be A. of which $20.000 EWIP). COGM equals $1. $46.000 175.480.000 of production overhead costs were incurred. $1.110 B. $1.000 EI).300 Opening finished goods inventory 60.000 ($255. $1.000 Work-in-progress 220.000 returns – $130.000 C.000 130.650.650.110 Answer (C) is correct. $1. Gleim 2015 | Part 1 | Online MCQs | Unit 001 Sales Less: gross profit Cost of goods sold Add: ending finished goods Goods available for sale $160,000 (48,000) $112,000 58,300 $170,300 Less: beginning finished goods (60,190) Cost of goods manufactured $110,110 D. $113,890 Question: 42 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 used during the month, the materials purchased during the month cost A. $101,400 B. $127,650 C. $130,150 Answer (C) is correct. Purchases equals usage adjusted for the inventory change. Hence, purchases equals $130,150 ($128,900 used – $27,500 BI + $28,750 EI). D. $157,650 Question: 43 Given the following data for Scurry Company, what is the cost of goods sold? Beginning inventory of finished goods $100,000 Cost of goods manufactured 700,000 Ending inventory of finished goods 200,000 Beginning work-in-process inventory 300,000 Ending work-in-process inventory 50,000 A. $500,000 B. $600,000 Answer (B) is correct. Scurry’s cost of goods sold can be calculated as follows: Beginning inventory of finished goods $ 100,000 16Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 Add: cost of goods manufactured 700,000 Less: ending inventory of finished goods (200,000) Cost of goods sold $ 600,000 C. $800,000 D. $950,000 Question: 44The following information was taken from last year’s accounting records of a manufacturing company. Inventory January 1 December 31 Raw materials $38,000 $ 45,000 Work-in-process 21,000 10,000 Finished goods 78,000 107,000 Other information Direct labor $236,000 Shipping costs on outgoing orders 6,500 Factory rent 59,000 Factory depreciation 18,700 Advertising expense 24,900 Net purchases of raw materials 115,000 Corporate administrative salaries 178,000 Material handling costs 35,800 On the basis of this information, the company’s cost of goods manufactured and cost of goods sold are A. $460,500 and $489,500, respectively. B. $468,500 and $439,500, respectively. Answer (B) is correct. This solution requires a series of computations. Beginning raw materials $ 38,000 Add: net purchases raw materials $115,000 Materials available $153,000 Less: ending materials Materials used in production 17Page (45,000) $108,000 www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 Direct labor 236,000 Manufacturing overhead Factory rent $59,000 Factory depreciation 18,700 Material handling costs 35,800 Total Manufacturing overhead Total manufacturing costs Add: beginning work-in-process Less: ending work-in-process Costs of Goods Manufactured Add: beginning finished goods 113,500 $457,500 21,000 (10,000) $468,500 78,000 Less: ending finished goods (107,000) Cost of Goods Sold $439,500 C. $468,500 and $470,900, respectively. D. $646,500 and $617,500, respectively. Question: 45 Comprehensive income is best defined as A. Net income excluding extraordinary gains and losses. B. The change in net assets for the period including contributions by owners and distributions to owners. C. Total revenues minus total expenses. D. The change in net assets for the period excluding owner transactions. Answer (D) is correct. Comprehensive income includes all changes in equity of a business entity except those changes resulting from investments by owners and distributions to owners. Comprehensive income includes two major categories: net income and other comprehensive income (OCI). Net income includes the results of operations classified as income from continuing operations, discontinued operations, and extraordinary items. Components of comprehensive income not included in the determination of net income are included in OCI, for example, unrealized gains and losses on available-for-sale securities (except those that are hedged items 18Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Answer (A) is correct.000 $(24. C. B. The company has an effective income tax rate of 40%. D. Statement of financial position.000) Extraordinary loss due to earthquake 19Page (90.0 – . B. The results of operations for a period of time are reported in the income statement (statement of earnings) on the accrual basis using an approach oriented to historical transactions.000) (54. Question: 47 The following information pertains to Maynard Corporation’s income statement for the 12 months just ended. C. Discontinued operations $(70.Gleim 2015 | Part 1 | Online MCQs | Unit 001 in a fair value hedge).000) (1.000) Answer (D) is correct. Statement of retained earnings.000 (42. $36.com/CMA. D. Question: 46 The financial statement that provides a summary of the firm’s operations for a period of time is the A. Maynard’s net income for the year is calculated as follows: Income Times: Statement Tax As Item Effect Reported Income from continuing operations (net of tax) Discontinued operations $(70.000 Maynard’s net income for the year is A.40) (1.facebook.000 Cumulative effect of change in accounting principle 60. Income statement.0 – $ 72.000 $8. Statement of shareholders’ equity.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000) Extraordinary loss due to earthquake (90.000) www.000) Income from continuing operations (net of tax) 72.000 $12. II. III and IV only. Answer (A) is correct. C. qualifying. OCI includes (1) unrealized gains and losses on available-for-sale securities (except those that are hedged items in a fair value hedge). D. Prior service cost adjustment resulting from amendment of a defined benefit pension plan. I and IV only. C. In two separate but consecutive financial statements A. Under existing accounting standards. including foreign currency translations.facebook. D.com/CMA. In one continuous financial statement II.40) Net income Question: 48 $(24. (3) certain amounts associated with recognition of the funded status of postretirement defined benefit plans. If an entity that presents a full set of financial statements has items of other comprehensive income (OCI). Question: 49 Which of the following are acceptable formats for reporting comprehensive income? I. B. and effective as cash flow hedges. Comprehensive income is divided into net income and other comprehensive income (OCI). (2) gains and losses on derivatives designated. it must present comprehensive income either (1) in a single continuous statement of comprehensive income or (2) in two separate but consecutive statements (an income statement and a statement of OCI). and III only.Gleim 2015 | Part 1 | Online MCQs | Unit 001 . Answer (D) is correct. 21Page www. I. B. Foreign currency translation adjustments.000) Which of the following items is not classified as other comprehensive income (OCI)? A. In a separate statement of net income IV. and (4) certain foreign currency items. I and II only. Extraordinary gains from extinguishment of debt. In a statement of changes in equity III.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Unrealized gains for the year on available-for-sale marketable securities. Crawford uses historical cost to value its land. 21Page www.000 ($800. Question: 52 All of the following are defined as elements of an income statement except A. D. Answer (B) is correct. Crawford uses a multiple-step approach for its income statement. material transactions that are both unusual in nature and infrequent in occurrence in the environment in which the company operates are classified as extraordinary items.000 COGS – $90.000 Operating expenses 90.000 Question: 51 Crawford Company is researching a future change to IFRS. Extraordinary items are reported individually in a separate section in the income statement. C.000 operating expenses).000) are included in other comprehensive income.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . no item is classified as extraordinary.S. net of tax 30. $140. Under IFRS. B. comprehensive income is $140. $30.facebook. Crawford’s current-year income statement includes an extraordinary loss. Shareholders’ equity.000 Answer (C) is correct. $110.000 Unrealized holding gain on available-for-sale securities.com/CMA. net of tax.000 C. Thus.000 + $30.000 B.S. buildings. D.000 What amount should the company report as comprehensive income as of December 31? A. and therefore it would be recorded in the normal part of the income statement.000 ($110. B.000 sales revenue – $600. Expenses. Crawford values its merchandise inventory using average cost.000 Cost of goods sold 600. $200. Answer (D) is correct. Comprehensive income includes net income and other comprehensive income. GAAP is required to be changed as a result of adopting IFRS? A. GAAP. Under U.000). Which one of the following items reported on Crawford’s income statement under U. Net income equals $110.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 50 A company reports the following information as of December 31: Sales revenue $800. Unrealized holding gains on available-for-sale securities ($30. and intangible assets even though the value of the land and building are greater than book value. The disclosure that management does not intend to distribute assets. Do not include the effect of a mistake in the application of accounting principles. Question: 54 An appropriation of retained earnings by the board of directors of a corporation for bonded indebtedness will result in A. The appropriation of retained earnings is a transfer from one retained earnings account to another. C. A decrease in the total amount of retained earnings presented on the balance sheet.facebook. as this is accounted for as a change in accounting principle rather than as a prior-period adjustment. equal to the amount of the appropriation. Question: 53 Items reported as prior-period adjustments A. A decrease in cash on the balance sheet with an equal increase in the investment and funds section of the balance sheet. Answer (D) is correct. 22Page www. The establishment of a sinking fund to retire bonds when they mature. Answer (D) is correct. D. C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Prior Period Adjustments. Do not require further disclosure in the body of the financial statements. According to SFAS 16. B. Revenues. B. Gains and losses. D. Are reflected as adjustments of the opening balance of the retained earnings of the earliest period presented. D.com/CMA. C. Prior-period adjustments are made for the correction of errors. The only practical effect is to decrease the amount of retained earnings available for dividends.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Equity of a business entity (or the net assets of a nonbusiness organization) is a residual amount that reflects the basic accounting equation: assets minus liabilities equals equity (or net assets). Such errors do not affect the income statement for the current period. It is reported on the statement of financial position. An appropriation of retained earnings is purely for disclosure purposes. in the form of dividends. Do not affect the presentation of prior-period comparative financial statements. the effects of errors on priorperiod financial statements are reported as adjustments to beginning retained earnings for the earliest period presented in the retained earnings statement. A statement of changes in equity may include. (2) comprehensive income. (4) accumulated OCI (but the components of OCI are presented in another statement). Question: 56 The statement of shareholders’ equity shows a A. a holder of common stock with a preemptive right may share proportionately in all of the following except A. Common stock does not have the right to accumulate unpaid dividends. Corporate assets upon liquidation. The vote for directors. B. C. Reconciliation of net income to net operating cash flow. This right is often attached to preferred stock. additional paid-in capital. Reduction of additional paid-in-capital. (5) common stock. Question: 57 Unless the shares are specifically restricted. In the balance sheet. The statement of shareholders’ equity (changes in equity) presents a reconciliation in columnar format of the beginning and ending balances in the various shareholders’ equity accounts. Unallocated reduction of equity. Answer (C) is correct. Reduction of retained earnings.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 55 When treasury stock is accounted for at cost.com/CMA.facebook. C. Answer (A) is correct. (3) retained earnings. treasury stock recorded at cost is subtracted from the total of the capital stock balances. and (6) additional paid-in capital. New issues of stock of the same class. C. Treasury stock is a corporation’s own stock that has been reacquired but not retired. Answer (D) is correct. Reconciliation of the beginning and ending balances in shareholders’ equity accounts. for example. B. retained earnings. Computation of the number of shares outstanding used for earnings per share calculations. and accumulated other comprehensive income. D. B. Cumulative dividends. columns for (1) totals.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . D. Asset. 23Page www. Listing of all shareholders’ equity accounts and their corresponding dollar amounts. D. the cost is reported on the balance sheet as a(n) A. 000 What amount should Zinc report as total equity in its December 31.000 common stock at par + $800. the preferred stockholders give up the right to vote.750. Year 6.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 58 Which one of the following statements is correct regarding the effect preferred stock has on a company? A.000 800.000 unrealized loss on available-for-sale securities).000 Retained earnings: unappropriated 200. $1. The firm’s after-tax profits are shared equally by common and preferred shareholders.facebook. Answer (C) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 retained earnings).000 50. balance sheet? A.000 ($600. but payment of preferred dividends.000 ($50. Nonpayment of preferred dividends places the firm in default. total equity equals 24Page www. preferred stock is a hybrid of debt and equity.com/CMA.000 Retained earnings: appropriated for uninsured earthquake losses 150. Because total debits equal $70.000 Net unrealized holding loss on available-for-sale securities 20.’s adjusted trial balance at December 31. In exchange for these preferences.000 Answer (A) is correct. Control of the firm is now shared by the common and preferred shareholders. Preferred shareholders’ claims take precedence over the claims of common shareholders in the event of liquidation. $3 par Additional paid-in capital Treasury stock. as does nonpayment of interest on debt Zinc Co. a component of equity. Consequently. with preferred shareholders having greater control. Total credits to equity equal $1.680. Year 6. and the unrealized holding loss on available-for-sale securities is debited to other comprehensive income. B. includes the following account balances: Common stock. unlike bond interest is not mandatory.000 cost of treasury stock + $20. C. Preferred stockholders have preference over common stockholders with respect to dividend and liquidation rights.000 additional paid-in capital + $350. D. The treasury stock recorded at cost is subtracted from (debited to) total equity. at cost Question: 59 $600. Absorb a fire loss when a company is self-insured. This stock originally sold for $28 per share.000 – $70. Answer (D) is correct. C.000 ($1.820. $1. e.Gleim 2015 | Part 1 | Online MCQs | Unit 001 $1. It is an asset representing shares that can be sold in the future or otherwise issued in stock option plans or in effectuating business combinations.facebook. However. D. Answer (D) is correct. It is reflected in shareholders’ equity as a contra account. It is unretired but no longer outstanding. Smooth periodic income. B.000). C. B.000 D.com/CMA. C.750. Tyler used the cost method to record this transaction. Transfers to and from accounts properly designated as appropriated retained earnings (such as general purpose contingency reserves or provisions for replacement costs of fixed assets) are always excluded from the determination of net income. Question: 61 Which one of the following statements regarding treasury stock is correct? A. Restrict earnings available for dividends. common stock or preferred stock. D. $1.000 shares of its own $5 par-value common stock for $25 per share. 25Page www. $1. yet it has all the rights of outstanding shares. B.g. Treasury stock recorded at cost is a reduction of total equity.. appropriation of retained earnings is permitted if it is displayed within the equity section and is clearly identified. Treasury stock and total shareholders’ equity. Additional paid-in capital and retained earnings.000 Question: 60 A retained earnings appropriation can be used to A. Provide for a contingent loss that is probable and reasonable. B.720. not to set aside assets. It is unable to participate in the liquidation proceeds of the firm but able to participate in regular cash dividend distributions as well as stock dividends and stock splits. The effect of the appropriation is to restrict the amount of retained earnings available for dividends.000 C. If the par-value method had been used rather than the cost method. which of the following accounts would show a different dollar amount? A. Question: 62 Tyler Corporation purchased 10.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Treasury stock recorded at par is a direct reduction of the pertinent contributed capital balance.680.780. Paid-in capital from treasury stock and retained earnings. Garland should recognize A. The market value of this investment was $150.000 on December 1. The Marlowe shares were originally purchased by Garland for $50 per share. Noble Inc. a public company. The investment in Multon stock had an original cost of $100.facebook.000 Answer (B) is correct.000 on December 31. A gain of $25 per share to be distributed. the property is remeasured at its fair value as of the declaration date. the market value was $75 per share. the property is remeasured at its fair value as of the declaration date ($75 – $50 = $25). C. Answer (D) is correct. This amount is then reclassified from retained earnings to property dividends payable.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . The amount to be shown on Noble’s statement of financial position at December 31 as property dividends payable would be A.000 B.000 Question: 64 Garland Corporation. No gain or loss. Question: 63 On December 1. on the date the dividend was declared.com/CMA. treasury stock would only have been debited for the par value of the shares. An appropriate gain or loss based on the market value on the date of distribution. A loss of $25 per share to be distributed. for every 10 shares of its common stock outstanding. had the par-value method been used. had the par-value method been used. C. As a result of this declaration. D. $160.. $175. has declared a property dividend of one share of its investment in Marlowe. Under the cost method.000 when acquired 2 years ago.000 D. and $160. The dividend was payable on January 5.Gleim 2015 | Part 1 | Online MCQs | Unit 001 D.’s Board of Directors declared a property dividend. 26Page www. payable in stock held in the Multon Company. the treasury stock account was debited for the full market price of the shares. the additional paid-in capital account was not affected.000 on January 5. Inc. When a property dividend is declared. additional paid-in capital would have been debited for the excess of the market price of the shares over par. $100. $175. When a property dividend is declared. Under the cost method. Answer (B) is correct. Additional paid-in capital and treasury stock. $150. B. $15. $90. of which 100. On November 1. The par-value information appearing in the shareholder’s equity section of Grand’s statement of financial position at December 31 will be A. Cash dividends are only paid on outstanding shares. $600. B. When preparing its statement of cash flows for the year. As a result of the 2-for-1 stock split. B. Net income for this time period was $40. Stock dividends distributable are reported in equity.10 per share to be paid on January 2.000 Answer (C) is correct.000. the Board of Directors declared a cash dividend of $. On the date of the declaration. the par value of Grand’s shares is halved to $5. $100. The Board of Directors of Grand declared a 2-for-1 stock split on November 30 to be issued on December 30. $15 D. the Board has amended the articles of incorporation to allow for a proportional increase in the number of authorized shares.000 D. $12.000.000 × $. and no fractional shares were to be issued. The amount of total dividends declared during the year can be calculated as follows: 27Page www. not current liabilities.facebook. The total amount of these declarations to be shown as current liabilities on Fox’s statement of financial position as of December 31 is A. $20. of which 2.000 throughout the year.000 shares are held as treasury shares.000 C. the remainder are held by the company shareholders. Bertram’s statement of financial position indicated that the dividends payable account had decreased by $5. Thus. $5 Answer (A) is correct.000 shares of common stock authorized.000. the stock was selling for $10 a share. $540.000.000 B.000 in retained earnings at the beginning of the year and of $125.000 C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 at the end of the year. The stock was selling for $30 per share on the date of declaration.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 65 Grand Corporation has 10. The amount of the stock dividend was $8. $10 C. At the same time. In addition.000 shares of $10 par-value stock authorized. the dividend payable at December 31 is $90. Bertram should show cash paid for dividends as A. despite the fact that both cash dividends and a stock dividend were declared.000 Question: 67 Bertram Company had a balance of $100. $30 Question: 66 Fox Company has 1.com/CMA.000 shares are issued and outstanding. the Board declared a 5% stock dividend to be issued on December 31.10).000 (900.000.000 Answer (A) is correct. 000 Cash dividends declared during the year Cash paid for dividends during the year 7.000 Ending retained earnings (125. each shareholder’s proportionate interest in the company and total book value remain unchanged.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Beginning retained earnings $100. D. 28Page Current liability.000).facebook. Increase Decrease D. $5.000 ($15.com/CMA. Increase No change Question: 69 An undistributed stock dividend declared by the Board of Directors should be reported as a(n) A.000 $12.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . The amount of cash dividends paid during the year can be calculated as follows: Decrease in the cash dividends payable account during the period $ 5. www. Footnote to the financial statements. Long-term liability. Decrease No change Answer (B) is correct.000 Question: 68 How would a stock split affect the par value of the stock and the company’s shareholders’ equity? Par Value Shareholders’ Equity A. Item in the shareholders’ equity section.000 – $8. C. the amount of cash dividends declared this year is $7. making it more attractive to investors.000) Dividends declared during the year $ 15. C.000 Since $8.000 NOTE: Stock dividends declared does not affect the dividends payable account. Decrease Increase B. B.000 is the amount of stock dividends declared. A stock split reduces the par value of the stock and increases the number of shares outstanding. D.000 Net income for the year 40. As with a stock dividend. does not want to distribute capital at this time. Under a stock dividend. Answer (C) is correct. D. Declaration of a stock dividend. B. Underhall is planning a new stock issue in the near future and would like to stimulate interest in the company. Inc. The Board. The declaration and payment of a 10% stock dividend will result in a reduction of retained earnings at the fair market value of the stock. Stock dividend distributable is an item of shareholders’ equity and not a liability.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . retained earnings is debited for the fair value of the stock. Underhall is considering whether to offer a 2-for-1 common stock split or a 100% stock dividend on its common stock. In a stock split. the fair value of the additional shares issued is reclassified from retained earnings to capital stock and the difference to additional paid in capital. C. a portion of retained earnings is reclassified as common stock. At the declaration date of a 30% stock dividend. A 2-for-1 stock split doubles the number of shares outstanding. B. retained earnings is not affected. D. It will not decrease shareholders’ equity. Answer (B) is correct. The best reason for opting for the stock split is that A. B. Question: 72 Underhall. Answer (D) is correct. When a small stock dividend is declared (less than 20% to 25% of the previously outstanding common shares). C. The declaration of a cash dividend will have no effect on book value per share.facebook. Therefore. however. however. A quasi-reorganization. no journal entry is recorded and no retained earnings are reclassified. In accounting for a stock dividend. Question: 70 Which one of the following statements regarding dividends is correct? A. the carrying value of retained earnings will be reduced by the fair market value of the stock distributed. Question: 71 Which one of the following transactions does not affect the balance of retained earnings? A. It will not impair the company’s ability to pay dividends in the future.com/CMA.’s common stock is currently selling for $108 per share.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Answer (D) is correct. A stock dividend of 15% of the outstanding common shares results in a debit to retained earnings at the par value of the stock distributed. Since dividends are 29Page www. Declaration of a property dividend. Declaration of a stock split. Answer (A) is correct. C. activities. a stock dividend. D. C. In general.facebook. distributions to owners (cash dividends on a company’s own stock) are cash flows from financing. will impair the firm’s ability to pay dividends in the future. Interest paid on the company’s bonds. and fees. Evaluate a firm’s liquidity. solvency. However. C.Gleim 2015 | Part 1 | Online MCQs | Unit 001 restricted by the amount of available retained earnings.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Cash receipts from sales of goods and services. and from dividends on equity securities are from operating activities. to other suppliers and employees for other goods and services. D. the reasons for differences between income and cash receipts and payments. and financial flexibility. B. If used with information in the other financial statements. and to lenders for interest are also from operating activities. Determine a firm’s components of income from operations. the statement of cash flows should help users to assess the entity’s ability to generate positive future net cash flows (liquidity). to governments for taxes. B. and the cash and noncash aspects of the investing and financing activities. Interest received on investments in bonds.com/CMA. The impact on earnings per share will not be as great. not operating. Answer (D) is correct. Question: 73 When preparing the statement of cash flows. duties. its ability to meet obligations (solvency) and pay dividends. 31Page www. to employees for wages. D. the cash flows from transactions and other events that enter into the determination of income are to be classified as operating. The primary purpose of a statement of cash flows is to provide information about the cash receipts and payments of an entity during a period. fines. but not a stock split. Cash dividends paid on the company’s stock. from interest on loans. the need for external financing. companies are required to report separately as operating cash flows all of the following except A. Cash payments to suppliers for inventory. Evaluate a firm’s economic resources and obligations. Question: 74 A statement of cash flows is intended to help users of financial statements A. Cash collected from customers. The par value per share will remain unchanged. Determine whether insiders have sold or purchased the firm’s stock. other operating cash receipts. 31Page www. Reverse noncash charges deducted from net income. The minimum disclosures of operating cash flows under the direct method are cash collected from customers. Pronouncements covering the cash flow statement encourage the use of the indirect method. Direct method of reporting cash flows from operating activities includes disclosing the major classes of gross cash receipts and gross cash payments.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Indirect method adjusts ending retained earnings to reconcile it to net cash flows from operations. D. Question: 76 With respect to the content and form of the statement of cash flows. The indirect method begins with net income and then removes the effects of past deferrals of operating cash receipts and payments. the A. Ensure depreciation has been properly reported. D. interest paid. The FASB encourages use of the direct method of reporting major classes of operating cash receipts and payments. B. C. Information about all noncash financing and investing activities affecting recognized assets and liabilities shall be reported in related disclosures. All noncash transactions are excluded from the body of the statement of cash flows to avoid undue complexity and detraction from the objective of providing information about cash flows. Purchasing a building by giving a mortgage to the seller. B. Answer (C) is correct. income taxes paid. depreciation)..g. Question: 77 Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order to A. accruals of expected future operating cash receipts and payments. cash paid to employees and other suppliers of goods or services. Conversion of debt to equity. Reconciliation of the net income to net operating cash flow need not be presented when using the direct method. Answer (C) is correct. C. and net income items not affecting operating cash flows (e. Report all assets at gross carrying amount. C. Acquiring an asset through a capital lease. Operating and nonoperating cash flow information. but the indirect method may be used.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 75 Which of the following items is specifically included in the body of a statement of cash flows? A. B. and other operating cash payments. interest and dividends received. Answer (A) is correct.facebook.com/CMA. Financing activity. This transaction should be disclosed on Kelli’s statement of cash flows as a(n) A. Payment of interest on a mortgage note. the receipt of donor-restricted resources to be used for long-term purposes. Financing activities are defined to include the issuance of stock. Operating activity. Investing activity. Depreciation expense. Decrease in inventory. Decrease in prepaid insurance.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . the repayment of amounts borrowed. Purchase of treasury stock. However. the purchase of land and a building in exchange for a long-term note is an investing activity. D. C. C. Operating activities include all transactions and other events not classified as investing and financing activities. It is therefore classified as a noncash financing and investing activity. Operating activities include producing and delivering goods and providing services. Question: 80 Kelli Company acquired land by assuming a mortgage for the full acquisition cost. Answer (D) is correct. D. Sale of trademarks. The exchange of debt for a long-lived asset does not involve a cash flow. B. C. Calculate net carrying amount. Purchase of land and building in exchange for a long-term note. Answer (D) is correct. Question: 78 All of the following should be classified under the operating section in a statement of cash flows except a A.facebook. the issuance of debt. Purchase of equipment. D.com/CMA. B.Gleim 2015 | Part 1 | Online MCQs | Unit 001 D. Cash flows from such activities are usually included in the determination of net income. Noncash financing and investing activity. obtaining and paying for other resources obtained from creditors on long-term credit. Question: 79 Which one of the following transactions should be classified as a financing activity in a statement of cash flows? A. Answer (B) is correct. Because this transaction does not affect cash. 32Page www. it is reported in related disclosures of noncash investing and financing activities. B. the payment of dividends. treasury stock transactions (purchases or sales). C. Cash outflows to lenders for interest are cash from an operating. Thus. Financing activities include obtaining resources from owners and providing them with a return on.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 81 Which one of the following transactions should not be classified as a financing activity in the statement of cash flows? A. Increase in income tax payable. Answer (C) is correct. Cash inflows from the sale of bonds of other entities. Cash inflows from the sale of a manufacturing plant. Investing activities do not include acquiring and disposing of certain loans or other debt or equity instruments that are acquired specifically for resale. it is reported in the related disclosures section of the cash flow statement but is not a reconciling item. 33Page www. C. Decrease in prepaid insurance. Cash inflows from financing activities include proceeds from issuing equity instruments. sale. Investing activities include the lending of money and the collecting of those loans. Purchase of treasury stock. Cash outflows to lenders for interest. an income tax refund is an operating activity. The purchase of land and a building in exchange for a long-term note is a noncash investing activity that does not affect net income. Question: 82 All of the following should be classified as investing activities in the statement of cash flows except A. Decrease in inventory. or other disposition of assets (excluding inventory) that are held for or used in the production of goods or services. However. Issuance of common stock. Payment of dividends. and outlays to pay dividends. D. D. their investment. B. Cash outflows include outlays to reacquire the enterprise’s equity instruments. Cash outflows to purchase manufacturing equipment.com/CMA. Purchase of land and building in exchange for a long-term note. the acquisition. or other disposal of debt or equity instruments.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . activity.facebook. and the acquisition. B. Income tax refund. Question: 83 All of the following should be included in the reconciliation of net income to net operating cash flow in the statement of cash flows except a(n) A. and a return of. not an investing. Answer (D) is correct. Answer (C) is correct. B. D. C. sale. C. Proceeds from the sale of equipment for cash. Answer (A) is correct. 34Page www. general economic conditions. Because the issuer’s cash outflow exceeded interest expense. Interest paid (received) is a cash outflow (inflow) from an operating activity. In a reconciliation of net income to net cash flow from operating activities. Cash dividends paid. Amount. Purchase of treasury stock.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Company’s ability to pay dividends and meet obligations. B. The purchaser’s cash inflow is greater than interest income. the supply and demand for an enterprise’s inputs and outputs. D. B. it must deduct the difference (premium amortization) from net income in performing the reconciliation. so it must add the difference (premium amortization) to net income to arrive at net cash flow from operating activities. and other events. an item included in determining net cash flow from operating activities is the A. Question: 85 The information reported in the statement of cash flows should help investors.com/CMA. Financial reporting does not try to separate the impact of a particular management’s performance from the effects of prior management actions. Company’s ability to generate future cash flows. The lender (buyer) likewise reduces the bond premium (by a credit) for the excess of cash interest received over interest income recognized. Financial reporting provides information about an enterprise’s performance during a period when it was under the direction of a particular management but does not directly provide information about that management’s performance. Amortization of a bond premium.facebook. timing. creditors. C. Answer (D) is correct. The debtor (issuer) on a bond sold at a premium debits or reduces the bond premium for the excess of cash interest paid over interest expense recognized under the effective interest method. Management of the firm with respect to the efficient and profitable use of its resources. The statement of cash flows is not designed to provide information with respect to the efficient and profitable use of the firm’s resources. both the issuer of the bond and the purchaser must make an adjustment for the difference between the cash flow and the effect on net income. and others to assess all of the following except the A. price changes. D.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 84 In preparing a statement of cash flows. and uncertainty of prospective net cash inflows of a firm. Inc.500. The increase in accounts payable is added to net income because it indicates that an expense has been recorded but not paid.000.000 Dividends paid on preferred stock 400.000 Gain from cash sale of land 200.500. $4. net cash flow from operations is $4. B. Revenue.000 Answer (C) is correct.000 B.000). Additional information is as follows: Depreciation on fixed assets $1.000 The net cash provided by operating activities in the statement of cash flows for the year ended December 31 should be A. $4. The gain on the sale of land is an accrual-basis item affecting net income and thus should be subtracted. Net operating cash flow may be determined by adjusting net income.000 35Page www. Depreciation is a non-cash item and thus does not affect the cash flows.600. which one of the following items must be added back to net income? A. Thus. activities and do not require an adjustment.800.000 ($3. The indirect method begins with accrual-basis net income or the change in net assets and removes items that did not affect operating cash flow.600.000 for the year ended December 31.000.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 86 To calculate cash flows using the indirect method. Marketing expense.com/CMA. not operating.. This amount must be added back to net income because it decreased net income even though it had no cash effect. D. Question: 87 The net income for Cypress.500.000 – $200. Answer (C) is correct. The dividends paid on preferred stock are cash outflows from financing. $4.000 Increase in accounts payable 300.facebook. Depreciation is an expense not directly affecting cash flows that should be added back to net income.000 + $1. Interest income. was $3.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 + $300.000 C.200. Depreciation expense. C. D. $4. The company did not declare or pay dividends for fiscal Year 1. carrying amount of $7.000 on December  Sold a truck with a net 31. and $284. payable to shareholders of record on January 31. as a use or outflow of cash.05 per share on the 2. Source or inflow of funds of $5. although repayment of debt principal is a financing activity. Investing section. representing dividends.000. as a use or outflow of cash. and $284. C.facebook.000 in the operating section. Year 2. D. Fact Pattern: Royce Company had the following transactions during the fiscal year ended December 31. Question: 89  Paid interest to bondholders of $780.000 on December  Sold a truck with a net 31. Payment of interest on debt is considered a cash outflow from an operating activity. Year 2. carrying amount of $7.000 cash. reporting a  Royce’s board of directors declared dividends on December loss of $2.000 for $5.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . The company did not declare or pay dividends for fiscal Year 1.000 on December 31.05 per share on the 2.000 on December 31. of $. Addition of $2.000 cash. Financing section. Use or outflow of funds of $140.000 in the operating section for the $2.  The cash balance was $106.000. Year 1.8 million shares outstanding. 31.000 on December 31.000 on December 31. Royce Company uses the indirect method to prepare its Year 2 statement of cash flows.000 from the sale of the truck in the financing section. Year 2. Year 2:  Accounts receivable decreased from $115. Year 1. Deduction of $15. C. Year 2:  Accounts receivable decreased from $115. to $100. Year 2. Year 1.  The cash balance was $106. D.000 on December 31. 31. Royce Company uses the direct method to prepare its statement of cash flows at December 31.000 in the financing section. as a use or outflow of cash. Year 2. payable to shareholders of record on January 31. Year 1. of $. The interest paid to bondholders is reported in the A. Question: 88  Paid interest to bondholders of $780. representing the decrease in year-end accounts receivable.000.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Fact Pattern: Royce Company had the following transactions during the fiscal year ended December 31.000 for $5.8 million shares outstanding. Debt section. reporting a  Royce’s board of directors declared dividends on December loss of $2. Year 3. B. It reports a(n) A.000. Year 3.000 loss on the sale 36Page www.000 on December 31.com/CMA. Operating section. Answer (B) is correct. as a use or outflow of cash. B. to $100. Year 2. 000.000.000 loss was recognized and properly deducted to determine net income. did not require the use of cash and should be added to net income in the operating section. the cash balance increased from $106. Year 3. Cash used of $582. This loss. Year 2. Equal to net income reported for fiscal year ended December 31. investing. Answer (B) is correct.000 on December  Sold a truck with a net 31. Year 2:  Accounts receivable decreased from $115.000 to $284.000. Year 1. Question: 91 The following information was taken from the accounting records of Oak Corporation for the year ended December 31: Proceeds from issuance of preferred stock F $4. D.000 Gain on sale of plant building 200. The indirect method determines net operating cash flow by adjusting net income. Year 2. carrying amount of $7.000. outstanding.000. Cash provided of $178. payable to shareholders of record on January 31.000 cash. Fact Pattern: Royce Company had the following transactions during the fiscal year ended December 31.000 2% stock dividend on common stock 300. Thus. the sources of cash must have exceeded the uses by $178. Year 2.Gleim 2015 | Part 1 | Online MCQs | Unit 001 of the truck.com/CMA.000 on December 31. During Year 2.facebook. the $5. and financing) should equal the increase or decrease in cash for the year. The total of cash provided (used) by operating activities plus cash provided (used) by investing activities plus cash provided (used) by financing activities is A. Year 2.000 Proceeds from sale of plant building 1.000 Bonds payable converted to common stock 2. Question: 90  The cash balance was $106.000 for $5. Cash provided of $284. and $284.000 on December 31. Answer (D) is correct. reporting a  Royce’s board of directors declared dividends on December loss of $2.8 million shares  Paid interest to bondholders of $780.000.000 37Page www.000 on December 31.000.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . The company did not declare or pay dividends for fiscal Year 1. to $100. Year 1. The total of cash provided (used) by the three activities (operating.000. however.200.000 Dividends paid on preferred stock F 400.000. of $. Under the indirect method. 31.000 Payment for purchase of machinery 500. B. C.05 per share on the 2.000 cash inflow from the sale of the truck is shown in the investing section. A $2. 000. $700.000.facebook. Solvency is the ability of an entity to pay its noncurrent debts as they 38Page www.000  Paid dividends to shareholders of Zip Company in the amount of $800. Answer (B) is correct.000. $800. B.000 and $3. Answer (A) is correct.000 and $3.000) Net cash provided by financing activities $3.000) Net cash provided by investing activities $ 700.900.000). $500.000.com/CMA.000 B.000 and $3. The relevant calculations are as follows: Proceeds from sale of plant building $1. the amount to be reported in the investing activities section of Zip’s statement of cash flows is $500. and equipment. Investing activities typically include the purchase and sale of securities of other entities and the purchase and sale of property.000 ($200. C.000 D. Question: 92 Zip Company entered into the following transactions during the year:  Purchased stock for $200.000. $700.600. $900.000 Payment for purchase of machinery (500. Balance at the end of the period. C.200.300. respectively. the most important factor to consider is the cash A.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 B. $1. D.000 Question: 93 When using the statement of cash flows to evaluate a company’s continuing solvency. A.000 + $300.000 The amount to be reported in the investing activities section of Zip’s statement of cash flows would be A.600. plant. The statement of cash flows classifies an enterprise’s cash flows into three categories.000 Answer (B) is correct. Thus.000 Proceeds from issuance of preferred stock $4.000 Dividends paid on preferred stock (400.000 and $3.600. $200. Flows from (used for) operating activities.Gleim 2015 | Part 1 | Online MCQs | Unit 001 The net cash flows from investing and financing activities that should be presented on Oak’s statement of cash flows for the year ended December 31 are.900. $900.000  Purchased electronic equipment for use on the manufacturing floor for $300. Operating activities. Financing activities. an entity’s activities in generating cash through operations (operating activities) to (1) repay debt. The receipt of dividends. Noncash investing and financing activity. A statement of cash flows provides information about. B. however. Question: 97 39Page Metro. Investing activities. B. Thus. which are generated by an entity’s ongoing major or central activities. C. Question: 96The sale of available-for-sale securities should be accounted for on the statement of cash flows as a(n) A. are the best indicator of its ability to remain solvent over the long term. D. or (3) reinvest to maintain or expand operating capacity.facebook. reported net income of $150. Answer (B) is correct. is generally considered a cash inflow from an operating activity. Question: 94 Dividends paid to shareholders are shown on the statement of cash flows as A. and financing activities. investing activities. cash flows from operating activities (net operating cash inflows).Gleim 2015 | Part 1 | Online MCQs | Unit 001 become due. Operating cash outflows. Question: 95 All of the following are classifications on the statement of cash flows except A. Investing activity. (2) distribute dividends. The three classifications used on the statement of cash flows are operating activities. Answer (D) is correct.. C. D. B. Cash flows from investing activities.com/CMA. Cash flows from financing activities. Financing activity. among other things. D. The payment of dividends is a cash outflow from a financing activity. Answer (B) is correct. C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 for the current year. Operating activity. Equity activities. D. Operating cash inflows. Flows from (used for) financing activities. Investing activities include acquiring and disposing of debt or equity instruments. Inc. Changes occurred in www. C. Flows from (used for) investing activities. Gleim 2015 | Part 1 | Online MCQs | Unit 001 several balance sheet accounts during the current year as follows: Investment in Videogold, Inc., stock, all of which was acquired in the previous year, carried on the equity basis $5,500 increase Accumulated depreciation, caused by major repair to projection equipment 2,100 decrease Premium on bonds payable 1,400 decrease Deferred income tax liability (long-term) 1,800 increase In Metro’s current year cash flow statement, the reported net cash provided by operating activities should be A. $150,400 B. $148,300 C. $144,900 Answer (C) is correct. The increase in the equity-based investment reflects the investor’s share of the investee’s net income after adjustment for dividends received. Hence, it is a noncash revenue and should be subtracted in the reconciliation of net income to net operating cash inflow. A major repair provides benefits to more than one period and therefore should not be expensed. One method of accounting for a major repair is to charge accumulated depreciation if the useful life of the asset has been extended, with the offsetting credit to cash, a payable, etc. However, the cash outflow, if any, is from an investing activity. The item has no effect on net income and no adjustment is necessary. Amortization of bond premium is a noncash income statement item that reduces accrual-basis expenses and therefore must be subtracted from net income to arrive at net cash flow from operating activities. The increase in the deferred tax liability is a noncash item that reduces net income and should be added in the reconciliation. Accordingly, net cash provided by operations is $144,900 ($150,000 – $5,500 – $1,400 + $1,800). D. $142,800 Question: 98 Hauschka Company reported net income for the year of $1,050,000. During the year, accounts receivable decreased $300,000, prepaid expenses increased $150,000, accounts payable for merchandise decreased $150,000, and liabilities for other expenses increased $100,000. Administrative expenses include depreciation expense of $50,000, and the company reported a loss on the sale of obsolete equipment of $10,000. Calculate Hauschka’s net cash flows from operating activities during the year. A. $1,790,000 B. $1,690,000 C. $1,210,000 Answer (C) is correct. Net operating cash flow may be determined by adjusting net income. The depreciation expense, decrease in accounts receivable, increase in liabilities, and loss on the sale of obsolete equipment must be added back. The increase in prepaid expense and decrease in accounts payable must be subtracted from net income. Thus, net cash flow from operations 41Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 is $1,210,000 ($1,050,000 net income + $50,000 depreciation + $300,000 accounts receivable + $100,000 liabilities + $10,000 loss – $150,000 prepaid expenses – $150,000 accounts payable). D. $1,110,000 Question: 99 Garnett Company’s year-end income statement shows the following: Revenues $5,000,000 Selling and general expenses (including depreciation expense of $200,000) 3,800,000 Interest expense 50,000 Gain on sale of equipment 40,000 Income tax expense (including deferred tax expense of $30,000) Net income 320,000 $ 870,000 During the year, Garnett’s noncash current assets rose by $100,000, and current liabilities increased by $150,000. On its statement of cash flows, Garnett would report cash provided by operating activities of A. $1,080,000 B. $1,110,000 Answer (B) is correct. Net operating cash flow may be determined by adjusting net income. Net income of $870,000 is decreased by the increase in current assets of $100,000, increased by the increase in current liabilities of $150,000, increased by depreciation expense of $200,000, decreased by the gain on sale of equipment of $40,000, and increased by the deferred tax liability. Thus, cash provided by operating activities would be $1,110,000. C. $1,160,000 D. $1,190,000 Question: 100 An accountant with Nasbo Enterprises, Inc., has gathered the following information to prepare the statement of cash flows for the current year. Net income of $456,900 includes a deduction of $45,600 for depreciation expense. The company issued $300,000 of dividends this year and purchased one new building for $275,000. The balance sheets from the current period and prior period included the following balances: Prior Year Current Year Accounts receivable, net $ 56,860 $ 45,300 Accounts payable Inventory 12,900 10,745 186,700 194,320 Using the indirect method, what is the amount of cash provided by operating activities? A. $202,500 B. $405,205 41Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 C. $504,285 Answer (C) is correct. Net operating cash flow may be determined by adjusting net income. Depreciation is an expense not directly affecting cash flows that should be added back to net income. The decrease in accounts payable is subtracted from net income because it indicates that an expense has been paid, while the decrease in accounts receivable should be added to net income. The increase in inventory should be subtracted from net income because cash was used to purchase the inventory. The dividends paid on preferred stock are cash outflows from financing, not operating, activities and do not require an adjustment. Thus, net cash flow from operations is $504,285 ($456,900 + $45,600 + $11,560 – $2,155 – $7,620). D. $521,405 Question: 100 An accountant with Nasbo Enterprises, Inc., has gathered the following information to prepare the statement of cash flows for the current year. Net income of $456,900 includes a deduction of $45,600 for depreciation expense. The company issued $300,000 of dividends this year and purchased one new building for $275,000. The balance sheets from the current period and prior period included the following balances: Prior Year Current Year Accounts receivable, net $ 56,860 $ 45,300 Accounts payable Inventory 12,900 10,745 186,700 194,320 Using the indirect method, what is the amount of cash provided by operating activities? A. $202,500 B. $405,205 C. $504,285 Answer (C) is correct. Net operating cash flow may be determined by adjusting net income. Depreciation is an expense not directly affecting cash flows that should be added back to net income. The decrease in accounts payable is subtracted from net income because it indicates that an expense has been paid, while the decrease in accounts receivable should be added to net income. The increase in inventory should be subtracted from net income because cash was used to purchase the inventory. The dividends paid on preferred stock are cash outflows from financing, not operating, activities and do not require an adjustment. Thus, net cash flow from operations is $504,285 ($456,900 + $45,600 + $11,560 – $2,155 – $7,620). D. $521,405 Question: 101 Which one of the following would result in a decrease in cash flow measured under the indirect method of preparing a statement of cash flows? A. Amortization expense. 42Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 B. Decrease in income taxes payable. Answer (B) is correct. The indirect method reconciles accrual-basis net income to net operating cash flow. A decrease in income taxes payable implies an operating cash outflow not reflected in net income. Thus, the reconciling adjustment is a subtraction from net income. The result is a lower measure of net operating cash flow. C. Proceeds from the issuance of common stock. D. Decrease in inventories. Question: 102 A statement of cash flows prepared using the indirect method would have cash activities listed in which one of the following orders? A. B. C. D. Financing, investing, operating. Investing, financing, operating. Operating, financing, investing. Operating, investing, financing. Answer (D) is correct. A statement of cash flows prepared using either the direct or the indirect method lists the categories of cash flows in the following order: operating, investing, and financing. Question: 103 Which one of the following should be classified as a cash flow from an operating activity on the statement of cash flows? A. A decrease in accounts payable during the year. Answer (A) is correct. Operating activities are all transactions and other events that are not financing or investing activities. In general, operating activities involve the production and delivery of goods and the provision of services. Their effects normally are reported in earnings. A decrease in accounts payable indicates a cash outflow to the entity’s suppliers in payment for goods or services. B. An increase in cash resulting from the issuance of previously authorized common stock. C. The payment of cash for the purchase of additional equipment needed for current production. D. The payment of a cash dividend from money arising from current operations. 43Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 104 The most commonly used method for calculating and reporting a company’s net cash flow from operating activities on its statement of cash flows is the A. Direct method. B. Indirect method. Answer (B) is correct. The FASB has expressed a preference for the direct method. However, if the direct method is used, a separate reconciliation based on the indirect method must be provided in a separate schedule. For this reason, most entities use the indirect method. The same net operating cash flow is reported under both methods. C. Single-step method. D. Multiple-step method. Question: 105 The presentation of the major classes of operating cash receipts (such as receipts from customers) minus the major classes of operating cash disbursements (such as cash paid for merchandise) is best described as the A. Direct method of calculating net cash provided or used by operating activities. Answer (A) is correct. The direct method converts the accrual-basis amounts in the income statement to the cash basis. It then reports the separate categories of gross cash receipts and disbursements. Net cash flow from operating activities is the difference between total cash receipts and total cash disbursements. B. Cash method of determining income in conformity with generally accepted accounting principles. C. Format of the statement of cash flows. D. Indirect method of calculating net cash provided or used by operating activities. Question: 106 Larry Mitchell, Bailey Company’s controller, is gathering data for the statement of cash flows for the most recent year end. Mitchell is planning to use the direct method to prepare this statement and has made the following list of cash inflows for the period:  Collections of $100,000 for goods sold to customers  Securities purchased for investment purposes with an original cost of $100,000 sold for $125,000  Proceeds from the issuance of additional company stock totaling $10,000 The correct amount to be shown as cash inflows from operating activities is A. $100,000 Answer (A) is correct. Cash flows from operating activities are those generated by the firm’s major and ongoing activities. They include cash flows from all activities not classified as investing or financing. Only the $100,000 of collections 44Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 001 on sales to customers qualifies. B. $135,000 C. $225,000 D. $235,000 Question: 107 During the year, Deltech, Inc., acquired a long-term productive asset for $5,000 and also borrowed $10,000 from a local bank. These transactions should be reported on Deltech’s statement of cash flows as A. Outflows for investing activities, $5,000; inflows from financing activities, $10,000. Answer (A) is correct. The acquisition and disposal of property, plant, equipment, and other productive assets are investing activities. Borrowing money is a financing activity. Deltech’s transactions should therefore be reported on its statement of cash flows as a $5,000 outflow for investing activities and a $10,000 inflow from financing activities. B. Inflows from investing activities, $10,000; outflows for financing activities, $5,000. C. Outflows for operating activities, $5,000; inflows from financing activities, $10,000. D. Outflows for financing activities, $5,000; inflows from investing activities, $10,000. Question: 108 Atwater Company has recorded the following payments for the current period: Purchase Trillium stock $300,000 Dividends paid to Atwater shareholders 200,000 Repurchase of Atwater Company stock 400,000 The amount to be shown in the investing activities section of Atwater’s statement of cash flows should be A. $300,000 Answer (A) is correct. Financing activities include paying dividends and treasury stock transactions. Investing activities include acquiring and disposing of debt and equity instruments. Thus, the amount to be shown in the investing activities section of Atwater’s statement of cash flows is $300,000. B. $500,000 C. $700,000 D. $900,000 45Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ 000 Answer (C) is correct.com/CMA. $750.000 D. and the purchase of equipment is an investing activity.facebook.000 Repurchase of Barber stock 400.000 B. Thus. $500. dividends paid are a financing cash outflow.000 Question: 110 Barber Company has recorded the following payments for the current period: Interest paid on bank loan $300. Financing activities include paying dividends and treasury stock transactions.000 ($200. Their effects normally are reported in earnings. $900. $350.000 46Page www. The payment and collection of interest are treated as cash flows from operating activities.000 + $400.000 B. $250. Operating cash flows include the payment and collection of interest.000 Answer (B) is correct. the total amount to be reported in the operating activities section of the statement of cash flows is $250. Cash flows from operating activities include cash flows from all activities not classified as investing or financing.000.000 C. $600.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 109 Carlson Company has the following payments recorded for the current period: Dividends paid to Carlson shareholders $150.000 The total amount of the above items to be shown in the operating activities section of Carlson’s statement of cash flows should be A.000 Purchase of equipment 350. $300.000).000 Interest paid on bank loan 250.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Dividends paid to Barber shareholders 200. $150. Thus. C. D.000 The amount to be shown in the financing activities section of Barber’s statement of cash flows should be A. the amount to be reported in the financing activities section of the statement of cash flows is $600. $720.000 Fact Pattern: Selected financial information for Kristina Company for the year just ended is shown below.000) Answer (A) is correct.000 Cash receivable from the issue of common stock 800.000 of proceeds have not yet been received.000 Gain on the sale of available-for-sale securities 700.000 Cash paid for the acquisition of land 1.000.000 Increase in accounts payable 200.500.000 1.000 Decrease in inventory 100.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . but the $800.000 Cash paid for dividends Cash paid for the acquisition of land 47Page $2.000 D. $800.000.800. The issue of common stock is a financing activity.000 Decrease in inventory 100.000 Increase in net accounts receivable 300. $(80. Net income Increase in net accounts receivable 300.500.000 Depreciation expense 400.000 Increase in accounts payable 200.000 Cash received from the sale of available-for-sale securities 2.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Fact Pattern: Selected financial information for Kristina Company for the year just ended is shown below.000 Depreciation expense 400.000 www. B. Cash flows from financing activities for the year consist of the $80.facebook.000 Question: 111 Kristina’s cash flow from financing activities for the year is A. $3.000 outflow for dividends paid.000 Cash receivable from the issue of common stock 800.520.000 C. Net income $2.com/CMA.000 80.000 Gain on the sale of available-for-sale securities 700.000 Cash paid for dividends 80. 000 48Page www. Cash flows from investing activities for the year include the $2.300. D.018. $1.018. $986.000 Minus: increase in net accounts receivable (73.000 110.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Cash received from the sale of available-for-sale securities 2.000 Answer (C) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .500.000 Question: 113 For the fiscal year just ended.000 B. $(1.com/CMA. The following is the net cash flow from operating activities calculated using the indirect method: Net income $ 920.000 Add: increase in accounts payable 45.300.000 Add: depreciation expense 110.800.500.000 = $1.000 C. $928.000 inflow from the sale of available-for-sale securities and the $1.220.000 Increase in deferred income tax liability 16.000 − $1. $2.000 Question: 112 Kristina’s cash flow from investing activities for the year is A.000 Increase in accounts payable 45.800.000 Increase in net accounts receivable 73.000 C.500.800.facebook.000 cash outflow for the purchase of land ($2. Doran Electronics had the following results: Net income Depreciation expense $920.000 Add: increase in deferred tax liability 16.000 Answer (C) is correct.000) B.000) Net cash provided by operating activities $1.000 Doran’s net cash flow from operating activities is A.800.000 net cash inflow). $1. $1. the change in inventory is not given. $50. Zero. Use of the change in net accounts receivable as a reconciliation adjustment is a short-cut method. It indicates that purchases were greater than cost of goods sold. D.. and bad debt write-offs (reflecting that write-offs did not result in collections). The net accounts receivable balance increased by $73.000 during the current fiscal year.000 $150. credit deferred liability) is a noncash item. The statement of cash flows reports the cash effects of transactions. D. and recognition of bad debt expense were the only relevant transactions. An increase in inventory is subtracted from net income. $73.com/CMA. It indicates that cash paid to suppliers was $45.000 less than purchases. The accrual-basis gain on the stock is not relevant. If sales.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . 49Page www. the net effect of the changes in inventory and accounts payable is that cash paid to suppliers was $45.000. A decrease in inventory is added to net income. The result of this transaction should be shown in the investing activities section of Jameson’s statement of cash flows as A. Thus. bad debt expense (a noncash item resulting in an addition). Jameson Company purchased stock in Zebra. It yields the same net adjustment to net income as separately including the effects of the change in gross accounts receivable.000 should be subtracted from net income. C.000) less than the accrual basis cost of goods sold. $1.000 Question: 114 Three years ago. write-offs.facebook. at a cost of $100.000 addition to net income. It indicates that purchases were less than cost of goods sold. The increase in a deferred income tax liability (debit income tax expense. The increase in accounts payable is added to net income.000) also is a noncash item that is added to net income. collections. so it is assumed to be zero.000 ($0 + $45.Gleim 2015 | Part 1 | Online MCQs | Unit 001 The adjustment from cost of goods sold (an accrual accounting amount used to calculate net income) to cash paid to suppliers requires two steps: (1) from cost of goods sold to purchases and (2) from purchases to cash paid to suppliers.000 $100. This stock was sold for $150. implying that cash collections were less than sales. Depreciation ($110.000 Answer (D) is correct. Inc. However. The adjustment is a $16.074. B.000. 000 Minus: increase in inventories (12.000.000 Answer (C) is correct.000) Net cash provided by operating activities $ 83. and recognition of bad debt expense were the only relevant transactions. $6.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 115 Madden Corporation’s controller has gathered the following information as a basis for preparing the statement of cash flows. $63. It yields the same net adjustment to net 51Page www.000 – $37. Assuming that sales.000 105.000 22.com/CMA.000. Net income for the current year was $82.000 175.000 and a net carrying amount of $53.000 100. implying that cash collections exceeded sales.000 Add: decrease in receivables 6.000 37.000 Inventories 93. write-offs.000 $ 85. Net income $ 82.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Accounts receivable net 43.000 400.equipment Accounts payable Notes payable Common stock Retained earnings Madden’s net cash flow from operating activities for the current year is A. Shown below are selected closing balances for last year and the current year.000 B. The net operating cash flow may be determined by reconciling it with net income.000 The net accounts receivable balance declined by $6. Last Year Current Year $ 39.000.000 ($43.000 250.000 should be added to net income. $83. collections. old equipment with a cost of $60. New equipment was purchased for $100.facebook.000 Cash Accumulated depreciation -. Use of the change in net accounts receivable as a reconciliation adjustment is a short-cut method.000) Minus: decrease in payables (3.000) Minus: gain on sale of equipment (10.000 100.000 19. $73.000 250.000 Equipment 360.000 83.000 C.000 70.000 93. During the year.000 Add: depreciation expense 20.000).000 was sold for cash at a gain of $10. 000 acc. The decrease in accounts payable is subtracted from net income.000 Gain on the sale of available-for-sale securities 700.000 Decrease in inventory 100.000 ($12. It indicates that cash paid to suppliers was $3.000 and having a carrying amount of $53. the net effect of the changes in inventory and accounts payable is that cash paid to suppliers was $15. During the year. dep.000 – $53. year end – ($70.000 + $3. It indicates that purchases were $12. The depreciation should be added to net income because it is included in net income but had no cash effect.000 Cash paid for dividends Cash paid for the acquisition of land 80. begin.000) increase in inventory is subtracted from net income.000 ($105.000 acc. activity.000 gain on the sale of equipment is subtracted from net income because it is a cash inflow from an investing.000).000 greater than purchases.000 51Page www.000 greater than cost of goods sold. not an operating. The $10.000 in cash. – $7. Year 6.500.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . dep.000 1. D.800.com/CMA. for $63.Gleim 2015 | Part 1 | Online MCQs | Unit 001 income as separately including the effects of the change in gross accounts receivable.)]. Equipment costing $60. Madden must have recognized $20.facebook. dep. the debit to accumulated depreciation must have been $7. bad debt expense (a noncash item).000) less than the accrual basis cost of goods sold.000 Fact Pattern: Selected financial information for Kristina Company for the year just ended is shown below.000 Cash received from the sale of available-for-sale securities 2. $93.000 of depreciation [$83. Thus.000. Thus. of yr. on sold equip.000 was sold on January 1. Net income $2.000 Increase in accounts payable 200. The $12. The adjustment from cost of goods sold (an accrual accounting amount used to calculate net income) to cash paid to suppliers requires two steps: (1) from cost of goods sold to purchases and (2) from purchases to cash paid to suppliers.000 acc.000 Depreciation expense 400.000 Increase in net accounts receivable 300.000 – $93. and bad debt write-offs.000 Cash receivable from the issue of common stock 800.000 ($60. 000 less than purchases.700. $2. $2. The $200.000 52Page www.000) less than the accrual basis cost of goods sold.000 Add: increase in accounts payable 200.700. The sale of securities is an investing activity.000 Add: depreciation expense 400. It yields the same net adjustment to net income as separately including the effects of the change in gross accounts receivable.000 Minus: increase in net accounts receivable (300.com/CMA. $1.000 C.000. It also is subtracted from net income.000 increase in accounts payable is added to net income. The following is the net cash flow from operating activities calculated using the indirect method: Net income $2. Hence. $300. B. and recognition of bad debt expense were the only relevant transactions.400.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 116 Assuming the indirect method is used. and bad debt write-offs (a subtraction to reflect that write-offs did not result in collections). The $100. collections. $3.100. If sales.000 should be subtracted from net income. It indicates that cash paid to suppliers was $200.000 less than cost of goods sold.000. bad debt expense (a noncash item resulting in an addition).000 decrease in inventory is added to net income. implying that cash collections were less than sales. the net effect of the changes in inventory and accounts payable is that cash paid to suppliers was $300.000) Net cash provided by operating activities $1.facebook.000.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Depreciation expense ($300.000 Answer (A) is correct.000 + $200. It indicates that purchases were $100.000) is a noncash item included in net income. Kristina’s cash flow from operating activities for the year is A. Thus.000 The adjustment from cost of goods sold (an accrual accounting amount used to calculate net income) to cash paid to suppliers requires two steps: (1) from cost of goods sold to purchases and (2) from purchases to cash paid to suppliers.000 Add: decrease in inventory 100.000 ($100.000) Minus: gain on sale of securities (700. Use of the change in net accounts receivable as a reconciliation adjustment is a short-cut method. it is subtracted from net income. The net accounts receivable balance increased by $300.000 D. write-offs. Evenly over the year as the services are performed. C.com/CMA. Billing is mailed. D. $0 Answer (A) is correct. ABC bills its customers on the 10th day of the month following the date of service and requires that payment be made within 30 days of the billing date. plants. Question: 119 On February 1. B. Because the software firm has not substantially fulfilled its obligation. D. C. and disease control services for a variety of trees. How much Year 1 revenue should be recognized? A. The most common time at which these two conditions are met is when goods are delivered or services are rendered. Customer places an order. the company will visit the subscriber’s premises and apply appropriate mixtures. the company should recognize the related revenue A.000 on the first of each month are to be made. At the end of the contract year after all of the services have been performed. In the situation presented. The software is accepted by the client June 1. If the subscriber has any problems between the regularly scheduled application dates. The most common time at which these two conditions are met is when goods are delivered or services are rendered. At the end of the fiscal year. insect control. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. with the first payment March 1. Answer (B) is correct. Year 1. Customer’s payment is received. Year 2. a computer software firm agrees to program a software package. Answer (B) is correct. B. and shrubs on a contract basis. For a subscriber who pays the annual fee in advance.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 117 ABC operates a catering service that specializes in business luncheons for large corporations. the company’s personnel will promptly make additional service calls to correct the situation. ABC should recognize revenue from its catering services at the date when a A. Some subscribers elect to pay for an entire year because the company offers an annual price of $540 if paid in advance. the performance of the service (monthly spraying) is so significant to creating a sufficient probability of a flow of future economic benefits that it should be the triggering event for revenue recognition. Revenues should be recognized when (1) realized or realizable and (2) earned. Twelve payments of $10. Conceptually. Luncheon is served. When the cash is collected. Year 1. the earning process has not been substantially completed in 53Page www.facebook. Revenues should be recognized when (1) realized or realizable and (2) earned. Revenues should be recognized when (1) realized or realizable and (2) earned.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Question: 118 A company provides fertilization. For $50 per month. the cost of labor services of an employee who participates in the manufacturing of a product normally should be charged to the income statement in the period in which the A. Product is completed. D. Thus. B. $120. Question: 121 A department store sells gift certificates that may be redeemed for merchandise. C. when the related flights occur. Revenues should be recognized when (1) realized or realizable and (2) earned. the earning process is not substantially completed until the airline has fulfilled its obligation. Employee is paid. a liability for $100. B. to deliver the software or to refund the customer’s money. 54Page Work is performed. a liability should be recognized because the entity has a current obligation arising from a past event that will require an outflow of economic benefits. Question: 122 To comply with the matching principle. Passenger reservations are confirmed. Answer (D) is correct. Revenues should be recognized when (1) realized or realizable and (2) earned. In the period the certificates are sold. Although the benefits of the service rendered are reliably measurable on the date the reservations are booked. Accordingly. Related flights occur.000 Question: 120 An airline should recognize revenue from airline tickets in the period when A. Answer (D) is correct. Each certificate expires 3 years after issuance. Tickets are issued. Passenger reservations are booked. In the period the certificates are redeemed or in the period they expire if they are allowed to lapse.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Year 1. C. B. Product is sold.000 and revenue of $0 should be recognized for Year 1. B. These criteria are met when the certificates are redeemed or expire.facebook.000 D. $100. Evenly over 3 years from the date of issuance. C. D.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . In the period the certificates expire.000 C. D.com/CMA. The revenue from the gift certificates should be recognized A. that is. www. that is. $110. Question: 124 Robin Gavaskar. Answer (B) is correct. Ultimate amount collectible is indeterminate. Production is completed. Answer (A) is correct. Revenues are realizable when related assets received or held are readily convertible to known amounts of cash or claims to cash. Question: 125 For financial statement purposes. B. Revenues are earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. merchandise. Revenues are normally recognized when they are realized or realizable and earned. Quarterly financial statements are prepared. Revenues related to the employee’s labor are not recognized until the goods are sold. who recently founded a company that produces baseball bats and balls.facebook. The sale occurs. D. Installments are due in different years. Cash is received. According to the FASB’s conceptual framework. C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Question: 123 Revenues of an entity are usually measured by the exchange values of the assets or liabilities involved. According to the revenue recognition principle. the mostappropriate time to recognize revenue would be when A. Products or services are exchanged for cash or claims to cash. 55Page www. Revenues are realized when products. Revenues are realized (or realizable) when goods or services have been exchanged for cash or claims to cash (assets readily convertible to cash). C. The entity has substantially accomplished what it agreed to do. and the entity is entitled to the resulting benefits or revenues. B. The revenue is realizable. B. wants to determine her company’s policy for revenue recognition. the installment method of accounting may be used if the A. C. or other assets are exchanged for cash or claims to cash. revenues should be recognized when they are realized or realizable and earned. Recognition of revenue does not occur until A. D.com/CMA. The revenue is realized and earned.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Answer (D) is correct. Collection period extends over more than 12 months. Revenues are earned when the earning process is substantially complete. The matching principle states that expenses should be recognized in the same period as the revenues that those expenses helped produce. The revenue recognition criteria are ordinarily met at the point of sale (time of delivery of goods or services). 000 9. $2.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . II. profit is recognized only after collections exceed the cost of the item sold. the installment method or the cost-recovery method of accounting may be used.000 B. D. The installment method recognizes income on a sale as the related receivable is collected.facebook. Under the cost-recovery method.com/CMA. what amount would Fox report as gross profit from sales to these customers for the year ended March 31. Question: 127 Several of Fox. no reasonable basis exists for estimating the degree of collectibility. The cost-recovery method recognizes profit only after collections exceed 56Page www.000 If the cost-recovery method is used. Answer (D) is correct. Inc.000 3.000 $15. Percentage-of-completion method is inappropriate.000 on Year 8 sales -- Cash collections 12.000 Answer (C) is correct. The revenue will be reported under the cost-recovery method. $5.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Answer (C) is correct. Question: 126 It is proper to recognize revenue prior to the sale of merchandise when I.000 C. When receivables are collected over an extended period and.000 Cost of sales 8. because of the terms of the transaction or other conditions. $3. C. B. II only. Year 8? A. Both I and II. D. Year 7 and Year 8 follows: 3/31/Yr 7 3/31/Yr 8 Sales $10. The revenue will be reported as an installment sale. Profits from sales in the ordinary course of business usually should be recognized at the time of sale unless collection of the sales price is not reasonably assured. Information pertaining to these customers for the years ended March 31. Neither I nor II. I only. A.’s customers are having cash flow problems.000 on Year 7 sales 7. 000 was recognized in Year 1.000 The completion percentage for Year 2 is the ratio of costs incurred to date to estimated total costs ($390.facebook.000.000 ÷ $520.000 Estimated total gross profit $150.000 $180.000 Answer (B) is correct.000 B. Determining the annual recognized gross profit requires calculation of the estimated total gross profit.000 ($135.000 155. and the contract duration was 3 years.000 = 75%). $70. Subsequent amounts collected are treated entirely as revenue (debit cash and deferred gross profit.000 Estimated total costs $550.com/CMA.000 ($180. The following information relates to a contract that was awarded at a price of $700.000 $390.000 $530.000 Collections on account 300.000 200.000 × 75%). The cumulative gross profit recognized at the end of Year 2 is therefore $135.000 Minus: estimated total costs Costs to date $300. when the full cost has been recovered. The sum of collections in excess of costs to be recognized as gross profit is $5. 57Page www.Gleim 2015 | Part 1 | Online MCQs | Unit 001 the cost of the item sold.000 $520. that is. Year 1 Contract price Year 2 $700.000 Estimated costs to complete 250. The estimated costs were $500. credit the receivable and realized gross profit). the amount of gross profit Paulson recognized in Year 2 was A.000 Year 8 collections on Year 7 sales – ($8.000 130. D.000.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 220. $15. Because $65.000 cost – $7.000 collections on Year 8 sales – $9. the amount recognized in Year 2 is $70.000 cost)}.000 {[$3.000 $700.000 – $65.000 Question: 128 Paulson Company uses the percentage-of-completion method to account for long-term construction contracts.000 130.000 was recognized as gross profit in Year 1.000 Year 7 collections on Year 7 sales)] + ($12.000 Costs to complete at year end 250.000 -Progress billings 325. Year 1 Cumulative cost to date Year 2 Year 3 $300.000 $390.000 Assuming that $65.000). $35.000 200. Revenue is recognized when progress billings are Recorded Collected A.facebook. As progress is made toward completion of the contract.Gleim 2015 | Part 1 | Online MCQs | Unit 001 C. Yes Yes C. Yes No D. revenues and expenses are recognized based on the stage of completion at the balance sheet date if the outcome of the contract can be estimated reliably. No No Answer (D) is correct.000 D. (This relationship is the recommended but not the only basis for determining progress.000 Question: 129 The calculation of the income recognized in the third year of a 5-year construction contract accounted for using the percentage-of-completion method includes the ratio of A. D. GAAP require that revenue be recognized when it is realized or realizable and earned.com/CMA. $135. B. Total costs incurred to date to total billings. Progress billings will be sent to the customer at quarterly intervals. revenue recognition is appropriate only at the completion of the contract. Costs incurred in Year 3 to total estimated costs. For a fixed-price contract. After the contract is signed. Under the percentage-of-completion method. Costs incurred in Year 3 to total billings. Under the completed-contract method.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . (2) it is probable that the economic benefits of the 58Page www. It is estimated that the building will take 2 years to complete. the outcome can be estimated reliably if (1) total revenue can be measured reliably. C. Question: 131 A building contractor has a fixed-price contract to construct a large building. Answer (B) is correct. Total costs incurred to date to total estimated costs. B. Neither the recording nor the collection of progress billings affects this recognition. Answer (D) is correct. No Yes B. $170. Which of the following describes the preferable point for revenue recognition for this contract if the outcome of the contract can be estimated reliably? A.) Question: 130 A company appropriately uses the completed-contract method to account for a long-term construction contract. The percentage-of-completion method recognizes gross profit or revenue based on the ratio of costs to date to estimated total costs. and loss from construction if debit balance. D. an overall loss was anticipated at contract completion. Progress billings as income. Year 1. C. Year 1 operating income is decreased by the projected loss. Tidal Co. D.Gleim 2015 | Part 1 | Online MCQs | Unit 001 contract will flow to the enterprise. As cash is received. Progress billings as deferred income. Net. The difference between construction in progress (costs and recognized gross profit) and progress billings to date must be reported as a current asset if construction in progress exceeds total billings. Question: 133 During Year 1. When the current estimate of total contract costs indicates a loss. under either method. as gross profit from construction if credit balance. Answer (C) is correct. No effect Decrease C. (3) contract costs to complete and stage of completion can be measured reliably. No effect No effect B. Decrease No effect D.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . 59Page www. Question: 132 How should the balances of progress billings and construction in progress be shown at reporting dates prior to the completion of a long-term contract? A. Thus. When the contract is completed. C. Separate recognition is required for each project. At December 31. and (4) contract costs can be clearly identified and measured reliably so that actual and estimated costs can be compared.com/CMA. an immediate provision for the entire loss should be made regardless of method. construction in progress as inventory.facebook. construction in progress as a deferred expense. began construction on a project scheduled for completion in Year 3. What would be the effect of the project on Year 1 operating income under the percentage-ofcompletion method and the completed-contract method? Percentage-ofCompletion Completed-Contract A. and as a current liability if billings exceed construction in progress. as a current asset if debit balance and current liability if credit balance. Decrease Decrease Answer (D) is correct. B. Net. profit for Year 1 is $350.000.000 $350. $(100.200.000 $200. The percentage-ofcompletion at year-end on the cost-to-cost basis is 35% ($700.000 $2.000 1.000 [($3.000) $100.200. The percentage-of-completion method recognizes revenue based on the stage of completion of the contract.000 $2. the gross profit to be recognized in Year 1 is A.000 1.Gleim 2015 | Part 1 | Online MCQs | Unit 001 Question: 134 A company began work on a long-term construction contract in Year 1. The contract price was $3.000 900.000).000 ÷ $2. ‫عرب ويب سوفت‬ ‫أدعمنا بـ‬ ‫الموقع الرائد في الشهادات المهنيه‬ ‫نحو غد أفضل‬ www.000 Cost incurred 700.000.com/CMA. B. Year-end information related to the contract is as follows: Year 1 Year 2 Year 3 Estimated total cost $2.000. Thus.arabwebsoft.000 Under the percentage-of-completion method.000 400.000 Answer (D) is correct.facebook. One typical method for estimating the stage of completion is the calculation of ratio of the contract costs incurred to date to the estimated total costs.000 Billings 800.000.000. The gross profit for Year 1 is the anticipated gross profit on the contract times the completion percentage. D.com/forums 61Page www.000 1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000) × 35%].facebook.000.arabwebsoft www.000.000.000.000 – $2. C.000 1.000 Collections 600.200.com/CMA. 000 1Page www. Current cost. Year 1. The attribute used to measure a long-term receivable or payable is the present or discounted value of its future cash flows.000 of accounts receivable was written off.facebook. Sales revenue was $338. Historical cost. Question: 136 Statements of financial position on December 31.000. Year 2.000 8.000 11.000 340.000 (10.000 Total liabilities and equity $ 454. 31.000 $ 507. and December 31.000) 257. The measurement basis most commonly adopted by entities in preparing their financial statements is historical cost.000 Liabilities and equity: Trade accounts payable Interest payable Bonds payable Unamortized bond discount Equity $ 62. Year 1 Dec.000 (3.000 $ 49.000 200. $341.000 295. B. Net realizable value. plant. Year 2 $ 50. Answer (D) is correct.000) 120.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 (102.com/CMA. D.000 (119.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 135 The measurement basis most often used to report a long-term payable representing a commitment to pay money at a determinable future date is A.000 (4.000 200. and equipment Accumulated depreciation 95.000 $ 507.000 $ 60. C.000) 89. $3.000 (15.000 Additional information for Year 2: 1. 31.000) 199. are presented below: Dec.000 Assets: Cash Accounts receivable Allowance for uncollectible accounts Inventory Property. 2.000) Total Assets $ 454. However. Present value of future cash flows.000) 140. Cash collections from customers in Year 2 were A. it is usually combined with other measurement bases (attributes). 000 bad debt expense is also credited to the allowance. During the past year.000 ($95.200 Answer (C) is correct.200 B.000 Credit sales during the sixth month with net 30 days terms Credit sale during the fifth month with special terms of net 9 months 2Page 150.200 D. $344. what was the amount of accounts receivable written off as uncollectible during the year? A.000 ending balance for its allowance for uncollectible accounts and a bad debt expense of $2.000 500 Ending allowance (5.800 C. The amount of accounts receivable written off can be calculated as follows: Beginning allowance $4.000.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . If the beginning balance in the allowance for uncollectible accounts was $4. Under the allowance method.000 + $338. minus accounts written off. plus sales revenue. $2. In Year 2.800 Question: 138 The following information applies to Nichola Manufacturing Company. recoveries on bad debts previously written off were correctly recorded at $500. $338.com/CMA. The $2.facebook.000 10.000 – $3.700 Bad debt expense Recoveries 2.700. $1. Cash collections from customers equals beginning accounts receivable. $1. which has a 6-month operating cycle: Cash sales $100. cash collections from customers were $341.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (A) is correct.000 C.000 – $89.000 Question: 137 An analysis of an entity’s $150. uncollectible accounts are written off by a debit to the allowance and a credit to accounts receivable.000 D.000 accounts receivable at year end resulted in a $5. The $500 of recovered bad debts is accounted for by a debit to accounts receivable and a credit to the allowance. $2. minus ending accounts receivable. B.000) A/R written off $2. $335.000).000 www. when a specific amount is written off.000 account that had previously been written off as uncollectible. Davis Corporation estimates that its bad debts should average 3% of credit sales. Johnson uses the allowance method. What effect does this write-off have on the company’s current net income and total current assets. Decrease Decrease B.000 were deemed to be uncollectible. $260.000.facebook.000 3Page www. whichever is longer.000. the journal entry is Allowance for doubtful accounts $10. Decrease No effect D.000 Question: 139 Johnson Company uses the allowance method to account for uncollectible accounts receivable.com/CMA. No effect Decrease C.000 The total of Nichola’s trade accounts receivable at the end of the current cycle is A. C. respectively? Net Income Total Current Assets A.000 The write-off of a bad debt has no effect on expenses. and total current assets.000 account of a customer who had filed for bankruptcy. $160. $300.000 D.000. The entry to record bad debt expense at the end of Year 3 would include a credit to the allowance for uncollectible accounts of A.000 ($150. No effect No effect Answer (D) is correct. net income.000 + $10.000 B. After recording the estimate of uncollectible accounts expense for the current year.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Interest earned and accrued on an investment that matures during month 3 of the next cycle 2.000 Answer (B) is correct. During Year 3. accounts of $100. $152. and payment was received on a $20. The balance in the allowance for uncollectible accounts at the beginning of Year 3 was $140.000). Thus.000 Accounts receivable $10. Question: 140 Based on the industry average. The total of the trade accounts receivable at the end of the current cycle is therefore $160. Johnson decided to write off in the current year the $10. $262.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . credit sales totaled $10. A receivable classified as current on the statement of financial position is expected to be collected within the current operating cycle or 1 year. Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Add: sales to customers (terms net 30) 150.000. The entry to record bad debt expense is Bad debt expense $300.000.000 B.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (A) is correct.000.000 C.000 4Page www. supported by a note for $25. $260.000 D.000 Answer (A) is correct.facebook.000 ($10. The open trade receivables balance to be shown on the statement of financial position for the period is A.000 Question: 141 The following information has been compiled by Able Manufacturing Company:  Sale of company products for the period to customers with net 30-day terms amounting to $150.000 B.com/CMA. both earned and accrued but not yet collected.000 Allowance for doubtful accounts $300.  Sale of company products for the period to a customer. Bad debt expense is based on the income statement approach.  Rental income for the period. $250.000) $250. with special terms of net 180 days. $252. $160. It treats bad debt expense as a function of sales on account. it is projected to be $300.000 D. from the Able Employees’ Credit Union for use of company facilities was $2.  Collections of open trade receivables during the period was $200. $277.000 Minus: collections during period Open trade receivables reported (200. $275.000.000.000. The open trade receivables balance is calculated as follows: Previous ending balance $300. $240.000 C.  Balance of trade receivables at the end of the last period was $300. Thus.000 × 3%). 000 Accounts written off during the year 40.000 Collections from customers during the year 2. The ending balance in accounts receivable consists of the $650.000 Question: 143 A shoe retailer allows customers to return shoes within 90 days of purchase.facebook.000 of credit sales. $1. 1/1 $ 650. and $75.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 142 The following information relates to Jay Co. The company estimates that 5% of sales will be returned within the 90-day period.085 The $110. D.000 and returns of sales made in prior months of $5. at December 31? A.150. Accounts Receivable (in 000s) 1/1 $ 650 Credit sales 2. $1. $925.000 Answer (C) is correct.000 of estimated sales returns are not relevant because they affect the allowance accounts but not gross accounts receivable.000 of collections.000 beginning debit balance.150.700 12/31 $ 75 Sales returns 2. $1. minus credits for $2.150 Collections 40 Write-offs $1.000 B.000 Sales returns for the year 75. before allowances for sales returns and uncollectible accounts.000 of accounts written off.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 of estimated uncollectible receivables and the $50.000 C. During the month.’s accounts receivable for the year just ended: Accounts receivable.200.125.000 Credit sales for the year 2. $190.000 5Page www. plus debits for $2.000 B.085. $185.com/CMA.700.000 What amount should Jay report for accounts receivable.000 of sales returns. the company has sales of $200.000 Estimated future sales returns at 12/31 50.700.000 Estimated uncollectible accounts at 12/31 110.000. What amount should the company record as net sales revenue for new sales made during the month? A. $40. 000 B.000 Increase in net accounts receivable (after subtraction of allowance for bad debts) 30.000 How much cash was collected this period on credit sales? A. Sales 68.000 of sales and estimates that 5% of sales will be returned.000 × 5%) for sales returns (contra revenue) and for a corresponding allowance for sales returns (contra asset). Collections were therefore $68. Thus.000 Gross accounts receivable -.000 D.000 Write-off 100. $200. the company will recognize $10.500).Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $195. Accordingly. Bad debt expense was $2. The company has $200. The beginning balance of gross accounts receivable (A/R) was $5. C.000).000 increase in net A/R.500 D. ending net A/R must have been $34. Given a $30.000 Collections $ 36.500 ($5.000. Thus.facebook.000 bad debt expense. Additional data for this period follows: Credit sales $100. Bal.000). with ending gross A/R of $36.000 (debit).beginning balance 5.000 ($200. $64. This amount is subtracted from total sales to find net sales revenue of $190.000 ending gross A/R). $ 1.000 credit sales – $36. The allowance was credited for the $2.com/CMA. Bal.000 Answer (B) is correct. $68.000 beginning gross A/R – $1.000 Question: 144 An internal auditor is deriving cash flow data based on an incomplete set of facts.000 Beg.000 ($34.500 beginning net A/R + $30. C.500 ($500 – $1.000 6Page www.000 Cr.500 + $1. net beginning A/R was $4.000 End.000 Allowance for bad debts -. $70. the ending allowance (credit) was $1.000).beginning balance (500) Accounts receivable written off 1.000 ($200.000 write-off + $2. Gross A/R $ 5.000 – $500 credit in the allowance for bad debts).500 ($4.000 ($5.000 write-off + $100.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (B) is correct.000 – $10. $68. 000 A/R × 3%).000 Answer (B) is correct.000. The year-end balance should be $90. The account receivable is then decreased by the amount of cash collected. By what amount should Marr adjust its allowance for uncollectible accounts at year end? A. the entry to record the write-off of a specific account A. $140.com/CMA. Question: 147 Wren Company had the following account balances at December 31: Accounts receivable $ 900.000 D.000 Allowance for uncollectible accounts (before any provision for the year 7Page www. Answer (A) is correct. the year-end adjustment is $40.000 Question: 146 When the allowance method of recognizing uncollectible accounts is used. Hence.000 Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end.000 ($90. C.facebook. $0 B.000) unadjusted balance.000 3.000. Decreases both accounts receivable and net income. When an account receivable is written off. Decreases accounts receivable and increases the allowance for uncollectible accounts. D. the account must be reinstated by increasing both accounts receivable and the allowance.000 ($3. The entity uses the percentage of accounts receivable method to estimate the allowance.000 – $50. B. had the following sales and accounts receivable balances.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 145 Marr Co.000. C. Decreases both accounts receivable and the allowance for uncollectible accounts. prior to any adjustments at year end: Credit sales Accounts receivable Allowance for uncollectible accounts $10. If an account previously written off is collected. Increases the allowance for uncollectible accounts and decreases net income.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . both accounts receivable and the allowance for uncollectible accounts are decreased. $40.000 50. $90. com/CMA.000 10% Over 60 days 2. $51. Vale Co. the allowance account should have a balance of $45.000 70% What amount should Vale report as allowance for uncollectible accounts in its March 31 balance sheet? A.000 × 5%).000 – $16. The first is based on an aging of the receivables to determine the balance in the allowance for uncollectible accounts. had an unadjusted credit balance of $1.000 existing balance). while the other emphasizes income measurement. and the entry is to debit uncollectible accounts expense and credit the allowance for $29. Question: 148 On March 31.000 ($45. The corresponding credit is to the allowance for uncollectible accounts.000 $45. Bad debt expense is the amount necessary to adjust the allowance account to this estimated balance. $4.000 B.000 Uncollectible 5% 31-60 days 4.000 Answer (D) is correct. Under the second method. Under the first method.000 $45.800 8Page www. $51.000 in its allowance for uncollectible accounts.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $35.000 $29.000 Credit sales for the year 1.000 $29.000 × 2%).000 D.Gleim 2015 | Part 1 | Online MCQs | Unit 002 uncollectible accounts expense) 16. An analysis of Vale’s trade accounts receivable at that date revealed the following: Estimated Age Amount 0-30 days $60.750.000 ($1.000 Wren is considering the following methods of estimating uncollectible accounts expense for the year:  Based on credit sales at 2%  Based on accounts receivable at 5% What amount should Wren charge to uncollectible accounts expense under each method? Percentage of Percentage of Credit Sales Accounts Receivable A.facebook. The second recognizes bad debt expense as a percentage of sales.000 ($900. if uncollectible accounts are estimated to be 5% of gross accounts receivable. $35. bad debt expense is $35. Uncollectible accounts expense is estimated in two ways.000 C.750. One emphasizes asset valuation. The aging schedule determines the balance in the allowance for uncollectible accounts.000 C. No Yes D. C. This method is acceptable under GAAP. The allowance method attempts both to match the expense with the related revenue and to determine the NRV of the accounts receivable.000 + $400 + $1. This method does not match revenue and expense or state receivables at NRV. Hence.000 × 70%). $3.facebook.com/CMA. Accounts that are 31-60 days old and over 60 days old have estimated uncollectible balances of $400 ($4. respectively. The entry to record bad debt expense under the allowance method is to debit bad debt expense and credit the allowance account.800 D.400 ($2.000 × 5%).Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (A) is correct. Because accounts receivable and the allowance account are decreased by the same amount. Has no effect on the allowance for uncollectible accounts. When a specific account is then written off. 9Page www. the allowance is debited and accounts receivable credited. Yes Yes B. $4.000 ($60. It is not acceptable under GAAP. Answer (C) is correct. No No Question: 150 Under the allowance method of recognizing uncollectible accounts. the amount recorded in the allowance for uncollectible accounts is $4. Increases the allowance for uncollectible accounts. Of the accounts that are no more than 30 days old.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . B. The $1.800 ($3.000 × 10%) and $1. Has no effect on net income. B. C. The direct write-off method debits expense and credits accounts receivable at the time uncollectibility is established.000 Question: 149 Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance Direct Write-Off A. the entry to write-off an uncollectible account A. not at the time of the write-off. Yes No Answer (B) is correct.000 balance already in the account is disregarded because the aging schedule determines the balance that should be in the account. Net income is affected when bad debt expense is recognized. $3.400). the amount uncollectible is $3. a write-off of an account also has no effect on the net amount of accounts receivable. 000.000 $ 90.000 in its income statement. and the bad debt expense is $16. C.000.000 12/31/Yr 2 B. The beginning balance in the allowance account is $90. When uncollectible accounts are written off. Mill reported bad debt expense of $16.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . D. $6. a debit is made to the allowance and a credit to accounts receivable.’s allowance for uncollectible accounts was $100. B.000 Answer (A) is correct. $16.Gleim 2015 | Part 1 | Online MCQs | Unit 002 D.000 Roxy estimates that 3% of the gross accounts receivable will become uncollectible.facebook. After adjustment at December 31. The allowance for uncollectible accounts at year end should have a credit balance of $30.com/CMA.000 Bad debt expense $100. Question: 152 Mill Co.000 at the end of Year 2 and $90. Because write-offs equal the beginning balance. $90.000. Question: 151 The following accounts were abstracted from Roxy Co.000 Allowance for uncollectible accounts 8.000 of accounts must have been written off. plus the bad debt expense.000. What amount did Mill debit to the appropriate account in Year 2 to write off actual bad debts? A.000 Net credit sales $3.000. For the year ended December 31. Year 2.000 at the end of Year 1. This amount is equal to the $1 million of accounts receivable multiplied by the 3% that are estimated to become uncollectible.’s unadjusted trial balance at December 31: Debit Accounts receivable Credit $1. the ending balance is $100. $10.000 11Page www. Allowance Write-offs $6.000 $38.000.000 $30.000 C. $6. Decreases net income. minus the ending balance. the allowance for uncollectible accounts should have a credit balance of A.000 12/31/Yr 1 16.000 $82.000 Answer (D) is correct. The agreement between DEF and ABC is signed.000 Returned purchases 5. C. Transportation-in is an addition because it increases cost.000 – $15.000 Answer (B) is correct.000 units of product X for ABC Company. allowances. DEF sells the goods and informs ABC of the sale. Accordingly. $340. Under a consignment arrangement.000 ($400.000 Question: 153 DEF is the consignee for 1. B.000 units when A. Purchase discounts.000 – $5. The goods are in the physical possession of the consignee but remain the property of the consignor and are included in the consignor’s inventory.000 + $6.000 Purchase allowances 15.000 Purchase discounts 40. and returns are subtractions from purchases because they are reductions of cost. $370. D. the consignor ships goods to the consignee.000 11Page www. ABC should recognize the revenue from these 1.000 D.000 Purchases 400. C.000 B. $26. net purchases equals $346.000 Transportation-in 6. Question: 154 An entity had the following account balances in the pre-closing trial balance: Opening inventory $100. Revenue and the related cost of goods sold from consigned goods are recognized by the consignor only when the merchandise is sold and delivered to the final customer. Thus. ABC ships the goods to DEF. who acts as sales agent for the consignor.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . DEF receives the goods from ABC. $346.000).000 – $40.000 The entity had net purchases for the period of A.Gleim 2015 | Part 1 | Online MCQs | Unit 002 D.facebook.000 Closing inventory 150. Answer (D) is correct. $376. recognition occurs when notification is received that the consignee has sold the goods.com/CMA. plus purchases. The goods shipped FOB destination were improperly excluded from the seller’s ending inventory. Year 2. $1.000.000 beginning balance + $122. Year 1.000. The goods shipped FOB shipping point should be counted in the buyer’s. Year 2.000. To determine cost of goods sold. minus ending inventory. D. shipped to a customer free on board (FOB) shipping point on December 28.  Goods costing $122.000.000.000 Answer (A) is correct. Thus.000 ($1. $1.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 155 A physical inventory count showed an entity had inventory costing $1. Year 1.000 payments to suppliers – $62.122. Year 1.000 Trade accounts payable Additional information for Year 2: 1.082. $1. Year 2. Excluded from this amount were the following:  Goods costing $82.000 on hand at December 31.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Cost of goods sold in Year 2 was A. Year 1.000 C.000 beginning accounts 12Page www. Purchases equal $167.000 ending accounts payable + $180. They were expected to be received by the customer on January 5.facebook.000 62. These goods were properly excluded from ending inventory. shipped to a customer free on board (FOB) destination December 30. Cost of goods sold equals beginning inventory. $147. are presented below: 12/31/Year 1 12/31/Year 2 Inventory $120.204.122. the correct ending inventory is $1.000 ($49. A. and December 31. Cash payments to suppliers of merchandise were $180.000. purchases must be calculated.000 Answer (C) is correct. inventory because title and risk of loss pass at the time and place of shipment. $1. They were expected to be received by the customer on January 4.000 goods shipped FOB destination). Year 1. The title and risk of loss did not pass until the time and place where the goods reached their destination and were duly tendered.com/CMA. Compute the correct ending inventory to be reported on the shipper’s statement of financial position at December 31.000 Question: 156 The following selected data from statements of financial position on December 31.000 49.000 $140.000 B. not the seller’s. Year 2. $40.000 ($900.000 $50 Question: 158 A retail entity maintains a markup of 25% based on cost. $2. so they should not be included in Year 1 inventory. and the seller incurred the expense of delivery to that point.000 Question: 157 An entity with a December 31 year end purchased $2. B. Cost of goods sold for a period equals beginning inventory.000 Beginning inventory was A. plus purchases.000 purchases – $140. minus ending inventory.000 900.000 D.000 of inventory on account. Title and risk of loss passed to the buyer at the destination.000 13Page www.000 beginning inventory + $167. cost of goods sold must equal $720. Now assume the terms required the seller to deliver to the destination instead of the shipping point.000 Ending inventory 80. $167.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .050 $0 C.000 ending inventory). and the goods arrived on January 3. The goods did not arrive until after year end. B. $2.facebook. cost of goods sold equals $147. The seller was responsible for delivery to the shipping point. Year 1.Gleim 2015 | Part 1 | Online MCQs | Unit 002 payable). Given that sales reflect 125% of cost. $0 $0 Answer (A) is correct.000 Freight-in on purchases Sales 25. $0 $50 D. $85. What is the correct amount of inventory and freight-in relating to this purchase on the Year 1 financial statements? Inventory Freight-In A.000 B. Thus.000 ($120. Freight-in should also not be recorded until Year 2. $180.000 Answer (B) is correct.000 C. plus freight-in. The invoice date was December 27. The entity has the following information for the current year: Purchases of merchandise $690.com/CMA. with freight of $50 paid at destination by the buyer. $160. Question: 160 The following information is available for an entity for the quarter ended March 31.000 Purchases 190. of which $20. C.000 $260. Answer (B) is correct. of the current year: Merchandise inventory. $110. Profit is overstated. and cost of goods sold is overstated. Working capital is overstated. D.000 of direct labor costs were incurred.000 were returned because of defects. cost of goods produced is overstated.000 of production overhead costs were incurred Question: 159 If the entity’s raw materials inventory as of December 31 of the current year (ending inventory) was miscounted and the true figure was higher than $130.25). Cost of goods produced is understated.000 EI – $690.com/CMA.000 130.000 Work-in-progress 220. B.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 ($720. as of January 1 of the current year $ 30.000 D.  $750. the beginning inventory must have been $85.Gleim 2015 | Part 1 | Online MCQs | Unit 002 sales ÷ 1. one effect on the year-end financial statements would be that A.facebook.000 The gross profit margin is normally 20% of sales.000 175.000 of raw materials were purchased.000 Sales 200. Consequently.000 COGS + $80.000.000 freight-in).000 Fact Pattern: An entity had the following opening and closing inventory balances during the current year: 1/1 12/31 Finished goods $ 90. Cost of goods sold is overstated. raw materials used is overstated.000 purchases – $25.000 The following transactions and events occurred during the current year:  $300.000 Raw materials 105. C. of the current year? 14Page www.  $600. If the ending inventory of raw materials is understated. $265. What is the estimated cost of the merchandise inventory at March 31. B.000 B. Question: 162 If certain goods owned by an entity were not recorded as a purchase and were not counted in ending inventory. 15Page www. Goods available for sale was $220. Answer (C) is correct. $20. are understated by the same amount.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 ($30. C.000 ($220. or divisional management during the year. Net income for the period will be understated.facebook. $180. C.com/CMA. then A. The most likely cause of the increase in gross margin is A. D. An overstatement of year-end inventory results in an understatement of cost of goods sold. Using the gross profit method. An understatement of year-end accounts receivable. production methods. which overstates gross margin. Purchases. A decrease in the number of suppliers of the material used in manufacturing the product. Neither cost of goods sold nor net income is affected. which increase cost of goods sold. Cost of goods sold for the period will be overstated. Estimated ending inventory is therefore $60. B.2)]. The internal auditor does some preliminary investigation and also notes that there were no changes in products.000 [$200. An overstatement of year-end inventory.Gleim 2015 | Part 1 | Online MCQs | Unit 002 A.000 Question: 161 An internal auditor performs an analytical procedure to compare the gross margins of various divisional operations with those of other divisions and with the individual division’s performance in previous years.000 purchases). The effects of the errors on cost of goods sold are offsetting.000 goods available for sale – $160. and ending inventory. D. $40. in error. The internal auditor notes a significant increase in the gross margin at one division. $60. which decreases cost of goods sold.0 – 0. Cost of goods sold for the period will be understated. cost of goods sold for the quarter is estimated to be $160.000 C. D.000 sales × (1. There will be no effect on cost of goods sold or profit for the period.000 beginning inventory + $190.000 Answer (C) is correct. Answer (D) is correct.000 estimated cost of goods sold). An increase in the number of competitors selling similar products. Question: 165 Which one of the following errors will result in the overstatement of net income? A. Retained earnings will be correct.facebook. overstated net income. beginning inventory and cost of goods sold will be overstated.000 D. Understated income next year. ending inventory equals $10.000 ($5. and overstated retained earnings in the period of the error. Answer (D) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . minus ending finished goods.000 Cost of goods sold 55. Understated retained earnings next year.000 Total production costs 60. overstated net income. plus cost of goods manufactured for a manufacturer or purchases for a retailer. Overstatement of ending inventory.000 Question: 164 Holly Company’s inventory is overstated at December 31 of this year. B. Overstated ending inventory therefore results in understated cost of goods sold. Beginning inventory. and overstated 16Page www. Overstated ending inventory therefore results in understated cost of goods sold.000 Answer (B) is correct. equals ending inventory. $50.000 – $55. plus purchases (or other inventory additions).Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 163 What is the cost of ending inventory given the following factors? Beginning inventory $ 5. Overstatement of beginning inventory. Direct labor is included in total production costs. $5. $10. Understated retained earnings this year. C.com/CMA. B. and net income will be understated. The result will be A. Answer (B) is correct.000 Direct labor 40. minus ending finished goods.000 A. C.000 B. Cost of goods sold equals beginning finished goods. Cost of goods sold equals beginning finished goods. $45. plus cost of goods manufactured for a manufacturer or purchases for a retailer. When these errors reverse in the following period. minus cost of goods sold. Understated income this year. D. Thus.000 + $60.000). D.000.com/CMA. Given that the gross margin percentage is 40% of net sales.30 --- 3 --- --- 100 www.000 40% Addison’s cost of goods available for sale is A.facebook.000 Question: 167 An entity started in Year 1 with 200 scented candles on hand at a cost of $3. These candles sell for $7. Question: 166 The following information applies to the income statement of Addison Company: Gross sales $1. Overstatement of goodwill amortization. Goods available for sale equals cost of goods sold plus ending inventory ($540.000 = $740. D. Overstatement of bad debt expense. an amount ordinarily determined on a historical basis. C. The estimated cost of goods sold equals sales minus the gross profit.000 C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $560. cost of goods sold must be 60% of net sales. $740.000 × 60%).000 + $200.000 Ending inventory Gross profit margin 200.000 Freight-in 10.000 ($900. The gross profit (gross margin) method calculates ending inventory at a given time by subtracting an estimated cost of goods sold from the sum of beginning inventory and purchases (or cost of goods manufactured).00 each.000). The gross profit equals sales multiplied by the gross profit percentage.000 Net sales 900. or $540.000 B. $800.Gleim 2015 | Part 1 | Online MCQs | Unit 002 retained earnings in the period of the error.000 Answer (C) is correct. The following schedule represents the purchases and sales of candles during Year 1: Transaction Quantity Unit Quantity Number Purchased Cost 17Page Sold 1 --- --- 150 2 250 $3. $550.50 each. Accordingly. plus purchases. less expensive items are deemed to have been sold. $2.10) + (350 units × $3. leaving the more expensive items in the ending inventory. C. The FIFO method assumes that the first goods purchased are the first goods sold and that ending inventory consists of the latest purchases. B.805 Answer (B) is correct.10 --- 5 --- --- 200 6 350 3. The amount of future returns can be reliably estimated.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Moreover.00)] – ending inventory (250 units × $3. Profit will be higher when cost of goods sold is lower. Thus. In an inflationary environment. $2. $2.com/CMA.Gleim 2015 | Part 1 | Online MCQs | Unit 002 4 200 3. Weighted average. assuming all other variables remain constant? A. 18Page www.50) + purchases [(250 units × $3. first-out (LIFO).00)}.805 [sales (750 units × $7.854 D. whether the inventory system is periodic or perpetual does not affect FIFO measurement.30) + (200 units × $3.00) – cost of goods sold of $2. First-in. D. Last-in.755 B. cost of goods sold will be lowest when the ending inventory is highest. Cost of goods sold equals beginning inventory.920 Question: 168 The cost of materials has risen steadily over the year.445]. C. first-out (FIFO). the gross profit for Year 1 using FIFO is $2. minus ending inventory. Question: 169 When a right of return exists. ending inventory is highest under FIFO because the older.445 {beginning inventory (200 units × $3. The cost of goods sold is $2. $2. Answer (B) is correct. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit. an entity may recognize revenue from a sale of goods at the time of sale only if A. other factors held constant.facebook.00 --- 7 --- --- 300 If the entity uses periodic FIFO inventory pricing. Specific identification. the gross profit for Year 1 would be A. Hence.000 1.20) + (200 × $2. the 1. C.facebook.com/CMA. and 200 units purchased January 12.700 units of ending inventory are valued at the most recent prices. However. The seller believes returns will not be material.150 Answer (B) is correct. 500 units purchased May 5. $3. Ending inventory is assumed to include 1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . The seller retains the risks and rewards of ownership.150 [(1. Date Units Purchased Units Sold Units Balance January 1 January 12 0 300 March 15 May 5 1.430 19Page www. B. $3. the ending inventory is $3. the buyer may rescind the purchase for a reason stipulated in the contract. C.00)].050 B. One condition for recognition of revenue from the sale of goods is the transfer of the significant risks and rewards of ownership.00 500 @ $2. and the buyer is uncertain about the probability of return. Fact Pattern: Illustrated below is a perpetual inventory card for the current year.700 Additional information:  The entity had no opening inventory. first-out (FIFO) method of inventory valuation is A. D.000 × $1.000 @ $1. $3. $3.000 units purchased November 24. Retention of significant risk may occur when.000 @ $2.65) + (500 × $2.65 1. Under the FIFO method.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (A) is correct.200 500 700 November 24 1. revenue may be recognized at the time of sale if the other conditions for revenue recognition also are met.  The items sold on July 8 were purchased on May 5.  The items sold on March 15 were purchased on January 12. The buyer resells the goods.230 D. if the entity can reliably estimate future returns and recognizes a liability for returns based on experience and other pertinent information. for example. Question: 170 The ending inventory balance under the first-in.20 July 8 700 1. Date Units Purchased Units Sold Units Balance January 1 January 12 0 300 March 15 May 5 July 8 1.200 500 700 November 24 1. Of the 800 units sold during the period.20 July 8 700 1.65 1.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Fact Pattern: Illustrated below is a perpetual inventory card for the current year.00 500 @ $2.000 1. 21Page www.000 @ $1.  The items sold on July 8 were purchased on May 5. The remaining 500 units were purchased on May 5 at a cost of $2. The cost of goods sold under the specific identification method is therefore $1.facebook.600 $1.700 Additional information:  The entity had no opening inventory.000 @ $1. D. Question: 171 The cost of goods sold under the specific identification method of inventory valuation is A. C.00 per unit.65 1. the 300 units sold on March 15 were purchased on January 12 at a cost of $2. $1.320 $1.00) + (500 units × $2.  The items sold on March 15 were purchased on January 12.20 per unit.00 500 @ $2. Date Units Purchased Units Sold Units Balance January 1 January 12 0 300 March 15 May 5 1.200 500 700 November 24 1.com/CMA.000 @ $2.  The items sold on March 15 were purchased on January 12.20)]. Fact Pattern: Illustrated below is a perpetual inventory card for the current year. B.000 1.20 700 1.  The items sold on July 8 were purchased on May 5.000 @ $2.520 $1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .700 Additional information:  The entity had no opening inventory.700 Answer (D) is correct.700 [(300 units × $2. 000 March 1 6.facebook. $78. valued at 10 per unit.000 Dec.978 B.750 Answer (C) is correct.25)]. the entity sold 25. its ending inventory balance (rounded) will be A.000 units 9 October 1 12. cost of goods sold for the period will be A.000 @ $6.000 5. Because the company has 12. 1 2.000 13.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 172 A merchandising company had the following inventory related transactions in its first year of operations: Date Jan.000 Question: 173 An entity has 8. During the year.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .500 units 10 If the entity uses the weighted-average method of inventory valuation.000 May 1 July 1 3.com/CMA. $62.000 units $8 July 1 10.000 B.000 @ $5 10. 1 Purchases Sales in Balance in Units Units in Units 10. The first-in-first-out (FIFO) method treats the oldest units as being sold first and the newest units remain in inventory. ending inventory equals $78. $197. $186.000 Sept.000 units and purchased inventory as follows: Quantity Date Purchased Unit Price April 1 15. D.000 14.000 @ $7 9.750 [(5. $84.000 units in inventory on January 1. $70.000 12.000 21Page www.000 units remaining.000 × $7) + (7.25 21. 1 Nov.000 × $6.000 8.759 C. 1 12.000 If the company uses the first-in-first-out (FIFO) method of inventory valuation.000 @ $6 16. $95.000 [(8.000 × $10) + (15.50) + (5.000 22Page www.000 units × $8) = $77.00 October 1 5.000 units in inventory on December 31.000 $10. If the company uses the first-in.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .500 × $10)]. $85. The total cost of all units available for sale was $415.500).000 units purchased is: (5. B.500.000 × $9) + (12. The cost of the most recent 10. a company has no opening inventory balance.023 Answer (C) is correct. first-out (FIFO) method of inventory valuation.1209).000 × $8) + (10.250 D. first-out (FIFO) inventory valuation.000 C.00 April 1 5.50 There are 10.000 units × $7.00 July 1 5.500 (8. $235. D.000 9. The total units available for sale equaled 45. $77.com/CMA. The following purchases are made during the year: Units Unit Purchased Cost January 1 5. and cost of goods sold was $228. $228.000 7.000 Question: 174 On January 1. $86. the ending inventory balance will be A. Thus. the weighted-average cost per unit is multiplied by the number of units sold to determine the cost of goods sold for the period. Under first-in.000 + 10.facebook.1209 ($415.000 units in ending inventory are assumed to have been the most recent items purchased. the weighted-average cost per unit of inventory was $9. Under the weighted-average method.023 (25.000 × $9.500 Answer (A) is correct.000 + 15. the 10.500).Gleim 2015 | Part 1 | Online MCQs | Unit 002 C.000 + 12.000 ÷ 45.000 8. Thus. 23Page www.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 175 Which inventory pricing method generally approximates current cost for each of the following? Ending Cost of Inventory Goods Sold A. Question: 177 On January 1. Thus. In a period of falling costs. FIFO FIFO B. Answer (B) is correct.00 April 1 5. C.000 9.000 units in inventory on December 31.000 7. a change from FIFO to weighted-average costing reduces cost of goods sold and increases reported profit. B. LIFO FIFO C. D.S.000 8.00 October 1 5. FIFO assigns the most recent acquisition costs to ending inventory and the earliest acquisition costs to cost of goods sold. FIFO results in higher cost of goods sold than the weighted-average method.000 $10. D. LIFO LIFO Question: 176 Which of the following changes in accounting policies resulting from a significant change in the expected pattern of economic benefit will increase profit? A. A change from accelerated to straight-line depreciation in the later years of the depreciable lives of the assets. a company has no opening inventory balance. lower costs with the higher. The following purchases are made during the year: Units Unit Purchased Cost January 1 5. FIFO includes the higher. earlier costs. FIFO LIFO Answer (C) is correct.com/CMA.facebook. and LIFO approximates current cost of goods sold. A change from straight-line to accelerated depreciation in the early years of the depreciable lives of the assets. GAAP but not by IFRS).50 There are 10. LIFO assigns the earliest acquisition costs to ending inventory (it is permitted by U.00 July 1 5.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . FIFO approximates current cost for ending inventory. A change from FIFO to LIFO inventory valuation when costs are rising. and the weighted-average method averages the later. A change from FIFO to weighted-average inventory valuation when costs are falling. earlier costs in cost of goods sold. Under the LIFO method. Question: 179 Which inventory cost flow method is prohibited according to IFRS? A. 24Page www. Specific identification method.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . first-out (LIFO) method of inventory valuation. Last-in.000 purchased during year). C.000 remaining). First-in. first-out (LIFO) method. The most recently incurred costs should be allocated to the cost of goods sold. Costs should be charged to revenue in the order in which they are incurred. B. $87. Question: 180 The inventory method yielding the same inventory measurement and cost of goods sold whether a perpetual or periodic system is used is A. This method is based on the assumption that the newest items are sold first. this method results in the highest cost of goods. C. B. Average cost. Given inflation. Cost of goods sold for the year thus equaled $77. cost of goods sold for the year will be: A.500 Answer (A) is correct. Under the LIFO method. 10.000 available – 10. Costs should be charged to cost of goods sold at average cost.00 July) + (5. first-out.500 [(5.000 units x $8.000 Question: 178 The advantage of the last-in. First-in.Gleim 2015 | Part 1 | Online MCQs | Unit 002 If the company uses the last-in. $86. $77.facebook.000 remain in ending inventory.500 D. B.com/CMA. B. $95. Since 10. D.000 units was available for sale (0 beginning inventory + 20. D. Its effect is to include current prices in cost of goods sold. the most recent costs of acquiring or producing inventory are expensed as part of cost of goods sold. first-out (FIFO) method.250 C. But the LIFO assumption ordinarily does not match actual inventory use. Current costs should be based on representative or normal conditions of efficiency and volume of operations. The last-in. Answer (D) is correct.000 were sold (20. Answer (A) is correct. the units sold were those purchased in July and October.50 October)]. first-out (LIFO) method is prohibited by IFRS. first-out inventory method is based on the assumption that A.000 units x $7. Weighted average cost method. A total of 20. first-out layers of inventory when prices have been increasing. Question: 182 Which one of the following actions would result in a decrease in income? A. first-out inventory method in times of rising prices. Weighted average. B. Question: 181 In a period of rising prices. Accelerating purchases at the end of the year when using last-in.com/CMA. First-in. Changing the number of last-in. first-out pools. In a time of rising prices. first-out. C. First-in. first-out or last-in. the most recent costs of acquiring or producing inventory are expensed as part of cost of goods sold. the most recent costs are the highest costs. Specific identification. C. D. Last-in. Under both perpetual and periodic systems. When prices are rising (which is most of the time). Last-in. resulting in higher cost of goods sold and lower net income.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . which one of the following inventory cash flow assumptions will result in higher cost of sales? A. C. first-out.facebook. Answer (C) is correct. 25Page www. first-out to last-in. Liquidating last-in. first-out. A significant advantage of the LIFO method is its matching of current revenues with the most recent product costs. higher-priced goods against current revenues decreases income. Changing from first-in. B. which one of the following inventory methods usually provides the best matching of expenses against revenues? A.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (B) is correct. Under the LIFO method. the same units are deemed to be in ending inventory. The lower net income means lower taxes. Either first-in. Last-in. charging newer. first-out inventory method when prices are decreasing. first-out. D. B. Question: 183 In periods of rising costs. first-out. first-out. A perpetual inventory system will result in the same dollar amount of ending inventory as a periodic inventory system assuming a FIFO cost flow. Answer (C) is correct. D. 00 $1. which maintains a perpetual inventory system.000 $1.100 Under the moving-average method. the movingaverage cost per unit for the 1/20 sale is $1. D.000 purchase on 1/25).800 purchase on 1/7 – $1. $2. Thus. and the cost of goods sold (COGS) for January is $1.225 Answer (B) is correct. recorded the following information pertaining to its inventory: Units Unit Total On Units Cost Cost Hand Balance on 1/1 1.000 1. A significant advantage of the LIFO method is its matching of current revenues with the most recent product costs. This moving average is based on remaining inventory held and the new inventory purchased. The lower net income means lower taxes.575 COGS on 1/20 + $2.75.000 beginning balance + $1. It requires that a new weighted average be computed after every purchase.000 $1 $1. When prices are rising (which is most of the time). The moving-average system is only applicable to perpetual inventories.com/CMA.600 700 5 2.facebook. Fact Pattern: During January.225 ($1.000 Purchased on 1/7 600 Sold on 1/20 900 Purchased on 1/25 400 Question: 184 3 1. the most recent costs are the highest costs.000 1.000 Purchase 1/7 600 3.640 B. Moving average.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .800 www.. Weighted average. resulting in higher cost of goods sold and lower net income.00 1. Based on the calculations below. what amount should Metro report as inventory at January 31? A. C. Moving-Average Units 26Page Cost/Unit Total Cost Balance 1/1 1.75).Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (B) is correct.800 1. Metro Co.575 (900 units sold × $1. $3. ending inventory is $3. Original cost minus cost to dispose.00 2. $3. No No Question: 186 In accounting for inventories. not the market in which it sells to customers.00 Selling price Cost to complete and sell 27Page Stuff Wickets 217.00 145. Market is the replacement cost of the inventory as determined in the market in which the entity buys its inventory. Yes No Answer (B) is correct.300 D. Original cost minus allowance for obsolescence. C.900 Question: 185 The weighted average for the year inventory cost flow method is applicable to which of the following inventory systems? Periodic Perpetual A. The term “market” as defined here means A. This rule is known as the “lower-of-cost-or-market” rule.00 8.com/CMA.00 $106.’s inventory.600 $1. Per Unit Gear Historical cost $190.75 $2.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . C. Original cost plus normal profit margin. Fact Pattern: The data below concern items in Stockholm Co.800 C.75 19. The weighted-average method determines an average cost only once (at the end of the period) and is therefore applicable only to a periodic system. B. generally accepted accounting principles require departure from the historical cost principle when the utility of inventory has fallen below cost. D. $3.Gleim 2015 | Part 1 | Online MCQs | Unit 002 1. No Yes D. Market is limited to a ceiling amount equal to net realizable value and a floor amount equal to net realizable value minus a normal profit margin. Replacement cost of the inventory.00 $53. the moving-average method requires determination of a new weighted-average cost after each purchase and thus applies only to a perpetual system. Answer (C) is correct.50 www. Yes Yes B.00 73.facebook. In contrast. the effect on per-unit gross profit is a reduction of $6. $51. To make this determination under IFRS.00 105.25 Answer (C) is correct. NRV for the wickets is $71. Reduction of $6. Inventory is recorded at cost. what amount should Stockholm Co. NRV is the estimated selling price in the ordinary course of business minus estimated costs of completion and sale. C.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Current replacement cost 203. compare with historical cost to measure the amount at which the wickets should be measured? A. $50. 28Page www.25 Under IFRS.50 estimated costs of completion and sale).00 21. This amount is expensed. what will be the per-unit effect on gross profit of measuring ending inventory? A. $71. $73. Under IFRS. inventory must be written down if its utility is no longer as great as its cost.75 Question: 188 An entity that prepares its financial statements using IFRS reported the following selected per-unit data relating to work-in-process: Selling price $100 Completion costs 10 Historical cost 91 Replacement cost Normal gross profit Selling cost 108 20 5 In comparison with historical cost. NRV equals selling price minus estimated completion and selling costs.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Given that historical cost is $91 and NRV is $85 ($100 selling price – $10 completion cost – $5 selling cost). inventories are measured subsequent to acquisition at the lower of cost or net realizable value (NRV).00 Normal profit margin Question: 187 32.00 C.facebook. However. No effect.25 ($73. Reduction of $26. historical cost is compared with the inventory’s net realizable value (NRV).00 51.com/CMA.00 B. Answer (B) is correct.75 selling price – $2. B. D.00 29. 000 selling price – $12.facebook.00 Question: 190 Based on a physical inventory taken on December 31. after further processing costs of $12.000. Thus.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 ($40. Because the minimum exceeds the $10 replacement cost.Gleim 2015 | Part 1 | Online MCQs | Unit 002 D. NRV equals selling price minus costs of completion and disposal. Because the lowest amount in the range ($24.000 with a replacement cost of $20. $20.000 [$28. $10. When replacement cost is within this range. Under the LCM method. NRV is $28. the maximum market amount is the $20 NRV ($22 selling price – $2 selling cost). and NRV minus a normal profit equals $24. what is the market amount for this unit of inventory? A. Increase of $5. Under the lower-ofcost-or-market rule.00 Answer (B) is correct.000) is less 29Page www. market is current replacement cost subject to a maximum (ceiling) equal to net realizable value and a minimum (floor) equal to net realizable value minus a normal profit margin. Chewy’s normal profit margin is 10% of sales. $24.000 additional processing costs). determined its chocolate inventory on a FIFO basis at $26.000. Cost is given as $26. Chewy estimated that. Market equals current replacement cost subject to maximum and minimum values. the chocolate could be sold as finished candy bars for $40. $26. it is the market amount.com/CMA. and the minimum is $15 ($20 NRV – $5 normal profit margin). Question: 189 The following data apply to a unit of inventory: Selling price $22 Selling cost 2 Normal profit margin 5 Replacement cost 10 Using the lower of cost or market (LCM) method of measuring inventory.000 C. $28. $15. C.50 D. Chewy Co. it is used as market. and the minimum is NRV minus normal profit. Because market value ($24. The maximum is NRV.000.000).000 – ($40.000 B.000 × 10%)].000 Answer (C) is correct. it is used as market.000.00 B. what amount should Chewy report as chocolate inventory in its December 31 balance sheet? A.000) exceeds replacement cost ($20. $17. and the minimum is net realizable value less normal profit.000). C. the replacement cost of an inventory item would be used as the designated market value A. When replacement cost is within this range. D. market $4) are aggregated for LCM purposes. Separately to each item. All applications result in the same amount. or to each item. if item A (cost $2. Total inventory. B. D. Market is current replacement cost subject to maximum and minimum values.000 Normal profit margin 30. to groups of similar items.000. Information pertaining to that inventory follows: Estimated selling price $204. the inventory measurement is $5. $20.com/CMA.000 Current replacement cost 180. Applying the LCM rule to each item of inventory produces the lowest amount for each item and therefore the lowest and most conservative measurement for the total inventory. When it is below the net realizable value less the normal profit margin. If the rule is applied separately to A and B. Which application generally results in the lowest inventory amount? A. The reason is that aggregating items results in the inclusion of some items at amounts greater than LCM.Gleim 2015 | Part 1 | Online MCQs | Unit 002 than cost ($26. it is used as the market amount. it is also the inventory amount.000 Ward records losses that result from applying the lower-of-cost-or-market rule. D. When it is above the net realizable value.facebook.000 Estimated cost of disposal 10. For example. At December 31Page www. Groups of similar items. Question: 192 Under the lower-of-cost-or-market method. the LCM measurement is $4. Regardless of net realizable value. market $1) and item B (cost $3. Question: 193 Ward Distribution Company has determined its December 31 inventory on a FIFO basis at $200. Answer (B) is correct. The maximum is net realizable value. B.000 Question: 191 The lower-of-cost-or-market rule for inventories may be applied to total inventory. C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Answer (D) is correct. When it is below the net realizable value and above the net realizable value less the normal profit margin. the inventory item should be valued at A.000 historical cost. D. B.000 – $30. C.000) $194.Gleim 2015 | Part 1 | Online MCQs | Unit 002 31.000 Replacement cost $180. the loss that Ward should recognize is A.000 NRV – Normal profit ($194. B.000 ceiling and the $164.000 loss recognized. Information pertaining to that inventory follows: Estimated selling price $408. NRV ($204.000 Estimated cost of disposal 20.000 replacement cost falls between the $194. the original cost should be used to measure the inventory item under the LCM method. C. market equals replacement cost. $0 $6.000 market value is $20.000 floor.000 Question: 194 The replacement cost of an inventory item is below the net realizable value and above the net realizable value less the normal profit margin. it will be used as market in the LCM determination. Under the lower-of-cost-ormarket (LCM) method. As indicated below. Because the $180. the inventory should be valued at $180.000 – $10.000 Lorraine records losses that result from applying the lower-of-cost-or-market (LCM) rule.000 Current replacement cost 360.000 Answer (D) is correct.000 $14.000 Normal profit margin 60. Answer (C) is correct. Given that the original cost of the inventory item is below market.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .com/CMA. Hence. At its year end. what should be the net carrying value of Lorraine’s inventory? A.000 $20. Net realizable value less the normal profit margin. the $180. The original cost of the inventory item is below the net realizable value less the normal profit margin. Question: 195 Lorraine Co. has determined its fiscal year-end inventory on a FIFO basis to be $400.000 and a $20.facebook. Original cost.000) $164.000 31Page www.000. When replacement cost is below the NRV and above the NRV less the normal profit margin. Net realizable value. Replacement cost. $400. D.000 lower than the $200. 000 Current replacement cost Normal profit margin 76. GAAP require the cost of inventory to be written down if the utility of the goods is impaired.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000. inventories are measured subsequent to initial recognition at the lower of cost and net realizable value (NRV). B.000 Question: 196 Which of the following is true regarding inventory adjustments under IFRS? A.000 normal profit).000 selling price – $20. NRV equals selling price minus costs of completion and disposal.000) is between $388.000 Answer (C) is correct. unlike U.000.000 (floor). However. C.facebook. Under the LCM method.000 (ceiling) and $328.Gleim 2015 | Part 1 | Online MCQs | Unit 002 B.000 cost of disposal).S. the inventory carrying amount cannot be lower than NRV minus normal profit. $360.000 The company expects that on December 31.000 ($388. the net carrying amount is $360. original cost is $400. Because the lower of cost or market ($360. IFRS do not require inventory adjustments.com/CMA. Reversals of adjustments are allowed in a subsequent period. Adjustments may not be reversed in a subsequent period. with NRV assessed each period. GAAP on June 30. Year 2: Historical cost $80. Question: 197 A company determined the following information for its inventory at the end of an interim period on June 30. The LCM method uses the lower of the two. Answer (B) is correct. GAAP. $328. or $328.000 ($408.S. Year 2. market is current replacement cost subject to a maximum (ceiling) equal to net realizable value and a minimum (floor) equal to net realizable value minus a normal profit. D. Here. Under IFRS. the inventory’s NRV reduced by a normal profit margin will be at least $81. $360. What amount of inventory should the company report in its interim financial statements under IFRS and under U. to measure inventory. Moreover.000 and replacement cost is $360.000 C. The reversal is permissible only to the extent of the prior write-down. the inventory measure cannot exceed the NRV of $388. IFRS permit inventory to be written up to the lower of cost and NRV if previously written down. $388.S. Year 32Page www.000. A reversal of a previous write-down may be higher than the previous writedown. Both IFRS and U.000 NRV – $60. D.000 Net realizable value (NRV) 77.000 2. Furthermore.000. 000 80. $80. B.000 C. Inc. B.000 $80. GAAP A.000 110.000 because no write-down of inventory is reasonably anticipated for the year.000.000 Answer (A) is correct. Fair value. Under IFRS. with no unrealized gains or losses reported. Fair value.000 $150.000 Delta. 9% bonds Port City municipal bonds 33Page www. the inventory is measured at the lower of cost ($80.000 Question: 198 Investments classified as held-to-maturity are measured at A.000 Securities to be held to maturity: Armand. GAAP. C.000 D.000 240.S. held-to-maturity securities are reported at amortized cost.000 210. with no unrealized gains or losses reported. common stock 125.com/CMA. Inc. with unrealized gains and losses reported in net income.000) and NRV ($77. 8% bonds 225. inventory is reported at its historical cost of $80.000 $81.Gleim 2015 | Part 1 | Online MCQs | Unit 002 2? IFRS U. with unrealized gains and losses reported in other comprehensive income (OCI). Amortized cost.. Whether a market decline is expected to be reversed by the end of the annual period is not considered. D.000 $80. Thus.000 180.000 Barton. Assuming the fair value option has not been elected.. Replacement cost.000 $76. with no unrealized gains or losses reported.000 84. Under U. $77.000) for each interim reporting period. the inventory is not reported at its NRV of $77.S. $80. Inc.facebook. Question: 199 King Company has the following investment portfolio: Cost Fair Value Trading securities: Quill Company common stock $140. Answer (D) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $77.. $902. $920. unrealized gains and losses are recorded on the income statement.000 109.000 Answer (C) is correct.. $892..Gleim 2015 | Part 1 | Online MCQs | Unit 002 Available-for-sale securities: Knox Co.000 D. 34Page www. common stock Vernon.000 Available-for-sale securities: Knox Co.000 180.000 Securities to be held to maturity: Armand. Inc. Trading securities and available-for-sale securities are reported at their fair values at each balance sheet date. preferred stock Total 51.000 Question: 200 Which one of the following statements with regard to marketable securities is incorrect? A.000 $920. B. Inc. Inc. common stock 45..000 B.. Held-to-maturity securities are reported at amortized cost.facebook..000 Delta.000 C.com/CMA. Inc. 9% bonds Port City municipal bonds 80.000 109.000 Vernon. In the trading portfolio of marketable equity securities. preferred stock 97.000 The total amount of these investments to be reported on King’s statement of financial position is A.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $954. 8% bonds 240.000 Barton. Inc. unrealized gains and losses are recorded on the income statement. common stock 110. The total amount of these investments to be reported on King’s statement of financial position is therefore calculated as follows: Trading securities: Quill Company common stock $150. In the available-for-sale portfolio of marketable equity securities.000 51. (But all or part of unrealized holding gains and losses on available-for-sale securities designated and qualifying as hedged items in a fair value hedge are recognized in earnings. Question: 202 Unrealized gains and losses on trading securities should be presented in the A.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Answer (B) is correct. At year end.facebook. Assuming the fair value option has not been elected.) C. Realized loss on sale of 35Page Unrealized holding gain on appreciation of AFS securities Unrealized holding gain on appreciation www. During the current year. Statement of retained earnings. C. Securities may be transferred from the held-to-maturity to the available-forsale portfolio. B. Equity securities. with the unrealized holding gains or losses recognized in earnings. D. unrealized holding gains and losses on available-for-sale securities are reported in other comprehensive income. Unrealized holding gains and losses on trading securities are included in earnings and are therefore reported in the income statement. the remaining portfolio of AFS securities had appreciated in total value compared with the value at the end of last year. D. Answer (B) is correct. They are purchased and sold frequently.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Notes to the financial statements. Statement of financial position. the company sold some of the AFS securities at a loss. Unrealized loss on sale of AFS securities B. Based on these facts. Income statement. Question: 201 Securities held primarily for sale in the near term to generate income on short-term price differences are known as A. Trading securities are bought and held primarily for sale in the near term. The held-to-maturity portfolio consists only of debt securities. They are initially recorded at cost but are remeasured at fair value at each balance sheet date. Answer (D) is correct. Trading securities.com/CMA. C. B. Available-for-sale securities. These investments were acquired last year and have been properly classified as available-for-sale (AFS) securities. D. which one of the following should Vanity report in its financial statements at the end of the current year? Income Statement Balance sheet A. Question: 203 Vanity Corporation holds investments in equity securities. Held-to-maturity securities. Fair value. B. Absent an election of the fair value option. Absent an election of the fair value option.000.000. At year end.Gleim 2015 | Part 1 | Online MCQs | Unit 002 AFS securities of AFS securities Answer (B) is correct. C. The investments consisted of $100. They are initially recorded at cost but are subsequently measured at fair value at each balance sheet date.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . 5-year bonds. C. Rim Co.com/CMA. investments in debt securities must be classified asheld-to-maturity and measured at amortized cost in the balance sheet if the reporting entity has the positive intent and ability to hold them to maturity. Trading securities are debt securities not classified as held to maturity and equity securities with readily determinable fair values that are bought and held primarily for sale in the near term. unrealized holding gains and losses on available-for-sale securities. the bonds and the equity securities are trading securities. Realized loss on sale of AFS securities and Unrealized holding unrealized holding gain on appreciation of gains/losses not AFS securities reported he Question: 204 Kale Co. Realized losses on the sale of available-for-sale securities are included in the calculation of current period earnings. $50.facebook. What amount should Rim report as trading securities in its year-end balance sheet? A. 8%.000 Answer (D) is correct. B.000 $142. D.000 $155. Lower of cost or market. and equity securities purchased for $35.000. Amortized cost. purchased for $92. Quoted market prices in active markets are the best evidence of fair 36Page www. D. Hence. Cost. and the equity securities had a market value of $50. Unrealized holding gain on Unrealized loss on sale of appreciation of AFS securities AFS securities. C.000 $127. are excluded from earnings and are reported as components of other comprehensive income. However. Answer (B) is correct. held several investments with the intent of selling them in the near term. purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity.000. Kale should account for these bonds at A. D.000. the bonds were selling on the open market for $105. including those classified as current assets. Question: 205 At year end. 000 11. Fair value. the securities should be reported as $28.000 $28.000. 11.000 $ 8.000 $30. these securities are reported at fair value. The total is $155. C. On a statement of financial position.000 Kemo. Consequently.000. had investments in trading securities as follows: Fair Cost Man Co. with holding gains included in earnings only to the extent of previously recognized holding losses. Value $10.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Fenn Corp.000. with holding gains included in earnings only to the extent of previously recognized holding losses. $29.facebook. with holding gains and losses included in earnings.000 Answer (B) is correct. $26.000 B. with holding gains and losses included in earnings. They are classified as current and consist of debt securities and equity securities with readily determinable fair values.000. Lower of cost or market. 9. Question: 207 On December 31. Trading securities are reported at fair value. B. Answer (D) is correct.com/CMA. $28. $30. Unrealized holding gains and losses on trading securities are reported in earnings. Based on market quotes at year end. Inc. Ott Co. the bonds had a fair value of $105.Gleim 2015 | Part 1 | Online MCQs | Unit 002 value.000 D.000 Ott’s December 31 balance sheet should report the trading securities as A. D. and unrealized holding gains and losses are included in earnings. and the equity securities had a fair value of $50. C. Lower of cost or market.000 9. Question: 206 An entity should report the marketable equity securities that it has classified as trading at A. Fair value. Trading securities are those held principally for sale in the near term.000 37Page www. These securities should be reported at fair value. OCI should have been debited for $10. by what amount should other comprehensive income (OCI) be credited at December 31.000 Differences between cost and fair values are considered to be temporary. Available-for-sale securities Other comprehensive income (OCI) Answer (B) is correct.facebook. Year 3. are not included in earnings but ordinarily are reported in OCI.000 $30. with unrealized holding gains and losses (except those on securities designated as being hedged in a fair value hedge) excluded from earnings and reported in OCI. has a portfolio of marketable equity securities that it does not intend to sell in the near term. D. $0 $10. C. Year 2.000 Answer (D) is correct. The decline in fair value was properly accounted for at December 31. Trading securities A component of income from continuing operations B. Year 2 (assuming the securities are not designated as being hedged in a fair value hedge). How should Nola classify these securities. At December 31. Unrealized holding gains and losses on available-for-sale securities. OCI should be credited to reflect a $30.000 $20. At December 31.000 Fair value 90.000 120. net of tax effects (ignored in this question). including those classified as current assets.000 unrealized holding gain ($120. Available-for-sale A component of income from continuing securities operations Question: 209 The following information pertains to Lark Corp. Year 3? A. Equity securities that are not expected to be sold in the near term should be classified as available-for-sale.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 fair value at 38Page www. B. C.’s available-for-sale securities: December 31 Year 2 Cost Year 3 $100.com/CMA.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 208 Nola Co.000 for the excess of cost over fair value to reflect an unrealized holding loss. Ignoring tax effects. Trading securities Other comprehensive income (OCI) D. Marketable equity securities may be classified as either trading or available-for-sale (assuming no election of the fair value option). and how should it report unrealized gains and losses from these securities? Classify as Report in A.000 $100. Amortized cost Fair value Answer (B) is correct.800 Historical cost of the available-for-sale securities was A. C. $63.Gleim 2015 | Part 1 | Online MCQs | Unit 002 12/31/Year 3 – $90. The existence of an equity account with a debit balance signifies that the available-for-sale securities are reported at fair value that is less than historical cost.facebook.450 available-for-sale securities at fair value + $19. Equity securities that are not expected to be sold in the near term should be classified as available-for-sale. C. Fair value Fair value 39Page www. with unrealized holding gains and losses (except those on securities designated as being hedged in a fair value hedge) excluded from earnings and reported in OCI.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .800 net unrealized loss).000 fair value at 12/31/Year 2). how should each of the following debt securities be reported at the end of the year.’s December 31 balance sheet: Debit Balance Noncurrent assets: Available-for-sale securities (carried at fair value) Equity: Accumulated other comprehensive income (OCI) Unrealized gains and losses on available-for-sale securities $96. Investments in debt securities must be classified as held-to-maturity and measured at amortized cost in the balance sheet if the reporting entity has the positive intent and ability to hold them to maturity. historical cost must have been $116.650 $96. The difference is the net unrealized loss balance.450 19. D. These securities should be reported at fair value.com/CMA.595 $76. given no election of the fair value option? Debt Securities Classified As Held-to-Maturity Available-for-Sale A. B.250 ($96.450 $116. Investments in equity securities are classified as either trading or available-for-sale.250 Answer (D) is correct. Question: 210 The following information was extracted from Gil Co. Question: 211 When the fair value of an investment in debt securities exceeds its amortized cost. Hence. Amortized cost Amortized cost B. .000 $450. Thus. $320. Fair value accounting applies to both trading and available-for-sale securities. The following information pertains to Reed’s December 31 securities: Trading Available-for-Sale Cost $360.000 $450. 41Page www.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 $550. respectively.000 B.000 320. $360.000.000 Answer (C) is correct. Answer (B) is correct.000 304. D. B. Inc. Other comprehensive income section of the income statement only.000 $420. $304. began operations on January 1. The investment was classified as available-for-sale on Beach’s books.com/CMA.000 Fair value Lower of cost or fair value applied to each security If the declines are judged to be temporary. The amortized cost basis is used to calculate the amount of any impairment. Fair value Amortized cost Question: 212 Reed. these securities should be reported in the assets section of the balance sheet at their fair values of $320.000 $550.Gleim 2015 | Part 1 | Online MCQs | Unit 002 D. what amounts should Reed report for its trading and available-for-sale securities in the assets section of its December 31 balance sheet? Trading Available-for-Sale A. assuming the latter are not designated as being hedged in a fair value hedge. The amortized cost basis should be distinguished from fair value. The difference in treatment is that the unrealized holding gains and losses are included in earnings for trading securities and in other comprehensive income for available-for-sale securities. which equals the cost basis plus or minus the net unrealized holding gain or loss.facebook. The controller would properly record the decrease in FV by including it in which of the following? A.000 Question: 213 Beach Co. If a decline in fair value of an individual availablefor-sale security below its amortized cost basis is other than temporary. determined that the decline in the fair value (FV) of an investment was below the amortized cost and permanent in nature.000 and $450. $360. Earnings section of the income statement and writing down the cost basis to FV.000 420.000 450.000 C. 000 Question: 215 A corporation acquires a 30% voting interest in another corporation. In this situation. and writing down the cost basis to FV. If an investor can exercise significant influence over an investee. $40. Year 1. $100. $60.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 B. Lower-of-cost-or-market. For the year ended December 31. The investment was acquired for $40 per share. Year 2. The write-down is deemed to be a realized loss and is included in earnings. Thus. Extraordinary items section of the income statement. Other comprehensive income section of the income statement. Question: 214 On January 2. the realized loss included in earnings at 12/31/Year 2 was $80. the temporary decline in fair value at 12/31/Year 1 was debited to other comprehensive income and was not included in earnings.000 Answer (B) is correct. When a corporation owns 20% or more of the voting power of the investee. 41Page www. On December 31. Cost. purchased as a long-term investment 10. and writing down the cost basis to FV.000 shares × ($40 – $30)].Gleim 2015 | Part 1 | Online MCQs | Unit 002 the amortized cost basis is written down to fair value as a new cost basis. the long-term investment is generally accounted for on the investor corporation’s books using which of the following reporting methods? A. On January 28. Answer (D) is correct. Year 2. C. $80. Adam Co. net of tax. B. These securities were properly classified as available-for-sale. the market price of Mill’s stock was $35 a share.’s common stock for $40 a share. D. reflecting a temporary decline in market price.000 D. Accordingly. they should be classified as available-for-sale securities.facebook.000 [8. the ability to exercise significant influence is presumed. Because the shares were purchased as a long-term investment. Equity. C. Consolidated. Year 1. C. Adam sold 8. A realized loss or gain is recognized when an individual security is sold or otherwise disposed of. Adam should report a realized loss on disposal of a long-term investment of A.000 shares of Mill stock for $30 a share. the investment should be accounted for by the equity method. D.000 shares of Mill Corp. Breva had net income of $200.000 Income -.000 B. After the date of acquisition. $160.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $110.000 ($150. an investor debits an investment and credits revenue for its share of the investee’s earnings. C. The receipt of a cash dividend from the investee is treated as a return of an investment. At the beginning of the year. $150.facebook.000 – $40.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 216 Johnstone Company owns 10. Breva currently has 40.000 (2) a dividend from the investee is treated as a return of an investment: Cash ($160.000 + $50. Thus.000) of Breva’s voting common stock. D. Under the equity method. the balance in the investment in Breva account is $160.000 shares outstanding. Not affected by its share of the earnings or losses of the investee.com/CMA. No No Answer (B) is correct.000 Investment in Breva $40.000 Answer (C) is correct.000 × 25%) $40. at the end of the year. A change in fair value has no effect on an investment in securities accounted for under the equity method. Johnstone holds 25% (10. $240.000 Thus. there was a balance of $150.000). Yes Yes Question: 218 An investor uses the equity method to account for an investment in common stock.000 in dividends. At the end of the year.000 C.000 and paid $160. (1) an investor recognizes its share of the investee’s net income as an increase in the investment account: Investment in Breva ($200.000 × 25%) $50.000 ÷ 40. it is credited to the investment but does not affect equity-based earnings.000 Question: 217 An investor uses the equity method to account for an investment in common stock. The investor’s equity in the earnings of the investee is affected by A Change in Fair Cash Dividends Value of the Investee’s from Investee Common Stock A. Under the equity method. the investment account of the investor is A.000 in Johnstone’s equity method investment in Breva Corporation account. 42Page www. Yes No D. During the year.equity-method investee $50. the balance in this account should be A.000 shares of Breva Corporation’s stock. No Yes B. Under the fair value method and the cost method. D. Dyer can exercise significant influence over Eason’s operating and financial policies.000 for this investment when the fair value and carrying amount of Eason’s net assets was $3.000 C. Thus. an equity-based investment in common stock account of an investor is increased by its share of the earnings of the investee.com/CMA.5 million fair value. $80. How much revenue from this investment should Dyer report for the year? A. revenue from the investment is 20% of the reported net income of $400. dividends from 43Page www. and decreased by its share of cash dividends received from the investee. Moreover. the carrying amount and fair value of the net assets were the same. received a cash dividend from a common stock investment.000 B. the investment should be accounted for using the equity method. Eason reported net income of $400.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Question: 220 Peel Co. Dyer paid $700. or $80. After the date of acquisition.000 and declared and paid cash dividends of $160. decreased by its share of the losses of the investee. Not affected by its share of the earnings of the investee.facebook. Increased by its share of the earnings of the investee. The cash dividend does not affect the amount of income to be reported.000.000 Answer (C) is correct. but is not affected by its share of the losses of the investee. Under these circumstances. Should Peel report an increase in the investment account if it uses the fair value method or the equity method of accounting? Fair Value Equity A. but is decreased by its share of the losses of the investee.5 million. acquired as a long-term investment a 20% common stock interest in Eason Co. C. and is decreased by its share of the losses of the investee. (used only if the fair value method and the equity method are not applicable). D. For the year ended December 31. No No Answer (A) is correct. The $700. Increased by its share of the earnings of the investee. $32. Answer (D) is correct.000.Gleim 2015 | Part 1 | Online MCQs | Unit 002 B.000 paid for the investment is equal to 20% of the $3. no goodwill impairment or other acquisition differential that might require adjustment of Dyer’s share of the investee’s net income is associated with this investment. Question: 219 On January 1. Dyer Co. Because the investor can exercise significant influence over the investee’s operating and financial policies. $48.000. $112. $0 B. D.facebook. Question: 222 Green Corp. cash dividends decrease the investment account because the dividend is considered to be a return of investment. the equity method is not applicable to preferred stock.000 on its preferred stock.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . not a return on. C.Gleim 2015 | Part 1 | Online MCQs | Unit 002 an investee should be accounted for by the investor as dividend income unless a liquidating dividend is received. Axel declared dividends of $100.000 44Page www. What amount of dividend revenue should Green report in its income statement for the year ended December 31. the investor recognizes its equity in the undistributed earnings of the investee. Under the equity method. Year 1? A. B. the receipt of a cash dividend from the investee should be credited to the investment account.000 Answer (C) is correct. Yes No D. Under the equity method. Depreciation related to the excess of fair value over the carrying amount of the investee’s depreciable assets at the date of purchase by the investor. $60. It is a return of. Yes Yes C. In Year 1.com/CMA. it has no effect on the investment account under the fair value method. A cash dividend received from the investee. $90.000 of revenue when the preferred dividends are declared. Green exercises significant influence over Axel’s operations and uses the equity method to account for the investment in the common stock. A proportionate interest in the net income of the investee. the investment. the investment account will be increased when the investor recognizes A. Periodic amortization of the goodwill related to the purchase. Green should report $60.000 C. assuming that the dividend is not liquidating. No Yes Question: 221 When an investor uses the equity method to account for investments in common stock.000 on its common stock and $60. $30. Losses and dividends are reflected as reductions of the carrying amount. D. Thus. the investor’s share of the investee’s net income is accounted for as an addition to the carrying amount of the investment on the investor’s books. B. Under the equity method. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. Consequently. Thus. Answer (A) is correct. However. ’s purchase of 30% of Eagle presumably allows it to exercise significant influence.000 × 30% × (6 months ÷ 12 months)].000 ($1.000 Question: 225 A conglomerate entity acquired 100% of the net assets of a target entity for $900 cash. The target entity’s statement of financial position just prior to the acquisition is presented below. Hence. In its Year 1 income statement. earned evenly throughout the year. was $120.000). the net fair value of the identifiable assets acquired and liabilities assumed had a carrying amount of $900.000 in dividends to its common shareholders. At the time of the acquisition.000 and a fair value of $800. goodwill equals the excess of the fair value of the consideration transferred over the fair value of the net of the identifiable assets acquired and liabilities assumed.000 – $800. Denver Corp.facebook. On December 15. $6. C.000 Answer (C) is correct. Denver Corp. Year 1.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 223 On July 1. $18.’s 10.000 [$120.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . it should apply the equity method.000. plant.000 C. $12. $0 B.000 B. $36. goodwill is $200. The investor’s share of the investee’s income is a function of the percentage of ownership and the length of time the investment was held. Given no prior equity interest or noncontrolling interest.000. $200. $100.000 outstanding shares of common stock for $20 per share but did not elect the fair value option. The income from this investment was therefore $18. Consequently.000.000 Answer (B) is correct. Year 1. purchased 3.000. D. Eagle’s net income for the year ended December 31.000 Question: 224 Entity A acquires all of the voting shares of Entity B for $1. Eagle paid $40. The amount of goodwill Entity A will record on the acquisition date is A. Target Entity (as of acquisition date) Cash Carrying Fair Amount Value $ 100 $100 Receivables 200 200 Inventory 150 200 Property.000 D.com/CMA.000.000 shares of Eagle Co. what amount of income from this investment should Denver report? A. 45Page www. $300. Year 1. In a consolidated statement of financial position. inventory. the net fair value acquired is $700. X lent Y $1. Hence. Question: 226 Entity X owns 90% of Entity Y.com/CMA. Given no prior equity interest and no noncontrolling interest. Early in the year. all effects of the $1. This net fair value equals the sum of cash. $200 Answer (C) is correct. B.000. None of the answers are correct. the payable. goodwill is the excess of the fair value of the consideration transferred over the net of the fair values of the identifiable net assets acquired. D. and PPE. Eliminate 100% of the receivable. receivables. between a parent and a consolidated subsidiary should be eliminated in their entirety regardless of the portion of the subsidiary’s shares held by the parent. Eliminate 90% of the receivable and the payable but not any related interest. reciprocal balances.000. and the related interest. 46Page www. such as receivables and payables. No payments have been made on the debt by year end.000 loan should be eliminated in the preparation of the year-end consolidated statement of financial position.000. C. and the related interest. Thus.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Eliminate 100% of the receivable and the payable but not any related interest.Gleim 2015 | Part 1 | Online MCQs | Unit 002 and equipment (net) 600 400 Total assets $1.050 The amount of goodwill to be recorded by the conglomerate entity related to its purchase of the target entity is A. and goodwill is $200 ($900 fair value of the consideration transferred – $700). Proper accounting at year end in the consolidated financial statements would A.facebook. minus liabilities. Eliminate 90% of the receivable. $(200) B. D. the payable.050 $900 Current liabilities $ 200 $200 Share capital 200 Retained earnings 650 Total liabilities and equity $1. Answer (A) is correct. $50 C. Jones Corporation ($000) Carrying Amount Fair Value $ 50 $ 50 Accounts receivable 100 100 Inventory 150 100 300 250 500 600 $800 $850 $150 $150 200 200 350 350 Common stock 150 150 Paid-in capital 80 80 Cash Total current assets Property.000.000 The amount charged to the expenses of the business combination is A.000). D.com/CMA. tax. registration. the amount expensed is $360. Acquisition-related costs. are expensed as incurred.facebook. accounting. Question: 228 Alton Corporation purchased 100% of the shares of Jones Corporation for $600. such as finder’s fees. and equipment (net) Total assets Current liabilities Long-term debt Total liabilities 47Page www.000 Consulting fees 120. General administrative costs $240.000 + $120. C. But direct issue costs of equity (underwriting.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Accordingly. and general administrative costs.) are debited to additional paid-in capital. $80.000 ($240.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 227 Costs incurred in completing a business combination are listed below.000 $360. Financial information for Jones Corporation is provided below.000 Answer (D) is correct. etc. legal. plant. professional and consulting fees.000 $240.000 $120. B.000 Direct cost to register and issue equity securities 80. C. $0 Question: 229 How should the acquirer recognize a bargain purchase in a business acquisition? A. 48Page www. As a deferred gain that is amortized into earnings over the estimated future periods benefited.facebook.000) and liabilities assumed ($350.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity 220 450 $800 The amount of goodwill resulting from this purchase.000 B.000 – $350. $200.000 C. A bargain purchase occurs when the net of the acquisition-date fair values of identifiable assets acquired and liabilities assumed exceeds the sum of the acquisition-date fair values of the consideration transferred. B.000). and (c) the acquirer’s previously held equity interest in the acquiree ($0) over (2) the net of the acquisition-date fair values of the identifiable assets acquired ($850. $100. Answer (C) is correct. $150.000 Answer (C) is correct. if any.000 Acquisition-date fair value of net assets acquired ($850. A bargain purchase is recognized in the consolidated financial statements as an ordinary gain at the acquisition date. As negative goodwill in the statement of financial position.000). As a gain in earnings at the acquisition date.000 D. D. As goodwill in the statement of financial position.com/CMA. any noncontrolling interest recognized.000) Goodwill $100. and any previously held equity interest in the acquiree. would be A. The amount of goodwill is calculated as follows: Consideration transferred $600. (b) any noncontrolling interest in the acquiree ($0).Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Goodwill is the excess of (1) the sum of the acquisition-date fair values of (a) the consideration transferred ($600.000) (500. the carrying amount of the equipment should be reported at A. was the carrying amount on Fire’s balance sheet plus the gain on the sale.000 Answer (A) is correct. $70. B.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 advance should be eliminated in the preparation of the year-end consolidated balance sheet. The original amount recorded for the acquisition by Water Co.000 in cash. Answer (C) is correct. In a consolidated balance sheet. B. reciprocal balances.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 230 Par Corp. Should this receivable be separately reported in Shep’s balance sheet and in Pep’s consolidated balance sheet. owns 80% of the outstanding common stock of Fire Co.com/CMA. Water’s original cost minus Fire’s recorded gain. $0 Question: 231 Shep Co.000 C.000 D. Water’s original cost. On a consolidated balance sheet at December 31. between a parent and a consolidated subsidiary should be eliminated in their entirety regardless of the portion of the subsidiary’s stock held by the parent. No Yes Question: 232 Water Co. Pep Co. In consolidated financial statements. C. Yes No Answer (A) is correct. Yes Yes C. In the consolidated 49Page www. such as receivables and payables. which was still outstanding at December 31. of the equipment from Fire Co.facebook. the effects of intraentity transactions should be eliminated. intraentity transactions should not be eliminated from the separate financial statements of the entities. However. regardless of the portion of the subsidiary’s stock held by the parent. Fire’s original cost. Thus. owns 60% of Sub Corp. Year 3. has a receivable from its parent. On December 31. reciprocal balances. between a parent and a consolidated subsidiary are eliminated in their entirety. Year 3. In a consolidated balance sheet. $42. Fire sold equipment to Water at a price in excess of Fire’s carrying amount but less than its original cost. Par advanced Sub $70. On May 1. the entire $70. $28. such as receivables and payables. B.’s outstanding capital stock. No No D. Shep’s Pep’s Consolidated Balance Sheet Balance Sheet A. What portion of this advance should be eliminated in the preparation of the December 31 consolidated balance sheet? A. are as follows: Actual Warranty Sales 51Page Expenditures Year 3 $ 600.000 www. D.000 Year 4 1. or $120. and warranty costs of $67. Question: 233 Vadis Co. In its income statement for the year ended December 31. a provision for warranty costs is made when the related revenue is recognized. D. East should report warranty expense of A. C. Based on experience. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis.com/CMA.000. Sales and actual warranty expenditures for the years ended December 31.000 × 4%). Question: 235 During Year 3.000. the equipment should be reported at the amount previously recorded on Fire’s balance sheet.000 ($3.000 Answer (D) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Evenly over the life of the warranty. When the service calls are performed.000 30. When payments are made to the mechanic. C. Warranty expense equals 4% of sales for the period. warranty costs are estimated at $30 for each machine sold. stereo system sales totaled $3 million. D. This amount is the original cost recorded by Water minus the gain recognized by Fire when the transaction took place. B.000 $ 9. When should Vadis recognize these warranty costs? A.000 $67. B. $52. manufactures stereo systems that carry a 2-year warranty against defects. When the machines are sold. Under the accrual method. warranty costs are estimated at 4% of sales for the warranty period. introduced a new product carrying a 2-year warranty against defects. Rex Co.500 $60. Year 3 and Year 4.Gleim 2015 | Part 1 | Online MCQs | Unit 002 financial statements.facebook.500 $120. sells appliances that include a 3-year warranty. Water’s original cost minus 80% of Fire’s recorded gain. Question: 234 East Corp. During the year. Based on past experience. Answer (D) is correct.500 were incurred. 000 ($1. At June 30.000). respectively. $39. 3. Based on its experience with similar products. $0 B.000 × $8).000 in Year 3 and Year 4. $33. Actual warranty costs incurred from April 1 through June 30 were $7. the ending balance must have been $17. $16.000 ($24.000 $39. the estimated warranty costs are $60.000 60.000 51Page www.000. D. Given that actual warranty costs of $7. what amount should Ash report as estimated warranty liability? A.000 C.000 sales × 6%). For Year 3. the estimated warranty liability at 12/31/Yr 4 is $57.000 (3.000.000 ($600.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 At December 31.000 – $7. Ash estimated that the average warranty cost per unit sold would be $8.000 had been sold by June 30. Of the 5.Gleim 2015 | Part 1 | Online MCQs | Unit 002 $1.000 Answer (C) is correct. This liability account is debited for expenditures of $9.600. the total credits to the liability account equaled $24. These amounts are charged to warranty expense and credited to the estimated warranty liability account.000 0 36.000 $57. began offering a new product for sale under a 1-year warranty. Estimated Warranty Liability $ Year 3 expenditures $ 9.000 units in inventory at April 1. Because this product is new. Ash Corp.000 × 6%). For Year 4.com/CMA.000 and $30. $9. Year 4.000 were debited to the account.000 units were sold at an estimated $8 per unit warranty cost.facebook.000 Question: 236 On April 1. Hence. the estimated warranty costs related to dollar sales are 6% (2% + 4%) of sales or $36. $96.000 C.000 1/1/Yr 3 Year 3 expense Year 4 expense 12/31/Yr 4 D. If 3.000. the beginning balance in the estimated warranty liability account at the beginning of Year 3 is $0. $17. Rex should report an estimated warranty liability of A. $57.000 Year 4 expenditures 30.000 Answer (C) is correct.000 B. . A. the current market value of the inventory was less than the fixed purchase price by a material amount. A commitment to acquire goods in the future is not recorded at the time of the agreement.facebook. C. if material. Should be recognized in the accounts and separately disclosed as losses on the income statement of the period during which the decline in price takes place. recognize a loss in the income statement. Disclosure of the loss is also required. The entry is to debit unrealized holding loss-earnings and to credit liability-purchase commitment. recognized and separately disclosed in the income statement. certain disclosures are required for unconditional purchase obligations that are unrecorded. A decrease (not an increase) in the future benefits of the commitment should be recognized when it occurs. and unhedged commitments for the future purchase of inventory. e. and. Answer (A) is correct. by debiting an asset and crediting a liability. But recognition in earnings of a loss on goods subject to a firm purchase commitment is required if the market price of these goods declines below the commitment price. B. recognize a loss in the income statement.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 237 A corporation entered into a purchase commitment to buy inventory.g. but do not recognize a loss in the income statement. Thus. A loss is accrued in the income statement on goods subject to a firm purchase commitment if the market price of these goods declines below the commitment price. Describe the nature of the contract and the estimated amount of the loss in a note to the financial statements.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . and recognize a liability for the accrued loss. This loss should be measured in the same manner as inventory losses. If a firm expects that losses will occur when the purchase occurs. if material. D. If material losses are expected to arise from firm. They include the nature and term of the obligation. Furthermore. Question: 238 Net losses on firm purchase commitments to acquire goods for inventory result from a contract price that exceeds the current market price. Answer (A) is correct. noncancelable. The reason for current loss recognition is the same as that for inventory on hand. expected losses. Which of the following accounting treatments is most appropriate? A. At the end of the accounting period. Describe the nature of the contract in a note to the financial statements. B. Neither describe the purchase obligation nor recognize a loss on the income statement or balance sheet. Describe the nature of the contract in a note to the financial statements. Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which 52Page www.com/CMA. and recognize a reduction in inventory equal to the amount of the loss by use of a valuation account. the lower of cost or market rule is followed. they should be measured in the same way as inventory losses. 000 to $200. from his position with Linden after Russell allegedly sold specifications for one of Linden’s new products to a competitor. damages could range from $100. Linden’s accountants estimate the company will incur an additional $5. Should not be recognized in the accounts until the contract is executed and need not be separately disclosed in the financial statements. Should be recognized in the accounts and separately disclosed as net unrealized losses on the balance sheet at the end of the period during which the contract is executed. Question: 240 Which one of the following loss contingencies would be accrued as a liability rather than disclosed in the notes to the financial statement? A. C. A dispute over additional income taxes assessed for prior years (now in litigation). B. Linden’s attorney believes that it is quite possible Linden will lose the case and that. The company had terminated the plaintiff. Amount of the loss can be reasonably estimated. Similarly to the guidelines for loss contingencies. A material contingent loss must be accrued when the following two conditions are met: 1. D.facebook. A pending lawsuit with an uncertain outcome. Regardless of the outcome of the case. if so. A guarantee of the indebtedness of another. at the balance sheet date. a liability for future warranty costs should be accrued if (1) the incurrence of the expense is probable and (2) the amount can be reasonably estimated. Liabilities for service or product warranties made as a regular part of business. 2. The amount of the loss can be reasonably estimated. George Russell. D.000 in unemployment costs because of Russell’s termination.000. Question: 241 Linden Corporation is a defendant in a lawsuit where the plaintiff is seeking $1. an asset has been impaired or a liability has been incurred. The 53Page www.000. C.Gleim 2015 | Part 1 | Online MCQs | Unit 002 the decline in price takes place. Contingent future events have a reasonably possible chance of occurring and the amount of the loss can be reasonably estimated. Contingent future events have a reasonably possible chance of occurring. It is probable that. Question: 239 A liability arising from a loss contingency should be recorded if the A.000 in damages.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . C. B. Answer (D) is correct. Contingent future events will probably occur and the amount of the loss can be reasonably estimated.com/CMA. D. Answer (D) is correct. C. The $5.000. Not record or footnote the loss contingency. It is estimated that the company has a 50% chance of winning and the award. would be in the $250. 54Page www. D. C. in this instance.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 C. B.000 $5. $5. however. and Ichabod is suing for patent infringement.000 as a loss contingency. Record $400.000 award for Ichabod. it is anticipated that the case will be in litigation for 2 to 3 years before final resolution.Gleim 2015 | Part 1 | Online MCQs | Unit 002 amount that Linden should accrue because of the contingency in this situation is A.000 $0 Answer (D) is correct.000.000 range. B. $5. Loss contingencies are accrued when the loss is probable. however. the attorneys do not believe Ichabod has a strong case.000 as a loss contingency.000 D. The attorneys estimate a $5. A gain contingency must be adequately disclosed. The most appropriate amount to be recorded as a gain contingency is A. The second case also involves patent infringement. $5. Record $500. they are recognized only when realized. if any. The first suit involves a competitor who has made an exact copy of one of Ichabod’s products.125.000 in unemployment costs that will probably be incurred are a routine cost of doing business.000. A liability arising from a loss contingency should be recorded if the contingent future event will probably occur and the amount of the loss can be reasonably estimated. B. Gain contingencies are not recorded.facebook.com/CMA.250. Disclose the loss contingency in the footnotes.000 $100. Question: 242 Ichabod Company is the plaintiff in two lawsuits. The most appropriate financial statement presentation for this loss contingency would be to A. $0 Answer (A) is correct.000 Question: 243 Warren Company is being sued in a wrongful discharge suit for $500. D.000. $200. The company attorney has advised Warren that the probability of the plaintiff prevailing and receiving the full amount is about 80%. Answer (A) is correct. The attorney also indicated that the case would likely be tied up in the courts for 2 to 3 years.000 to $1. 1 million.000 C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000. Because the appeal is not expected to be decided before Year 6.5 million in damages. $800. A court verdict in November Year 4 awarded Caso $1.000 and $1.. $1. $0 Answer (A) is correct. care should be taken to avoid misleading implications as to the likelihood of realization. with $1 million considered the most likely amount. What amount should Caso record as income from the lawsuit in the year ended December 31. Gain contingencies are not recognized until they are realized. Caso should not record any revenue from the lawsuit in the Year 4 income statement. Year 4? A.9 million in damages for patent infringement. Caso’s counsel believes it is probable that Caso will be successful against Wayne for an estimated amount in the range between $800. Inc.000 D.Gleim 2015 | Part 1 | Online MCQs | Unit 002 Question: 244 In May Year 1.facebook. $1. filed suit against Wayne. B.com/CMA. Caso Co. seeking $1. but Wayne’s appeal is not expected to be decided before Year 6.000 55Page www.500. however. This gain contingency should be disclosed. Question: 246 An entity installed an assembly line in Year 1. etc. Four years later. items of property. should be considered as part of the asset’s cost. initial delivery and handling. C. C. All costs incurred in the construction of a plant building. costs of removing the assets and restoring the site. as a result. D. Establish a separate account for the $100. improved output quantity or quality. Accordingly.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . such as from the sale of cleared timber. and equipment? A. The automation increased the market value and productive capacity of the assembly line but did not affect its useful life.000. the cost of land includes the cost of obtaining the land and readying it for its intended uses. An extended useful life. and equipment account. architect and equipment fees. and equipment (PPE) that meet the recognition criterion are initially measured at cost. and reduced operating costs are all future economic benefits. The costs of improvements to equipment incurred after its acquisition should be added to the asset’s cost if they increase future service potential. but it is inappropriate to recognize the proceeds related to site preparation immediately in profit or loss.facebook. 1Page www. Directly attributable costs include site preparation. Proper accounting for the cost of the automation should be to A. future economic benefits will be received. Subsequent costs are added to the carrying amount of an item of PPE if it is probable that. D. plus purchase taxes) and the directly attributable costs of bringing the assets to working condition for their intended use. B. from excavation to completion. Allocate the cost of automation between the asset and accumulated depreciation accounts. freight costs. The cost includes the purchase price (minus trade discounts and rebates. and installation costs of a productive asset should be included in the asset’s cost. Debit the cost to the property.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 245 Which of the following is not an appropriate basis for measuring the cost of property. installation.com/CMA. B. Proceeds obtained in the process of readying land for its intended purpose. The purchase price. plant. and the costs are reliably measurable. plant. Accordingly. plant. Answer (D) is correct. Report it as an expense in Year 5.000 was invested to automate the line. They should be treated as reductions in the price of the land. should be recognized immediately as income. $100. Answer (B) is correct. 000 ending balance).000 2Page www.000).000 Answer (A) is correct. is presented below: 12/31/Year 12/31/Year Additional information for Year 2: 1 2 Property. $184.000 depreciation expense – $221.com/CMA. and equipment disposed of in Year 2 was A.000 – $119. and December 31.000 Installation cost 70.000 C.000).000 C. The Year 2 beginning carrying amount is $193. Depreciation expense was $30.000 D.000 Delivery cost 50. $192. and equipment $295.000.000 ($295. A. exciting ride and financed it through the manufacturer.000 Cost of trial runs 40.000 1. $32.000 acquired during Year 2 – $30.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Year 1.000 The straight-line method is to be used.facebook. The carrying amount of PPE disposed of is $7.000 ($340.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 247 The selected data from statements of financial position on December 31.000 beginning balance + $65.000) The carrying amount (cost minus accumulated depreciation) of property. B. $160.000. plant.000 $340.000 ($193. $17. 2. Compute the depreciation on the equipment for the first year assuming an estimated service life of 5 years.000 – $102.000 B. Accumulated depreciation (102. Year 2. plant. The following facts pertain: Purchase price $800.000) (119.000 Question: 248 A theme park purchased a new. Equipment was acquired for $65. $7.000 Interest charges for first year 60. $20. and the Year 2 ending carrying amount is $221. the depreciation expense is $192. $100. The cost of the asset includes its price and the directly attributable costs of bringing it to working condition for intended use. D. and dismantling and removing the asset and restoring the site. B. plant. plant. The cost should include the purchase price without a deduction for trade discounts.000 trial-run cost) ÷ 5-year estimated service life]. from excavation to completion.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ ..g. installation. Under the straight-line method. professional fees (e. and equipment? A. C. and equipment (PPE).000. initial delivery and handling.000 was sold for a gain of $1.facebook. The costs of improvements to equipment incurred after its acquisition should be added to the asset’s cost if they provide future economic benefits exceeding the originally assessed standard of performance.000 delivery cost + $70. the annual depreciation expense for an asset equals the asset’s amount (cost – residual value) divided by the asset’s estimated useful life. for example. and equipment is measured initially at cost. $91. This amount includes the purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. Thus. Question: 250 In making a cash flow analysis of property. Borrowing costs incurred after the asset is prepared for its intended use are expensed even if the allowed alternative treatment of such costs is followed. If the carrying amount of PPE increased by $80. the internal auditor discovered that depreciation expense for the period was $10. All costs incurred in the construction of a plant building. US $110.000 3Page www.000 C. The purchase price is determined by adding any import fees and nonrefundable purchase taxes and subtracting any trade discounts and rebates. Answer (B) is correct. Directly attributable costs include costs of. those of architects and engineers).000 and related accumulated depreciation of $30. PPE with a cost of $50.000 Question: 249 Which of the following is not an appropriate basis for measuring the historical cost of property. site preparation.000.000 during the period. should be considered as part of the asset’s cost.000 B.000 installation cost + $40. how much PPE was purchased this period? A.000 [($800. $204. D.000 purchase price + $50.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (C) is correct.com/CMA. Delivery and handling costs and installation costs of a productive asset should be included in the asset’s cost. An asset classified under property. and the asset otherwise satisfies the criteria for capitalization of such expenses. plant. 500 B.000.000 Question: 251 On January 1.000 4Page www. $900. or $20. $80. D.000 C. The units-of-production method allocates cost based on output. D.000 C.200.200.000 – $70. $1. $57.200. and 800 hours in the third year.000 Question: 252 A new machine has an initial cost of $300.000 ($50.000 total decrease + $80. statement of financial position for the quarry? A.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Thus.000 cost – $30. The net amount reported as an asset for the quarry using this method is $840.000 to be used as a landfill to service its trash collection contracts with nearby cities for the next 20 years.000. What is the net amount that should be shown on the entity’s December 31.000 hours)].000 cubic yards when purchased and 350.500 [($300. Depreciation expense equals cost minus residual value.000) × (700 hours ÷ 2.000 accumulated depreciation).000 of depreciation. $119.500 Answer (C) is correct.facebook. Usage rates are estimated as 500 hours in the first year.000.000 total cubic yards) × $1.000 [(350. net of accumulated depreciation. The carrying amount of the PPE account.000 Answer (C) is correct. $75. is increased by the cost of purchases and decreased by the carrying amount of items of PPE sold and depreciation. an entity purchased an abandoned quarry for $1. D. Year 1. If PPE still increased by $80.000 increase) of equipment must have been purchased. and an estimated residual value of $70.000]. 700 hours in the second year. $105. Depreciation expense in Year 2 under the units-of-production method of depreciation will be A.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (C) is correct. and by the $10. depreciation expense is $80. The entity depletes the quarry using the units-of-production method based on a surveyor’s measurements of volume of the quarry’s pit. Year 5. times the estimated hours of use in Year 2 divided by the total estimated hours of use.000 hours of use over a 3-year period.000 cubic yards ÷ 500. $360.000 cubic yards at year-end Year 5. an estimated useful life of 2.000 B. This amount was 500. The net PPE decreased by the carrying amount of items sold. $840. $110.000 ($30. A prefabricated building was erected at a cost of $181. C. leveling the property. $83. to pay as much as $90. B.800 for the land.000. C. and equipment. B. Costs to construct a driveway on the company’s property. president of Ingold. Costs to level land to make it usable for the company’s purposes. The contractor’s bill indicated that the cost of the parking lot and driveways was $7. and graded the land for $6. The proper amount to be recorded in Ingold’s land account is A. plant. and legal fees for closing costs amounted to $820. tax-basis retained earnings will be less than that in the general purpose financial statements. and dug the foundation for a new building for $4. Answer (A) is correct. filled. A contractor cleared.420. Burger negotiated a price of $75. Retained earnings. Site preparation costs [clearing. The amount to be recorded in the land account is $83. consisting of the $75.300.620 B. $76. Accumulated depreciation.420 Answer (B) is correct. the $820 closing costs.800 site preparation costs.facebook. Inc.com/CMA.800.060. and the $6. depreciation expense and accumulated depreciation will be greater. The parking lot and the driveways will need to be replaced in 15 years. Consequently.720 D. Actual interest costs incurred during the construction of a new building. The cost of acquiring and preparing land for its expected use is capitalized. minus any proceeds (such as timber sales)] are costs of the land. D.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 253 A company uses straight-line depreciation for financial reporting purposes. Question: 255 The board of directors of Ingold Industries. Freight costs to ship new equipment to the company’s facility. but uses accelerated depreciation for tax purposes. $90.800 purchase price. Answer (C) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . C. draining. taxable income will be lower than financial net income.480 5Page www. Because the tax basis uses an accelerated method.000 to purchase a tract of land adjacent to the main factory. $87. The building has an estimated useful life of 20 years with no residual value. Gross property. Which of the following account balances would be lower in the financial statements used for tax purposes than it would be in the general purpose financial statements? A.. D. Moreover. and razing existing buildings. filling. Question: 254All of the following would be included as part of the cost of a depreciable asset except the A. not of the building to be constructed on the land. authorized Don Burger. Cash. 6Page www. 1. plant. is depreciated. Newly purchased.000). fixed assets. resale. However. whichever is longer. PPE are tangible. Answer (B) is correct. Because the straight-line rate for a 10-year asset is 10% (100% ÷ 10). $20.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . the full cost of the asset. D. 3.000. 4.facebook.000 ($100.000 Answer (C) is correct. $8.600 C. an asset need not be newly purchased to be properly described as property. 2. or $100..500 B. Held for use and not for investment. The second year’s depreciation for this equipment using the double-declining balance method is A. B. plant.g.000 ($80. These assets are known variously as property.000 × 20%)..000 ($100. They have physical existence.000 – $20. e. with an estimated useful life of 10 years and a salvage value of $15. the double-declining balance rate is 20% (10% × 2). or inclusion in another product. C. PPE may be either personal property (something movable. and equipment? A. The first year’s depreciation is $20.000. D. plant. purchased manufacturing equipment for $100. Tangible.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 256Basic Brick. Inc. PPE are used in the ordinary operations of an entity and are not held primarily for investment. and equipment. leaving a carrying amount for the second year of $80.com/CMA. $13. But they are often sold. $16.000 × 20%).000 Question: 257 Which one of the following characteristics is not required for an asset to be properly described as property. They are not expected to be used up within 1 year or the normal operating cycle of the business. Under the double-declining balance method. and equipment. Expected life of more than 1 year. or plant assets. The second year’s depreciation is thus $16. equipment) or real property (such as land or a building).000. PPE are noncurrent. but not below salvage value. The building was beginning to sag.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . D. To install a new computer local area network (LAN) and be ready for the next generation of computers. the phone lines and electrical systems were updated at a cost of $81. and several columns were added in the basement area at a cost of $47. but further rearrangement of the offices and work spaces will not be necessary. The cost of the equipment was $100.com/CMA. CEO. has authorized various expenditures to repair and improve the building during the current year. Answer (C) is correct. the building would only last another 8 years. C. Assets that are ready for their intended use in the activities of the reporting entity. To correct the problem. The LAN hardware and software will have to be replaced in 6 years. $100.. ships).000 Question: 259 The types of assets that qualify for interest capitalization are A. An asset constructed for an entity’s own use qualifies for capitalization of interest if (1) relevant expenditures have been made. The straight-line depreciation that should have been charged to the equipment had it been properly capitalized is $30.000 Answer (B) is correct.g. Wilson uses the straight-line depreciation method on similar equipment. Thus.facebook. After the above improvements were completed.000 – $30. B. C. Interest should be capitalized for (1) assets constructed or otherwise produced for an entity’s own use. $80. Wellington engineers estimate that these improvements should last 25 years.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 258 Equipment bought by Wilson Steam Generating Company 3 years ago was charged to equipment expense in error. Inventories that are manufactured in large quantities on a continuing basis. Assets that are being used in the earning activities of the reporting entity. (2) assets intended for sale or lease that are constructed or produced as discrete projects (e.000 × (3 ÷ 10 years)]. the entire building was painted inside and outside at a cost www. and (3) interest is being incurred. Assets that are constructed for the reporting entity’s own use. the foundation was reinforced. (2) activities necessary to prepare the asset for its intended use are in progress. the correct carrying value of the equipment will be A.700.000 ($100. engineers estimate that the building will have a remaining useful life of 20 years.000).000.200. The purchase and installation of the computers and software for the LAN cost $102. Question: 260 7Page Wellington Industries has owned its present facilities since 1981. The offices and open work spaces were rearranged to reduce exposure to electronic emissions at a material cost of $31.000 D. and without repair.000 B.000 [$100. and (3) certain equity-based investments. and Mary Dunlap. The error was discovered at the end of Year 3 prior to the issuance of Wilson’s financial statements. after correction of the error. As a result. $70. the carrying amount of the equipment will be $70. including those constructed or produced by others.300.000. with no expected salvage value and a 10-year estimated life. After correction of the error. $30. The investee must have activities in progress necessary to commence its planned principal operations and be expending funds to obtain qualifying assets for its operations. 120 ($40. The substitution of a better computer system is classified as an improvement. or $40.Gleim 2015 | Part 1 | Online MCQs | Unit 003 of $9. the building repairs are capitalized. controller of Lakeside. As controller of Wellington Industries. expenditures that merely maintain the asset at an acceptable level of productivity are expensed as they are incurred.180 × 40%).120). $9.300 × 40%). For this purpose.024 $9.000. Answer (D) is correct. B.450. but not below salvage value. which should be amortized over a period not to exceed 20 years.facebook. the depreciation expense on the truck for its second year of use is A. (2) is separable from recurring expenses.com/CMA. Expenditures on capital assets that improve the asset’s performance or extend its useful life are capitalized as part of the asset’s cost. Capitalize all costs with the exception of the upgrade to the phone and electrical systems and the painting because they represent maintenance expenses. Accordingly. 8Page www.300 ($38. leaving a carrying amount for the second year of $24.672 ($24.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Capitalize all costs with the exception of the painting because it represents maintenance expense.000). and the costs also should be capitalized.300 – $16.700). the entity capitalizes the costs of a rearrangement of the configurations of the offices and open work spaces that (1) requires material outlays. Doug Lombardi.672 Answer (D) is correct. Treat all expenditures as expenses in the current year except the cost of rearrangement ($31. C. storage bins were welded to the truck bed at a cost of $1. and rearrangements. However. The second year’s depreciation is thus $9. D. Using the double-declining balance method. is depreciated. Because the straight-line rate for a 5-year asset is 20% (100% ÷ 5). which one of the following actions would you recommend to be in conformity with generally accepted accounting principles? A.180 ($40.432 $9. and (3) provides probable future benefits. the full cost of the asset.264 $9.600 to transport equipment to various job sites. Question: 261 Lakeside Electric purchased a truck for $38. Under the double-declining balance method. Moreover.700. Capitalize all expenditures because they represent additions.600 + $1. the costs of painting the building are routine. minor outlays that should be expensed immediately. estimates the useful life of the truck to be 5 years and the residual value to be $1. B. D. improvements. the double-declining balance rate is 40% (20% × 2). Thus. C. The first year’s depreciation is $16. facebook. The denominator is the sum of the digits of the years in the asset’s useful life (1 + 2 + 3 + 4 + 5). D. how would the use of an accelerated depreciation method instead of the straight-line method affect the gain or loss on the sale of the fixed plant asset? Gain Loss A.667 Answer (C) is correct. Increase Increase B.667 [$50. resulting in lower net 9Page www. Straight-line depreciation method. the company purchased a machine for $50. The numerator is the number of years of the useful life minus the years elapsed (5 – 0 = 5).com/CMA. Composite depreciation method. B. The SYD method multiplies a constant depreciable base (cost minus residual value) by a declining fraction.000 × (5 ÷ 15)]. Increase Decrease Answer (B) is correct. $16. Sum-of-the-years’-digits depreciation has the highest depreciation expense in the early years of an asset’s life. the effect of an early sale is to increase the gain or decrease the loss that would have been recognized under the straight-line method.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . It had an estimated life of 5 years and no residual value. Depreciation for the first year would be A. Group depreciation method. Decrease Increase D. $20.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 262 Albright Company uses the sum-of-the-years’-digits (SYD) method of depreciation. Answer (D) is correct. $10. Hence.000 B. Decrease Decrease Question: 264 Which one of the following methods of depreciation will result in the lowest reported net income in the early life of a depreciable asset? A. $15. C. On January 1.000 C. The first year’s depreciation expense is therefore $16.000. C. D. Sum-of-the-years’-digits depreciation method.000 Question: 263 When a fixed plant asset with a 5-year estimated useful life is sold during the second year. An accelerated method reduces the carrying amount of the asset more rapidly in the early years of the useful life than does the straight-line method. is in its first year of operation. Question: 267 Under IFRS.facebook. D. An asset is subject to rapid obsolescence. Answer (A) is correct. if the fair value of an item of property. The units-of-production depreciation method allocates asset cost based on the level of production. B. Fair value minus any subsequent accumulated depreciation and impairment losses. Under the revaluation model. Group and composite depreciation methods use the straight-line technique for an aggregate of assets. C. Answer (C) is correct. No residual value is anticipated for any of these assets. a distributor of silk goods. according to the revaluation model. and two word processors at $300 each. Replacement method. Silken wants to adopt a depreciation method that will be easy to use and reflect an appropriate depreciation expense for the business each accounting period.500 each with an estimated life of 6 years. and equipment must be carried at A. B. Question: 265 Silken. with an estimated life of 4 years. Inc. an item of property. The company has purchased ten computers at $3. when an asset’s service potential declines with use. An asset’s service potential declines with the passage of time. five desks at $500 each with an estimated life of 10 years. plant. As production varies. Group depreciation. Cost minus residual value.. Inventory method.Gleim 2015 | Part 1 | Online MCQs | Unit 003 income. so will the credit to accumulated depreciation. C.com/CMA. Cost minus any accumulated depreciation. B. The composite method is used for dissimilar assets. An asset incurs increasing repairs and maintenance with use. it must be carried 11Page www. The most appropriate method would be A. plant. Composite depreciation. the units-of-production method is the most appropriate method. Consequently. Answer (A) is correct. C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Question: 266 In which of the following situations is the units-of-production method of depreciation most appropriate? A. D. An asset’s service potential declines with use. and equipment can be reliably measured. $125. Question: 270 An expenditure to install an improved electrical system is a Capital Expenditure Revenue Expenditure A. investment property is measured at fair value.facebook.000 Answer (A) is correct.000 for its manufacturing operations and paid shipping costs of $20. The lower of cost or net realizable value.S. The amount to be recorded as the acquisition cost of a machine includes all costs necessary to prepare it for its intended use. D. and gain or loss from a change in its fair value is recognized immediately in profit or loss. No No C.Gleim 2015 | Part 1 | Online MCQs | Unit 003 subsequent to initial recognition at a revalued amount. Fair value model or revaluation model. $135. C. Cost model or revaluation model. which accounting policy may an entity apply to measure investment property in periods subsequent to initial recognition? A. Answer (B) is correct.000 + $20. investment property is carried at its cost minus any accumulated depreciation and impairment losses. $155. not U.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 D. purchased a machine costing $125.000). The revaluation model is permitted by IFRS. What amount should Merry record as the cost of the machine? A.000 Question: 269 According to IFRS. An entity may choose either the cost model or the fair value model as its accounting policy. Under the fair value model.000 ($125. B. No Yes B. Cost model or fair value model. The acquisition cost is $155. Fair value model only. Yes No 11Page www. But it must apply that policy to all of its investment property. the cost of a machine used in the manufacturing operations of a company includes the cost of testing and preparing the machine for use and the shipping costs.000 testing and preparing the machine for use.000 C. D. Question: 268 Merry Co.000 + $10. Thus. B. Merry spent an additional $10. GAAP. This amount is fair value at the date of the revaluation minus any subsequent accumulated depreciation and impairment losses.000. $145.com/CMA. Under the cost model. 000 ($280. plant.000 Question: 272 An entity sells a piece of machinery. capacity. C. The assets purchased that are capitalized as property.000 January salaries 340.000 Total $ 900.000).000 Office supplies 10. $370. and the result is increased productivity. Cash Accumulated depreciation -. A betterment (improvement) occurs when a replacement asset is substituted for an existing asset.000 Answer (B) is correct. or expected useful life.000 Automobile 30.machinery Loss on disposal of machinery Machinery Answer (A) is correct. Therefore. The entry that the entity uses to record the sale is A. If the improvement benefits future periods. it should be capitalized.000 January utilities 20. The sale price is less than the carrying amount of the asset on the date of sale. PPE is $310. D.com/CMA. and equipment (PPE) are the computer equipment and automobile.facebook. prior to the end of its estimated useful life. Yes Yes Question: 271 Brown Systems began operating January 1 and spent $900.000 B.000 The total cash expenditures that should be capitalized as property.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . 12Page www. $80.000 in the first month of operations on the following items: January advertising campaign $ 40.000 D. $310. $440.000 January building rent 60.000 + $30.000 12-month insurance policy 120. plant.000 Computer equipment 280. for cash. and equipment is A.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (C) is correct. Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . plant.000. $115.machinery Gain on disposal of machinery Machinery C. B.000 historical cost – $495. respectively. Cash Accumulated depreciation -.000 Question: 274 What is the journal entry recorded upon the sale of an item of property.000 ($205. B. Thus. $205.machinery Machinery D. $240.disposal of machinery Accumulated depreciation -.000 on that date.facebook. The selling price minus the carrying amount of the machine equals the gain or loss on disposal.000 Answer (A) is correct. Question: 273 Cash Machinery Accumulated depreciation -.000 C. The machine was sold on December 31. Cash Expense -.000 ($700. Because the sale price was less than the carrying amount of the asset on the date of sale. The machine was depreciated using the straight-line method and had a residual value of $40. B. Year 1. The selling price of the machine was A. The accumulated depreciation related to the machine was $495.000 gain).000 accumulated depreciation).000 D. and equipment (PPE) that was sold for cash in excess of its carrying amount? A. a loss on disposal should be recognized in net income or loss. Year 1. Debit cash Debit accumulated depreciation Debit income on disposal of PPE 13Page www. The entity reported a gain on the sale of the machine of $75. the selling price was $280.000 + $75. No journal entry is required. Machinery and the related accumulated depreciation are eliminated by a credit and a debit.000 in its income statement for the fiscal year ending December 31.000. The carrying amount equals $205.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Cash is debited for the amount of the sale proceeds. $280.com/CMA.machinery Gain on disposal of machinery An entity purchased a machine for $700. com/CMA. $35. Carrying amount of the asset and the undiscounted future cash flows expected to be generated by the asset.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Credit PPE C. Finally. Debit cash Debit accumulated depreciation Credit PPE Credit income on disposal of PPE Answer (D) is correct. B. The gain on the sale is the difference between the sale proceeds and the carrying amount of the asset (its remaining undepreciated cost). Carrying amount of the asset and the present value of the future cash flows expected to be generated by the asset. the gain is $25.000. annual depreciation is $10. C. The gain should be recorded as a credit and recognized as income on the income statement.facebook. 14Page www. the gain on the sale will be A. $20. C.000 ($100. The original cost of the asset was $100.000 historical cost – ($10. Thus. and it was being depreciated on the straight-line basis. Original cost of the asset and the fair value of the asset. The journal entry to record the sale of an item of PPE for cash in excess of its carrying amount should debit the cash account to record the sale proceeds received.000 ÷ 10 years). $25. the PPE account should be credited to eliminate the original cost of the asset. $30.000. If the asset was sold for $80.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Question: 275 An entity sold a depreciable asset in the middle of the fifth year of its estimated 10-year useful life. Depreciation must be taken up to the time of sale.000 B.5 years)]}. Assuming that residual value is $0. a company must compare the A.000 × 4. Accumulated depreciation should be eliminated by debiting an amount equal to depreciation accumulated up to the start of the current accounting period plus any depreciation that has accumulated between the start of the current period and the date of disposal.000 D.000 sale proceeds – [$100.000 Question: 276 To determine whether to recognize the impairment of a depreciable fixed asset. Debit cash Debit PPE Credit accumulated depreciation Credit income on disposal of PPE D.000 Answer (B) is correct.000 {$80. D. the carrying amount is reduced to $12. $14. Original cost of the asset and the carrying amount of the asset. This loss ($20.000) exceeds the undiscounted cash flows from the asset ($15.000).000). The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected from the use and disposition of the asset (asset group). Fact Pattern: Blake Corporation has determined that one of its machines has experienced an impairment in value. a loss equal to this excess is recognized for the impairment only when the carrying amount is not recoverable. A long-lived asset (asset group) is impaired when its carrying amount is greater than its fair value. Original cost of the machine Question: 277 $22. The asset is impaired because its carrying amount ($20. Thus.com/CMA. However.000) is recognized in full because the carrying amount ($20.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (C) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 – $12. Blake’s carrying amount of the impaired asset will be A. C.000 After recognition of the impairment loss.000 Undiscounted future cash flows expected to be generated by the machine 15.000) exceeds its fair value ($12.000 Answer (B) is correct.000 15Page www. the company expects to continue to use the asset for another 3 full years because no active market exists for this machine.000 = $8.000 Fair value of the machine (determined by calculating the present value of the future cash flows expected to be generated by the machine) 12. Selected information on the impaired asset (on the date that impairment was determined to exist) is provided below. The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected from the use and disposition of the asset (asset group). $0 B. $12. $15. A long-lived asset (asset group) is impaired when its carrying amount is greater than its fair value.facebook.000 D. a loss equal to this excess is recognized for the impairment only when the carrying amount is not recoverable.000 Carrying amount of the machine 20.000. However. However. Gleim 2015 | Part 1 | Online MCQs | Unit 003 Fact Pattern: Blake Corporation has determined that one of its machines has experienced an impairment in value. Question: 280 Which of the following statements is true regarding impairment of long-lived assets? A.000). On December 31. B.000. D. and IFRS requires a twostep impairment test. The machine had an estimated useful life of 9 years and a residual value of $100.000 ($1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 $8. The gain or loss that should be recorded on the disposal of this machine is A.000 residual value) ÷ 9 years estimated useful life] × 4 years}. so the carrying amount was $600. U.000 historical cost – $100. Answer (B) is correct. $65.000 ($600.000 loss. B.000 What is the amount of the impairment loss to be recorded by Blake? A. Thus.000). C.S. $3.000.000 Undiscounted future cash flows expected to be generated by the machine 15.000 carrying amount – $535. $465. GAAP permit reversal of an impairment loss in subsequent periods. Both IFRS and U.000. Original cost of the machine Question: 278 $22.000. C. for $1.com/CMA.000 – $12. Selected information on the impaired asset (on the date that impairment was determined to exist) is provided below.000 loss.S.000 = $8.000 loss. Year 4. GAAP prohibit reversal of an impairment loss in 16Page www.facebook.000 gain.000 Carrying amount of the machine 20.S. B.000 – $400. the company expects to continue to use the asset for another 3 full years because no active market exists for this machine. The impairment loss is the difference between the carrying amount and fair value of the asset ($20. Year 1. D. The accumulated depreciation was $400. $365. C. the loss was $65. $35. Both IFRS and U.000 Answer (D) is correct.000 Fair value of the machine (determined by calculating the present value of the future cash flows expected to be generated by the machine) 12.000. The company uses straight-line depreciation.000.000 $7.000 $5. the machine was sold for $535. Question: 279 An entity purchased a machine on January 1. However. GAAP requires a one-step impairment test.000 {[($1.000 sales price). Question: 281 An entity applies IFRS.000 D. C. $90.000 [$90. Answer (D) is correct.000 According to the information above.000 Residual value $17. GAAP. the recoverable amount is $90. D. But an impairment loss recognized for goodwill must not be reversed. a previously recognized impairment loss must not be reversed. $85. reversal of an impairment loss in subsequent periods is prohibited. On December 31. but not IFRS. Thus. D. it estimates the following information regarding its headquarters building: Fair value $100. an impairment loss on an asset may be reversed in subsequent periods if a change in the estimates used to measure the recoverable amount has occurred. GAAP. $82. At each interim and annual balance sheet date.000 Question: 282 Testing for possible impairment of a long-lived asset (asset group) that an entity expects to hold and use is required A. At annual balance sheet dates only.facebook. Whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.S.000) FV minus costs to sell]. what is the recoverable amount of the headquarters building on December 31. Answer (D) is correct. The recoverable amount of an asset is the higher of its fair value minus costs to sell and its value in use.000 – $15.000 Value in use $90. Year 1.S.000 value in use > ($100.Gleim 2015 | Part 1 | Online MCQs | Unit 003 subsequent periods. B. $100.com/CMA. Year 1? A. Under U. A long-lived asset (asset group) is tested for recoverability whenever 17Page www.000 B.000 Answer (B) is correct. Periodically.000 Cost to sell $15. Under U.000 Net realizable value $82. C. Under IFRS.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Under U. Because the sum of the undiscounted cash flows ($130. Extraordinary items. Question: 283 A company has a long-lived asset with a carrying value of $120. what amount should Katt record as restoration of previously recognized impairment loss in the current year’s financial statements? A.S. When a subtotal for “income from operations” is reported.com/CMA. present value of expected future cash flows of $100.000. Question: 285 Last year. D. Discontinued operations.000 Question: 284 An impairment loss on a long-lived asset (asset group) to be held and used is reported by a business enterprise in A. an impairment loss is recognized equal to the excess of the carrying amount over the fair value. 18Page www. the impairment loss is included. An impairment loss is included in income from continuing operations before income taxes by a business enterprise (income from continuing operations in the statement of activities by a not-for-profit organization). expected future cash flows of $130. $0 Answer (A) is correct. $5. $15.000. the carrying amount is recoverable. Income from continuing operations.facebook.000. GAAP.000 to $100. A previously recognized impairment loss may not be reversed under U. B. $0 Answer (A) is correct.000). $20. What amount of impairment loss should be reported? A.000.000 C. B.S. C.Gleim 2015 | Part 1 | Online MCQs | Unit 003 events or changes in circumstances indicate that its carrying amount may not be recoverable.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . no impairment is recognized.000. Katt determined that the fair value of the same assets had increased to $130.000) exceeds the carrying amount ($120. Other comprehensive income. Thus. An impairment loss is recognized when a long-lived asset’s carrying amount exceeds the sum of its undiscounted cash flows. Answer (D) is correct. and a market value of $105. If the carrying amount is not recoverable. in connection with its annual impairment review. During the current year. Katt Co. reduced the carrying amount of its long-lived assets used in operations from $120.000.000 D. The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected to result from the use and disposition of the asset (asset group). $20. Furthermore. B. Thus. an increase in excess of the prior carrying amount is permitted by IFRS. goods on consignment are not intangible assets.com/CMA. an asset is impaired when its carrying amount exceeds its recoverable amount. Trademarks. Inventory is a tangible asset. The greater of its fair value plus cost to sell or value in use. An intangible asset is an identifiable nonmonetary (nonfinancial) asset without physical substance. The lower of its fair value minus cost to sell or value in use. Question: 288 A recognized intangible asset is amortized over its useful life A. The recognized impairment loss is the excess of the asset’s carrying amount over its recoverable amount. B. Copyrights. Question: 287 Which of the following is not considered to be an intangible asset? A.Gleim 2015 | Part 1 | Online MCQs | Unit 003 GAAP. The recoverable amount of an asset is A. Patents. IFRS permit an item of property.000 C. and equipment to be carried at a revalued amount if its fair value can be measured reliably. Answer (B) is correct. The recoverable amount of an asset is the greater of its fair value minus cost to sell or value in use. Goods on consignment. The greater of its fair value minus cost to sell or value in use. Thus. D. Unless the pattern of consumption of the economic benefits of the asset is not reliably determinable.000 Question: 286 Under IFRS. C. $10. The lower of its fair value plus cost to sell or value in use. Answer (A) is correct. B. B. Answer (D) is correct. C. Under IFRS. $30. plant.000 D. 19Page www. If that life is determined to be finite. Value in use is the present value of the asset’s expected cash flows.facebook. D.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . an impairment loss (carrying amount > recoverable amount) on an asset (except goodwill) may be reversed if a change in the estimates used to measure the recoverable amount has occurred. they will be amortized at a rate of $1. On July 1 of Year 8.300 per year ($22. Inc.100 that was to be amortized over 17 years.5). Hansen will amortize the cost of the patent on a straight-line basis at the rate of $1. the patent registration fees should be capitalized as a cost associated with an internally developed patent. The useful life of an intangible asset is indefinite if no foreseeable limit exists on the period over which it will contribute. $1.300 Question: 290 Which of the following costs associated with an internally developed patent should be capitalized? Research and Patent Development Registration A. $1. $1. C.. D.971 C. Unless the precise length of that life is not known. total amortization expense for that year is $1. Because the legal costs to defend the patent were incurred when the patent had 9.200 per year ($11. Thus. No No C.5 years of life remaining. Legal fees and registration fees are excluded from the definition of R&D.400 to successfully defend the patent.900 ($1.com/CMA.300 + $600). If that life is indefinite but not infinite. Because Year 8 only includes a half year’s depreciation for the legal costs. Question: 289 Hansen. Yes Yes 21Page www.facebook. B. The amount of amortization expense that Hansen should record for Year 8 is A. Yes No D. that is.900 Answer (C) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . D. to the reporting entity’s cash flows. R&D costs must be expensed as they are incurred. No Yes Answer (A) is correct. The costs of a successful legal defense of a patent are capitalized and amortized over the shorter of the remaining legal life or the estimated useful life of the patent. The patent’s R&D costs should have been expensed as they were incurred. purchased a patent at the beginning of Year 1 for $22. unless the useful life is determined to be indefinite. $2. directly or indirectly.Gleim 2015 | Part 1 | Online MCQs | Unit 003 A recognized intangible asset is amortized over its useful life if that useful life is finite. Hansen incurred legal costs of $11.400 ÷ 9.500 B.100 ÷ 17). The patent’s legal life is 20 years. incurred research and development costs of $136. Legal costs associated with obtaining a patent on a new product. D.150 Answer (C) is correct. Thus. $15. that is. which streamlines its production operation. patent registration fees and legal fees. $16.150 ($17. Answer (D) is correct. for example. R&D costs are expensed as incurred.700 × (6 ÷ 12 months)].000 in its laboratories relating to a patent that was granted on July 1. Costs of registering the patent equaled $34.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . what amount should Jase report for the patent. Jase Co. Amortization for 21Page www. so annual amortization on this patent is $1.facebook.000 ÷ 10 years). Hence. Salaries of engineering staff developing a new product.500 Question: 292 Which of the following expenditures qualifies for asset capitalization? A. $16.300 Answer (A) is correct. although the legal life of the patent is 17 years. B. C. A patent is amortized over the shorter of its useful life or legal life. and Broadstreet expects that the useful life of the new process will be 10 years.700 ($17. such as registration and attorney’s fees. and its estimated economic life is 10 years. its purchase price plus incidental costs.000 – $850). The depreciation expense for the year of acquisition is $850 [$1. However. Patents may be purchased or developed internally. D.300 B. $16. Internally developed patents are less likely to be capitalized because related R&D costs must be expensed when incurred. only relatively minor costs can be capitalized. The initial capitalized cost of a purchased patent is normally the fair value of the consideration given. net of accumulated amortization? A. $32.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 291 On July 1. Question: 293 During the year just ended.000 C. The patent should therefore be reported at December 31 at $16. Cost of materials used in prototype testing. In its December 31 balance sheet. legal work in connection with patent applications or litigation and the sale or licensing of patents are specifically excluded from the definition of R&D. Broadstreet Corporation acquired a patent on its new manufacturing process. The cost of the patent was $17. The patent should be amortized over its estimated economic life of 10 years. Costs of testing a prototype and modifying its design.000. the legal costs of filing a patent should be capitalized. Broadstreet is a calendar-year corporation and is preparing its December 31 Statement of Financial Position.com/CMA.000. At which amount should the patent be reported at December 31 of the year of acquisition? A. Thus. The useful life of the intangible asset can be reliably determined. Amortized over its useful life if less than 15 years. or at a revalued amount. It should be A. Expensed in the year of acquisition. Amortized over 40 years. an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if A.000 – $1. B. The intangible asset is a monetary asset. No No 22Page www. D.000 ÷ 10) × (6 ÷ 12)]. Question: 295 Under IFRS. Answer (B) is correct. $161. Yes Yes B. Legal fees incurred in an unsuccessful defense should be expensed as the costs are incurred.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .300 ($34.facebook. B.com/CMA.Gleim 2015 | Part 1 | Online MCQs | Unit 003 the year equals $1. However. The revaluation model is similar to that for items of PPE (initial recognition of an asset at cost). Answer (C) is correct.700). The amortization period for an intangible asset distinct from goodwill is the shorter of its useful life or the legal life remaining after acquisition. Yes No Answer (B) is correct. $165. C. fair value must be determined based on an active market. Legal fees incurred in the successful defense of a patent should be capitalized as part of the cost of the patent and then amortized over its remaining useful life because that useful life is finite.500 D. The cost of the intangible asset can be measured reliably. $33. B. An intangible asset is carried at cost minus any accumulated amortization and impairment losses.150 C. Question: 296 Legal fees incurred by a company in defending its patent rights should be capitalized when the outcome of litigation is Successful Unsuccessful A. An active market exists for the intangible asset. Amortized over 15 years regardless of its useful life. C.700 [($34. C. the reported amount of the patent at year end equals $32.000 Question: 294 A purchased patent has a remaining legal life of 15 years. D. The patent was capitalized at $45.000 in Year 5. Yes No Question: 299 Goodwill should be tested for value impairment at which of the following levels? A. No No B.com/CMA.000 – $51. Goodwill is tested for impairment at least annually but is never amortized. and appropriately capitalized $45. if any. The $15. acquired this year in an exchange transaction is(are) potentially amortizable? Goodwill Trademarks A. No Yes Answer (B) is correct.facebook.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .Gleim 2015 | Part 1 | Online MCQs | Unit 003 D.000). Answer (B) is correct. However. Gray paid $15.000 in legal costs for successfully defending an attempted infringement may be capitalized. Trademarks. Each reporting unit. $27. and Year 7 reduced the carrying amount to $36. was granted a patent on January 2. Each identifiable long-term asset. Yes Yes D. Accordingly.000 ($36. C.000 of related costs. After the legal action was completed. Gray’s policy is to take no amortization in the year of disposal. The cost of an acquired entity minus the net amount assigned to assets acquired and liabilities assumed is goodwill. During Year 8. which increases the carrying amount of the patent to $51. Annual amortization of $3. $39.000). No Yes Question: 297 Gray Co.000. may be amortized but only if they have finite useful lives. however. In its Year 8 income statement. Goodwill is not amortized.000.000 Answer (B) is correct. Gray was amortizing the patent over its estimated useful life of 15 years. Testing 23Page www. $24. Year 5. Year 6. the gain from the sale is $24.000 + $15. Gray sold the patent to the plaintiff for $75. what amount should Gray report as gain from sale of patent? A. B.000 in legal costs in successfully defending an attempted infringement of the patent.000 ÷ 15 years) for Year 5. $15.000 D.000 Question: 298 Which of the following assets.000 ($45.000 ($75. C.000 B. goodwill is assigned to a reporting unit that benefited from the business combination for the purpose of testing impairment. GAAP. Costs have been incurred in the development of goodwill. additional testing also may be indicated. one level below an operating segment. 24Page www. The fair market value of the company’s assets exceeds the book value of the company’s assets. The technical feasibility to complete the intangible asset 2. Answer (A) is correct. Goodwill can be recognized only in a business combination. These provisions. C. the company can demonstrate all of the following: 1.facebook.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Potential impairment of goodwill is deemed to exist only if the carrying amount (including goodwill) of a reporting unit is greater than its fair value. similar components are aggregated. The company expects a future benefit from the creation of goodwill. The costs of development must be expensed under U. and only if. D. Furthermore. that is. Under IFRS. Each acquisition unit. GAAP and International Financial Reporting Standards (IFRS)? A. but different reporting units may be tested at different times. D.S. However. Question: 301 Which one of the following statements is correct about the reconciliation of U. including the determination of operating segments.S. apply even if the reporting entity is not required to report segment information.com/CMA. A component qualifies as a reporting unit if (1) it is a business for which discrete financial information is available. Answer (B) is correct. accounting for goodwill is based on the units of the combined entity into which the acquired entity was absorbed. Thus. Entire business as a whole. (1) costs incurred during the research phase of an internal project are expensed as incurred since the company cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. B. and (2) segment management regularly reviews its operating results. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Question: 300 A company should recognize goodwill in its balance sheet at which of the following points? A. and (2) costs incurred during the development phase of an internal project can be capitalized and recognized as an intangible asset if. but are capitalized under IFRS if they meet specific criteria.Gleim 2015 | Part 1 | Online MCQs | Unit 003 occurs each year at the same time. A reporting unit is an operating segment or one of its components. C. Goodwill has been created in the purchase of a business. com/CMA. but are capitalized under IFRS if they meet specific criteria. The costs of research must be expensed under U. 25Page www. respectively. Question: 302 Howell Corporation.facebook.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . is the lessee in a leasing agreement with Brandon. C. C.S. to lease land and a building. a publicly traded corporation. If the lease contains a bargain purchase option. D. GAAP and IFRS. respectively. Availability of resources to complete and use or sell the intangible asset 6.S.Gleim 2015 | Part 1 | Online MCQs | Unit 003 3. Inc. Answer (D) is correct. the lessee separately capitalizes the land and the building. Its intention to complete and use or sell the intangible asset 4. B. Its ability to reliably measure expenditures attributable to the asset B. Capital lease and operating lease. GAAP. Capital lease but recorded as a single unit. Its ability to sell or use the intangible asset 5. The way in which the asset will generate probable future economic benefits 7. Capital lease but separately classified. Internally generated goodwill may not be capitalized under U. If a lease involving land and a building contains a bargain purchase option or if the lease transfers ownership to the lessee at the end of its term. Operating lease and capital lease. All costs of research and development must be expensed under both U. Existence of a bargain purchase option is one of these criteria. A lessee records a lease as a capital lease if it meets any one of four criteria. but it may be capitalized under IFRS.S. D. GAAP. Howell should record the land and the building as a(n) A. 200 None $2. Plantation Restaurant is planning to enter as the lessee into the two lease agreements described in the columns to the right. Question: 303 Hadaway. B. Inc. charging the present value of the yearly rental expense to annual operations.facebook.000 in rental expense and $800 in executory costs to annual operations. Answer (D) is correct. Operating lease. and Plantation does not receive title to either leased property during or at the end of the lease term. Operating lease. Capital lease with an initial asset value of $101.76 2.200 in rental expense and $800 in executory costs to annual operations. Each lease is noncancelable. If any one of the following criteria is met.000 $10. the lease term is 75% or more of the useful life of the leased asset. The Hadaway lease is nothing more than a rental arrangement. An operating lease does not transfer the rights and risks of ownership to the lessee. Inc.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Fact Pattern: Lessor On January 1. D. All payments required under these agreements are due on January 1 each year.74 Plantation Restaurant should treat the lease agreement with Hadaway. or the present value of the minimum lease payments is 90% or more of the 26Page www.000 3 years 5 years $3. as a(n) A. Type of property Yearly rental Lease term Economic life Purchase option Renewal option Fair market value at inception of lease Unguaranteed residual value Lessee’s incremental borrowing rate Executory costs paid by Annual executory costs Present value factor at 10% (of an annuity due) Cutter Electronics Oven $15. Operating lease.000 None $125. The Hadaway lease is an operating lease with a $15.000 10 years 15 years None None Computer $4.000 10% Lessee 10% Lessor $800 $500 6.000 annual rental expense with annual executory costs of $800 to be paid by the lessee. charging $14.400. C. charging $15. the lease has a bargain purchase option.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . the lease is a capital lease: the lease transfers title to the lessee.com/CMA. Answer (D) is correct. Capital lease with an initial asset value of $10.facebook.000 $10. Capital lease with an initial asset value of $10.200. Type of property Yearly rental Lease term Economic life Purchase option Renewal option Fair market value at inception of lease Unguaranteed residual value Lessee’s incremental borrowing rate Executory costs paid by Annual executory costs Present value factor at 10% (of an annuity due) Cutter Electronics Oven $15. Question: 304 Hadaway. B. a portion of the lease rental 27Page www. A capital lease is one in which many of the benefits and risks of ownership are transferred to the lessee. Operating lease.960. Given that the executory costs associated with the lease are to be paid by the lessor.000 10% Lessee 10% Lessor $800 $500 6.74 Plantation Restaurant should treat the lease agreement with Cutter Electronics as a(n) A. and Plantation does not receive title to either leased property during or at the end of the lease term.500 in rental expense and $500 in executory costs to annual operations.76 2.Gleim 2015 | Part 1 | Online MCQs | Unit 003 asset’s fair value. For accounting purposes.200 None $2. If the present value of the minimum lease payments (excluding executory costs) is 90% or more of the asset’s fair value. charging $3.590. the lessee treats a capital lease as similar to the purchase of an asset. All payments required under these agreements are due on January 1 each year. Plantation Restaurant is planning to enter as the lessee into the two lease agreements described in the columns to the right. Capital lease with an initial asset value of $9. Inc.000 10 years 15 years None None Computer $4.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . the lease should be accounted for as a capital lease. Each lease is noncancelable. Fact Pattern: Lessor On January 1. The Hadaway lease meets none of these four criteria. D.com/CMA. C.000 None $125.000 3 years 5 years $3. Thus.500 × 2. The appropriate amount of the initial asset value is the present value of the minimum lease payments calculated above. no long-term liability need be reported on the face of the balance sheet. Thus. B. Question: 307 Which one of the following statements with respect to leases is correct? A. For cash. The lessee records depreciation or capital cost allowance on the leased asset.facebook. C.000 yearly rental – $500). D. maintenance. With a line of credit. Question: 305 Which of the following statements about a capital lease is false? A. C. D. not for the asset.74). C. the annual minimum lease payment equals the annual payment minus the executory costs. Executory costs include insurance. B. When a lease is capitalized. the lease should be capitalized. A lease that does not transfer ownership from the lessor to the lessee by the end of the lease is automatically an operating lease. B. Answer (B) is correct. Sales and direct financing leases pertain more to lessees than lessors.590 ($3.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . the lessor derecognizes the leased item and records lease payments receivable. With operating leases. Answer (B) is correct. The lessee records and depreciates the leased item. which is greater than 90% of the fair value of the asset. With financing leases. The lease arrangement represents a form of financing. The lessor capitalizes the net investment in the lease. or $3. An operating lease is treated like a rental contract between the lessor and lessee.Gleim 2015 | Part 1 | Online MCQs | Unit 003 price is for those costs. 28Page www. The present value of the minimum lease payments is therefore $9. With an operating lease. assets have been acquired A. Answer (A) is correct.com/CMA. An operating lease is a transaction in which the lessee rents the right to use the lessor’s assets without acquiring a substantial portion of the benefits and risks of ownership. and similar expenses. Question: 306 If a company uses off-balance-sheet financing. Consequently.500 ($4. The lessor records the leased item as an asset. an operating lease is treated like a rental contract between the lessor and lessee. 000 Fair value of leased asset on date of lease 105. ownership of the asset transfers from Baldwin to Neary. the lease would be reported on Neary’s books as a(n) A. Liability only. Year 1.000 Fair value of leased asset on date of lease 105. Year 1. B. The lease is classified as a capital lease. Asset only. Neary has properly classified this lease as a capital lease on its financial statements and uses straight -line depreciation on comparable assets. Asset and a liability. Unpredictability of lease revenues or expenses can transform what would otherwise be a capital lease for the lessee into an operating lease for the lessee.Gleim 2015 | Part 1 | Online MCQs | Unit 003 D. Fact Pattern: Neary Company has entered into a contract to lease computers from Baldwin Company starting on January 1. C. Relevant information pertaining to the lease is provided below. Expense and a liability. Question: 308 At January 1. since the ownership of the leased asset is transferred to the lessee at the end of the lease term.000 Baldwin’s implicit rate 10% At the end of the lease term. ownership of the asset transfers from Baldwin to Neary. The lessee must record a capital lease as an asset and as an obligation at an amount equal to the present value of the minimum lease payments.com/CMA. D.facebook. 29Page www. Neary has properly classified this lease as a capital lease on its financial statements and uses straight -line depreciation on comparable assets. Relevant information pertaining to the lease is provided below. Year 1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Fact Pattern: Neary Company has entered into a contract to lease computers from Baldwin Company starting on January 1. Lease term 4 Years Useful life of computers 5 Years Present value of future lease payments $100. Lease term 4 Years Useful life of computers 5 Years Present value of future lease payments $100.000 Baldwin’s implicit rate 10% At the end of the lease term. Answer (B) is correct. 000). Question: 311 Keller Corporation signed a 3-year lease for an automobile on December 1. D. Capital lease.000 and an estimated useful life of 8 years. Monthly depreciation expense will be $66 ($3. $26 and depreciation expense of $66. Since the lease provides for the transfer of ownership. $20. $29 and depreciation expense of $58.com/CMA. Since Rosewater does not know the lessor’s implicit rate.054 at Keller’s incremental borrowing rate and $15. At a 10% interest rate. Since the lease agreement neither provides for transfer of ownership nor contains a bargain purchase option. Annual depreciation expense on the computers is $20. the lease is appropriately classified as a capital lease and Rosewater will recognize depreciation expense. B. which is known to the lessee. $0 and rent expense of $80. The present value of the $500 payments was $15.4%). it is appropriate to use Rosewater’s own incremental borrowing rate to determine whether the lease should be classified as a capital lease.154 × 10% × (1 ÷ 12 months)].250 Question: 310 On January 1.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 309 What is the annual depreciation expense that Neary will record on the leased computers? A. the lessee recognizes a leased asset at an amount equal to the present value of the minimum lease payments ($100. The lease called for payments of $500 per month for 36 months.154 ÷ 48 months). the computers are depreciated over the lease term (4 years). Rosewater does not know the rate implicit in the lease. Rosewater Company leased a computer for 4 years at a monthly rent of $80. Neary should depreciate the computers using the straight-line method over their estimated useful life (5 years). $25.000 ($100. The automobile had a list price of $17. Due to the rate of technical change.154. Had Rosewater chosen to purchase the computer instead of leasing it.facebook. the computer is expected to become obsolete within 5 years. Since the present value of the lease payments is greater than 90% of the fair value of the computer ($3.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 D. the computer was retailing for $3. Interest expense will be recognized in the amount of $26 [$3. For the month of January. Answer (A) is correct. they could have borrowed the funds at 10%.154 ÷ $3. Keller should record the lease as a(n) A. At the inception of the lease. $26.000 ÷ 5 years). Rosewater should report (to the closest dollar) interest expense of A. 31Page www. payable at the end of each month. Under a capital lease. Based on the above information. C. B. $29 and rent expense of $80. the present value of the lease payments is $3.450 = 91. $21.450.000 C.000 Answer (A) is correct.496 at the lessor’s implicit rate. this lease must be classified by Keller as a capital lease. At the end of the lease.com/CMA. Question: 312 Lease M does not contain a bargain purchase option. (2) the lease contains a bargain purchase option. B. entered into a 10-year lease agreement for a new piece of equipment worth $500.000 = 91.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . C. Lease P does not transfer ownership of the property to the lessee by the end of the lease term. A lease is classified as a capital lease by the lessee if. Sales-type lease. For a lease to be classified as a capital lease by the lessee. any one of four criteria must be met. Answer (B) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (A) is correct. The lease includes an option to purchase stock in the company. Operating lease Question: 313 Capital lease Operating lease Bain Co. Which of the following would require the lease to be accounted for as a capital lease? A. D. Capital lease B. C. One of these criteria is that the lease term equal 75% or more of the estimated remaining economic life of the leased property. or (4) the present value of the minimum lease payments is at least 90% of the fair value of the leased property to the lessor. Operating lease D.2%). How should the lessee classify these leases? Lease M Lease P A. (3) the lease term is 75% or more of the estimated economic life of the leased property.000. Thus. at its inception. Because the lease is for 83 1/3% (10 ÷ 12) 31Page www.facebook. The estimated useful life of the leased asset is 12 years. Bain will have the option to purchase the equipment. Dividing the present value of the MLP by the list price of the automobile yields a result > 90% ($15. Both leases meet the 75% criterion and should be properly classified as capital leases. Operating lease. If the lessor’s implicit rate is known to the lessee. that is the appropriate rate for discounting the MLP. B. A lessee must report a lease as a capital lease if the present value of the minimum lease payments (MLP) is at least 90% of the fair value of the asset. Capital lease Operating lease Capital lease Answer (B) is correct. any of the following four criteria are satisfied: (1) the lease provides for the transfer of ownership of the leased property.496 ÷ $17. but the lease term is equal to 90% of the estimated economic life of the leased property. Sale-leaseback. but the lease term is equal to 75% of the estimated economic life of the leased property. Answer (B) is correct. A lease is classified as a capital lease by the lessee if. The present value of the minimum lease payments at the beginning of the lease term is 75% or more of the fair value of the property at the inception of the lease. C. A lessee capitalizes a lease that contains a BPO. Question: 315 Which of the following is a characteristic of a capital lease? A. D. The lease contains a bargain purchase option.000. B.Gleim 2015 | Part 1 | Online MCQs | Unit 003 of the estimated economic life of the leased property. C.com/CMA. The future obligation does not appear in the balance sheet of the lessee. D. Answer (A) is correct. The lease term is equal to 65% or more of the estimated useful life of the leased property.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Bain must capitalize the lease. or (4) the present value of the minimum lease payments (excluding executory costs) is at least 90% of the fair value of the leased property to the lessor. Question: 314 Which of the following is a criterion for a lease to be classified as a capital lease in the books of a lessee? A. at its inception. B. The purchase option at the end of the lease is at fair market value. The lease term is substantially less than the estimated economic life of the leased property. D. (2) the lease contains a bargain purchase option. The lease contains a bargain-purchase option. C. The present value of the minimum lease payments is $400. 32Page www. A lessor capitalizes a lease that contains a BPO if (1) collectibility of the remaining payments is reasonably predictable and (2) no material uncertainties exist regarding unreimbursable costs to be incurred by the lessor. The present value of the minimum lease payments is 70% or more of the fair market value of the leased property. any of the following four criteria is satisfied: (1) the lease provides for the transfer of ownership of the leased property.facebook. (3) the lease term is 75% or more of the estimated economic life of the leased property. The lease does not transfer ownership of the property to the lessee. These payments include the initial payment at the inception of the lease.000 ($500. D. C. The lease required Koby to pay $500.000 C. the lessee records no liability except for rental expense accrued at the end of an accounting period. Minimum lease payment less the portion of the minimum lease payment allocable to interest. The lease liability is reduced by the portion of the lease payment attributable to the lease liability. the amount capitalized as leased equipment is $2. the liability is decreased by the minimum lease payment each period less the portion of 33Page www.com/CMA. Quick’s liability for a capital lease will be reduced periodically by the A. $2. Thus. No No D.675. guaranteed residual value. Thus.facebook. or nonrenewal penalty. The lessee must record a capital lease as an asset and an obligation at an amount equal to the present value of the minimum lease payments. The equipment has no guaranteed residual value.500. $3. The lease liability consists of the present value of the minimum lease payments.000 annually on January 2.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 316 The present value of minimum lease payments should be used by the lessee in determining the amount of a lease liability under a lease classified by the lessee as a(n) Capital Lease Operating Lease A. Yes Yes B. entered into a capital lease with a vendor for equipment on January 2 for 7 years. No Yes Question: 317 Koby Co. $825.000 Question: 318 Quick Company’s lease payments are made at the end of each period. the annual payments constitute an annuity due. The accrual is at settlement value rather than present value. This amount is the lease payment less the interest component of the payment. The lessee records a capital lease as an asset and an obligation at the present value of the minimum lease payments.000 B.35 at the inception of the lease.000 annual payment × 5. Yes No Answer (B) is correct. Under an operating lease. What amount should Koby capitalize as leased equipment? A. $500. Answer (A) is correct. beginning with the current year. The present value of an annuity due for seven years was 5. In the absence of a bargain purchase option.675.35 present value of an annuity due for 7 years).000 Answer (C) is correct. What amount should Harrow report as interest expense for the year ended December 31.900 ($379. D. When a lease is capitalized because title passes to the lessee at the end of the lease term or because the lease contains a bargain purchase option.com/CMA.. Question: 319 On January 1.000. Harrow treated this transaction as a capital lease. $9. signed an 8-year noncancelable lease for a new machine.000 beginning December 31. The five lease payments have a present value of $379. Minimum lease payment less the amortization of the related asset. Cole should record depreciation (amortization) expense for the leased machine at A. Minimum lease payment plus the amortization of the related asset.900 C. This lease qualifies as a capital lease because title passes to the lessee at the end of the lease term.facebook. Cole normally uses the straight-line method. based on interest of 10%. B.000 annual payments at the beginning of each year. The machine has a useful life of 12 years with no salvage value. C. Cole Co. requiring $15. Title passes to Cole at the lease expiration date.000 leased asset – $0 salvage value) ÷ 12-year economic life]. Aggregate lease payments have a present value on January 2 of $108. The asset should be depreciated (amortized) in accordance with the lessee’s normal depreciation policy for owned assets. Harrow Co. $13. C. Year 4. Cole uses straight-line depreciation for all of its plant assets. based on an appropriate rate of interest. signed a 5-year noncancelable equipment lease with annual payments of $100.000 at January 1. as lessee.Gleim 2015 | Part 1 | Online MCQs | Unit 003 the payment allocable to interest. Year 4. Minimum lease payment.900 Answer (A) is correct. For the current year.000 Answer (B) is correct. Year 4. $27. Year 4? A. $0 Question: 320 On January 2. Thus. B. $0 B.200 D.000 34Page www.500 D. $15. Under the effective-interest method.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 [($108. $24. $37. depreciation (amortization) expense is $9. interest expense for the first year is $37.000 lease obligation × 10% effective interest rate). the depreciation (amortization) period is the estimated economic life of the asset. C. The benefits and risks of ownership are transferred from the lessor to the lessee. or have minimum lease payments with a present value in excess of 90% of the fair value of the leased asset. The lessee records leased property as an asset and the present value of the lease payments as a liability. Advance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes would give rise to a deferred tax asset. contain a bargain purchase option. C.com/CMA. etc.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . Answer (C) is correct. 35Page www. Use of the straight-line depreciation method for financial statement purposes and the Modified Accelerated Cost Recovery System (MACRS) for income tax purposes. would treat the rent as income when the cash was received. Installment sale profits accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes. Because the tax is paid prior to recording the income for financial statement purposes. B. The tax return. The lessor records lease revenue. D. D. it represents an asset that will be recognized as an expense when income is finally recorded. and the lessee records lease payments as rental expense. Question: 322 Which one of the following temporary differences will result in a deferred tax asset? A.facebook. The financial statements would report no income and no related tax expense because the rental payments apply to future periods. Operating leases are transactions whereby lessees rent the right to use lessor assets without acquiring a substantial portion of the benefits and risks of ownership of those assets. are for more than 75% of the leased asset’s useful life. Answer (D) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 321 Leases should be classified by the lessee as either operating leases or capital leases. B. Operating leases transfer ownership to the lessee. however. Which of the following statements best characterizes operating leases? A. and a tax would be due in the year of receipt. Investment gains accounted for under the equity method for financial statement purposes and under the cost method for income tax purposes. A deferred tax asset records the deferred tax consequences attributable to deductible temporary differences and carryforwards. maintenance. Advance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes. asset depreciation.. Assume that the deferred tax liability at the beginning of the year is zero and that Bearings has a positive earnings tax position.000 – $66. a deferred tax liability for differences based on depreciation methods is noncurrent. Because depreciable assets are noncurrent. assuming straightline depreciation and no salvage value. The tax basis of this asset will be $66. the reported amount (cost – accumulated depreciation) of the machine at year-end.000 ÷ 5 years)].000 [$100. will be $80. For financial reporting purposes. Deferred income taxes for differences based on depreciation methods. and uses the 3-year. all of the following should be classified as current liabilities except A. Year 1 (rounded to the nearest whole dollar)? A.facebook. Question: 324 On a statement of financial position. or $4. A taxable temporary difference has arisen because the excess of the reported amount over the tax basis will result in a net future taxable amount over the recovery period. the deferred tax liability equals the applicable enacted tax rate times the temporary difference. B. Assuming the 35% rate applies during the asset’s entire life. Year 1. C. 36Page www.000 cost – ($100. The company uses the straight-line depreciation method with an estimated equipment life of 5 years and a zero salvage value for financial statement purposes.000. The MACRS depreciation rates for 3-year equipment are shown below. Salaries payable for work performed during the previous month. D.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Fact Pattern: Bearings Manufacturing Company. purchased a new machine on January 1.45 3 14.41 Question: 323 What is the deferred tax liability at December 31.666 Answer (D) is correct.670 [$100. Inc. Advances from customers for services to be performed. Deferred tax amounts are classified as current or noncurrent based on the classification of the related asset or liability (assuming such an asset or liability exists).com/CMA. B. Accounts payable for inventory items to be shipped on consignment. $7.666 [($80. Answer (C) is correct.33% 2 44.000 $33. C. Year Rate 1 33. for $100.000 – ($100.670) × 35%]. A taxable temporary difference requires recognition of a deferred tax liability. Bearings is subject to a 35% marginal income tax rate.33%)].330 $11.666 $4. Modified Accelerated Cost Recovery System (MACRS) with an estimated equipment life of 3 years for income tax reporting purposes.000 × 33. D.81 4 7.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . B. Future tax rate change is considered more likely than not to occur. C. Deferred tax liabilities arise when temporary differences in book and taxable income result in future taxable amounts. using the percentage-of-completion method for financial income and the completed contract method for taxable income. Deferred tax assets arise when temporary differences in book and taxable income result in future deductible amounts. D.facebook. Capital gains tax. B. Election has been made to apply past tax rates. Answer (A) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 325 A liability that represents the accumulated difference between the income tax expense reported on the firm’s books and the income tax actually paid is A. Harrison reports all the revenue on its tax return. Answer (B) is correct. D. Harrison expected the project to be profitable throughout the construction period. Answer (B) is correct. C. Increase in the deferred tax liability account.com/CMA. Harrison reports more revenue for financial reporting purposes than for tax purposes. C. Question: 327 A tax rate other than the current tax rate may be used to calculate the deferred income tax amount on the statement of financial position if a(n) A. Upon completion of the contract. Decrease in the deferred tax asset account. Decrease in the deferred tax liability account. D. Value-added taxes. thereby decreasing the deferred tax liability. 37Page www. Question: 326 Harrison Corporation entered into a 3-year contract. A tax rate other than the current tax rate may be used to calculate the deferred income tax amount on the statement of financial position if a future tax rate has been enacted into law.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . B. Net operating loss carryback exists. Taxes payable. For the first two years of the contract. Deferred taxes. Increase in the deferred tax asset account. The effect on Harrison’s financial statements for the third year of this contract would be a(n) A. giving rise to a deferred tax liability. Future tax rate has been enacted into law. 000.000.000 × 40%).000 C.000 40% Beginning balances: Income taxes payable -0- Deferred tax liability $50.e.760.000 – $1.640. This temporary difference gives rise to a future taxable amount.000 Gain on the sale of land reported this year but not taxable until next year Tax rate for all years 1. $1.400.000 deferred tax liability ($1.000 14. a $400.360.360. $1.000 Answer (C) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 328 Selected financial information for Windham. Taxable income is therefore $3.000. D.000 The total income tax expense reported on Windham’s income statement for the year just ended should be A. Year 1 Year 2 Current deferred tax assets $3. This credit to the deferred tax liability account is balanced by a debit to income tax expense.000 9.000 ($5. $2.400.. $960. However. i. Inc.. Deferred tax assets are considered fully realizable.000 B. for the year just ended is shown below. and current tax expense is $1.facebook.000.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Noncurrent deferred tax liabilities 5.000 – $600.360.000 deferred portion). specifically.000 Fact Pattern: Lucas Company computed the following deferred tax balances for the 2 most recent years.000 Noncurrent deferred tax assets 6. it is recognized in GAAP income but never in taxable income. the gain on the sale of land is a temporary difference because it is included in GAAP income this year and is included in taxable income in the future.000 × 40%).000).000 ($3.000 38Page www.000 Interest received on municipal bonds 600.760.000 ($1.com/CMA. Taxable income consists of pretax income adjusted for those items that give rise to tax differences.000 current portion + $400. Pretax income $5.000 Current deferred tax liabilities 8. The interest on municipal bonds is a permanent difference because it is tax-exempt. Total income tax expense for the year is therefore $1. Permanent differences have no deferred tax effects.000 $10.000.000 7. 000 $5.000 – $5.000 Current deferred tax liabilities 8.000 $1.000 $9.000 × 40%).com/CMA.000 increase in the deferred tax assets + $10. noncurrent amounts are also netted. Year 1 Year 2 Current deferred tax assets $3.000 increase in the deferred tax liabilities).000 current tax expense – $8.000 14.000 $10.000.000 $0 $0 $7.000 Fact Pattern: Lucas Company computed the following deferred tax balances for the 2 most recent years. C.000 ($1. $1. 39Page www. The amount of income taxes payable (current tax expense) is $400.000 – $8. $0 $1. Likewise. $406. It is aggregated with the current tax expense or benefit to determine total income tax expense for the year. Current deferred tax amounts are netted for financial reporting purposes.000 $0 B.000 Noncurrent deferred tax assets 6.000 ($10.000). Deferred tax expense or benefit is the net change during the year in the entity’s deferred tax liabilities and assets.000) and the deferred tax liabilities increased by $10. $404.000 ($400. Thus.000 9.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 7.000 C.000 Answer (B) is correct.000. $400. Lucas’s income tax expense for Year 2 is $402.000 for Year 2 and is taxed at an effective income tax rate of 40%. $402.000 Answer (C) is correct.000 Question: 330 What deferred tax amounts will appear on Lucas’s statement of financial position at the end of Year 2? Assets Liabilities Current Noncurrent Current Noncurrent A.000 + $7.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 329 If Lucas calculates taxable income of $1.000 D.000 Noncurrent deferred tax liabilities 5. Deferred tax assets are considered fully realizable. The deferred tax assets increased by $8. how much income tax expense will be reported on Lucas’s income statement for Year 2? A. $7.000 B.000 $1.000 ($9.000 – $3. At the end of Year 2.000 – $6.000 + $14.facebook. $2.000 was deducted. Included in pretax income were $10.000 × 40%) results.000 = $4.current $20.000 of current deferred tax liabilities for a reported current deferred tax asset of $1.000 of installment sales revenue was reported. Pebbles Corporation reported pretax financial statement income of $50.000. it is classified as noncurrent.600 as a noncurrent liability.000.000 – $12. producing a temporary difference of $5.000 $14. but only $5. $10.000 as a noncurrent asset.000 $9.000 ($5. Pebbles should report deferred tax balances of A. The income tax rate was 40%. Question: 332 Moore Corporation’s income tax computations gave rise to the following accounts.000).000. Similarly. C. and equipment. B.000 Deferred tax asset -.current 10. Deferred tax asset -.000 of current deferred tax assets and $9. the $7. The depreciation expense will also result in a deferred tax liability. Pebbles reports installment sales receivables as current assets. Since this amount will be recognized later for tax purposes than for financial reporting.000 of noncurrent deferred tax assets and $14. and depreciation expense of $16.000 The account(s) relating to Moore’s taxes that should appear on the statement of financial position is (are) 41Page www.000. D. plant.000 as a noncurrent liability and $5. Answer (C) is correct. since more expense was recognized for tax purposes than for GAAP reporting ($16. Of the installment sales.600 ($4.000 Deferred tax liability -.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Lucas nets its $10.000 as a current liability and $1.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . a deferred tax liability of $1.000 as a current asset and $5.000 was recognized for tax purposes.000.000 as a current liability.000 $7.000 of noncurrent deferred tax liabilities are netted to produce a reported noncurrent deferred tax liability of $7. $4.000 was recognized for financial reporting.000 Question: 331 At the end of its first year in business.000 × 40%). since depreciation expense relates to property. all $10.facebook.600 as a current asset.noncurrent 30. On the tax return. On its year-end statement of financial position.noncurrent 80. Temporary differences arise when the GAAP basis and the tax basis of an item of income or expense differ. $4.com/CMA. D.000 of revenue from installment sales and depreciation expense of $12.000 as a current liability and $1. A deferred tax asset or liability is classified as current or noncurrent depending on the classification of the related asset or liability. it constitutes a deferred tax liability in the amount of $2.000 Deferred tax liability -. $2. $5. The installment revenue is thus properly classified as current and. 000 and a noncurrent deferred tax asset of $50. a current deferred tax liability of $10.000. Financial statements prepared under the income tax basis of accounting and financial statements prepared under GAAP differ when the tax basis of an asset or a liability and its reported amount in the GAAP-based 41Page www. C. Moore nets its $20. At the end of the year. Question: 333Intraperiod income tax allocation arises because A. To provide a fair presentation. C. and a noncurrent deferred tax liability of $80. B. D. other comprehensive income. the $30. and items debited or credited directly to equity.000.000.com/CMA.000 of noncurrent deferred tax assets and $80.000. discontinued operations.000 of current deferred tax liabilities for a reported current deferred tax asset of $10. Do not include nontaxable revenues and nondeductible expenses in determining income. Certain revenues and expenses appear in the financial statements but are excluded from taxable income. D. D.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . A current deferred tax asset of $20. Answer (C) is correct. a noncurrent deferred tax asset of $30. Similarly.000.000. extraordinary items.000 and a noncurrent deferred tax liability of $50. Current deferred tax amounts are netted for financial reporting purposes. Answer (D) is correct.000. Income taxes must be allocated between current and future periods. A current deferred tax asset of $10.Gleim 2015 | Part 1 | Online MCQs | Unit 003 A. Include detailed information about current and deferred income tax liabilities. Certain revenues and expenses appear in the financial statements either before or after they are included in taxable income. B. Answer (A) is correct. Contain no disclosures about capital and operating lease transactions. A noncurrent deferred tax liability of $90.facebook. Recognize certain revenues and expenses in different reporting periods.000. B.000 of current deferred tax assets and $10. C. GAAP require that income tax expense for the period be allocated among continuing operations.000. A noncurrent deferred tax liability of $40. noncurrent amounts are also netted. Likewise.000 of noncurrent deferred tax liabilities are netted to produce a reported noncurrent deferred tax liability of $50. Question: 334 Income-tax-basis financial statements differ from those prepared under GAAP because they A. Items included in the determination of taxable income may be presented in different sections of the financial statements. An example is subscriptions revenue received in advance. Yes No Question: 336 When accounting for income taxes.com/CMA. Thus.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . and (2) the difference will result in taxable or deductible amounts in future years when the asset is recovered or the liability is settled at its reported amount. which is recognized in taxable income when received and recognized in financial income when earned in a later period. B. D. No Yes C. But some temporary differences are not related to an 42Page www. No No B. certain revenues and expenses are recognized in different periods. a temporary difference occurs in which of the following scenarios? A. The result will be taxable or deductible amounts in future years when the reported amount of the asset is recovered or the liability is settled. Yes Yes Answer (C) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 003 financial statements are not the same. A temporary difference exists when (1) the reported amount of an asset or liability in the financial statements differs from the tax basis of that asset or liability. Temporary differences most commonly arise when either expenses or revenues are recognized for tax purposes either earlier or later than in the determination of financial income. A temporary difference may also exist although it cannot be identified with a specific asset or liability recognized for financial reporting purposes. A temporary difference results when the GAAP basis and the tax basis of an asset or liability differ. Answer (B) is correct. An item is included in the calculation of net income in one year and in taxable income in a different year. Question: 335 Temporary differences arise when expenses are deductible for tax purposes After They Are Before They Are Recognized in Recognized in Financial Income Financial Income A. An item is included in the calculation of net income but is neither taxable nor deductible. The effect is that a taxable or deductible amount will occur in future years when the asset is recovered or the liability is settled.facebook. which is recognized as an expense in financial income when a product is sold and recognized in taxable income when the expenditures are made in a later period. Another example is a warranty liability. Gleim 2015 | Part 1 | Online MCQs | Unit 003 asset or liability for financial reporting. Thus, temporary differences occur when revenues or gains, or expenses or losses, are used to calculate net income under GAAP in a year before or after being used to calculate taxable income. C. An item is no longer taxable due to a change in the tax law. D. The accrual method of accounting is used. Question: 337 The best advantage of a zero-coupon bond to the issuer is that the A. Bond requires a low issuance cost. B. Bond requires no interest income calculation to the holder or issuer until maturity. C. Interest can be amortized annually by the APR method and need not be shown as an interest expense to the issuer. D. Interest can be amortized annually on a straight-line basis but is a noncash outlay. Answer (D) is correct. Zero-coupon bonds do not pay periodic interest. The bonds are sold at a discount from their face value, and the investors do not receive interest until the bonds mature. The issuer does not have to make annual cash outlays for interest. However, the discount must be amortized annually and reported as interest expense. Fact Pattern: On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. Question: 338 What is the amount of interest Evangel will pay at the end of the first year? A. $8,659 B. $9,000 Answer (B) is correct. The annual cash payment is the face amount of the bonds times the stated rate ($100,000 × 9% = $9,000). C. $9,621 D. $10,000 43Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 339 A premium on bonds payable arises when A. The semiannual bond interest becomes due. B. The prevailing interest rate after the bond issuance falls below the nominal rate of the bonds. C. The amount received from sale of the bonds at issuance exceeds the face value of the bonds. Answer (C) is correct. A premium on bonds payable arises when the amount received from sale of the bonds at issuance exceeds the face value of the bonds. This situation occurs if, at the time the bonds are sold, their stated rate is greater than the current market rate. D. The cost of issuing the bonds is capitalized. Fact Pattern: On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. Question: 340 What is the amount of interest expense that should be reported on Evangel’s income statement for the second year? A. B. C. D. $8,779 $9,000 $9,559 $9,683 Answer (D) is correct. An amortization schedule for the first 2 years of Evangel’s bonds can be prepared as follows: Beginning Times: Equals: Carrying Effective Interest Year Amount Rate Expense Minus: Equals: Ending Cash Discount Carrying Paid Amortized Amount 1 $96,207 10% $9,621 $9,000 $621 $96,828 2 96,828 10% 9,683 9,000 683 97,510 Fact Pattern: On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. 44Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 341 What is the amount of Evangel’s unamortized bond discount at the end of the first year? A. $621 B. $2,452 C. $3,172 Answer (C) is correct. Total interest expense for the year equals the carrying amount of the bonds times the effective rate (yield), or $9,621 ($96,207 × 10%). Subtracting the cash interest payment from this leaves the amount of discount amortized, or $621 ($9,621 – $9,000). Subtracting this amount from the previous unamortized discount ($3,793) leaves a remaining unamortized discount at the end of Year 1 of $3,172. D. $3,793 Fact Pattern: On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amorti zing bond discount. Interest is payable annually on December 31. Question: 342 The net carrying amount of Evangel’s bonds payable at the end of the first year is A. $94,866 B. $95,586 C. $96,828 Answer (C) is correct. Total interest expense for the year equals the carrying amount of the bonds times the effective rate (yield), or $9,621 ($96,207 × 10%). Subtracting the cash interest payment from this leaves the amount of discount amortized ($9,621 – $9,000 = $621). Subtracting this amount from the previous unamortized discount ($3,793) leaves a remaining unamortized discount at the end of Year 1 of $3,172. Subtracting this amount from the face amount of the bonds ($100,000) provides a carrying amount of $96,828. D. $97,548 Fact Pattern: On Januar y 1, Evangel Company issued 9% bonds in the face amount of $100,000, which mature in 5 years. The bonds were issued for $96,207 to yield 10%, resulting in a bond discount of $3,793. Evangel uses the effective interest method of amortizing bond discount. Interest is payable annually on December 31. Question: 343 What is the amount of interest expense that should be reported on Evangel’s income statement at the end of the first year? A. $8,659 B. $9,000 C. $9,621 45Page www.facebook.com/CMA.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ Inc. Income bonds pay interest only if the issuing company has earned the interest. Only companies with the best credit ratings can issue debentures because only the company’s credit rating and reputation secure the bonds.207 × 10%). C.400 ($180.000. an 8% annual effective yield. Using the effective interest method. the company’s interest expense for the first 6 months ended July 1 will be A. debentures are secured by the full faith and credit of the issuing firm. Subordinated debt and rank behind convertible bonds. and a 7% annual coupon rate were sold by Thomas Dynamics.. The bondholder is guaranteed an income over the life of the security. Income bonds are junior to subordinated debt but senior to preferred and common stock.000 D. an income bond is junior to preferred and common stock. $14. A form of lease financing similar to equipment trust certificates. D. Although no assets are mortgaged as security for the bonds.000 B. Debentures are unsecured bonds. Answer (D) is correct. By promising a return to the bondholder.000. Bonds secured by the full faith and credit of the issuing firm.com/CMA. C. D. Question: 346 Which one of the following characteristics distinguishes income bonds from other bonds? A.facebook.400 Question: 345 Debentures are A. C. B.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (C) is correct. or $14. B.200. or $9. Total interest expense for the year equals the carrying amount of the bonds times the effective rate (yield). $14. An income bond is one that pays interest only if the issuing company has 46Page www.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $7. D. for $180.200 Answer (B) is correct.000 × 8%). Total interest expense for the year equals the carrying amount of the bonds times the effective rate (yield). The bonds pay interest on January 1 and July 1. Debentures are a general obligation of the borrower.621 ($96. Answer (C) is correct. $7. $10. Income bonds that require interest payments only when earnings permit.000 Question: 344 On January 1. Half of this amount is $7. bonds with a face amount of $200. 000 in new contracts.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . This year. Investors can choose the maturity that suits their financial needs. The yield to maturity is the same for all bonds in the issue.000 Answer (C) is correct. During the current year. The coupon rate on these bonds is adjusted to the maturity date. C. Thus.000. Question: 348 A construction company has signed $1. $(900.. Historically. When the outcome of a transaction involving the rendering of services (e. should be recognized as revenue compared with $0 of revenue recognized under the completed contract method.facebook. Unfunded vested benefit obligation.000.000. Projected benefit obligation. Serial bonds have staggered maturities. an investor who will have a child starting college in 16 years can choose bonds that mature in 16 years. $100.000 contract. $1. C.g. The change in revenue recognition methods will result in a revenue change of A.000) C.Gleim 2015 | Part 1 | Online MCQs | Unit 003 earned the interest. maintains a defined benefit pension plan for its employees. that is. investors can choose the maturity date that meets their investment needs. revenue is recognized only to the extent of those costs that are expected to be recoverable. revenue must be recognized only to the extent of the expenses recognized that are recoverable.000. since the contract is not fully completed. 10% of the $1.com/CMA. they mature over a period (series) of years.000 Question: 349 Visor Co. Thus. The service cost component of Visor’s pension expense is measured using the A. B. Answer (C) is correct. the controller has recognized revenue when the contract work was completed using the completed contract method. $0 B. For example. If it is probable that the entity will recover the transaction costs incurred. All bonds in the issue mature on the same date. a construction project) cannot be estimated reliably. D. 47Page www. Question: 347 Serial bonds are attractive to investors because A. 10% of the required work for these contracts was performed. the company’s auditors are requiring the new contracts to be recognized under the percentage of completion method. $100. Unfunded accumulated benefit obligation. although the principal must still be paid on the due date. Such bonds are riskier than normal bonds. B. D. 000 In computing pension expense. The PBO as of a date is equal to the actuarial present value of all benefits attributed by the pension benefit formula to employee service rendered prior to that date. Expected return on plan assets. The PBO is measured using assumptions as to future salary levels. C.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .com/CMA.’s defined benefit pension plan for Year 1: Fair value of plan assets.000 525. what amount should Gali use as actual return on plan assets? 48Page www. end of year Employer contributions Benefits paid $350.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Answer (C) is correct.000 110.000 85. No Yes D. The required minimum pension expense consists of the following elements: + Service cost + Interest cost – Expected return on plan assets ± Amortization of net gain or loss ± Amortization of prior service cost of credit Pension expense Thus. Yes Yes Answer (B) is correct. Yes No B.facebook. Question: 350 Which of the following components must be included in the calculation of pension expense recognized for a period by an employer sponsoring a defined benefit pension plan? Expected Return Interest Cost on Plan Assets A. It is a component of the projected benefit obligation (PBO). Service cost is the actuarial present value of benefits attributed by the pension benefit formula to services rendered during the accounting period. beginning of year Fair value of plan assets. both interest cost and expected return on plan assets are components of pension expense. No No Question: 351 The following information pertains to Gali Co. D. $150. $260.000 – $350. B. Shortage between the expected and actual return on plan assets.000 Interest cost 400. Amortization of the discount on prior service cost.000 Question: 352 Interest cost included in the pension expense recognized for a period by an employer sponsoring a defined benefit pension plan represents the A.000.000 49Page www.000 Service cost 700. Increase in the projected benefit obligation resulting from the passage of time. $175. The actual return on plan assets is based on the fair value of plan assets at the beginning and end of the accounting period adjusted for contributions and payments during the period. C. C.000 Accumulated benefit obligation at January 1 4. $65. Answer (B) is correct.Gleim 2015 | Part 1 | Online MCQs | Unit 003 A. The actual return for Gali is $150.000 D.000 Answer (B) is correct.000.000 ($525. Increase in the fair value of plan assets resulting from the passage of time.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .com/CMA.000).000 + $85.000 Expected return on plan assets 500. Fact Pattern: Selected financial information for Jory Company for the current year ended December 31 is shown below.000 – $110.000 Projected benefit obligation at January 1 5.000 Actual return on plan assets 500. D.000 B.facebook.000. Plan assets at January 1 $6. The interest cost component of pension expense is defined as the increase in the PBO resulting from the passage of time. 600.000) Net periodic pension cost $600. $600.000 Answer (A) is correct. $1.000 5.000.000 Expected return on plan assets (500.000 D.000 C. $900.000 Accrued pension cost at January 1 Question: 353 -0- Jory’s net pension expense for the year ended December 31 is A.900. $1.000 400.000 B.000 Interest cost 400.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Accumulated benefit obligation at January 1 4. Plan assets at January 1 Projected benefit obligation at January 1 $6.000.facebook.000 51Page www.com/CMA. Jory’s net pension expense for the year ended December 31 can be calculated as follows: Current service cost Interest cost $700.000 Fact Pattern: Selected financial information for Jory Company for the current year ended December 31 is shown below.000.000 Actual return on plan assets 500.000 Service cost 700.000 Benefits paid to retirees 300.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Employer’s contribution 800. 000 D.000 www.000.000 Answer (C) is correct.000 Employer’s contribution 800.000 C. The fair value of Jory’s plan assets at December 31 can be calculated as follows: Fair value.000. December 31 $7. $7.000 5.000 Accrued pension cost at January 1 Question: 354 -0- The plan assets at December 31 for Jory should be valued at A.000 Accumulated benefit obligation at January 1 4.000 Add: Employer contribution 800.000 Fact Pattern: Selected financial information for Jory Company for the current year ended December 31 is shown below.500.000.000.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Expected return on plan assets 500.com/CMA. January 1 $6.000.000.800.facebook.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ . $6.300. $7.000) Fair value.000 Benefits paid to retirees 300. Plan assets at January 1 Projected benefit obligation at January 1 $6.000 Less: Retirement benefits paid (300.000 B.000 Interest cost 51Page 400. $6.000 Add: Actual return 500. 000 C.889. December 31 $5. $5. Year 2 52Page $1.000 B. $5.000 Interest cost 190.800.100.700.000 Add: Current service cost 700.000 D.000.000 Add: Interest cost 400.000 Service cost 105.000 Actual return on plan assets 500.com/CMA. Jory’s projected benefit obligation at December 31 can be calculated as follows: PBO. January 1 $5.000 Fact Pattern: Brown Industries operates a defined benefit pension plan.000 Expected return on plan assets 500.800.000 Benefits paid to retirees 300.000 Accrued pension cost at January 1 Question: 355 -0- Jory’s projected benefit obligation at December 31 is A. Information received from the actuary and the trustee related to the Year 2 pension plan includes the following: Projected benefit obligation.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Less: Retirement benefits paid (300.000 Answer (C) is correct.000 www.000) PBO.000 Employer’s contribution 800.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Service cost 700.400. $6.facebook. January 1. $5. Gleim 2015 | Part 1 | Online MCQs | Unit 003 Retirement benefits paid 182.000) Amortization of prior service cost 122.000 Service cost 105.000 Amortization of prior-year net pension loss Net periodic pension cost 37.000 $239. $239. $190.facebook.000 Amortization of prior service cost 122.000 Actual return on plan assets (215.000 Interest cost 190. December 31. $299.000 Actual return on plan assets 215.825.000 Interest cost 190.000 Fact Pattern: Brown Industries operates a defined benefit pension plan.889. Year 1 1.000 Employer contribution 155. Information received from the actuary and the trustee related to the Year 2 pension plan includes the following: Projected benefit obligation.pension plan assets.000 B.000 Employer contribution 155. Year 2 53Page $1.000 C.000 D. the calculations are: Current service cost $105. $454.com/CMA.000 Question: 356 Brown’s Year 2 net pension cost is A.000 www. January 1.000 Actual return on plan assets 215.000 Retirement benefits paid 182.000 Fair value -. Assuming that the actual return on plan assets is equal to the expected return.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Amortization of prior-year net pension loss 37.000 Answer (B) is correct. 000 37.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 Amortization of prior service cost 122.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Amortization of prior service cost Amortization of prior-year net pension loss 122.005. The calculations are: Fair value.825. Year 2. Year 2 $2.com/CMA.000 Less: Retirement benefits paid (182.000 Fair value -.000 54Page www.798.000 Fact Pattern: Brown Industries operates a defined benefit pension plan.000 Add: Actual return 215.000 $2. Dec. Information received from the actuary and the trustee related to the Year 2 pension plan includes the following: Projected benefit obligation. Year 2 $1.000 Fair value -. December 31. Year 1 1.000 Question: 357 The fair value of Brown’s plan assets at December 31. January 1.000 Actual return on plan assets 215.000 Interest cost 190.790. Dec. D.825. December 31. B.889. 31.000 Employer contribution 155. Year 1 1.pension plan assets.pension plan assets. C.000 $1.000 Retirement benefits paid 182.000 Add: Employer contribution 155. $1.000 $2.000) Fair value. 31.013.000 Service cost 105.000 Amortization of prior-year net pension loss 37.facebook. is A.825. Year 1 $1.000 Answer (D) is correct.013. 000 Add: Current service cost 105. $2.000 Answer (C) is correct.Arabwebsoft ‫حصري | لمنتدى عرب ويب سوفت‬ .000 D.000 Less: Retirement benefits paid (182.002. 31. The calculations are: PBO. Year 2 $2.889.787.969. Year 2.facebook.029.000 Add: Interest cost 190. 1. Year 2 $1. $1.000 B.002. $2.000 C. Dec.com/CMA. $1. is A.Gleim 2015 | Part 1 | Online MCQs | Unit 003 Question: 358 Brown’s projected benefit obligation at December 31.000 55Page www.000) PBO. Jan.