Professional Documents
Culture Documents
EASY
1. Failure to record the expired portion of prepaid rent will not
a.
b.
c.
d.
overstate assets
overstate retained earnings
understate expenses
understate liabilities
3. Objectivity is an ingredient of
a.
b.
c.
d.
The
The
The
The
AVERAGE
1. When an entity changed the expected service life of an asset because additional
information has been obtained, which of the following should be reported?
a. Cumulative effect of change in accounting policy
b. Proforma effect of retrospective application
c. Prior period error
d. None of the above
2. Which of the following is true regarding compensating balance?
a. It must be included in cash and cash equivalent
b. It should be classified as current asset when it is legally restricted and related
to long-term loan.
c. It should be classified as non-current asset when it is legally restricted and
related to a short-term loan
d. It should be classified as current asset when it is not legally restricted as to
withdrawal.
3. A bank reconciliation is a statement which brings into agreement the cash
balance per book and cash balance per bank. If the balance shown on the
companys bank statement is less than the correct cash balance and neither the
company nor the bank has made errors, there must be
a.
b.
c.
d.
outstanding checks
deposits in transit
bank charges not recorded by the company
deposits credited by the bank but not yet recorded by the company
4. For an entity with a periodic inventory system, which of the following would cause
income to be overstated in the period of occurrence?
a.
b.
c.
d.
5. When the allowance method of recognizing bad debts expense is used, income
would increase when
a.
b.
c.
d.
DIFFICULT
1. An entity failed to amortize premium on its investment in bonds. What effect
would this have on the carrying amount of the investment and interest received,
respectively?
a.
b.
c.
d.
overstated, overstated
overstated, no effect
understated, understated
understated, no effect
2. How would the declaration and subsequent issuance of a 20% stock dividend by
the issuer affect each of the following when the fair value of the shares exceeds the
par value of the share?
a.
b.
c.
d.
Share Premium
No effect
Increase
No effect
Increase
Retained Earnings
Shareholders Equity
No effect
No effect
Decrease
No effect
Decrease
No effect
No effect
No effect
3. An entity owns 30% of the preference shares of another company. Which of the
following affects the investors income?
a.
b.
c.
d.
Cash Dividends
Yes
Yes
No
No
Only statement 1
Only statement 2
Both
Neither
CLINCHER
1. Under the equity method, net income reported by the investee is properly
treated by the investor as a/an
a. return on investment
b. dividend income
c. event that requires memorandum entry
d. event that requires a journal entry
2. Which of the following is true regarding reversing entries?
a. They are normally prepared for accrued, prepaid and estimated items.
b. They are necessary to achieve proper matching of revenue and expense.
c. They are desirable to exercise consistency and establish standardized procedures.
d. They must be made at year-end.
3. In the Conceptual Framework for Financial Reporting, what provides the why of
accounting?
a.
b.
c.
d.