Part 1 Financial Statements Types, Presentation, Limitations, Users

Question 1
The symbol <IR> refers to:

A. Integrated Reporting.
B. Investment Reporting.
C. International Reporting.
D. Interest Revenue.

Question 2
The following information is available for Becker Manufacturing.

What is Becker's net cash provided by operating activities?

A. $457,500
B. $322,500
C. $277,500
D. $480,000

Question 3
What is one way that cash flows from investing activities are the opposite of cash flows from financing
activities?

A. Cash flows from investing activities frequently reflect cash flows related to the purchase of
property, plant, and equipment, whereas cash flows from financing activities frequently reflect
cash flows related to the sale of property, plant, and equipment.
B. Cash flows from investing activities frequently reflect cash flows related to cash the company
has loaned to others, whereas cash flows from financing activities frequently reflect cash flows
related to cash the company has borrowed from others.
C. Cash flows from investing activities frequently reflect cash flows related to the receipt of
dividends and interest from purchased securities, whereas cash flows from financing activities
frequently reflect cash flows related to the payment of dividends and interest to investors and
creditors.
D. Cash flows from investing activities frequently reflect cash flows related to the purchase of
treasury stock, and cash flows from financing activities frequently reflect cash flows related to
the sale of treasury stock.
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Question 4
The following information is available for Mercer Industries.

What is Mercer's net cash provided by operating activities?

A. $258,000
B. $150,000
C. $384,000
D. $366,000

Question 5
Madsen Pharmaceuticals has spent 15 years developing a new medication for epileptic seizures. They
finally have a new FDA-approved drug and have applied for a patent. When you look at Madsen's
accounting books, what would you expect to find?

A. The research and development costs for the new drug would have been capitalized at the
beginning of the project and amortized as money was used.
B. The research and development costs for the new drug would have been expensed throughout
the past 15 years as money was spent on the project.
C. The research and development costs for the new drug would have been expensed in one lump
sum at the end of the project when total costs were determined.
D. The research and development costs for the new drug would have been capitalized throughout
the past 15 years as money was spent on the project.

Question 6
The multi-step income statement, with additional income statement items, for Harrington Technologies
Inc. is given below.
 Part 1 Financial Statements Types, Presentation, Limitations, Users

Glen Hamilton, a financial analyst, analyzed the company's financial statements and concluded that the
income amount best suited to predict future earnings should be $683,200 instead of the reported net
income of $630,000. Which of the following arguments is most likely to support his conclusion?

A. $53,200 due from a client was written off after the finalization of accounts for the current
period.
B. The company valued its inventory using the specific identification method, whereas the financial
analyst used the last in, first out (LIFO) method for the current period.
C. The company has included expenses in relation to discontinued operations as part of income
from continuing operations.
D. The company changed an accounting principle and prepared the financial statements as though
the new principle had been applied throughout all periods presented.

Question 7
Triton Corp reported net income of $207,200, including depreciation expense of $63,000. The company
sold investments for $8,400 that had a cost of $25,200. Accounts receivable decreased $35,000 and
accounts payable increased $32,200. What amount did Triton report as net cash provided by operating
activities?

A. $228,200
B. $354,200
C. $186,200
D. $219,800

Question 8
Use the partial comparative balance sheets for Benchmark Industries to determine the net cash inflow
from operating activities. The company had a net income of $300,000, which includes depreciation of
$75,000. Equipment with a book value of $140,000 was sold for $90,000 and new equipment was
purchased for $290,000.

A. $103,000
B. $143,000
C. $393,000
D. $343,000

Question 9
Stock dividends ________ retained earnings and ________ total paid-in capital.

A. increase, decrease
B. increase, increase
 Part 1 Financial Statements Types, Presentation, Limitations, Users

C. decrease, increase
D. decrease, decrease

Question 10
With respect to the stock's par value, a large stock dividend is most similar to a ________; but with
respect to the stock's market value, a large stock dividend is most similar to a ________.

A. small stock dividend; stock split

B. stock split; small stock dividend
C. cash dividend; small stock dividend
D. stock split; cash dividend

Question 11
When using the indirect method, which of the following statements provides the most accurate
description of the relationship between accounts receivable and the operating activities section on the
statement of cash flows?

A. An increase in accounts receivable results in an increase in the operating activities section on

the statement of cash flows.
B. An increase in accounts receivable results in a decrease in the operating activities section on the
statement of cash flows.
C. A decrease in accounts receivable results in a decrease in the operating activities section on the
statement of cash flows.
D. A decrease in accounts receivable results in no change in the operating activities section on the
statement of cash flows.

Question 12
When a company discontinues an operation and disposes of the discontinued operation (component),
the transaction should be included in the earnings statement as a gain or loss on disposal reported as:

A. A prior-period adjustment.
B. A separate amount, net of tax, after continuing operations.
C. An extraordinary item, net of tax.
D. A bulk sale of fixed assets included in earnings from continuing operations.

Question 13
As of December 31, 20X8, Mather Corporation's net cash flow from operating activities was $174,000
and its net income was $158,600. Over the course of 20X8, Mather's accounts payable balance dropped
by several thousand dollars. If Mather uses the indirect method to calculate net cash flows and the only
other asset or liability is accounts receivable, then which of the following statements is accurate?

A. Mather must have seen a significant increase in its accounts receivable balance over the course
of 20X8.
B. Mather's accounts receivable balance likely held steady over the course of 20X8.
C. Mather must have seen a significant decrease in its accounts receivable balance over the course
of 20X8.
D. Based on these figures, we cannot make any conclusions about how Mather's accounts
receivable balance must have changed during 20X8.
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Question 14
Best Billiard Company owns 40% of Supreme Table Company’s stock at a historical cost of $300,000.
Supreme Table recently reported its earnings for the prior year. Best Billiard’s proportional share of
Supreme Table’s prior year net income was $10,000. Best Billiard also received $15,000 in dividends
from Supreme Table in the prior year. Best Billiard uses the equity method as the accounting treatment
for this investment. Based on the information presented, the proper presentation of this investment
would result in Best Billiard reporting:

A. a decrease in the book value of its investment in Supreme Table.

B. an increase in the book value of its investment in Supreme Table.
C. its investment in Supreme Table at the original cost.
D. consolidated financial statements with Supreme Table.

Question 15
How would the issue of common stock to acquire an $8,000 machine appear on the statement of cash
flows?

A. It would not appear as a cash flow but rather on a schedule of noncash investing and financing
activities.
B. It would be a positive $8,000 in the financing section and a negative $8,000 in the investing
section.
C. It would be a negative $8,000 in the financing section and a positive $8,000 in the investing
section.
D. It would depend on whether you are using the direct or the indirect method.

Question 16
Pegasus Software has reported the following items related to its cash flows:

If Pegasus Software had $4,650,657 in cash at the beginning of the year, what was the total of cash
flows from operating activities?

A. $25,861,710
B. $31,812,560
C. $28,837,135
D. ($6,161,406)

Question 17
Which of the following is true of disclosure requirements of accounts receivable?

A. Receivables should be reported net of any valuation accounts on the balance sheet.
B. The monthly change in credit sales and accounts receivables should be reported as part of
footnotes.
C. Accounts receivables should not be reported as a separate line item when payment terms
extend beyond 30 days.
D. Accounts receivable should be classified as noncurrent assets.
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Question 18
The cash flow from operations for Charlene Energy Inc. is $25,000 for the current year. If the
amortization expense increases by $5,000 and other factors remain same, under which of the following
assumptions will the cash flow from operations remain unaffected?

A. Cash paid for intangibles also increased by $5,000 during the year.
B. The company has an infinite life
C. The company is operating in a tax-free environment.
D. The company can change the amortization method during a financial year.

Question 19
An integrated report includes eight Content Elements. Which Content Element answers this question:
What does this organization do and what are the circumstances under which it operates?

A. Strategy and resource allocation

B. Organizational overview and external environment
C. Business model
D. Outlook

Question 20
All of the following express a primary purpose of Integrated Reporting except:

A. to provide information on value creation within an organization.

B. to provide information on changes in an organization’s Six Capitals over a period of time.
C. to provide additional audited information to regulators such as the SEC.
D. to provide financial and nonfinancial measures of an organization’s performance.

Question 21
Your Yardwork Group (YYG), a professional landscaping team, had the following activity for 20X1:

What is gross revenue for YYG’s income statement?

A. $32,000,000
B. $31,575,000
C. $14,050,000
D. $21,025,000

Question 22
An extract of the footnotes of Chavez Inc., with 13 subsidiaries across 4 countries, reads as follows:
 Part 1 Financial Statements Types, Presentation, Limitations, Users

"Paid-in capital accounts have been translated using the historic rate. All assets and liabilities have been
translated using the current exchange rate on the balance sheet date, whereas income statement
accounts have been translated using the end-of-year rate."

The CEO of the company did not approve the financial statements, stating that the accounting policies
followed are not in line with U.S. GAAP. Which of the following statements support the CEO's decision?

A. Income statement accounts should be translated based on the current exchange rate on the
balance sheet date.
B. Income statement accounts should be translated based on the average rate for the current year.
C. All assets and liabilities should be translated using the average rate for the current year.
D. Paid-in capital accounts should be translated using the end-of-year rate.

Question 23
Gourmet Foods has reported the following items regarding its cash/cash flows:

If Gourmet Foods had $3,650,657 in cash at the end of the year, what was the amount of cash inflows or
outflows from financing activities?

A. ($692,693)
B. $5,386,466
C. $4,172,215
D. $1,735,809

Question 24
When accounts receivable decreases during the period under the indirect method:

A. Revenues on a cash basis are less than revenues on an accrual basis.

B. To convert net income to net cash provided by operating activities, the decrease in accounts
receivable must be added to net income.
C. To convert net income to net cash provided by operating activities, the decrease in accounts
receivable must be subtracted from net income.
D. Revenues on an accrual basis are equal to revenues on a cash basis.

Question 25
The statement of shareholders’ equity shows a:

A. reconciliation of the beginning and ending balances in the Retained Earnings account.
B. reconciliation of the beginning and ending balances in shareholders’ equity accounts.
C. computation of the number of shares outstanding used for earnings per share calculations.
D. listing of all shareholders’ equity accounts and their corresponding dollar amounts.

Question 26
For a manufacturing firm, which of the following would be included in cash outflows from financing
activities on the Statement of Cash Flows?
 Part 1 Financial Statements Types, Presentation, Limitations, Users

A. Payment of salaries and wages

B. Repayment of the principal portion of firm debt
C. Issuance of new stock
D. Interest payments on firm debt

Question 27
Below is the balance sheet and a partial income statement for Wonderful Water Bottles, a water bottle
manufacturer and distributor:
 Part 1 Financial Statements Types, Presentation, Limitations, Users

This year Wonderful Water Bottles declared and paid dividends of $500,000. Based on the information
provided, what was Wonderful Water Bottles’ sales revenue for the year?

A. $15,000,000
B. $15,500,000
C. $16,000,000
D. Not enough information provided.

Question 28
Three years ago, James Company purchased stock in Zebra Inc. at a cost of $100,000. This stock was sold
for $150,000 during the current fiscal year. The result of this transaction should be shown in the
Investing Activities Section of James' Statement of Cash Flows as:

A. $50,000.
B. $100,000.
C. $150,000.
D. Zero.

Question 29
When preparing a statement of cash flows, a company must make an adjustment to net income for sales
that have been made but for which cash collections have not yet been received. Which of the following
describes this circumstance?

A. An increase in accounts receivable account during the year

 Part 1 Financial Statements Types, Presentation, Limitations, Users

B. A decrease in accounts payable account during the year

C. A decrease in accounts receivable account during the year
D. An increase in accounts payable account during the year

Question 30
Last year Urban Kicks earned $5.2 million from the sale of shoes and $1.4 million from the sale of one of
their manufacturing plants. How would these cash flows be categorized on the statement of cash flows?

A. Both would be recorded as an operating activity on the statement of cash flows.

B. Both would be recorded as an investing activity on the statement of cash flows.
C. Money from the sale of shoes would be recorded as an operating activity in the statement of
cash flows, while money from the sale of property would be recorded as an investing activity in
the statement of cash flows.
D. Money from the sale of property would be recorded as an operating activity on the statement of
cash flows, while money from the sale of shoes would be recorded as an investing activity on
the statement of cash flows.

Question 31
To get the best possible idea of a firm's ability to pay cash dividends to its stockholders, potential
investors should focus on the firm's:

A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Retained earnings statement

Question 32
In terms of integrated reporting, an organization's system of transforming inputs through its business
activities into outputs and outcomes that aim to fulfil the organization's strategic purposes and create
value over the short, medium, and long term is known as its:

A. Strategic plan.
B. Business model.
C. Organizational overview.
D. Guiding principles.

Question 33
A company reported first quarter revenues of $10,000,000, gross profit margin of 25%, and operating
income of 15%. To reduce overhead expenses, a consultant recommends that the company outsource
some of its operating activities beginning with the second quarter. This recommendation is anticipated
to reduce operating expenses by 20% without affecting sales volume. The company has an income tax
rate of 35%. Assuming cost of sales remains at 75%, what is the impact on the income statement if the
company implements the recommendation?

A. Gross profit will increase by 8.0%.

B. Operating income will increase by 8.7%.
C. Operating income will increase by $200,000.
D. Operating expenses will be reduced by $300,000.
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Question 34
On January 1, Year 2, Dart, Inc. entered into an agreement to sell the assets and product line of its Jay
Division, considered a segment of the business. This activity is considered a strategic shift. The sale was
consummated on December 31, Year 2, and resulted in a gain on disposition of $400,000. The division’s
operations resulted in losses before income tax of $225,000 in Year 2 and $125,000 in Year 1. Dart’s
income tax rate is 30% for both years. In a comparative statement of income for year 2 and Year 1, Dart
should report a gain (loss) from discontinued operations for the years 2 and 1 of:

Year 2 Year 1

A. $ 122,500 $0
B. $ 122,500 $(87,500)
C. $175,000 $(125,000)
D. $(157,500) $(87,500)

Question 35
All of the following are classifications on the Statement of Cash Flows except:

A. investing activities.
B. equity activities.
C. operating activities.
D. financing activities.

Question 36
Atwater Company has recorded the following payments for the current period.

The amount to be shown in the Investing Activities Section of Atwater's Cash Flow Statement should be:

A. $500,000.
B. $900,000.
C. $300,000.
D. $700,000.

Question 37
Which of the following would be in the investing section of the statement of cash flows?

A. Depreciation expense
B. Conversion of bonds into common stock
C. Issuing shares of common stock
D. Proceeds from selling equipment

Question 38
The latest financial statements of Darlene Properties show 140,000 outstanding shares, par value $1. At
the beginning of the current year, the company reacquired 10,000 shares at $4 per share. The company
 Part 1 Financial Statements Types, Presentation, Limitations, Users

follows the cost method for the accounting of treasury stock. The market value per share is $11 at the
end of the year. The current year's records show the shares as follows:

The company's CFO did not approve of the financial statements. The most likely reason for the CFO's
disapproval is that:

A. The treasury stock is incorrectly valued based on par value instead of being valued at the current
market rate.
B. The par value of the treasury stock should be presented as a deduction from par value of issued
shares of the same class.
C. The treasury stock is incorrectly valued based on par value instead of being valued at the
acquisition price.
D. The treasury stock should be reported as an asset.

Question 39
In the financial statements, the presentation of an accumulated other comprehensive loss is similar to
the presentation of what other financial item?

A. The excess paid-in capital from common stock

B. A net loss rather than net income in a single accounting period
C. Retained earnings
D. The cost of treasury stock

Question 40
While approving the financial statements for the current year, the management accountant of Rachael
Groups discovered that revenue was overstated. Which of the following is the most likely reason for the
overstatement?

A. Sales returns recorded are more than actual returns.

B. Abnormal losses are not accounted for.
C. Gain on the sale of equipment was included in revenue.
D. The last in, first out method is used for valuation of inventory.

Question 41
“Employing different accounting methods will yield different net incomes.” How is this factor a
limitation of financial statements?

A. Choice between cash-based accounting and accrual accounting for financial reporting allows
companies to smooth earnings for a longer period.
B. The flexibility of employing different methods for presentation of financial statements can lead
to inaccurate disclosure of information.
 Part 1 Financial Statements Types, Presentation, Limitations, Users

C. Difference in results due to variations in accounting methods makes it difficult for users to
compare the performance of separate entities.
D. Change in net income due to change in accounting methods affects the determination of future
performance of a company.

Question 42
On February 1, Year 1, Kew Corp., a newly formed company, had the following stock issued and
outstanding:

Common stock Preferred stock Additional paid-in capital

A. $ 150,000 $30,000 $ 45,000

B. $ 150,000 $75,000 $0
C. $ 10,000 $75,000 $ 140,000
D. $ 10,000 $30,000 $ 185,000

Question 43
Hayes Incorporated reported the following stockholders’ equity on December 31, 20X6:

On June 30, 20X7, Hayes declared a 5-for-1 stock split. At the time of declaration, shares were selling for
$300 per share. Through the first two quarters of the fiscal year, Hayes recorded a net income of
$103,000. How will Hayes’ stockholders’ equity section change as a result of this information?

A. Number of shares will increase to 340,000, par value will remain at $50 per share, and
stockholders’ equity will increase to $17,000,000.
B. Number of shares will increase to 425,000, par value will decrease to $10 per share, and
stockholders’ equity will increase to $5,652,000.
C. Number of shares will increase to 340,000, par value will decrease to $12.50, and stockholders’
equity will increase to $5,652,000.
D. Number of shares will increase to 425,000, par value will remain at $50 per share, and
stockholders’ equity will increase to $21,250,000.

Question 44
Use the partial comparative balance sheets for Hyperion Enterprises to determine the net cash inflow
from operating activities. Hyperion Enterprises had a net income of $120,000, which includes
 Part 1 Financial Statements Types, Presentation, Limitations, Users

depreciation of $20,000. Equipment with a book value of $14,000 was sold for $10,000, and new
equipment was purchased for $60,000.

A. $44,000
B. $86,000
C. $46,000
D. $94,000

Question 45
The management accountant of Kathryn Software decided to alter the financial statements due to an
event that occurred after the balance sheet date. Which of the following is the most likely reason for
her decision?

A. The event provides evidence about a loss of expected income due to inefficient collection
efforts.
B. The company has decided to shift the company's headquarters to a country that follows IFRS in
the next year.
C. The event provides additional evidence about conditions that existed as of the balance sheet
date and alters the estimates used.
D. There is a sharp decline in the stock price.

Question 46
Your boss at Trinitron Inc. wants to discuss the origin of the company's cash in the last year and how it
was used. What documents should you bring to the meeting?

A. The comparative balance sheet and the retained earnings statement

B. The income statements from last year and the year before
C. The statement of cash flows and supplementary schedules
D. The balance sheet and the income statement

Question 47
All of the following concepts are one of the eight Content Elements on an integrated report except:

A. Outlook.
B. Performance.
C. Sustainability.
D. Risks and Opportunities.
 Part 1 Financial Statements Types, Presentation, Limitations, Users

Question 48
A collaboration between a large chemical company and a nature conservation society would be an
example of ___________ under Integrated Reporting.

A. Human capital
B. Natural capital
C. Manufactured capital
D. Social and relationship capital

Question 49
Ironwood Company's net income is $399,000. During the year accounts receivable increased $196,000
and accounts payable decreased $56,000. Using the indirect method of preparing the statement of cash
flows, what amount will be reported as cash provided by operating activities?

A. $259,000
B. $539,000
C. $147,000
D. $651,000

Question 50
All of the following statements are an example of human capital as it pertains to Integrated Reporting
except:

A. Systems, procedures, and protocols

B. Employees passing the Certified Management Accountant exam
C. Sponsorship of an internal Leadership Institute which assists employees in their ability to
manage change
D. A formal job rotation program designed to improve interdepartmental understanding

Question 51
Last year, Alpha Corporation spent $250,000 to repurchase 15,000 shares of its own outstanding
common stock. The company also paid $40,000 in interest on a construction loan that it had obtained
from its bank. How should these transactions be reflected on Alpha's annual statement of cash flows,
and why?

A. The two transactions should be reported in separate sections of the statement because one
involves a change in equity while the other involves a change in income. Specifically, Alpha
should record a $250,000 cash outflow in the financing section and a $40,000 cash outflow in
the operating section.
B. The two transactions should be reported in separate sections of the statement because one
involves long-term assets while the other involves long-term liability. Specifically, Alpha should
record a $250,000 cash outflow in the investing section and a $40,000 cash outflow in the
financing section.
C. Both transactions should be reported in the operating activities section of the statement
because both involve alterations in the company's income. Because the two transactions are
unrelated, they should be recorded separately—as a $250,000 cash outflow from the stock
repurchase and a $40,000 cash outflow from the interest payment.
 Part 1 Financial Statements Types, Presentation, Limitations, Users

D. Both transactions should be reported in the financing activities section of the statement
because both involve long-term liability and/or equity items. Because the two transactions are
unrelated, they should be recorded separately—as a $250,000 cash outflow from the stock
repurchase and a $40,000 cash outflow from the interest payment.

Question 52
The following information is available for Matthews Holdings Inc.:

Calculate the income from continuing operations before tax.

A. $23,000
B. $17,100
C. $17,600
D. $22,500

Question 53
Which of the following is true of an income statement presented as per U.S. GAAP?

A. It reconciles beginning and ending balances of stockholders' equity.

B. Bank overdrafts are always included as a component of operating activities on the cash flow
statement.
C. Financial measures of contractual agreements such as pension obligations, lease contracts, and
stock option plans are required to be disclosed on the income statement as a separate line item.
D. When a company sells a component of its business, the income or loss associated with the
component should be reported net of tax separately from income from continuing operations.

Question 54
A company’s portfolio of patents is an example of which of the Six Capitals under Integrated Reporting?

A. Human capital
B. Social and relationship capital
C. Natural capital
D. Intellectual capital

Question 55
Which one of the following should be classified as an operating activity on the statement of cash flows?

A. The purchase of additional equipment needed for current production.

B. A decrease in accounts payable during the year.
C. The payment of a cash dividend from money arising from current operations.
D. An increase in cash resulting from the issuance of previously authorized common stock.
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Question 56
Emerson Industries sold a new issue of common stock to investors. How would this be recorded
differently in the statement of cash flows than if they used the stock to purchase equipment?

A. The sale of stock to investors should be disclosed in a separate schedule as a supplement to the
cash flow statement, whereas exchange of stock for equipment should be included in cash flows
from investing activities.
B. The sale of stock to investors should be included in cash flows from financing activities, whereas
exchange of stock for equipment should be disclosed in a separate schedule as a supplement to
the cash flow statement.
C. The sale of stock to investors should be included in cash flows from investing activities, whereas
the exchange of stock for equipment should be included in cash flows from financing activities.
D. The sale of stock to investors should not be disclosed in the statement of cash flows, whereas
exchange of stock for equipment should be disclosed in a separate schedule as a supplement to
the cash flow statement.

Question 57
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.

The correct amount to be shown as cash inflows from operating activities is:

A. $225,000.
B. $135,000.
C. $100,000.
D. $235,000.

Question 58
In January of last year, Newton Inc. sold 15,000 shares of its own common stock for $180,000. Ten
months later, Newton repurchased 5,000 of those shares at a price of $11 per share. When compiling its
statement of cash flows for the year, Newton should record which of the following entries in relation to
these stock transactions, and why?

A. A net cash inflow of $125,000 should be recorded in the financing section because both
transactions involve stockholders’ equity items, and all cash flows related to a particular activity
must be netted against one another.
B. A $180,000 cash inflow should be recorded in the financing section because the stock sale
affects stockholders’ equity, and a $55,000 cash outflow should be recorded in the investing
section because the stock repurchase represents an investment.
C. Both a $180,000 cash inflow and a $55,000 cash outflow should be recorded in the financing
section because both transactions involve stockholders’ equity items, and all cash flows must be
reported gross.
 Part 1 Financial Statements Types, Presentation, Limitations, Users

D. A net cash inflow of $125,000 should be recorded in the investing section because both
transactions involve changes in the company's investments, and all cash flows related to a
particular activity must be netted against one another.

Question 59
The following information is available for Mercer Industries.

What is Mercer's net cash provided by operating activities?

A. $168,000
B. $312,000
C. $240,000
D. $276,000

Question 60
Echo Company reported net income of $360,000 for the current year. Depreciation recorded on
buildings and equipment amounted to $160,000 for the year. Balances of the current asset and current
liability accounts at the beginning and end of the year are as follows:

What amount did Echo Company report as cash flows from operating activities?

A. $545,800
B. $494,200
C. $225,800
D. $535,800