3/14/23, 9:32 AM Formative Assessment Chap 3 & 6

Formative Assessment Chap 3 & 6

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Multiple Choice Theory  

Theory Questions - 20 points

Read carefully each item and answer correctly. 

Notes to financial statements * 2 points

Must be quantifiable.

All of these are characteristics of notes to financial statements.

Must qualify as an element.

Amplify items presented in the financial statements.

The disclosure of accounting policies is important to financial  users in * 2 points

determining

Net income for the year

Whether accounting policies are consistently applied from year to year.

The measurement of obsolete inventory.

Whether the working capital position is adequate.

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3/14/23, 9:32 AM Formative Assessment Chap 3 & 6

A related party transaction is a transfer * 2 points

Between related parties when a price is charged.

Between related parties, regardless of whether a price is charged.

Between unrelated parties when a price is charged.

Between unrelated parties, regardless of whether a price is charged.

The minimum disclosure about related party transactions include all of the * 2 points
following except

Allowance for doubtful accounts related to the outstanding balance

The amount of the transaction

Nature of the relationship

Amount of outstanding balance

An entity has cosigned the mortgage note on the home of its president * 2 points

guaranteeing the indebtedness in the event that the president should

default. The entity considers the likelihood of default to be remote. How
should the guarantee be treated in the financial statements?

Neither accrued nor disclosed

Disclosed only

Accrued and disclosed

Accrued only

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3/14/23, 9:32 AM Formative Assessment Chap 3 & 6

Adjusting events are events that * 2 points

Provide evidence of conditions that existed at the end of the reporting period.

Are unfavorable and indicative of conditions that arose after the end of the reporting
period.

Are favorable and indicative of conditions that arose after the end of the reporting
period.

Provide conditions that existed after the date the financial statements were
authorized for issue.

The financial statements are authorized for issue * 2 points

When the approved financial statements are filed with a regulatory body.

When the financial statements are made available to shareholders.

When the shareholders approve the financial statements at their annual meeting.

When the board of directors reviews the financial statements and authorizes them
for issue.

An entity shall classify a noncurrent asset or disposal group as held for * 2 points
sale when

The noncurrent asset or disposal group is idle or retired from active use.

The noncurrent asset or disposal group is abandoned.

The carrying amount of the asset or disposal group is recovered through continuing
use.

The carrying amount of the asset or disposal group is recovered through a sale
transaction.

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3/14/23, 9:32 AM Formative Assessment Chap 3 & 6

An entity shall measure a noncurrent asset or disposal group classified as * 2 points

held for sale at

Carrying amount

Fair value less cost of disposal

Higher of carrying amount and fair value less cost of disposal.

Lower of carrying amount and fair value less cost of disposal

What is the treatment of any gain on a subsequent increase in the fair * 2 points

value less cost of disposal of a noncurrent asset classified as held for

sale?

The gain shall be recognized but not in excess of the cumulative impairment loss
previously recognized.

The gain shall not be recognized.

The gain shall be recognized in full.

The gain shall be recognized but only in retained earnings.

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