Midterm exam questions

1. Which of the following statements is true about financial accounting?

A) It is used by people both inside and outside the business
B) It is used only by the management of the business
C) It is used only by people outside the business
D) It is mainly concerned with forecasting the future
E) None of the above

2. Which of the following statements best describes the accounting system?

A) Accounting is a system of processing, recording, and publishing the results of a
business’s activities
B) Accounting is a system of summarizing, analyzing, and interpreting the results of a
business’s activities
C) Accounting is a system of analyzing, recording, summarizing, and reporting the
results of a business’s activities
D) Accounting is a system of conveying inside information about the company to the
owners
E) Accounting is a system of planning, organizing, leading, and controlling economic
information

3. Which of the following users is more interested in the company's financial

statements than other users?
A) Employees
B) Customers
C) Regulators
D) Supervisors
E) Investors

4. Which one of the following is not an underlying accounting assumption?

A) Unit of measure assumption
B) Separate entity assumption
C) Time period assumption
D) Comparability relevance assumption
E) Going concern assumption

5. Which of the following will not result in a change in the stockholders’ equity?
A) A profit made by the organization
B) A loss made by the organization
C) A non-current asset bought by the business for $10,000
D) The owners withdrawing $50,000 from the organization
E) The company decides to pay a dividend of $30,000 to investors

6. Practical question about journal entries

7. When the owner takes out cash from the business for personal use it is
referred to as:
A) Bond
B) Drawing
C) Expense
D) Salary
E) Premium

8. Practical question about balance sheet

9. Practical question about income statement

10. Which of the following is a direct cost for the soft drinks company?
A) Flavorings
B) Factory rent
C) Depreciation of a bottle washing machine
D) The cost of machinery used to liquidize fruits
E) None of the above

11. Practical question about inventories

12. Practical question about stockholders’ equity

13. Which of the following statements is true about managerial accounting?

A) It is required by government legislation
B) It is used only by people outside the business
C) It is used to prepare a trial balance
D) It is used to make the business more cost-efficient
E) None of the above

14. Which of the following statements is true about double-entry bookkeeping?

A) Transactions are entered in two separate parts of the bookkeeping system
B) Each transaction is entered in four different books
C) Every transaction is entered twice on the debit side and twice on the credit side
D) All work is duplicated with no real benefit
E) None of the above

15. Which of the following is a true definition of US GAAP?

A) Generally Applied Accounting Principles that created by FASB
B) Generally Accepted Accounting Principles that created by IASB
C) Generally Accepted Accounting Principles that created by FASB
D) Generally Accepted Accounting Principles that created by SEC
E) Generally Available Accounting Principles that created by SEC

16. Which of the following are current assets?

A) Inventory, cash, and PP&E
B) Inventory, trade payables, and cash
C) Inventory, trade receivables, and short term note payables
D) Inventory, trade receivables, and PP&E
E) Inventory, trade receivables, and prepayments

17. Practical question about balance sheet

18. Practical question about journal entries

19. What is amortization?

A) Expenses incurred by the company for the maintenance of the automobiles
B) The process of controlling bad and doubtful debts
C) The equivalent of depreciation for intangible non-current assets
D) A system of controlling cash
E) The process of recording financial information in a ledger system

20. Practical question about stockholders’ equity

21. Which of the following statements is true about horizontal analysis?

A) It is the calculation of the relative weighting of components within a financial
statement in a particular financial period
B) It is the comparison of one company’s results with another company
C) It is the comparison of the income statement with the balance sheet
D) It is the comparison of the current year’s figures with the previous year’s figures
E) It is the comparison of two different accounts for the same year in one financial report
22. Practical question about financial ratio analysis

24. The company's debt-to-assets ratio is 5,1. What can you say about risks?
A) There is a lot of risk here
B) There is very little risk here
C) There is no risk here
D) It is not possible to make a risk assessment based on the result of this ratio
E) None of the above statements correctly explain the situation

25. Why, if a business has money in the bank, does it appear as a debit balance in
the business’s ledger?
A) It is a mistake – it should be a credit balance
B) As all the debits equal all the credits, there is no difference between a debit and
credit
balance
C) It shows that the business is in debt to the bank
D) It is showing that the bank owes the money to the business (a business asset)
E) None of the above statements correctly explain the situation

26. Which one of the following is not a current asset?

A) Accruals
B) Prepaid rent
C) Inventories
D) Cash and cash equivalents
E) Accounts receivable

27. Which one of the following statements is always true?

A) The company’s reserves are represented by bank balances
B) The shareholders of a company own the company
C) The auditors of a company prepare the financial statements
D) The directors of a company own the company
E) None of the mentioned statements is true

28. If a company has a net profit margin of 20%, which of the following
statements is certain about that company?
A) The company’s non-current assets exceed its current assets
B) The company can pay all its bills
C) The company’s current assets exceed its current liabilities
D) The company is making a loss
E) The company is making a profit
29. Which of the following would not be considered a valid reason for analyzing
cost data?
A) To set selling prices
B) To help efficiency
C) To maximize profitability
D) To help evade taxation
E) To help effectiveness

30. Cash was collected from a customer on account. Which balance sheet
accounts were debited and credited?
A) Debit cash, credit accounts receivable
B) Debit accounts receivable, credit cash
C) Debit cash, credit service revenue
D) Debit cash, credit accounts payable
E) Debit accounts payable, credit cash

31. Which of the following errors will cause a trial balance to be out of balance?
A) A debit to office equipment is incorrectly debited to office supplies
B) The bookkeeper forgot to journalize a transaction
C) A credit was posted to an account as a debit
D) The bookkeeper forgot to post a journal entry to the ledger
E) None of the above statements correctly explain the situation

32. Which of the following statements is true?

A) When a company receives advance payment for a subscription, it debits cash and
credits revenue
B) When a company receives advance payment for a subscription, it debits unearned
revenue and credits cash
C) When a company receives advance payment for a subscription, it debits prepaid
subscriptions and credits cash
D) When a company receives advance payment for a subscription, it debits cash and
credits unearned revenue
E) None of the above is true

33. Practical question about adjustments

34. Which of the following statements is true?

A) Gross profit equals the difference between net sales and net income
B) Gross profit equals the difference between net sales and operating expenses
C) Gross profit equals the difference between net sales and operating profit
D) Gross profit equals the difference between net sales and cost of goods sold plus
operating expenses
E) Gross profit equals the difference between net sales and cost of goods sold

35. Which of the following is not considered an expense?

A) Dividends
B) Salaries
C) Depreciation
D) Rent
E) Utilities

36. What is the duality of effects?

A) Providing information about transactions twice to each manager
B) Preparation of financial statements twice a year
C) Every transaction has at least two effects on the basic accounting equation
D) Carrying audit twice a year
E) None of the above statements correctly explain the situation

37. What is the other name for day-to-day activities in the company?
A) Auditing activities
B) Accounting activities
C) Investing activities
D) Financing activities
E) Operating activities

38. Time period assumption means dividing the company’s long life into
meaningful and shorter chunks of time such as…
A) Months
B) Quarters
C) Years
D) All of them
E) None of them

39. Which of the following is an expense recognition principle?

A) Linking
B) Combining
C) Matching
D) Connecting
E) Recognizing

40. Which of the following are adjustment methods?

A) Internal and external
B) Revenues and expenses
C) Assets and liabilities
D) Depreciation and contra-account
E) Deferral and accrual

41. Which of the following is true about dividends?

A) Dividends must be declared every time
B) Dividends are included in the expense category
C) Dividends can be paid to interested parties other than stockholders
D) Dividends are very important for maintaining company's customer base
E) Dividends are temporary accounts

42. Which of the following is not one of the components of the fraud triangle?
A) Rationality
B) Opportunity
C) Incentive
D) Personality
E) None of them

43. The Sarbanes-Oxley (SOX) Act (2002) does not promote which of the
following?
A) Reduce opportunities
B) Counteract incentives
C) Stock trading ethics
D) Encourage honesty
E) Internal control

44. Which of the following acts was created in response to the many financial
frauds and scandals occurring in the late 1990s and early 2000s?
A) The Glass-Steagall Act
B) The Gramm–Leach–Bliley Act
C) The Dodd-Frank Act
D) The Sarbanes-Oxley Act
E) The Emergency Economic Stabilization Act

45. Which of the following SEC filing reports significant business events when
they occur?
A) Form 10-K
B) Form 8-K
C) Form 10-Q
D) Form 144
E) Form 3

46. Which of the following is not included in the five common principles of
internal control?
A) Segregate duties
B) Restrict access
C) Establish efficiency
D) Document procedures
E) Independently verify

47. Which of the following conditions must exist for an item to be recorded as an
asset?
A) Item is not owned or controlled by the company
B) Item must be expected to yield future benefits
C) Future benefits from the item cannot be reliably measured
D) Item must be a tangible asset
E) Item must be an intangible asset

48. Which of the following is true about accrual accounting?

A) Accrual accounting is required under US GAAP
B) Accrual accounting requires that expenses always be recognized when cash is paid
out
C) Accrual accounting recognizes revenue only when cash is received
D) Recognition of a prepaid asset (e.g., prepaid rent) is not an example of accrual
accounting
E) None of the mentioned statements is true

49. Which of the following options accurately identifies the effects a cash sale of
an iPhone has on Apple's accounts?
A) Accounts receivable increases, sales revenue increases, cost of goods sold
decreases, and inventory decreases
B) Cash increases, sales revenue increases, cost of goods sold increases, and
inventory decreases
C) Cash increases, sales revenue increases, cost of goods sold decreases, and
inventory decreases
D) Accounts receivable increases, sales revenue increases, cost of goods sold
increases, and inventory decreases
E) None of the above statements correctly explain the situation

50. A current asset that can be transferred into cash within three months is
known as:
A) Cash equivalent
B) Intangible asset
C) Operating asset
D) Investing asset
E) Cash receivables

51. Which financial statement will allow you to determine the gross margin for a
retailer or manufacturer?
A) Balance sheet
B) Income statement
C) Statement of cash flows
D) Statement of stockholders’ equity
E) All of them

52. Which of the following is the most suitable statement for explaining the
statement of cash flows?
A) Report regarding the changes in the flow of cash for a particular time
B) Report regarding the financial position of the organization
C) Report explaining the purpose, mission, and vision of the business
D) Report regarding the working and functioning of the organization
E) None of them

53. Which of the following can be a part of liabilities in the balance sheet?
A) Dividends payable
B) Debts
C) Wages payable
D) Notes payable
E) All of them
54. Out of all following options, which is the most suitable with reference to a key
feature of cash flow?
A) Cash flow has three significant sections such as liabilities, assets, and stockholders’
equity
B) Cash flow helps in showing the increase as well as a decrease in the cash
C) Cash flow helps in showing the expenses as well as revenues of the business
D) Cash flow can be used for showing the businesses’ financial position
E) None of the mentioned statements is suitable

55. Which of the following cannot be a group of financial ratio analysis?

A) Profitability
B) Proximity
C) Solvency
D) Activity
E) Liquidity

56. Which of the following statements is true?

A) A firm has a higher asset turnover ratio than the industry average, which implies that
the firm has a higher P/E ratio than other firms in the industry
B) A firm has a higher asset turnover ratio than the industry average, which implies that
the firm is more likely to avoid insolvency in the short run than other firms in the industry
C) A firm has a higher asset turnover ratio than the industry average, which implies that
the firm is utilizing assets more efficiently than other firms in the industry
D) A firm has a higher asset turnover ratio than the industry average, which implies that
the firm is less profitable than other firms in the industry
E) A firm has a higher asset turnover ratio than the industry average, which implies that
the firm has higher spending on new fixed assets than other firms in the industry

57. Which of the following is not one of the financial statement analysis
methods?
A) Capitalization analysis
B) Trend analysis
C) Ratio analysis
D) Vertical analysis
E) Comparative analysis

58. Practical question about horizontal analysis

59. Which of the following statements is true?

A) Depreciation is intended to reduce the profit so not as much tax is paid
B) Depreciation is intended to pay for the replacement of an asset
C) Depreciation is intended to reduce the cost of an asset over its expected useful life
D) Depreciation is intended to increase the value of the asset
E) None of the mentioned statements is true

60. If a business pays rent in advance for 6 months, it will be treated as:
A) Current asset
B) Long-term asset
C) Long-term liability
D) Current liability
E) None of the above

61. Which of the following statement about an account is true?

A) The right side of an account is the debit, or increase side
B) The left side of an account is the credit, or decrease side
C) There are separate accounts for specific assets and liabilities but only one account
for stockholders’ equity items
D) An account is an individual accounting record of increases and decreases in specific
assets, liabilities, and stockholders' equity items
E) None of the above is true

62. Practical question about balance sheet

63. Which of the following steps in the accounting process is done after
analyzing business transactions?
A) Summarizing transactions in a journal
B) Recording transactions in a journal
C) Preparing the financial statements
D) Preparing a trial balance
E) None of the above

64. Which of the following statements is true?

A) The primary purpose of the trial balance is to disclose the complete effect of a
transaction in one place
B) The primary purpose of the trial balance is to prove the equality of the debit and
credit amounts after posting
C) The primary purpose of the trial balance is to make sure a journal entry is not posted
twice
D) The primary purpose of the trial balance is to transfer journal entries to the ledger
accounts
E) None of the above

65. Which of the following statements is not true about managerial accounting?
A) Reports are used primarily by insiders rather than by persons outside of the business
entity
B) Its purpose is to assist managers in planning and controlling business operations
C) Information must be developed in conformity with US GAAP or with income tax
regulations
D) Information may be tailored to assist in specific managerial decisions
E) None of the above is true

66. Which accounting assumption assumes that an enterprise will continue in

operation long enough to carry out its existing objectives and commitments?
A) Time period assumption
B) Separate entity assumption
C) Unit of measure assumption
D) Going concern assumption
E) None of the above

67. Practical question about income statement

68. Which of the following is an example of a deferral?

A) Accruing year-end wages
B) Recording prepaid rent
C) Recognizing revenues earned but not yet recorded
D) Recognizing expenses incurred but not yet recorded
E) None of the above

69. Deciding whether to record a sale when the order for services is received or
when the services are performed is an example of a…
A) Classification issue
B) Valuation issue
C) Recognition issue
D) Communication issue
E) None of the above

70. Which of the following would not be a goal of external users reading a
company’s financial statements?
A) Understanding the current financial state of the company
B) Assessing the company’s contribution to social and environmental policies
C) Predicting the company’s future financial performance
D) Evaluating the company’s ability to generate cash from sales
E) None of them

71. Practical question about balance sheet

72. If a publicly traded company is trying to maximize its perceived value to

decision makers external to the corporation, the company is most likely to report
too small a value for which of the following on its balance sheet?
A) Assets
B) Liabilities
C) Common stock
D) Retained earnings
E) Share premium

73. If a company incorrectly records a payment as an asset, rather than as an

expense, how will this error affect net income in the current period?
A) Net income will be too low
B) Net income will not be affected by this error
C) It is a mystery; nobody really knows
D) Net income will be too high
E) None of the above

74. Which account is least likely to be debited when revenue is recorded?

A) Accounts receivable
B) Accounts payable
C) Cash
D) All of the above
E) None of the above

75. Practical question about income statement

76. Which of the following is the entry to be recorded by a law firm when it
receives a payment from a new client that will be earned when services are
provided in the future?
A) Debit unearned revenue; credit service revenue
B) Debit unearned revenue; credit cash
C) Debit cash; credit expense
D) Debit accounts receivable; credit service revenue
E) Debit cash; credit unearned revenue

77. Which account is least likely to appear in an adjusting journal entry?

A) Interest receivable
B) Income tax expense
C) Salaries and wages expense
D) Prepaid insurance
E) Cash

78. When the circus collects cash for ticket sales five months in advance of the
show date, which of the following accounts is affected?
A) Prepaid expense
B) Accounts receivable
C) Accounts payable
D) Unearned revenue
E) None of them

79. Which of the following statements is true about adjusted trial balance?
A) It is a tool used by financial analysts to review the performance of publicly traded
companies
B) It shows the ending balances resulting from the adjusting journal entries in a debit-
and-credit format
C) It shows the ending balances in a debit and credit format before posting the adjusting
journal entries
D) It is prepared after closing entries have been posted
E) None of the mentioned statements is true

80. Practical question about adjustments

81. Practical question about adjustments

82. Owners have no personal liability under which legal business structure?
A) Partnership
B) Sole proprietorship
C) There is liability in every legal business structure
D) Corporation
E) None of them

83. If equity equals $100,000, which of the following is true?

A) Liabilities exceed equity by $100,000
B) Assets + liabilities equal $100,000
C) Assets exceed liabilities by $100,000
D) All of the above is true
E) None of the above is true

84. Which of the following financial statements should be prepared first?

A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
E) Audit report

85. Which of the following accounts is considered a temporary or nominal

account?
A) Prepaid advertising
B) Unearned revenue
C) Accounts receivable
D) Service revenue
E) Notes payable

86. Which of these accounts is never closed?

A) Dividends
B) Retained earnings
C) Service revenue
D) Income summary
E) Rent expense

87. Which of the following is not a criterion to recognize revenue under GAAP?
A) A product or service must be provided
B) Cash must be collected
C) The earnings process must be completed
D) GAAP requires that the accrual basis accounting principle be used in the revenue
recognition process
E) None of them

88. Practical question about investments

89. Which of the following is not considered a current liability?

A) The component of a twenty-year note payable due in year 20
B) Accounts payable
C) Unearned revenue
D) Current portion of a noncurrent note payable
E) Wages payable

90. Practical question about balance sheet

91. Which of the following is not a characteristic of a short-term note payable?

A) It can result from an accounts payable conversion
B) It bears interest
C) Payment is due in less than a year
D) It is reported on the balance sheet under noncurrent liabilities
E) None of them

92. Practical question about stockholders’ equity

93. What effect does the end-of-period entry recognizing periodic depreciation
have on the basic accounting equation?
A) Decrease in assets, decrease in liabilities
B) Decrease in assets, increase in shareholders’ equity
C) Decrease in assets, increase in liabilities
D) Decrease in assets, decrease in shareholders’ equity
E) None of the above is true

94. Which of the following statements is true?

A) GAAP creates FASB
B) SEC creates IFRS
C) IASB creates SEC
D) FASB creates GAAP
E) IFRS creates IASB

95. Which of the following statements describe recording in the accounting

system?
A) An exchange of an asset for a promise to pay
B) An exchange of a promise for another promise to pay
C) Transaction will not be recorded in the system till it has financial effect
D) It is impossible to answer this question because it cannot be predicted
E) None of the above
96. Which of the following statements would be considered true regarding the
balance sheet?
A) It shows only the ending balances in summarized system as of an exact date
B) It reports assets only if they have acquired by identifiable transactions
C) The true current value of company cannot be determined by looking into it
D) The order of its components may differ
E) All of the above

97. Which of the following items is not a specific account in a company's

accounting records?
A) Net income
B) Unearned revenue
C) Accounts receivable
D) PP&E
E) Inventories

98. The expense recognition principle "matching" controls…

A) When costs are recognized as expenses on the income statement
B) Where on the income statement expenses should be presented
C) The relevant order of expenses
D) When liabilities are recognized on the income statement
E) None of the above

99. What type of audit opinion is preferred when analyzing financial statements?
A) Modified
B) Qualified
C) Unqualified
D) Baseline
E) Adverse

100. Comparison of a company’s financials to competitors in the same section of

the industry is called...
A) Time series analysis
B) Diagonal analysis
C) Fundamental analysis
D) Cross-sectional analysis
E) Technical analysis

Questions A B C D E
101. Two historical going accrual relevance all of them
underlying cost and concern accounting and fair
assumption going and and representatio
s of concern accrual historical n
financial accounting cost
statements,
according
to the IASB
conceptual
framework,
are:
102. auditor’s notes to manageme interim proxy
Information report the nt financial statement
about a financial commentar reports
company’s statements y
objectives,
strategies,
and
significant
risks are
most likely
to be found
in the:
103. Which provide contain are audited reveal include
of the information information information managemen
following about about about t's
statements company's contingent acquisitions assessment
concerning accounting losses that and disposals of the
the notes to methods and may occur company's
the audited assumptions operating
financial performance
statements and financial
of a results
company is
least
accurate?
Financial
statement
notes:
104. In Interim Manageme Footnotes Corporate all of them
addition to financial nt’s to the press
the audited statements commentar annual releases
financial filed with the y financial
statements SEC statements
included in
a firm's
annual
report,
which of the
following
sources of
information
is most
likely to
contain
audited
data?
105. For results of capital unusual or liquidity all of them
publicly operations resources infrequent are
traded firms items discussed in
in the MD&A
United
States, the
Manageme
nt
Discussion
and
Analysis
(MD&A)
portion of
the financial
disclosure
is least
likely
required to
discuss:
106. Which provide provide an a qualified If the auditor provide
of the reasonable "unqualifie opinion is unable to reasonable
following is assurance d" opinion indicates express an assurance
correct that if material that the opinion that the
about the management uncertainti auditor unqualified financial
auditor's is reliable. es exist believes opinion will statements
report the be issued contain no
statements material
are free errors
from
material
omissions
and
errors
107. Which no offsetting firms statements statements all of the
of the of income should should be should be options are
following is against separately prepared prepared at correct
least likely expenses report their under a least
one of the unless a current going quarterly
general standard assets and concern
requirement permits noncurrent assumption
s for or requires it assets
financial
statements
under
IFRS?
108. James Statement of Statement Income Balance Balance
Calloway, changes in of cash statement Sheet Sheet and
an equity equity flows Statement of
analyst, Cash Flow
wants to
find out the
basic and
diluted
earnings
per share of
a company.
In which of
the
following
financial
statements
is the most
likely to find
this
information
?
109. Which Company's Critical Future Management Revenue
of the risks and performanc economic compensatio recognition
following is objectives e outlook n policy
most likely measures.
to be
included in
the financial
notes and
supplement
ary
schedules?
110. Which Potential Compensa Significant all of them
of the conflicts of tion events and
following is interest arrangeme Revenue contingencies
most likely between nts for recognition that may
to appear in management manageme policy affect future
a , directors, nt and operations
company’s and directors
manageme shareholders
nt .
discussion
and
analysis
(MD&A)?
111. Jim Jonathan Jonathan Jonathan Jonathan is Jonathan
Jonathan is believes that believes believes unable to believes that
an auditor there is that the the express an the financial
employed some scope financial statements opinion statements
by a large limitation or statements are free give a true
accounting exception to materially from and fair view
firm. While accounting depart material
auditing the standards from the omissions
books of accounting and
Simba Fans standards errors
Ltd, and are not
Jonathan fairly
gave a represente
qualified d
opinion.
Which of
the
following is
most likely
to be true?
112. Which Standard- Standard- Standard- The none of
of the setting setting setting requirement them
following bodies are bodies bodies are to prepare
statements professional have typically financial
is least organization authority private reports in
accurate s of because sector, self- accordance
with respect accountants they are regulated with specified
to financial and auditors recognized organizatio accounting
reporting that by ns standards is
requirement establish regulatory the
s? financial authorities responsibility
reporting of standard-
standards setting
bodies.
113. timeliness verifiability comparabili understanda relevance
According ty bility
to the IASB
Conceptual
Framework,
the
qualitative
characterist
ic that
different
knowledgea
ble users
agree on
the
information
presented
to be a
faithful
representati
on of the
economic
events is
best
described
as
114. understanda timeliness relevance comparabilit timeliness
According bility and and and faithful y and and
to the IASB verifiability accrual representat verifiability understanda
Conceptual accounting ion bility
Framework,
the two
fundamenta
l qualitative
characterist
ics that
make
financial
information
useful are
best
described
as
115.
Practical
question-
Percentag
e of
completion
method
116. Which Change in Unrealized Dividends Unrealized Unrealized
of the the value of gains and paid to gains and gains and
following held-to losses on shareholde losses both losses on
items would maturity available- rs on trading trading
affect securities for-sale and securities
owners' securities. available-for-
equity and sale
also appear securities
on the
income
statement?
117.
Practical
question-
Diluted
EPS
118.
Practical
question-
Basic EPS
119.
Practical
question-
Diluted
EPS
120. Retained Retained Retained Retained Retained
Barracuda earnings - earnings - earnings - earnings - earnings -
Corporation no effect increase no effect increase increase
, a U.S. Total Total Total Total Total
corporation, stockholders' stockholde stockholder stockholders' stockholders'
owns a equity- no rs' equity- s' equity- equity- no equity-
subsidiary effect increase increase effect decrease
located in
Germany.
The
German
subsidiary's
financial
statements
are
maintained
in euros. If
the euro
recently
appreciated
relative to
the U.S.
dollar, how
would the
unrealized
translation
gain affect
Barracuda's
retained
earnings
and total
stockholder
s' equity?
121.
Practical
question-
Basic EPS
122.
Practical
question-
OCI
123. Other Adjustments Unrealized Unrealized Foreign Unrealized
comprehen for minimum holding gains and currency gains and
sive income pension gains and losses from translation losses on
least likely liability losses on cash flow adjustments held for
includes available- hedging trading
which of the for-sale derivatives securities
following? securities

124. An tax expense interest cost of selling all of them

example of expense goods sold expenses
an expense
classificatio
n by
function is:
125. Under continuing discontinue other extraordinary none of them
IFRS, a operations d comprehen item
loss from operations sive
the income
destruction
of property
in a fire
would most
likely be
classified
as:
126.
Practical
question-
Diluted
EPS
127. A basic EPS basic EPS basic EPS capital all of the
company calculations is equals its structure is options are
with no should calculated diluted EPS considered incorrect
debt or consider by using a complex at
convertible dividend simple year-end
securities paid to average
issued common number of
publicly shareholders shares
traded outstandin
common g
stock three
times
during the
current
fiscal year.
Under both
IFRS and
US GAAP,
the
company’s:
128.
Practical
question-
Diluted
EPS
129. When Convertible Convertible Stock Bonds Bonds issued
calculating preferred debt that is options issued at par at premium
diluted stock that is dilutive
EPS, which dilutive
of the
following
securities in
the capital
structure
increases
the
weighted
average
number of
common
shares
outstanding
without
affecting
net income
available to
common
shareholder
130.
Practical
question-
Basic EPS
131. principle and estimates principle estimates none of them
Changes in are applied and are and are and are
asset lives prospectively applied applied applied
and retrospecti retrospectiv prospectively
salvage vely ely
values are
changes in
accounting
132. Which Dividends A change The Gain or loss Dividends
of the received from the operating from the sale paid
following accelerate income of a of equipment
transaction d method physically used in a
s would of and firm’s
most likely depreciatio operationall manufacturin
be reported n to the y distinct g operation
below straight- division
income line that is
from method currently
continuing for sale, but
operations, not yet sold
net of tax?
133. Which Interest Dividends Interest Accruing bad all of the
of the received on received expense on debt options are
following is fixed income from subordinate expense for non-
least likely investments available- d goods sold operating
considered for-sale debentures on credit items
a non- securities
operating
transaction
from the
perspective
of a
manufacturi
ng firm?
134. Which A change in Changes in The Change in all of the
of the accounting accounting general inventory options are
following principle is a estimates rule is valuation accurate
statements change from are now retrospectiv method
regarding one treated the e requires
making generally same as application retrospective
changes in accepted changes in adjustment
accounting accounting accounting
principles is principle to principles
least another
accurate? generally
accepted
principle.
The firm
making the
change must
justify the
change
135.
Practical
question-
OCI
136. When Higher net Lower net Lower net Higher Lower gross
comparing income and income income and operating profit and
the financial lower return and lower higher income and lower return
statement on assets return on return on higher return on assets
effects of assets. assets on assets
expensing
versus
capitalizing
an
expenditure
,
capitalizing
will most
likely result
in which of
the
following
effects in
the years
after the
expenditure
is incurred?
137.
Practical
question-
Reporting
of
Financial
Assets
138.
Practical
question-
Treatment
of
Investment
Property
139. The net assets current net working residual gross
excess of ratio capital. interest working
current capital
assets over
current
liabilities is
called
140. Which Trade Bad debt Doubtful Depreciation all of them
of the receivables expense debt
following is allowance
a contra
asset
account?
141. Which A classified Minority A liquidity Treasury none of them
of the balance interest on based stock is non-
following sheet is one the Balance voting and
statements organized to balance Sheet is receives
is least group sheet more dividends
accurate? various represents appropriate
assets and the for banking
liabilities into proportion industry
subcategorie of
s ownership
of a
subsidiary
not held by
the parent
company
142. the total the debt- current both the neither debt-
Impairment asset to-equity ratio only debt-to- to equity nor
write-downs turnover but ratio but equity ratio total asset
of long- not the debt- not the and the total turnover ratio
lived assets to-equity total asset asset will be
owned by a ratio turnover turnover affected
company
will
most likely
result in an
increase for
that
company in
143.
Practical
question-
Treasury
stock
144.
Practical
question-
Impairmen
t of non-
current
assets
145. Which Scrapping Total Depreciatio The first none of them
of the the depreciatio n expense year's
following equipment n expense will be operating
best after five will be higher in cash flow will
describes years will higher over the first be lower
the impact result in a the life of year
of larger loss the
depreciatin equipment
g
equipment
with a
useful life of
6 years and
no salvage
value using
the
declining
balance
method as
compared
to the
straight-line
method?
146.
Practical
question-
Reporting
of
Financial
Assets
147.
Practical
question-
Goodwill
148.
Practical
question-
Treasury
stock
149. Which Patent with Purchased Purchased Internally none of them
of these indefinite patent that franchise developed
intangible useful life will expire right with a goodwill
assets is in the useful life
most likely current of two
to be period. years
amortized
150. From increase decrease decrease increase no impact on
Thorpe CFO and CFO and both CFO CFO and cash flow
Company's decrease increase and CFI increase statement
cash flow CFI. CFI CFI.
statement,
an analyst
discovers
that during
the most
recent
period
Thorpe
spent $2
million on
what the
firm
describes
as
"investment
in capital
improveme
nts." If the
analyst
believes
this
expenditure
will not give
Thorpe any
enduring
benefit
beyond the
current
period, the
most
appropriate
adjustment
is to
151.
Practical
question-
Cash Flow
Statement
152.
Practical
question-
Cash Flow
Statement
153. Which Purchase of Acquiring Principal all of the
of the plant and the shares payments options can
following equipment of other received be classified
transaction used in the company from loans as CFI
s would manufacturin made to
least likely g process others
be reported with
in the cash financing
flow provided by
statement the seller
as investing
cash flows?
154.
Practical
question-
Cash Flow
Statement
155. Under either operating financing either either
IFRS, operating cash flow cash flow investing operating
interest cash flow or only only cash flow or cash flow or
expense investing financing financing
would be cash flow cash flow cash flow
classified
as

156. From provides shows is more shows the all of them

an analyst’s more operating accurate difference
perspective information cash between net
, an than the received income and
advantage direct and paid operating
of the method cash flow
indirect
method for
presenting
operating
cash flow is
that the
indirect
method
157.
Practical
question-
Cash Flow
Statement
158.
Practical
question-
Cash Flow
Statement
159. A reported as reported as reported as reported as should not be
conversion a $1 million a $1 million supplement a $1 million reported at
of a face investing financing ary operating all
value $1 cash inflow cash information cash inflow
million and outflow outflow to the cash and outflow
convertible and inflow flow
bond for $1 statement
million of
common
stock would
most likely
be:
160.
Practical
question-
Cash Flow
Statement
161. Which Proceeds Proceeds Proceeds Proceeds none of them
of the from sale of from sale from from
following manufacturin of issuance of issuance of
activities g equipment computers. corporate common
will most bonds shares
likely
increase
the cash
from
investing
activities for
a company
which
manufactur
es and sells
computers?
162. Aero increase in decrease decrease in increase in decrease in
Corp. cash flow in cash cash flow cash flow cash flow
prepares its from flow from from from from
financial operating investing investing financing financing
statements activities. activities activities activities. activities.
using IFRS.
It reports its
interest
payment on
long-term
debt as a
financing
activity. If
the
company
reports
under U.S.
GAAP, the
most likely
effect on
the cash
flow
statement
would be
a(n):
163. Which Decrease in Non-cash Increase in Non- all of the
of the deferred items are accrued operating options are
following income tax added to salaries is losses are correct
statements liability is net income added back added to net
is least added to net to net income
likely income income
accurate
about the
indirect
method of
operating
cash flow?
164.
Practical
question-
Cash Flow
Statement
165.
Practical
question-
Cash Flow
Statement
166.
Practical
question-
Cash Flow
Statement
167.
Practical
question-
Cash Flow
Statement
168. Higher Lower Lower Higher asset Lower asset
Accelerated current ratio debt-to- current turnover turnover ratio
depreciatio equity ratio ratio ratio
n methods
for financial
reporting
are
most likely
to have
which of the
following
effects on a
company's
financial
ratios
during the
early years
of an
asset's life?
169. Which Gross profit A company Any firm A company none of them
of the margin is a with a high with a high that has an
following component debt-to- net profit inventory
statements of traditional equity ratio margin will turnover of 6
about DuPont will have a have a high times, a
financial equation return on gross profit receivables
ratios is assets that margin and turnover of 9
most is greater vice versa times and a
accurate? than its payables
 return on turnover of
equity. 12 times will
have a cash
conversion
cycle of
approximatel
y 71 days
170.
Practical
question-
Ratio
analysis
171. Which The The To match Due to none of them
of the company company the terms problems
following switched to adopted offered by with an error
would best less new credit its closest in its old
explain an stringent policies competitor, credit
increase in credit policy last year the scoring
receivables and began company system, the
turnover? offering adopted company
credit to new had
customers payment accumulated
with weak terms now a substantial
credit requiring amount of
histories. net uncollectible
payment accounts
within 30 and wrote off
days rather a large
than 15 amount of its
days, which receivables.
had been
its previous
requiremen
t
172. A decrease A decrease A decrease An increase none of them
Assuming in average in the in interest in average
no changes assets effective expense assets
in other tax rate
variables,
which of the
following
would
decrease
ROA?
173. A Return on Debt-to- Interest ROE Current ratio
creditor assets total assets coverage
most likely (times
would interest
consider a earned)
decrease in
which of the
following
ratios to be
positive
news?
174. Which The current If inventory If revenue If net income none of them
of the ratio is the grows grows more is growing
following most slower quickly faster than
statements stringent than than revenue, the
is most ratio to test revenue, assets, the company’s
accurate? the liquidity the company’s efficiency is
position of company is efficiency declining
company likely to may be
face an improving.
operational
problem
with
obsolescen
ce
175. Which A working A low fixed A high A high fixed none of them
of the capital asset payables asset
following is turnover of turnover turnover turnover
most likely 3.6 indicates ratio may ratio ratio may
accurate that the indicate a implies a indicate a
about the company labor low capital
interpretatio generates intensive accounts intensive
n of activity $3.6 of net environme payables environment.
ratios? income for nt. balance
every $1 of relative to
working purchases
capital
176. Which A high total A relatively A high A payables all of options
of the asset high DSO payables turnover are correct
following is turnover indicates turnover ratio that is
least likely ratio implies an ratio low relative
correct? an efficient inefficient implies a to industry
usage of collection low could
assets of accounts indicate that
receivables payables the company
. balance is not
relative to making full
purchases use of the
 available
credit
facilities
177.
Practical
question-
Ratio
analysis
178.
Practical
question-
Ratio
analysis
179. The The Company A new Company
gross profit company Some improved manufacturin purchased
margin for charged office the g process raw material
Amnesty higher prices personnel efficiency allowed for at a cheaper
Limited for some of were laid of cost cutting price
grew from its products off and production
35% to thus salary processes
42% over expense
the past decreased
one year.
Which of
the
following is
least likely
an
explanation
for this
increase?
180. Which Gross profit Asset Debt-to- Fixed asset Acid test ratio
of the margin turnover equity ratio turnover
following
ratios is a
component
of the
original
(three-part)
DuPont
equation?

181. A firm will not may shortens lengthens not sufficient

has a cash change shorten or information
conversion lengthen
cycle of 80
days. The
firm's
payables
turnover
goes from
11 to 12,
what
happens to
the firm's
cash
conversion
cycle? It:

182. Which Fixed asset Payables Gross profit Inventory Receivables

of the turnover turnover margin turnover turnover
following
ratios would
NOT be
used to
evaluate
how
efficiently
manageme
nt is
utilizing the
firm's asset
183. In lower cost of higher cost higher cost lower cost of higher cost of
periods of sales, higher of sales, of sales, sales, lower sales, lower
rising prices income, lower lower income, income,
and stable identical income, income, identical identical cash
or cash flows, lower cash higher cash cash flows, flows, and
increasing and lower flows and flows and and lower higher
inventory inventory lower lower inventory inventory
quantities, inventory inventory
using the
LIFO
method for
inventory
accounting
compared
to FIFO will
result in
184. During current ratio gross profit inventory net profit none of them
periods of margin turnover margin
rising
inventory
unit costs, a
company
using the
FIFO
method
rather than
the LIFO
method will
report a
lower:
185.
Practical
question-
Inventory
write-down
186. both liquid liquid efficient profitable both efficient
Compared and and liquid
to a profitable
company
that uses
the FIFO
method,
during
periods of
rising prices
a company
that uses
the LIFO
method will
most likely
appear
more
187. Which Substantially Finished Lower Higher unit none of them
of the higher goods inventory volumes of
following finished inventory turnover work in
most likely goods, with growth rate ratio with progress and
signals that lower raw higher than inventory raw material
a materials the sales mainly inventories
manufacturi and work-in- growth rate being made
ng process of finished
company goods
expects
demand for
its product
to
increase?
188. FIFO LIFO Specific FIFO and LIFO and
Application identificatio LIFO specific
of periodic n identification
or perpetual
inventory
system is
most
significant
when which
of the
following
costing
systems
is/are used
189.
Practical
question-
Inventory
write-down
190. For LIFO are FIFO are LIFO are Both LIFO LIFO are
balance preferable to preferable preferable and average preferable to
sheet those based to those to those cost are those based
purposes, on FIFO, as based on based on more on FIFO, as
inventories they more LIFO, as average preferable to they more
based on: closely they more cost, as FIFO closely
reflect the closely they more reflect the
current costs reflect closely cost of sales
current reflect the
costs current
costs

191. LIFO or FIFO or LIFO or LIFO or Specific

Inventory, specific weighted FIFO, but weighted identification
cost of identification, average not average cost, only
sales, and but not FIFO cost, but weighted but not FIFO
gross profit not LIFO. average
can be cost
different
under
periodic
and
perpetual
inventory
systems if a
firm uses
which
inventory
cost
method?
192. During LIFO FIFO weighted FIFO as they none of the
periods of because it because it average more closely answers is
rising prices allocates allocates because it reflect current accurate
and stable current historical allocates costs
or growing prices to prices to average
inventories, cost of cost of prices to
the most goods sold goods sold cost of
informative (COGS) and (COGS) goods
inventory provides a and sold
accounting better provides a (COGS)
method for measure of better and
income current measure of provides a
statement income current better
purposes income measure of
is: current
income.

193.
Practical
question-
LIFO
Reserve
194. Which Low number Low Low High total none of
of the of days in inventory inventory asset them
following inventory value turnover turnover
ratio levels compared ratio
would to cost of
suggest goods sold
that a
company is
holding
obsolete
inventory?
195. Costs Manufacturin Selling Administrati Storage costs Delivery of
that are g overhead costs ve of finished finished
included in overhead goods goods to
the balance customers
sheet value
of inventory
most likely
include:
196. In an inventory cost of cost of cost of sales none of
environmen near sales sales near near current them
t of replacement below current cost cost and
increasing cost and current and inventory
prices, the cost of sales cost and inventory below
last-in first- below inventory above replacement
out (LIFO) current cost above replacemen cost
inventory replaceme t cost
co method nt cost
results in:
197. If all FIFO firms LIFO firms LIFO FIFO firms none of
else holds have higher have company will have them
constant in debt to higher will report greater
periods of equity ratios gross profit more stockholder's
rising prices than LIFO margins current equity than
and firms. than FIFO assets LIFO firms
inventory firms
levels
198.
Practical
question-
LIFO
Reserve
199.
Practical
question-
Inventory
write-down
200.
Practical
question-
LIFO
Reserve