FINANCIAL-ACCOUNTING-AND-REPORTING Online Practice Questions and Answers

Correct Answer: D

Choice "d" is correct. Once the decision has been made to dispose of a component of a business and that

component meets the criteria to be classified as held for sale, the operating results of the component for

the period reported on, and any gain or loss from the disposal, should be reported separately from

continuing operations, net of tax. In this question, the component was classified as held for sale and was

sold in the same year.

Thus, in 20X4, the results of operations, the $300,000 ($500,000-$800,000) loss, are reported as a loss

from discontinued operations. The loss on disposal would be reported as part of that loss from

discontinued operations also.

Choice "a" is incorrect. The results of operations prior to the decision date, and also after the decision date,

are reported separately from the results of continuing operations as a part of discontinued operations.

Choice "b" is incorrect. The results of operations prior to the decision date, and also after the decision date,

are reported separately from the results of continuing operations as a loss from operations of a component

and included in loss from discontinued operations.

Choice "c" is incorrect. The results of discontinued operations are not reported as an extraordinary item.

Correct Answer: A

Choice "a" is correct, Yes - Yes. A material transaction that is "infrequent in occurrence" but not "unusual in nature" should be presented separately as a component of "income from continuing operations" when the transaction results in a gain or loss.

Correct Answer: D

Choice "d" is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is

made and no separate line item presentation is made on any financial statement. If a material change is

being made, appropriate footnote disclosure is necessary.

Choices "a", "b", and "c" are incorrect, per the above Explanation: .

Correct Answer: A

Choice "a" is correct. The summary of significant accounting policies should disclose policies. The only policy in this question is the "basis" of profit recognition on long-term construction contracts. The other disclosures are accounting details and would be disclosed in other footnotes, but not in the summary of significant accounting policies. Choice "b" is incorrect. The future minimum lease payments should be disclosed, but not in the summary of significant accounting policies. Choice "c" is incorrect. Depreciation expense should certainly be disclosed, but not in the summary of significant accounting policies. Choice "d" is incorrect. The composition of sales by segment should be disclosed, but not in the summary of significant accounting policies.

Correct Answer: D

Choice "d" is correct. Generally accepted accounting principles that were used in the most recent annual

report of an enterprise should be applied to interim financial statements of the current year, unless a

change in accounting principle is adopted in the current year.

Choices "a", "b", and "c" are incorrect, per above.

Correct Answer: A

Choice "a" is correct. $5,000 operating profit for Segment C.

Rule: Operating profit by segments is based on the measure of profit reported to the "Chief Operating

Decision Maker."

Interest expense, income taxes, and general corporate expenses are not allocated to the divisions solely

for the purposes of segment disclosures; they may be allocated if that is how the segments report to the

"Chief Operating Decision Maker."

Correct Answer: B

Choice "b" is correct. Assets of the North American segment exceed 10% combined assets of all operating

segments.

Choice "a" is incorrect. Corporate headquarters in not considered a segment.

Choice "c" is incorrect. The South American segment does not meet any of the 10% minimums (Revenue,

PandL or Assets).

Choice "d" is incorrect. Eastern Europe segment does not report to the chief operating officer.

Correct Answer: A

Choice "b" is correct. Only publicly-traded enterprises are required to report on business segments. Choices "a", "c", and "d" are incorrect, per the Explanation: above.

Correct Answer: A

Choice "a" is correct. Development stage enterprises must use all the same principles as established enterprises including those of revenue recognition and deferral of expenses. The primary difference is that development stage enterprises must provide additional disclosures not required of established operating enterprises. SFAS #7, para. 10

Correct Answer: A

Note: Only one-half of rent for office space was used for sales office. Choice "a" is correct. $480,000.

Correct Answer: B

Choice "b" is correct. One-fifth of the cabinet costs (depreciation expense) should be included in selling, general, and administrative expenses for 1991. Choice "a" is incorrect. Merchandise display cabinets in stores relate to selling activities, not to the purchase cost of goods sold. Choices "c" and "d" are incorrect. Merchandise display cabinets are fixed assets whose cost should be allocated systematically over their five-year useful life.

Correct Answer: C

Choice "c" is correct. The AICPA accounting principal board opinion (APBO) is a first floor (category A) of established accounting principle pronouncements. Choice "a" is incorrect. FASB statement of financial accounting concepts (SFAC or FACs) is a fifth floor (other accounting literature) category. Choice "b" is incorrect. FASB technical bulletins are a second floor (category B) accounting pronouncement. Choice "d" is incorrect. AICPA statement of position is a second floor (category B) accounting pronouncement.

Correct Answer: B

Choice "b" is correct. No - Yes Change in estimated lives of depreciable assets is a "change in estimate." They affect only current and future periods (not "prior periods," not retained earnings). Change from unaccepted principle to accepted principle is an example of an error of a prior period that should be reported as a "prior period adjustment."

Correct Answer: B

Choice "b" is correct. The cumulative effect of a change in accounting principle is now reported as an adjustment to beginning retained earnings when it is considered practicable to calculate the cumulative effect. When making a change to LIFO, it is generally considered impracticable to calculate the cumulative effect of the change (in most cases, data on the historical LIFO layers in not available). In a change to LIFO, the beginning inventory dollar amount becomes the first LIFO layer. No cumulative effect adjustment is made. The change is accounted for prospectively. A change from LIFO to weighted average, there is no such impracticability. The cumulative effect is computed and the change is handled retrospectively. Choices "a", "c", and "d" are incorrect, per the above Explanation: .

Correct Answer: B

Choice "b" is correct. $260,000 represents a reportable segment (10% of total sales):

Rule: To be significant enough to report on, a segment must be at least 10% of:

1.

Combined revenues (whether intersegment or unaffiliated customers), or

2.

Operating income, or

3.

Identifiable assets.