External Financial Reporting Decisions

A primary objective of external financial reporting is

Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The notes should not be used to

An objective of financial reporting is

The management of ABC Corporation is analyzing the financial statements of XYZ Corporation because ABC is strongly considering purchasing a block of XYZ ordinary shares that would give ABC significant influence over XYZ. Which financial statement should ABC primarily use to assess the amounts, timing, and certainty of future cash flows of XYZ Company?

An entity that sprays chemicals in residences to eliminate or prevent infestation of insects requires that customers prepay for 3 months’ service at the beginning of each new quarter. Select the term that appropriately describes this situation from the viewpoint of the

The primary purpose of the statement of financial position is to reflect

When classifying assets as current and noncurrent for reporting purposes,

A receivable classified as current on the statement of financial position is expected to be collected within

A statement of financial position allows investors to assess all of the following except the

 May exceed the amount available for refinancing under the agreement.

A statement of financial position is intended to help investors and creditors

A manufacturer receives an advance payment for special-order goods that are to be manufactured and delivered within the next year. The advance payment should be reported in the manufacturer’s current-year statement of financial position as a(n)

An entity with a December 31 year end purchased $2,000 of inventory on account. The seller was responsible for delivery to the shipping point, with freight of $50 paid at destination by the buyer. The invoice date was December 27, Year 1, and the goods arrived on January 3, Year 2.

Now assume the terms required the seller to deliver to the destination instead of the shipping point. What is the correct amount of inventory and freight-in relating to this purchase on the Year 1 financial statements?

The following information applies to the income statement of Addison Company:

Gross sales       $1,000,000

Net sales                           900,000

Freight-in                          10,000

Ending inventory           200,000

Gross profit margin       40%

Addison’s cost of goods available for sale is

Long-term obligations that are or will become callable by the creditor because of the debtor’s violation of a provision of the debt agreement at the balance sheet date should be classified as

In a multiple-step income statement for a retail company, all of the following are included in the operating section except

The measurement basis most often used to report a long-term payable representing a commitment to pay money at a determinable future date is

An analysis of an entity’s $150,000 accounts receivable at year end resulted in a $5,000 ending balance for its allowance for uncollectible accounts and a bad debt expense of $2,000. During the current year, recoveries on bad debts previously written off were correctly recorded at $500. If the beginning balance in the allowance for uncollectible accounts was $4,700, what was the amount of accounts receivable written off as uncollectible during the year?

An entity had the following account balances in the pre-closing trial balance:

Opening inventory          $100,000

Closing inventory             150,000

Purchases                           400,000

Transportation-in             6,000

Purchase discounts         40,000

Purchase allowances      15,000

Returned purchases       5,000

The entity had net purchases for the period of

An internal auditor performs an analytical procedure to compare the gross margins of various divisional operations with those of other divisions and with the individual division’s performance in previous years. The internal auditor notes a significant increase in the gross margin at one division. The internal auditor does some preliminary investigation and also notes that there were no changes in products, production methods, or divisional management during the year. The most likely cause of the increase in gross margin is

Which of the following is not an appropriate basis for measuring the cost of property, plant, and equipment?

An entity installed an assembly line in Year 1. Four years later, $100,000 was invested to automate the line. The automation increased the market value and productive capacity of the assembly line but did not affect its useful life. Proper accounting for the cost of the automation should be to

1. The following information was extracted from Gil Co.’s December 31 balance sheet:

Debit Balance

Noncurrent assets:

Available-for-sale securities (carried at fair value)                          $96,450 Equity:

Accumulated other comprehensive income (OCI)

Unrealized gains and losses on available-for-sale securities           19.800 

Historical cost of the available-for-sale securities was

Entity A acquires all of the voting shares of Entity B for $1,000,000. At the time of the acquisition, the net fair value of the identifiable assets acquired and liabilities assumed had a carrying amount of $900,000 and a fair value of $800,000. The amount of goodwill Entity A will record on the acquisition date is

A company uses straight-line depreciation for financial reporting purposes, but uses accelerated depreciation for tax purposes. Which of the following account balances would be lower in the financial statements used for tax purposes than it would be in the general purpose financial statements?

Howell Corporation, a publicly traded corporation, is the lessee in a leasing agreement with Brandon, Inc. to lease land and a building. If the lease contains a bargain purchase option, Howell should record the land and the building as a(n)

The purchase of treasury stock is recorded on the statement of financial position as a(n)

A company pays more than the fair value to acquire treasury stock. The difference between the price paid to acquire the treasury stock and the fair value should be recorded as

Lorraine Co. has determined its fiscal year-end inventory on a LIFO basis to be $400,000.

Information pertaining to that inventory follows:

Estimated selling price        $408,000

Estimated cost of disposal 20,000

Normal profit margin           60,000

Current replacement cost  360,000

Lorraine records losses that result from applying the lower-of-cost-or-market (LCM) rule. At its year end, what should be the net carrying value of Lorraine’s inventory?

Which one of the following statements with regard to marketable securities is incorrect?

Securities held primarily for sale in the near term to generate income on short-term price differences are known as

Kale Co. purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity. Absent an election of the fair value option, Kale should account for these bonds at

When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes

Which of the following is not an appropriate basis for measuring the historical cost of property, plant, and equipment?

In making a cash flow analysis of property, plant, and equipment (PPE), the internal auditor discovered that depreciation expense for the period was $10,000. PPE with a cost of $50,000 and related accumulated depreciation of $30,000 was sold for a gain of $1,000. If the carrying amount of PPE increased by $80,000 during the period, how much PPE was purchased this period?

A premium on bonds payable arises when

Lease M does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. Lease P does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property. How should the lessee classify these leases?

Lease M                               Lease P

When accounting for income taxes, a temporary difference occurs in which of the following scenarios?

According to IFRS, which accounting policy may an entity apply to measure investment property in periods subsequent to initial recognition?

Legal fees incurred by a company in defending its patent rights should be capitalized when the outcome of litigation is

Successful                                  Unsuccessful    

Which one of the following characteristics is not required for an asset to be properly described as property, plant, and equipment?