1) Catastrophe Corp. has determined it is not a going concern. Which basis of accounting will Catastrophe adopt?
a) Remain with GAAP
b) Tax basis
c) Cash basis
d) Liquidation basis
2) Information is considered material to the financial statements if
I.It falls within industry-specific quantitative guidelines published by the Financial Accounting Standards Board.
II.Its omission could make a difference in the decisions made by a user relying on the financial statements.
III.Its misstatement could make a difference in the decisions made by a user relying on the financial statement.
a) I, II and III
b) II and III only
c) I and III only
d) I only
3) Which of the following is not an objective of financial reporting:
a) To report financial performance from the perspective of cash inflows and outflows.
b) To report changes in economic resources and claims against those resources resulting from transactions, events, or circumstances that are not directly related to the entity's financial performance.
c) To provide information about the fair value of an entity's economic resources.
d) To provide information that is useful to investors and creditors.
4) According to the FASB Conceptual Framework, financial information is considered faithfully represented if it is:
a) Useful, precise, and free from error
b) Conservative, unbiased, and precise
c) Complete, neutral, and free from error
d) Useful, understandable, and verifiable
5) Alpha Co. reports inventory on its balance sheet using the same generally accepted methods allowed by the same conceptual framework as applied by Beta Co. These facts relate most closely to which of the following qualitative characteristics of financial reporting?
a) Materiality
b) Understandability
c) Verifiability
d) Comparability
6) During 20X3, customers purchased gift cards from LatteBucks, all of which expire on December 31, 20X5. At the end of 20X4, some of the gift cards still have not been redeemed. How should the unredeemed gift cards be reported on LatteBucks's 20X4 year-end financial statements?
a) As sales revenue on the income statement
b) As a prepaid asset on the balance sheet
c) As a current liability on the balance sheet
d) As an expense on the income statement
7) Sleeth Co. has an investment in shares of a public company that are temporarily restricted and may not be transferred or sold for a period of 18 months. Unrestricted shares of the public company are actively traded on the New York Stock Exchange and most analysts agree that the restriction would cause investors to discount the stock by 10%. The investment does not give Sleeth Co. control of the company or the ability to exercise significant influence over it. If Sleeth Co. reports this investment at fair value, what level of inputs will it indicate in its footnotes was used in the valuation?
This investment must be accounted for under the equity method and may not be reported at fair value.
a) Level II
b) This investment must be accounted for under the equity method and may not be reported at fair value.
c) Level III
d) Level I
8) On September 25, 2014 Colson Corp. sold 200,000 widgetrons to Cavanaugh Corp at $5 per unit. Half of the units were delivered on November 15, 2014, and the remaining 100,000 units were delivered on January 20, 2015. At the time of sale Cavanaugh paid 40% of the contract price and agreed to pay the rest in equal installments on the two delivery dates. What amount of revenue should Colson recognize from this sale in 2014?
a) $0
b) $1,000,000
c) $500,000
d) $700,000
9) Gil is a Baxley Co. salesman desperate to make quota by the end of 2015. On the afternoon of December 31, 2015, he convinces a longtime customer with excellent credit to sign a contract to accept delivery of Baxley Co.'s Widgetron Deluxe. Gil promises the customer a deep discount off the list price that they can ‘hash out later' if the customer is 100% happy with the product. Gil does not tell the customer that the company's policy in such cases is to offer the maximum discount of 30%. The customer states he will have to consult an astrologer and a groundhog to determine if he is happy with the product. Gil oversees the delivery that evening of the Widgetron Deluxe. Should the revenue from this sale be recognized in 2015? Why or why not?
a) The revenue should be recognized because there is a binding contract to accept delivery of the goods.
b) The revenue should not be recognized because the price is unknown.
c) The revenue should not be recognized because of the unusual and subjective terms under which the buyer has the right to return the product.
d) The revenue should be recognized because the product shipped and the customer has excellent credit.
10) Which of the following is most likely to be considered revenue, according to the Financial Accounting Standards Board's definition?
a) A pharmaceutical firm receives an anonymous donation to settle a liability owed to a municipality.
b) A web streaming company fulfills a 12-month service term paid by customers in advance.
c) A clothing reseller recognizes a gain from early extinguishment of long-term debt.
d) A company in the business of manufacturing scientific devices recognizes a gain from the sale of agricultural land from the fringes of its corporate campus.