Last_Exam

Answer (3 out of 5) of the following questions and problems

(I) Choose the right answer

1. Challenges facing financial accounting include all of the following except

A. Forward-looking information.

B. Financial measurements.

C. Soft assets.

D. Timeliness.

2. All of the following are objectives of financial reporting except to provide information

1. About enterprise resources, claims to those resources, and changes in them.
2. That is useful in investment and credit decisions.
3. About the management and major shareholders of an enterprise.
4. That is useful in assessing cash flow prospects.

3. Which one of the following organizations has not been instrumental in the development of financial accounting standards?

1. AICPA.
2. FASB.
3. IMA.
4. SEC.

4. Standards and interpretations are issued by the

1. AICPA.
2. FASB.
3. GASB.
4. SEC.

5. The first step taken in the establishment of a typical FASB statement is

1. The board conducts research and analysis and a discussion memorandum is issued.
2. A public hearing on the proposed standard is held.
3. The board evaluates the research and public response and issues an exposure draft.
4. Topics are identified and placed on the board's agenda.

6. The most authoritative source of GAAP among the following is FASB

1. Emerging Issues Task Force Statements.
2. Implementation Guides.
3. Interpretations.
4. Technical Bulletins.

7. International accounting standards are established by the

1. FASB.
2. IASB.
3. IASF.
4. SEC.

8. All of the following statements about the conceptual framework are correct except it

1. Is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards.
2. Prescribes the nature, function, and limits of financial accounting and financial statements.
3. Increases financial statement users' understanding of and confidence in financial reporting.
4. All of these options are correct.

9. The first level of the conceptual framework is the

1. Elements of financial statements.
2. Objectives of financial reporting.
3. Qualitative characteristics of accounting information.
4. Recognition and measurement concepts.

10. The objectives of financial reporting include all of the following except to provide information that is

1. Useful to those making investment and credit decisions.
2. Helpful to present and potential investors, creditors, and other users.
3. Used in establishing and applying accounting standards.
4. About economic resources and claims to those resources.

11. All of the following are ingredients of relevance except

1. Feedback value.
2. Predictive value.
3. Timeliness.
4. Verifiability.

12. Secondary qualities of accounting information are

1. Comparability and consistency.
2. Cost/benefits and materiality.
3. Relevance and reliability.
4. Representational faithfulness and neutrality.

13. Which of the following statements about comprehensive income is incorrect?

1. It is more inclusive than the traditional notion of net income.
2. Unrealized holding gains on available-for-sale securities are included in comprehensive income.
3. It includes all changes in equity during a period except net income.
4. Changes in equity of an entity during a period from transactions and other events from nonowner sources are included in comprehensive income.

14. Depreciation and amortization policies are justifiable and appropriate because of the

1. Economic entity assumption.
2. Going concern assumption.
3. Monetary unit assumption.
4. Periodicity assumption.

15. Generally, revenue should be recognized

1. During production.
2. At the end of production.
3. At the time of sale.
4. At the time cash is received.

16. Generally, expenses are recognized when the

1. Wages are paid.
2. Work is performed.
3. Product is produced.
4. Work or product actually makes its contribution to revenue.

17. In providing information with the qualitative characteristics that make it useful, two overriding constraints that must be considered are

1. Industry practices and conservatism.
2. Materiality and conservatism.
3. Cost-benefit relationship and industry practices.
4. Cost-benefit relationship and materiality.

18. Which of the following is not a significant difference between the FASB and its predecessor, the APB?

1. Greater autonomy.
2. Larger membership.
3. Increased independence.
4. Broader representation.

19. Which of the following organizations is not part of the current standard-setting structure?

1. Financial Accounting Foundation.
2. Financial Accounting Standards Board.
3. Financial Accounting Council.
4. Financial Accounting Standards Advisory Council.

20. Which of the following documents is not issued during the due process system that results in a new pronouncement?

1. Staff positions.
2. FASB Standard.
3. Exposure draft.
4. Discussion memorandum.

21. The organization whose purpose is to reach consensus on how to account for new and unusual financial transactions that have potential for creating differing financial reporting practices is the:

1. FASB.
2. FASAC.
3. EITF.
4. AICPA.

22. Which of the following pronouncements is less authoritative than the others?

1. ARBS.
2. FASB Staff positions.
3. APB Opinions.
4. FASB Standards.

23. International Financial Reporting Standards (IFRSs) are issued by the:

1. FASB
2. IASB
3. SEC
4. EU

24. The Sarbanes Oxley Act does all of the following except

1. Requires codes of ethics for senior financial officers.
2. Transfers the final authority for GAAP to the PCAOB.
3. Strengthens independence rules for auditors.
4. Requires independence and financial expertise for members of the audit committee

25. The assumption that allows the merging of a parent company and its subsidiaries for financial reporting purposes is the:

1. Going concern assumption.
2. Economic entity assumption.
3. Monetary unit assumption.
4. Periodicity assumption.

(II) Joseph Corporation reported income from continuing operations before taxes

during 2007 of $120,000. Additional items occurring in 2007 but not considered in the $120,000 are as follows.

1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $30,000 during the year.

2. Joseph found that advertising expense was understated in 2004 by $10,000.

3. Sale of equipment resulted in a pre-tax loss of $7,000.

4. The corporation disposed of its recreational division. Losses from the operation from this division totaled $20,000, and the loss on the disposal of this division was $12,000. Assume that this transaction meets the criteria for discontinued operations.

5. The corporation changed depreciation methods, which resulted in an increase in accumulated depreciation in prior periods of $8,000.

Instructions

Prepare an income statement for the year 2007 starting with income from continuing operations before taxes. Assume a tax rate of 30%. Omit earnings per share data.

(III) Wang Company deposits all receipts and makes all payments by check. The following information is available from the cash records.

• June 30 Bank Reconciliation

• Month of July Results

Instructions

(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash

balance.

(b) Prepare the general journal entry or entries to correct the Cash account.

(IV) Dement is the new owner of Fung Computer Services. At the end of August 2007, his first month of ownership, Dement is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August.

1. At August 31, Dement owed his employees $2,280 in wages that will be paid on September 1.

2. At the end of the month he had not yet received the month’s utility bill. Based on past experience, he estimated the bill would be approximately $720.

3. On August 1, Dement borrowed $36,000 from a local bank on a 15-year mortgage. The annual interest rate is 6%.

4. A telephone bill in the amount of $140 covering August charges is unpaid at August 31.

Instructions

Prepare the adjusting journal entries as of August 31, 2007, suggested by the information above.

(V) The comparative balance sheets of Duong Inc. at the beginning and the end of the year 2007 appear below.

DUONG INC.

BALANCE SHEETS

Net income of $88,000 was reported, and dividends of $46,000 were paid in 2007. New equipment was purchased and none was sold.

Instructions

Prepare a statement of cash flows for the year 2007.

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