ACCT 304 Midterm A + GRADE

1. (TCO 1) Which of the following has the authority to set accounting standards in the United States? (Points : 5)
        FASB
        IRS
        SEC
        AICPA


Question 2.2. (TCO 2) The FASB's conceptual framework's qualitative characteristics of accounting information includes: (Points : 5)
        full disclosure.
        relevance.
        going concern.
        historical cost.


Question 3.3. (TCO 3) Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a: (Points : 5)
        debit to investments.
        credit to retained earnings.
        credit to capital stock.
        debit to expense.


Question 4.4. (TCO 3) The adjusting entry required when amounts previously recorded as unearned revenues are earned includes: (Points : 5)
        a debit to a liability.
        a debit to an asset.
        a credit to a liability.
        a credit to an asset.


Question 5.5. (TCO 3) Permanent accounts would not include: (Points : 5)
        interest expense.
        wages payable.
        prepaid rent.
        unearned revenues.



Question 6.6. (TCO 4) Noncurrent assets include: (Points : 5)
        inventory held for sale.
        prepaid rent.
        accounts receivable.
        land held for a possible future plant site.


Question 7.7. (TCO 4) The acid-test ratio is also known as the: (Points : 5)
        current ratio.
        debt equity ratio.
        times interest earned ratio.
        quick ratio.
 


Question 8.8. (TCO 5) The difference between single-step and multiple-step income statements is primarily an issue of: (Points : 5)
        consistency.
        presentation.
        measurement.
        valuation.



Question 9.9. (TCO 5) On June 1, 2013, Romano Inc. changed the estimated useful life of its office equipment from 20 to 12 years. This change would be accounted for: (Points : 5)
        prospectively.
        retrospectively.
        as an accounting error.
        none of the above.


Question 10.10. (TCO 5) Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows: (Points : 5)
        operating, $2,000; financing $16,000.
        operating, $0; financing $18,000.
        operating, $12,000; financing $6,000.
        operating, $18,000; financing $0.
 


Question 11.11. (TCO 5) The Maytag Corporation's income statement includes income from continuing operations, a loss from discontinued operations, and extraordinary items. Earnings per share information would be provided for: (Points : 5)
        net income only.
        income from continuing operations and net income only.
        income from continuing operations, loss from discontinued operations, and net income only.
        income from continuing operations, loss from discontinued operations, extraordinary items, and net income.



Question 12.12. (TCO 5) In a statement of cash flows prepared under International Financial Reporting Standards, each of the following items is typically classified as a financing cash flow except: (Points : 5)
        interest paid.
        dividends paid.
        proceeds from the issuance of long-term debt.
        dividends received.


Question 13.13. (TCO 4) Which is a shareholders' equity account in the balance sheet? (Points : 5)
        Accumulated depreciation
        Paid-in capital
        Dividends payable
        Marketable securities
 

 


Question 14.14. (TCO 4) Which of the following groups is not among the external users for whom financial statements are prepared? (Points : 5)
        Customers
        Suppliers
        Employees
        All of the above are external users of financial statements.


1. (TCO 5) Please identify the subtotals that would be reported on the income statement (including the amount) as Misty's earnings per share (EPS)? 
   
Misty's effective tax rate is 40% and there were 1,000 shares of common stock outstanding. (Points : 15)
Ans: EPS would be shown as below mentioned: 
Income before Extraordinary Item: $198/1000 =$.20
Extraordinary item: -$30/1000 =-$.03
Net Income : $168/1000 = $.17
(TCO 4) Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system. 
 
What would Symphony report as total assets? Hint: Don’t forget to deduct the contra assets.
What would Symphony report as total shareholders' equity? Hint: You will need to deduct dividends. (Points : 15)
      Ans: Total assets: ($680 - 20) + ($920 - 80) + 34 + 50 + 30 + 16 + 150 + 450 + 5 + 20 + 8 + 40 = 
$2,303
Total shareholders' equity: $485 + 15 + 48 - 120 + 380 = $808








1. (TCO 4) Explain how management's discussion and analysis of its operations and liquidity may be helpful to investors. (Points : 20)
Ans. 
Management discussion and analysis of its operations and liquidity will provide the detailed explanation to the investor as the numerical representations and notes related to accounts will not be sufficient for the investor to judge the past and future trends of the company and may be insufficient to evaluate the quality of earnings. The discussion will provide the investor with an opportunity to analyze the company by putting himself in the shoes of the management and analyze the short term and long term goals of the company. It will provide the investors a better understanding and follow-up of the financial statements of the company and will communicate with the investors in a very clear and straightforward manner and thus the investors would be in a better position to judge the worth of the company and their investments in the company.


2. (TCO 2) Briefly describe the materiality constraint. (Points : 25)
Ans. Materiality constraint means a transaction which has significant influence on the decision making process of the management, if a transaction has no significant influence on management then it is immaterial. Materiality can be decided by the management itself that which type of transaction are material for the management and how much they are material for the decision making process. Materiality constraints vary as per requirements of users. Materiality is decided for two types, one for a transaction which affects the decision signally and for a same kind of no. of  transactions which together affects the decision of users.  Materiality can be decided as a whole or for a particular transaction also (Wevgandt, 2007).
Reference
Wevgandt, (2007). FINANCIAL ACCOUNTING. John Wiley & Sons


3. (TCO 5) Briefly discuss at least two differences between income statements prepared under U.S. GAAP and IFRS. (Points : 25)
Income statements prepared under U.S GAAP is in a single step or multi step format and there is no requirement to classify the expenses by the nature or function of the expense whereas under IFRS the expenses in the income statements are classified by the function or nature of the expense and description is included in the notes (Shamrock, 2012).
Under U.S GAAP, the presentation of extraordinary item is restricted to unusual or infrequent items whereas under IFRS the presentation of extraordinary items in the income statement is strictly prohibited. IFRS prohibits any or part of the disclosure of the extraordinary items in the income statement.
Reference
Shamrock, S.E. (2012). IFRS and US GAAP: A Comprehensive Comparison. John Wiley & Sons.

4. (TCO 3) Describe what is meant by unearned revenues and give two examples. (Points : 25)
Unearned revenue is not earned by the company but received by the company. Unearned revenue is a liability for the company and is treated as revenue paid in advance or prepaid revenue. If the customer makes an advance payment for the services which is not received by him or for the goods which is not delivered to him, then such payment would be the unearned revenue for the provider company. It is recorded in books of accounts by debiting the cash account and crediting the unearned revenue account. Payment of rent to the landlord in advance or payment to the subscribers of magazine for life time subscription can be classified as the examples of unearned revenue (Ryan, 2011).
Reference
Ryan, J. (2011). Personal Financial Literacy. Cengage Learning