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

Correct Answer: D

Choice "d" is correct. Recognition is the process of recording an item in the financial statements of an entity. SFAC 5 para. 6 Choice "a" is incorrect. Allocation is the accounting process of assigning or distributing an amount according to a plan or a formula. SFAC 6 para. 142 Choice "b" is incorrect. Matching of costs and revenues is simultaneous or combined recognition of the revenues and expenses that result directly and jointly from the same transactions or other events. SFAC 6 para. 146 Choice "c" is incorrect. Realization is the process of converting noncash resources and rights into money. SFAC 6 para. 143

Correct Answer: C

Choice "c" is correct. Financial reporting, and especially financial statements, usually cannot and do not separate management performance from enterprise performance. Financial reporting provides information about an enterprise during a period when it was under the direction of a particular management but does not directly provide information about that management's performance. SFAC 1 para. 53

Correct Answer: A

Choice "a" is correct. When a change in accounting principle is considered inseparable from a change in

estimate, the change is handled as a change in estimate - prospectively. No cumulative effect adjustment

is made.

Choices "b", "c", and "d" are incorrect since no cumulative effect adjustment is made.

Correct Answer: A

Choice "a" is correct. The cash basis for financial reporting is not a generally accepted accounting basis of accounting (GAAP); therefore, it is an error. Correction of an error from a prior period is a reported as prior period adjustment to retained earnings. Choice "b" is incorrect. Cash basis reporting is not an accounting principle under accrual accounting principles. Thus, the change from cash basis is not reported as a change in accounting principle. In addition, changes in accounting principle are not prior period adjustments; instead, they are treated retrospectively. Choices "c" and "d" are incorrect. Correction of prior period errors has no effect on the current year's income statement.

Correct Answer: A

Choice "a" is correct. Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles. SFAC 5 para. 7

Correct Answer: A

Choice "a" is correct. A segment is considered reportable if its reported revenue, including sales to

unaffiliated customers and intersegment sales, is 10% or more of the combined revenue (unaffiliated and

intersegment) of all operating segments.

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

Correct Answer: C

Choice "c" is correct. Financial capital - Financial capital.

Financial capital maintenance is considered to be an element of both "currently reported net income" and

"comprehensive income." This was a rare instance in which this type of information was asked on the

exam.

Correct Answer: A

Choice "a" is correct. $12,000.

Rule: The entire amount of an "extraordinary gain or loss" or an "unusual or infrequently occurring item,"

e.g., a gain or loss from sale of fixed assets, should be reported during the period (quarter) incurred.

Choices "b", "c", and "d" are incorrect. The full gain should be reported in the second quarter when it

occurred.

Correct Answer: C

Choice "c" is correct. Segment revenue is 10% or more of combined revenue of all the company segments. Rule: To be significant enough to report on, a segment must be at least 10% of:

1.

Combined revenues (whether intersegment or affiliated customers) or

2.

Operating profit (of all segments not having an operating loss), or

3.

Identifiable assets.

Choice "a" is incorrect. Rule is 10% of "operating profit," not "consolidated profit."

Choice "b" is incorrect. Segments with "operating losses" are not combined with those having "operating

profits" in determining a segment. Choice "d" is incorrect. "Consolidated revenue" would not include

"intersegment revenue." Rule is "combined revenue," not "consolidated revenue."

Correct Answer: D

Rule: A segment must be at least 10% of:

1.

Combined revenues (whether intersegment or unaffiliated customers), or

2.

Operating income (of all segments not having an operating loss), or

3.

Identifiable assets.

Choice "d" is correct. Ebon, Fair, Gel, and Hak, since all four companies meet at least one of the criteria.