11 Jan Basis of consolidation

Question
Final exam

Question 1 One concept of income suggests that income be measured by determining the net change over time in the discounted present value of net cash flow expected to be received by the firm. Under this concept of income, which of the following, ignoring income taxes, would not affect the amount of income for a period?

Question 1 options:

Windfall gains and losses due to external causes

Providing services to outsiders and investments of the funds received

The method used to depreciate property, plant, and equipment

Production of goods or services not yet sold and not yet delivered to customers or clients

Question 2 The one-time overstatement of restructuring charges to reduce assets, which reduces future expenses, is the definition of which of the following earnings management techniques?

Question 2 options:

Taking a bath

Creative acquisition accounting

Creasing “cookie jar” reserves

Abusing the materiality concept

Question 3 If year one sales equal $800,000, year two sales equal $840,000 and year three sales equal $896,000, the percentage to be assigned for year two in a sales trend analysis, assuming that year one is the base year, is:

Question 3 options:

105%.

89%.

100%.

112%.

Question 4 The phrase events and transactions that are distinguished by both their unusual nature and their

infrequency of occurrence describes:

Question 4 options:

extraordinary items.

changes in accounting principles.

prior period adjustments.

prior period adjustments.

Question 5 The valuation basis used in conventional financial statements is:

Question 5 options:

original cost.

market value.

replacement cost.

a mixture of costs and values.

Question 6 A basic objective of the statement of cash flows is to:

Question 6 options:

disclose changes during the period in all asset and all liability accounts.

disclose the change in working capital during the period.

provide essential information in financial statements for those making economic decisions.

supplant the income statement and balance sheet.

Question 7 The calculation net income/average total assets is the formula for which of the following ratios?

Question 7 options:

Profit margin

Asset turnover

Asset usage

Return on assets

Question 8 Under the residual equity theory:

Question 8 options:

equities are viewed as restrictions on assets.

a business is viewed as a social institution.

a manager’s goals are considered as important as those of the common stockholders.

management is responsible for maximizing the wealth of common stockholders.

Question 9 As a minimum, how large in relation to total outstanding shares may a stock distribution be before it should be accounted for as a stock split instead of a stock dividend?

Question 9 options:

No less than 2 to 5 percent

No less than 20 to 25 percent

No less than 10 to 15 percent

No less than 45 to 50 percent

Question 10 Which of the following should be disclosed in the Summary of Significant Accounting Policies?

Composition of plant assets

Maturity dates of long-term debt

Basis of consolidation

Pro forma effect of retroactive application of an accounting change

Question 11 List and discuss the types of information commonly disclosed in the footnotes to corporate financial statements. Focus on the following:

a. Accounting policies

b. Schedules and exhibits

c. Explanation of financial statement items

d. General information about the company