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

Correct Answer: B

Choice "b" is correct. The pervasive constraint on providing information in financial statements is that the cost should be outweighed by the benefit to be derived from providing the information. SFAC 1 para. 23, SFAC 2 para. 133 Choice "a" is incorrect. Consistency is an underlying concept for financial statements (and a secondary quality of accounting information), but it is not a constraint on providing information. SFAC 2 para. 120 Choice "c" is incorrect. Reliability is a primary quality of accounting information and an underlying concept for financial statements, but it is not a constraint on providing information. SFAC 2 para. 58 Choice "d" is incorrect. Representational faithfulness is an underlying concept for financial statements (as an element of reliability), but it is not a constraint on providing information. SFAC 2 para.

Correct Answer: A

Choice "a" is correct. When the effect of a change in accounting principle is inseparable from the effect of a change in accounting estimate, the reporting treatment for the overall effect is as a change in estimate. Thus, the effect is reported prospectively as a component of income from continuing operations. Under SFAS No. 154, this type of change is now called a change in accounting estimate affected by a change in accounting principle. Choice "b" is incorrect. Restatement of all prior periods is the retroactive accounting treatment that is applied to the correction of an error and the retrospective accounting treatment given to changes in accounting principle. However, a change in accounting principle that is inseparable from the effect of a change in accounting estimate is now treated as a change in accounting estimate. Choice "c" is incorrect. Correction of an error is given retroactive treatment as a prior period adjustment to retained earnings with restatement of prior periods. This is not the treatment appropriate for the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate. Choice "d" is incorrect. While footnote disclosure is always appropriate for an accounting change, such disclosure alone is never the appropriate accounting treatment.

Correct Answer: D

Choice "d" is correct. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses. Projected operating losses are not anticipated and accrued. Choice "a" is incorrect. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses. Choice "b" is incorrect. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses. Choice "c" is incorrect. The operating losses to be included in Smith's 20X2 income statement would be the total 20X2 operating losses, regardless of whether those losses occurred before or after the date the decision to dispose of the component was made, and not any 20X3 operating losses.

Correct Answer: B

Choice "b" is correct. The correction of an error in the financial statements of a prior period should be

reported, net of tax, in the current statement of retained earnings as an adjustment of the opening balance.

Choice "a" is incorrect. The adjustment is before net income, not after net income.

Choices "c" and "d" are incorrect. Corrections of errors of prior periods go to retained earnings and do not

affect the income statement.

Correct Answer: D

Choice "d" is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is

made and no separate line item presentation is made on any financial statement. If a material change is

being made, appropriate footnote disclosure is necessary.

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

Correct Answer: A

Choice "a" is correct. $5,000 operating profit for Segment C.

Rule: Operating profit by segments is based on the measure of profit reported to the "Chief Operating

Decision Maker."

Interest expense, income taxes, and general corporate expenses are not allocated to the divisions solely

for the purposes of segment disclosures; they may be allocated if that is how the segments report to the

"Chief Operating Decision Maker."

Correct Answer: B

Choice "b" is correct. Sales to other segments would be used in determining a segment's operating

income.

Rule: Equity in net income of another company, general corporate expenses, interest, income tax expense,

and gains or losses on discontinued operations are all not included in segment profit unless they are

included in the determination of segment profit reported to the "Chief Operating Decision Maker."

Correct Answer: A

Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more than 10% of

the combined assets of all operating segments, the segment should be reported. The same rule does not

apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of

"what."

Choice "b" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

of the combined assets of all operating segments, the segment should be reported. The same rule does

not apply for the segment's liabilities.

Choice "c" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

of the combined assets of all operating segments, the segment should be reported. The same rule does

not apply for the segment's liabilities, so the correct answer cannot be "Both."

Choice "d" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10%

of the combined assets of all operating segments, the segment should be reported. The correct answer

cannot be "Neither."

Correct Answer: A

Choice "b" is correct. Only publicly-traded enterprises are required to report on business segments. Choices "a", "c", and "d" are incorrect, per the Explanation: above.

Correct Answer: D

Choice "d" is correct. Statements III and IV are correct. Statement I is incorrect because fair value is a

market-specific measure, not an entity-specific measure. Statement II is incorrect because fair value is an

exit price (the price to sell an asset or transfer a liability), not an entrance price.

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