Financial Accounting Test 2

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| By YassirDerbas
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YassirDerbas
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Quizzes Created: 2 | Total Attempts: 3,192
Questions: 15 | Attempts: 235

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Financial Accounting Test 2 - Quiz

This Quiz is to test your accounting information, its an advanced questions.
After you finish, you will review your answers before submit and then you will get your result with analysis & correct answer.
Financial Accounting Test 1:
https://www.proprofs.com/quiz-school/story.php?title=financial-accounti ng-test-1
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Yassir Derbas
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Questions and Answers
  • 1. 

    In 2007, XYZ Company had a net loss of $160,000 and reported the following:Dividends paid: $40,000Depreciation expense: $30,000Increase in accounts payable: $15,000Issuance of stock: $100,000Retirement of debt: $50,000Given this data, the amount of cash flow from operations was:

  • 2. 

    A manufacturing company recognized a valuation provision to inventories due to their obsolescence. Can the manufacturing offsetting inventory valuation provision against inventory balance in the statement of financial position?

    • A.

      No, because its not permit to offsetting of assets and liabilities unless is it allowed by another standard.

    • B.

      Yes, because this situation is not offsetting.

    • C.

      Yes, because in this case, offsetting leads to better understanding of the financial statements by their users.

    • D.

      No, because the assets and liabilities shall not be offset.

    Correct Answer
    B. Yes, because this situation is not offsetting.
    Explanation
    The correct answer is "Yes, because this situation is not offsetting." This means that the manufacturing company can offset the inventory valuation provision against the inventory balance in the statement of financial position. Offset refers to the practice of combining or netting the values of assets and liabilities. In this case, the offsetting is allowed because it does not involve the netting of assets and liabilities, but rather the recognition of a valuation provision for inventories. This helps in providing a better understanding of the financial statements by the users.

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  • 3. 

    A company sold machine for USD 4,000. The machine’s carrying amount was USD 1,500 and before sale, the company incurred cost of USD 200 to clean the machine. How will this transaction be recognized in the company’s financial statements?

    • A.

      Gain on machine’s disposal of USD 2,300.

    • B.

      Gain on machine’s disposal of 2,500 and other operating expenses of USD 200.

    • C.

      Operating revenue of USD 4,000 and other operating expenses of USD 200. Machine’s carrying amount is included in the annual depreciation charge.

    • D.

      Net operating revenue of USD 3,800. Machine’s carrying amount is included in the annual depreciation charge.

    Correct Answer
    A. Gain on machine’s disposal of USD 2,300.
    Explanation
    Everything goes to a single number – gain on disposal: sale proceeds of 4,000 less carrying amount of 1,500 less cost of disposal of 200 = 2,300

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  • 4. 

    What are the examples of derivatives?

    • A.

      Futures, forward contracts, swaps, written warrants.

    • B.

      Futures, forward contracts, swaps, options.

    • C.

      Futures, forward contracts, options, treasury shares, swaps.

    • D.

      Futures, preference shares, options, swaps.

    Correct Answer
    B. Futures, forward contracts, swaps, options.
    Explanation
    Treasury shares are own shares that should be recognized as a deduction in equity. Written warrants are basically equity instruments.

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  • 5. 

    If the Co. received check from a customer for USD 1,000 on 31 Dec, 20x1 but not deposited until next day, the amount will be considered on 31 Dec, 20x1 as an accounts receivable.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The amount will be considered as Cash.

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  • 6. 

    In the statement of Cash Flow, once the AR increasing it should be ________ (added, deducted) from the net profit, and once the AP decreasing it should be ________ (added, deducted) from the net profit, if the inventory increased it means ________ (gave, took) money from the Co. and if the current liabilities increased it means ________ (gave, took) money from the Co.

    Correct Answer
    deducted, deduct
    deducted, deduct
    took
    gave
    Explanation
    For the Current Liabilities, assume in 2009 the AP was 10M and in 2010 become 15M it means: the Co. has 5M extra.

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  • 7. 

    How shall an impairment loss be recognized in the financial statements?

    • A.

      Immediately in profit or loss.

    • B.

      Immediately in profit or loss unless the asset is carried at revalued amount.

    • C.

      In profit or loss on the straight-line basis over the asset’s remaining useful life.

    • D.

      Immediately in other comprehensive income.

    Correct Answer
    B. Immediately in profit or loss unless the asset is carried at revalued amount.
    Explanation
    If the asset is carried at revalued amount, then the revaluation surplus will be reduced first and only remaining impairment loss will be recognized in profit or loss.

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  • 8. 

    Which of the following items would you classify as cash or cash equivalents?

    • A.

      Petty cash, bank account balance, short-term investments readily convertible to cash which are subject to insignificant risk of changes in value.

    • B.

      Petty cash, bank account balance, term deposit due in 5 months.

    • C.

      Petty cash, bank account balance, term deposit, debentures convertible within 6 months.

    • D.

      Petty cash, bank account balance, term deposit due in 5 months, short-term investments readily convertible to cash which are subject to insignificant risk of changes in value.

    Correct Answer
    A. Petty cash, bank account balance, short-term investments readily convertible to cash which are subject to insignificant risk of changes in value.
    Explanation
    Cash or cash equivalents are highly liquid assets that can be readily converted into cash with minimal risk of value changes. In this question, petty cash and bank account balance are considered as cash because they are readily available for immediate use. Additionally, short-term investments that can be easily converted into cash and have insignificant risk of changes in value are also classified as cash equivalents. The other options include term deposits and debentures, which are not as easily convertible to cash and may have longer maturity periods or higher risks.

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  • 9. 

    Which of the following assets cannot be qualifying assets?

    • A.

      Major research and feasibility study performed in order to assess planned development of intangible asset – software.

    • B.

      Inventories that necessarily take a substantial period of time to get ready for its intended use or sale, for example, whiskey.

    • C.

      Development of software intended for future resale.

    • D.

      Self-constructed building.

    Correct Answer
    A. Major research and feasibility study performed in order to assess planned development of intangible asset – software.
    Explanation
    The major research and feasibility study performed in order to assess planned development of intangible asset - software cannot be considered a qualifying asset because it is not a tangible asset. Qualifying assets are assets that are expected to provide economic benefits to the entity for a period of time, such as inventories, software intended for resale, and self-constructed buildings. The major research and feasibility study is a preliminary step in the development of the intangible asset, but it is not the actual asset itself. Therefore, it cannot be considered a qualifying asset.

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  • 10. 

    Losses from inventory due to theft, evaporation, and waste are called:

    • A.

      Average cost.

    • B.

      Realization.

    • C.

      Shrinkage.

    • D.

      Costing.

    Correct Answer
    A. Average cost.
  • 11. 

    Which of the following is NOT an example of a period expense?

    • A.

      Administrative costs.

    • B.

      Inventory Costs.

    • C.

      Accounting Costs.

    • D.

      Selling Costs.

    Correct Answer
    B. Inventory Costs.
    Explanation
    Period costs are not a necessary part of the manufacturing process, The period costs are usually associated with the selling function of the business or its general administration.

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  • 12. 

    The unusually revenue is the revenue that has been generated from activity not related to the nature activity of the company like: selling assets.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The unusually revenue is the revenue that return from past period like recover debts.

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  • 13. 

    ABC Company failed to record the purchase of inventory on account at the end of 2008. In which of the following ways is the Balance Sheet misstated?

    • A.

      Assets and liabilities are both understated.

    • B.

      Assets are understated and liabilities are overstated.

    • C.

      Assets and shareholders' equity are both understated.

    • D.

      Assets, liabilities, and shareholders' equity are all correctly stated.

    Correct Answer
    A. Assets and liabilities are both understated.
    Explanation
    When ABC Company failed to record the purchase of inventory on account at the end of 2008, it means that they did not include the value of the inventory as an asset on their balance sheet. This leads to an understatement of assets because the inventory should have been included. Additionally, since the purchase was made on account, it means that the company has a liability to pay for the inventory in the future. However, by not recording this liability, the balance sheet also understates liabilities. Therefore, the correct answer is that assets and liabilities are both understated.

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  • 14. 

    The precise definition to the bank reconciliation is to find the discrepancies between bank's balance and Company's balance due to timing. 

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Due to timing and wrong recording.

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  • 15. 

    Which of the following assets is a monetary asset?

    • A.

      Patent.

    • B.

      Land.

    • C.

      Inventory.

    • D.

      Account Receivable.

    Correct Answer
    D. Account Receivable.
    Explanation
    Account Receivable is considered a monetary asset because it represents the amount of money owed to a company by its customers for goods or services provided on credit. It is a claim that the company has on its customers and can be converted into cash relatively quickly. In contrast, assets like patents, land, and inventory are not considered monetary assets as they do not represent a direct claim to cash.

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