Chapter 8 Exam 3

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Chapter 8 Exam 3 - Quiz

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Questions and Answers
  • 1. 

    1.  Generally accepted accounting principles require a U.S. corporation to disclose the following disaggregated information for each operating segment, except:

    • A.

      A) Revenues from external customers.

    • B.

      B) Unusual items.

    • C.

      C) Cost of goods sold.

    • D.

      D) Depreciation expense.

    • E.

      E) Intersegment revenues.

    Correct Answer
    C. C) Cost of goods sold.
    Explanation
    Generally accepted accounting principles require a U.S. corporation to disclose revenues from external customers, unusual items, depreciation expense, and intersegment revenues for each operating segment. However, cost of goods sold is not required to be disclosed at the operating segment level.

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  • 2. 

    2.  Which tests must a company use to determine which operating segments require separate disclosure?

    • A.

      A) Revenue test and asset test.

    • B.

      B) Revenue test, profit or loss test, and asset test.

    • C.

      C) Revenue test and profit or loss test.

    • D.

      D) Profit or loss test and asset test.

    • E.

      E) Revenue test, asset test, and liability test.

    Correct Answer
    B. B) Revenue test, profit or loss test, and asset test.
    Explanation
    The correct answer is B) Revenue test, profit or loss test, and asset test. This is because in order to determine which operating segments require separate disclosure, a company needs to consider the revenue generated by each segment, the profit or loss generated by each segment, and the assets employed by each segment. These tests help the company identify and evaluate the significance of each operating segment, and determine whether separate disclosure is necessary.

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  • 3. 

    3.  Coulanger Corp. identified four operating segments: A, B, C, and D.  Segment A met the revenue test for identifying reportable segments while Segment C met the revenue test, profit or loss test, and asset test.  Segment B and Segment D did not meet any of these tests.  Which of these segments must be disclosed separately? Segment A Segment B Segment C Segment D A) Yes Yes No No B) Yes Yes Yes Yes C) Yes No Yes No D) No Yes No Yes E) No No Yes Yes

    • A.

      A

    • B.

      B

    • C.

      C

    • D.

      D

    • E.

      E

    Correct Answer
    C. C
    Explanation
    Segment C must be disclosed separately because it met all three tests for identifying reportable segments: the revenue test, the profit or loss test, and the asset test.

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  • 4. 

    4- Kaycee Corporation's revenues for the year ended December 31, 2017, were as follows:      Consolidated Revenue per the Income Statement: $1,200,000      Division 1 Intersegment Sales: $180,000      Division 2 Intersegment Sales: $60,000      For purposes of the Revenue Test, what amount will be used as the benchmark for determining whether a segment is reportable?

    • A.

      A)  $  24,000.

    • B.

      B)  $120,000.

    • C.

      C)  $138,000.

    • D.

      D)  $144,000.

    • E.

      E)  $            0.

    Correct Answer
    D. D)  $144,000.
    Explanation
    Feedback: Consolidated Revenue $1,200,000 + Upstream I/E Sales $180,000 + Downstream I/E Sales $60,000 =
    $1,440,000 × 10% = $144,000

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  • 5. 

    5.  When defining a reportable segment, which of the following conditions would be sufficient to allow a company to combine two operating segments for purposes of testing?

    • A.

      A) The products sold by each segment are produced in the same plant.

    • B.

      B) Both segments have several customers in common.

    • C.

      C) The segments may sell different products, but they have a similar economic environment and similar business activities.

    • D.

      D) Both segments are required to adhere to U.S. Department of Labor regulations regarding immigration laws.

    • E.

      E) Both segments are owned by the same parent company.

    Correct Answer
    C. C) The segments may sell different products, but they have a similar economic environment and similar business activities.
    Explanation
    The correct answer is C) The segments may sell different products, but they have a similar economic environment and similar business activities. This condition would be sufficient to allow a company to combine two operating segments for purposes of testing because it indicates that the segments operate in a similar manner and are subject to similar economic factors. This would make it easier for the company to analyze and assess the performance and financial results of the combined segments.

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  • 6. 

    6- The Fratilo Co. had three operating segments with the following information:       Pens Pencils Erasers Sales to outsiders $  11,200 $  5,600 $  8,400 Intersegment revenues         840     1,400     1,960         In addition, revenues generated at corporate headquarters are $1,400.         Combined segment revenues are calculated to be

    • A.

      A)  $29,400.

    • B.

      B)  $25,200.

    • C.

      C)  $26,600.

    • D.

      D)  $28,000.

    • E.

      E)  $27,300.

    Correct Answer
    A. A)  $29,400.
    Explanation
    Feedback: (Total External Rev $11,200 + $5,600 + $8,400) + (Total I/E Sales $840 + $1,400 + $1,960) = $29,400
    Combined Segment Revenues

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  • 7. 

    7.  The Rivers Co. had four separate operating segments:     What amount of revenues must be generated from one customer before that party must be identified as a major customer?

    • A.

      A)  $57,680.

    • B.

      B)  $64,960.

    • C.

      C)  $52,640.

    • D.

      D)  $78,960.

    • E.

      E)  $63,560.

    Correct Answer
    C. C)  $52,640.
    Explanation
    Feedback: Total External Sales Revenue $172,200 + $113,400 + $133,000 + $107,800 = $526,400 × 10% = $52,640

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  • 8. 

    8-  Which one of the following items must be disclosed for all reportable operating segments in the notes to financial statements? (I.) Revenue from external customers. (II.) Total Segment Assets (III.) Revenues from foreign customers, identified by country.

    • A.

      A) I, II, and III

    • B.

      B) I and III only

    • C.

      C) II and III only

    • D.

      D) I and II only

    • E.

      E) There is no requirement of information to disclose for operating segments.

    Correct Answer
    D. D) I and II only
    Explanation
    The correct answer is D) I and II only. This means that for all reportable operating segments, the financial statements must disclose the revenue from external customers and the total segment assets. Revenues from foreign customers identified by country are not required to be disclosed.

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  • 9. 

    9.  Kurves Corp. had six different operating segments reporting the following operating profit and loss figures: Which one of the following statements is true?

    • A.

      A) Segment A is a reportable segment based on this test.

    • B.

      B) Segment B is not a reportable segment based on this test.

    • C.

      C) Segment E is a reportable segment based on this test.

    • D.

      D) Segment C is not a reportable segment based on this test.

    • E.

      E) Segment D is a reportable segment based on this test.

    Correct Answer
    E. E) Segment D is a reportable segment based on this test.
    Explanation
    Feedback: Total Profitable Segments Amount = $1,428,000 × 10% = $142,800 Segment Profit or Loss Threshold

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  • 10. 

    10- Retro Corp. was engaged solely in manufacturing operations.  The following data pertain to the operating segments for 2017:       What is the minimum amount of revenue that each of these segments must earn to be considered separately reportable?

    • A.

      A)  $4,343,684.

    • B.

      B)  $4,826,316.

    • C.

      C)  $5,067,632.

    • D.

      D)  $4,585,000.         

    • E.

      E)  $4,705,658.

    Correct Answer
    D. D)  $4,585,000.         
    Explanation
               $45,850,000 × 10% = $4,585,000

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  • 11. 

    11-   Retro Corp. was engaged solely in manufacturing operations.  The following data pertain to the operating segments for 2017:           What is the minimum amount of profit or loss that each of these segments must earn to be considered separately reportable?

    • A.

      A)  $769,263.

    • B.

      B)  $812,000.                          

    • C.

      C)  $854,737.

    • D.

      D)  $897,000.

    • E.

      E)  $833,368.

    Correct Answer
    B. B)  $812,000.                          
    Explanation
          $8,120,000 × 10% = $812,000

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  • 12. 

    12.  A company that generates reports by both geographic region and product line must consider additional criteria in identifying operating segments when there are multiple sets of reports.  Which of the following statement(s) is correct? (I.) An operating segment has a segment manager who is directly accountable to the chief operating decision maker       for its financial performance. (II.) If more than one set of organizational units exists, each organizational unit is considered an operating segment  even if there is only one set for which segment managers are held responsible. (III.) If segment managers exist for two or more overlapping sets of organizational units, the nature of the business activities must be considered.

    • A.

      A) I, II, and III.

    • B.

      B) I and III only.

    • C.

      C) I and II only.

    • D.

      D) II and III only.

    • E.

      E) None of the above.

    Correct Answer
    B. B) I and III only.
    Explanation
    The correct answer is B) I and III only. This is because the first statement states that an operating segment must have a segment manager who is directly accountable for its financial performance, which is a valid criterion for identifying operating segments. The third statement states that if there are segment managers for multiple overlapping sets of organizational units, the nature of the business activities must be considered, which is another valid criterion for identifying operating segments. The second statement, however, is incorrect because just having multiple sets of organizational units does not automatically make each unit an operating segment unless there are segment managers held responsible for their financial performance.

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  • 13. 

    13.  Which of the following is not one of the criteria management should consider in determining whether business activities and environments of an operating segment are similar?

    • A.

      A) The geographical location of the operations.

    • B.

      B) The nature of the production process.

    • C.

      C) The distribution methods.

    • D.

      D) The nature of the regulatory environment, if applicable.

    • E.

      E) The type or class of customer.

    Correct Answer
    A. A) The geographical location of the operations.
    Explanation
    Management should consider various criteria in determining whether business activities and environments of an operating segment are similar. These criteria include the nature of the production process, the distribution methods, the nature of the regulatory environment (if applicable), and the type or class of customer. However, the geographical location of the operations is not a relevant factor in determining similarity between operating segments.

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  • 14. 

    14.  The Hardware operating segment of Bloom Corporation has the following revenues for the year ended December 31, 2018:       For purposes of the revenue test, what amount will be used as total revenues of the Hardware operating segment?

    • A.

      A)  $417,000.

    • B.

      B)  $440,000.

    • C.

      C)  $424,000.

    • D.

      D)  $460,000.

    • E.

      E)  $480,000.                          

    Correct Answer
    E. E)  $480,000.                          
    Explanation
      417,000 + $23,000 + $7,000 + $33,000 = $480,000

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  • 15. 

    15.  Which one of the following items is not required to be disclosed for each operating segment?

    • A.

      A) Factors used to identify operating segments.

    • B.

      B) Products and services from which each segment derives its revenues.

    • C.

      C) Revenues from external customers.

    • D.

      D) Factors used to allocate company-wide expenses.

    • E.

      E) Revenues from transactions with other operating segments.

    Correct Answer
    D. D) Factors used to allocate company-wide expenses.
    Explanation
    The factors used to allocate company-wide expenses are not required to be disclosed for each operating segment. The other options (A, B, C, and E) are all required to be disclosed for each operating segment according to accounting standards.

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  • 16. 

    16.  The following items are required to be disclosed for each operating segment except:

    • A.

      A) Factors used to allocate company-wide pension expense.

    • B.

      B) Revenues from transactions with other operating segments.

    • C.

      C) Interest revenue and interest expense. C) Interest revenue and interest expense.

    • D.

      D) Depreciation, depletion, and amortization expense.

    • E.

      E) Revenues from external customers.

    Correct Answer
    A. A) Factors used to allocate company-wide pension expense.
    Explanation
    The correct answer is A) Factors used to allocate company-wide pension expense. This is because the disclosure of factors used to allocate company-wide pension expense is not required for each operating segment. The other options, B) Revenues from transactions with other operating segments, C) Interest revenue and interest expense, D) Depreciation, depletion, and amortization expense, and E) Revenues from external customers, are all required to be disclosed for each operating segment.

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  • 17. 

    17.  Which of the following statements is true according to U.S. GAAP regarding operating segment disclosure?

    • A.

      A) The measurement of segment profit and loss disclosure need not be similar to the measurement provided to the chief operating decision maker.

    • B.

      B) Segment information does not have to be in accordance with generally accepted accounting principles.

    • C.

      C) Disclosure of a major customer’s identity is required.

    • D.

      D) Geographic area information must be disclosed in interim financial statements.

    • E.

      E) Immaterial items must be disclosed.

    Correct Answer
    B. B) Segment information does not have to be in accordance with generally accepted accounting principles.
    Explanation
    According to U.S. GAAP, segment information does not have to be in accordance with generally accepted accounting principles. This means that companies are not required to prepare segment information using the same accounting principles that they use for their consolidated financial statements. Instead, companies have the flexibility to use different accounting principles for segment reporting, as long as the information is reliable and relevant to users of the financial statements.

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  • 18. 

    18. Which of the following is a criterion for determining whether an operating segment is separately reportable?

    • A.

      A) An operating segment’s assets are 10 percent or more of combined segment assets.

    • B.

      B) An operating segment’s assets are 10 percent or more of consolidated assets.

    • C.

      C) An operating segment’s assets are 10 percent or more of combined segment liabilities.

    • D.

      D) An operating segment’s assets are 10 percent or more of consolidated liabilities.

    • E.

      E) An operating segment’s assets are 10 percent or more of corporate assets.

    Correct Answer
    A. A) An operating segment’s assets are 10 percent or more of combined segment assets.
    Explanation
    The criterion for determining whether an operating segment is separately reportable is if its assets are 10 percent or more of the combined segment assets. This means that if the assets of a specific operating segment make up a significant portion of the total assets of all operating segments combined, it should be separately reported. This criterion helps identify operating segments that have a significant impact on the overall financial performance and position of the entity.

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  • 19. 

    19. Which of the following operating segment disclosures is not required by U.S. GAAP?

    • A.

      A) Interest expense.

    • B.

      B) Intersegment sales.

    • C.

      C) Unusual items.

    • D.

      D) Depletion.

    • E.

      E) Liabilities.

    Correct Answer
    E. E) Liabilities.
    Explanation
    The correct answer is E) Liabilities. U.S. GAAP requires the disclosure of interest expense, intersegment sales, unusual items, and depletion as operating segment disclosures. However, the disclosure of liabilities is not specifically required as an operating segment disclosure under U.S. GAAP.

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  • 20. 

    20. Vapor Corporation has a fan products operating segment.  With respect to the following, which is Vapor not required to report for this segment?

    • A.

      A) Depreciation expense.

    • B.

      B) Amortization expense.

    • C.

      C) Research and development expense.

    • D.

      D) Interest expense.

    • E.

      E) Interest income.

    Correct Answer
    C. C) Research and development expense.
    Explanation
    Vapor Corporation is not required to report research and development expenses for its fan products operating segment. This is because research and development expenses are typically reported separately from operating segments as they are considered to be part of the company's overall research and development activities rather than specific to a particular segment. Therefore, Vapor Corporation would report its research and development expenses as a separate line item in its financial statements, rather than attributing them to the fan products operating segment.

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  • 21. 

    21. Which of the following must be disclosed by a geographic segment according U.S. GAAP?

    • A.

      A) Operating profit or loss.

    • B.

      B) Gross profit.

    • C.

      C) Total assets.

    • D.

      D) Revenues from external customers.

    • E.

      E) Revenues from internal customers.

    Correct Answer
    D. D) Revenues from external customers.
    Explanation
    A geographic segment must disclose revenues from external customers according to U.S. GAAP. This is because the disclosure of revenues from external customers provides information about the segment's performance and its ability to generate revenue from customers outside of the company. This information is important for investors and other stakeholders in evaluating the segment's financial performance and potential growth opportunities.

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  • 22. 

    22. Which of the following is not true for an operating segment according to U.S. GAAP?

    • A.

      A) Discrete financial information generated by the internal accounting system is available.

    • B.

      B) The segment recognizes revenues and incurs expenses.

    • C.

      C) The segment is regularly reviewed by a chief decision maker to assess performance decisions.

    • D.

      D) The segment is regularly reviewed by a chief decision maker to make resource allocations.

    • E.

      E) An organizational unit cannot be an operating segment if all of its operating transactions are only with other segments of the organization.

    Correct Answer
    E. E) An organizational unit cannot be an operating segment if all of its operating transactions are only with other segments of the organization.
    Explanation
    According to U.S. GAAP, an organizational unit can still be considered an operating segment even if all of its operating transactions are only with other segments of the organization. This means that option E, which states that an organizational unit cannot be an operating segment under these circumstances, is not true.

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  • 23. 

    23. Which of the following statements is true?

    • A.

      A) In determining reportable segments, two tests are applied and both must be met.

    • B.

      B) In determining reportable segments, three tests are applied and all three must be met.

    • C.

      C) In determining reportable segments, two tests are applied and only one must be met.

    • D.

      D) In determining reportable segments, three tests are applied and only one must be met.

    • E.

      E) In determining reportable segments, at least 80% of the revenues from external customers must be reported.

    Correct Answer
    D. D) In determining reportable segments, three tests are applied and only one must be met.
    Explanation
    The correct answer is D) In determining reportable segments, three tests are applied and only one must be met. This means that in order for a segment to be considered reportable, it must meet at least one of the three tests. This indicates that there are multiple criteria that need to be evaluated in determining reportable segments, and meeting just one of these criteria is sufficient for a segment to be classified as reportable.

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  • 24. 

    24. According to U.S. GAAP, which of the following would be an acceptable grouping by a U.S. company for presentation of information by geographic area?

    • A.

      A) France, Germany, All Other Countries.

    • B.

      B) United States, Europe, Canada.

    • C.

      C) United States, Africa, Europe, Asia.

    • D.

      D) United States, Canada, Mexico, Germany.

    • E.

      E) North America, Spain, All Other Countries.

    Correct Answer
    D. D) United States, Canada, Mexico, Germany.
    Explanation
    According to U.S. GAAP, a U.S. company would group the information by geographic area based on specific countries. Option D includes the specific countries of United States, Canada, Mexico, and Germany, which aligns with the acceptable grouping criteria. Options A, B, C, and E either include regions instead of specific countries or include countries that are not relevant to the geographic area grouping.

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  • 25. 

    25. Which of the following would be an acceptable grouping for a U.S. company to provide information by geographic area?

    • A.

      A) United States, All Other Countries.

    • B.

      B) United States, Europe, Taiwan.

    • C.

      C) United States, Asia, Germany.

    • D.

      D) United States, Central America, Mexico, Germany.

    • E.

      E) South America, Spain, All Other Countries.

    Correct Answer
    A. A) United States, All Other Countries.
    Explanation
    An acceptable grouping for a U.S. company to provide information by geographic area would be to separate the United States from all other countries. This grouping allows for a clear distinction between the domestic market and international markets. It also provides a simple and straightforward categorization that is easy to understand and analyze.

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  • 26. 

    26. What information does U.S. GAAP require to be disclosed for a major customer?

    • A.

      A) The identity of the customer.

    • B.

      B) The operating segment reporting sales to the customer.

    • C.

      C) The geographic area of the customer.

    • D.

      D) The specific products or services purchased by the customer.

    • E.

      E) The length of time the customer has been a customer of the company.

    Correct Answer
    B. B) The operating segment reporting sales to the customer.
    Explanation
    U.S. GAAP requires the disclosure of the operating segment reporting sales to a major customer. This means that companies must provide information about the specific segment of their business that is responsible for generating sales to the major customer. This information helps users of the financial statements understand the significance of the customer to the company's overall operations and financial performance. The identity of the customer, the geographic area of the customer, the specific products or services purchased, and the length of time the customer has been a customer may also be important information, but they are not specifically required to be disclosed by U.S. GAAP.

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  • 27. 

    27.  How should revenues be recognized in interim periods?

    • A.

      A) In the same way as they are recognized on an annual basis.

    • B.

      B) On the cash basis.

    • C.

      C) On an annualized basis.

    • D.

      D) On a seasonal basis.

    • E.

      E) There are no revenues recognized in interim periods.

    Correct Answer
    A. A) In the same way as they are recognized on an annual basis.
    Explanation
    Revenues should be recognized in interim periods in the same way as they are recognized on an annual basis. This means that revenues should be recognized when they are earned and realizable, regardless of when the cash is received. This is in line with the accrual accounting principle, which recognizes revenues when they are earned, rather than when the cash is received. By recognizing revenues in the same way on an annual basis and in interim periods, financial statements provide consistent and comparable information to users.

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  • 28. 

    28.  Which of the following is not a required disclosure in an interim financial report?

    • A.

      A) Sales or gross revenues.

    • B.

      B) Provision for income taxes.

    • C.

      C) Cash flow information.

    • D.

      D) Changes in accounting principles.

    • E.

      E) Seasonal revenues and expenses.

    Correct Answer
    C. C) Cash flow information.
    Explanation
    In an interim financial report, the disclosure of cash flow information is not required. Interim financial reports are prepared for a shorter period of time, such as a quarter or a half-year, and are intended to provide timely information to users. While sales or gross revenues, provision for income taxes, changes in accounting principles, and seasonal revenues and expenses are all important disclosures in an interim financial report, cash flow information is not specifically required. Cash flow information is typically provided in annual financial statements.

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  • 29. 

    29.  Which of the following items of information are required to be included in interim reports for each operating segment? (I.) Revenues from external customers (II.) Segment profit or loss (III.) Reconciliation of segment profit or loss to the enterprise's total income before taxes (IV.) Intersegment revenues

    • A.

      A) I and III only.

    • B.

      B) I and II only.

    • C.

      C) I, II and III.

    • D.

      D) II and III only.

    • E.

      E) I, II, III, and IV.

    Correct Answer
    E. E) I, II, III, and IV.
    Explanation
    Interim reports for each operating segment are required to include information about revenues from external customers (I), segment profit or loss (II), reconciliation of segment profit or loss to the enterprise's total income before taxes (III), and intersegment revenues (IV). This means that all of the given options (I, II, III, and IV) are required to be included in the interim reports for each operating segment.

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  • 30. 

    30. Which of the following is reported for interim financial reports using the discrete approach?

    • A.

      A) Income tax expense.

    • B.

      B) Seasonal items.

    • C.

      C) Change in accounting principle.

    • D.

      D) Property tax expense.

    • E.

      E) Discontinued operations.

    Correct Answer
    E. E) Discontinued operations.
    Explanation
    The correct answer is E) Discontinued operations. The discrete approach is used to report significant events or transactions that are unusual or infrequent in nature and are not expected to recur in the future. Discontinued operations refer to the disposal or planned disposal of a component of an entity, such as a segment or a subsidiary. It is reported separately in the financial statements to provide users with information about the financial effects of the discontinued operations on the entity's overall performance.

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  • 31. 

    31. Which of the following is reported for interim financial reports using the integral approach?

    • A.

      A) Bonus expense.

    • B.

      B) Gross profit.

    • C.

      C) Cash basis accounting.

    • D.

      D) Current market value.

    • E.

      E) Segment level management compensation.

    Correct Answer
    A. A) Bonus expense.
    Explanation
    In interim financial reports using the integral approach, the bonus expense is reported. The integral approach combines both the parent and subsidiary financial statements into one comprehensive report. This approach includes all aspects of the company's financial performance, including expenses such as bonuses. Therefore, bonus expense would be included in the interim financial reports using the integral approach.

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  • 32. 

    32. According to authoritative accounting literature, which of the following are required to be disclosed in interim reports?

    • A.

      A) Cash flows from investing activities.

    • B.

      B) Change in cash.

    • C.

      C) Total current liabilities.

    • D.

      D) Total assets.

    • E.

      E) Gross revenues.

    Correct Answer
    E. E) Gross revenues.
    Explanation
    According to authoritative accounting literature, the disclosure of gross revenues is required in interim reports. This information provides stakeholders with a clear understanding of the company's revenue generation during the interim period. It helps in assessing the company's financial performance and comparing it with previous periods or industry benchmarks. Disclosing gross revenues also promotes transparency and accountability in financial reporting.

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  • 33. 

    33. Which of the following costs require similar treatment to Property Tax Expense in an interim financial report? 1) Annual major repairs. 2) Advertising expense. 3) Bonus expense, if estimable. 4) Quantity discounts based on annual sales.

    • A.

      A) 1 and 2

    • B.

      B) 1, 2, and 3

    • C.

      C) 1, 2, and 4

    • D.

      D) 2, 3, and 4

    • E.

      E) 1, 2, 3, and 4

    Correct Answer
    E. E) 1, 2, 3, and 4
    Explanation
    The correct answer is E) 1, 2, 3, and 4. This means that all of the costs listed in options 1, 2, 3, and 4 require similar treatment to Property Tax Expense in an interim financial report. This suggests that all of these costs should be reported in a similar manner in the interim financial report, possibly as expenses or deductions from revenue.

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