Theory Of Accounts
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- 1.A company has adopted Statement of Financial Accounting Standards No. 115, Accounting for CertainInvestments in Debt and Equity Securities (as amended by SFAS 130). It should report the marketableequity securities that it has classified as trading at:
- A.
. Lower of cost or market, with holding gains and losses included in earnings.
- B.
. Lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding losses.
- C.
. Fair value, with holding gains included in earnings only to the extent of previously recognized holding losses.
- D.
. Fair value, with holding gains and losses included in earnings.
- 2.Consolidated financial statements are typically prepared when one company has a controlling financialinterest in another unless:
- A.
The subsidiary is a finance company.
- B.
. The fiscal year-ends of the two companies are more than three months apart.
- C.
The subsidiary is in bankruptcy.
- D.
. The two companies are in unrelated industries, such as manufacturing and real estate.
- 3.An investor uses the cost method to account for an investment in common stock. Dividends received thisyear exceeded the investor's share of investee's undistributed earnings since the date of investment. Theamount of dividend revenue that should be reported in the investor's income statement for this year wouldbe:
- A.
. The portion of the dividends received this year that were in excess of the investor's share of investee's undistributed earnings since the date of investment.
- B.
The portion of the dividends received this year that were not in excess of the investor's share of investee's undistributed earnings since the date of investment.
- C.
. The total amount of dividends received this year.
- D.
Zero.
- 4.Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How shouldBand record a 2% stock dividend received from Guard?
- A.
. As dividend revenue at Guard's carrying value of the stock.
- B.
As dividend revenue at the market value of the stock.
- C.
. As a reduction in the total cost of Guard stock owned.
- D.
As a memorandum entry reducing the unit cost of all Guard stock owned.
- 5.
- A.
. Stockholders' equity is increased.
- B.
. Additional paid-in capital is decreased.
- C.
Retained earnings is increased.
- D.
. An extraordinary loss is recognized.
- 6.1. Which ONE of the following statements best describes the carrying amount of an asset?
- A.
. The cost (or an amount substituted for cost) of the asset less its residual value
- B.
. The amount at which the asset is recognized in the statement of financial position after deducting any accumulated depreciation and accumulated impairment losses
- C.
. The higher of the asset's net selling price and its value in use
- D.
. The fair value of the asset at the date of a revaluation less any subsequent accumulated
- 7.When using a perpetual inventory system,
- A.
no Purchases account is used.
- B.
a Cost of Goods Sold account is used.
- C.
two entries are required to record a sale.
- D.
. all of these.
- 8.The failure to record a purchase of merÂchandise on account even though the goods are properly included in the physical invenÂtory results in
- A.
an overstatement of assets and net income.
- B.
an understatement of assets and net income.
- C.
an understatement of cost of goods sold and liabilities and an overstatement of assets.
- D.
an understatement of liabilities and an overstatement of owners' equity.
- 9.A common set of accounting standards and procedures are called
- A.
financial accounting standards.
- B.
generally accepted accounting principles.
- C.
objectives of financial reporting.
- D.
. statements of financial accounting concepts
- 10.The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as
- A.
consistently primary.
- B.
consistently secondary.
- C.
sometimes primary and sometimes secondary.
- D.
. non-existent.
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