Financial Accounting Theory - Test Bank 80102016 - 1

FINANCIAL ACCOUNTING THEORY - TEST BANK
80102016 - 1
1. Which of the following is true regarding the comparison of managerial and financial
accounting?
a. Managerial accounting is generally more precise.
b. Managerial accounting need not follow generally accepted accounting principles while
financial accounting must follow them.
c. Managerial accounting has a future focus.
d. The emphasis on managerial accounting is relevance and the emphasis on financial
accounting is timeliness.
2. The information provided by financial reporting pertains to

a. Individual business enterprises, industries and an economy as a whole, rather than to
members of society as consumers
b. Individual business enterprises, rather than to industries or an economy as a whole or to
members of society as consumers.
c. Individual business enterprises and an economy as a whole, rather than to industries or to
d. Individual business enterprises and industries, rather than to an economy as a whole or to
3. Which of the following relates to both relevance and faithful representation?

a. Timeliness
b. Predictive value
c. Completeness
d. Neutrality
4. Which of the following violates the concept of faithful representation?

a. Financial statements included property with a carrying amount increased to management
estimate of market value
b. Financial statements were issued nine months late
c. Report data on segments having the same expected risks and growth rates to analysts
estimating future profit
d. Management reports to shareholders regularly refer to new projects undertaken but the
financial statements never report project results
5. Comprehensive income excludes changes in equity resulting from which of the following?
a. Unrealized loss on securities classified as available for sale
b. Purchase of treasury shares
c. Loss from discontinued operations
d. Prior period error correction
6. Earnings
a. Include certain gains that are excluded from comprehensive income
b. Are the same as comprehensive income
c. Exclude certain gains and losses that are included in comprehensive income
d. Include certain losses that are excluded from comprehensive income
7. An entity records all sales using the installment method of accounting. Installment sales
contracts call for 36 equal monthly cash payments. According to the conceptual framework,
the amount of deferred gross profit relating to collections 12 months beyond the end of
reporting period should be reported in the
a. Current asset section as a contra account
b. Noncurrent liability section as deferred revenue
c. Noncurrent asset section as a contra account
d. Current liability section as a deferred revenue
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8. Which of the following is a deferred cost that should be amortized over the periods
benefited?
a. Advance from customer to be returned when sale is completed
b. Prepayment of three-year insurance premiums on machinery
c. Property tax for this year payable next year
d. Security deposit representing two months’ rent on leased office space
9. Magazine subscriptions collected in advance should be reported as

a. A contra account to magazine subscriptions receivable
b. Deferred revenue in the liability section
c. Magazine subscription revenue in the period collected.
d. Deferred revenue in the shareholders’ equity section
10. How would the proceeds received from the advance sale of nonrefundable tickets for a
theatrical performance be reported in the seller’s financial statements before the
performance?
a. Unearned revenue to the extent of related costs expended
b. Revenue to the extent of related costs expended
c. Unearned revenue for the entire proceeds
d. Revenue for the entire proceeds.
11. An entity received royalties from the assignment of patent to other entities. In the period in
which the royalties are earned, the royalties should be
a. Netted against patent amortization expense
b. Amortized to income over the remaining useful life of the patent
c. Subtracted from the capitalizable cost of the patent
d. Reported as revenue
12. Under what condition is it proper to recognize revenue prior to the sale of the merchandise?
a. When management has a long-established policy to do so.
b. When the revenue is to be reported as an installment sale
c. When the ultimate sale of the goods is at an assured sales price
d. When the concept of internal consistency of amounts of revenue must be complied with.
13. How should an entity treat organization costs in the financial statements?
a. Never amortized
b. Amortized over forty years
c. Expensed immediately
d. Amortized over sixty months
14. Which of the following is allowable for financial reporting under IFRS?
a. Completed contract method
b. Extraordinary items
c. LIFO
d. Lower of cost or net realizable value

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FINANCIAL ACCOUNTING THEORY - TEST BANK

2. The information provided by financial reporting pertains to

3. Which of the following relates to both relevance and faithful representation?

4. Which of the following violates the concept of faithful representation?

9. Magazine subscriptions collected in advance should be reported as

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