Deck 24: Presentation and Disclosure in Financial Reporting

Question 1

In order to make adequate disclosure of related party transactions, companies should report the legal form, rather than the economic substance, of these transactions.

Answer 1

False

Question 2

IFRS requires that general-purpose financial statements include selected information on a single basis of segmentation.

Answer 2

True

Question 3

A qualified opinion is issued when the exception to the standard opinion is not of sufficient magnitude to invalidate the statements as a whole.

Answer 3

True

Question 4

While there are no formal IFRS requirement for management commentary, the IASB has initiated a project that offers a non-binding framework and limited guidance on its application, which could be adapted to the legal and economic circumstances of individual jurisdictions.

Question 5

IASB rules directly affect financial statements, notes to the financial statements, and management commentary.

Question 6

Management commentary helps in the interpretation of the financial position, financial performance, and cash flows of a company.

Question 7

IASB rules directly affect financial statements, notes to the financial statements, and supplementary information.

Question 8

The IASB and FASB require companies to provide expanded about their contractual obligations.

Question 9

Other types of information found in the annual report, such as management commentary and the letter to shareholders, are subject to IASB rules.

Question 10

The IASB has issued many pronouncements in the last 10 years that have substantial disclosure provisions.

Question 11

Companies should report accounting transactions as they occur, and expense recognition should not change with the period of time covered under the integral approach.

Question 12

Companies should generally use the same accounting policies for interim reports and for annual reports.

Question 13

The IASB has developed IFRS for small-and medium-sized entities that publish general-purpose financial statement for external users but do not issue shares in a public market.

Question 14

If the loss on an account receivable results from a customer's bankruptcy after the statement of financial statement date, the company only discloses this information in the notes to the financial statements.

Question 15

If 10 percent or more of company revenue is derived from a single customer, the company must disclose the total amount of revenue from each such customer by segment.

Question 16

The IASB requires allocations of joint, common, or company-wide costs solely for external reporting purposes.

Question 17

With the advent of simplified IFRS for SMEs, the FASB and the AICPA have adopted big GAAP\little GAAP for differential reporting

Question 18

Accounting policies are the specific accounting principles and methods a company uses and considers most appropriate to present fairly its financial statements.

Question 19

The operating approach reflects how management segments the company for making operating decisions.

Question 20

Income tax expense is recognized in each interim period based on the best estimate of the weighted-average annual income tax rate expected for the full financial year.

Question 21

The IASB and the FASB are proposing better ways to present information for businesses in the statement of financial position, including the separation of assets and liabilities into operating and investing categories.

Question 22

All of the following information about each operating segment must be reported except

A)unusual items.
B)interest revenue.
C)cost of goods sold.
D)depreciation and amortization expense.

Question 23

Which of the following are defined as intentional distortions of financial statement.

^{S<\sup>35.The disclosure of accounting policies, is important to financial statement readers in determining}

A)net income for the year.
B)whether accounting policies are consistently applied from year to year.
C)the value of obsolete items included in ending inventory.
D)whether the working capital position is adequate for future operations.

Question 24

Fraudulent financial reporting is intentional or reckless conduct, whether act or omission, that results in materially misleading financial statements.

Question 25

An operating segment is a reportable segment if

A)its operating profit is 10% or more of the combined operating profit of profitable segments.
B)its operating loss is 10% or more of the combined operating losses of segments that incurred an operating loss.
C)the absolute amount of its operating profit or loss is 10% or more of the company's combined operating profit or loss.
D)none of these.

Question 26

Which of the following should be disclosed in a Summary of Significant Accounting Policies?

A)Types of executory contracts
B)Amount for cumulative effect of change in accounting policy
C)Claims of equity holders
D)Depreciation method followed

Question 27

All of the following are ways in which in simplified IFRS for is less complex than full IFRS except which statement?

A)Topics that are not relevant for SMEs are omitted.
B)Simplified IFRS for SMEs allows fewer accounting policy choices.
C)Revisions to the IFRS for SMEs will be limited to once every five years.
D)Significantly fewer disclosures are required.

Question 28

Revenue of a segment includes

A)only sales to unaffiliated customers.
B)sales to unaffiliated customers and intersegment sales.
C)sales to unaffiliated customers and interest revenue.
D)sales to unaffiliated customers and other revenue and gains.

Question 29

Which of the following subsequent events (events after the reporting date) would require adjustment of the accounts before issuance of the financial statements?

A)Loss of plant as a result of fire
B)Changes in the quoted market prices of securities held as an investment
C)Loss on an uncollectible account receivable resulting from a customer's major flood loss
D)Loss on a lawsuit, the outcome of which was deemed uncertain at year end.

Question 30

All of the following are reasons that the amount of disclosure provisions issued by the IASB has increased in the last 10 years except?

A)There has been greater complexity of the business environment.
B)There has greater necessity for timely information.
C)Accounting has become more important as a control and monitoring device.
D)More disclosure mean lower costs for companies.

Question 31

A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10 percent of the

A)total combined revenues of all segments reporting profits.
B)total revenues of all the enterprise's industry segments.
C)total export and foreign sales.
D)combined net income of all segments reporting profits.

Question 32

An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the

A)composition of inventory into raw materials, work-in-process, and finished goods.
B)major backlogs of inventory orders.
C)method used for pricing inventory.
D)All of the above should be disclosed.

Question 33

A financial projection is a set of prospective financial statements that present a company's expected financial position, results of operations, and cash flows.

Question 34

All of the following statement are true regarding the IASB and disclosure of dividend policies except;

A)According to IASB, companies must meet a minimum payout ratio before they are required to disclose their dividend policies in their annual reports.
B)IASB encourages companies to report their dividend policies in their annual reports if they do not except to pay dividend in the foreseeable future.
C)IASB encourages companies to report their dividend policies in their annual reports if they have earning but fail to pay dividends.
D)IASB encourages companies that show a consistent pattern of paying dividends to indicate whether they intend to continue this practice in the future.

Question 35

The full disclosure principle, as adopted by the accounting profession, is best described by which of the following?

A)All information related to an entity's business and operating objectives is required to be disclosed in the financial statements.
B)Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements.
C)Enough information should be disclosed in the financial statements so a person wishing to invest in the shares of the company can make a profitable decision.
D)Disclosure of any financial facts significant enough to influence the judgment of an informed reader.

Question 36

The accounting profession requires disaggregated information in the following ways:

A)products or services.
B)geographic areas.
C)major customers.
D)all of these.
^{S<\sup>45.In presenting segment information,for which of the following items must a reconcilation be provided?}

Question 37

According to IAS 1, which of the following are not commonly required disclosures of accounting policies?

A)the measurement basis or bases used in the financial statements
B)personnel involved in drafting the summary of significant accounting policies or other notes, including those who made the judgments apart from those involving estimations
C)disclosures required by other IFRSs, like the reasons why the entity's ownership interest does not constitute control
D)the nature of a company's operations and the policies that the users of its financial statements would expect to be disclosed for that type of entity

Question 38

IFRS requires that a company report all to the following except

A)segment profits and loss and related information.
B)segment assets and liabilities.
C)major customers.
D)liquidity ratios.

Question 39

The difference between a financial forecast and a financial projection is that a forecast provides information on what is expected to happen, while a projection provides information on what might take place but is not necessarily expected to happen.

Question 40

All of the following are benefits to the IASB requiring a reconciliation between the effective tax rate and the government's statutory rate except:

A)An investor can determine the actual taxes paid by the enterprise.
B)This reconciliation is important if the enterprise has substantial fluctuations in its effective tax rate caused by unusual or infrequent transactions.
C)This information is effective in identifying a favorable tax treatment that is not sustainable.
D)The reconciliation can identify past penalties levied by the IRS on the company.

Question 41

A financial forecast presents to the best of the responsible party's knowledge and belief,

A)an entity's expected financial position, results of operations, and cash flows.
B)an assessment of the company's ability to be successful in the future.
C)given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows.
D)an assessment of the company's ability to be successful in the future under a number of different assumptions.

Question 42

For interim financial reporting, a company's income tax expense for the second quarter should be computed by using the:

A)statutory tax rate for the year.
B)effective tax rate expected to be applicable for the second quarter.
C)effective tax rate expected to be applicable for the full year as estimated at the end of the first.quarter.
D)effective tax rate expected to be applicable for the full year as estimated at the end of the second .quarter.

Question 43

Accounting policies are modified for the following at interim dates.

Question 44

Elective exemptions to retrospective application in first-time adoption of IFRS include all of the following except

A)share-based payment transactions.
B)deferred taxes.
C)leases.
D)employee benefits.

Question 45

Cash, short-term investments, and net receivables are the numerator for

Question 46

The basic limitations associated with ratio analysis include

A)the lack of comparability among firms in a given industry.
B)the use of estimated items in accounting.
C)the use of historical costs in accounting.
D)all of these.

Question 47

Theoretically, in computing the receivables turnover, the numerator should include

A)net sales.
B)net credit sales.
C)sales.
D)credit sales.

Question 48

A company's first IFRS financial statements must include at least how many statements of financial position?

A)One.
B)Two.
C)Three.
D)Five.

Question 49

How many years of comparative information must a company present under IFRS first-time adoption?

A)One.
B)Two.
C)Five.
D)Ten.

Question 50

All of the following are exemptions to retrospective application in first-time adoption of IFRS except

A)estimates.
B)hedge accounting.
C)non-controlling interest.
D)deferred taxes.

Question 51

Presented below are four segments that have been identified by Haley Productions:

For which of the segments would information have to be disclosed in accordance with professional pronouncements?

A)Segments A, B, C, and D
B)Segments A, B, and C
C)Segments A and B
D)Segments A and D

Question 52

What did the IASB decide was a reasonable upper limit for the number of segment that a company must disclose?

A)two
B)five
C)six
D)ten

Question 53

Companies should disclose all of the following in interim reports except

A)basic and diluted earnings per share.
B)changes in accounting policies.
C)post-statement of financial position events.
D)seasonal revenue, cost, or expenses.

Question 54

The rate of return on share capital-equity is calculated by dividing

A)net income by average ordinary share holders' equity.
B)net income less preference dividends by average ordinary share holders' equity.
C)net income by ending ordinary share holders' equity.
D)net income less preference dividends by ending ordinary share holders' equity.

Question 55

Which of the following ratios measures long-term solvency?

A)Acid-test ratio
B)Receivables turnover
C)Debt to total assets
D)Current ratio

Question 56

In considering interim financial reporting, how does IFRS conclude that such reporting should be viewed?

A)As a "special" type of reporting that need not follow international financial reporting standards
B)As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.
C)As reporting for an integral part of an annual period.
D)As reporting for a separate accounting period

Question 57

All of the following statement are true regarding IFRS and interim except

A)IFRS requires a complete set of financial statements at the interim reporting date.
B)IFRS companies expense interim amount like advertising expenditures that could benefits later interim periods
C)IFRS leans toward the discrete approach.
D)No accruals or deferrals in anticipating of future events during the year should be reported.

Question 58

The payout ratio is calculated by dividing

A)dividends per share by earnings per share.
B)cash dividends by net income plus preference dividends.
C)cash dividends by market price per share.
D)cash dividends by net income less preference dividends.

Question 59

The calculation of the times interest earned ratio involves dividing

A)net income by annual interest expense.
B)net income plus income taxes by annual interest expense.
C)net income plus income taxes and interest expense by annual interest expense.
D)none of these.

Question 60

When should an average amount be used for the numerator or denominator?

A)When the numerator is a statement of financial position item or items
B)When the denominator is a statement of financial position item or items
C)When a ratio consists of an income statement item and a statement of financial position item
D)When the numerator is an income statement item or items

Question 61

The times interest earned ratio during 2011 was

A)350 ÷ 62.5.
B)500 ÷ 62.5.
C)562 ÷ 62.5.
D)437 ÷ 62.5.

Question 62

Use the following information for questions.
The following data are provided:

Additional information:
Depreciation included in cost of goods sold and operating expenses is $305,000.On May 1, 2011, 15,000 ordinary shares were issued.The preference share are cumulative.The preference dividends were not declared during 2011.
The inventory turnover for 2011 is

A)3,200 ÷ 650.
B)2,100 ÷ 650.
C)3,200 ÷ 600.
D)2,100 ÷ 600.

Question 63

Use the following information for questions.
The following data are provided:

Additional information:
Depreciation included in cost of goods sold and operating expenses is $305,000.On May 1, 2011, 15,000 ordinary shares were issued.The preference share are cumulative.The preference dividends were not declared during 2011.
The receivables turnover for 2011 is

A)3,200 ÷ 400.
B)2,100 ÷ 400.
C)3,200 ÷ 350.
D)2,100 ÷ 350.

Question 64

Mayo Corp.has estimated that total depreciation expense for the year ending December 31, 2011 will amount to $300,000, and that 2011 year-end bonuses to employees will total $600,000.In Mayo's interim income statement for the six months ended June 30, 2011, what is the total amount of expense relating to these two items that should be reported?

A)$0.
B)$150,000.
C)$450,000.
D)$900,000.

Question 65

The rate of return for 2011 based on the year-end ordinary share equity was

A)350 ÷ 1,173.
B)350 ÷ 1,188.
C)335 ÷ 1,173.
D)335 ÷ 1,188.

Question 66

Unruh Corp.and its divisions are engaged solely in manufacturing operations.The following data (consistent with prior years' data) pertain to the industries in which operations were conducted for the year ended December 31, 2011.

In its segment information for 2011, how many reportable segments does Unruh have?

A)Three
B)Four
C)Five
D)Six

Question 67

An inventory loss from market decline of $1,600,000 occurred in May 2011, after its March 31, 2011 quarterly report was issued.None of this loss was recovered by the end of the year.How should this loss be reflected in the company's quarterly income statements?


Additional information:
There are no preferred dividends in arrears, the balances in the Accounts Receivable and Inventory accounts are unchanged from January 1, 2011, and there were no changes in the Bonds Payable, share capital-Preference or ordinary accounts during 2011.Assume that preferred dividends for the current year have not been declared.

Question 68

At December 31, 2011, the book value per ordinary share of was

A)$55.66.
B)$58.16.
C)$59.41.
D)$58.65.

Question 69

Use the following information for questions.
The following data are provided:

Additional information:
Depreciation included in cost of goods sold and operating expenses is $305,000.On May 1, 2011, 15,000 ordinary shares were issued.The preference share are cumulative.The preference dividends were not declared during 2011.
The rate of return on ordinary share equity for 2011 is

A)375 ÷ 1,800.
B)375 ÷ 2,000.
C)325 ÷ 1,800.
D)325 ÷ 2,000.

Question 70

The following information pertains to Nixon Corp.and its divisions for the year ended December 31, 2011.

Nixon and all of its divisions are engaged solely in manufacturing operations.Nixon has a reportable segment if that segment's revenue exceeds

A)$330,000.
B)$325,000.
C)$255,000.
D)$250,000.

Question 71

Use the following information for questions.
The following data are provided:

Additional information:
Depreciation included in cost of goods sold and operating expenses is $305,000.On May 1, 2011, 15,000 ordinary shares were issued.The preference share are cumulative.The preference dividends were not declared during 2011.
The book value per ordinary share at 12\31\11 is

A)1,950 ÷ 60.
B)1,940 ÷ 60.
C)1,950 ÷ 55.
D)2,000 ÷ 55.

Question 72

Use the following information for questions.
The following data are provided:

Additional information:
Depreciation included in cost of goods sold and operating expenses is $305,000.On May 1, 2011, 15,000 ordinary shares were issued.The preference share are cumulative.The preference dividends were not declared during 2011.
At December 31, 2011, the acid-test ratio was

A)775 ÷ 325.
B)775 ÷ 540.
C)1,050 ÷ 400.
D)1,425 ÷ 325.

Question 73

Which of the following facts concerning plant assets should be included in the summary of significant accounting policies?

Question 74

At December 31, 2011, the current ratio was

A)750 ÷ 210.
B)2,225 ÷ 273.
C)1,563 ÷ 273.
D)1,563 ÷ 348.

Question 75

On January 15, 2011, Vancey Company paid property taxes on its factory building for the calendar year 2011 in the amount of $560,000.In the first week of April 2011, Vancey made unanticipated major repairs to its plant equipment at a cost of $1,400,000.These repairs will benefit operations for the remainder of the calendar year.How should these expenses be reflected in Vancey's quarterly income statements?

Question 76

In January 2011, Post, Inc.estimated that its year-end bonus to executives would be $720,000 for 2011.The actual amount paid for the year-end bonus for 2010 was $660,000.The estimate for 2011 is subject to year-end adjustment.What amount, if any, of expense should be reflected in Post's quarterly income statement for the three months ended March 31, 2011?

A)$ -0-.
B)$165,000.
C)$180,000.
D)$720,000.

Question 77

Use the following information for questions.
The following data are provided:

Additional information:
Depreciation included in cost of goods sold and operating expenses is $305,000.On May 1, 2011, 15,000 ordinary shares were issued.The preference share are cumulative.The preference dividends were not declared during 2011.
The profit margin on sales for 2011 is

A)1,100 ÷ 3,200.
B)375 ÷ 3,200.
C)1,100 ÷ 2,100.
D)375 ÷ 2,100.

Question 78

Perez Company's net accounts receivable were $600,000 at December 31, 2010 and $660,000 at December 31, 2011.Net cash sales for 2011 were $390,000.The receivables turnover for 2011 was 7.0.What were Perez's total net sales for 2011?

A)$2,730,000.
B)$4,410,000.
C)$4,800,000.
D)$4,020,000.

Question 79

Presented below is information related to Tolbert Company.
Current Assets

Total current liabilities are $200,000.What is the acid-test ratio?

A)2.8 to 1.
B)2.5 to 1.
C)1.4 to 1.
D)0.8 to 1.

Question 80

Farr, Inc.is a multidivisional corporation which has both intersegment sales and sales to unaffiliated customers.Farr should report segment financial information for each division meeting which of the following criteria?

A)Segment profit or loss is 10% or more of consolidated profit or loss.
B)Segment profit or loss is 10% or more of combined profit or loss of all company segments.
C)Segment revenue is 10% or more of combined revenue of all the company segments.
D)Segment revenue is 10% or more of consolidated revenue.