Deck 16: Accounting Policy Choices

Question 1

Which of the following is NOT an area in which large companies typically make policy choices?

A) how to value receivables
B) over what period to amortise intangible assets
C) cash versus accrual accounting
D) which product development expenditures should be expenses.

Answer 1

C

Question 2

Which of the following is NOT a reason that preparers of financial reports are obliged to make choices?

A) There is frequently a decision to be made as to whether to adjust the figures for something or to disclose it in the footnotes or other narrative material.
B) Directors have a responsibility to choose the accounting method that shows the highest profit.
C) Accrual accounting necessitates choices about accounting figures,notes and methods.
D) Governments and professional accounting standard setters have been reluctant to specify all solutions and require all enterprises to follow them.

Answer 2

B

Question 3

Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the inventory balance sheet account.

A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.

Answer 3

B

Question 4

Which of the following would be increased by an accounting policy change involving the declaration of a final dividend?

A) expense
B) revenue
C) net profit
D) there would be no effect on net profit.

Question 5

Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the accounts receivable balance sheet account.

A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.

Question 6

Which of the following is NOT an area in which companies typically make policy accounting choices?

A) when and how to recognise revenue
B) how to compute depreciation on plant and equipment assets
C) how to value inventories
D) dividend policy.

Question 7

Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the accrued expenses balance sheet account.

A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.

Question 8

Which of the following would be decreased by an accounting policy change involving writing off spoiled inventories?

A) expense
B) revenue
C) liabilities
D) net profit.

Question 9

Most accounting policy choices affect both the income statement and the balance sheet.Select the balance sheet account(s)that would be affected by a policy choice at the same time as the cost of goods sold income statement account.

A) accounts receivable
B) inventories
C) prepaid expenses,accrued expenses and liabilities
D) property,plant and equipment; intangible and leased assets.

Question 10

Which of the following would be increased by an accounting policy change involving the recognition of accounts receivable sooner?

A) revenue
B) expense
C) liability
D) noncurrent assets.

Question 11

In which of the following areas has choice largely been made by a standard-setting body,legislators or by accepted practice,so that companies are NOT free to make their own decisions?

A) selection of depreciation method
B) how to determine allowance for doubtful debts
C) inventory valuation method
D) whether to include goodwill in the balance sheet.

Question 12

Which of the following would be increased by an accounting policy change involving the capitalisation of some repairs expenses?

A) expense
B) revenue
C) liabilities
D) net profit.

Question 13

Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the allowance for doubtful debts balance sheet account.

A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.

Question 14

Which of the following is NOT an accounting method that could be chosen by a company to increase reported profits?

A) understating allowance for doubtful debts
B) classifying longer-term receivables as current assets
C) changing estimates of the useful life of plant and equipment
D) changing from the weighted average to the FIFO method of inventory valuation in a period of rising prices.

Question 15

Which of the following is NOT normally a significant accounting estimate involved in financial measurement?

A) which product warranty claims will have to be paid
B) what portion of credit sales will be uncollectable
C) how many financial periods will benefit from research and development expenditure
D) which period a fixed asset is depreciated over.

Question 16

Which of the following would be increased by an accounting policy change involving the accrual of greater employee benefits expense?

A) assets
B) liabilities
C) net profit
D) owners' equity.

Question 17

Most accounting policy choices affect both the income statement and the balance sheet.Select the balance sheet account(s)that would be affected by a policy choice at the same time as the wages expense income statement account.

A) accounts receivable
B) inventories
C) prepaid expenses,accrued expenses and liabilities
D) property,plant and equipment; intangible and leased assets.

Question 18

Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the prepaid expenses balance sheet account.

A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.

Question 19

Which of the following is NOT an accounting method that could be chosen by a company to help the current ratio look as high as possible?

A) classifying short-term obligations as noncurrent liabilities
B) optimistic estimation of the useful life of plant and equipment
C) delaying the recording of credit acquisitions of inventory until the next accounting period
D) neglecting to write off obsolete inventory.

Question 20

Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the goodwill balance sheet account.

A) revenue,bad debts expense
B) cost of goods sold expense
C) amortisation expense
D) various expense accounts.

Question 21

What effect would such a policy change have on cash flow from operations?

A) There would be a $75 000 reduction.
B) There would be a $45 000 reduction.
C) There would be a $30 000 reduction.
D) There would be no effect.

Question 22

Depreciation expense:

A) $122 400 reduction
B) $217 600 reduction
C) $340 000 reduction
D) $217 600 increase.

Question 23

Changing the period of amortisation does NOT affect:

A) net profit
B) cash flow from operations
C) income tax liability
D) Amortisation expense

Question 24

Net profit after tax:

A) $144 000 overstated
B) $100 800 overstated
C) $43 200 overstated
D) no effect.

Question 25

See-Saw Ltd uses moving weighted average for its inventory,which is valued at $276 000.It is considering a change to FIFO,which would decrease the valuation to $245 000.Which of the following would be increased by the change?

A) retained profits
B) income tax payable
C) cost of goods sold
D) sales.

Question 26

Assets:

A) $180 000 overstated
B) $144 000 overstated
C) $124 000 overstated
D) no effect.

Question 27

See-Saw Ltd uses moving weighted average for its inventory,which is valued at $276 000.It is considering a change to FIFO,which would decrease the valuation to $245 000.Which of the following would be decreased by the change?

A) cash
B) cost of goods sold
C) net profit
D) no accounts would be decreased.

Question 28

Which of the following would be increased by accounting policy change involving use of the reducing balance method of depreciation in place of the straight-line method,leading to an increase in depreciation expense?

A) assets
B) net profit
C) retained profits
D) expenses.

Question 29

What would be the effect on depreciation expense if the reducing balance method were used rather than the straight-line method?

A) There would be a $375 000 increase.
B) There would be a $375 000 reduction.
C) There would be a $225 000 increase.
D) There would be a $225 000 reduction.

Question 30

Changing the rate of depreciation affects:

A) cash
B) other working capital accounts
C) net profit
D) no accounts.

Question 31

What would be the effect on the net book value of assets if the reducing balance method were used rather than the straight-line method?

A) There would be a $375 000 reduction.
B) There would be a $225 000 reduction.
C) There would be a $150 000 reduction.
D) There would be no effect.

Question 32

What effect would such a policy change have on net profit before tax?

A) There would be a $75 000 reduction.
B) There would be a $45 000 reduction.
C) There would be a $30 000 reduction.
D) There would be no effect.

Question 33

Cash from operations:

A) $340 000 reduction
B) $217 600 increase
C) $217 600 reduction
D) no effect.

Question 34

Net book value of assets:

A) $340 000 reduction
B) $340 000 increase
C) $217 600 reduction
D) $217 600 increase.

Question 35

Changing the rate of depreciation does NOT affect:

A) the net book value of noncurrent assets
B) cash
C) net profit
D) retained profits.

Question 36

What would be the effect on net profit after tax if the reducing balance method were used rather than the straight-line method?

A) There would be a $375 000 increase.
B) There would be a $375 000 reduction.
C) There would be a $225 000 increase.
D) There would be a $225 000 reduction.

Question 37

Which of the following would be increased by an accounting policy change involving transfer from retained profits to general reserve?

A) shareholders' equity
B) liabilities
C) expenses
D) there would be no effect on net profit.

Question 38

Swing Ltd uses FIFO for its inventory,which is valued at $21 000.It is considering a change to moving weighted average,which would change the valuation of inventory to $22 500.Which of the following would be decreased by the change?

A) cost of goods sold
B) sales
C) liabilities
D) retained profits.

Question 39

What would be the effect on cash from operations if the reducing balance method were used rather than the straight-line method?

A) There would be a $375 000 increase.
B) There would be a $375 000 reduction.
C) There would be a $225 000 reduction.
D) There would be no effect on cash.