1. According to the FASB and IASB conceptual frameworks, the primary users of financialreports include all of the following, except:a. Investors.b. Regulators.c. Lenders.d. Creditors.2. According to the FASB and IASB conceptual frameworks, useful information must exhibitthe fundamental qualitative characteristics of:a. Comparability and materiality.b. Faithful representation and relevance.c. Understandability and timeliness.d. Neutrality and verifiability.3. What is the underlying concept governing the recording of gain contingencies?a. Consistency.b. Conservatism.c. Reliability.d. Relevance.4. According to the FASB conceptual framework, which of the following attributeswould not be used to measure inventory?a. Historical cost.b. Net realizable value.c. Replacement cost.d. Present value of future cash flows.5. According to the FASB and IASB conceptual frameworks, the objective of general purposefinancial reporting is to:a. Comply with the need for conservatism.b. Report on how effectively and efficiently management has used the entity's resources.c. Provide financial information that is useful to primary users.d. Comply with generally accepted accounting principles.6.According to the FASB and IASB conceptual frameworks, completeness is aningredient of:RelevanceFaithfulRepresentationa. YesYesb. NoNoc. NoYesd. YesNo7. What is the underlying concept that supports the immediate recognition of a contingent loss?a. Conservatism.b. Consistency.c. Matching.d. Substance over form.8. According to the FASB conceptual framework, the process of reporting an item in thefinancial statements of an entity is:a. Matching.b. Recognition.c. Allocation.d. Realization.9. The joint FASB and IASB conceptual framework project is intended to establish:a. A comprehensive set of financial statement disclosures.b. A common set of objectives and concepts for use in developing standards of financialaccounting and reporting.c. The structure of the FASB Codification TM.d. A common set of generally accepted accounting principles.10. Financial information provided in general purpose financial reports does not includeinformation about:a. The claims against the entity.b. The resources of the entity.c. How effectively and efficiently the entity's governing board has discharged itsresponsibility to use the entity's resources.d. How effectively and efficiently the entity's shareholders' have discharged theirresponsibility to use the entity's resources.11. On December 2, Year 1, Flint Corp.'s board of directors voted to discontinue operations ofits frozen food division and to sell the division's assets on the open market as soon as possible. The division reported net operating losses of $20,000 in December and $30,000 in January. On February 26, Year 2, sale of the division's assets resulted in a gain of$90,000. Assuming that the frozen foods division qualifies as a component of the business and ignoring income taxes, what amount of gain/loss from discontinued operations should Flint recognize in its income statement for Year 2?a. $0b. $90,000c. $40,000d. $60,00012. At December 31, Year 2, Off-Line Co. changed its method of accounting for demo costsfrom writing off the costs over two years to expensing the costs immediately. Off-Line made the change in recognition of an increasing number of demos placed with customers that did not result in sales. Off-Line had deferred demo costs of $500,000 at December 31, Year 1, $300,000 of which were to be written off in Year 2 and the remainder in Year 3.Off-Line's income tax rate is 30%. In its Year 3 financial statements, what amount should Off-Line report as cumulative effect of change in accounting principle?a. $200,000b. $350,000c. $0d. $500,00013. How should the effect of a change in accounting principle that is inseparable from theeffect of a change in accounting estimate be reported?a. By footnote disclosure only.b. By restating the financial statements of all prior periods presented.c. As a correction of an error.d. As a component of income from continuing operations.14. In September, Koff Co.'s operating plant was destroyed by an earthquake. Earthquakesare rare in the area in which the plant was located. The portion of the resultant loss not covered by insurance was $700,000. Koff's income tax rate for 1996 was 40%. In itsyear-end income statement, what amount should Koff report as extraordinary loss under U.S. GAAP?a. $280,000b. $0c. $700,000d. $420,00015. During January Year 3, Doe Corp. agreed to sell the assets and product line of its Hartdivision. The sale was completed on January 15, Year 4 and resulted in a gain on disposal of $900,000. Hart's operating losses were $600,000 for Year 3 and $50,000 for the period January 1 through January 15, Year 4. Disregarding income taxes, what amount of net gain (loss) should be reported in Doe's comparative Year 4 and Year 3 incomestatements?Year 3Year 4a. $(600,000) $850,000b. $(650,000) $900,000c. $0 $250,000d. $250,000 $016. On April 30, Deer Corp. approved a plan to dispose of a component of its business. Forthe period January 1 through April 30, the component had revenues of $500,000 andexpenses of $800,000. The assets of the component were sold on October 15 at a loss. In its income statement for the year ended December 31, how should Deer report thecomponent's operations from January 1 to April 30?a. $500,000 and $800,000 should be included with revenues and expenses, respectively,as part of continuing operations.b. $300,000 should be reported as part of the loss on disposal of a component andincluded as part of continuing operations.c. $300,000 should be reported as an extraordinary loss.d. $300,000 should be reported as a loss from operations of a component and included inloss from discontinued operations.17. In open market transactions, Gold Corp. simultaneously sold its long-term investment inIron Corp. bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions. Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the Iron bonds. Assume the transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently. Under U.S. GAAP, Gold should report the:a. Effect of its own bond transaction gain in income before extraordinary items, and reportthe Iron bond transaction as an extraordinary loss.b. Net effect of the two transactions as an extraordinary gain.c. Effect of its own bond transaction as an extraordinary gain, and report the Iron bondtransaction loss in income before extraordinary items.d. Net effect of the two transactions in income before extraordinary items. 18. During the current year, both Raim Co. and Cane Co. suffered losses due to the floodingof the Mississippi River. Raim is located two miles from the river and sustains flood losses every two to three years. Cane, which has been located 50 miles from the river for the past 20 years, has never before had flood losses. How should the flood losses be reported in each company's income statement under U.S. GAAP?Raim Cane a. As an extraordinary item As acomponent ofincomefromcontinuingoperationsb. As a component of incomefromcontinuingoperationsAs acomponent ofincome from continuing operations c. As an extraordinary itemAs anextraordinaryitem d. As a component of incomefromcontinuingoperations As anextraordinaryitem19. Lore Co. changed from the cash basis of accounting to the accrual basis of accountingduring the current year. The cumulative effect of this change should be reported in Lore's current year financial statements as a:a. Prior period adjustment resulting from the correction of an error.b. Component of income after extraordinary item.c. Prior period adjustment resulting from the change in accounting principle.d. Component of income before extraordinary item.20. Which of the following should be included in general and administrative expenses?Interest Advertisinga. No Yesb. No Noc. Yes Nod. Yes Yes21. Under U.S. GAAP, a material loss should be presented separately as a component ofincome from continuing operations when it is:a. Not unusual in nature but infrequent in occurrence.b. A cumulative effect type change in accounting principle.c. Unusual in nature and infrequent in occurrence.d. An extraordinary item.22. On October 1, 20X4, Host Co. approved a plan to dispose of one of the company'soperating segments. Host expected that the sale would occur on April 1, 20X5 at an estimated gain of $350,000. The segment had actual and estimated operating losses as follows:1/1/X4 to $(300,000)9/30/X410/1/X4 to12/31/X4(200,000)1/1/X5 to3/31/X5 (400,000) In its 20X4 income statement, what should Host report as a loss from discontinued operations before income taxes?a. $550,000b. $900,000c. $200,000d. $500,00023. During Year 2, Orca Corp. decided to change from the FIFO method of inventory valuationto the weighted-average method. Inventory balances under each method were as follows: FIFOWeightedaverageJanuary1, Year 2$71,000 $77,000December31, Year 279,000 83,000 Orca's income tax rate is 30%.Orca should report the cumulative effect of this accounting change as a(n):a. Adjustment to beginning retained earnings.b. Component of income from continuing operations.c. Extraordinary item.d. Component of income after extraordinary items.24. On October 1, Year 1, Wand, Inc. committed itself to a formal plan to sell its Kam division'sassets early in Year 2. On that date, Wand estimated that the fair value of the component's assets was $25,000 less than the carrying value. Wand also estimated that Kam would incur operating losses of $100,000 for the period of October 1, Year 1 through December 31, Year 1 and $50,000 for the period January 1, Year 2 through February 28, Year 2. All estimates proved to be materially correct. Disregarding income taxes, what should Wand report as loss from discontinued operations in its comparative Year 1 and Year 2 income statements?Year 1Year 2a. $125,000 $50,000b. $0 $175,000c. $100,000 $75,000d. $175,000 $025. Under U.S. GAAP, a transaction that is unusual in nature and infrequent in occurrenceshould be reported separately as a component of income:a. After discontinued operations of a segment of a business.b. Before cumulative effect of accounting changes and before discontinued operations of a segment of a business.c. After cumulative effect of accounting changes and before discontinued operations of a segment of a business.d. After cumulative effect of accounting changes and after discontinued operations of a segment of a business.26. Rock Co.'s U.S. GAAP financial statements had the following balances at December 31: Extraordinarygain$50,000Foreign currency translation gain,net of tax100,000Net income 400,000Unrealized gain onavailable-for-saleequity securities,net of tax20,000What amount should Rock report as comprehensive income for the year ended December 31?a. $520,000b. $420,000c. $570,000d. $400,00027. Which of the following items is not classified as "other comprehensive income?"a. Extraordinary gains from extinguishment of debt.b. Unrealized gains for the year on available-for-sale marketable securities.c. Foreign currency translation adjustments.d. Minimum pension liability equity adjustment for a defined-benefit pension plan.28. A company that uses IFRS reports the following information as of December 31:Pension gain$ 175,000Foreign currency translation loss120,000Revaluation surplus from revaluation of fixed assets50,000Unrealized gain on available-for-sale security32,000 20,000What amount should the company report as other comprehensive income as of December 31?a. $55,000b. $137,000c.$99,000 d. $17,00029.Which of the following is included in other comprehensive income? a. Foreign currency translation adjustments.b. The difference between the accumulated benefit obligation and the fair value ofpension plan assets.c. Unrealized holding gains and losses on trading securities.d. Unrealized holding gains and losses that result from a debt security being transferred into the held-to-maturity category from the available-for-sale category.30. Which of the following is true regarding the presentation of comprehensive income.Must beshown onthe faceof theincomestatementRelated tax effects for components must be disclosed a.Yes No b.No Yes c. No Nod. Yes Yes31. What is the purpose of reporting comprehensive income?a. To provide a consolidation of the income of the firm's segments.b. To provide information for each segment of the business.c. To reconcile the difference between net income and cash flows provided fromoperating activities.d. To summarize all changes in equity from nonowner sources.32. Which of the following is a component of other comprehensive income?a. Minimum accrual of vacation pay.b. Cumulative currency-translation adjustments.c. Unrealized gain or loss on trading securities.d. Changes in market value of inventory.33. Riggs, Co. adopted IFRS two years ago and wants to report the following items on itsfinancial statements:∙Pension net gain of $20,000∙Unrealized gain on trading securities of $16,000∙Foreign currency translation loss of $17,000∙Gain from the effective portion of a cash flow hedge of $11,000∙Revaluation gain of $5,000The total for Other Comprehensive Income from the items above will be:a. $30,000b. $19,000c. $35,000d. $14,00034. The reporting of comprehensive income would include or display:a. Proceeds from sale of stock.b. Comprehensive income per share.c. Dividends.d. Net income.35. Palmyra Co. has net income of $11,000, a positive $1,000 net cumulative effect of achange in accounting principle, a $3,000 unrealized loss on available-for-sale securities, a positive $2,000 foreign currency translation adjustment, and a $6,000 increase in itscommon stock. What amount is Palmyra's comprehensive income?a. $17,000b. $4,000c. $10,000d. $11,00036. Which of the following should be disclosed in a summary of significant accountingpolicies?a. Depreciation expense.b. Basis of profit recognition on long-term construction contracts.c. Future minimum lease payments in the aggregate and for each of the five succeedingfiscal years.d. Composition of sales by segment.37. Which of the following must be included in a company's summary of significant accountingpolicies in the notes to the financial statements?a. Description of current year equity transactions.b. Summary of long-term debt outstanding.c. Revenue recognition policies.d. Schedule of fixed assets.38. Dean Co. acquired 100% of Morey Corp. prior to Year 3. During Year 3, the individualcompanies included in their financial statements the following:Dean Morey$ 75,000 $ 50,000Officers' salaries20,000 10,000Officers' expenses125,000 50,000Loans to officers150,000 --Intercompany SalesWhat amount should be reported as related party disclosures in the notes to Dean's Year 3 consolidated financial statements?a. $330,000b. $175,000c. $150,000d. $155,00039. John Co. acquired 100% of George Corp. prior to Year 3. During Year 3, the individualcompanies included in their financial statements the following:What amount should be reported as related party disclosures in the notes to John's Year 3 consolidated financial statements under IFRS?a. $125,000b. $155,000c. $300,000d. $175,00040. Which of the following is not a disclosure requirement related to risks and uncertaintiesunder U.S. GAAP?a. Disclosure of the use of estimates in the preparation of the financial statements.b. Disclosure of significant estimates when it is probable that the estimate will change inthe near term, even if the effect of the change will be immaterial.c. Disclosure of an entity's major products or services and its principle markets.d. Disclosure of concentrations when it is reasonably possible that a concentration couldcause a severe impact in the near term.41. Althouse Co. discovered that equipment purchased on January 2for $150,000 wasincorrectly expensed at the time. The equipment should have been depreciated over five years with no salvage value. What amount, if any, should be adjusted to Althouse'sdepreciation expense at January 2, the beginning of the third year, when the error was discovered?a. $30,000b. $0c. $60,000d. $150,00042. A company's first IFRS reporting period is for the year ended December 31, Year 2. Whilepreparing the Year 2 statement of financial position, management identified an error in which a $90,000 loss accrual was not recorded. $40,000 of the loss accrual related to a Year 1 event and $50,000 related to a Year 2 event. What amount of loss accrual should the company report in its December 31, Year 1, IFRS statement of financial position?a. $40,000b. $50,000c. $90,000d. $043. Which of the following statements is correct as it relates to changes in accountingestimates?a. Most changes in accounting estimates are accounted for retrospectively.b. It is easier to differentiate between a change in accounting estimate and a change inaccounting principle than it is to differentiate between a change in accounting estimate and a correction of an error.c. Whenever it is impossible to determine whether a change in accounting estimate or achange in accounting principle has occurred, the change should be considered achange in estimate.d. Whenever it is impossible to determine whether a change in an estimate or a change inaccounting principle occurred, the change should be considered a change in principle.44. Cuthbert Industrials, Inc. prepares three-year comparative financial statements. In Year 3,Cuthbert discovered an error in the previously issued financial statements for Year 1. The error affects the financial statements that were issued in Years 1 and 2. How should the company report the error?a. The financial statements for Years 1 and 2 should be restated; the cumulative effect ofthe error on Years 1 and 2 should be reflected in the carrying amounts of assets andliabilities as of the beginning of Year 3.b. The financial statements for Years 1 and 2 should not be restated; financial statementsfor Year 3 should disclose the fact that the error was made in prior years.c. The financial statements for Years 1 and 2 should not be restated; the cumulativeeffect of the error on Years 1 and 2 should be reflected in the carrying amounts ofassets and liabilities as of the beginning of Year 3.d. The financial statements for Years 1 and 2 should be restated; an offsetting adjustmentto the cumulative effect of the error should be made to the comprehensive income inthe Year 3 financial statements.45. Gusto Manufacturing changed its inventory costing method from last-in, first-out (LIFO) tofirst-in, first-out (FIFO). Assuming there is adequate justification for the change, Gusto would:a. Report the cumulative effect of the change on its income statement, net of tax, afterincome from continuing operations, discontinued operations, and extraordinary items.b. Report the change on its income statement as a component of income from continuingoperations, before tax.c. Report the cumulative effect of the change on its income statement, net of tax, afterincome from continuing operations but before discontinued operations or extraordinary items.d. Report the cumulative effect of the change as an adjustment to beginning retainedearnings, net of tax.46. Dingo Dog Food is a component of Conglomeration, Inc. and has been losing $50,000 permonth. On April 1, Year 1, Conglomeration's management committed to a plan for the immediate sale of Dingo and fully expected to find a buyer for the component by March of Year 2. The book value of the component's assets is $800,000, while the fair market value of the assets is $650,000. Conglomeration sold Dingo on February 28, Year 2 for$550,000. Conglomeration's loss from discontinued operations before consideration of taxes for the year ended December 31, Year 1, would be:a. 850,000b. 750,000c. 600,000d. 950,00047. Timber Co., was evaluating the likelihood of collecting various accounts receivablecurrently on its books. This evaluation resulted in the decision to change from the direct recognition method to the installment method for recognizing receivables. The accounting treatment for this change is best characterized as:a. Restatement.b. Prospective.c. Cumulative.d. Retroactive.48. A company's activities for year 2 included the following:The company has a 30% effective income tax rate. What is the company's net income for year 2?a. $1,267,700b. $1,314,600c. $1,273,300d. $1,316,00049. On January 1, year 1, Newport Corp. purchased a machine for $100,000. The machinewas depreciated using the straight-line method over a 10-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Newport's year1 financial statements, resulting in a $10,000 overstatement of the book value of themachine on December 31, year 1. The oversight was discovered during the preparation of Newport's year 2 financial statements. What amount should Newport report fordepreciation expense on the machine in the year 2 financial statements?a. $9,000b. $10,000c. $11,000d. $20,00050. A company decided to sell an unprofitable division of its business. The company can sellthe entire operation for $800,000, and the buyer will assume all assets and liabilities of the operations. The tax rate is 30%. The assets and liabilities of the discontinued operation are as follows:Buildings $5,000,0003,000,000AccumulateddepreciationMortgage on1,100,000buildingsInventory 500,000600,000Accountspayable200,000AccountsreceivableWhat is the after-tax net loss on the disposal of the division?a. $1,540,000b. $2,200,000c. $140,000d. $200,000。