BUS 220B: Multiple Choice Midterm Exam Study Guide Flashcards

Question 1

Understandability is an enhancing characteristic of decision usefulness.
Which of the following is not true?
a. License fees are recognized over time for any license that is viewed as providing a right of access
b. Licensing fees are recognized as revenue over time for licenses of symbolic IP, for which the seller expects its ongoing activities to affect the benefits that the buyer receives from IP
c. License fees are recognized as revenue at a point in time for licenses of function IP, for which the buyer expects that the seller's future activities will not affect the benefit the buyer derives from the IP
d. Licensing fees always are recognized as revenue at the end of the license period, when the seller has completed its performance obligation to provide access to its IP
Where is management's discussion and analysis located?
a. Preceding the financial statements and audit report in theannual report
b. In the annual chairman's letter to shareholders
c. At the end of the annual report as an appendix
d. At the beginning of the proxy statement
Which of the following is not a component of faithful representation as defined in the FASB's conceptual framework?
a. Free from error
b. Neutrality
c. Understandability
d. Completeness
Which of the following is an indicator that revenue for a service should berecognized over time?
a. The seller is enhancing an asset that the customer controls as theservice is performed
b. The seller is providing continuous effort to the customer
c. The seller can estimate the percent of work completed
d. The sales price is fixed and determinable

Accepted Answer

Which of the following is not a component of faithful representation as defined in the FASB's conceptual framework?
a. Free from error
b. Neutrality
c. Understandability
d. Completeness

Question 2

The correct answer is 
c. List price is not a measurement attribute. Rather, it is whatever sales price a seller indicates (which might be negotiable or subject to discounts).
Which of the following is not a measurement attribute defined in the FASB's conceptual framework?
a. Net realizable value
b. Historical cost. 
c. List priced. 
d. Fair value
Zack developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Spurlock paid a licensing fee of $60,000 for a copy of the software.Although Spurlock can use the software as long as it wants, Zack expects that Spurlock will use the software for approximately 5 years. Zack does not anticipate any further interaction with Spurlock following transfer of the license. How much revenue should Zack recognize in the first year of the contract?
a. $0
b. $12,000
c. $15,000
d. $60,000
Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability
b. Debiting an expense
c. Debiting cash
d. Crediting an expense
Which of the following would be commonly reported in thesummary of significant accounting policies note?
a. Errors and fraud
b. Method used to record depreciation
c. Subsequent events
d. Related-party transactions

Accepted Answer

Which of the following is not a measurement attribute defined in the FASB's conceptual framework?
a. Net realizable value
b. Historical cost. 
c. List priced. 
d. Fair value

Question 3

The correct answer is d. Level 1 inputs are most preferable because they are the least subjective. Level 3 inputs are the least preferable because they are based on the entity's own assumptions.
Which of the following is not true?
a. The fair value hierarchy reflects the subjectivity of inputs used to compute fair values
b. Level 1 of the fair value hierarchy refers to quoted market prices that
c. Level 3 of the fair value hierarchy refers to inputs that are not directlyobservable, and so must be based on the entity's own assumptions
d. Level 3 inputs are preferred to Level 2, which are preferred to Level 1
Principles of Revenue RecognitionWhich of the following is not a step used to apply the core principle ofrevenue recognition?
a. Determine the transaction price
b. Identify the performance obligations in the contract
c. Identify the contract with a customer
d. Ensure the sales price is fixed and determinable
Which of the following is an indicator that revenue for a service should berecognized over time?
a. The seller is enhancing an asset that the customer controls as theservice is performed
b. The seller is providing continuous effort to the customer
c. The seller can estimate the percent of work completed
d. The sales price is fixed and determinable
Which of the following is true regarding GAAP and IFRS?
a. There are more differences than similarities between U.S. GAAP and IFRS
b. IFRS specifies a maximum number of items to be reported
in the balance sheet
c. Many companies reporting under IFRS present noncurrent assets before current assets in the balance sheet
d. U.S. GAAP specifies a minimum number of items to be reported in the balance sheet

Accepted Answer

Which of the following is not true?
a. The fair value hierarchy reflects the subjectivity of inputs used to compute fair values
b. Level 1 of the fair value hierarchy refers to quoted market prices that
c. Level 3 of the fair value hierarchy refers to inputs that are not directlyobservable, and so must be based on the entity's own assumptions
d. Level 3 inputs are preferred to Level 2, which are preferred to Level 1

Question 4

The correct answer is b. Accounts receivable is a permanent asset account
Allen Co. wrote a contract that involves two separate performance obligations. Allen cannot estimate the stand-alone selling price of product A. Product B has a stand-alone selling price of $200. The price for the combined product is $240. How much of the transaction price would be allocated to the performance obligation for delivering product A?
a. $ 40
b. $ 60
c. $ 80
d. $100
Temporary accounts would not include:
a. Salaries expense
b. Accounts receivable
c. Rent revenued. 
d. All of these answers are incorrect
Which of the following represents tangible, long-lived assets used in the operations of the business?
a.Current assets
b.Investments
c. Property, plant, and equipment
d.Intangible assets
The Contra Costa Times Company reported a $17,200 liabilityin its 2021 balance sheet for subscription revenue received in advance. During 2022, $68,000 was received from customers and the 2022 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2022balance sheet?
a. $0
b. $17,200
c. $18,900
d. $15,500

Accepted Answer

Temporary accounts would not include:
a. Salaries expense
b. Accounts receivable
c. Rent revenued. 
d. All of these answers are incorrect

Question 5

The correct answer is b. When an expense is incurred, it isrecorded as a debit to a temporary shareholders' equity account, in this case salaries expense.
The Contra Costa Times Company reported a $17,200 liabilityin its 2021 balance sheet for subscription revenue received in advance. During 2022, $68,000 was received from customers and the 2022 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2022balance sheet?
a. $0
b. $17,200
c. $18,900
d. $15,500
Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability
b. Debiting an expense
c. Debiting cash
d. Crediting an expense
Which of the following would be commonly reported in thesummary of significant accounting policies note?
a. Errors and fraud
b. Method used to record depreciation
c. Subsequent events
d. Related-party transactions
Zack developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Spurlock paid a licensing fee of $60,000 for a copy of the software.Although Spurlock can use the software as long as it wants, Zack expects that Spurlock will use the software for approximately 5 years. Zack does not anticipate any further interaction with Spurlock following transfer of the license. How much revenue should Zack recognize in the first year of the contract?
a. $0
b. $12,000
c. $15,000
d. $60,000

Accepted Answer

Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability
b. Debiting an expense
c. Debiting cash
d. Crediting an expense

Question 6

The correct answer is c. Cash is an asset, so it is increased with a debit and common stock is a permanent equity account, so it is increased with a credit.
Which of the following is not a measurement attribute defined in the FASB's conceptual framework?
a. Net realizable value
b. Historical cost. 
c. List priced. 
d. Fair value
The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash
b. A debit to cash and credits to common stock and retainedearnings
c. A debit to cash and a credit to common stock
d. All of these answer choices are incorrect
Which disclosure provides an independent and professional opinion about the fairness of the representations in the financial statements and about the effectiveness of internal controls?
a. Auditors' report
b. Proxy statement
c. Management's discussion and analysis
d. Summary of significant accounting policies
Temporary accounts would not include:
a. Salaries expense
b. Accounts receivable
c. Rent revenued. 
d. All of these answers are incorrect

Accepted Answer

The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash
b. A debit to cash and credits to common stock and retainedearnings
c. A debit to cash and a credit to common stock
d. All of these answer choices are incorrect

Question 7

The correct answer is c:

[$1,400 (beginning balance) + $1,100 (additional payment)− $1,000 (ending balance)] = $1,500
Siddhi enters into a contract offering variable consideration. The contract pays Siddhi $2,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $4,000and a 40% chance the contract will pay an additional $6,000, depending on the outcome of the consulting contract. Siddhi concludes that this contract qualifies for revenue recognition over time.
Assume Siddhi estimates variable consideration as the most likely amount.What is the amount of revenue Siddhi would recognize for the first month of the contract?
a. $2,000
b. $2,667
c. $2,800
d. $2,400
On October 1, 2021, American Medical Inc. adopted a plan to discontinue its generic drug division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the divisionwas expected to be concluded by March 30, 2022. On December 31, 2021, the company's year-end, the following information relative to the discontinued division was accumulated:Operating loss for 2021 $195 millionExcess of book value over fair value, less costs to sell, at year-end 25 millionIn its income statement for the year ended December 31, 2021, American would report a before-tax loss on discontinued operations of:
a. $170 million
b. $195 million
c. $220 million
d. All of these answers are incorrect
The correct amount of prepaid insurance shown on a company'sDecember 31, 2021, balance sheet was $1,400. On May 1, 2022, the company paid an additional insurance premium of $1,100.In the December 31, 2022, balance sheet, the amount of prepaid insurance was correctly shown as $1,000. The amount of insurance expense that should appear in the company's 2022 income statement is:
a. $2,000
b. $1,900
c. $1,500
d. $1,600
The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash
b. A debit to cash and credits to common stock and retainedearnings
c. A debit to cash and a credit to common stock
d. All of these answer choices are incorrect

Accepted Answer

The correct amount of prepaid insurance shown on a company'sDecember 31, 2021, balance sheet was $1,400. On May 1, 2022, the company paid an additional insurance premium of $1,100.In the December 31, 2022, balance sheet, the amount of prepaid insurance was correctly shown as $1,000. The amount of insurance expense that should appear in the company's 2022 income statement is:
a. $2,000
b. $1,900
c. $1,500
d. $1,600

Question 8

Th e correct answer is d:

$17,200 beginning balance
+ (plus)
68,000 additional receipts
- (minus)
(69,700) subscription revenue recognized
= $15,500
The Contra Costa Times Company reported a $17,200 liabilityin its 2021 balance sheet for subscription revenue received in advance. During 2022, $68,000 was received from customers and the 2022 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2022balance sheet?
a. $0
b. $17,200
c. $18,900
d. $15,500
Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability
b. Debiting an expense
c. Debiting cash
d. Crediting an expense
The key distinction between current liabilities and long-term liabilities is:
a. The amount of the obligation to be satisfied—large versus small
b. To whom the obligation is owed—those inside versus those outside of the company
c. The length of time until the obligation is expected to be satisfied—less than one year versus more than one year, or operating cycle if longer
d. The nature of the obligation—determinable amountversus estimated amount
Which of the following is true regarding GAAP and IFRS?
a. There are more differences than similarities between U.S. GAAP and IFRS
b. IFRS specifies a maximum number of items to be reported
in the balance sheet
c. Many companies reporting under IFRS present noncurrent assets before current assets in the balance sheet
d. U.S. GAAP specifies a minimum number of items to be reported in the balance sheet

Accepted Answer

The Contra Costa Times Company reported a $17,200 liabilityin its 2021 balance sheet for subscription revenue received in advance. During 2022, $68,000 was received from customers and the 2022 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2022balance sheet?
a. $0
b. $17,200
c. $18,900
d. $15,500

Question 9

The correct answer is b:

$12,000 × 8% × 8/12 = $640
Gary's Grocery borrowed $12,000 at 8% interest on May 1,2021, with principal and interest due on April 30, 2022. The company's fiscal year ends December 31. What amount of interest expense would appear in the company's income statement for the year ended December 31, 2021, related to this loan?
a. $480
b. $640
c. $960
d. $560
Geisner Inc. has total assets of $1,000,000 and total liabilities of $600,000. The industry average debt to equity ratio is 1.20. Calculate Geisner's debt to equity ratio and indicate whether the company's default risk is higher or lower than the average of other companies in the industry.
a. 0.60; Higher default risk
b. 0.60; Lower default risk
c. 1.50; Higher default risk
d. 1.50; Lower default risk
Bledsoe Motors reported revenue of $7,500,000 for its year ended December 31, 2021. Accounts receivable at December31, 2020 and 2021, were $480,000 and $532,500, respectively. Using the direct method for reporting cash flows from operating activities, Bledsoe Motors would report cash collected from customers of:
a. $7,500,000
b. $7,552,500
c. $7,567,500
d. $7,447,500
The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash
b. A debit to cash and credits to common stock and retainedearnings
c. A debit to cash and a credit to common stock
d. All of these answer choices are incorrect

Accepted Answer

Gary's Grocery borrowed $12,000 at 8% interest on May 1,2021, with principal and interest due on April 30, 2022. The company's fiscal year ends December 31. What amount of interest expense would appear in the company's income statement for the year ended December 31, 2021, related to this loan?
a. $480
b. $640
c. $960
d. $560

Question 10

The correct answer is c:

Cash receipts $75,000

Less cash disbursements (21,000)

Cash basis net income 54,000

Deduct: Depreciation expense (8,000)

Decrease in prepaid expenses (5,000)

Add: Increase in accounts receivable 7,000

Decrease in accrued liabilities 4,000

Accrual basis net income $52,000
What are temporary earnings?
a. Earnings from transactions that are not likely to occur again in the foreseeable future
b. Earnings from transactions that are likely to generate similar profits in the future
c. Earnings from transactions likely to have a different impact on income in the future
d. Both a and c
Dan White Draperies maintains its records on a cash basis. During 2021, thecompany collected $75,000 from customers and paid $21,000 in expenses.Depreciation expense of $8,000 would have been recorded on an accrualbasis. Over the course of the year, accounts receivable increased $7,000,prepaid expenses decreased $5,000, and accrued liabilities decreased$4,000. Dan's accrual basis net income was:
a. $41,000
b. $57,000
c. $52,000
d. $45,000
The correct amount of prepaid insurance shown on a company'sDecember 31, 2021, balance sheet was $1,400. On May 1, 2022, the company paid an additional insurance premium of $1,100.In the December 31, 2022, balance sheet, the amount of prepaid insurance was correctly shown as $1,000. The amount of insurance expense that should appear in the company's 2022 income statement is:
a. $2,000
b. $1,900
c. $1,500
d. $1,600
Which of the following items would not be included as a cashflow from operating activities in a statement of cash flows?
a. Purchase of inventory
b. Purchase of machinery
c. Payment of income taxes
d. Collection of interest on a note

Accepted Answer

Dan White Draperies maintains its records on a cash basis. During 2021, thecompany collected $75,000 from customers and paid $21,000 in expenses.Depreciation expense of $8,000 would have been recorded on an accrualbasis. Over the course of the year, accounts receivable increased $7,000,prepaid expenses decreased $5,000, and accrued liabilities decreased$4,000. Dan's accrual basis net income was:
a. $41,000
b. $57,000
c. $52,000
d. $45,000

BUS 220B: Multiple Choice Midterm Exam Study Guide

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