Question 1

In general, an enterprise preparing interim financial statements should:

Options :

A : Defer recognition of seasonal revenue.

B : Disregard permanent decreases in the market value of its inventory.

C : Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.

D : Use the same accounting principles followed in preparing its latest annual financial statements.

Answer: D

Question 2

In April 30, 20X4, Deer Corp. approved a plan to dispose of a component of its business. For the period January 1 through April 30, 20X4, the component had revenues of $500,000 and expenses of $800,000. The assets of the component were sold on October 15, 20X4 at a loss. In its income statement for the year ended December 31, 20X4, how should Deer report the component's operations from January 1 to April 30, 20X4?

Options :

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 and included 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 in loss from discontinued operations.

Answer: D

Question 3

What information should a public company present about revenues from its reporting segments?

Options :

A : Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales.

B :

Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographic areas.

C :

Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographic areas.

D : No disclosure of revenues from foreign operations need be reported.

Answer: A

Question 4

While preparing its 1991 financial statements, Dek Corp. discovered computational errors in its 1990 and 1989 depreciation expense. These errors resulted in overstatement of each year's income by $25,000, net of income taxes. The following amounts were reported in the previously issued financial statements:

Dek's 1991 net income is correctly reported at $180,000. Which of the following amounts should be reported as prior period adjustments and net income in Dek's 1991 and 1990 comparative financial statements?

Options :

A : Option A

B : Option B

C : Option C

D : Option D

Answer: C

Question 5

Which of the following should be disclosed in a summary of significant accounting policies?

I. Management's intention to maintain or vary the dividend payout ratio.

II. Criteria for determining which investments are treated as cash equivalents.

III. Composition of the sales order backlog by segment.

Options :

A : I only.

B : I and III.

C : II only.

D : II and III.

Answer: C

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