S8_Account_Q&A

8/19/2019 S8_Account_Q&A

http://slidepdf.com/reader/full/s8accountqa 1/5

2/15/00 Copyright 2000, Pass101.com, Inc. All Rights Reserved.

Level 1Study Session 8

Practice QuestionsPractice Questions



Level 1

Study Session 8Practice Questions

Sponsorship by:


Click here to view the PDF Report Error/ Typo:

The questions and answers for study session 4 are provided by the Financial Analyst Quizzer, a product of Beach Front Direct. Further information about

the product can be obtained here. Financial Analyst Quizzer can alsobe purchased by clicking here.

Questions from Financial Analyst Quizzer

(1) Jones Company plans to lease a computer from Gray Computing Services. The lease will bea 10-year capital lease with annual payments of $2,400 plus a guarantee of a residual valueof $4,000 at the end of the lease. The present value of the lease discounted at theappropriate interest rate of 9 percent is $17,000. Jones Company uses the straight-linedepreciation method. In the first year, the reported lease expense will be:

A . $3,230

B . $1,700

C . $2,830

D . $2,400

(2) Accounting standards are best described as:

A . the state of the art presentation of the science of accounting.

B . directed toward measuring the quality of stewardship.

C . the result of a political process among groups with diverse interests.

D . presentation standards mandated by the U.S. Securities and Exchange Commission.

(3) Which of the following actions will decrease current net income?

A . Using the percentage-of-completion method instead of the completed-contract method

B . Capitalizing rather than expensing, a purchase

C . Changing from the LIFO method to the FIFO method in periods of rising prices

D . Reclassification of a marketable security that has had a permanent decrease in value

from current to noncurrent



Level 1


Sponsorship by:


(4) Tenley Cafe (TC) estimates a customer has a 1 in 100,000 chance of getting food poisoning.TC serves 25,000 customers each year. The cost to TC of a food poisoning case might

range from a free meal to a large damage award. Which of the following statements about aloss contingency for TC is true?

A . TC must recognize a loss contingency, because a food poisoning case is expected tooccur every fourth year.

B . TC must not recognize a loss contingency, because no food poisoning has occurred.

C . TC must recognize a loss contingency equal to the expected value of the loss.

D . TC must recognize a loss contingency based on the industry average.

(5) All of the following treatments are allowed under U.S. generally accepted accountingprinciples EXCEPT:

A . treating a 40 percent stock distribution as a stock dividend.

B . charging appropriated retained earnings to recognize the outcome of a court case.

C . carrying Treasury stock at the repurchase price.

D . a company that issued $100 par value preferred stock now selling in the market at $80should carry that stock on the balance sheet at $100.

Answers from Financial Analyst Quizzer

(1) C*. $2,830

Reference: White, Sondhi, and Fried, The Analysis and Use of Financial Statements, (JohnWiley & Sons, 1994), Ch. 8, pp. 594-597.

Source: 1996 Sample Exam 1 Question 68Used 1 time in actual or sample exam

Accounting and Corporate Finance--Study Session 9Reading 1.A--Analysis of Financing Liabilities

Learning Outcome: calculate and explain the differences between income statement andbalance sheet accounts for financial and operating leases.

Solution:

Total Lease Expense = Depreciation Expense + Interest Expense= ($17,000 - $4,000) / 10 + $17,000 x 9%= $1,300 + $1,530= $2,830.



Level 1


Sponsorship by:


(2) C*. the result of a political process among groups with diverse interests.


Source: 1996 Sample Exam 1 Question 69Used 2 times in actual or sample exams

Accounting and Corporate Finance--Study Session 7Preliminary Reading--Framework for Financial Statement Analysis

Learning Outcome: be familiar with the basic concepts taught in college-level introductoryaccounting courses.

Comment: For basic accounting theory, any text will be superior to White, Sondhi and Fried.

Refer to p. 41 of the AIMR Study Guide for suggestions.(3) D*. Reclassification of a marketable security that has had a permanent decrease in value

from current to noncurrent

References: White, Sondhi, and Fried, The Analysis and Use of Financial Statements, (JohnWiley & Sons, 1994), Ch. 2, 5, 6, pp. 125-130, 340, 395-403.


Accounting and Corporate Finance--Study Session 7Preliminary Reading--Financial Statements: The Raw Data of Analysis

Accounting and Corporate Finance--Study Session 8Readings 1.A--Analysis of Inventories; 1-B--Analysis of Long-Lived Assets

Learning Outcome: calculate and explain the differences between income statement andbalance sheet accounts for financial and operating leases.

Comment: All three incorrect answers are based upon required readings. The correctanswer is based upon a discontinued reading. This question could be reused with only oneanswer changed.



Level 1


Sponsorship by:


(4) B*. TC must not recognize a loss contingency, because no food poisoning has occurred.

Reference: White, Sondhi, and Fried, The Analysis and Use of Financial Statements, (JohnWiley & Sons, 1994), Ch. 1, p.21.


Accounting and Corporate Finance--Study Session 7Preliminary Reading--Framework for Financial Statement Analysis

Learning Outcome: understand basic accounting and business vocabulary related to the useand construction of financial statements and financial reporting.

Comment: For basic accounting theory, any text will be superior to White, Sondhi and Fried.

Refer to p. 41 of the AIMR Study Guide for suggestions.(5) B*. charging appropriated retained earnings to recognize the outcome of a court case.



Accounting and Corporate Finance--Study Session 7Reading 1.A--Financial Statements: The Raw Data of Analysis

Learning Outcome: explain non-recurring items and calculate their impact on income, cash

flow, and the quality of earnings.

Comment: These matters are not covered adequately in the readings. The correct answer isbased upon the conclusion that a legal judgment or settlement is an unusual or infrequentitem and not an extraordinary item.

S8_Account_Q&A

Documents

Transcript of S8_Account_Q&A