TEST FINANCIAL ACCOUNTING (ISCAC ERASMUS)

The objective of financial reporting. is focused on management decisions. . is focused on stewardship. is communicated in the president’s letter. is focused on equity investors, lenders, and other creditors in making decisions.

An effective capital allocation process. promotes productivity. encourages innovation. provides an efficient market for buying and selling securities. all of these choices are correct.

Which of the following generally provides a better indication of an enterprise’s present and continuing ability to generate favorable cash flows?. Cash basis accounting. Accrual basis accounting. Managerial basis accounting. Financial basis accounting.

The objective of general purpose financial reporting adopts an entity perspective, which means that. financial reporting should be focused on assessing the company’s stewardship. financial reporting should be focused solely on the needs of the owners. companies are viewed as separate and distinct from their owners. None of these answer choices are correct.

The accrual basis of accounting. is used only by international companies. records the financial effects of events in the periods in which the events occur, rather than only in the periods in which it receives or pays cash. is applied to revenues and expenses but not gains and losses. does not help achieve the objective of financial reporting, because it is not based on cash flows.

General purpose financial statements are considered most appropriate because they. provide only information for investors. provide information to help managers make decisions. are not permitted for use by regulators. provide at the least cost the most useful information possible.

The first step taken in the establishment of a typical IASB standard statement is. the board conducts research and analysis and a discussion memorandum is issued. a public hearing on the proposed standard is held. the board evaluates the research and public response and issues an exposure draft. topics are identified and placed on the board's agenda.

In determining what recognition, valuation, and disclosure requirements should be used, a company uses the following hierarchy: (1) IFRS, IAS, and IFRS and IAS interpretations; (2) FASB Standards; (3) Conceptual Framework. (1) IFRS, IAS, and IFRS and IAS interpretations; (2) the Conceptual Framework; (3) Pronouncements of other standard-setting bodies that use a similar conceptual framework. (1) The Conceptual Framework; (2) IFRS, IAS, and IFRS and IAS interpretations, and (3) Pronouncements of other standard-setting bodies that use a similar conceptual framework. (1) IFRS, IAS, and IFRS and IAS interpretations; (2) tax laws; (3) Pronouncements of other standard setting bodies that use a similar conceptual framework.

From the four statements that follow, which are true?. 1, 2, 3, and 4 are all true. 1, 2, and 4 are all true. 2 and 4 are all true. and 2 are all true.

A conceptual framework. is mandated by all international standard-setters. has no role in accounting, since standards have the highest authority. is a coherent system of concepts that flow from an objective. likely does not increase financial statement users’ understanding of and confidence in financial reporting.

A conceptual framework is necessary for which of the following reasons?. It allows the profession to quickly solve new and emerging issues. It enables standard setters to issue more useful and consistent pronouncements over time. It increases financial statement users’ understanding of and confidence in financial reporting. all of these answer choices are correct.

The underlying theme of the conceptual framework is. decision usefulness. understandability. reliability. comparability.

In order to be relevant, financial information must have. freedom from error. neutrality. comparability. confirmatory or predictive value.

The residual interest in the assets of the entity after deducting all its liabilities are called. assets. a revenue. expenses. equity.

Which of the following elements of financial statements describes the amount of resources less the amount of claims to resources at a moment in time?. Expenses. Revenues. Equity. Cash flow.

Under current IFRS, inflation is ignored in accounting due to. materiality. the going concern assumption. the monetary unit assumption. Consistency.

Depreciation and amortization policies are justifiable and appropriate because of the. economic entity assumption. going concern assumption. monetary unit assumption. periodicity assumption.

Generally, revenues are recognized when the. cash is received. performance obligation is satisfied. product is produced. All of these answer choices are correct.

Which of the following statements about the fair value principle is true?. Fair value is a market-based measure. Fair value is generally less relevant than historical cost. Measurements based on fair value increase the objectivity in financial reporting. IFRS requires the use of fair value for financial assets and financial liabilities.

Under IFRS. companies may apply fair value to natural resources. the monetary unit assumption is used, however since every country has its own currency the unit of measure will vary depending on the country in which the company is incorporated. the existing conceptual framework is very similar to the conceptual framework under GAAP. All of these answer choices are correct.

Factors that shape an accounting information system include the. transactions in which the business engages. informational demands of management. volume of data to be handled. all of these answer choices are correct.

_________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts. Journalizing. Posting. Closing. Ledgerizing.

Which of the following is an incorrect depiction of the accounting equation?. Assets = Liabilities + Equity. Assets – Equity = Liabilities. Assets – Liabilities = Equity. Assets + Equity = Liabilities.

When a dividend is declared,. assets decrease. liabilities increase. equity increases. all of these answer choices are correct.

Which of the following is not transferred to Retained Earnings at the end of the period?. Revenues. Dividends. Ordinary shares. Expenses.

When a corporation purchases a computer for cash,. When a corporation purchases a computer for cash,. equity decreases. assets increase. assets increase.

Which of the following is not a recordable event or item?. Changes in managerial policy. Sales of the company’s product in overseas markets. Declaration of dividends. Purchase of supplies.

Which of the following statements about a trial balance is incorrect?. Its primary purpose is to prove the mathematical equality of debits and credits after posting. It uncovers errors in journalizing and posting. It is useful in the preparation of financial statements. It proves that all transactions have been recorded.

The adjusting entry to record an accrued expense includes a debit to. a liability account and a credit to an expense account. a liability account and a credit to a revenue account. an expense account and a credit to a revenue account. an expense account and a credit to a liability account.

The difference between the cost of a depreciable asset and its related contra account, Accumulated Depreciation, is referred to as the asset’s. book value. fair value. market value. real value.

An adjusting entry would never include a. debit to an expense account and a credit to an asset account. debit to an expense account and a credit to a liability account. debit to a liability account and a credit to a revenue account. debit to an asset account and a credit to a liability account.

If the adjusting entry for an accrued revenue is not made,. assets will be overstated. revenues will be overstated. liabilities will be understated. equity will be understated.

An accrued expense is. an expense which is recorded when cash is received. an expense that has been incurred but for which payment has not yet been made. an expense for which cash is paid before the expense is incurred. initially recorded as an asset.

A closing entry would never include a. credit to an expense account and a debit to Income Summary. debit to a revenue account and a credit to Income Summary. debit to Income Summary and a credit to Retained Earnings. debit to an asset account and a credit to a liability account.

The proper sequence of financial statement preparation is the. Retained Earnings Statement, the Statement of Financial Position, the Income Statement, and then the Statement of Cash Flows. Income Statement, the Retained Earnings Statement, the Statement of Financial Position, and then the Statement of Cash Flows. Statement of Financial Position, the Retained Earnings Statement, the Income Statement, and then the Statement of Cash Flows. Statement of Cash Flows, the Income Statement, the Retained Earnings Statement, and then the Statement of Financial Position.

If the balances in both accounts receivable and accounts payable decrease during the year,. the decrease in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period. the decrease in both the accounts receivable and accounts payable balances will result in an increase in cash for the period. the decrease in the accounts receivable balance would result in an increase in cash for the period. the decrease in the accounts payable balance would result in an increase in cash for the period.

Mantz Manufacturing Company has the following account balances at year end. Office supplies 6,000 Raw materials 21,000 Work in process 44,000 Finished goods 52,000 Prepaid insurance 8,000 What amount should Mantz report as inventories in its balance sheet?. 52.000. 96.000. 117.000. 123.000.

Which of the following would not be included in a manufacturing company's balance sheet?. Finished goods inventory. Merchandise inventory. Raw materials inventory. Work in process inventory.

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?. Raw materials. Work-in-process. Finished goods. Supplies.

Where should raw materials be classified on the statement of financial position?. Prepaid expenses. Inventory. Equipment. Not on the statement of financial position.

Which of the following accounts is not reported in inventory?. Raw materials. Equipment. Finished goods. Supplies.

Computers for You is a retailer specializing in selling computers and related equipment. Which of the following would not be reported in the merchandise inventory account reported on the statement of financial position for Computers for You at December 31, 2025?. Computer purchased for resale during November 2025. Shelving materials purchased during December 2025. Freight costs related to the computers purchased in November. All of the choices are included in the merchandise inventory account at December 31, 2025.

Which of the following accounts does not exist in a perpetual inventory system?. Inventory. Cost of Goods Sold. Sales Returns and Allowances. Purchases.

Fallon Inc. is a calendar-year corporation. Its financial statements for the years 2025 and 2024 contained errors as follows. Assume that the proper correcting entries were made at December 31, 2024. By how much will 2025 income before taxes be overstated or understated?. $3,000 understated. $16,500 overstated. $10,500 overstated. $15,000 overstated.

Under a perpetual inventory system, which accounts are debited each time a sale on account is made?. Accounts Payable and Purchases. Accounts Receivable and Cost of Goods Sold. Inventory and Cost of Goods Sold. Accounts Receivable and Purchases.

Which of the following items should be included in a company's inventory at the balance sheet date?. Goods in transit which were purchased f.o.b. shipping point. Goods received from another company for sale on consignment. Goods sold to a customer that is being held for the customer to call for at his or her convenience. Goods sold to a customer that was shipped f.o.b. shipping point.

Where should goods in transit that were recently purchased f.o.b. destination be included on the statement of financial position?. Accounts payable. Inventory. Not reported. On the income statement.

IFRS exclude which of the following from the cost of inventory?. Most storage costs. General administrative costs. Selling costs. All of these answer choices are excluded by IFRS.

In a period of rising prices, the inventory method that produces the highest ending inventory is. CMP. FIFO. LIFO. the method that results in the highest cost of goods sold.

Which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold?. Specific identification. FIFO perpetual. FIFO periodic. Average.

Property, plant, and equipment includes. deposits on machinery not yet received. idle equipment awaiting sale. land held for possible use as a future plant site. None of these answer choices are classified as property, plant, and equipment.

Cayo Casta Cabins Corporation recently purchased Ship Island Resort and Casino and the land on which it is located with the plan to tear down the resort and build a new luxury hotel on the site. Cayo Casta Cabin Corporation salvaged fixtures and wood flooring from Ship Island prior to demolishing the building. The proceeds from the sale of the salvaged materials should be. recognized as revenue in the period of the sale. recognized as a gain in the year the hotel is torn down. recorded as a reduction of the cost of the land. recorded as a reduction of the cost of the new hotel.

The cost of equipment includes all of the following except. a purchase price reduced by any discount taken. freight costs. installation costs. required maintenance costs during the first year of operations.

Watauga Company purchased equipment on July 1, 2025 for $70,000. Sales tax on the purchase was $700. Other costs incurred were freight charges of $800, insurance during shipping of $150, repairs of $1,300 for damage during installation, and installation costs of $1,050. What is the cost of the equipment?. 70.000. 71.500. 72.700. 74.000.

The cost of property acquired by the issuance of securities which are actively traded on an organized exchange is equal to the. original cost of the securities. market price of the securities. par value of the securities. book value of the property acquired.

During self-construction of an asset by Gambino Company, the following were among the costs incurred. Fixed overhead for the year $1,210,000 Portion of $1,210,000 fixed overhead that would be allocated to the asset if it were normal production 35.000 Variable overhead attributable to self-construction 25.000 What amount of overhead should Gambino include in the cost of the self-constructed asset?. 0. 25.000. 35.000. 60.000.

The interest rate(s) used in computing the capitalized borrowing cost is(are) the. rate incurred on specific borrowings. weighted-average rate incurred on all other outstanding debt. lower of the rate incurred on specific borrowings or the capitalization rate. rate incurred on specific borrowings for the average carrying amount of the expenditures equal to the specific borrowings and the capitalization rate of other borrowings for the excess expenditures.

The accounting for interest costs incurred during construction recommended under IFRS is to. capitalize no interest charges during construction. charge construction with all costs of funds employed, whether identifiable or not. capitalize the lesser of actual interest cost for the period or the amount of interest cost computed by multiplying the average carrying amount by the capitalization rate. capitalize a pro rata portion of all costs of funds employed.

Property received through a government grant is recognized at its fair value and offset with a credit entry to the. Miscellaneous Gain account. Accumulated Depreciation account. Deferred Grant Revenue account. Share Capital account.

Fielder Company purchased land and a building for a lump sum cost of $420,000. The land has a fair value of $160,000 and the building has a fair value of $320,000. The cost assigned to the land is. 0. 140.000. 160.000. 210.000.

Delta River Company sold manufacturing equipment with a cost of $44,000 and accumulated depreciation of $32,000 for $9,000. The journal entry to record this transaction will include a. credit to the Equipment account for $12,000. credit to a gain account for $8,000. debit to a loss account for $3,000. credit to Accumulated Depreciation – Equipment for $32,000.

On September 1, 2025, Alpha Graphics Printing Co. incurred the following costs for one of its printing presses. Purchase of attachment $35,000 Installation of attachment 3,000 Replacement parts for renovation of press 12,000 Labor and overhead in connection with renovation of press 1,000 The renovation resulted in increased future service potential of the press. What amount of the costs should be capitalized?. 0. 38.000. 47.000. 51.000.

Expenditures that increase the future service potential and are a substitution of a better asset for the original asset are accounted for. as a replacement of a similar asset and expensed as incurred. as a rearrangement of assets and is debited as an expense. by adding the cost of the new asset and removing the cost of the old asset and related depreciation, and recognize a loss, if any. by debiting Accumulated Depreciation for the cost of the new asset.

64. Silver Oak Company purchased machinery for A$320,000 on January 1, 2021. Straight-line depreciation has been recorded based on a A$20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2025 at a gain of A$6,000. How much cash did Silver Oak receive from the sale of the machinery?. A$46,000. A$54,000. A$66,000. A$86,000.

Timber Ridge Company sold equipment with a cost of $75,000 and accumulated depreciation of $40,000 for $37,000. The journal entry to record this transaction will include a. credit to the Equipment account for $35,000. credit to a gain account for $38,000. debit to a loss account for $2,000. debit to Accumulated Depreciation – Equipment for $40,000.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?. Associating cause and effect. Systematic and rational allocation. Immediate recognition. Partial recognition.

Which of the following is not true of depreciation accounting?. Depreciation lowers the book value of the asset as it ages and its fair value declines. Depreciation matches expenses against revenues over the periods which benefit from the asset’s use. Depreciation is a process of cost allocation. Tangible assets with limited lives are depreciated.

The major difference between the service life of an asset and its physical life is that. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. physical life is always longer than service life. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.

A principal objection to the straight-line method of depreciation is that it. provides for the declining productivity of an aging asset. ignores variations in the rate of asset use. tends to result in a constant rate of return on a diminishing investment base. gives smaller periodic write-offs than decreasing charge methods.

Dixon Company purchased a depreciable asset for ₤32,000. The estimated salvage value is ₤4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?. 6.400. 7.000. 8.000. 16.000.

Chattanooga Company purchased a depreciable asset for ¥80,000 on January 1, 2023. The estimated salvage value is ¥20,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On January 1, 2025, the company made a capital expenditure of ¥16,000 for an addition to the asset. What is depreciation expense for 2025?. 12.000. 14.400. 24.000. 17.333.

An impairment of property, plant, or equipment has occurred if the. estimated salvage value is less than the actual proceeds received on disposal. recoverable amount is less than the asset’s carrying value. revised estimated useful life is less than the original estimated useful life. expected future cash outflows exceeds the asset’s carrying value.

Lebanon Corporation owns equipment with a cost of ₤320,000 and accumulated depreciation at December 31, 2025 of ₤120,000. It is estimated that the machinery will generate future cash flows of ₤175,000. The machinery has a recoverable amount of ₤155,000. Lebanon should recognize a loss on impairment of. 0. 25.000. 35.000. 45.000.

Flannery Corporation owns machinery with a book value of €520,000. It is estimated that the machinery will generate future cash flows of €465,000. The machinery has a recoverable amount of €415,000. Florence should recognize a loss on impairment of. 0. 50.000. 55.000. 105.000.

Mains Corporation owns equipment with a cost of €290,000 and accumulated depreciation at December 31, 2025 of €150,000. It is estimated that the machinery will generate future cash flows of €165,000. The machinery has a recoverable amount of €145,000. Mains should recognize a loss on impairment of. 0. 15.000. 25.000. 35.000.

Cambodian Import Company purchased a depreciable asset for €160,000 on April 1, 2022. The estimated salvage value is €40,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on March 1, 2025 when the asset is sold?. 66.000. 70.000. 72.000. 186.667.

Antigua Company purchased a depreciable asset for $45,000 on October 1, 2023. The estimated salvage value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for depreciation. What is the book value on July 1, 2025 when the asset is sold?. 10.500. 15.750. 25.500. 34.500.

All of the following are true with regard to impairment testing of long-lived assets except. if impairment indicators are present, the company must conduct an impairment test. the impairment test compares the asset’s carrying value with the lower of its fair value less cost to sell and its value-in-use. if the recoverable amount is lower than the carrying value, an impairment loss will be reported on the period’s income statement. if either the fair value less cost to sell or the value-in-use is higher than the carrying amount, no impairment loss will be recorded.

Which of the following is not a characteristic of intangible assets?. They lack physical existence. They are not financial instruments. They are long-term in nature. They are all subject to amortization.

Expensing all R&D costs associated with internally created intangible assets could result in. overstating assets and overstating expenses. overstating assets and understating expenses. understating assets and overstating expenses. understating assets and understating expenses.

A purchased limited-life intangible asset _______ amortized and is impairment tested using ________. is; the recoverable amount test. is not; the fair value test only. is not; the recoverable amount test. is; the fair value only.

Which of the following is a factor to be considered in determining a limited-life intangible asset’s useful life?. Any legal provisions that may limit the useful life. The expected useful life of any related asset. The effects of obsolescence. All of the answer choices are correct.

Which of the following is not one of the major categories of intangibles?. Contract-related. Financing-related. Artistic-related. Marketing-related.

On January 1, 2025, Springsteen AG acquires a customer list for €400,000. Springsteen estimates that this customer list will generate value for at least 5 years. At the end of 3 years, Springsteen plans to sell the customer list to another company for €62,500. On Springsteen’s income statement for the year ended December 31, 2025, how much amortization expense would it report?. 67,500. 133,333. 80,000. 112,500.

Eisenhower Corporation purchased a patent for $1,850,000 on November 30, 2023. It has a remaining legal life of 18 years. Eisenhower estimates that the remaining useful life of the patent is 15 years. What balance will be reported on the December 31, 2025 balance sheet for the patent (if necessary, round your answer to the nearest dollar)?. $1,850,000. $1,583,678. $1,593,056. $1,485,606.

Zak Ltd. and Clark Group were combined in a purchase transaction. Zak Ltd. was able to acquire Clark at a bargain price. The fair market value of Clark’s net assets exceed the price paid by Zak to acquire the company. Proper accounting treatment by Zak is to report the excess of fair value over purchase price as. a gain. a loss. a liability. paid-in capital.

Truffle SA acquired a patent on January 1, 2019 for €7,800,000. It was expected to have a 10-year life and no residual value. Truffle uses straight-line amortization for its patents. On December 31, 2022, the expected future cash flows from the patent are €518,000 per year for the next six years. The present value of these cash flows, discounted at Truffle’s market interest rate, is €2,120,000. What amount, if any, of impairment loss will be reported on Truffle’s 2025 income statement?. 1340.000. 2.120.000. 2.560.000. 4680.000.

Kust Company acquired a patent on a manufacturing process on January 1, 2024 for $5,100,000. It was expected to have a 12-year life and no residual value. Kust uses straight-line amortization for patents. On December 31, 2025, the expected future cash flows from the patent are $387,500 per year for the next ten years. The present value of these cash flows, discounted at Kust’s market interest rate, is $3,050,000. At what amount should the patent be carried on the December 31, 2025 balance sheet?. 5.100.000. 4.250.000. 3.875.000. 3.050.000.

Felhofer AG purchased McKinley Marine on June 1, 2021 for €25,000,000 and recorded goodwill of €3,100,000 in connection with the purchase. At December 31, 2025, the McKinley Marine Division had a fair value of €25,400,000. The net identifiable assets of McKinley (including goodwill) had a fair value of €24,900,000 at that time. What amount of loss on impairment of goodwill should Felhofer record in 2025?. 0. 500.000. 600.000. 2.600.000.

Which of the following principles best describes the current method of accounting for research costs?. Associating cause and effect. Systematic and rational allocation. Income tax minimization. Immediate recognition as an expense.

Which of the following is considered a research activity?. Construction of a prototype. Operation of a pilot planT. Critical investigation aimed at discovery of new knowledge. All of these answer choices are correct.