Corporate Financial Reporting
Chapter Exam Questions
Course Introduction
Corporate Financial Reporting examines the principles, standards, and practices involved in the preparation and analysis of published financial statements by corporations. The course explores the regulatory environment governing corporate disclosure, including international and national accounting standards (such as IFRS and GAAP), and addresses topics such as revenue recognition, asset and liability measurement, equity transactions, and cash flow reporting. Students will learn how to interpret and evaluate financial statements for decision-making purposes, analyze the impact of managerial choices on reported financial results, and assess the role of ethics and transparency in corporate financial communication.
Recommended Textbook
Intermediate Accounting Volume 1 3rd Edition by Kin Lo
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Page 2
Chapter 1: Fundamentals of Financial Accounting Theory
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Q1) Explain the meaning of adverse selection and moral hazard.Give an example of each.
Answer: Adverse selection: A type of information asymmetry whereby one party to a contract has an information advantage over another party.Examples: buying a resale home;buying a used car;buying shares in a company,etc.
Moral hazard: A type of information asymmetry whereby one party to a contract cannot observe some actions relating to the fulfillment of the contractual terms by the other party.Examples: renting an apartment to a tenant;car insurance;hiring an executiveseparation of ownership and management or the principal-agent problem;lending money to a company,etc.
Q2) How does an accountant decide on the appropriate method of accounting for a business transaction?
A)Evaluating if the particular method is consistent with the conceptual framework.
B)Ensuring that the accounting method agrees with that selected by other companies.
C)Evaluating whether the selected method differs from the underlying economics.
D)Testing the selected method for numerical accuracy and consistency.
Answer: A
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Chapter 2: Conceptual Frameworks for Financial Reporting
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Q1) Which is not an element of financial information in the IFRS Conceptual Framework?
A)Other comprehensive income.
B)Assets.
C)Income.
D)Liabilities.
Answer: A
Q2) Which statement best explains the qualitative characteristic of "relevance"?
A)Financial reports should be understandable to the users of the information.
B)Omitting information would influence a user's economic decision.
C)Information should influence a user's economic decisions.
D)Financial reports should be accurate and complete.
Answer: C
Q3) The underlying or fundamental objective of the accounting conceptual framework is A)decision usefulness.
B)comparability.
C)representational faithfulness.
D)understandability.
Answer: A
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4
Chapter 3: Accrual Accounting
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Sample Questions
Q1) Which asset groups do not need to be presented separately in the balance sheet?
A)Asset groups that differ in their function or nature.
B)Liabilities that are due to different banks.
C)Asset groups that are material.
D)Investment properties.
Answer: B
Q2) The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2019.A machine was purchased on January 1,2017,at a cost of $150,000.The machine has an estimated useful life of 10 years and a residual value of $9,000.What is the appropriate accounting?
A)Retrospective adjustment for fiscal 2019.
B)Retrospective adjustment for fiscal 2017 and 2018.
C)Prospective adjustment from fiscal 2018 going forward.
D)Error correction for fiscal 2019.
Answer: B
Q3) Using the conceptual frameworks and other ideas,discuss whether a change in accounting policy should be treated prospectively or retrospectively.
Answer: 11ea7cc7_61a8_5891_928c_591735e66dd9_TB1320_00
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Chapter 4: Revenue and Recognition
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Sample Questions
Q1) What disclosures are required under IFRS for construction contracts?
A)Method used to determine the percentage complete in the period.
B)Contract revenue recognized in the period.
C)Method of revenue recognition.
D)All of the above are required.
Q2) Why is there risk of earnings overstatement in accounting for construction contracts?
A)The long term nature of such contracts makes them a low risk area.
B)Allocation of revenue and expenses between two or more periods simplifies the accounting.
C)Significant professional judgment is required to make estimates used in the calculations.
D)Percentage of completion method reduces the potential for earnings management,manipulation and errors.
Q3) On January 1,2018 Sukhi's Cycles Inc.sells a motorcycle for $24,000.Terms offered are $10,000 cash with the balance of $14,000 due on January 1,2020.The market interest rate for transactions of this type is 5% per annum.What is the amount of revenue that Sukhi should record at time of sale?
Q4) List the five key steps in the revenue recognition process.
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Chapter 5: Cash and Receivables
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Q1) What is a "promissory note"?
A)A written promise to repay a specified amount at a specified date.
B)A verbal promise to repay a specified amount at a specified date.
C)A written promise to repay for the goods purchased under regular business terms and conditions.
D)A short term highly liquid investment that is readily convertible to known amounts of cash.
Q2) Marvelos Inc.reported credit sales of $1,000,000,cash sales of $100,000 and bad debt write-offs of $10,000 for last year.The ending balance in accounts receivable was $1,500,000.Bad debt expense was $15,000.The allowance for doubtful accounts had a balance of $40,000 at the beginning of the year.What was the balance in the allowance for doubtful accounts at the end of the year?
A)$15,000
B)$45,000
C)$55,000
D)$65,000
Q3) Explain how a company's revenue recognition policy can be used to manipulate earnings.
Q4) Explain two problems associated with the direct write-off method.
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Chapter 6: Inventories
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Q1) Explain how fixed overhead costs should be accounted for if a plant is made idle due to a prolonged strike.
Q2) Explain the meaning of product costs and period costs.Discuss which costs should be included in the cost of inventories.
Q3) Which statement is correct about the retail inventory method?
A)It represents a cost flow assumption.
B)It estimates cost of goods sold by applying an average gross margin to the amount of sales recorded in the period.
C)It can misstate inventory values if unreliable information is used about profit margins.
D)It provides direct information about actual cost of goods sold or ending inventory.
Q4) What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.
Q5) Compare the FIFO and LIFO methods of inventory valuation.Which method provides better quality information and why?
Q6) Explain why the absorption costing method is appropriate under GAAP.
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Chapter 7: Financial Assets
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Q1) Which item is an example of a financial asset?
A)Share certificate of a public company.
B)Land.
C)Inventory.
D)Equipment.
Q2) Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 7%.At what amount will the bond be recorded (rounded)?
A)$5,093
B)$98,192
C)$100,000
D)$101,703
Q3) What should an investment in a debt instrument be classified as when the business model does not include an intent to trade it?
A)Associate.
B)Amortized cost.
C)At fair value through OCI.
D)At fair value through profit or loss.
Q4) How does having significant influence over an investee alleviate information asymmetry?
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Chapter 8: Property, plant and Equipment
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Q1) Francisco purchased a machine on Jan 1,2016 for $750,000.The machine had an estimated useful life of 5 years and an estimated residual value of $50,000.The company uses straight-line depreciation and records monthly depreciation.The machine was sold on December 31,2019 for $140,000.What was the gain/loss on disposal of the machine?
A)$10,000 gain.
B)$10,000 loss.
C)$50,000 gain.
D)$50,000 loss.
Q2) What costs should not be capitalized to "equipment"?
A)Non-refundable sales tax.
B)Equipment purchase cost.
C)General training.
D)Transportation and delivery.
Q3) Explain how non-monetary transactions are accounted for.
Q4) Will the method of depreciation affect the net cash outflow associated with the purchase and subsequent sale of property,plant and equipment?
Q5) Explain how the depreciation method should be selected for property,plant and equipment.
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Chapter 9: Intangible Assets, goodwill, mineral Resources, and Government Grants
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Q1) What are the unique features that lead to the differing accounting treatment between research and development costs?
Q2) Which of the following is not a characteristic of intangible assets?
A)Intangibles do not have physical substance.
B)Intangibles benefit more than one year.
C)Intangibles have fixed determinable cash flows.
D)Intangibles are held for use in the ordinary course of business.
Q3) Which statement is not correct?
A)Significant uncertainties exist during mineral exploration.
B)Entities can choose to either capitalize or expense mineral exploration costs.
C)IFRS 6 applies when the mineral resources enter the development phase.
D)Under IFRS,all costs must be expensed if a mineral site is not worthy of further exploration.
Q4) Which statement is correct?
A)Under IFRS,research costs must fulfill six specific criteria.
B)Under IFRS,all research costs must be expensed as incurred.
C)Development activities must be technically feasible.
D)Adequate financial resources must exist to complete research activities.
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Q5) Explain the difference between indefinite lived and finite lived intangible assets.
Chapter 10: Applications of Fair Value to Non-Current Assets
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Q1) On December 31,2018,CA Inc.had a machine with an original cost of $20,000 and accumulated depreciation of $5,000.An impairment test on that date indicated that the machine had a value in use of $12,000 and a fair value of $10,000 (no disposal costs).What impairment loss is recorded for fiscal 2018?
A)$3,000
B)$5,000
C)$8,000
D)$10,000
Q2) Explain how non-current assets that are held for sale should be accounted for.
Q3) Which statement is correct?
A)The revaluation model is required for non-current assets under IFRS.
B)The revaluation model is required for non-current assets under ASPE.
C)The revaluation model is optional for non-current assets under IFRS.
D)The revaluation model is optional for non-current assets under ASPE.
Q4) Which statement is correct?
A)Agricultural activity relates to the point of harvest and beyond.
B)Agricultural activity includes fishing from the open ocean.
C)Agricultural activity includes logging from unmanaged forests.
D)Agricultural activity involves transforming biological assets.
Q5) Explain the accounting under the revaluation model available under IFRS.
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