Which sentence concerning ABC's financial statements would be correct? ABC Co. has decided to use the straight line depreciation method in its financial statements and the MACRS method in its tax return.
Correct Answer:
Deferred income tax liability will be shown as a liability on the balance sheet
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Which of the following is a method of timing business transactions or choosing accounting principles so that the firm reports smaller variations in income from year to year than it would otherwise?
Correct Answer:
Income Smoothing
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What change was made in regarding the penalization of the whistleblowers (people who alert the authorities about the illegal activities in a corporation) by the companies?
Correct Answer:
They are now protected against retaliation by the company in order to encourage employees to bring the wrong doings of the companies to light
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Which of the following courses of action should a firm take in order to minimize the present value of income tax payments?
Correct Answer:
Use the LIFO inventory method instead of FIFO durating periods of rising prices
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What is the accounting objective which best relates to the completed contract method?
Correct Answer:
Profit Maximization
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Which of the following must generally be used for financial reporting if it is used for income tax reporting?
Correct Answer:
LIFO
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What are forms 10K and 10Q referred to as?
Correct Answer:
Periodic Filings
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In which years were the Securities & Exchange Acts created?
Correct Answer:
1933 and1934
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What is the accounting objective which best relates to the expensing the cost of employee stock options?
Correct Answer:
Conservatism
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Which of the following methods would be employed to help accomplish the following objective: smoothing a firm's income as a means of minimizing large fluctuations in the price of its stock.
Correct Answer:
All of the above
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Which of the following is true of the Sarbanes Oxley Act?
Correct Answer:
It has created more work for corporate accounting departments
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Which of the following is used by the FASB in the selection of acceptable accounting principles?
Correct Answer:
Conceptual Framework
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What is the accounting objective which best relates to the weighted average inventory method?
Correct Answer:
Income Smoothing
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For which of the following accounts would the use of 'the lower of cost or market price' principle be acceptable?
Correct Answer:
Inventory
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What kind of organization issuing securities would NOT have to register them with the SEC?
Correct Answer:
The government
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What entry would a donor make when giving a cash donation to a charity?
Correct Answer:
Dr: Expense – Contributions, Cr: Cash
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How is an unconditional promise to give a donation to a charity accounted for by the charity?
Correct Answer:
As revenue only when the donation is made
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What is the accounting objective which best relates to the expensing of R&D costs?
Correct Answer:
Income Smoothing
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How are gifts to a charity which are to be further passed on to a 3rd party accounted for while being held by the charity?
Correct Answer:
Dr: Asset, Cr: Liability
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Which FASB sets the requirements for accounting for Non-Profit organizations?
Correct Answer:
FASB SFAS 117
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Which of the financial accounting objectives listed below would seem to be closest to the objective of tax reporting?
Correct Answer:
Conservatism
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Which of the following is a method of accounting for the exploration costs of a mineral resource that would best attain the objective of income tax accounting?
Correct Answer:
Expense in total when incurred
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How should a firm compensating its employees by granting them the option to purchase its shares report it?
Correct Answer:
Choose either of the options a and b
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In which year was the Sarbanes Oxley Act passed?
Correct Answer:
2002
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How is a donated asset accounted by a non-profit organization based on its fair market value?
Correct Answer:
Dr: Asstes, Cr: Revenue
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What is 'paying the least amount of taxes as late as possible within the law to minimize the present value of tax payments for a given set of operations' a description of?
Correct Answer:
Least and Latest Rule
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What is the effect of the SOX on public companies?
Correct Answer:
All of the above
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What is the qualitative accounting objective suggesting that information reported in a financial statement should correspond as precisely as possible to the economic effects underlying transactions and events?
Correct Answer:
Accurate Presentation
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Which of the following statements would be incorrect in comparing the financial statements of two companies, XYZ and ABC which are identical in all respects except that XYZ uses FIFO and ABC uses LIFO in costing its inventories? Prices have been rising steadily over the last several years.
Correct Answer:
The tax liability of XYZ would be less than the tax liability of ABC
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What is the acronym for the agency authorized by the U.S. Congress to regulate the financial reporting practices of most public corporations?
Correct Answer:
SEC
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What was the purpose of the Sarbanes Oxley act, in general?
Correct Answer:
To better regulate public and private companies in the wake of recent accounting scandals
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What is the accounting objective which best relates to the percentage of sales method for uncollectible accounts?
Correct Answer:
Conservatism
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What is the acronym for an independent board responsible, since 1973, for establishing generally accepted accounting principles?
Correct Answer:
FASB
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What is the accounting objective which best relates to the straight line method?
Correct Answer:
Conservatism
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Which doctrine lays down that a firm should account for a given set of operations so as to make reported net income as large as possible?
Correct Answer:
Profit maximization
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What is the acronym for the organization that promotes international harmonization of accounting standards?
Correct Answer:
IASB
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What is the accounting objective which best relates to the disclosing of the cost of employee stock options (not expensing)?
Correct Answer:
Conservatism
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Which of the following methods is normally considered to be acceptable for financial reporting?
Correct Answer:
Lower of cost or market price for inventories
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What statements are required of a Non-Profit organization?
Correct Answer:
statement of financial position, statement of cash flows, and statement of activity and changes in net assets
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What is Form 10-K?
Correct Answer:
Annual financial reports filed with the SEC
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What value should a contribution be accounted for at?
Correct Answer:
Fair value
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What new board was created as part of the Sarbanes Oxley Act?
Correct Answer:
PCAOB – Public Company Accounting Oversight Board
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What is the accounting objective which best relates to the capitalization of prepaid advertising costs?
Correct Answer:
Profit Maximization
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What is the accounting objective which best relates to the Lower of Cost or Market Price method?
Correct Answer:
Conservatism
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What is the accounting objective which best relates to the MACRS method?
Correct Answer:
Tax Minimization
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What is form 10-Q?
Correct Answer:
Quarterly financial reports filed with the SEC
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What is the database created by the SEC for companies to file electronically?
Correct Answer:
EDGAR
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What is the acronym for the independent board responsible, since 1973, for establishing generally accepted accounting principles?
Correct Answer:
FASB
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For which of the following would the use of the straight-line method of amortization be acceptable?
Correct Answer:
All of the above
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What is the accounting objective which best relates to the FIFO method?
Correct Answer:
Profit Maximization
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What is the acronym for an organization that promotes the international harmonization of accounting standards?
Correct Answer:
IASC
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What is the purpose of a Registration Statement?
Correct Answer:
To provide information to the public about a company before it is traded publicly
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What is the accounting objective which best relates to the percentage of completion method?
Correct Answer:
Accurate Presentation
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How are third party adjustments to patient bills reflected in the financial statements?
Correct Answer:
As a deduction from revenue
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Companies of what size have been impacted the most by the SOX from a cost perspective?
Correct Answer:
The larger companies as the larger the company, the more it has to pay to implement the provisions of the Act
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What is the reporting objective that calls for the anticipation of all losses incurred but defers the recognition of gains or profits until they are realized in arm's length transactions?
Correct Answer:
Conservatism
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When is revenue normally recognized for financial reporting on accrual basis?
Correct Answer:
At the point of sale
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Which of the following is a valid criticism of the SOX?
Correct Answer:
It has made foreign companies reluctant to register on US stock exchanges due to the burden of SOX reporting
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What entry would a donor make when giving a cash donation to a charity, where the donor retains the right to revoke the contribution?
Correct Answer:
Dr: Refundable Advance to Charity, Cr: Cash
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What are the 3 types of Health Care Organizations for accounting purposes?
Correct Answer:
Investor-owned, Non-Profit, Governmental
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Which of the following accounts may appear on a company's balance sheet when the incomes for financial and tax reporting are different?
Correct Answer:
Deferred income tax liability
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What two filings are required when a company wishes to list its stock?
Correct Answer:
Forms S-X and S-K
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What is the acronym for the agency authorized by the U.S. Congress to regulate, among other things, the financial reporting practices of most public corporations?
Correct Answer:
SEC
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What is the accounting objective which best relates to the LIFO method?
Correct Answer:
Income Smoothing
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What change was made to the internal controls of the companies by the SOX?
Correct Answer:
All company processes and related internal controls now need to be documented and then tested by an outside auditing firm
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Who can review the filings made by public companies with the SEC?
Correct Answer:
Anyone using the EDGAR system
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What is form 8-K?
Correct Answer:
As needed filing to disclose any significant issues or changes
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What is the phrase with no agreement on meaning which implies to most analysts that earnings quality increase with the likelihood of recurrence?
Correct Answer:
Quality of financial position
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Correct Answer:
Only the CEO now has the authority to sign the company tax returns
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Correct Answer:
Conservatism
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Correct Answer:
Quality of Earnings
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Correct Answer:
Quality of Financial Position
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Accounting Principles MCQs | Topic-wise