ACCT IS 301 701 Financial Reporting I Fall 2024 Review Packet 1 This review packet only provides examples of the nature and types of questions on Exam 1 It is not intended to be representative of the length or difficulty of the actual exam Note Solutions are at the end of the review packet Multiple Choice Circle the best answer for each question 1 The expense recognition principle is best demonstrated by a Recognizing revenue before cash is received when selling on account b Not recognizing any expense unless some revenue is realized c Recognizing prepaid rent received as revenue d Associating effort expense with accomplishment revenue 2 Which of the following best describes the relationship between the Securities and Exchange Commission SEC and accounting standard setting in the United States U S a The SEC requires all companies listed on an exchange to submit only their annual financial statements to the SEC b The SEC coordinates with the American Institute of Certified Public Accountants AICPA in establishing accounting standards c The SEC has a mandate to establish accounting standards which it has delegated to the Financial Accounting Standards Board FASB d The SEC reviews financial statements for compliance with accounting standards but has no enforcement authority 3 Which of the following is not an assumption in the FASB s Conceptual Framework a economic entity assumption b monetary unit assumption c periodicity assumption d conservatism assumption 1 4 Gordon Corporation reports the following information Net income Dividends on common stock Dividends on preferred stock Beginning of year common shares outstanding End of year common shares outstanding Weighted average common shares outstanding 500 0 00 140 0 00 60 000 90 000 110 00 0 100 0 00 Gordon should report earnings per share of a 3 00 b 3 60 c 4 40 d 5 00 5 McEvoy Corporation reports the following information Correction of understatement of depreciation expense in prior years net of tax Dividends declared in 2024 Net income 2024 Retained earnings 1 1 24 as reported 430 00 0 320 0 00 1 000 0 00 2 000 0 00 McEvoy should report retained earnings 1 1 24 as adjusted at a 1 570 000 b 2 000 000 c 2 430 000 d 3 110 000 6 Which of the following is NOT an objective of financial reporting a To provide information about economic resources the claims to those resources and the changes in them 2 b To provide information that is helpful to investors and creditors and other users in assessing the amounts timing and uncertainty of future cash flows c To provide information that is useful to those making investment and credit decisions d To provide information on the liquidation value of an enterprise e All of these are objectives of financial reporting 7 The occurrence that most likely would have no effect on 2024 net income is the a sale in 2024 of an office building purchased in 1996 b sale of inventory purchased in 2023 c correction of an error in the 2023 financial statements discovered subsequent to issuance d stock purchased in 2024 and sold at a loss 8 Which of the following is an example of managing earnings up a Decreasing estimated salvage value of equipment b Writing off obsolete inventory to Cost of Goods Sold COGS c d Increasing the number of years of estimated useful life of equipment Increasing the percentage of accounts receivable that will be uncollectable e All of the above are examples of managing earnings up 9 Which of the following is TRUE regarding changes in estimates a A company recognizes a change in estimate by making a retrospective adjustment to the financial statements b A company accounts for changes in estimates only in the period of change even though it affects the future periods c Changes in estimates are not carried back to adjust prior years d Changes in estimates are considered errors 10 The current year end balance sheet is useful for analyzing all of the following except a liquidity b solvency c profitability d financial flexibility 11 On January 1 2024 Cobb Co received for the sale of a parcel of land a ten year note receivable having a face amount of 2 000 000 and a stated 3 interest rate of 8 payable annually each December 31 The market rate of interest for this type of note is 10 Present value factors are as follows Present value of 1 for 10 periods Present value of an ordinary annuity of 1 for 10 periods At 8 0 463 19 6 710 08 At 10 0 385 54 6 144 57 The amount to record as proceeds for the sale of the land is a b c d e 2 000 000 1 960 200 1 840 000 1 754 211 None of the above 12 Recording the adjusting journal entry for depreciation has the same effect on the accounting equation as recording the adjusting journal entry for the a completion of the earnings process on previously unearned revenue b expiration of prepaid expenses c initial accrual of sales revenue d none of the above 13 At January 1 2023 Happ Corp had been in business for several years and had a retained earnings balance greater than 0 Presented below are data for Happ Corp for the years 2023 and 2024 Assets December 31 Liabilities December 31 Stockholders Equity Dec 31 Dividends Common Stock issued during the year Net Income 2023 2024 5 0 3 3 00 60 2 00 1 00 0 0 500 2 00 0 450 2 61 0 The amount of Dividends in 2024 is which of the following a 420 b 480 4 c 1 260 d 2 260 14 An accrued expense can best be described as an amount received in cash before services are performed a paid in cash before it is used or consumed b c not yet received in cash for services already performed d not yet paid in cash 15 Badger Company agrees to lease a newly purchased bus to another company Badger will collect rents of 16 000 per year at the beginning of each of the next five years with the first rent due immediately Present value of an ordinary annuity for 5 periods Present value of an annuity due for 5 periods At 10 3 7907 9 4 1698 7 Assuming Badger set the rents to earn a 10 annual return on its initial cost to purchase the bus how much did Badger pay for the bus a 60 654 b 66 718 c 80 000 d 97 682 PROBLEMS Problem 1 Time Value of Money Killroy Company acquired a patent through the acquisition of another company The other company reports the patent at 300 000 on its balance sheet but according to GAAP Killroy must remeasure the patent because Killroy acquired it in a business combination To remeasure Killroy must estimate its fair value as of the acquisition date Killroy has developed the following cash flow estimates related to the patent