FAR 2.1 MCQ

Jul 11th, 2023
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15 test answers
question
Question CPA-00104What is the purpose of information presented in notes to the financial statements?A. To provide disclosures required by generally accepted accounting principles.B. To correct improper presentation in the financial statements.C. To provide recognition of amounts not included in the totals of the financial statements.D. To present management's responses to auditor comments.
answer
ExplanationChoice A is correct. Information presented in notes to the financial statements have the purpose ofproviding disclosures required by generally accepted accounting principles. SFAC 5 para. 7
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Question CPA-05189Which of the following should be disclosed in a summary of significant accounting policies?A. Basis of profit recognition on longtermconstruction contracts.B. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years.C. Depreciation expense.D. Composition of sales by segment.
answer
ExplanationChoice A is correct. The summary of significant accounting policies should disclose policies. The onlypolicy in this question is the basis of profit recognition on longtermconstruction contracts. The otherdisclosures are accounting details and would be disclosed in other footnotes, but not in the summary ofsignificant accounting policies.Choice B is incorrect. The future minimum lease payments should be disclosed, but not in the summaryof significant accounting policies.Choice C is incorrect. Depreciation expense should certainly be disclosed, but not in the summary ofsignificant accounting policies.Choice D is incorrect. The composition of sales by segment should be disclosed, but not in thesummary of significant accounting policies.
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Question CPA-05210Which of the following must be included in a company's summary of significant accounting policies in thenotes to the financial statements?A. Description of current year equity transactions.B. Summary of longtermdebt outstanding.C. Schedule of fixed assets.D. Revenue recognition policies.
answer
ExplanationChoice D is correct. The summary of significant accounting policies should include policies. The onlypolicy in the choices listed is the revenue recognition policies.Choice A is incorrect. A description of current year equity transactions is not a policy. It should bedisclosed somewhere in the footnotes but not in the summary of significant accounting policies.Choice B is incorrect. A summary of longtermdebt outstanding is not a policy. It should be disclosedsomewhere in the footnotes but not in the summary of significant accounting policies.Choice C is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere inthe footnotes but not in the summary of significant accounting policies.
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Question CPA-05214Which of the following is correct concerning financial statement disclosure of accounting policies?A. Disclosures should be limited to principles and methods peculiar to the industry in which the companyoperates.B. Disclosure of accounting policies is an integral part of the financial statements.C. The format and location of accounting policy disclosures are fixed by generally accepted accountingprinciples.D. Disclosures should duplicate details disclosed elsewhere in the financial statements.
answer
ExplanationChoice B is correct. Disclosure of accounting policies (and all other disclosure also) is an integral partof the financial statements.Choice A is incorrect. For disclosure of accounting policies, disclosure should not be limited toprinciples and methods peculiar to the industry in which the company operates. All material accountingpolicies should be disclosed.Choice C is incorrect. For disclosure of accounting policies, the format and location of accountingpolicies are not fixed by GAAP. Accounting policy disclosures are normally Note 1, but that is a(reasonable and very general) practice and not a rule. It does make sense to disclose the why beforethe what.Choice D is incorrect. Disclosure of accounting policies should not duplicate details disclosedelsewhere in the financial statements.
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Question CPA-06073Which of the following is not a disclosure requirement related to risks and uncertainties under U.S.GAAP?A. Disclosure of significant estimates when it is probable that the estimate will change in the near term,even if the effect of the change will be immaterial.B. Disclosure of an entity's major products or services and its principle markets.C. Disclosure of the use of estimates in the preparation of the financial statements.D. Disclosure of concentrations when it is reasonably possible that a concentration could cause a severeimpact in the near term.
answer
ExplanationChoice A is correct. Significant estimates should be disclosed when it is reasonably possible (notprobable) that the estimate will change in the near term and that the effect of the change will be material.Immaterial items are not disclosed.Choice B is incorrect. This is a disclosure requirement.Choice C is incorrect. This is a disclosure requirement.Choice D is incorrect. This is a disclosure requirement.
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Question CPA-08589Which of the following should be disclosed in a summary of significant accounting policies?A. Basis of consolidation.B. Concentration of credit risk of financial instruments.C. Composition of plant assets.D. Adequacy of pension plan assets in relation to vested benefits.
answer
ExplanationChoice A is correct. The summary of significant accounting policies is typically the first note providedafter the financial statements and will include components such as: measurement bases, accountingprinciples and methods, criteria, and policies such as basis of consolidation, depreciation methods,revenue recognition, etc.Choice B is incorrect. Concentration of credit risk relating to financial instruments will be described in aspecific note related to financial instruments.Choice C is incorrect. Plant asset composition will be described in a specific note related to property,plant, and equipment.Choice D is incorrect. Pension plan assets and vested benefits will be described in a specific noterelated to pensions.
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Question CPA-00103Which of the following information should be disclosed in the summary of significant accounting policies?A. Refinancing of debt subsequent to the balance sheet date.B. Guarantees of indebtedness of others.C. Criteria for determining which investments are treated as cash equivalents.D. Adequacy of pension plan assets relative to vested benefits.
answer
ExplanationChoice C is correct. The method of determining which assets are considered to be cash equivalents is asignificant accounting policy.Choice A is incorrect. Debt refinancing would be disclosed in a separate indebtedness note.Choice B is incorrect. Guarantees of other entity's indebtedness would be disclosed in a separatecommitments and contingencies note.Choice D is incorrect. Information about pension plan assets and pension plan liabilities is disclosed ina separate pensions note.
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Question CPA-00202Which of the following should be disclosed in a summary of significant accounting policies?I. Management's intention to maintain or vary the dividend payout ratio.II. Criteria for determining which investments are treated as cash equivalents.III. Composition of the sales order backlog by segment.A. I only.B. I and III.C. II only.D. II and III.
answer
ExplanationChoice C is correct. Il only.The criteria for determining which investments are treated as cash equivalents is a method ofaccounting policies that needs to be disclosed in the summary of significant accounting policies.Choice A is incorrect. Management's intention to maintain or vary the dividend payout ratio is not anaccounting policy.Choices B and D are incorrect. Composition of the sales order backlog by segment is not anaccounting policy.
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Question CPA-00203The summary of significant accounting policies should disclose the:A. Maturity dates of noncurrent debts.B. Terms for convertible debt to be exchanged for common stock.C. Concentration of credit risk of all financial instruments by geographical region.D. Criteria for determining which investments are treated as cash equivalents.
answer
ExplanationChoice D is correct. The criteria for determining which investments are treated as cash equivalentswould be part of the summary of significant accounting policies.Choice A is incorrect. The maturity dates of noncurrent debts are required disclosures, but are not apart of the summary of significant accounting policies.Choice B is incorrect. The terms for convertible debt to be exchanged for common stock are notaccounting policies; they would be disclosed separately.Choice C is incorrect. The concentration of credit risk of all financial instruments by geographic regionmay be a required segment disclosure, especially for financial institutions. However, it would not be apart of the summary of significant accounting policies.
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Question CPA-00205Which of the following information should be included in Melay, Inc.'s summary of significant accountingpolicies?A. Property, plant, and equipment is recorded at cost with depreciation computed principally by thestraightlinemethod.B. During the current period, the Delay component was sold.C. Business segment sales are Alay $1M, Belay $2M, and Celay $3M.D. Future common share dividends are expected to approximate 60% of earnings.
answer
ExplanationChoice A is correct. Computing depreciation principally by the straightlinemethod is a GAAP method ofdepreciation that should be described in the summary of significant accounting policies.Choice B is incorrect. Disclosing the sale of a component of a business is required (and is covered inthe lecture on discontinued operations in the F1 class) but is not a significant accounting policy.Choice C is incorrect. Disclosing sales of segments is required, but is not a significant accountingpolicy.Choice D is incorrect. Estimates of future common share dividends are not appropriate disclosures forthe financial statements. They might be appropriate for the president's letter to shareholders.
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Which of the following is a required disclosure under IFRS but not under U.S. GAAP?I. Statement of compliance with applicable accounting principles.II. Disclosure of all significant accounting policies.III. Disclosure of judgements made in the preparation of the financial statements.a. I and III.b. I, II, and III.c. I and IIId. I only.
answer
c. I and IIIIFRS requires that a statement of compliance with IFRS be included in the financial statements; U.S. GAAP does not require inclusion of a statement of compliance with U.S. GAAP. Both IFRS and U.S. GAAP require disclosure of all significant accounting policies. Likewise, both IFRS and U.S. GAAP require the disclosure of estimates made in the preparation of financial statements; however, IFRS also requires disclosure of judgements made (e.g., whether a financial asset is categorized as held-to-maturity or available-for-sale) but U.S. GAAP does not require disclosure of judgements made.
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Which of the following should be disclosed in the summary of significant accounting principles?a. Refinancing of debt subsequent to the balance sheet date.b. Criteria for determining which investments are treated as cash equivalents.c. Guarantees of indebtedness of others.d. Adequacy of pension plan assets in relation to vested benefits.
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Which of the following should be disclosed in the summary of significant accounting principles?a. Refinancing of debt subsequent to the balance sheet date.b. Criteria for determining which investments are treated as cash equivalents.c. Guarantees of indebtedness of others.d. Adequacy of pension plan assets in relation to vested benefits.
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Which of the following would not be disclosed in the footnotes to the financial statements?a. Gross unrealized gains and losses on the company's marketable securities.b. Excerpts from the minutes of a board of directors' meeting in which a proposed acquisition was discussed but rejected.c. Descriptions of the company's pension plans.d. Material information regarding the company's reported inventory.
answer
b. Excerpts from the minutes of a board of directors' meeting in which a proposed acquisition was discussed but rejected.Information that is not pertinent to a company's financial statements is not included in the footnotes. Furthermore, even if this meeting took place during the subsequent events evaluation period, no disclosure would be necessary because no event actually occurred.
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Which of the following is not a criterion in determine whether to disclose information in the footnotes to the financial statements about vulnerability to a concentration?a. The concentration pertains to a specific geographic region.b. It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.c. The concentration exists as of the financial statement date.d. The concentration makes the entity vulnerable to the risk of a near-term severe impact.
answer
a. The concentration pertains to a specific geographic region.Disclosure of vulnerability to concentration is required if all of the following criteria are met:- The concentration exists as of the financial statement date.- The concentration makes the entity vulnerable to the risk of a near-term severe impact.- It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.
question
A public entity sells steel for use in construction. One of its customers accounts for 43 percent of sales, and another customer accounts for 40 percent of sales. What should the entity disclose in its annual financial statements about theses two customers?a. The amount of the entity's revenue from each of the two customers.b. The financial condition of the two customers.c. The names of the two customers.d. The payment terms of accounts receivable due from each of the two customers.
answer
a. The amount of the entity's revenue from each of the two customers.Concentrations in the volume of business transacted with a particular customer should be disclosed in the notes to the financial statements because these two customers individually contribute to significant sales. Theses concentrations increase the risk of loss, and information stating that fact should be disclosed to the financial statement user.
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question
Question CPA-00104What is the purpose of information presented in notes to the financial statements?A. To provide disclosures required by generally accepted accounting principles.B. To correct improper presentation in the financial statements.C. To provide recognition of amounts not included in the totals of the financial statements.D. To present management's responses to auditor comments.
answer
ExplanationChoice A is correct. Information presented in notes to the financial statements have the purpose ofproviding disclosures required by generally accepted accounting principles. SFAC 5 para. 7
question
Question CPA-05189Which of the following should be disclosed in a summary of significant accounting policies?A. Basis of profit recognition on longtermconstruction contracts.B. Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years.C. Depreciation expense.D. Composition of sales by segment.
answer
ExplanationChoice A is correct. The summary of significant accounting policies should disclose policies. The onlypolicy in this question is the basis of profit recognition on longtermconstruction contracts. The otherdisclosures are accounting details and would be disclosed in other footnotes, but not in the summary ofsignificant accounting policies.Choice B is incorrect. The future minimum lease payments should be disclosed, but not in the summaryof significant accounting policies.Choice C is incorrect. Depreciation expense should certainly be disclosed, but not in the summary ofsignificant accounting policies.Choice D is incorrect. The composition of sales by segment should be disclosed, but not in thesummary of significant accounting policies.
question
Question CPA-05210Which of the following must be included in a company's summary of significant accounting policies in thenotes to the financial statements?A. Description of current year equity transactions.B. Summary of longtermdebt outstanding.C. Schedule of fixed assets.D. Revenue recognition policies.
answer
ExplanationChoice D is correct. The summary of significant accounting policies should include policies. The onlypolicy in the choices listed is the revenue recognition policies.Choice A is incorrect. A description of current year equity transactions is not a policy. It should bedisclosed somewhere in the footnotes but not in the summary of significant accounting policies.Choice B is incorrect. A summary of longtermdebt outstanding is not a policy. It should be disclosedsomewhere in the footnotes but not in the summary of significant accounting policies.Choice C is incorrect. A schedule of fixed assets is not a policy. It should be disclosed somewhere inthe footnotes but not in the summary of significant accounting policies.
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Question CPA-05214Which of the following is correct concerning financial statement disclosure of accounting policies?A. Disclosures should be limited to principles and methods peculiar to the industry in which the companyoperates.B. Disclosure of accounting policies is an integral part of the financial statements.C. The format and location of accounting policy disclosures are fixed by generally accepted accountingprinciples.D. Disclosures should duplicate details disclosed elsewhere in the financial statements.
answer
ExplanationChoice B is correct. Disclosure of accounting policies (and all other disclosure also) is an integral partof the financial statements.Choice A is incorrect. For disclosure of accounting policies, disclosure should not be limited toprinciples and methods peculiar to the industry in which the company operates. All material accountingpolicies should be disclosed.Choice C is incorrect. For disclosure of accounting policies, the format and location of accountingpolicies are not fixed by GAAP. Accounting policy disclosures are normally Note 1, but that is a(reasonable and very general) practice and not a rule. It does make sense to disclose the why beforethe what.Choice D is incorrect. Disclosure of accounting policies should not duplicate details disclosedelsewhere in the financial statements.
question
Question CPA-06073Which of the following is not a disclosure requirement related to risks and uncertainties under U.S.GAAP?A. Disclosure of significant estimates when it is probable that the estimate will change in the near term,even if the effect of the change will be immaterial.B. Disclosure of an entity's major products or services and its principle markets.C. Disclosure of the use of estimates in the preparation of the financial statements.D. Disclosure of concentrations when it is reasonably possible that a concentration could cause a severeimpact in the near term.
answer
ExplanationChoice A is correct. Significant estimates should be disclosed when it is reasonably possible (notprobable) that the estimate will change in the near term and that the effect of the change will be material.Immaterial items are not disclosed.Choice B is incorrect. This is a disclosure requirement.Choice C is incorrect. This is a disclosure requirement.Choice D is incorrect. This is a disclosure requirement.
question
Question CPA-08589Which of the following should be disclosed in a summary of significant accounting policies?A. Basis of consolidation.B. Concentration of credit risk of financial instruments.C. Composition of plant assets.D. Adequacy of pension plan assets in relation to vested benefits.
answer
ExplanationChoice A is correct. The summary of significant accounting policies is typically the first note providedafter the financial statements and will include components such as: measurement bases, accountingprinciples and methods, criteria, and policies such as basis of consolidation, depreciation methods,revenue recognition, etc.Choice B is incorrect. Concentration of credit risk relating to financial instruments will be described in aspecific note related to financial instruments.Choice C is incorrect. Plant asset composition will be described in a specific note related to property,plant, and equipment.Choice D is incorrect. Pension plan assets and vested benefits will be described in a specific noterelated to pensions.
question
Question CPA-00103Which of the following information should be disclosed in the summary of significant accounting policies?A. Refinancing of debt subsequent to the balance sheet date.B. Guarantees of indebtedness of others.C. Criteria for determining which investments are treated as cash equivalents.D. Adequacy of pension plan assets relative to vested benefits.
answer
ExplanationChoice C is correct. The method of determining which assets are considered to be cash equivalents is asignificant accounting policy.Choice A is incorrect. Debt refinancing would be disclosed in a separate indebtedness note.Choice B is incorrect. Guarantees of other entity's indebtedness would be disclosed in a separatecommitments and contingencies note.Choice D is incorrect. Information about pension plan assets and pension plan liabilities is disclosed ina separate pensions note.
question
Question CPA-00202Which of the following should be disclosed in a summary of significant accounting policies?I. Management's intention to maintain or vary the dividend payout ratio.II. Criteria for determining which investments are treated as cash equivalents.III. Composition of the sales order backlog by segment.A. I only.B. I and III.C. II only.D. II and III.
answer
ExplanationChoice C is correct. Il only.The criteria for determining which investments are treated as cash equivalents is a method ofaccounting policies that needs to be disclosed in the summary of significant accounting policies.Choice A is incorrect. Management's intention to maintain or vary the dividend payout ratio is not anaccounting policy.Choices B and D are incorrect. Composition of the sales order backlog by segment is not anaccounting policy.
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Question CPA-00203The summary of significant accounting policies should disclose the:A. Maturity dates of noncurrent debts.B. Terms for convertible debt to be exchanged for common stock.C. Concentration of credit risk of all financial instruments by geographical region.D. Criteria for determining which investments are treated as cash equivalents.
answer
ExplanationChoice D is correct. The criteria for determining which investments are treated as cash equivalentswould be part of the summary of significant accounting policies.Choice A is incorrect. The maturity dates of noncurrent debts are required disclosures, but are not apart of the summary of significant accounting policies.Choice B is incorrect. The terms for convertible debt to be exchanged for common stock are notaccounting policies; they would be disclosed separately.Choice C is incorrect. The concentration of credit risk of all financial instruments by geographic regionmay be a required segment disclosure, especially for financial institutions. However, it would not be apart of the summary of significant accounting policies.
question
Question CPA-00205Which of the following information should be included in Melay, Inc.'s summary of significant accountingpolicies?A. Property, plant, and equipment is recorded at cost with depreciation computed principally by thestraightlinemethod.B. During the current period, the Delay component was sold.C. Business segment sales are Alay $1M, Belay $2M, and Celay $3M.D. Future common share dividends are expected to approximate 60% of earnings.
answer
ExplanationChoice A is correct. Computing depreciation principally by the straightlinemethod is a GAAP method ofdepreciation that should be described in the summary of significant accounting policies.Choice B is incorrect. Disclosing the sale of a component of a business is required (and is covered inthe lecture on discontinued operations in the F1 class) but is not a significant accounting policy.Choice C is incorrect. Disclosing sales of segments is required, but is not a significant accountingpolicy.Choice D is incorrect. Estimates of future common share dividends are not appropriate disclosures forthe financial statements. They might be appropriate for the president's letter to shareholders.
question
Which of the following is a required disclosure under IFRS but not under U.S. GAAP?I. Statement of compliance with applicable accounting principles.II. Disclosure of all significant accounting policies.III. Disclosure of judgements made in the preparation of the financial statements.a. I and III.b. I, II, and III.c. I and IIId. I only.
answer
c. I and IIIIFRS requires that a statement of compliance with IFRS be included in the financial statements; U.S. GAAP does not require inclusion of a statement of compliance with U.S. GAAP. Both IFRS and U.S. GAAP require disclosure of all significant accounting policies. Likewise, both IFRS and U.S. GAAP require the disclosure of estimates made in the preparation of financial statements; however, IFRS also requires disclosure of judgements made (e.g., whether a financial asset is categorized as held-to-maturity or available-for-sale) but U.S. GAAP does not require disclosure of judgements made.
question
Which of the following should be disclosed in the summary of significant accounting principles?a. Refinancing of debt subsequent to the balance sheet date.b. Criteria for determining which investments are treated as cash equivalents.c. Guarantees of indebtedness of others.d. Adequacy of pension plan assets in relation to vested benefits.
answer
Which of the following should be disclosed in the summary of significant accounting principles?a. Refinancing of debt subsequent to the balance sheet date.b. Criteria for determining which investments are treated as cash equivalents.c. Guarantees of indebtedness of others.d. Adequacy of pension plan assets in relation to vested benefits.
question
Which of the following would not be disclosed in the footnotes to the financial statements?a. Gross unrealized gains and losses on the company's marketable securities.b. Excerpts from the minutes of a board of directors' meeting in which a proposed acquisition was discussed but rejected.c. Descriptions of the company's pension plans.d. Material information regarding the company's reported inventory.
answer
b. Excerpts from the minutes of a board of directors' meeting in which a proposed acquisition was discussed but rejected.Information that is not pertinent to a company's financial statements is not included in the footnotes. Furthermore, even if this meeting took place during the subsequent events evaluation period, no disclosure would be necessary because no event actually occurred.
question
Which of the following is not a criterion in determine whether to disclose information in the footnotes to the financial statements about vulnerability to a concentration?a. The concentration pertains to a specific geographic region.b. It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.c. The concentration exists as of the financial statement date.d. The concentration makes the entity vulnerable to the risk of a near-term severe impact.
answer
a. The concentration pertains to a specific geographic region.Disclosure of vulnerability to concentration is required if all of the following criteria are met:- The concentration exists as of the financial statement date.- The concentration makes the entity vulnerable to the risk of a near-term severe impact.- It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.
question
A public entity sells steel for use in construction. One of its customers accounts for 43 percent of sales, and another customer accounts for 40 percent of sales. What should the entity disclose in its annual financial statements about theses two customers?a. The amount of the entity's revenue from each of the two customers.b. The financial condition of the two customers.c. The names of the two customers.d. The payment terms of accounts receivable due from each of the two customers.
answer
a. The amount of the entity's revenue from each of the two customers.Concentrations in the volume of business transacted with a particular customer should be disclosed in the notes to the financial statements because these two customers individually contribute to significant sales. Theses concentrations increase the risk of loss, and information stating that fact should be disclosed to the financial statement user.