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WorksheetsFRA Test - TE 2
Total questions: 40
Worksheet time: 2hrs 2mins
Name
Class
Date
1.
A company has a building with a net carrying amount of $100,000 and a tax base of $120,000. The tax rate was 20% when the asset was purchased, but it is scheduled to be reduced to 17% this year. Which of the following will the company most likely report related to this building?
a)
A. Deferred tax asset: $4,000
b)
B. Deferred tax asset: $3,400
c)
C. Deferred tax liability: $600
2.
Private contracts, such as bank loan agreements, are most likely to provide an effective disciplinary mechanism to insure high financial reporting quality because:
a)
A. loan covenants require the firm to meet specific financial ratios in order to renew the loan.
b)
B. lenders monitor managers and pay close attention to the firm’s financial reports.
c)
C. loan covenants may allow the lender to recover all or part of their investment if certain financial conditions are triggered.
3.
Assume the companies use a periodic inventory system.<br /><br />Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be:
a)
A. lower.
b)
B. higher.
c)
C. dependent upon the interaction with accounts payable.
4.
One of the notable differences between IFRS and US GAAP when dealing with income tax is best illustrated by the fundamental treatment of:
a)
A. non-deductible goodwill.
b)
B. the revaluation of property, plant, and equipment.
c)
C. temporary differences between the carrying amount and tax base of assets and liabilities.
5.
A company has recorded an expense for interest costs that have not yet been paid as of the balance sheet date. On the balance sheet, they are best reported as:
a)
A. deferred expenses.
b)
B. accounts payable.
c)
C. accrued expenses.
6.
a)
A. essentially unchanged.
b)
B. higher by 2.5%.
c)
C. lower by 2.3%.
7.
An example of a contra asset account is:
a)
A. depreciation expense.
b)
B. sales returns and allowances.
c)
C. allowance for doubtful accounts.
8.
In a period of declining inventory unit costs and constant or increasing inventory quantities, which inventory method is most likely to result in a higher debt-to-equity ratio?
a)
A. LIFO
b)
B. FIFO
c)
C. Weighted average cost
9.
a)
A. 14.0.
b)
B. 16.0.
c)
C. 13.0.
10.
a)
A. ($217,000).
b)
B. ($329,000).
c)
C. ($556,000).
11.
An audit opinion of a company’s financial reports is most likely intended to:
a)
A. detect fraud.
b)
B. reveal misstatements.
c)
C. assure that financial information is presented fairly.
12.
To properly assess a company’s past performance, an analyst requires:
a)
A. high earnings quality.
b)
B. high financial reporting quality.
c)
C. both high earnings quality and high financial reporting quality.
13.
Financial reports of the lowest level of quality reflect:
a)
A. fictitious events.
b)
B. biased accounting choices.
c)
C. accounting that is non-compliant with GAAP.
14.
Which of the following is an off-balance-sheet financing technique? The use of:
a)
A. capital leases.
b)
B. operating leases.
c)
C. the last in, first out inventory method.
15.
In contrast to US GAAP, cash flow statements prepared under IFRS:
a)
A. require adherence to the direct method format when reporting operating activities.
b)
B. are less flexible regarding the classification of dividends paid or received.
c)
C. allow interest receipts to be classified as either operating or investing cash flows.
16.
Accounting choices within GAAP that decrease reported performance in the current period and may increase performance in later periods are most likely examples of:
a)
A. aggressive accounting.
b)
B. conservative accounting.
c)
C. earnings that are not sustainable.
17.
a)
A. just satisfied it.
b)
B. failed to meet it by at least 5%.
c)
C. exceeded it by at least 5%.
18.
Money received from customers for products to be delivered in the future is recorded as:
a)
A. revenue and an asset.
b)
B. an asset and a liability.
c)
C. revenue and a liability.
19.
a)
A. the same.
b)
B. lower.
c)
C. higher.
20.
Under IFRS, what must be disclosed under the cost model of valuation for investment properties?
a)
A. Useful lives
b)
B. The method for determining fair value
c)
C. Reconciliation between beginning and ending carrying amounts of investment property
21.
The impairment of intangible assets with finite lives affects:
a)
A. the balance sheet but not the income statement.
b)
B. the income statement but not the balance sheet.
c)
C. both the balance sheet and the income statement.
22.
a)
A. €4.5 million charge to revaluation surplus and €2.0 million charge to net income
b)
B. €6.5 million charge to revaluation surplus
c)
C. €6.5 million charge to net income
23.
According to the International Financial Reporting Standards framework, which of the following qualities of financial information is least likely cited as one of the two fundamental characteristics that make financial information useful?
a)
A. Faithful representation
b)
B. Accrual accounting
c)
C. Relevance
24.
Inventory values under IFRS are recorded at the lower of cost or:
a)
A. market.
b)
B. net realizable value.
c)
C. estimated selling price.
25.
Which of the following descriptions of financial reporting is considered to be of the highest quality?
a)
A. Within GAAP but with earnings management
b)
B. Within GAAP but with biased choices
c)
C. Outside GAAP but with conservative choices
26.
a)
A. $0.3 higher.
b)
B. $0.3 lower.
c)
C. the same.
27.
MARU S.A. de C.V., a Mexican corporation that follows IFRS, has elected to use the revaluation model for its property, plant, and equipment. One of MARU’s machines was purchased for 2,500,000 Mexican pesos (MXN) at the beginning of the fiscal year ended 31 March 2010. As of 31 March 2010, the machine has a fair value of MXN 3,000,000. Should MARU show a profit for the revaluation of the machine?
a)
A. Yes.
b)
B. No, because this revaluation is recorded directly in equity.
c)
C. No, because value increases resulting from revaluation can never be recognized as a profit.
28.
a)
A. Company A earns a higher gross margin than both Company B and the industry.
b)
B. both companies’ tax rates are higher than the industry average.
c)
C. Company B’s interest rate is lower than the industry average.
29.
a)
A. operating profit margin.
b)
B. operating return on assets.
c)
C. total asset turnover ratio.
30.
a)
A. €150,980.
b)
B. €150,460.
c)
C. €149,820.
31.
company previously expensed the incremental costs of obtaining a contract. All else being equal, adopting the May 2014 IASB and FASB converged accounting standards on revenue recognition makes the company’s profitability initially appear:
a)
A. lower.
b)
B. unchanged.
c)
C. higher.
32.
A company with no debt or convertible securities issued publicly traded common stock three times during the current fiscal year. Under both IFRS and US GAAP, the company’s:
a)
A. basic EPS equals its diluted EPS.
b)
B. capital structure is considered complex at year-end.
c)
C. basic EPS is calculated by using a simple average number of shares outstanding.
33.
The method used by a high-end custom-built motorcycle manufacturer to value its inventory results in the matching of the physical flow of the particular items sold, and the items remaining in inventory, to their actual cost. Which of the following inventory valuation methods is the manufacturer most likely using?
a)
A. FIFO
b)
B. Weighted average cost
c)
C. Specific identification
34.
a)
A. operating profit margin.
b)
B. net profit margin.
c)
C. gross profit margin.
35.
At the end of the year, a company reported an impairment loss on its manufacturing plant, reducing its carrying amount by 10%. The impairment loss is least likely to cause the company’s:
a)
A. debt-to-asset ratio to increase.
b)
B. cash flow from operations to decline.
c)
C. fixed asset turnover to increase.
36.
Which of the following best describes a component of the income statement?
a)
A. Amounts that a company owes its vendors for purchases of goods and services
b)
B. Outflows or depletions of assets in the course of a business's activities
c)
C. Obligations from past events that are expected to result in an outflow of economic benefits
37.
a)
A. Company A
b)
B. Company C
c)
C. Company B
38.
If a company repurchases its own shares and can reissue them at a later time, these shares are best described as:
a)
A. preferred stock.
b)
B. marketable securities.
c)
C. treasury stock.
39.
a)
A. $20,000.
b)
B. $40,000.
c)
C. $24,576.
40.
a)
A. Double declining balance
b)
B. Straight line
c)
C. Units of production
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