Generally Accepted Accounting Practices (GAAP) Test Answers

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A financial record that uses a highly volatile currency would violate which of the following principles?
The historical cost principle
The accounting entity principle
The USD principle
The monetary unit principle


Which of the following is NOT a current asset?
Intangible assets
Marketable securities
Cash and cash items
Accounts and notes receivable


Your accounts payable drops from the prior year, what happens on the cash flow statement and in which section?
Cash decreases - Financing section
Cash increases - Financing section
No change
Cash decreases - Operating section


Which of the following is the formula for return on equity (ROE)?
Net Income / Sales
Equity / Net Income
Sales / Net Income
Net Income / Equity


Which of the following correctly formulates current ratio?
Current Asset / Current Liabilities
Current Asset x Current Liabilities
Current Asset - Current Liabilities
Current Liabilities / Current Asset


Which of the following best describes Going Concern?
The interest on accounts payable
The decrease in goodwill that follows a decrease in revenue
The law of diminishing returns
The assumption that a company will operate indefinitely


Under GAAP principles, expenses have to be matched with revenues (as long as it's reasonable to do so). This is an example of which principle?
The Revenue Principle
The Cost Principle
The Historical Cost Principle
The Matching Principle


The multiple-step income statement for a merchandiser shows each of the following features EXCEPT:
investing activities
gross profit
cost of goods sold
sales revenue


Which of the following is a US GAAP depreciation method for financial and tax reporting?
(All of these)
Accelerated depreciation
Straight line depreciation
Modified Accelerated Cost Recovery Method


GAAP generally uses one of two measurement principles. Which of the following IS one of these two principles?
Logical value principal
Expense principal
Subsidized value principal
Fair value principal


What does CPA stand for?
Commerce Public Accountant
Chartered Public Accountant
Certified Public Accountant
Certified Professional Accountant


Which of the following consists of cash inflows and outflows from transactions that affect a firm's net income?
Cash flow from investing activities (CFI)
Cash flow from operating activities (CFO)
Cash flow from financing activities (CFF)
Cash flow from investing activities (CFI)


Which of the following methods of presenting cash flow is permitted under US GAAP?
Direct
Both Direct & Indirect
Indirect
Average Cost


Publicly traded companies employ _____ to audit the financial statements for their inclusion in reports to the shareholders.
CPAs
Investment attorneys
Lawyers
Financial advisors


You pay a dividend, what happens on the cash flow statement and in which section?
Cash increases - Investing section
Cash increases - Operating section
Cash decreases - Financing section
Cash increases - Financing section


Account receivables are classified as which of the following?
Revenue
Liabilities
Assets
Expenses


When applying the full accrual method in retail land sales, which of the following conditions are required by GAAP?
Receivable are collectible
(All of these)
Expiry of the refund period
Receivables should not be subjected to subordination


A client pays ABC Co. $10,000 in December to perform services in 45 days. ABC uses the accrual basis of accounting. In December ABC will debit Cash for $10,000. What will be the other account to balance this entry prepared by ABC?
Drawing
Unearned Revenue
Owners Equity
Account receivable


In which of the following accounting methods is profit not recognized until cash payments are greater than the cost of property?
Installment method
Full accrual method
Deposit method
Cost recovery method


Which of the following is an Operating Activity as per US GAAP classification?
Sales proceed from fixed assets
Cash paid to employees
Principal paid on debt
Dividends paid to shareholders


Your accounts receivable drops from the prior year. What happens on the cash flow statement and in which section?
No change
Cash increases - Operating section
Cash increases - Financing section
Cash decreases - Investing section


Which of the following is an Investing Activity as per US GAAP classification?
Taxes Paid
Cash paid to employees
Sales proceed from fixed assets
Interest Paid


Which of the following is NOT a valid cost flow assumption for determining the inventory cost?
Average Method
FIFO
FILO
LIFO


True or false? GAAP is internationally based, whereas IFRS is US-centric.
True
False


In which of the following are profits recognized in full when real estate is sold?
Installment method
Cost recovery method
Full accrual method
Deposit method


Which of the following securities are purchased with the intent of holding them until maturity?
Hold-till-maturity
Held-to-maturity
Trading Securities
Available for Sale Securities


In which of the following inventory valuation methods is the oldest cost of goods sold (COGS) entry processed first?
FIFO
LIFO
FILO
Average Cost


Which of the following is the correct formula for calculating basic EPS as per US GAAP?
income available for common stockholders / weighted-average number of common shares outstanding
Annualized Earnings / # of outstanding stock
Quartely Earnings / # of outstanding stock
weighted-average number of common shares outstanding / income available for common stockholders


Which organization is most like IASB, but monitors and improves the standards under US GAAP?
FASB
SEC
AICPA
FAS


Which of the following securities are purchased with the intent to profit over near term?
Available for Sale Securities
Held-to-maturity
Hold-till-maturity
Trading Securities


Which of the following is prohibited in US GAAP?
Recognition of impairment loss
Allocation of goodwill
Reversal of impairment loss
Measurement of impairment loss


All of the following are recognized depreciation methods for GAAP reporting EXCEPT:
Double Declining Balance
Sum of the Years Digit
Straight Line Method
Modified Accelerated Cost Recovery


Your accounts receivable increases from the prior year, what happens on the cash flow statement and in which section?
Cash increases - Financing section
No change
Cash decreases - Operating section
Cash increases - Operating section


ABC company purchases a plot of land for $10,000. In the following year the value of the land increases by 10%. What value should this asset be recorded as?
$11,000
$10,000
$10,010
$10,100


Net Income is $150,000, dividends paid to preferred stock holder is $50,000 and weighted-avg number of common shares are 10,000. What is the basic EPS as per US GAAP?
$10
$30
$20
$5


Your accounts payable increases from the prior year, what happens on the cash flow statement and in which section?
Cash decreases - Operating section
Cash increases - Operating section
Cash increases - Financing section
No change


Choose the correct statement about GAAP.
Only publicly traded companies must comply with GAAP.
GAAP are laws.
It is a violation of SEC regulations for publicly traded companies to depart from GAAP.
Firms may not restate financial statements previously issued.


Which of the following is NOT a non-current asset?
Unearned income
Intangible assets
Property, plant and equipment
Amortization of intangible assets


Which of the following consists of cash inflows and outflows from transactions related to a firm's capital structure ?
Cash flow from operating activities (CFO)
Cash flow from investing activities (CFI)
Cash flow from investing activities (CFI)
Cash flow from financing activities (CFF)


Which of the following securities are purchased with the intent of NEITHER holding them till maturity NOR to get profit over near term?
Hold-till-maturity
Available for Sale Securities
Trading Securities
Held-to-maturity


Which of the following statements is true about the reporting of operating segments by a business?
All companies, whether publicly-held or not, are required to present this information.
All companies, whether publicly-held or not, are allowed to present this information but no companies are required to present it.
Privately-held companies are required to present this information while publicly-held companies are allowed to present it.
Publicly-held companies are required to present this information while other companies are allowed to present it.


Cost of good sold (COGS) reflects the cost of the most recent purchase in which of the following inventory valuation methods?
FILO
Average Cost
FIFO
LIFO


Which of the following is a Financing Activity as per US GAAP classification?
Interest Paid
Sales proceed from fixed assets
Proceeds from issuing stocks
Available for Sale Securities


If Earnings before Interest and Taxes (EBIT) is $10,000, interest expense is $500 and number of outstanding common stocks are 20,000, which of the following is the value of interest coverage ratio?
200
1000
100
20


Which of the following securities are reported on balance sheets at fair value?
Trading Securities
Available for Sale Securities
Held-to-maturity
Available for Sale and Trading Securities


Under US GAAP, minority (non controlling) interest in a subsidary can be reported in which of the following sections of a balance sheet?
Equity Section
(All of these)
Mezzanine Section
Liability Section


Under GAAP which method is NOT allowed for writing-off bad debts
Percentage of receivable method
Allowance Method
Percent of sales method
Direct write-off method


In which of the following securities are unrealized gains and losses reported in Other Comprehensive Income (as a part of stockholder's equity)?
Hold-till-maturity
Held-to-maturity
Available for Sale Securities
Trading Securities


Which of the following securities are reported on the balance sheet at amortized cost?
Held-to-maturity
Hold-till-maturity
Trading Securities
Available for Sale Securities


When should costs be recognized?
When they are probable
(None of these)
Only when an invoice is sent
When the cost has been paid


A company has cash of $30,000, accounts receivable of $150,000, inventory of $140,000, and accounts payable of $200,000. Which of the following is correct?
The quick ratio is .9 : 1 and the current ratio is 0.9 : 1.
The quick ratio is 0.9 : 1 and the current ratio is 1.6 : 1.
The quick ratio is 1.6 : 1 and the current ratio is 1.6 : 1.
The quick ratio is 1.6 : 1 and the current ratio is 0.9 : 1.


You receive a dividend, what happens on the cash flow statement and in which section?
Cash decreases - Financing section
Cash increases - Financing section
Non of the above
Cash increases - investing section


Under US GAAP, when must the fair value of an acquired firm's "in process research and development" be estimated?
Before Computing Goodwill
After Computing Goodwill
After Computing Expenses
Before Computing Expenses


You have depreciation for the past year, what happens on the cash flow statement and in which section?
Cash increases - Financing section
Cash increases - Operating section
Cash decreases - Financing section
No change


Unrealized gain and losses of ________ securities are reported in the Income Statement.
Trading Securities
Available for Sale Securities
Held-to-maturity
Hold-till-maturity


In the United States, which of the following organizations mandate that financial reports adhere to GAAP standards?
IFRS
FASB
CFA
SEC


You declare a dividend. What happens on the cash flow statement and in which section?
Cash increases - Financing section
Cash decreases - Investing section
No change
Cash increases - Operating section


Which of the following is TRUE about Impairment of assets?
Carrying amount < Recoverable amount
Present Market Value > Present Value of all future cash flows
Present Market Value < Present Value of all future cash flows
Carrying amount > Recoverable amount


If the Exercise Price of a purchased call option is less than Market Price, then which of the following is TRUE?
The effect of the purchased option is neither antidilutive nor dilutive
The effect of the purchased option is antidilutive
The buyer will not be able to excercise the option
The effect of the purchased option is dilutive


If the Exercise Price of a purchased put option is greater than Market Price, which of the following is TRUE?
The effect of the purchased option is neither antidilutive nor dilutive
The effect of the purchased option is dilutive
The effect of the purchased option is antidilutive
The buyer will not be able to excercise the option


Which of the following is a valid method to calculate impairment loss in case of a long lived asset?
By taking off asset's carrying amount from it's fair value
By taking off asset's fair value from it's carrying amount
By taking off asset's current market value from it's fair value
By taking off asset's fair value from it's current market value


In a period of deflation, the cost flow method that results in the lowest income taxes is the:
Gross profit method
LIFO
FIFO
Average cost method


Which of the following is a most conservative measure of liquidity?
current ratio
quick ratio
liquidiy ratio
cash ratio


Which of the following is the correct formula for calculating impairment losses on a loan?
Observable market price of a loan - Carrying amount of a loan
Carrying amount of a loan - Observable market price of a loan
Observable market price of a loan - future value of expected future cash flows from a loan
Carrying amount of a loan - future value of expected future cash flows from a loan


All of the following are shown on the income statement net of tax EXCEPT:
extraordinary items.
changes in accounting principles.
unusual or infrequent items.
discontinued operations.


At the beginning of 2001, Osami Corporation had 1.4 million shares of common stock outstanding and no preferred stock. At the end of August 2001, Osami issued 1.2 million new shares of common stock. If Osami reported net income equal to $7.2 million, what were its earnings per share (EPS) for 2001?
$4
$3.52
$2.77
$2.07


Which of the following is TRUE about impairment loss of a non-revalued asset?
It can be recognized in profit or loss or other comprehensive income
It is recognized in other comprehensive income
It is recognized in profit or loss
impairment loss of a non-revalued asset cannot be recognized


True or false? Private disclosure standards are governed by the SEC.
True
False

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