KFU Intermediate accounting

Revision
Question 1: Select the best answer for each question:
.1All the following are ways in which accounting information is used by financial accounting users except to
buy, sell, hold equity and debt instruments.
decide whether to invest in the company.
evaluate borrowing capucity to determine the extent of a loan to grant.
plan and control company's operations.

.2Which of the following represents a form of communication through financial reporting but not through
financial statements?
Balance sheet.
President's letter.
Income statement.
d. Notes to financial statements

.3What is meant by comparability when discussing financial accounting information?

a. Information has predictive or confirmatory value.
Information is reasonably free from error.
Information is measured and reported in a similar fashion across companies.
Information is timely.

Which of the following is an ingredient of faithful representation?

Predictive value
Materiality
Neutrality
Confirmatory value

Neutrality means that information

provides benefits which are at least equal to the costs of its preparation.
can be compared with similar information about an enterprise at other points in time.
would have no impact on a decision maker.
cannot favor one set of interested parties over another.

Issuance of common stock for cash affects which basic element of financial statements?
Revenues
Losses
Liabilities
Equity

Which basic assumption is illustrated when a firm reports financial results on an annual basis?
Economic entity assumption
Going concern assumption
Periodicity assumption
Monetary unit assumption

Revenue generally should be recognized

at the end of production.
at the time of cash collection.
when realized.
when the performance obligation is satisfied

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Which accounting assumption or principle is being violated if a company reports corporate headquarter building
at its fair value on the balance sheet?
Going concern
Monetary unit
Historical cost
Full disclosure

An adjusting entry to record an accrued expense involves a debit to a(an)

expense account and a credit to a prepaid account.
expense account and a credit to Cash.
expense account and a credit to a liability account.
liability account and a credit to an expense account.

The failure to properly record an adjusting entry to acerue an expense will result in
understatement of expenses and an understatement of liabilities.
understatement of expenses and an overstatement of liabilities.
understatement of expenses and an overstatement of assets..
overstatement of expenses and an understatement of assets.

The omission of the adjusting entry to record depreciation expense will result in
an overstatement of assets and an overstatement of owners' equity.
understatement of assets and an understatement of owner's equity.
overstatement of assets and an overstatement of liabilities.
overstatement of liabilities and an understatement of owners' equity.

When an expense is paid in cash before it is used, it is called a(n)

prepaid expense.
accrued expense.
estimated expense.
cash expense

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as
an adjustment to:
beginning retained earnings of the earliest period presented.
net income of the period in which the change occurred.
comprehensive income for the earliest period presented.
stockholders equity of the period in which the change occurred.

When a company discontinues an operation and disposes of the discontinued operation (component), the
transaction should be included in the income statement as a gain or loss on disposal reported as
a prior period adjustment.
an extraordinary item.
an amount after continuing operations.
a bulk sale of plant assets included in income from continuing operations.

A statement of stockholders' equity includes a column for each of the following except
accumulated other comprehensive income.
common stock
net income.
retained earnings

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Ortiz Co. had the following account balances:

Sales revenue § 440.000
Cost of goods sold 220,000
Salaries and wages expense 30.000
Depreciation expense 60,000
Dividend revenue 12.000
Utilities expense 24,000
Rent revenue 60,000
Interest expense 36,000
Sales returns and allow. 33,000
Advertising expense 39,000
What would Ortiz report as total revenues in a single-step income statement?
a. $479,000
b. $ 70,000
c. $472,000
d. $440,000
Sales revenue $ 440,000 + Rent revenue 60,000+ Dividend revenue 12,000-(Sales returns and allow. 33,000)

Korte Company reported the following information for 2017:

Sales revenue $2,500,000
Cost of goods sold 1,750,000
Operating expenses 275,000
Unrealized holding gain on available-for-sale securities 85,000
Cash dividends received on the securities 10,000
For 2017, Korte would report comprehensive income of
a. $570,000.
b. $560,000.
c. $485,000.
d. $85,000
Sales revenue $2,500,000- Cost of goods sold 1,750,000- Operating expenses 275,000+ Unrealized holding
gain 85,000+ Cash dividends received 10,000.

The current assets section of the balance sheet should include

machinery
patents,
goodwil.
Inventory

1ong-term liabilities include

obligations not expected to be liquidated within: the operating cycle.
obligations payable at some date beyond the operating cycle.
deferred income taxes and most lease obligations.
all of these answer choices are correct.

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Second question: Presented below is information related to Trieu Corp. for the year 2020
Net Sales S2,600,000
Cost of goods sold 1,560,000
Selling Expenses 130.000
Administrative Expenses 96.000
Dividend Revenue 40,000
Interest Revenue 14,000
Causality Loss 100.000
Write-Off of inventory due to obsolescence 160,000
a) Prepare a multiple step income statement for 2020 showing equity per share at the end of the statement.
Assume that the Effective tax rate is 20% on all items and that 60,000 shares of common stock are outstanding

b) calculate the ending balance of retained earnings, if you know that Retained earnings at 31 of December
2019 was 1,960,000, and that depreciation expense was omitted by accident on 2019 110,000, and dividends
declared in 2020 is 90,000.

Solution: (a)
TRIEU CORP
Income Statement
For the Year Ended December 31, 2014
Sales Revenue Net sales $2,600,000
Cost of goods sold.................................................................... (1,560,000)
Gross profit................................................................... 1,040,000
Operating Expenses Selling expenses.......................................................$130,000
Administrative expenses.................................................. 96,000 (226,000)
Income from operations................................................................. 814,000
Other Revenues and Gains Dividend revenue.............................................40,000
Interest revenue................................................................ 14,000 54,000
Other Expenses and Losses
Write-off of inventory due to obsolescence.................................................................. (160,000)
Income before taxes and extraordinary item.................................. 708,000
Income taxes.................................................................... (141,600)
Income before extraordinary item.................................................. 566,400
Extraordinary item Casualty loss........................................................100,000
Less:Applicable tax reduction........................... (20,000) (80,000)
Net income $486,400

Earning per share = ($486,400 ÷ 60,000).................................. $8.1

B)
TRIEU CORP.
Retained Earnings Statement
For the Year Ended December 31, 2014
Balance, Jan. 1, as reported.................................................................................. $1,960,000
Correction for overstatement of net income in prior period (depreciation error) (net of $22,000
tax)..................................................... (88,000)
Balance, Jan. 1, as adjusted.................................................................................. 1,872,000
Add: Net income................................................................................................... 486,400
(-) Dividends declared (90,000)
= R.E. ending 2,268,400

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