Multiple Choice Answers

1. (TCO 5) The statement of cash flows reports cash flows from the activities of:
operating, purchasing, and investing.
borrowing, paying, and investing.
financing, investing, and operating.
using, investing, and financing.

2. (TCO 1) The International Accounting Standards Board:
was the predecessor to the IASC.
can overrule the FASB when their policies disagree.
promotes the use of high-quality, understandable global accounting standards.
has its headquarters in Geneva.

3. (TCO 2) The conceptual framework’s qualitative characteristic of faithful representation includes:
predictive value.
confirmatory value.

4. (TCO 2) Enhancing qualitative characteristics of accounting information include:
relevance and comparability.
comparability and timeliness.
understandability and relevance.
neutrality and consistency.

5. (TCO 3) Incurring an expense for advertising on an account would be recorded by:
debiting liabilities.
crediting assets.
debiting an expense.
debiting assets.

6. (TCO 3) Prepayments occur when:
cash flow precedes expense recognition.
sales are delayed pending credit approval.
customers are unable to pay the full amount due when goods are delivered.
manufactured goods await quality control inspections.

7. (TCO 4) Which of the following accounts is not a current asset account?
Cash in a checking account
Savings account
Six-month treasury bills
Money orders

8. (TCO 4) Which of the following is never a current liability account?
Accrued payroll
Dividends payable
Prepaid rent
Subscriptions collected in advance

9. (TCO 5) The distinction between operating and nonoperating income relates to:
continuity of income.
principal activities of the reporting entity.
consistency of income stream.
reliability of measurements.

10. (TCO 5) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011. The following additional facts pertain to the transaction:
The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
The book value of Footwear’s assets totaled $48 million on the date of the sale.
Footwear’s operating income was a pre-tax loss of $10 million in 2011.
Foxtrot’s income tax rate is 40%.
In the 2011 income statement for Foxtrot Co., it would report:

income (loss) on its total operations for the year without separation.
income (loss) on its continuing operation only.
income (loss) from its continuing and discontinued operations separately.
income and gains separately from losses.

11. (TCO 1) The SEC issues accounting standards in the form of:
accounting research bulletins.
financial reporting releases.
financial accounting standards.
financial technical bulletins.