Devry – FIN575 Midterm – May 2015 – Solved

1. (TCO C) Which of the following statements about directors of a company is true? (Points : 3)

Directors are elected by management of a company

Directors only get paid if the company increases its profitability that year

Directors are shareholders’ representatives

All directors of a company are senior managers in that company



Question 2.2. (TCO C) Which of the following would affect the comparability of accounting information for a given company from one accounting period to the next?

I.  Change in accounting principles

II.  Disposition of segment of business

III.  Restructuring expense

IV.  Change in auditors

(Points : 3)

I and II

I and III

I, II, and III

I, III, and IV



Question 3.3. (TCO C) Accounting Standards are best described as: (Points : 3)

the result of a political process among groups with diverse interests.

presentation standards mandated by the Securities and Exchange Commission.

the state of the art presentation of the science of accounting.

measuring the quality of safeguarding assets.



Question 4.4. (TCO C) The two secondary qualities of accounting information that make it useful for decision making are _________. (Points : 3)

consistency and comparability

relevance and reliability

materiality and comparability

full disclosure and relevance



Question 5.5. (TCO C) Which phrase DOES NOT accurately complete the following sentence?

When using the 10-Q, the analyst should be aware that the usefulness of the quarterly financial statements might be affected by _________.

(Points : 3)


adjustments made in final quarter of the year

the use of cash accounting

the increased use of estimates



Question 6.6. (TCO E) Which of the following is not a component of pension expense? (Points : 3)

Service cost

Interest cost

Actual return on plan assets

Expected return on plan assets



Question 7.7. (TCO E) When analyzing post retirement benefits one should evaluate the actuarial assumptions and their effect on the: (Points : 3)

stock prices.

cash requirement.

balance sheet statements.

financial statements.



Question 8.8. (TCO E)  Minority interest appears on the balance sheet of some companies. Minority interest: (Points : 3)

is classified as a liability.

is classified as equity.

arises when company records investments using the equity method.

arises when company owns controlling interest in another company, but less than 100%.



Question 9.9. (TCO E) A lessee must account for a lease as a capital lease if: (Points : 3)

the lease is shorter than 20 years.

the present value of leases is greater than 10% of lessee’s assets.

the lease is longer than 20 years.

None of the above



Question 10.10. (TCO E) Deferral of unrealized gains or losses may generate major difference between the economic pension cost and the: (Points : 3)

reported pension.

company pension.

past pension.

post retirement pension.



Question 11.11. (TCO F) FIFO provides a better ending inventory figure more closely reflecting: (Points : 3)

current assets.

current costs.

current liabilities.

current inventory.



Question 12.12. (TCO F) Which of the following is not an effect of capitalization? (Points : 3)

Capitalization usually reduces net income.

Capitalization usually yields a smoother net income.

Capitalization usually decreases the volatility of the return on investment.

Capitalization usually increases net income.



Question 13.13. (TCO F)  If a company factors its accounts receivables, this will have the effect of making: (Points : 3)

its cash cycle appear longer.

its cash cycle appear even.

its cash cycle appear shorter.

its cash cycle appear exact.



Question 14.14. (TCO F) Which of the following would rarely be classified as a current asset? (Points : 3)

Prepaid insurance


Marketable securities

Work in progress



Question 15.15. (TCO F)  The LIFO Conformity rule states that if a company uses LIFO for tax purposes, it must also use it for: (Points : 3)

balance sheet reporting.

cash reporting.

financial reporting.

liability reporting.



Question 16.16. (TCO G) If revenue is recognized for financial reporting purposes but deferred for tax purposes, this results in a:   (Points : 3)

deferred asset liability.

deferred tax liability.

deferred liability.

None of the above



Question 17.17. (TCO G) Under GAAP, comprehensive income:  (Points : 3)

may be reported in addition to net income.

must be reported in addition to net income.

may be reported instead of net income.

must be reported instead of net income.



Question 18.18. (TCO G) Compared with companies that expense costs, firms that capitalize costs can be expected to report:  (Points : 3)

higher asset levels and lower equity levels.

higher asset levels and higher equity levels.

lower asset levels and higher equity levels.

lower asset levels and lower equity levels.



Question 19.19. (TCO G) If a company changes the useful life of its assets from 10 years to 12 years, this will be recorded as _________. (Points : 3)

a non recurring gain

an extraordinary item

a change in accounting principle

None of the above



Question 20.20. (TCO G) Differences in taxable income and pretax accounting income that will not be offset by corresponding differences or turn around in future periods are called: (Points : 3)

timing differences.

circular differences.

permanent differences.


reverse differences.

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