Accounting Principles and Standards Qualified Assessment
Below is a scored review of your assessment. All questions are shown.
Main Question Set
Correct Answer
Partially Correct
Incorrect Answer
1
Which of the following best describes accounting principles in general?
Your Answer
They outline the fundamental rules and concepts and establish the framework on which detailed accounting
standards are based.
Correct Answer
They outline the fundamental rules and concepts and establish the framework on which detailed accounting
standards are based.
Explanation
Accounting principles are the fundamental rules and concepts that provide a framework on which more detailed
accounting standards are based.
2
A sound accounting framework allows for all of the following benefits except:
Your Answer
Identical items being reported on the financial statements of different companies
Correct Answer
Identical items being reported on the financial statements of different companies
Explanation
A sound accounting framework ensures that the financial statements are reliable and relevant, the financial
reporting across all industries are consistent, and that the companies can be compared uniformly. A sound
accounting framework does not indicate that all companies would report identical line items on the financial
statements.
3
Match the correct description to each of the accounting principles.
Conservatism Principle
Your Answer
It provides guidance on how to record transactions when there is uncertainty.
Correct Answer
It provides guidance on how to record transactions when there is uncertainty.
Historical Cost Principle
Your Answer
It states that assets and liabilities are recorded on the financial statements at the cost at which they were
acquired or assumed.
Correct Answer
It states that assets and liabilities are recorded on the financial statements at the cost at which they were
acquired or assumed.
Objectivity Principle
Your Answer
It states that financial statements must be free from bias and based on verifiable evidence.
Correct Answer
It states that financial statements must be free from bias and based on verifiable evidence.
Economic Entity Principle
Your Answer
It states that transactions carried out by a business are separated from those conducted by its owner.
Correct Answer
It states that transactions carried out by a business are separated from those conducted by its owner.
Matching Principle
Your Answer
It states that the expenses of a business should be recorded in the periods in which the corresponding
revenues are earned.
Correct Answer
It states that the expenses of a business should be recorded in the periods in which the corresponding
revenues are earned.
Explanation
None.
4
On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. and paid $960 for the entire program
upfront. The program includes a total of 12 sessions and two sessions are delivered each month. How much
revenue from Mr. Smithe should Fit Co. recognize at the end of March?
Your Answer
$160
Correct Answer
$160
Explanation
Fit Co. should recognize $160 in revenue from Mr. Smithe. According to the revenue recognition principle,
revenue is earned and recorded upon service completion, regardless of the timing of cash received. At the end
of March, Fit Co. would have delivered two sessions out of the 12 sessions and therefore the revenue recognized
would be calculated as: $960 x (2/12) = $160.
5
Which of the following characteristics does not enhance the usefulness of financial information?
Your Answer
Relevance
Correct Answer
Relevance
Explanation
The usefulness of financial information is enhanced when it is comparable, verifiable, timely, and
understandable.
6
Identify the statement that is most accurate.
Your Answer
Financial information that has confirmatory value provides feedback that either confirms or changes
previous evaluations.
Correct Answer
Financial information that has confirmatory value provides feedback that either confirms or changes
previous evaluations.
Explanation
The following statement is accurate: financial information that has confirmatory value provides feedback that
either confirms or changes previous evaluations.
7
Which of the following is not a correct description of how an operating lease is recognized on the financial
statements?
Your Answer
The amortization expense of the right-of-use asset is calculated using the straight-line depreciation method
over the lease term.
Correct Answer
The amortization expense of the right-of-use asset is calculated using the straight-line depreciation method
over the lease term.
Explanation
The amortization expense of the right-of-use asset for an operating lease is calculated as the difference between
the average annual lease payment and interest expense.
8
Company Inc. enters into a 10-year finance lease at the beginning of 2021 for a total of $250,000. The annual
lease payment is $25,000 (payable at the end of each year) and the rate implicit in the lease is 5%. No initial
direct costs are incurred. How much interest expense should be recognized in 2021?
Your Answer
$9,652
Correct Answer
$9,652
Explanation
Lease liability = PV of 10-year annuity with payments of $25,000 = $193,043
Interest expense = $193,043 x 5% = $9,652
9
Which of the following statements about income taxes is not correct?
Your Answer
Deductible temporary differences give rise to deferred tax liabilities, meaning that more tax is payable in the
future.
Correct Answer
Deductible temporary differences give rise to deferred tax liabilities, meaning that more tax is payable in the
future.
Explanation
Deductible temporary differences give rise to deferred tax assets, meaning that less tax is payable in the future.
10
Match the appropriate items to each type of temporary differences.
Generally arise when there are differences that result in current accounting income being greater than taxable income
Your Answer
Taxable Temporary Differences
Correct Answer
Taxable Temporary Differences
Give rise to deferred tax assets
Your Answer
Taxable Temporary Differences
Correct Answer
Deductible Temporary Differences
Generally arise when the tax base of the assets is greater than the carrying amount
Your Answer
Deductible Temporary Differences
Correct Answer
Deductible Temporary Differences
Arise when the tax base of the liabilities is greater than the carrying amount
Your Answer
Deductible Temporary Differences
Correct Answer
Taxable Temporary Differences
Arise when the carrying amount of the liabilities is greater than the tax base
Your Answer
Taxable Temporary Differences
Correct Answer
Deductible Temporary Differences
Give rise to deferred tax liabilities
Your Answer
Deductible Temporary Differences
Correct Answer
Taxable Temporary Differences
Explanation
None.
11
Calculate the deferred tax liability given the following items incurred in 2020 by Company B. Bonuses are
tax deductible only in the year in which they are paid.
Accounting Income
$86,000
Depreciation Expense
$6,500
Tax Depreciation
$4,000
Income Not Recognized in The
$4,700
Current Period For Tax Purposes
2019 Bonus Paid in 2020
$2,630
Accrued Bonuses in 2020
$3,500
Tax Rate
28%
Your Answer
$372
Correct Answer
$372
Explanation
To determine taxable income:
1.
Add back items that are not deductible for tax purposes but are for accounting purposes (accounting
depreciation, accrued bonuses not paid in the current year)
2.
Deduct items that are deductible for tax purposes but are not for accounting purposes (tax depreciation,
2019 bonus paid in 2020)
3.
Deduct income recognized for accounting purposes but not for tax purposes in the current period
Taxable Income = $86,000 + $6,500 + $3500 - $4,000 - $2,630 - $4,700 = $84,670
Taxable Temporary Difference = Accounting Income – Taxable Income = $86,000 - $84,670 = $1,330. It is a
taxable temporary difference as accounting income > taxable income
Deferred Tax Liability = $1,330 x 28% = $372
y
12
Company Co. has 1,000 employees and it decides to grant each of the employees 200 share options as
part of its new rewards plan. The options are exercisable over 5 years and subject only to the condition
that the company’s stock price must be at least 30% higher than its original issue price. Company Co.’s
share-based payments are subject to:
Your Answer
Non-vesting condition
Correct Answer
Non-vesting condition
Explanation
Since a service condition is absent, Company Co’s share-based payments are only subject to a market
performance condition which is deemed to be a non-vesting condition.
13
Company A has 800 employees, and it decides to grant each of the employees 50 share options as part of
its new rewards plan. The options are exercisable over 5 years and subject to a 3-year service condition.
The fair value of each option at the grant date is $16. The company estimates that 80% of its employees
will meet the service condition required for receiving the options. Calculate the total share-based payment
expense for Company A assuming that 80% of the employees actually meet the service condition.
Your Answer
$512,000
Correct Answer
$512,000
Explanation
Because the service condition is 3 years, the total share-based payment expense will be recognized over 3 years.
The expense recognized in each year is calculated as:
Year 1 = 50 options x 800 employees x 80% x $16 x 1/3 years = $170,667
Year 2 = 50 options x 800 employees x 80% x $16 x 2/3 years - $170,667 = $170,667
Year 3 = 50 options x 800 employees x 80% x $16 x 3/3 years - $170,667 x 2 = $170,667
Total share-based payment expense = $170,667 + $170,667 + $170,667 = $512,000
14
Which of the following is not a required criterion for a transaction to be considered a business
combination?
Your Answer
Presence of outputs
Correct Answer
Presence of outputs
Explanation
To be considered a business combination, there must be both an input and a substantive process that are
critical to the ability to create outputs. Also, the fair value of the gross assets acquired in the transaction must
not be concentrated (i.e. 90%) in a single asset or a group of similar assets. The presence of outputs is not
required in determining whether a transaction is a business combination.
15
Which of the following statements regarding the accounting for business combinations is false?
Your Answer
Goodwill is the difference between the consideration transferred by the acquirer to the acquiree and the fair
value of identifiable assets acquired.
Correct Answer
Goodwill is the difference between the consideration transferred by the acquirer to the acquiree and the fair
value of identifiable assets acquired.
Explanation
Goodwill is the difference between the consideration transferred by the acquirer to the acquiree and the fair
value of the net assets acquired (assets acquired minus liabilities assumed).
16
Debt issuance costs are:
Your Answer
Amortized over the term of the related debt liability
Correct Answer
Amortized over the term of the related debt liability
Explanation
Debt issuance costs are initially presented on the balance sheet as a contra account under liabilities and
amortized over the term of the related debt liabilities, classified as part of the interest expense.
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