CFA Level I:FSA : Financial Reporting mechanics(Reading 23) 习题精选 accounting, recording

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1.In accrual accounting, if an adjusting entry results in the reduction of an asset and the recording of an expense, the originating entry recorded was most likely a(n):

A. Prepaid expense.
B. Accrued expense.
C. Deferred revenue.


Ans: A.
The adjusting entry to record the expiry of a prepaid expense is the reduction of an asset (the prepaid) and the recognition of the expense.
For example, to record insurance expense:
Insurance expense                             100
Prepaid insurance expense                  100


B is incorrect. Accrued expense is an accounting expense recognized in the books before it is paid for. It is a liability, and is usually current. For example, at the end of the month, a company will accrue its salary expense before actually paying the employees. The entry is:
Salary expense       100
Salary payable        100


C is incorrect. Deferred revenue is advance payment or unearned revenue, recorded on the recipient’s balance sheet as a liability, until the services have been rendered or products have been delivered. For example, if a firm gets advance payment before deliver the good, it needs to make the following entry:
Cash                               100
Deterred revenue              100

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24. On January 31, Bao Inc. borrowed funds to purchase capital equipment for its business operations. On the same day, it also recorded the cost of salaries incurred to January 31, which will be paid on February 6. When these two transactions are recorded on January 31, the financial statement item that will increase the most is:

A. assets.

B. expenses.

C. liabilities.
   
Ans: C.

Borrowing funds to purchases capital equipment will result in an increase in assets (equipment) and in liabilities (debt). The accrual of the salaries that are owned, but not paid, as of month-end will increase expenses and increase liabilities (accrued salary expense). Therefore, these two transactions taken together will result in the greatest increase in liabilities.

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23. When the Bao Company filed its corporate tax returns for the first quarter of the current year, it owned a total of $6.7 million in corporate taxes. Bao paid $4.4 million of the tax bill, but still owes $2.3 million. It also received $478,000 in the second quarter as a down payment towards $942,000 in custom-built products to be delivered in the third quarter. Its financial accounts for the second quarter most likely show the $2.3 million and the $478,000 as: $2.3 million $478,000 A Income tax payable Unearned revenue B Income tax payable Accrued revenue C Deferred tax liability Accrued revenue

Ans: A. The $478,000 is unearned revenue, a liability. The $2.3 million owned to the government but not yet paid is income tax payable, also a liability. Deferred tax accounts arise from temporary difference between tax reporting and financial reporting.

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22. Which of the following items is best described as a listing of all the journal entries in order of their dates?

A. Trial ledger.

B. General ledger.

C. General journal.
   
Ans: C.

The listing of all the journal entries in order of their dates is called the general journal.

  

A is incorrect. “Trial ledger” is not part of an accounting system.

B is incorrect. The general ledger sorts the entries in the general journal by account.

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21. What is the effect on the accounting equation when a company’s Board of Directors declares a cash dividend?

A. Assets decrease and owners’ equity decreases.

B. Liabilities increase and owners’ equity decreases.

C. There is no effect on the accounting equation until the dividend is paid.

  
   
Ans: B.

The company would create (increase) a liability for dividends payable and deduct the same amount from its retained earnings, thus decreasing owners’ equity.

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20. An entry made to record an accrual, such as bad debt expense, that is not yet reflected in the accounting system is best described as a(n):

A. ledger entry.

B. adjusting entry.

C. trial balance entry.

  
   
Ans: B.

Adjusting entries are a type of journal entries typically made at the end of the accounting period to record items such as accruals that are not yet reflected the accounting system.

  

A is incorrect. Journal entries record every transaction, showing which accounts are changed and by what amount. A listing of all the journal entries in order of their dates is called the general journal.

  

C is incorrect. At the end of the accounting period, an initial trial balance is prepared that shows the balances in each account. If any adjusting entries are needed, they will be recorded and reflected in an adjusted trial balance.

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19. An accounting document that records transactions in the order in which they occurs is best described as a:

A. Trial balance.

B. General ledger.

C. General journal.
.
Ans: C.

The general journal records transaction in the order in which they occur (chronological order) and is therefore sorted by date.

  

A is incorrect. A trial balance is prepared at the end of an accounting period prior to the financial statements. A trial balance reports only ending balances (and not transactions) for each account. Adjusting entries are then made, if required, and then an adjusted trial balance can be prepared, for as many cycles as are necessary.

  

B is incorrect. The general ledger contains all the journal entries that are posted to the general journal and other specialized journals, except that the general ledger sorts the data by account where the general journal and the specialized journal records the transactions by date. The general ledger is considered the core of an accounting system.

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18. Under U.S.GAAP, differences between accrued revenue and expenses and cash flows result in the creation of assets and liabilities. Would each of the following revenue events result in the creation of an asset or a liability when the event originally occurs? Revenue is recognized before the cash is received Cash is received before the revenue is recognized A Asset Asset B Asset Liability C Liability Liability

Ans: B. Revenue recognized before the cash is received will result in the creation of an accounts receivables, an asset, whereas when the cash is received before the revenue is recognized a liability, unearned revenue, is created.

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17. The following is available about the company: Contributed capital, beginning of the year $50,000 Retained earnings, beginning of the year 225,000 Sales revenue earned during the year 450,000 Investment income earned during the year 5,000 Expenses paid during the year 402,000 Dividends paid during the year 10,000 Total assets, end of the year 800,000 Total liabilities at the end of the year are closest to: A. $472,000 B. $482,000 C. $487,000

Ans: B. Start of year capital contributed by owners $50,000 Initial retained earnings 225,000   Sales revenue 450,000   Investment income 5,000   Expenses (402,000)   Net income 53,000   Dividends paid (10,000) Increase in retained earnings 43,000 43,000 Ending owners’ equity $318,000 Assets = liabilities + equity $800,000=liabilities + $318,000 Liabilities = $482,000

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16. An analyst gathers the following information from a company’s accounting records (all figures in thousands): Assets, 31 December 2008 $5,250 Liabilities, 31 December 2008 2,200 Contributed capital, 31 December 2008 1,400 Retained earnings, 1 January 2008 800 Dividends declared during 2008 200 The analyst’s estimate of net income ($ thousands) for 2008 is closest to: A. 650. B. 850. C. 1,050.

Ans: C. Total assets = liabilities + owner’s equity. Owner’s equity = $5,250– 2,200= 3,050. Owners equity = contributed capital + ending retained earnings. Ending retained earnings = 3,050– 1,400= 1,650. Ending retained earnings = beginning retained earnings + net income – dividends. 1,650= 800 + net income – 200; Net income = $1,050