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MOCK BOARD EXAMINATION FINANCIAL ACCOUNTING THEORY 1. The currently reported net income is based on a. Financial capital c. Borrowed capital b. Physical capital d. Invested and borrowed capital 2. Before 2005, Glen D. Company used the cash basis of accounting As of December 31,2005, Glen D changed to the accrual basis. Glen D cannot determine the beginning supplies inventory. What is the effect of Glen D’s in ability to determine beginning supplies inventory on its 2005 accrual basis net income and December 31, 2005, accrual basis owners’ equity? 2005 net income 12/31/05 owners’ equity a. No effect No effect b. No effect Overstated c. Overstated No effect d. Overstated Overstated 3. The premium on a three-year insurance policy expiring on December 31, 2004 was paid in total on January 1, 2002. The original payment was initially debited to a prepaid asset account. The appropriate journal entry has been recorded on December 31, 2002. The balance in the prepaid asset account on December 31, 2002 should be a. Zero b. The same as it would been if the original payment had been debited initially to an expense account c. The same as the original payment d. Higher than if the original payment had been debited initially to an expense account 4. In a statement of cash flow which of the following items is reported as cash flow from financing activities? I. Payments to retire mortgage notes II. Interest payments on mortgage notes III. Dividends payments a. I,II, and III b. II and III c. I only d. I and III 5. A business combination is accounted for appropriately as a purchase. Which of the following should be deducted in determining the combined corporation’s net income for the current period? Direct cost General expenses Of acquisition related to acquisition a . Y e s N o b . Y e s Y e s c . N o Y e s d . N o N o 6. On January 1,2005, XYZ Company signed a 5-year contract enabling it to use patented manufacturing process beginning in 2005. A royalty is payable for each product produced, subject to a minimum annual Fee. Any royalties in excess of the minimum will be paid annually. On the contract date, XYZ prepaid a sum equal to two years’ minimum annual fees. In 2005, only minimum fees were incurred. The royalty prepayment should be reported on the December 31, 2005 financial statements as a. Expenses only c. Current asset and expenses b. Current and noncurrent asset d. Noncurrent asset 7. The effect of the change in accounting estimate should be a. Accounted for in the period of change only b. Accounted for in the period of change and future periods if the change affects both c. Treated as an extraordinary item d. Shown as a correction of retained earnings 8. Retrospective application means that any resulting adjustment from a change in accounting policy should be reported as a. Correction of the opening balance of retained earnings b. Separate item in the income statement as part of income from ordinary activities c. Extraordinary item d. Discounting operation
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9. It means the preparation of financial statements for a period of less than one year,
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This note was uploaded on 08/12/2010 for the course ACC 452 taught by Professor Mr.cula during the Spring '10 term at Abraham Baldwin Agricultural College.

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