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web.groovymark@gmail.com
- December 14, 2024
Question 21
What is a Contract Liability?
A) The amount owed to suppliers for goods received
B) A company’s obligation to transfer goods or services to a customer for which the company has received consideration
C) A deferred tax liability
D) An asset that will be realized once performance obligations are met
Answer: B) A company's obligation to transfer goods or services to a customer for which the company has received consideration
Explanation:
A Contract Liability refers to the company’s obligation to provide goods or services to a customer after having received payment in advance, commonly known as Unearned Revenue.
Question 22
What is a Contract Modification?
A) Changing the legal terms of a contract before signing
B) An amendment to the contract terms after the contract has been signed
C) The cancellation of a contract
D) A change in the customer’s payment terms
Answer: B) An amendment to the contract terms after the contract has been signed
Explanation:
A Contract Modification occurs when the terms of an ongoing contract are changed, such as changes to pricing, scope of work, or timelines.
Question 23
What is a Contributory Pension Plan?
A) A pension plan where the employer bears the entire cost of benefits
B) A pension plan where the employees bear part of the cost of the benefits
C) A pension plan where employees receive bonuses
D) A pension plan managed solely by the government
Answer: B) A pension plan where the employees bear part of the cost of the benefits
Explanation:
A Contributory Pension Plan requires employees to contribute toward the cost of the pension benefits they will receive upon retirement.
Question 24
What is Controlling Interest?
A) A non-voting stake in a company
B) When one company acquires more than 50% of another company’s voting interest
C) When one company holds less than 20% ownership in another company
D) When two companies merge into one legal entity
Answer: B) When one company acquires more than 50% of another company's voting interest
Explanation:
Controlling Interest refers to owning more than 50% of the voting stock of another company, giving the controlling company the ability to influence decisions.
Question 25
What is Cost-to-Cost Basis?
A) The total cost of goods sold in a retail operation
B) A method of estimating progress towards completion by comparing costs incurred to date with the total estimated costs required to complete the contract
C) The process of pricing inventory at cost
D) A method of calculating depreciation on long-term assets
Answer: B) A method of estimating progress towards completion by comparing costs incurred to date with the total estimated costs required to complete the contract
Explanation:
Cost-to-Cost Basis is used in the percentage-of-completion method to estimate the percentage of work completed on a contract by comparing incurred costs to the estimated total costs.
Question 26
What are Counterbalancing Errors?
A) Errors that require a complete revaluation of all assets
B) Errors that will self-correct over two accounting periods
C) Errors that will never self-correct
D) Errors that occur when there is a mistake in depreciation calculations
Answer: B) Errors that will self-correct over two accounting periods
Explanation:
Counterbalancing Errors are accounting errors that correct themselves over two periods, such as errors in recognizing revenue or expenses.
Question 27
What is the Cumulative Effect of an Accounting Change?
A) The effect of a change in accounting method on future income only
B) The difference in prior years’ income between the newly adopted accounting method and the prior method
C) A change in management’s financial reporting strategy
D) A one-time adjustment made to balance the books after an error
Answer: B) The difference in prior years' income between the newly adopted accounting method and the prior method
Explanation:
The Cumulative Effect refers to the total difference in income between what was reported under the old accounting method and what would have been reported if the new method had always been used.
Question 28
What is a Current Tax Expense?
A) Income tax paid on future taxable income
B) Income tax payable for the current year
C) Income tax that is deferred for future periods
D) Income tax related to previous years’ earnings
Answer: B) Income tax payable for the current year
Explanation:
The Current Tax Expense is the amount of tax that is payable (or refundable) for the current year, determined by applying tax law to the taxable income for the year.
Question 29
What are Debt Securities?
A) Securities representing ownership interest in a company
B) Securities that represent a creditor relationship with an entity, such as bonds and government securities
C) Securities that provide a fixed dividend to shareholders
D) Securities issued by start-ups
Answer: B) Securities that represent a creditor relationship with an entity, such as bonds and government securities
Explanation:
Debt Securities represent a creditor relationship with an enterprise and include instruments like bonds, municipal securities, and convertible debt.
Question 30
What is a Deductible Temporary Difference?
A) Differences between book income and taxable income that result in taxable amounts in future years
B) Differences between book income and taxable income that result in deductible amounts in future years
C) Differences between book value and fair value
D) Differences between the market value and purchase price of securities
Answer: B) Differences between book income and taxable income that result in deductible amounts in future years
Explanation:
A Deductible Temporary Difference occurs when there are timing differences that will result in future deductions for tax purposes when recovering or settling the related asset or liability.
Question 31
What is a Deferred Tax Asset?
A) The amount of tax that will be paid in future periods
B) The deferred tax consequences attributable to deductible temporary differences and carryforwards
C) Tax expenses related to the current year
D) Taxable income reported in the financial statements but not yet paid
Answer: B) The deferred tax consequences attributable to deductible temporary differences and carryforwards
Explanation:
A Deferred Tax Asset arises from deductible temporary differences or tax credits that can be used to reduce future tax liabilities.
Question 32
What is Deferred Tax Expense?
A) The amount of taxes owed in future periods
B) The amount of tax deferred from previous years that must be paid in the current year
C) The increase in the deferred tax liability balance from the beginning to the end of the accounting period
D) The tax owed on temporary differences in revenue
Answer: C) The increase in the deferred tax liability balance from the beginning to the end of the accounting period
Explanation:
Deferred Tax Expense is the increase in the deferred tax liability balance over the accounting period, reflecting future taxes owed due to temporary differences in recognizing income or expenses.
Question 33
What is a Defined Benefit Plan?
A) A pension plan where the employer contributes a fixed amount to a pension fund
B) A pension plan where the employee bears all the risk of investment performance
C) A pension plan where the benefits to be received by the employee upon retirement are defined
D) A pension plan that offers tax incentives but no guaranteed payout
Answer: C) A pension plan where the benefits to be received by the employee upon retirement are defined
Explanation:
In a Defined Benefit Plan, the benefits that employees will receive upon retirement are predetermined based on factors like years of service and salary levels.
Question 34
What is a Defined Contribution Plan?
A) A pension plan where the employer contributes a specific sum each period based on a formula
B) A pension plan where benefits are guaranteed upon retirement
C) A pension plan where the government matches employee contributions
D) A pension plan where the employee contributes the entire amount
Answer: A) A pension plan where the employer contributes a specific sum each period based on a formula
Explanation:
A Defined Contribution Plan is a pension plan where the employer agrees to contribute a set amount each period, typically based on factors like salary and years of service, but does not guarantee the benefit amount at retirement.
Question 35
What is the Effective Tax Rate?
A) The total tax liability divided by taxable income
B) The total income tax expense for the period divided by pretax financial income
C) The tax rate applied to future income
D) The tax rate for the highest income bracket
Answer: B) The total income tax expense for the period divided by pretax financial income
Explanation:
The Effective Tax Rate is calculated by dividing the total income tax expense for the period by the pretax financial income, providing insight into the average rate at which the company is taxed.
Question 36
What is the Equity Method of accounting for investments?
A) A method where the investment is valued at fair market value
B) A method where the investment is valued based on the investor’s proportionate share of the investee’s earnings or losses
C) A method where the investment is only recorded when dividends are received
D) A method where the investment is held until maturity
Answer: B) A method where the investment is valued based on the investor’s proportionate share of the investee’s earnings or losses
Explanation:
The Equity Method adjusts the value of the investment by the investor's share of the investee's profits or losses, and the investment’s value is reduced by any dividends received.
Question 37
What are Equity Securities?
A) Securities representing debt obligations of a company
B) Securities representing ownership interest in another corporation
C) Securities that pay a fixed interest rate
D) Securities issued by the government
Answer: B) Securities representing ownership interest in another corporation
Explanation:
Equity Securities represent ownership interest in another company, such as common or preferred stock.
Question 38
What are Errors in Financial Statements?
A) Mistakes caused by changes in accounting principles
B) Mistakes in the application of accounting principles or oversight of information
C) Mistakes caused by external auditors
D) Mistakes corrected in future periods
Answer: B) Mistakes in the application of accounting principles or oversight of information
Explanation:
Errors in Financial Statements result from mathematical mistakes, misuse of facts, or incorrect application of accounting principles at the time financial statements were prepared.
Question 39
What is Fair Value?
A) The value of an asset based on its historical cost
B) The amount at which an asset could be exchanged between willing parties in an orderly transaction
C) The book value of an asset minus depreciation
D) The amount an asset could be sold for in a forced liquidation sale
Answer: B) The amount at which an asset could be exchanged between willing parties in an orderly transaction
Explanation:
Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Question 40
What is a Finance Lease?
A) A lease that transfers ownership of the asset to the lessee
B) A lease where the lessee recognizes the right to use an asset and a corresponding liability
C) A lease where the lessee makes monthly payments and retains ownership
D) A lease where the lessor retains all risks and rewards
Answer: A) A lease that transfers ownership of the asset to the lessee
Explanation:
A Finance Lease transfers control (or ownership) of the asset to the lessee, who recognizes interest expense on the lease liability and amortization on the right-to-use asset.
