OA Exams

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Question 01

What is a Lease?

A) A contract that conveys ownership of a property

B) A contract that conveys the right to control the use of an identified asset for a specific period of time

C) A contract that conveys ownership of a business entity

D) A contract that conveys a percentage of a company’s profits

Answer: B) A contract that conveys the right to control the use of an identified asset for a specific period of time

Explanation:
A Lease is a contract that allows the lessee to control the use of an identified property, plant, or equipment for a specific period in exchange for consideration.

Question 02

What are Lease Classification Tests?

A) Tests used to determine the asset’s fair value

B) Tests used to determine whether a lease should be classified as a finance or operating lease

C) Tests used to determine the useful life of an asset

D) Tests used to measure the lessee’s financial position

Answer: B) Tests used to determine whether a lease should be classified as a finance or operating lease

Explanation:
Lease Classification Tests help determine whether a company should use the finance lease approach or the operating lease approach, based on the terms of the lease.

Question 03

What is a Lease Receivable?

A) The amount the lessor receives from selling the leased asset

B) The amount recorded by the lessor under a sales-type lease

C) The amount recorded by the lessee for future payments

D) The amount the lessee owes the lessor after the lease ends

Answer: B) The amount recorded by the lessor under a sales-type lease

Explanation:
The Lease Receivable is recorded by the lessor under a sales-type lease, reflecting the amount the lessee is expected to pay over the lease term.

Question 04

What is a Lease Term?

A) The length of the lease agreement

B) The length of time the lessee has to purchase the asset

C) The period of time after the lease ends

D) The time when ownership transfers to the lessee

Answer: A) The length of the lease agreement

Explanation:
The Lease Term refers to the length (or duration) of the lease contract, during which the lessee has the right to use the leased asset.

Question 05

What is a Lease Term Test?

A) A test used to determine the fair value of an asset

B) A test used to determine whether a lease should be treated as a finance lease based on its length

C) A test used to determine the lease’s payment schedule

D) A test used to measure the cost of leasing equipment

Answer: B) A test used to determine whether a lease should be treated as a finance lease based on its length

Explanation:
The Lease Term Test determines whether the lease term represents a major part (typically 75% or greater) of the asset's economic life, which would classify it as a finance lease.

Question 06

Who is a Lessee?

A) The person who leases out an asset

B) The person who receives the right to use an asset in return for cash payments under a lease

C) The person who owns an asset

D) The person who maintains the asset during the lease term

Answer: B) The person who receives the right to use an asset in return for cash payments under a lease

Explanation:
The Lessee is the party that leases and gains the right to use property owned by the lessor in exchange for regular payments under the lease terms.

Question 07

Who is a Lessor?

A) The person who receives the right to use an asset

B) The person who gives the lessee the right to use a property for a specific period under a lease

C) The person who maintains the leased asset

D) The person who manages the financial aspects of the lease

Answer: B) The person who gives the lessee the right to use a property for a specific period under a lease

Explanation:
The Lessor is the party that owns the leased asset and grants the lessee the right to use it for a set period in exchange for payments.

Question 08

What is a Noncontributory Pension Plan?

A) A pension plan where employees contribute to their own retirement

B) A pension plan where the employer bears the entire cost

C) A pension plan where the government contributes funds

D) A pension plan where contributions are optional

Answer: B) A pension plan where the employer bears the entire cost

Explanation:
In a Noncontributory Pension Plan, the employer is responsible for providing the full amount of funding for the employee's retirement benefits.

Question 09

What are Noncounterbalancing Errors?

A) Errors that correct themselves over two periods

B) Errors that will not self-correct and require adjustment in future periods

C) Errors that occur due to incorrect application of accounting principles

D) Errors that affect only the balance sheet

Answer: B) Errors that will not self-correct and require adjustment in future periods

Explanation:
Noncounterbalancing Errors are accounting mistakes that take longer than two periods to correct themselves and often require adjusting journal entries.

 

Question 10

What are Operating Activities?

A) Activities related to the acquisition of long-term assets

B) Activities related to liability and stockholders’ equity

C) Activities related to the production and sale of goods or services

D) Activities related to mergers and acquisitions

Answer: C) Activities related to the production and sale of goods or services

Explanation:
Operating Activities are those involved in the company's core business operations, such as producing goods, selling services, and managing inventory and receivables.

Question 11

What is an Operating Lease?

A) A lease where the lessee gains ownership of the asset

B) A lease where the lessee obtains the right to use an asset but not ownership

C) A lease where the lessor sells the asset to the lessee

D) A lease that cannot be canceled before its term ends

Answer: B) A lease where the lessee obtains the right to use an asset but not ownership

Explanation:
In an Operating Lease, the lessee is allowed to use the asset but does not own it, and the lease is usually shorter than the asset's economic life.

Question 12

What is an Originating Temporary Difference?

A) A difference between the tax basis and the book basis of an asset that will not reverse

B) The initial difference between the tax basis and the book basis of an asset or liability

C) A difference between revenue recognition methods

D) A difference between taxable income and net income

Answer: B) The initial difference between the tax basis and the book basis of an asset or liability

Explanation:
An Originating Temporary Difference refers to the initial gap between the book and tax basis of an asset or liability, which will reverse over time as the differences are settled.

Question 13

 What are Output Measures?

A) The costs incurred in a project

B) Measures of the units completed on a project when calculating progress under the percentage-of-completion method

C) The hours worked on a project

D) The costs of materials for a project

Answer: B) Measures of the units completed on a project when calculating progress under the percentage-of-completion method

Explanation:
Output Measures assess the number of units or milestones completed in a project, often used in the percentage-of-completion method to recognize revenue.

Question 14

What is a Parent Company?

A) A corporation that has acquired more than 50% of another corporation’s voting interest

B) A corporation that is owned by a larger corporation

C) A company that manages other companies’ finances

D) A company that rents out assets to subsidiaries

Answer: A) A corporation that has acquired more than 50% of another corporation's voting interest

Explanation:
A Parent Company is a corporation that holds a controlling interest in another corporation, typically more than 50% of the subsidiary's voting shares.

Question 15

What is a Pension Plan?

 A) A savings account for employees

 B) An arrangement where an employer provides benefits to retired employees

 C) A government-sponsored retirement plan

 D) A plan where employees must fund their entire retirement

Answer: B) An arrangement where an employer provides benefits to retired employees
Explanation:
A Pension Plan is an arrangement in which employers provide retirement benefits
(payments) to their employees for services rendered during their working years.

Question 16

What is the Percentage-of-Completion Method?

A) A method for recording revenue only at the end of a project

B) A method for recognizing revenue and profit throughout the life of a long-term contract based on the progress made

C) A method for calculating depreciation of fixed assets

D) A method for recording expenses at the start of a project

Answer: B) A method for recognizing revenue and profit throughout the life of a long-term contract based on the progress made
Explanation:
The Percentage-of-Completion Method recognizes revenue over time, based on the
progress made toward completing a long-term project, such as construction.

Question 17

What are Permanent Differences?

A) Temporary differences between book income and taxable income that reverse
over time

B) Differences between taxable income and pretax financial income that will not
reverse in future periods

C) Differences between cash accounting and accrual accounting

D) Differences in tax rates between countries

Answer: B) Differences between taxable income and pretax financial income that will
not reverse in future periods
Explanation:
Permanent Differences arise when items are included in financial accounting income but
not in taxable income, or vice versa, and do not reverse in future periods.

Question 18

What is Pretax Financial Income?

A) The income after tax expenses

B) The income before income taxes

C) The income reported for tax purposes

D) The total income before deducting operating expenses

Answer: B) The income before income taxes
Explanation:
Pretax Financial Income refers to the company's earnings before accounting for income
taxes, often called income before income taxes in financial reports.

Question 19

What is a Principal-Agent Relationship?

A) A relationship where one company sells another company’s products

B) A relationship where the principal provides goods and the agent arranges for
their sale to customers

C) A relationship where the agent owns the principal’s assets

D) A relationship where both the principal and agent share profits equally

Answer: B) A relationship where the principal provides goods and the agent arranges for
their sale to customers

Explanation:
In a Principal-Agent Relationship, the principal has the obligation to provide goods or
services, and the agent facilitates the delivery of those goods or services to the customer.

Question 20

What is a Qualified Pension Plan?

A) A pension plan that is exclusively funded by employees

B) A pension plan that meets IRS requirements and provides tax benefits

C) A pension plan with a set monthly benefit

D) A pension plan that provides no tax benefits

Answer: B) A pension plan that meets IRS requirements and provides tax benefits

Explanation:
A Qualified Pension Plan adheres to IRS guidelines, allowing employers to deduct
contributions and employees to defer taxes on benefits until they are received.

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