-
web.groovymark@gmail.com
- December 15, 2024
Question 21
What are Related-Party Transactions?
A) Transactions between companies and their vendors
B) Transactions between a company and its employees
C) Transactions between a company and parties that can significantly influence
or be influenced by the company
D) Transactions that are not disclosed in financial reports
Answer: C) Transactions between a company and parties that can significantly influence
or be influenced by the company
Explanation:
Related-Party Transactions involve transactions with entities or individuals that have the
ability to influence the company’s operations, such as owners, management, or affiliated
companies.
Question 22
What are Repurchase Agreements?
A) Agreements to sell an asset and repurchase it at a higher price
B) Agreements to transfer an asset to a customer but retain the right or obligation
to repurchase it later
C) Agreements to lease an asset to a customer
D) Agreements to sell securities to a bank
Answer: B) Agreements to transfer an asset to a customer but retain the right or
obligation to repurchase it later
Explanation:
Repurchase Agreements are contracts where a company sells an asset to a customer but
retains the right or obligation to repurchase the asset at a future date.
Question 23
What is Residual Value?
A) The original cost of an asset
B) The value of the leased asset at the end of the lease term
C) The amount a lessee must pay at the start of the lease
D) The future value of the leased asset at its economic life
Answer: B) The value of the leased asset at the end of the lease term
Explanation:
Residual Value refers to the estimated fair value of a leased asset at the end of the lease
term, often used in determining lease payments.
Question 24
What is Retrospective Application?
A) The process of changing accounting principles for future periods only
B) The process of applying a new accounting principle to all prior periods
presented
C) The process of recording errors from past financial statements
D) The process of restating future earnings based on current period adjustment
Answer: B) The process of applying a new accounting principle to all prior periods
presented
Explanation:
Retrospective Application involves restating financial statements for all prior periods as
if the newly adopted accounting principle had always been applied.
Question 25
What is the Revenue Recognition Principle?
A) Revenue should be recorded when cash is received
B) Revenue should be recorded when the performance obligation is satisfied
C) Revenue should be recorded when the contract is signed
D) Revenue should be recorded when the invoice is sent
Answer: B) Revenue should be recorded when the performance obligation is satisfied
Explanation:
The Revenue Recognition Principle states that companies should recognize revenue when
they fulfill their performance obligations, regardless of when cash is received.
Question 26
What is a Sales-Type Lease?
A) A lease where the lessor retains ownership of the asset
B) A lease where the present value of the lease payments exceeds the carrying
value of the asset
C) A lease where the lessor sells the asset at a discount
D) A lease where the lessee must return the asset at the end of the lease
Answer: B) A lease where the present value of the lease payments exceeds the carrying
value of the asset
Explanation:
In a Sales-Type Lease, the lessor treats the lease as a sale because the present value of the
lease payments is greater than the carrying amount of the asset.
Question 27
What is a Service-Type Warranty?
A) A warranty that guarantees the product for life
B) A warranty that provides additional services beyond the product warranty
C) A warranty that only covers defects at the time of sale
D) A warranty that is included with all consumer products
Answer: B) A warranty that provides additional services beyond the product warranty
Explanation:
A Service-Type Warranty provides extra services beyond the basic assurance-type
warranty, often involving additional repair or maintenance services.
Question 28
What is a Short-Term Lease?
A) A lease with a term of 12 months or less
B) A lease with a term of 24 months or less
C) A lease with a term of five years or less
D) A lease with no renewal option
Answer: A) A lease with a term of 12 months or less
Explanation:
A Short-Term Lease is any lease with a term of 12 months or less, allowing companies to
treat lease payments as expenses rather than capitalizing the lease.
Question 29
What is a Statement of Cash Flows?
A) A financial statement that shows a company’s profit margins
B) A financial statement that reflects a company’s cash inflows and outflows
over a period of time
C) A financial statement that reports a company’s equity
D) A financial statement that records a company’s liabilities and assets
Answer: B) A financial statement that reflects a company’s cash inflows and outflows
over a period of time
Explanation:
The Statement of Cash Flows provides insight into a company’s cash inflows and
outflows, classified into operating, investing, and financing activities.
Question 30
What is a Subsidiary?
A) A company that holds the controlling interest in another company
B) A company that has been acquired by a parent company
C) A company that manages the assets of another company
D) A company that operates as a separate legal entity
Answer: B) A company that has been acquired by a parent company
Explanation:
A Subsidiary is a company that has been purchased by a parent company, with the parent
holding a controlling interest (typically more than 50%).
Question 31
What is Taxable Income?
A) The income on which taxes are calculated
B) The income after taxes are paid
C) The total revenue a company generates
D) The total profit before operating expenses
Answer: A) The income on which taxes are calculated
Explanation:
Taxable Income refers to the income on which taxes are calculated, as defined by tax
authorities, after allowable deductions and exemptions.
Question 32
What is a Taxable Temporary Difference?
A) A difference that results in taxable amounts in future years when recovering
an asset
B) A difference that results in higher tax rates for a company
C) A difference between domestic and foreign tax rates
D) A difference between the book value and the market value of an asset
Answer: A) A difference that results in taxable amounts in future years when recovering
an asset
Explanation:
Taxable Temporary Differences occur when the tax basis of an asset or liability is
different from its carrying amount on the financial statements, resulting in future taxable
amounts.
Question 33
What is a Temporary Difference?
A) A difference between the tax basis of an asset and its book value
B) A difference in tax rates between two countries
C) A difference in interest rates over time
D) A difference between gross profit and net profit
Answer: A) A difference between the tax basis of an asset and its book value
Explanation:
Temporary Differences arise when there is a discrepancy between the tax basis and the
book value of an asset or liability, and these differences reverse over time.
Question 34
What are Trading Securities?
A) Securities bought and held for more than one year
B) Securities held primarily for sale in the near term to generate income from
short-term price differences
C) Securities held to maturity to earn interest
D) Securities held as long-term investments for dividend income
Answer: B) Securities held primarily for sale in the near term to generate income from
short-term price differences
Explanation:
Trading Securities are purchased with the intention of selling them in the near term, often
to profit from short-term price fluctuations.
Question 35
What is Unguaranteed Residual Value?
A) The residual value that is fully guaranteed by the lessee
B) The residual value for which the lessee has no obligation at the end of the
lease
C) The residual value that is guaranteed by a third-party
D) The estimated salvage value of an asset
Answer: B) The residual value for which the lessee has no obligation at the end of the
lease
Explanation:
Unguaranteed Residual Value is the value of a leased asset at the end of the lease term
that the lessee is not obligated to guarantee or pay.
Question 36
What are Upfront Fees?
A) Payments from customers before they receive a product or service
B) Payments made after a service is delivered
C) Payments made when a customer cancels a service
D) Payments made at the end of a contract term
Answer: A) Payments from customers before they receive a product or service
Explanation:
Upfront Fees are payments customers make before receiving a product or service, usually
nonrefundable, and they may need to be recognized over the term of the contract.
Question 37
What is Valuation Allowance?
A) The portion of a deferred tax asset for which a tax benefit is not expected to
be realized
B) The portion of an asset’s value that exceeds its book value
C) The expected salvage value of an asset at the end of its useful life
D) The tax benefit that can be realized from future sales
Answer: A) The portion of a deferred tax asset for which a tax benefit is not expected to
be realized
Explanation:
Valuation Allowance is the portion of a deferred tax asset that a company does not expect
to realize, often due to uncertainty in generating future taxable income.
Question 38
What are Warranties?
A) Guarantees provided by a seller that a product meets certain quality standards
B) Refunds given to customers when a product is returned
C) Rebates offered for purchasing a product in bulk
D) Service contracts that cover future repairs on a product
Answer: A) Guarantees provided by a seller that a product meets certain quality
standards
Explanation:
Warranties are guarantees provided by sellers that their products meet agreed-upon
specifications, and they can be assurance-type or service-type warranties.
Question 39
What is the Present Value Test?
A) A test that measures the future value of an asset
B) A test that determines if the present value of lease payments is 90% or more
of the fair value of the leased asset
C) A test used to determine the market value of a security
D) A test that estimates the remaining life of an asset
Answer: B) A test that determines if the present value of lease payments is 90% or more
of the fair value of the leased asset
Explanation:
The Present Value Test helps determine if a lease qualifies as a finance lease by
comparing the present value of lease payments to the fair value of the leased asset.
Question 40
What are the Benefits of Leasing for a Lessee?
A) Gaining full ownership of the asset
B) Fixed rates, protection against obsolescence, flexibility, and lower financing
costs
C) Variable rates and immediate asset ownership
D) Increased maintenance responsibilities
Answer: B) Fixed rates, protection against obsolescence, flexibility, and lower financing
costs
Explanation:
Leasing offers the lessee benefits like fixed payments, protection against the risk of
obsolescence, flexibility, and lower financing costs compared to outright purchases.
