Accounting principles and standards exam solutions - KC ACCOUNTANCY EDUCATION CENTER

Welcome to your accountingprinciplesandstandardsqualifiedassessment

Which of the following best describes accounting principles in general?

They outline the fundamental rules and concepts and establish the framework on which detailed accounting standards are based.

A sound accounting framework allows for all of the following benefits except:

Identical items being reported on the financial statements of different companies

Match the correct description to each of the accounting principles

Conservatism Principle – It provides guidance on how to record transactions when there is uncertainty

Historical Cost Principle – It states that assets and liabilities are recorded on the financial statements at the cost at which they were acquired or assumed

Objectivity Principle – It states that financial statements must be free from bias and based on verifiable evidence.

Economic Entity Principle – It states that transactions carried out by a business are separated from those conducted by its owner.

Matching Principle – It states that the expenses of a business should be recorded in the periods in which the corresponding revenues are earned.

On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. and paid $960 for the entire program upfront. The program includes a total of 12 sessions and two sessions are delivered each month. How much revenue from Mr. Smithe should Fit Co. recognize at the end of March?

$160

Which of the following characteristics does not enhance the usefulness of financial information?

Relevance

Identify the statement that is most accurate.

Financial information that has confirmatory value provides feedback that either confirms or changes previous evaluations.

Which of the following is not a correct description of how an operating lease is recognized on the financial statements?

The amortization expense of the right-of-use asset is calculated using the straight-line depreciation method over the lease term.

Company Inc. enters into a 10-year finance lease at the beginning of 2021 for a total of $250,000. The annual lease payment is $25,000 (payable at the end of each year) and the rate implicit in the lease is 5%. No initial direct costs are incurred. How much interest expense should be recognized in 2021?

$9,652

Which of the following statements about income taxes is not correct?

Deductible temporary differences give rise to deferred tax liabilities, meaning that more tax is payable in the future.

Match the appropriate items to each type of temporary differences.

Generally arise when there are differences that result in current accounting income being greater than taxable income – Taxable Temporary Differences

Give rise to deferred tax assets – Deductible Temporary Differences

Generally arise when the tax base of the assets is greater than the carrying amount – Deductible Temporary Differences

Arise when the tax base of the liabilities is greater than the carrying amount – Taxable Temporary Differences

Arise when the carrying amount of the liabilities is greater than the tax base – Deductible Temporary Differences

Give rise to deferred tax liabilities – Taxable Temporary Differences

Calculate the deferred tax liability given the following items incurred in 2020 by Company B. Bonuses are tax deductible only in the year in which they are paid. Accounting Income $86,000 Depreciation Expense $6,500 Tax Depreciation $4,000 Income Not Recognized in The Current Period For Tax Purposes $4,700 2019 Bonus Paid in 2020 $2,630 Accrued Bonuses in 2020 $3,500 Tax Rate 28%

$372

Company Co. has 1,000 employees and it decides to grant each of the employees 200 share options as part of its new rewards plan. The options are exercisable over 5 years and subject only to the condition that the company’s stock price must be at least 30% higher than its original issue price. Company Co.’s share-based payments are subject to:

Non-vesting condition

Company A has 800 employees, and it decides to grant each of the employees 50 share options as part of its new rewards plan. The options are exercisable over 5 years and subject to a 3-year service condition. The fair value of each option at the grant date is $16. The company estimates that 80% of its employees will meet the service condition required for receiving the options. Calculate the total share-based payment expense for Company A assuming that 80% of the employees actually meet the service condition.

$512,000

Which of the following is not a required criterion for a transaction to be considered a business combination?

Presence of outputs

Which of the following statements regarding the accounting for business combinations is false?

Goodwill is the difference between the consideration transferred by the acquirer to the acquiree and the fair value of identifiable assets acquired.

Debt issuance costs are:

Amortized over the term of the related debt liability