1. Which of the following statements about directors of a company is true?

• Directors are elected by management of a company
• Directors only get paid if the company increases its profitability that year
• Directors are shareholders' representatives
• All directors of a company are senior managers in that company

2. Which of the following would affect the comparability of accounting information for a given company from one accounting period to the next?
I. Change in accounting principles
II. Disposition of segment of business
III. Restructuring expense
IV. Change in auditors

• I and II
• I and III
• I, II, and III
• I, III, and IV

3. Accounting Standards are best described as:

• the result of a political process among groups with diverse interests.
• presentation standards mandated by the Securities and Exchange Commission.
• the state of the art presentation of the science of accounting.
• measuring the quality of safeguarding assets.

4. The two secondary qualities of accounting information that make it useful for decision making are _________.

• consistency and comparability
• relevance and reliability
• materiality and comparability
• full disclosure and relevance

5. Which phrase DOES NOT accurately complete the following sentence? When using the 10-Q, the analyst should be aware that the usefulness of the quarterly financial statements might be affected by _________.

• seasonality
• adjustments made in final quarter of the year
• the use of cash accounting
• the increased use of estimates

6. Which of the following is not a component of pension expense?

• Service cost
• Interest cost
• Actual return on plan assets
• Expected return on plan assets

7. When analyzing post retirement benefits one should evaluate the actuarial assumptions and their effect on the:

• stock prices.
• cash requirement.
• balance sheet statements.
• financial statements.

8. Minority interest appears on the balance sheet of some companies. Minority interest:

• is classified as a liability.
• is classified as equity.
• arises when company records investments using the equity method.
• arises when company owns controlling interest in another company, but less than 100%.

9. A lessee must account for a lease as a capital lease if:

• the lease is shorter than 20 years.
• the present value of leases is greater than 10% of lessee's assets.
• the lease is longer than 20 years.
• None of the above

10. Deferral of unrealized gains or losses may generate major difference between the economic pension cost and the:

• reported pension.
• company pension.
• past pension.
• post retirement pension.

11. FIFO provides a better ending inventory figure more closely reflecting:

• current assets.
• current costs.
• current liabilities.
• current inventory.

12. Which of the following is not an effect of capitalization?

• Capitalization usually reduces net income.
• Capitalization usually yields a smoother net income.
• Capitalization usually decreases the volatility of the return on investment.
• Capitalization usually increases net income.

13. If a company factors its accounts receivables, this will have the effect of making:

• its cash cycle appear longer.
• its cash cycle appear even.
• its cash cycle appear shorter.
• its cash cycle appear exact.

14. Which of the following would rarely be classified as a current asset?

• Prepaid insurance
• Goodwill
• Marketable securities
• Work in progress

15. The LIFO Conformity rule states that if a company uses LIFO for tax purposes, it must also use it for:

• balance sheet reporting.
• cash reporting.
• financial reporting.
• liability reporting.

16. If revenue is recognized for financial reporting purposes but deferred for tax purposes, this results in a:

• deferred asset liability.
• deferred tax liability.
• deferred liability.
• None of the above

17. Under GAAP, comprehensive income:

• may be reported in addition to net income.
• must be reported in addition to net income.
• may be reported instead of net income.
• must be reported instead of net income.

18. Compared with companies that expense costs, firms that capitalize costs can be expected to report:

• higher asset levels and lower equity levels.
• higher asset levels and higher equity levels.
• lower asset levels and higher equity levels.
• lower asset levels and lower equity levels.

19. If a company changes the useful life of its assets from 10 years to 12 years, this will be recorded as _________.

• a non recurring gain
• an extraordinary item
• a change in accounting principle
• None of the above

20. Differences in taxable income and pretax accounting income that will not be offset by corresponding differences or turn around in future periods are called:

• timing differences.
• circular differences.
• permanent differences.
• reverse differences.