425 Final Unit 4
.png "425 Final Unit 4 - Quiz")
- 1.
A private not-for-profit health care organization has the following account balances:
- revenue from newsstand....................................$50,000
- amounts charged to patients............................. 800,000
- interest income..................................................... 30,000
- salary expense -- nurses.................................... 100,000
- bad debts............................................................... 10,000
- undesignated gifts................................................ 80,000
- contractual adjustments...................................... 110,000
- A.
680,000
- B.
690,000
- C.
800,000
- D.
880,000
Correct Answer
B. 690,000Explanation
The organization's net patient service revenue is reported as $690,000. Net patient service revenue is calculated by subtracting the contractual adjustments and bad debts from the amounts charged to patients. In this case, the amounts charged to patients are $800,000, and the contractual adjustments and bad debts amount to $110,000. Therefore, the net patient service revenue is $800,000 - $110,000 = $690,000.Rate this question:
- 2.
Pikachu and Charmander are both private not-for-profit organizations. They are combined to create Pikacharm, a private not-for-profit organization with an entirely new board of directors. Pikachu has land with a book value of $300,000 and a fair value of $400,000. Charmander has land with a book value of $500,000 and a fair value of $550,000. After Pikacharm has been formed, what is reported for land?
- A.
$800,000
- B.
$850,000
- C.
$900,000
- D.
$950,000
Correct Answer
A. $800,000Explanation
After the formation of Pikacharm, the land from Pikachu and Charmander is combined. The book value of Pikachu's land is $300,000 and Charmander's land is $500,000, resulting in a total book value of $800,000. Since the fair value of Pikachu's land is $400,000 and Charmander's land is $550,000, the total fair value is $950,000. However, the question asks for the reported value, which is based on the book value. Therefore, the reported value for land after Pikacharm has been formed is $800,000.Rate this question:
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- 3.
What is a contractual adjustment?
- A.
The results of a cost allocation system that allows a health care entity to determine a patient's cost by department.
- B.
A year-end journal entry to recognize all of a health care entity's remaining receivables.
- C.
An increase in a patient's charges caused by revisions in the billing process utilized by a health care entity.
- D.
A reduction in patient service revenues caused by agreements with third-party payors that allows them to pay a health care entity based on their determination of reasonable costs.
Correct Answer
D. A reduction in patient service revenues caused by agreements with third-party payors that allows them to pay a health care entity based on their determination of reasonable costs.Explanation
A contractual adjustment refers to a reduction in patient service revenues. This reduction is caused by agreements made with third-party payors, such as insurance companies or government programs. These agreements allow the payors to pay the healthcare entity based on their determination of reasonable costs. In other words, the healthcare entity agrees to accept a lower payment than the originally billed amount in order to be reimbursed by the payor. This adjustment is made to account for the difference between the billed amount and the agreed-upon payment, resulting in a decrease in patient service revenues for the healthcare entity.Rate this question:
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- 4.
Darth Vader does volunteer work for a local not-for-profit organization as a community service. He replaces without charge an administrator who would have otherwise been paid $21,000. Which of the following statements is true?
- A.
The organization should recognize a restricted gain of $21,000.
- B.
The organization should recognize a contribution of $21,000 as an increase in unrestricted net assets as well as salary expense of $21,000.
- C.
The organization should recognize a reduction in expenses of $21,000.
- D.
The organization should make no entry.
Correct Answer
B. The organization should recognize a contribution of $21,000 as an increase in unrestricted net assets as well as salary expense of $21,000.Explanation
The organization should recognize a contribution of $21,000 as an increase in unrestricted net assets as well as salary expense of $21,000. This is because Darth Vader's volunteer work, by replacing a paid administrator, has provided a benefit to the organization equivalent to the salary expense. The contribution of $21,000 represents the value of the services provided by Darth Vader, which should be recognized as an increase in unrestricted net assets. At the same time, the organization should also recognize the salary expense of $21,000 to reflect the forgone payment to the administrator.Rate this question:
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- 5.
A deceased individual owned a bond. Which of the following is included in the estate principal?
- A.
Interest that was not collected prior to death is excluded from the estate principal.
- B.
Interest earned prior to death is considered part of the estate principal even if received after death.
- C.
All interest collected prior to distributing the bonds to a beneficiary is considered part of the estate principal.
- D.
Only the first cash payment after death is included in the estate principal.
Correct Answer
B. Interest earned prior to death is considered part of the estate principal even if received after death.Explanation
Interest earned prior to death is considered part of the estate principal even if received after death. This means that any interest that was accumulated on the bond before the individual's death is still considered part of their estate, even if it is received by the beneficiary after the individual has passed away. This is important because it ensures that all the assets and earnings of the deceased person are accounted for and distributed accordingly.Rate this question:
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- 6.
Which of the following is not a goal of probate laws?
- A.
To gather and preserve all of the decedent's property.
- B.
To ensure that each individual produces a valid will.
- C.
To discover the decedent's intent for property held at death and then to follow those wishes.
- D.
To carry out an orderly and fair settlement of all debts and distributions of property.
Correct Answer
B. To ensure that each individual produces a valid will.Explanation
The goal of probate laws is to gather and preserve all of the decedent's property, to discover the decedent's intent for property held at death and then to follow those wishes, and to carry out an orderly and fair settlement of all debts and distributions of property. Ensuring that each individual produces a valid will is not a goal of probate laws, as it is the responsibility of each individual to create and maintain a valid will on their own.Rate this question:
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- 7.
Michael died on January 1, 2012. All of his property was conveyed to beneficiaries on October 1, 2012. For federal tax purposes, the executor chose the alternate valuation date. On what date was the value of the property determined?
- A.
January 1, 2012
- B.
July 1, 2012
- C.
October 1, 2012
- D.
December 31, 2012
Correct Answer
B. July 1, 2012Explanation
The value of the property was determined on July 1, 2012 because the executor chose the alternate valuation date for federal tax purposes. The alternate valuation date is typically six months after the date of death, which in this case would be July 1, 2012. This allows for a potentially lower value of the property to be used for tax purposes, which can result in lower tax liabilities for the beneficiaries.Rate this question:
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- 8.
What is the difference between a testamentary trust and an inter vivos trust?
- A.
A testamentary trust conveys money to a charity; an inter vivos trust conveys money to individuals.
- B.
A testamentary trust is created by a will; an inter vivos trust is created by a living individual.
- C.
A testamentary trust conveys income to one party and the principal to another; an inter vivos trust conveys all monies to the same party.
- D.
A testamentary trust ceases after a specified period of time; an inter vivos trust is assumed to be permanent.
Correct Answer
B. A testamentary trust is created by a will; an inter vivos trust is created by a living individual.Explanation
A testamentary trust is established through a will, meaning it goes into effect after the death of the person creating the trust. On the other hand, an inter vivos trust is created by a living individual, meaning it takes effect while the person is still alive. This key difference in the timing of creation distinguishes the two types of trusts.Rate this question:
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- 9.
The estate of Luke Skywalker reports the following information:
- Value of estate assets.............................$1,400,000
- Conveyed to spouse................................ 700,000
- Conveyed to children................................ 100,000
- Conveyed to charities............................... 420,000
- Funeral expenses..................................... 50,000
- Administrative expenses......................... 20,000
- Debts.......................................................... 110,000
- A.
$70,000
- B.
$100,000
- C.
$180,000
- D.
$420,000
Correct Answer
B. $100,000Explanation
The taxable estate value is $100,000. This is calculated by subtracting the total amount conveyed to the spouse, children, and charities, as well as the funeral expenses, administrative expenses, and debts from the total value of the estate assets. In this case, $700,000 + $100,000 + $420,000 + $50,000 + $20,000 + $110,000 equals $1,400,000, which is the total value of the estate assets. Subtracting this from the total value gives us $100,000, which is the taxable estate value.Rate this question:
- 10.
Reciprocal transfers where both parties give and receive something of value are
- A.
Exchange transactions.
- B.
Unconditional promises to give.
- C.
Contributed services.
- D.
Endowment transactions.
- E.
Required contributions.
Correct Answer
A. Exchange transactions.Explanation
Reciprocal transfers refer to transactions where both parties involved give and receive something of value. This implies a mutual exchange of goods, services, or assets between the parties. The term "exchange transactions" accurately describes this type of reciprocal transfer, as it highlights the reciprocity and mutual benefit inherent in such transactions. Therefore, "exchange transactions" is the correct answer.Rate this question:
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- 11.
Which of the following types of health care organizations follow FASB Accounting Standards Codification for GAAP?
- A.
Entry A
- B.
Entry B
- C.
Entry C
- D.
Entry D
- E.
Entry E
Correct Answer
A. Entry AExplanation
Entry A is the correct answer because health care organizations that are classified as for-profit entities typically follow the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) for Generally Accepted Accounting Principles (GAAP). The FASB ASC provides a comprehensive framework for financial reporting and is widely used by for-profit organizations in various industries, including healthcare.Rate this question:
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- 12.
Which one of the following financial statements is not required by GAAP regarding a voluntary health and welfare organization?
- A.
Statement of Operations
- B.
Statement of Cash Flows
- C.
Statement of Activities and Changes in Net Assets
- D.
Statement of Financial Expense
- E.
Statement of Financial Position
Correct Answer
A. Statement of OperationsExplanation
The Statement of Operations is not required by GAAP regarding a voluntary health and welfare organization. GAAP requires organizations to prepare a Statement of Activities and Changes in Net Assets, which provides information on the organization's revenues, expenses, gains, and losses. This statement is similar to the Statement of Operations but specifically tailored for nonprofit organizations. The Statement of Cash Flows is also required by GAAP, as it provides information on the organization's cash inflows and outflows. The Statement of Financial Expense, Statement of Financial Position, and Statement of Activities and Changes in Net Assets are all required financial statements for a voluntary health and welfare organization.Rate this question:
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- 13.
What are the three categories of net assets required by GAAP in reporting a not-for-profit organization?
- A.
Restricted, Permanently Restricted, and Fund Balance.
- B.
Unrestricted, Temporarily Restricted, and Permanently Restricted.
- C.
Unrestricted, Restricted, and Fund Balance.
- D.
Unrestricted, Temporarily Restricted, and Fund Balance.
- E.
None of the above.
Correct Answer
B. Unrestricted, Temporarily Restricted, and Permanently Restricted.Explanation
The correct answer is "Unrestricted, Temporarily Restricted, and Permanently Restricted." This is because GAAP requires not-for-profit organizations to report their net assets in these three categories. Unrestricted net assets are funds that can be used for any purpose without any restrictions. Temporarily restricted net assets are funds that have specific restrictions on their use, but these restrictions will expire over time. Permanently restricted net assets are funds that have permanent restrictions on their use, such as endowments.Rate this question:
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- 14.
When are unconditional promises to give recognized as revenues?
- A.
In the period the promise is received.
- B.
In the period the promise is collected.
- C.
In the period in which the conditions on which they depend are substantially met.
- D.
In the period in which the conditions on which they depend have begun to be met.
- E.
Unconditional promises from potential donors are not revenues.
Correct Answer
A. In the period the promise is received. -
- 15.
How are investments in equity securities with readily determinable market values and their related unrealized gains and losses reported by a not-for-profit organization?
- A.
Lower of cost or market, with unrealized losses in the Statement of Activities.
- B.
Lower of cost or market, with unrealized losses in Temporarily Restricted Net Assets.
- C.
Fair value, with unrealized gains and losses in the Statement of Activities.
- D.
Cost, with unrealized gains and losses in the Statement of Activities.
Correct Answer
C. Fair value, with unrealized gains and losses in the Statement of Activities.Explanation
Investments in equity securities with readily determinable market values and their related unrealized gains and losses are reported by a not-for-profit organization at fair value. This means that the investments are recorded at their current market value, and any unrealized gains or losses are also reported in the Statement of Activities. This approach provides a more accurate representation of the organization's financial position and performance.Rate this question:
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- 16.
When a person dies without leaving a valid will, how is the distribution of his or her property determined?
- A.
In accordance with a plan developed by the executor of the estate.
- B.
In accordance with federal inheritance laws.
- C.
In accordance with generally accepted accounting principles.
- D.
In accordance with common law.
- E.
In accordance with state inheritance laws.
Correct Answer
E. In accordance with state inheritance laws.Explanation
When a person dies without leaving a valid will, the distribution of their property is determined in accordance with state inheritance laws. These laws provide a framework for distributing the assets of the deceased person among their heirs. The specific rules and guidelines may vary from state to state, but generally, the property is distributed among the closest living relatives, such as spouses, children, parents, or siblings, depending on the state's laws of intestate succession. The state inheritance laws ensure that there is a legal process in place to distribute the property of individuals who die without a will.Rate this question:
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- 17.
When an estate does not have sufficient assets to satisfy all claims against it, what claim has the highest priority?
- A.
Expenses of administering the estate.
- B.
Federal income taxes.
- C.
State income taxes.
- D.
Medical expenses of the final illness.
- E.
Back wages owed to any employees.
Correct Answer
A. Expenses of administering the estate.Explanation
When an estate does not have sufficient assets to satisfy all claims against it, the expenses of administering the estate have the highest priority. This means that any costs associated with managing and settling the estate, such as legal fees, court costs, and executor fees, will be paid first before any other claims. This ensures that the estate administration process can be completed efficiently and effectively. Federal and state income taxes, medical expenses of the final illness, and back wages owed to employees would be lower in priority and would be paid after the expenses of administering the estate are satisfied.Rate this question:
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- 18.
What is the process of abatement?
- A.
An attempt to determine the deceased's intentions when the terms of the will are unclear.
- B.
The establishment of how the creditors will be paid.
- C.
A reduction of various bequests when the estate is not adequate to satisfy them completely.
- D.
Selling of assets included in an estate to be able to pay creditors.
- E.
Payment of the claims of creditors.
Correct Answer
C. A reduction of various bequests when the estate is not adequate to satisfy them completely. -
- 19.
A demonstrative legacy is a
- A.
Gift of personal property that is directly identified.
- B.
Cash gift from a particular source.
- C.
 gift of estate property that remains after carrying out the other provisions of the will.
- D.
Gift of real property.
- E.
Gift of intangible property.
Correct Answer
B. Cash gift from a particular source.Explanation
A demonstrative legacy refers to a specific type of gift in a will. It is a cash gift that is given from a particular source, meaning that the person who wrote the will has specified where the money should come from. This is different from a general cash gift, where the source of the money is not specified. Therefore, the correct answer is "cash gift from a particular source."Rate this question:
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- 20.
A gift that is specified in a will as "I leave my collection of baseball cards to my son" is a
- A.
General legacy.
- B.
Specific legacy.
- C.
Demonstrative legacy.
- D.
Residual legacy.
- E.
Devise.
Correct Answer
B. Specific legacy.Explanation
A gift that is specified in a will as "I leave my collection of baseball cards to my son" is a specific legacy. This is because it is a specific item or collection of items that is specifically mentioned and designated to be given to a particular person, in this case, the son. Other types of legacies, such as general legacies, demonstrative legacies, and residual legacies, refer to different types of gifts or bequests in a will. A devise, on the other hand, refers specifically to real property being transferred through a will.Rate this question:
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- 21.
A gift that is specified in a will as "I leave $5,000 in cash from my checking account to my daughter" is a
- A.
General legacy.
- B.
Specific legacy.
- C.
Demonstrative legacy.
- D.
Residual legacy.
- E.
Devise.
Correct Answer
C. Demonstrative legacy.Explanation
A gift that is specified in a will as "I leave $5,000 in cash from my checking account to my daughter" is a demonstrative legacy. This type of legacy refers to a gift that is identified by a specific source or fund, such as the checking account in this case. It is different from a general legacy, which is a gift that is not tied to a specific source or fund. It is also different from a specific legacy, which refers to a gift that is identified by its specific nature, such as a particular piece of jewelry. A residual legacy refers to the remaining assets of the estate after all other legacies have been distributed. A devise, on the other hand, refers specifically to a gift of real estate in a will.Rate this question:
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- 22.
An estate has the following income:
- Rental income................................................$5,000
- Interest income.............................................. 3,000
- Dividend income............................................ 1,000
- A.
$4,400
- B.
$5,000
- C.
$8,000
- D.
$8,400
Correct Answer
A. $4,400Explanation
The taxable income of the estate is $4,400. This is because the rental income of $5,000 is included in the taxable income. However, the interest income of $3,000 was immediately conveyed to the beneficiary and is not taxable for the estate. Similarly, the dividend income of $1,000 was given to charity as per the decedent's will and is also not taxable for the estate. Therefore, only the rental income is included in the taxable income, resulting in a total taxable income of $4,400.Rate this question:
- 23.
In which of the following areas does the IASB allow firms to choose between two acceptable treatments?
- A.
Measuring property, plant, equipment subsequent to acquisition.
- B.
Presenting gains and losses as extraordinary on the face of the income statement.
- C.
Recognizing development costs that meet criteria for capitalization as an asset.
- D.
Recognizing prior (past) service costs related to pension benefits that have already vested.
Correct Answer
A. Measuring property, plant, equipment subsequent to acquisition.Explanation
The IASB allows firms to choose between two acceptable treatments when it comes to measuring property, plant, and equipment subsequent to acquisition. This means that companies have the flexibility to choose the method they prefer to use in determining the value of these assets after they have been acquired. The IASB recognizes that different methods may be appropriate for different situations, and therefore allows firms to exercise their judgment in selecting the treatment that best reflects the economic reality of their specific circumstances.Rate this question:
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- 24.
In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must:
- A.
Present financial statements that comply with international GAAP.
- B.
Conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
- C.
Have a demonstrated need for capital to be used for operations in the U.S.
- D.
Use the U.S. dollar as their reporting currency.
- E.
Use IFRS, or use foreign GAAP and provide a reconciliation to U.S. GAAP.
Correct Answer
E. Use IFRS, or use foreign GAAP and provide a reconciliation to U.S. GAAP.Explanation
Foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP have the option to use either IFRS or foreign GAAP. If they choose to use foreign GAAP, they must provide a reconciliation to U.S. GAAP. This allows the SEC and investors to have a clear understanding of the company's financial position and performance in relation to U.S. accounting standards.Rate this question:
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- 25.
Which of the following is not an IFRS pronouncement originally issued by the IASB?
- A.
Business combinations.
- B.
Agriculture.
- C.
First-time Adoption of IFRS.
- D.
Financial Instruments: Disclosures.
- E.
Operating Segments.
Correct Answer
B. Agriculture.Explanation
The correct answer is Agriculture. This is because all the other options - Business combinations, First-time Adoption of IFRS, Financial Instruments: Disclosures, and Operating Segments - are IFRS pronouncements originally issued by the IASB. However, Agriculture is not an IFRS pronouncement originally issued by the IASB.Rate this question:
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- 26.
Which of the following is not true about IFRS?
- A.
IFRS is available to any organization or nation that wishes to use those standards.
- B.
IFRS is a comprehensive set of financial reporting standards.
- C.
IFRS includes only pronouncements issued by the IASB.
- D.
IFRS are considered as generally accepted accounting principles.
- E.
The IASB does not have the ability to enforce proper usage of IFRS.
Correct Answer
C. IFRS includes only pronouncements issued by the IASB.Explanation
IFRS is a comprehensive set of financial reporting standards that is available to any organization or nation that wishes to use those standards. It is considered as generally accepted accounting principles. However, IFRS includes pronouncements issued not only by the IASB but also by other standard-setting bodies. Therefore, the statement "IFRS includes only pronouncements issued by the IASB" is not true. The IASB does have the ability to enforce proper usage of IFRS.Rate this question:
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- 27.
Which one of the following is not a background requirement for any IASB members?
- A.
Audit.
- B.
Tax.
- C.
Financial statement preparation.
- D.
Academia.
- E.
Financial statement user.
Correct Answer
B. Tax.Explanation
The correct answer is Tax. This is because being knowledgeable in tax is not a background requirement for any IASB members. The IASB (International Accounting Standards Board) is responsible for developing and promoting international financial reporting standards. While expertise in areas such as audit, financial statement preparation, academia, and financial statement user may be relevant for IASB members, tax knowledge is not essential for their role.Rate this question:
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- 28.
The IASB and FASB are working on several joint projects. Which of the following is not a topic of the Revenue Recognition Project?
- A.
Eliminate inconsistencies in existing literature.
- B.
Business models issues for revenue recognition.
- C.
Conceptual basis as framework for future issues of revenue recognition.
- D.
Cash flow presentation of revenue.
- E.
Contract-based revenue recognition.
Correct Answer
D. Cash flow presentation of revenue.Explanation
The correct answer is "Cash flow presentation of revenue." This option does not pertain to the Revenue Recognition Project. The project focuses on topics such as eliminating inconsistencies in existing literature, addressing business models issues, establishing a conceptual basis for future revenue recognition issues, and implementing contract-based revenue recognition. Cash flow presentation of revenue is not directly related to the project's objectives.Rate this question:
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- 29.
Which one of the following is not a division of the SEC?
- A.
The Division of Corporation Finance.
- B.
The Division of Investment Management.
- C.
The Division of Enforcement.
- D.
The Division of Compliance Information.
- E.
The Division of Trading and Markets.
Correct Answer
C. The Division of Enforcement.Explanation
The Division of Enforcement is not a division of the SEC. The SEC is responsible for regulating and overseeing the securities industry in the United States. The Division of Corporation Finance, the Division of Investment Management, the Division of Compliance Information, and the Division of Trading and Markets are all divisions of the SEC that focus on different aspects of securities regulation. The Division of Enforcement, however, does not exist within the SEC structure.Rate this question:
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- 30.
Which one of the following Federal laws was enacted in 1935?
- A.
Securities Act.
- B.
Securities Exchange Act.
- C.
Trust Indenture Act.
- D.
Investment Company Act.
- E.
Public Utility Holding Company Act.
Correct Answer
E. Public Utility Holding Company Act.Explanation
The Public Utility Holding Company Act was enacted in 1935. This act was passed by the U.S. Congress to regulate and control the activities of electric and gas utilities that operated across state lines. It aimed to prevent the abuses and monopolistic practices of holding companies in the utility industry, ensuring fair and affordable rates for consumers. The act required these holding companies to register with the Securities and Exchange Commission and imposed regulations on their financial structure and operations.Rate this question:
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- 31.
A wrap-around filing:
- A.
Allows a company to simplify its form 10-K by referring to information in its annual report.
- B.
May be used by large companies to sell securities over a period of two years without refiling with the SEC.
- C.
May remain in effect for a period of one to five years.
- D.
Is a filing completed using the SEC's electronic filing system.
- E.
Is a simplified registration procedure for securities to be issued by small companies.
Correct Answer
A. Allows a company to simplify its form 10-K by referring to information in its annual report.Explanation
A wrap-around filing allows a company to simplify its form 10-K by referring to information in its annual report. This means that instead of duplicating information already provided in the annual report, the company can simply refer to it in the 10-K. This streamlines the filing process and reduces the amount of redundant information that needs to be included.Rate this question:
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- 32.
What is Form 10-K?
- A.
A quarterly report filed with the SEC.
- B.
A form filed with the SEC before the company issues stock for the first time.
- C.
An annual report filed with the SEC.
- D.
A semiannual report filed with the SEC.
- E.
A form filed with the SEC before issuing stocks to acquire another company.
Correct Answer
C. An annual report filed with the SEC.Explanation
Form 10-K is an annual report filed with the SEC. This report provides a comprehensive summary of a company's financial performance and includes information such as audited financial statements, management's discussion and analysis of the financial results, and disclosures about the company's business operations, risks, and governance. It is a key document for investors and other stakeholders to assess the company's financial health and make informed decisions.Rate this question:
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- 33.
Which of the following securities offerings is not exempt from registration prior to their sale?
- A.
Securities issued by governments.
- B.
Securities issued by banks.
- C.
Securities issued by savings and loan associations.
- D.
Offerings of more than $5 million.
- E.
Offerings of no more than $1 million made to any number of investors within a 12-month period.
Correct Answer
D. Offerings of more than $5 million.Explanation
The correct answer is "Offerings of more than $5 million" because offerings of more than $5 million are not exempt from registration prior to their sale. All the other options - securities issued by governments, securities issued by banks, and securities issued by savings and loan associations - are exempt from registration. Additionally, offerings of no more than $1 million made to any number of investors within a 12-month period are also exempt from registration.Rate this question:
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- 34.
Where should a company undergoing reorganization report the gains and losses resulting from the reorganization?
- A.
On the statement of retained earnings.
- B.
On the statement of stockholders' equity.
- C.
On the statement of cash flows.
- D.
On the income statement, combined with the gains and losses from operations.
- E.
On the income statement, separate from other gains and losses.
Correct Answer
E. On the income statement, separate from other gains and losses.Explanation
When a company undergoes reorganization, the gains and losses resulting from the reorganization should be reported on the income statement, separate from other gains and losses. This is because reorganization activities are significant events that need to be separately disclosed to provide a clear picture of the company's financial performance. By reporting them separately, stakeholders can easily identify and understand the impact of the reorganization on the company's financial results. Reporting them separately also helps in comparing the company's performance before and after the reorganization.Rate this question:
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- 35.
Which one of the following is a requirement that must be met before an involuntary bankruptcy petition can be filed when there are at least 12 unsecured creditors (as of 4/1/10)?
- A.
The petition must be signed by creditor(s) with unsecured debts of at least $5,000.
- B.
The petition must be signed by creditor(s) to whom the debtor owes more than half of its debts.
- C.
The petition must be signed by at least three creditors with unsecured debts of at least $14,425.
- D.
The petition must be signed by a majority of the creditor(s).
- E.
The petition must be filed by all creditor(s) to whom the debtor owes at least $14,425.
Correct Answer
C. The petition must be signed by at least three creditors with unsecured debts of at least $14,425.Explanation
The requirement that must be met before an involuntary bankruptcy petition can be filed when there are at least 12 unsecured creditors is that the petition must be signed by at least three creditors with unsecured debts of at least $14,425. This means that there must be a minimum number of creditors who are owed a significant amount of money in order to file the petition.Rate this question:
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- 36.
The statement of financial affairs should be prepared
- A.
Under the assumption that liquidation will occur.
- B.
Under the concept of conservatism.
- C.
Under the continuity concept.
- D.
Only for a company in Chapter 7 bankruptcy.
- E.
Under the going concern assumption.
Correct Answer
A. Under the assumption that liquidation will occur.Explanation
The statement of financial affairs should be prepared under the assumption that liquidation will occur. This means that the financial statement should reflect the company's financial position and transactions as if the company is going to be liquidated. It is important to prepare the statement of financial affairs in this way to provide an accurate representation of the company's financial situation in the event of liquidation. This assumption helps stakeholders, such as creditors and investors, to assess the company's ability to meet its obligations and determine the potential value of the company's assets in a liquidation scenario.Rate this question:
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- 37.
Sparkman Co. filed a bankruptcy petition and liquidated its noncash assets. Sparkman was paying forty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of $150,000 on land that was sold for $110,000. The total amount of payment that Bailey should have received is calculated to be:
- A.
$44,000
- B.
$60,000
- C.
$110,000
- D.
$126,000
- E.
$150,000
Correct Answer
D. $126,000Explanation
Sparkman Co. filed for bankruptcy and liquidated its noncash assets, paying forty cents on the dollar for unsecured claims. Bailey Co. held a mortgage of $150,000 on land that was sold for $110,000. To calculate the total amount of payment Bailey should have received, we need to determine the percentage of the mortgage that would be paid. Since Sparkman is paying forty cents on the dollar, Bailey would receive forty cents for every dollar of the mortgage. Therefore, Bailey should have received $60,000 (40% of $150,000) from the liquidation.Rate this question:
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- 38.
Which companies are required to provide a U.S. GAAP reconciliation in their annual report filed with the SEC?
- A.
All foreign companies listed on the U.S. securities exchange
- B.
Foreign companies listed on a U.S. securities exchange that use IFRS in preparing financial statements
- C.
Domestic U.S. companies listed on a U.S. securities exchange that use IFRS in preparing financial statements
- D.
Foreign companies listed on a U.S. securities exchange that use something other then the U.S. GAAP or IFRS in preparing financial statements
Correct Answer
D. Foreign companies listed on a U.S. securities exchange that use something other then the U.S. GAAP or IFRS in preparing financial statementsExplanation
Foreign companies listed on a U.S. securities exchange that use something other than U.S. GAAP or IFRS in preparing financial statements are required to provide a U.S. GAAP reconciliation in their annual report filed with the SEC. This means that if a foreign company uses a different accounting standard than U.S. GAAP or IFRS, they must provide a reconciliation to show how their financial statements would look if they were prepared using U.S. GAAP or IFRS. This requirement ensures that investors and regulators have a clear understanding of the company's financial performance and can make meaningful comparisons with other companies.Rate this question:
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- 39.
The Securities Exchange Act of 1934
- A.
Regulates the public trading of previously issued securities through brokers and exchanges
- B.
Prohibits blue sky laws
- C.
Regulates the initial offering of securities by a company
- D.
Requires the registration of investment advisors
Correct Answer
A. Regulates the public trading of previously issued securities through brokers and exchangesExplanation
The correct answer is "Regulates the public trading of previously issued securities through brokers and exchanges." This is because the Securities Exchange Act of 1934 was enacted to regulate the secondary market trading of securities, which refers to the buying and selling of previously issued securities among investors through brokers and exchanges. The act aims to protect investors by ensuring transparency, fairness, and efficiency in the trading process. It requires companies to register with the Securities and Exchange Commission (SEC) and disclose relevant information to the public. It also sets rules for brokers and exchanges to maintain fair and orderly markets.Rate this question:
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- 40.
Which of the following is a requirement of the Sarbanes-Oxley Act of 2002?
- A.
Registration of all auditing firms with the Public Company Accounting Oversight Board
- B.
Annual inspection of all auditing firms registered with the PCAOB
- C.
A monetary fee assessed on organizations issuing securities
- D.
Overall assessment of the work of the SEC each year
Correct Answer
A. Registration of all auditing firms with the Public Company Accounting Oversight BoardExplanation
Was not part of HW, correct me if the answer is wrong. Ch 12 HW #5Rate this question:
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- 41.
Which of the following is not correct with regard to the Public Company Accounting Oversight Board?
- A.
The board can expel a registered auditing firm without SEC approval
- B.
All registered auditing firms must be inspected at least every three years
- C.
The board members must be appointed by Congress
- D.
The board has the authority to set auditing standards rather than utilize the work of the Auditing Standards Board
Correct Answer
C. The board members must be appointed by CongressExplanation
The correct answer is that the board members must be appointed by Congress. This statement is not correct because the board members of the Public Company Accounting Oversight Board (PCAOB) are not appointed by Congress. The PCAOB was established under the Sarbanes-Oxley Act of 2002 and its members are actually appointed by the Securities and Exchange Commission (SEC), not Congress.Rate this question:
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- 42.
What is prospectus?
- A.
A document attached to a Form 8-K
- B.
A potential stockholder as defined by Regulation S-K
- C.
A document a company files with the SEC prior to filing a registration statement
- D.
The first part of a registration statement that a company must furnish to all potential buyers of a new security
Correct Answer
D. The first part of a registration statement that a company must furnish to all potential buyers of a new securityExplanation
A prospectus is the first part of a registration statement that a company must provide to all potential buyers of a new security. It is a document that contains important information about the investment opportunity, including the company's financial statements, risks involved, and other relevant details. This document is required by securities regulations to ensure transparency and protect investors by providing them with the necessary information to make informed investment decisions.Rate this question:
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- 43.
In a bankruptcy, which of the following statements is true?
- A.
An order for relief results only from a voluntary petition
- B.
Creditors entering an involuntary petition must have debts totaling at least $20,000
- C.
Secured notes payable are considered liabilities with priority on a statement of affairs
- D.
A liquidation is referred to as a Chapter 7 bankruptcy, and a reorganization is referred to as a Chapter 11 bankrutcy
Correct Answer
D. A liquidation is referred to as a Chapter 7 bankruptcy, and a reorganization is referred to as a Chapter 11 bankrutcyExplanation
The answer is true because a Chapter 7 bankruptcy is also known as liquidation bankruptcy, where the debtor's assets are sold to pay off their debts. On the other hand, a Chapter 11 bankruptcy is a reorganization bankruptcy, where the debtor can continue operating their business while creating a plan to repay their debts.Rate this question:
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- 44.
In reporting a company that is to be liquidated, assets are shown at
- A.
Present value to be calculated using an appropriate effective rate
- B.
Net realizable value
- C.
Historical cost
- D.
Book value
Correct Answer
B. Net realizable valueExplanation
In reporting a company that is to be liquidated, the assets are shown at their net realizable value. Net realizable value refers to the amount of money that the company is expected to receive from the sale of its assets in the current market conditions, after deducting any selling expenses. This is considered a more realistic and conservative approach compared to historical cost or book value, as it reflects the actual value that can be realized from the assets in the liquidation process. The present value to be calculated using an appropriate effective rate may be relevant for other financial calculations, but it is not specifically related to reporting the assets in a liquidation scenario.Rate this question:
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- 45.
An order for relief
- A.
Prohibits creditors from taking action to collect from an insolvent company with court approval
- B.
Calls for the immediate distribution of free assets to unsecured creditors
- C.
Can be entered only in an involuntary bankruptcy proceeding
- D.
Gives an insolvent company time to file a voluntary bankruptcy petition
Correct Answer
A. Prohibits creditors from taking action to collect from an insolvent company with court approvalExplanation
An order for relief prohibits creditors from taking action to collect from an insolvent company with court approval. This means that once the order is issued, creditors are legally prevented from pursuing any collection efforts against the company without the approval of the court. This provides the company with temporary protection from creditor actions, allowing it to focus on addressing its financial difficulties and potentially file for bankruptcy.Rate this question:
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- 46.
On a balance sheet prepared for a company during its reorganization, at what balance are liabilities reported?
- A.
At the expected amount of the allowed claims
- B.
At the present value of the expected future cash flows
- C.
At the expected amount of the settlement
- D.
At the amount of the anticipated final payment
Correct Answer
A. At the expected amount of the allowed claimsExplanation
Liabilities on a balance sheet prepared for a company during its reorganization are reported at the expected amount of the allowed claims. This means that the company includes the estimated value of the claims that it expects to pay out as liabilities on the balance sheet. This allows for a more accurate representation of the company's financial obligations during the reorganization process.Rate this question:
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- 47.
Which of the following is not a reorganization item for purposes of reporting a company's income statement during a Chapter 11 bankruptcy?
- A.
Professional fees
- B.
Interest income
- C.
Interest expense
- D.
Gains and losses on closing facilities
Correct Answer
C. Interest expenseExplanation
Interest expense is not considered a reorganization item for reporting a company's income statement during a Chapter 11 bankruptcy. Reorganization items typically refer to expenses or gains related to the restructuring of a company's operations, such as gains or losses on closing facilities or professional fees incurred during the bankruptcy process. Interest expense, on the other hand, is a regular operating expense that is not directly related to the bankruptcy proceedings.Rate this question:
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- 48.
Which of the following is necessary for a company to use fresh start accounting?
- A.
The previous owners must hold at least 50% of the stock of the company when it emerges from bankruptcy
- B.
The reorganization value of the company must exceed the value of all assets
- C.
The reorganization value of the company must exceed the value of all liabilities
- D.
The owners must hold less than 50% of the stock of the company when it emerges from bankruptcy
Correct Answer
D. The owners must hold less than 50% of the stock of the company when it emerges from bankruptcyExplanation
Fresh start accounting is a method used by companies emerging from bankruptcy to revalue their assets and liabilities. In order to use fresh start accounting, the owners must hold less than 50% of the stock of the company when it emerges from bankruptcy. This requirement ensures that there has been a significant change in ownership and control of the company, allowing for a fresh start in the financial reporting process.Rate this question:
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Mar 20, 2023Quiz Edited by
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May 14, 2013Quiz Created by
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