Part 1: Financial Statement Types Presentation Limitation Users

Question 1
Which of the following statements regarding natural capital, as defined within Integrated Reporting, is
true?

A. Natural capital includes funds received from the sale of goods which contain over 50% organic
components.
B. Natural capital includes only renewable environmental resources and processes.
C. The Hoover Dam, the Tennessee Valley Authority, and Lake Michigan Locks are considered
natural resources because they help manage the flow of water.
D. Natural capital includes biodiversity and eco-system health.

Question 2
Whereas comparing a firm's annual balance sheets can help investors ________, analysis of the firm's
statements of cash flows will ________.

A. understand why any changes in balances have occurred; show the exact amount of each change
B. spot any changes in dividend policies; provide greater insight as to the exact nature of these
changes
C. understand why any changes in dividend policies have occurred; show the exact amount of each
change
D. spot any changes in account balances; provide greater insight as to how these changes occurred

Question 3
Stock dividends ________ retained earnings and ________ total paid-in capital.

A. increase, decrease
B. increase, increase
C. decrease, increase
D. decrease, decrease

Question 4
Which of the following is true of disclosure requirements of accounts receivable?

A. Receivables should be reported net of any valuation accounts on the balance sheet.
B. The monthly change in credit sales and accounts receivables should be reported as part of
footnotes.
C. Accounts receivables should not be reported as a separate line item when payment terms
extend beyond 30 days.
D. Accounts receivable should be classified as noncurrent assets.

Question 5
The following information is available for Matthews Holdings Inc.:
 Part 1: Financial Statement Types Presentation Limitation Users

Calculate the income from continuing operations.

A. $23,000
B. $17,100
C. $17,600
D. $22,500

Question 6
Madsen Pharmaceuticals has spent 15 years developing a new medication for epileptic seizures. They
finally have a new FDA-approved drug and have applied for a patent. When you look at Madsen's
accounting books, what would you expect to find?

A. The research and development costs for the new drug would have been capitalized at the
beginning of the project and amortized as money was used.
B. The research and development costs for the new drug would have been expensed throughout
the past 15 years as money was spent on the project.
C. The research and development costs for the new drug would have been expensed in one lump
sum at the end of the project when total costs were determined.
D. The research and development costs for the new drug would have been capitalized throughout
the past 15 years as money was spent on the project.

Question 7
The symbol <IR> refers to:

A. Integrated Reporting.
B. Investment Reporting.
C. International Reporting.
D. Interest Revenue.

Question 8
Gilliam Industries records revenue of $6.4 million for an accounting period. In that same accounting
period, they have a beginning balance of $392,000 and an ending balance of $439,000 in the Accounts
Receivable account. How should the cash flows from operating activities be adjusted to account for
these items? Why? Assume Gilliam uses the indirect method.

A. Using the indirect method, Gilliam will only have to adjust for the change in Accounts
Receivable, resulting in a $47,000 increase in cash flows from operating activities.
B. Using the indirect method, Gilliam will have to adjust for both the revenue and the change in
Accounts Receivable, resulting in a $6,353,000 increase in cash flows from operating activities.
 Part 1: Financial Statement Types Presentation Limitation Users

C. Using the indirect method, Gilliam will have to adjust for both the revenue and the change in
Accounts Receivable, resulting in a $6,447,000 increase in cash flows from operating activities.
D. Using the indirect method, Gilliam will only have to adjust for the change in Accounts
Receivable, resulting in a $47,000 decrease in cash flows from operating activities.

Question 9
Parisi Incorporated and Keeling International both sold some old equipment. Parisi sold their equipment
because it was outdated, and they replaced it with new equipment. Keeling sold their equipment
because the operations that needed the equipment are being shut down by the company. How would
the income or loss from the sale of this equipment be reported differently by these companies?

A. Parisi would report their income or loss under discontinued operations, whereas Keeling would
not.
B. Keeling would report their income or loss under discontinued operations, whereas Parisi would
not.
C. Keeling would report their income or loss as a note to the financial statements, whereas Parisi
would report their income or loss in the actual financial statements.
D. Parisi would report their income or loss as a note to the financial statements, whereas Keeling
would report their income or loss in the actual financial statements.

Question 10
The management accountant of Kathryn Software decided to alter the financial statements due to an
event that occurred after the balance sheet date. Which of the following is the most likely reason for her
decision?

A. The event provides evidence about a loss of expected income due to inefficient collection
efforts.
B. The company has decided to shift the company's headquarters to a country that follows IFRS in
the next year.
C. The event provides additional evidence about conditions that existed as of the balance sheet
date and alters the estimates used.
D. There is a sharp decline in the stock price.

Question 11
Which of the following would be in the noncash activities section of the statement of cash flows?

A. Depreciation expense
B. Gain on sale of equipment
C. Issuing shares of common stock
D. Conversion of bonds into common stock

Question 12
Challenges which might deter organizations from implementing Integrated Reporting include:

A. Complexity, cost, and litigation risk.

B. Complexity and the cost to register with the International Integrated Reporting Council.
C. Conflicts between the specific requirements of Integrated Reporting, Sustainability Reporting,
and Triple-Bottom-Line Reporting.
 Part 1: Financial Statement Types Presentation Limitation Users

D. The requirement that Integrated Reporting must include revenue profit guidance for the next
two, five, and ten years.

Question 13
Delgado Corp. purchased some common stock from Keller Enterprises. Delgado plans to hold this stock
for a minimum of five years, although they could sell it sooner if they need to. How do you expect
Delgado to classify the stock on their balance sheet?

A. As a short-term investment
B. As a long-term liability
C. As a long-term investment
D. As owners’ equity

Question 14
Carlson Company has the following payments recorded for the current period.

The total amount of the above items to be shown in the Operating Activities Section of Carlson's Cash
Flow Statement should be:

A. $150,000.
B. $250,000.
C. $750,000.
D. $350,000.

Question 15
What is the result of stock dividends?

A. Retained earnings increase while total paid-in capital decreases.

B. Both retained earnings and total paid-in capital increase.
C. Both retained earnings and total paid-in capital decrease.
D. Retained earnings decrease while total paid-in capital increases.

Question 16
Wells Enterprises holds a debt that is due 20 months from now. Wells prepares a classified balance
sheet using a one-year operating cycle. How would classification of this debt be different if Wells used a
two-year operating cycle?

A. With a one-year cycle it is classified as a current liability and with a two-year cycle it is classified
as a long-term liability.
B. With a one-year cycle it is classified as stockholders’ equity and with a two-year cycle it is
classified as a current liability.
C. With the one-year cycle it is classified as a long-term liability, while with a two-year cycle it is
classified as a current liability.
 Part 1: Financial Statement Types Presentation Limitation Users

D. With a one-year cycle it is classified as a current liability and with a two-year cycle it is classified
as stockholders’ equity.

Question 17
While approving the financial statements for the current year, the management accountant of Rachael
Groups discovered that sales were overstated. Which of the following is the most likely reason for the
overstatement?

A. Sales returns recorded are more than actual returns.

B. Abnormal losses are not accounted for.
C. General sales tax collected from customers was not accounted for.
D. The last in, first out method is used for valuation of inventory.

Question 18
Which of the following is a reason why a company provides prior years' financial information along with
the current year's information?

A. Doing this helps the users of financial statements in measuring the reliability of information
provided in the financial statements.
B. Doing this allows internal management accountants to determine the trend in resource
requirements for future periods.
C. This form of presentation of financial statements helps in prioritizing one type of revenue or
gain over another to avoid classification problems.
D. Doing this allows analysts to easily compare past performance to present performance and
determine the future trajectory of the organization.

Question 19
All of the following are elements of an income statement except:

A. gains and losses.

B. shareholders’ equity.
C. expenses.
D. revenue.

Question 20
Rogers Electronics is planning to reacquire some of its common shares. Which of the following is most
likely to happen if this is done?

A. The stock price will increase.

B. The par value of the stock will increase.
C. This will hinder exercise of employee stock options.
D. This could serve as an indication of the company's negative outlook about its future
performance.

Question 21
Pegasus Software has reported the following items related to its cash flows:
 Part 1: Financial Statement Types Presentation Limitation Users

If Pegasus Software had $4,650,657 in cash at the beginning of the year, what was the total of cash
flows from operating activities?

A. $25,861,710
B. $31,812,560
C. $28,837,135
D. ($6,161,406)

Question 22
A company uses the calendar year as its financial results reporting time period. On May 31 of the prior
year, the company committed to a plan to sell a line of business. As a result, the operation of this line of
business and cash flows will be eliminated from the company's operations, and the company will have
no significant continuing involvement with the line of business subsequent to the disposal. For the
period January 1 through May 31of the prior year, the line of business had revenues of $1,000,000 and
expenses of $1,600,000. The assets of the line of business were sold on November 30 at a loss for which
no tax benefit is available. In its income statement for the year ended December 31of prior year, how
should the company report the line of business operations from January 1 through May 31?

A. $600,000 should be reported as part of the loss on disposal of a component.

B. $600,000 should be reported as an extraordinary loss.
C. $600,000 should be included in the determination of income or loss from operations of a
discontinued component.
D. $1,000,000 and $1,600,000 should be included with revenues and expenses, respectively, as
part of continuing operations.

Question 23
Which aspect of a firm's statement of cash flows most interests potential stockholders?

A. The firm's investments in new plant assets

B. Changes in the firm's inventory balance
C. The firm's gains and losses from selling plant assets
D. The firm's ability to pay dividends

Question 24
Manufactured capital, as defined under Integrated Reporting, includes all of the following items except:

A. Work-in-process inventory
B. Patents and trademarks
C. Custom-made tools and patterns used in the manufacturing process
D. Roads and bridges

Question 25
How does the balance sheet help users?
 Part 1: Financial Statement Types Presentation Limitation Users

A. It depicts the true value of an entity.

B. It measures the nonfinancial performance of an entity.
C. It shows the financial performance of an entity over a specific accounting period.
D. It assesses an entity's liquidity, solvency, financial flexibility, and operating capability.

Question 26
Which section of the statement of cash flows includes the proceeds from selling equipment?

A. Investing
B. Financing
C. Operating
D. Noncash activities

Question 27
Use the partial comparative balance sheets for Benchmark Industries to determine the net cash inflow
from operating activities. The company had a net income of $300,000, which includes depreciation of
$75,000. Equipment with a book value of $140,000 was sold for $90,000 and new equipment was
purchased for $290,000.

A. $103,000
B. $143,000
C. $393,000
D. $343,000

Question 28
Based on the stock's par value, a large stock dividend is most similar to a ________; but based on the
stock's market value, a large stock dividend is most similar to a ________.

A. small stock dividend; stock split

B. stock split; small stock dividend
C. cash dividend; small stock dividend
D. stock split; cash dividend

Question 29
The multi-step income statement, with additional income statement items, for Harrington Technologies
Inc. is given below.
 Part 1: Financial Statement Types Presentation Limitation Users

Glen Hamilton, a financial analyst, analyzed the company's financial statements and concluded that the
income amount best suited to predict future earnings should be $683,200 instead of the reported net
income of $630,000. Which of the following arguments is most likely to support his conclusion?

A. $53,200 due from a client was written off after the finalization of accounts for the current
period.
B. The company valued its inventory using the specific identification method, whereas the financial
analyst used the last in, first out (LIFO) method for the current period.
C. The company has included expenses in relation to discontinued operations as part of income
from continuing operations.
D. The company changed an accounting principle and prepared the financial statements as though
the new principle had been applied throughout all periods presented.

Question 30
How can comparing a company's income statement to its statement of cash flows reveal information
about the “quality” of the company's reported net income?

A. The statement of cash flows reflects accrual-based accounting technique and thus relies on
fewer estimates than the income statement.
B. The statement of cash flows reflects cash-based accounting technique and thus relies on more
estimates than the income statement.
C. The statement of cash flows reflects accrual-based accounting technique and thus relies on
more estimates than the income statement.
D. The statement of cash flows reflects cash-based accounting technique and thus relies on fewer
estimates than the income statement.

Question 31
A statement of cash flows can partially reconcile which of the following?

A. Net income to net change in cash

B. Net income to year-end cash balance
C. The cash basis and accrual bases of accounting
D. Investing activities to financing activities
 Part 1: Financial Statement Types Presentation Limitation Users

Question 32
Ironwood Company's net income is $399,000. During the year accounts receivable increased $196,000
and accounts payable decreased $56,000. Using the indirect method of preparing the statement of cash
flows, what amount will be reported as cash provided by operating activities?

A. $259,000
B. $539,000
C. $147,000
D. $651,000

Question 33
Holden Company purchased 150 acres of land on the outer edge of a growing city. Holden expects the
value of this land to appreciate by 500% over the next three years. How would you expect Holden to
report the value of this land on their balance sheet

A. At market value
B. At the expected future value at the time of sale
C. At historical cost
D. At a depreciated value

Question 34
In which section of the statement of cash flows would a gain on the sale of equipment be reported?

A. Investing
B. Operating
C. Financing
D. Noncash activities

Question 35
Orchid Company reported net income of $288,000 for the current year. Depreciation recorded on
buildings and equipment amounted to $128,000 for the year. Balances of the current asset and current
liability accounts at the beginning and end of the year are as follows:

What is cash flow from operating activities?

A. $395,360
B. $180,640
 Part 1: Financial Statement Types Presentation Limitation Users

C. $436,640
D. $428,640

Question 36
Washington Rare Coins reported the following stockholders’ equity on December 31, 20x6:

On August 14, 20x7, Washington declared a 2-for-1 stock split. At the time of declaration, shares were
selling for $114 per share. Through the first two quarters of the fiscal year, Washington recorded a net
loss of $6,500. How will Washington's stockholders’ equity section change as a result of this
information?

A. Number of shares will increase to 30,000, par value will remain at $25 per share, and
stockholders’ equity will increase to $750,000.
B. Number of shares will remain at 15,000, par value will increase to $50, and stockholders’ equity
will increase to $750,000.
C. Number of shares will remain at 15,000, par value will decrease to $12.50/share, and
stockholders’ equity will decrease to $341,000.
D. Number of shares will increase to 30,000, par value will decrease to $12.50 per share, and
stockholders’ equity will decrease to $528,500.

Question 37
The following information is available for Mercer Industries.

What is Mercer's net cash provided by operating activities?

A. $168,000
B. $312,000
C. $240,000
D. $276,000

Question 38
While approving the financial statements for the current year, the management accountant of Rachael
Groups discovered that revenue was overstated. Which of the following is the most likely reason for the
overstatement?
 Part 1: Financial Statement Types Presentation Limitation Users

A. Sales returns recorded are more than actual returns.

B. Abnormal losses are not accounted for.
C. Gain on the sale of equipment was included in revenue.
D. The last in, first out method is used for valuation of inventory.

Question 39
When preparing a statement of cash flows, a company must make an adjustment to net income for sales
that have been made but for which cash collections have not yet been received. Which of the following
describes this circumstance?

A. An increase in accounts receivable account during the year

B. A decrease in accounts payable account during the year
C. A decrease in accounts receivable account during the year
D. An increase in accounts payable account during the year

Question 40
Kelli Company acquired land by assuming a mortgage for the full acquisition cost. This transaction
should be disclosed on Kelli's Statement of Cash

A. operating activity.
B. non-cash financing and investing activity.
C. financing activity.
D. investing activity.

Question 41
A statement of cash flows prepared using the indirect method would have cash activities listed in which
one of the following orders?

A. Operating, investing, financing.

B. Investing, financing, operating.
C. Financing, investing, operating.
D. Operating, financing, investing.

Question 42
Which of the following would be in the investing section of the statement of cash flows?

A. Depreciation expense
B. Conversion of bonds into common stock
C. Issuing shares of common stock
D. Proceeds from selling equipment

Question 43
Which of the following would cause a reduction in stockholders’ equity on the balance sheet?

A. A stock split
B. A stock dividend
C. Positive net income
D. A deficit in retained earnings
 Part 1: Financial Statement Types Presentation Limitation Users

Question 44
Which of the following is a likely reason for a stock split?

A. A company wishes to increase paid-in capital to have resources for more growth.
B. A company wishes to increase par value of its stock to increase its capital assets.
C. A company wishes to lower the stockholders’ equity.
D. A company wishes to lower the market price of its stock to increase marketability.

Question 45
Which accounts are affected by a small stock dividend?

A. Common stock, retained earnings, and cash

B. Common stock, paid-in capital in excess of par—common stock, retained earnings, and cash
C. Retained earnings and cash
D. Common stock, paid-in capital in excess of par—common stock, and retained earnings

Question 46
For a manufacturing firm, which of the following would be included in cash outflows from financing
activities on the Statement of Cash Flows?

A. Payment of salaries and wages

B. Repayment of the principal portion of firm debt
C. Issuance of new stock
D. Interest payments on firm debt

Question 47
Hayes Incorporated reported the following stockholders’ equity on December 31, 20x6:

On June 30, 20x7, Hayes declared a 5-for-1 stock split. At the time of declaration, shares were selling for
$300 per share. Through the first two quarters of the fiscal year, Hayes recorded a net income of
$103,000. How will Hayes’ stockholders’ equity section change as a result of this information?

A. Number of shares will increase to 340,000, par value will remain at $50 per share, and
stockholders’ equity will increase to $17,000,000.
B. Number of shares will increase to 425,000, par value will decrease to $10 per share, and
stockholders’ equity will increase to $5,652,000.
C. Number of shares will increase to 340,000, par value will decrease to $12.50, and stockholders’
equity will increase to $5,652,000.
D. Number of shares will increase to 425,000, par value will remain at $50 per share, and
stockholders’ equity will increase to $21,250,000.
 Part 1: Financial Statement Types Presentation Limitation Users

Question 48
Maxwell Foods purchased raw materials from a local farm and also redeemed bonds that they issued
eight years ago. How do these transactions compare when reported in the statement of cash flows?

A. Both transactions result in cash outflow, but the purchase of raw materials is a financing activity
and the redemption of bonds is an investing activity.
B. Both transactions result in cash inflow, but the purchase of raw materials is an operating activity
and the redemption of bonds is an investing activity.
C. Both transactions result in cash inflow, but the purchase of raw materials is an investing activity
and the redemption of bonds is an operating activity.
D. Both transactions result in cash outflow, but the purchase of raw materials is an operating
activity and the redemption of bonds is a financing activity.

Question 49
What are the six capitals in integrated reporting?

A. London, Moscow, Paris, Brussels, Tokyo, and Canberra

B. Financial, Intellectual, Human, Social and Relationship, Manufactured, and Natural
C. Equity, Debt, Long-term Assets, Intangibles, Marketable Securities, and Grants
D. Common Stock Issued, Preferred Stock Issued, Additional Paid-In Capital, Treasury Stock,
Retained Earnings, and Accumulated Other Comprehensive Income or Loss

Question 50
Mike's Ice Cream Shop has 500 shares of stock outstanding at $1 par value per share. As a reward for a
great year, Mike (the majority owner and CEO) is issuing a stock dividend of 300 shares to all
shareholders. Current market value of the stock is $20/share. What are the appropriate accounting
entries to record this stock dividend?

A. Dr. Retained earnings $6,000, Cr. Par value distributable $300 Cr. Paid-in Capital $5,700
B. Dr. Retained earnings $6,000, Cr. Paid-in capital $6,000
C. Dr. Retained earnings $6,000, Cr. Par value distributable $6,000
D. Dr. Retained earnings $300, Cr. Par value distributable $300

Question 51
As of December 31, 20x8, a firm's net income was $92,000 and its net cash flow from operating activities
was $101,600. Over the course of 20x8, the firm's accounts receivable balance increased by several
thousand dollars. Given this information and assuming that the firm uses the indirect method and the
only other asset and liability is accounts payable, which of the following statements must be true?

A. The firm must have seen a significant drop in its accounts payable balance over the course of
20x8.
B. The firm's accounts payable balance likely held steady over the course of 20x8.
C. Based on these figures, we cannot make any conclusions about how the firm's accounts payable
balance must have changed during 20x8.
D. The firm must have seen a significant increase in its accounts payable balance over the course of
20x8.
 Part 1: Financial Statement Types Presentation Limitation Users

Question 52
All of the following statements are an example of human capital as it pertains to Integrated Reporting
except:

A. Systems, procedures, and protocols

B. Employees passing the Certified Management Accountant exam
C. Sponsorship of an internal Leadership Institute which assists employees in their ability to
manage change
D. A formal job rotation program designed to improve interdepartmental understanding

Question 53
The following information is available for Becker Manufacturing.

What is Becker's net cash provided by operating activities?

A. $457,500
B. $322,500
C. $277,500
D. $480,000

Question 54
Blue Fox Industries had the following account balances at year-end.
 Part 1: Financial Statement Types Presentation Limitation Users

What is the amount of total current assets reported on the balance sheet?

A. $35,000
B. $39,900
C. $32,800
D. $63,800

Question 55
“Employing different accounting methods will yield different net incomes.” How is this factor a
limitation of financial statements?

A. Choice between cash-based accounting and accrual accounting for financial reporting allows
companies to smooth earnings for a longer period.
B. The flexibility of employing different methods for presentation of financial statements can lead
to inaccurate disclosure of information.
C. Difference in results due to variations in accounting methods makes it difficult for users to
compare the performance of separate entities.
D. Change in net income due to change in accounting methods affects the determination of future
performance of a company.

Question 56
Fielding Manufacturing reported net income of $296,000 including depreciation expense of $90,000.
The company sold investments for $12,000 that had a cost of $36,000. Accounts receivable decreased
$50,000 and accounts payable increased $46,000. What amount did Fielding report as net cash provided
by operating activities?

A. $326,000
B. $266,000
C. $506,000
D. $314,000
 Part 1: Financial Statement Types Presentation Limitation Users

Question 57
The following information is extracted from the financial statements of BrentPage.

Assuming the company follows U.S. GAAP, calculate the cash flow from operating activities.

A. $40,600
B. $20,100
C. $28,600
D. $22,100

Question 58
What is one way that cash flows from investing activities are the opposite of cash flows from financing
activities?

A. Cash flows from investing activities frequently reflect cash flows related to the purchase of
property, plant, and equipment, whereas cash flows from financing activities frequently reflect
cash flows related to the sale of property, plant, and equipment.
B. Cash flows from investing activities frequently reflect cash flows related to cash the company
has loaned to others, whereas cash flows from financing activities frequently reflect cash flows
related to cash the company has borrowed from others.
C. Cash flows from investing activities frequently reflect cash flows related to the receipt of
dividends and interest from purchased securities, whereas cash flows from financing activities
frequently reflect cash flows related to the payment of dividends and interest to investors and
creditors.
D. Cash flows from investing activities frequently reflect cash flows related to the purchase of
treasury stock, and cash flows from financing activities frequently reflect cash flows related to
the sale of treasury stock.

Question 59
What is the difference between a revenue and a gain?

A. Revenue results from transactions related to peripheral operations, whereas gains result from
transactions related to central operations.
B. Revenues result from transactions related to central operations, whereas gains result from
transactions related to peripheral operations.
C. Revenue results from external transactions, whereas gains result from internal transactions.
 Part 1: Financial Statement Types Presentation Limitation Users

D. Revenue results from internal transactions, whereas gains result from external transactions.

Question 60
Mirr, Inc. was incorporated on January 1, year 1, with proceeds from the issuance of $750,000 in stock
and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting
amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, Mirr
declared a $3,000 cash dividend, payable to stockholders on January 15, year 2. No additional activities
affected owners' equity in year 1. Mirr's liabilities increased to $120,000 by December 31, year 1. On
Mirr's December 31, year 1 balance sheet, total assets should be reported at:

A. $885,000
B. $882,000
C. $878,000
D. $875,000