1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
D A D C C D D B B C D A B C A B D D C D
Multiple Choice (20 Marks)
1. For purposes of discontinued operations, the key elements in determining whether a separate
segment exists are that the component is
A) a separate business and a separate legal entity.
B) a separate legal entity and generates its own net cash flows.
C) in a separate geographic region and can be sold.
D) a separate business and generates its own cash flow.
Answer: D
Diff: 1
Learning Objective: Measure and report results of discontinued operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting; Strategy & Governance
Bloomcode: Comprehension
AACSB: Analytic
2. Which of the following statements about the statement of financial position is NOT correct?
A) It reports the assets, liabilities, and shareholders' equity of an enterprise for a period of time.
B) It is sometimes referred to as the balance sheet.
C) It provides a basis for calculating rates of return on invested assets.
D) It is useful for analyzing liquidity and solvency.
Answer: A
Diff: 1
Learning Objective: Understand the statement of financial position and statement of cash flows
from a business perspective.
Section Reference: Usefulness of the Statements of Financial Position and Cash Flows from a
Business Perspective
CPA: Financial Reporting
Bloomcode: Knowledge
3. On January 1, 2026, Bellair Ltd. decided to discontinue its plastics making division. The
division, considered a reporting segment, was sold on June 1, 2026. Division assets with a
carrying value of $812,500 were sold for $625,000. Operating income from January 1 to May
31 for the division was $62,500. Ignoring income taxes, what amount should be reported on
Bellair's income statement for the year ended December 31, 2026, under the caption
"discontinued operations"?
A) $250,000 gain
B) $187,500 loss
C) $62,500 gain
D) $125,000 loss
Answer: D
, Explanation: $812,500 - $625,000 - $62,500 = $125,000 loss
Diff: 2
Learning Objective: Measure and report results of discontinued operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
4. Which of the following is correct?
A) Reported accounting numbers do not affect the transfer of resources.
B) Credit rating agencies use accounting information to assess only assets.
C) Efficient capital markets promote productivity and encourage innovation.
D) Efficient capital markets promote productivity but do not encourage innovation.
Answer: C
Diff: 1
Learning Objective: Understand the financial reporting environment.
Section Reference: Financial Statements and Financial Reporting
CPA: Financial Reporting; Strategy & Governance
Bloomcode: Knowledge
AACSB: Analytic
5. The preparation by some companies of biased information is sometimes referred to as
A) conservative financial reporting.
B) full disclosure of all material facts.
C) aggressive financial reporting.
D) stewardship.
Answer: C
Diff: 1
Learning Objective: Understand the financial reporting environment.
Section Reference: Financial Statements and Financial Reporting
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Analytic
6. Which of the following does NOT describe a cause of management bias?
A) the company's need to comply with contracts, such as debt covenants
B) management's desire to meet financial analysts' expectations
C) the tendency of management to downplay negative events
D) the desire for all stakeholders to have access to all information
Answer: D
Diff: 1
Learning Objective: Understand the financial reporting environment.
Section Reference: Financial Statements and Financial Reporting
CPA: Audit and Assurance; Financial Reporting
Bloomcode: Knowledge
AACSB: Analytic
D A D C C D D B B C D A B C A B D D C D
Multiple Choice (20 Marks)
1. For purposes of discontinued operations, the key elements in determining whether a separate
segment exists are that the component is
A) a separate business and a separate legal entity.
B) a separate legal entity and generates its own net cash flows.
C) in a separate geographic region and can be sold.
D) a separate business and generates its own cash flow.
Answer: D
Diff: 1
Learning Objective: Measure and report results of discontinued operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting; Strategy & Governance
Bloomcode: Comprehension
AACSB: Analytic
2. Which of the following statements about the statement of financial position is NOT correct?
A) It reports the assets, liabilities, and shareholders' equity of an enterprise for a period of time.
B) It is sometimes referred to as the balance sheet.
C) It provides a basis for calculating rates of return on invested assets.
D) It is useful for analyzing liquidity and solvency.
Answer: A
Diff: 1
Learning Objective: Understand the statement of financial position and statement of cash flows
from a business perspective.
Section Reference: Usefulness of the Statements of Financial Position and Cash Flows from a
Business Perspective
CPA: Financial Reporting
Bloomcode: Knowledge
3. On January 1, 2026, Bellair Ltd. decided to discontinue its plastics making division. The
division, considered a reporting segment, was sold on June 1, 2026. Division assets with a
carrying value of $812,500 were sold for $625,000. Operating income from January 1 to May
31 for the division was $62,500. Ignoring income taxes, what amount should be reported on
Bellair's income statement for the year ended December 31, 2026, under the caption
"discontinued operations"?
A) $250,000 gain
B) $187,500 loss
C) $62,500 gain
D) $125,000 loss
Answer: D
, Explanation: $812,500 - $625,000 - $62,500 = $125,000 loss
Diff: 2
Learning Objective: Measure and report results of discontinued operations.
Section Reference: Discontinued Operations
CPA: Financial Reporting
Bloomcode: Application
AACSB: Analytic
4. Which of the following is correct?
A) Reported accounting numbers do not affect the transfer of resources.
B) Credit rating agencies use accounting information to assess only assets.
C) Efficient capital markets promote productivity and encourage innovation.
D) Efficient capital markets promote productivity but do not encourage innovation.
Answer: C
Diff: 1
Learning Objective: Understand the financial reporting environment.
Section Reference: Financial Statements and Financial Reporting
CPA: Financial Reporting; Strategy & Governance
Bloomcode: Knowledge
AACSB: Analytic
5. The preparation by some companies of biased information is sometimes referred to as
A) conservative financial reporting.
B) full disclosure of all material facts.
C) aggressive financial reporting.
D) stewardship.
Answer: C
Diff: 1
Learning Objective: Understand the financial reporting environment.
Section Reference: Financial Statements and Financial Reporting
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Analytic
6. Which of the following does NOT describe a cause of management bias?
A) the company's need to comply with contracts, such as debt covenants
B) management's desire to meet financial analysts' expectations
C) the tendency of management to downplay negative events
D) the desire for all stakeholders to have access to all information
Answer: D
Diff: 1
Learning Objective: Understand the financial reporting environment.
Section Reference: Financial Statements and Financial Reporting
CPA: Audit and Assurance; Financial Reporting
Bloomcode: Knowledge
AACSB: Analytic
