CHAPTER 23
FULL DISCLOSURE IN FINANCIAL REPORTING
IFRS questions are available at the end of this chapter.
TRUE-FALSE
1. FASB standards directly affect financial statements, notes to the financial statements, and
management’s discussion and analysis.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Analysis, IFRS: None
2. The SEC requires that companies report to it certain substantive information that is not
found in their annual reports.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
3. Accounting policies are the specific accounting principles and methods a company uses
and considers most appropriate to present its financial statements fairly.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
4. To adequately disclose related party transactions, companies should report the legal form,
rather than the economic substance, of these transactions.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
5. If a loss on an accounts receivable results from a customer’s bankruptcy after the balance
sheet date but before issuance of the financial statements, the company only discloses
this information in the notes to the financial statements.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
6. GAAP requires that general purpose financial statements include selected information on
a single basis of segmentation.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
7. The FASB requires allocations of joint, common, or company-wide costs for external
reporting purposes.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
8. If 10 percent or more of a company’s revenue is derived from a single customer, the
company must disclose the total amount of revenue from the customer by segment.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
9. Under the integral approach, companies should report accounting transactions as they
occur, and expense recognition should not change with the period of time covered.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
,23 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. Companies should generally use the same accounting principles for interim reports and
annual reports.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
11. Companies report income taxes in interim reports by prorating them over the four
quarters.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
12. To compute the year-to-date tax, companies apply the estimated annual effective tax rate
to the year-to-date ordinary income at the end of each interim period.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. In most situations, an auditor issues a qualified opinion or disclaims an opinion.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
14. A qualified opinion is issued when the exception to the standard opinion is not of sufficient
magnitude to invalidate the statements as a whole.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
15. The management discussion and analysis (MD&A) section presents aspects of an
enterprise’s business liquidity, profitability, and solvency.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. The MD&A section provides information about the effects of inflation and changing prices
if they are material to the financial statements.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. A financial projection is a set of prospective financial statements that present a company’s
expected financial position and results of operations.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
18. The difference between a financial forecast and a financial projection is that a forecast
provides information on what is expected to happen, while a projection provides
information on what might take place.
Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
19. Fraudulent financial reporting is intentional or reckless conduct, whether by act or
omission, that results in materially misleading financial statements.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
20. Influences in a company’s internal environment may relate to industry conditions, poor
internal control systems, or legal and regulatory considerations.
Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
MULTIPLE CHOICE—Conceptual
, Full Disclosure in Financial Reporting 23 - 3
21. Which of the following should be disclosed in a Summary of Significant Accounting
Policies?
a. types of executory contracts
b. amount of cumulative effect of change in accounting principle
c. claims of equity holders
d. depreciation method used
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
22. An example of an inventory accounting policy that should be disclosed in a Summary of
Significant Accounting Policies is the
a. amount of income resulting from the involuntary liquidation of LIFO.
b. major backlogs of inventory orders.
c. method used for pricing inventory.
d. separation of inventory into raw materials, work-in-process, and finished goods.
Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
S
23. The full disclosure principle, as adopted by the accounting profession, is best described
by which of the following?
a. All information related to an entity's business and operating objectives is required to
be disclosed in the financial statements.
b. Information about each account balance appearing in the financial statements is to be
included in the notes to the financial statements.
c. Enough information should be disclosed in the financial statements so a person
wishing to invest in the stock of the company can make a profitable decision.
d. Disclosure of any financial facts significant enough to influence the judgment of an
informed reader.
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Reflective, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
S
24. According to GAAP, the disclosure of accounting policies adopted by a reporting entity is
important to financial statement readers in determining
a. net income for the year.
b. depreciation methods, amortization policy, how marketing costs are handled, and
inventory valuation methods employed.
c. the value of obsolete items included in ending inventory.
d. whether the working capital position is adequate for future operations.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
, 23 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
S
25. If a business entity entered into certain related party transactions, it would be required to
disclose all of the following information except the
a. nature of the relationship between the parties to the transactions.
b. nature of any future transactions planned between the parties and the terms involved.
c. dollar amount of the transactions for each of the periods for which an income
statement is presented.
d. amounts due from or to related parties as of the date of each balance sheet presented.
Ans: B, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
P
26. Events that occur after the December 31, 2026 balance sheet date, but before the
balance sheet is issued in 2027, and provide additional evidence about conditions that
existed at the balance sheet date and affect the realizability of accounts receivable should
be
a. discussed only in the MD&A (Management's Discussion and Analysis) section of the
annual report.
b. disclosed only in the Notes to the Financial Statements.
c. used to record an adjustment to Bad Debt Expense for the year ending December 31,
2026.
d. used to record an adjustment directly to the Retained Earnings account.
Ans: C, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
27. Which of the following post-balance-sheet events would generally require disclosure, but
no adjustment of the financial statements?
a. retirement of the company president
b. settlement of litigation that existed prior to the balance sheet date
c. a tax dispute settlement related to taxes payable at the balance sheet date
d. issuance of a large amount of capital stock
Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
28. Which of the following post-balance-sheet events would require adjustment of the
accounts before issuance of the financial statements?
a. loss of plant as a result of fire
b. changes in the quoted market prices of securities held as an investment
c. loss on an uncollectible account receivable resulting from a customer’s major flood
loss
d. loss on a lawsuit, the outcome of which was deemed uncertain at year-end
Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
29. Revenue of a segment includes
a. only sales to unaffiliated customers.
b. sales to unaffiliated customers and intersegment sales.
c. sales to unaffiliated customers and interest revenue.
d. sales to unaffiliated customers and other revenue and gains.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
FULL DISCLOSURE IN FINANCIAL REPORTING
IFRS questions are available at the end of this chapter.
TRUE-FALSE
1. FASB standards directly affect financial statements, notes to the financial statements, and
management’s discussion and analysis.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Analysis, IFRS: None
2. The SEC requires that companies report to it certain substantive information that is not
found in their annual reports.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
3. Accounting policies are the specific accounting principles and methods a company uses
and considers most appropriate to present its financial statements fairly.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
4. To adequately disclose related party transactions, companies should report the legal form,
rather than the economic substance, of these transactions.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
5. If a loss on an accounts receivable results from a customer’s bankruptcy after the balance
sheet date but before issuance of the financial statements, the company only discloses
this information in the notes to the financial statements.
Ans: F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
6. GAAP requires that general purpose financial statements include selected information on
a single basis of segmentation.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
7. The FASB requires allocations of joint, common, or company-wide costs for external
reporting purposes.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
8. If 10 percent or more of a company’s revenue is derived from a single customer, the
company must disclose the total amount of revenue from the customer by segment.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
9. Under the integral approach, companies should report accounting transactions as they
occur, and expense recognition should not change with the period of time covered.
Ans: F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
,23 - 2 Test Bank for Intermediate Accounting, Eighteenth Edition
10. Companies should generally use the same accounting principles for interim reports and
annual reports.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
11. Companies report income taxes in interim reports by prorating them over the four
quarters.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
12. To compute the year-to-date tax, companies apply the estimated annual effective tax rate
to the year-to-date ordinary income at the end of each interim period.
Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
13. In most situations, an auditor issues a qualified opinion or disclaims an opinion.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
14. A qualified opinion is issued when the exception to the standard opinion is not of sufficient
magnitude to invalidate the statements as a whole.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
15. The management discussion and analysis (MD&A) section presents aspects of an
enterprise’s business liquidity, profitability, and solvency.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
16. The MD&A section provides information about the effects of inflation and changing prices
if they are material to the financial statements.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
17. A financial projection is a set of prospective financial statements that present a company’s
expected financial position and results of operations.
Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
18. The difference between a financial forecast and a financial projection is that a forecast
provides information on what is expected to happen, while a projection provides
information on what might take place.
Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
19. Fraudulent financial reporting is intentional or reckless conduct, whether by act or
omission, that results in materially misleading financial statements.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
20. Influences in a company’s internal environment may relate to industry conditions, poor
internal control systems, or legal and regulatory considerations.
Ans: F, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting & Control: Financial Statement Analysis, IFRS: None
MULTIPLE CHOICE—Conceptual
, Full Disclosure in Financial Reporting 23 - 3
21. Which of the following should be disclosed in a Summary of Significant Accounting
Policies?
a. types of executory contracts
b. amount of cumulative effect of change in accounting principle
c. claims of equity holders
d. depreciation method used
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
22. An example of an inventory accounting policy that should be disclosed in a Summary of
Significant Accounting Policies is the
a. amount of income resulting from the involuntary liquidation of LIFO.
b. major backlogs of inventory orders.
c. method used for pricing inventory.
d. separation of inventory into raw materials, work-in-process, and finished goods.
Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
S
23. The full disclosure principle, as adopted by the accounting profession, is best described
by which of the following?
a. All information related to an entity's business and operating objectives is required to
be disclosed in the financial statements.
b. Information about each account balance appearing in the financial statements is to be
included in the notes to the financial statements.
c. Enough information should be disclosed in the financial statements so a person
wishing to invest in the stock of the company can make a profitable decision.
d. Disclosure of any financial facts significant enough to influence the judgment of an
informed reader.
Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Reflective, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA: Reporting &
Control: Financial Statement Preparation, IFRS: None
S
24. According to GAAP, the disclosure of accounting policies adopted by a reporting entity is
important to financial statement readers in determining
a. net income for the year.
b. depreciation methods, amortization policy, how marketing costs are handled, and
inventory valuation methods employed.
c. the value of obsolete items included in ending inventory.
d. whether the working capital position is adequate for future operations.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None, IMA:
Reporting & Control: Financial Statement Preparation, IFRS: None
, 23 - 4 Test Bank for Intermediate Accounting, Eighteenth Edition
S
25. If a business entity entered into certain related party transactions, it would be required to
disclose all of the following information except the
a. nature of the relationship between the parties to the transactions.
b. nature of any future transactions planned between the parties and the terms involved.
c. dollar amount of the transactions for each of the periods for which an income
statement is presented.
d. amounts due from or to related parties as of the date of each balance sheet presented.
Ans: B, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
P
26. Events that occur after the December 31, 2026 balance sheet date, but before the
balance sheet is issued in 2027, and provide additional evidence about conditions that
existed at the balance sheet date and affect the realizability of accounts receivable should
be
a. discussed only in the MD&A (Management's Discussion and Analysis) section of the
annual report.
b. disclosed only in the Notes to the Financial Statements.
c. used to record an adjustment to Bad Debt Expense for the year ending December 31,
2026.
d. used to record an adjustment directly to the Retained Earnings account.
Ans: C, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
27. Which of the following post-balance-sheet events would generally require disclosure, but
no adjustment of the financial statements?
a. retirement of the company president
b. settlement of litigation that existed prior to the balance sheet date
c. a tax dispute settlement related to taxes payable at the balance sheet date
d. issuance of a large amount of capital stock
Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
28. Which of the following post-balance-sheet events would require adjustment of the
accounts before issuance of the financial statements?
a. loss of plant as a result of fire
b. changes in the quoted market prices of securities held as an investment
c. loss on an uncollectible account receivable resulting from a customer’s major flood
loss
d. loss on a lawsuit, the outcome of which was deemed uncertain at year-end
Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Knowledge, Communication, AICPA BC: None, AICPA AC: Reporting, AICPA PC: None,
IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
29. Revenue of a segment includes
a. only sales to unaffiliated customers.
b. sales to unaffiliated customers and intersegment sales.
c. sales to unaffiliated customers and interest revenue.
d. sales to unaffiliated customers and other revenue and gains.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Knowledge, Communication, AICPA BC: Governance Perspective, AICPA AC: Reporting,
AICPA PC: None, IMA: Reporting & Control: Financial Statement Preparation, IFRS: None
