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Test answers for Generally Accepted Accounting Principles (GAAP) 2016

(69, CL) Last updated: January 23
Elance • Fin. & Mgt.
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69 Answered Test Questions:

1. An ordinary share dividend is:

Answers:

• The directors’ remuneration

• An expense of running the company

• Part of the company profits used to reward the shareholders for their investment

• Interest on money lent to the company by its shareholders.

2. Which of the following is the correct formula for calculating basic EPS as per US GAAP?

Answers:

• Quartely Earnings / # of outstanding stock

• Annualized Earnings / # of outstanding stock

• income available for common stockholders / weighted-average number of common shares outstanding

• weighted-average number of common shares outstanding / income available for common stockholders

3. Which of the following statements is true about the reporting of operating segments by a business?

Answers:

• Privately-held companies are required to present this information while publicly-held companies are allowed to present it.

• Publicly-held companies are required to present this information while other companies are allowed to present it.

• All companies, whether publicly-held or not, are allowed to present this information but no companies are required to present it.

• All companies, whether publicly-held or not, are required to present this information.

4. Your accounts payable increases from the prior year, what happens on the cash flow statement and in which section?

Answers:

• Cash increases - Financing section

• Cash increases - Operating section

• No change

• Cash decreases - Operating section

5. Your accounts payable drops from the prior year, what happens on the cash flow statement and in which section?

Answers:

• Cash decreases - Operating section

• Cash decreases - Financing section

• No change

• Cash increases - Financing section

6. Net Income is $150,000, dividends paid to preferred stock holder is $50,000 and weighted-avg number of common shares are 10,000. What is the basic EPS as per US GAAP?

Answers:

• $5

• $10

• $30

• $20

7. Which of the following is an Operating Activity as per US GAAP classification?

Answers:

• Cash paid to employees

• Dividends paid to shareholders

• Sales proceed from fixed assets

• Principal paid on debt

8. Your accounts receivable drops from the prior year. What happens on the cash flow statement and in which section?

Answers:

• Cash increases - Operating section

• No change

• Cash increases - Financing section

• Cash decreases - Investing section

9. In which of the following are profits recognized in full when real estate is sold?

Answers:

• Deposit method

• Installment method

• Cost recovery method

• Full accrual method

10. Which of the following is the formula for return on equity (ROE)?

Answers:

• Net Income / Sales

• Sales / Net Income

• Net Income / Equity

• Equity / Net Income

11. A client pays ABC Co. $10,000 in December to perform services  in 45 days. ABC uses the accrual basis of accounting. In December ABC will debit Cash for $10,000. What will be the other account to balance this entry prepared by ABC?

Answers:

• Unearned Revenue

• Drawing

• Owners Equity

• Account receivable

12. Which of the following is NOT a valid cost flow assumption for determining the inventory cost?

Answers:

• FILO

• LIFO

• Average Method

• FIFO

13. Which of the following is an Investing Activity as per US GAAP classification?

Answers:

• Sales proceed from fixed assets

• Interest Paid

• Taxes Paid

• Cash paid to employees

14. In which of the following accounting methods is profit not recognized until cash payments are greater than the cost of property?

Answers:

• Installment method

• Full accrual method

• Deposit method

• Cost recovery method

15. Which of the following securities are purchased with the intent of holding them until maturity?

Answers:

• Trading Securities

• Available for Sale Securities

• Held-to-maturity

• Hold-till-maturity

16. Which of the following is NOT a current asset?

Answers:

• Accounts and notes receivable

• Intangible assets

• Cash and cash items

• Marketable securities

17. Which of the following best describes Going Concern?

Answers:

• The law of diminishing returns

• The interest on accounts payable

• The assumption that a company will operate indefinitely

• The decrease in goodwill that follows a decrease in revenue

18. Which of the following correctly formulates current ratio?

Answers:

• Current Liabilities / Current Asset

• Current Asset - Current Liabilities

• Current Asset / Current Liabilities

• Current Asset x Current Liabilities

19. Which of the following is a US GAAP depreciation method for financial and tax reporting?

Answers:

• (All of these)

• Straight line depreciation

• Accelerated depreciation

• Modified Accelerated Cost Recovery Method

20. Under GAAP principles, expenses have to be matched with revenues (as long as it's reasonable to do so). This is an example of which principle?

Answers:

• The Matching Principle

• The Historical Cost Principle

• The Cost Principle

• The Revenue Principle

21. GAAP generally uses one of two measurement principles. Which of the following IS one of these two principles?

Answers:

• Logical value principal

• Fair value principal

• Expense principal

• Subsidized value principal

22. The multiple-step income statement for a merchandiser shows each of the following features EXCEPT:

Answers:

• sales revenue

• gross profit

• investing activities

• cost of goods sold

23. Which of the following methods of presenting cash flow is permitted under US GAAP?

Answers:

• Direct

• Indirect

• Average Cost

• Both Direct & Indirect

24. What does CPA stand for?

Answers:

• Commerce Public Accountant

• Certified Professional Accountant

• Certified Public Accountant

• Chartered Public Accountant

25. You pay a dividend, what happens on the cash flow statement and in which section?

Answers:

• Cash increases - Investing section

• Cash increases - Operating section

• Cash decreases - Financing section

• Cash increases - Financing section

26. Which of the following consists of cash inflows and outflows from transactions that affect a firm's net income?

Answers:

• Cash flow from investing activities (CFI)

• Cash flow from investing activities (CFI)

• Cash flow from financing activities (CFF)

• Cash flow from operating activities (CFO)

27. Publicly traded companies employ _____ to audit the financial statements for their inclusion in reports to the shareholders.

Answers:

• Investment attorneys

• Financial advisors

• CPAs

• Lawyers

28. Account receivables are classified as which of the following?

Answers:

• Expenses

• Assets

• Revenue

• Liabilities

29. In which of the following inventory valuation methods is the oldest cost of goods sold (COGS) entry processed first?

Answers:

• FILO

• LIFO

• FIFO

• Average Cost

30. When applying the full accrual method in retail land sales, which of the following conditions are required by GAAP?

Answers:

• Receivable are collectible

• (All of these)

• Receivables should not be subjected to subordination

• Expiry of the refund period

31. True or false? GAAP is internationally based, whereas IFRS is US-centric.

Answers:

• False

• True

32. Which of the following securities are purchased with the intent to profit over near term?

Answers:

• Trading Securities

• Held-to-maturity

• Available for Sale Securities

• Hold-till-maturity

33. Which of the following is prohibited in US GAAP?

Answers:

• Reversal of impairment loss

• Allocation of goodwill

• Recognition of impairment loss

• Measurement of impairment loss

34. All of the following are recognized depreciation methods for GAAP reporting EXCEPT:

Answers:

• Straight Line Method

• Double Declining Balance

• Sum of the Years Digit

• Modified Accelerated Cost Recovery

35. Which organization is most like IASB, but monitors and improves the standards under US GAAP?

Answers:

• FASB

• FAS

• AICPA

• SEC

36. Your accounts receivable increases from the prior year, what happens on the cash flow statement and in which section?

Answers:

• Cash increases - Financing section

• Cash decreases - Operating section

• No change

• Cash increases - Operating section

37. A financial record that uses a highly volatile currency would violate which of the following principles?

Answers:

• The historical cost principle

• The accounting entity principle

• The monetary unit principle

• The USD principle

38. Choose the correct statement about GAAP.

Answers:

• It is a violation of SEC regulations for publicly traded companies to depart from GAAP.

• GAAP are laws.

• Firms may not restate financial statements previously issued.

• Only publicly traded companies must comply with GAAP.

39. ABC company purchases a plot of land for $10,000. In the following year the value of the land increases by 10%. What value should this asset be recorded as?

Answers:

• $10,010

• $11,000

• $10,100

• $10,000

40. Which of the following securities are purchased with the intent of NEITHER holding them till maturity NOR to get profit over near term?

Answers:

• Hold-till-maturity

• Trading Securities

• Held-to-maturity

• Available for Sale Securities

41. Which of the following is NOT a non-current asset?

Answers:

• Amortization of intangible assets

• Property, plant and equipment

• Intangible assets

• Unearned income

42. Which of the following consists of cash inflows and outflows from transactions related to a firm's capital structure ?

Answers:

• Cash flow from investing activities (CFI)

• Cash flow from financing activities (CFF)

• Cash flow from operating activities (CFO)

• Cash flow from investing activities (CFI)

43. If Earnings before Interest and Taxes (EBIT) is $10,000, interest expense is $500 and number of outstanding common stocks are 20,000, which of the following is the value of interest coverage ratio?

Answers:

• 200

• 1000

• 20

• 100

44. Under US GAAP, minority (non controlling) interest in a subsidary can be reported in which of the following sections of a balance sheet?

Answers:

• (All of these)

• Liability Section

• Mezzanine Section

• Equity Section

45. Which of the following securities are reported on balance sheets at fair value?

Answers:

• Trading Securities

• Held-to-maturity

• Available for Sale Securities

• Available for Sale and Trading Securities

46. Which of the following is a Financing Activity as per US GAAP classification?

Answers:

• Interest Paid

• Sales proceed from fixed assets

• Proceeds from issuing stocks

• Available for Sale Securities

47. Cost of good sold (COGS) reflects the cost of the most recent purchase in which of the following inventory valuation methods?

Answers:

• FILO

• FIFO

• Average Cost

• LIFO

48. In which of the following securities are unrealized gains and losses reported in Other Comprehensive Income (as a part of stockholder's equity)?

Answers:

• Hold-till-maturity

• Available for Sale Securities

• Held-to-maturity

• Trading Securities

49. Under GAAP which method is NOT allowed for writing-off bad debts

Answers:

• Percentage of receivable method

• Allowance Method

• Direct write-off method

• Percent of sales method

50. When should costs be recognized?

Answers:

• (None of these)

• Only when an invoice is sent

• When the cost has been paid

• When they are probable

51. Which of the following securities are reported on the balance sheet at amortized cost?

Answers:

• Held-to-maturity

• Trading Securities

• Available for Sale Securities

• Hold-till-maturity

52. You receive a dividend, what happens on the cash flow statement and in which section?

Answers:

• Non of the above

• Cash decreases - Financing section

• Cash increases - Financing section

• Cash increases - investing section

53. A company has cash of $30,000, accounts receivable of $150,000, inventory of $140,000, and accounts payable of $200,000. Which of the following is correct?

Answers:

• The quick ratio is 0.9 : 1 and the current ratio is 1.6 : 1.

• The quick ratio is 1.6 : 1 and the current ratio is 0.9 : 1.

• The quick ratio is 1.6 : 1 and the current ratio is 1.6 : 1.

• The quick ratio is .9 : 1 and the current ratio is 0.9 : 1.

54. You have depreciation for the past year, what happens on the cash flow statement and in which section?

Answers:

• Cash increases - Operating section

• Cash increases - Financing section

• No change

• Cash decreases - Financing section

55. Under US GAAP, when must the fair value of an acquired firm's "in process research and development" be estimated?

Answers:

• Before Computing Expenses

• After Computing Expenses

• After Computing Goodwill

• Before Computing Goodwill

56. In the United States, which of the following organizations mandate that financial reports adhere to GAAP standards?

Answers:

• IFRS

• CFA

• FASB

• SEC

57. Which of the following is TRUE about Impairment of assets?

Answers:

• Present Market Value > Present Value of all future cash flows

• Carrying amount > Recoverable amount

• Carrying amount < Recoverable amount

• Present Market Value < Present Value of all future cash flows

58. You declare a dividend. What happens on the cash flow statement and in which section?

Answers:

• Cash increases - Financing section

• No change

• Cash increases - Operating section

• Cash decreases - Investing section

59. Which of the following is a valid method to calculate impairment loss in case of a long lived asset?

Answers:

• By taking off asset's fair value from it's current market value

• By taking off asset's carrying amount from it's fair value

• By taking off asset's current market value from it's fair value

• By taking off asset's fair value from it's carrying amount

60. Which of the following is a most conservative measure of liquidity?

Answers:

• current ratio

• cash ratio

• liquidiy ratio

• quick ratio

61. If the Exercise Price of a purchased put option is greater than Market Price, which of the following is TRUE?

Answers:

• The buyer will not be able to excercise the option

• The effect of the purchased option is antidilutive

• The effect of the purchased option is dilutive

• The effect of the purchased option is neither antidilutive nor dilutive

62. Unrealized gain and losses of ________ securities are reported in the Income Statement.

Answers:

• Available for Sale Securities

• Held-to-maturity

• Trading Securities

• Hold-till-maturity

63. If the Exercise Price of a purchased call option is less than Market Price, then which of the following is TRUE?

Answers:

• The effect of the purchased option is dilutive

• The effect of the purchased option is antidilutive

• The buyer will not be able to excercise the option

• The effect of the purchased option is neither antidilutive nor dilutive

64. In a period of deflation, the cost flow method that results in the lowest income taxes is the:

Answers:

• FIFO

• LIFO

• Average cost method

• Gross profit method

65. Which of the following is the correct formula for calculating impairment losses on a loan?

Answers:

• Observable market price of a loan - Carrying amount of a loan

• Observable market price of a loan - future value of expected future cash flows from a loan

• Carrying amount of a loan - future value of expected future cash flows from a loan

• Carrying amount of a loan - Observable market price of a loan

66. All of the following are shown on the income statement net of tax EXCEPT:

Answers:

• changes in accounting principles.

• extraordinary items.

• unusual or infrequent items.

• discontinued operations.

67. At the beginning of 2001, Osami Corporation had 1.4 million shares of common stock outstanding and no preferred stock. At the end of August 2001, Osami issued 1.2 million new shares of common stock. If Osami reported net income equal to $7.2 million, what were its earnings per share (EPS) for 2001?

Answers:

• $3.52

• $4

• $2.07

• $2.77

68. Which of the following is TRUE about impairment loss of a non-revalued asset?

Answers:

• impairment loss of a non-revalued asset cannot be recognized

• It can be recognized in profit or loss or other comprehensive income

• It is recognized in profit or loss

• It is recognized in other comprehensive income

69. True or false? Private disclosure standards are governed by the SEC.

Answers:

• False

• True