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Deficits accumulated during the development stage of a company should be:
Answer : B
Choice 'b' is correct. Deficits accumulated during the development stage of a company should be reported as a part of stockholders' equity.
Rule: Development stage enterprises should present FS in accordance with GAAP and make additional disclosures such as: cumulative net losses, cumulative deficit (as part of equity), cumulative sales & expenses (part of I/S), cumulative statement of cash flows and supplementary 'shareholders equity.'
Choices 'a', 'c', and 'd' are incorrect, per the rule above.
Financial reporting by a development stage enterprise differs from financial reporting for an established operating enterprise in regard to footnote disclosures:
Answer : A
Choice 'a' is correct. Financial reporting by a development stage enterprise differs from financial reporting for an established operating enterprise in regard to (more extensive) footnote disclosures only.
Choices 'b', 'c', and 'd' are incorrect. Revenue and expense recognition principles are the same.
Rule: Development stage enterprises should present financial statements in accordance with GAAP and make additional disclosures such as: cumulative net losses, cumulative deficit (as part of equity), cumulative sales and expenses (as part of the income statement), cumulative statement of cash flows and supplementary 'shareholders equity.'
A statement of cash flows for a development stage enterprise:
Answer : A
Rule: Development stage enterprises should present financial statements in accordance with GAAP and make additional disclosures such as cumulative amounts from inception for: net losses, deficits, sales, expenses, and cash flows and supplementary data.
Choice 'a' is correct, per the rule shown above.
Choice 'b' is incorrect. Current amounts are shown as well as cumulative amounts.
Choice 'c' is incorrect. Cumulative amounts from inception are shown.
Choice 'd' is incorrect. A statement of cash flows is required.
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.
Item to Be Answered
Quo manufactures heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long-term contracts was switched from the completed-contract method to the percentage-of-completion method.
List A (Select one)
Answer : A
Choice 'a' is correct. Switching from the completed-contract method of accounting to the percentage-ofcompletion method is a 'change in accounting principle.'
On January 2, 1993, Quo, Inc. hired Reed to be its controller. During the year, Reed, working closely with Quo's president and outside accountants, made changes in accounting policies, corrected several errors dating from 1992 and before, and instituted new accounting policies.
Quo's 1993 financial statements will be presented in comparative form with its 1992 financial statements.
This question represents one of Quo's transactions. List A represents possible clarifications of these transactions as: a change in accounting principle, a change in accounting estimate, a correction of an error in previously presented financial statements, or neither an accounting change nor an accounting error.
Item to Be Answered
During 1993, Quo determined that an insurance premium paid and entirely expensed in 1992 was for the period January 1, 1992, through January 1, 1994.
List A (Select one)
Answer : C
Choice 'c' is correct. Expensing insurance premiums when paid (rather than allocating them to the periods benefited) is a correction of an error in previously presented financial statements.
