NO.83 According to the FASB conceptual framework, predictive value is an ingredient of:

NO.84 What is the purpose of information presented in notes to the financial statements?

NO.85 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 B represents the general accounting treatment
required for these transactions. These treatments are:
. Cumulative effect approach – Include the cumulative effect of the adjustment resulting from the
accounting change or error correction in the 1993 financial statements, and do not restate the 1992
financial statements.
. Retroactive or retrospective restatement approach – Restate the 1992 financial statements and adjust
1 992 beginning retained earnings if the error or change affects a period prior to 1992.
. Prospective approach – Report 1993 and future financial statements on the new basis but do not restate
1 992 financial statements.
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 B (Select one)

NO.86 Which of the following assumptions means that money is the common denominator of economic activity
and provides an appropriate basis for accounting measurement and analysis?

NO.87 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
The equipment that Quo manufactures is sold with a five-year warranty. Because of a production
breakthrough, Quo reduced its computation of warranty costs from 3% of sales to 1% of sales.
List A (Select one)

NO.88 What is the underlying concept that supports the immediate recognition of a contingent loss?

NO.89 Foy Corp. failed to accrue warranty costs of $50,000 in its December 31, 1992, financial statements. In
addition, a $30,000 change from straight-line to accelerated depreciation was made at the beginning of
1 993. Both the $50,000 and the $30,000 are net of related income taxes. What amount should Foy report
as prior period adjustments in 1993?

NO.90 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 sells extended service contracts on its products. Because related services are performed over
several years, in 1993 Quo changed from the cash method to the accrual method of recognizing income
from these service contracts.
List A (Select one)

NO.91 During 1990, Fuqua Steel Co. had the following unusual financial events occur:
. Bonds payable were retired five years before their scheduled maturity, resulting in a $260,000 gain.
Fuqua has frequently retired bonds early when interest rates declined significantly.
. A steel forming segment suffered $255,000 in losses due to hurricane damage. This was the fourth
similar loss sustained in a 5-year period at that location.
. A component of Fuqua’s operations, steel transportation, was sold at a net loss of $350,000.
This was Fuqua’s first divestiture of one of its operating segments.
Before income taxes, what amount should be disclosed as the gain (loss) from extraordinary items in
1 990?

NO.92 If a company is not presenting comparative financial statements, the correction of an error in the financial
statements of a prior period should be reported, net of applicable income taxes, in the current:

NO.93 Which of the following facts concerning fixed assets should be included in the summary of significant
accounting policies?

NO.94 During a period when an enterprise is under the direction of a particular management, its financial
statements will directly provide information about:

NO.95 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 B represents the general accounting treatment
required for these transactions. These treatments are:
. Cumulative effect approach – Include the cumulative effect of the adjustment resulting from the
accounting change or error correction in the 1993 financial statements, and do not restate the 1992
financial statements.
. Retroactive or retrospective restatement approach – Restate the 1992 financial statements and adjust
1 992 beginning retained earnings if the error or change affects a period prior to 1992.
. Prospective approach – Report 1993 and future financial statements on the new basis but do not restate
1 992 financial statements.
Item to Be Answered
As a result of a production breakthrough, Quo determined that manufacturing equipment previously
depreciated over 15 years should be depreciated over 20 years.
List B (Select one)

NO.96 The following question is based on the following:
Vane Co.’s trial balance of income statement accounts for the year ended December 31, 2002, included
the following: Vane’s income tax rate is 30%.

In Vane’s 2002 multiple-step income statement, what amount should Vane report as income from
continuing operations?

NO.97 Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market
price is expected to return to previous levels by the end of the year. At the end of the year the decline had
not reversed. When should the loss be reported in Petal’s interim income statements?

NO.98 For interim financial reporting, the computation of a company’s second quarter provision for income taxes
uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should
reflect anticipated: