1. What is the impact of changes in accounting estimates on current and future financial statements? A) No impact B) Impact only on current financial statements C) Impact only on future financial statements D) Impact on both current and future financial statements Answer: D) Impact on both current and future financial statements Rationale: Changes in accounting estimates are accounted for prospectively, meaning they affect the period of change and future periods if the change affects both. 2. In revenue recognition, when should revenue be considered realized or realizable? A) When the product is produced B) When the product is delivered C) When the payment is received D) When the earnings process is complete and collection is reasonably assured Answer: D) When the earnings process is complete and collection is reasonably assured Rationale: Revenue is recognized when it is earned and collectability is reasonably assured, according to the revenue recognition principle. 3. How does the equity method account for investments in common stock? A) By recognizing dividend income only B) By adjusting the investment account for the investor's share of the investee's profits and losses C) By reporting the investment at cost D) By using fair value measurement Answer: B) By adjusting the investment account for the investor's share of the investee's profits and losses Rationale: The equity method records the investment at initial cost and subsequently adjusts for the investor's share of the investee's profits and losses. 4. What is the primary objective of financial reporting? A) To maximize company profits