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ACC 253—- FINAL EXAM….50 QUESTIONS ANSWERED
1. Three major organizations in the private and public sector develop U.S. and international GAAP. They include all of the following except the (Points: 4) EU (European Union) SEC (Securities and Exchange Commission) FASB (Financial Accounting Standards Board) IASB (International; Accounting Standards Board)
2. The purposes of the joint long-term project of the FASB and IASB to converge revenue recognition principles include all of the following except (Points: 4) eliminate inconsistencies in conceptual guidance on revenues replace principle-based accounting with rule-based accounting for revenues establish a single comprehensive standard on revenue recognition fill voids in revenue recognition guidance
3. Certain U.S. accounting standards have been, and will be, amended to aid in the international convergence process. The process of changing these standards usually involves (Points: 4) a short deliberation followed by a vote of the U.S. Congress acceptance of the change by the Internal Revenue Service rejecting all existing standards and developing an entirely new concept selecting the best standard between existing U.S. and international standards
4. Conversion to IFRS reporting by all U.S. companies would be best accomplished with a transition plan for all of the following reasons except (Points: 4) it would have to be a multi-year process it needs to be an orderly process with a minimum of cost and disruption to the participants certain IFRS need further improvement through continued convergence efforts careful planning would enable maximum manipulation of the IFRS for the financial benefit of the United States.
5. Representational faithfulness is a relationship between the reported accounting measurements or descriptions and the economic resources, obligations, and the transactions and events causing changes in these items. This is important because the (Points: 4) bias associated with financial measurements can be reduced validity of accounting data is an important economic resource accounting information is relevant for all decisions financial information is faithfully reported in the accounting records
6. The IASB and FASB boards have agreed that the objective of general purpose financial reporting is to provide (Points: 4) financial information about a company that is useful to external users in making decisions in their capacity as capital providers mainly cash flow information about a company that is useful to external users in making decisions in their capacity as capital providers financial information about a company that is useful to internal users in making decisions in their capacity as capital custodians financial information about a company that is useful to government regulators in making decisions in their capacity as capital markets monitors
7. The IASB and FASB joint boards feel that financial reporting should (Points: 4) be general purpose be useful in assessing a company’s future cash flows provide information on an accrual basis all of these are true
8. The joint IASB and FASB boards identified several “enhancing” characteristic of financial information including (Points: 4) comparability, verifiability, timeliness, and understandability materiality, verifiability, timeliness, and understandability comparability, verifiability, timeliness, and materiality comparability , relevance, timeliness, and understandability
9. Similar to the constraints in the FASB’s qualitative characteristics, the joint IASB/FASB boards have identified two constraints including (Points: 4) benefits that justify the costs and consistency benefits that justify the costs and materiality consistency and materiality objectivity and materiality
10. The joint IASB/FASB qualitative characteristics Exposure Draft identifies a logical order in which to evaluate the qualities. That order (first, second, third) is (Points: 4) faithful representation, relevance, enhancing characteristics relevance, enhancing characteristics, faithful representation relevance, faithful representation, enhancing characteristics enhancing characteristics, relevance, faithful representation
11. An organization will typically utilize a subsidiary ledger to (Points: 4) make sure all debits equal credits make it easier to handle cash received from customers keep customer accounts up to date record customer credit sales outside of the normal double entry system
12. The total of the individual customer account balances should equal the balance in accounts receivable, which is the (Points: 4) control account master account nominal account contra account
13. Which of the following transactions would be recorded in a sales journal of the type illustrated in the text? (Points: 4) customer return of merchandise originally bought on credit customer purchase of merchandise for cash sale by a used car dealer of part of the property surrounding his display lot customer purchase of merchandise on credit terms
14. Marge Company has all of the special journals that were described in your text (other than the voucher register) as a part of its accounting system. Which of the following journal entries would therefore be recorded in Marge’s general journal? (Points: 4) an entry to record the sale of merchandise on credit an entry to record the sale of inventory on credit an entry to record the return of defective purchased merchandise for credit an entry to record a cash purchase of inventory
15. Which statement is true? (Points: 4) All purchases should be recorded in a purchases journal. Closing and reversing entries will be found in the sales journal. Returned merchandise from a customer should be entered in the sales journal. All cash sales should be recorded in the cash receipts journal.
16. Which statement is not true? (Points: 4) The general journal is still a necessity, even when special journals are used. If a cash payments journal is in use, postings are usually made only at the end of the month. All transactions involving the receipt of cash are recorded in the cash receipts journal. A purchase of a desk calculator for the office should not be recorded in the purchases journal.
17. The Clipper, Inc., uses the accrual basis of accounting. Clipper’s rent expense account had a $14,000 balance at the end of the year. The prepaid rent account had a $5,000 balance at the beginning of the year and a $7,000 balance at the end of the year. How much cash was paid for rent during the year? (Points: 4) $7,000 $9,000 $12,000 $16,000
18. The Waller Company uses the accrual basis of accounting. Waller Company’s wages expense account had a $510,000 balance at the end of the year. The wages payable account had a $23,000 balance at the beginning of the year and a $45,000 balance at the end of the year. How much cash was paid for wages during the year? (Points: 4) $488,000 $510,000 $532,000 $555,000
19. The Slaughter Company uses the cash basis of accounting. Slaughter Company collected $850,000 from its customers during 2010. Customers owed Slaughter $50,000 of accounts receivable at the beginning of 2010, and $90,000 of accounts receivable at the end of 2010. What is Slaughter’s sales revenue for 2010 under the accrual basis of accounting? (Points: 4) $810,000 $850,000 $890,000 $940,000
20. All of the following are examples of subsequent events that would be disclosed in the footnotes to the financial statements except (Points: 4) fire or flood loss a litigation settlement a bond issuance after the balance sheet date the inability to collect a major customer’s accounts receivable
21. According to APB Opinion No. 22, the initial note to the financial statements should describe (Points: 4) the calculation of comprehensive income the significant concentrations of credit risk the significant accounting policies the objectives of holding derivatives and the strategies for achieving them
22. A reader might find information about gain contingencies in an annual report by examining (Points: 4) a contingent account receivable an accrued revenue a deferred revenue footnote disclosures
23. GAAP requires that all derivative financial instruments be reported at their (Points: 4) historical cost fair value present value par value
24. Activities between affiliated entities such as subsidiaries must be disclosed in the financial statements of a corporation as (Points: 4) segment analysis significant relationships related-party transactions contingent activities
25. The SEC established integrated disclosures to (Points: 4) establish full disclosure demonstrate its legal authority to establish GAAP satisfy the form 10-K disclosure requirements control Management’s Discussion and Analysis
26. When is a company not required to report comprehensive income? (Points: 4) when it has a net operating loss when it has no other comprehensive income items when it has no extraordinary items when it has no prior-period adjustments
27. A company is required to report earnings per share on Net Income Comprehensive Income (Points: 4) Yes Yes No No Yes No No Yes
28. The statement of cash flows is least likely to help external users to assess (Points: 4) a company’s ability to generate positive future cash flows the amount of a company’s future accrual-based sales revenue a company’s ability to meet its obligations and pay dividends a company’s need for external financing
29. Which of the following sections will not appear in the statement of cash flows? (Points: 4) operating activities investing activities financing activities selling activities
30. Which of the following statements regarding a statement of cash flows is not true? (Points: 4) The most common method for reporting operating activities is the direct method. Operating activities include all transactions and other events related to the earnings process. It requires a reconciliation of beginning and ending cash balances. It helps users to assess a company’s need for external financing.
31. Garcia Company began 2010 with net assets of $80,000. Net income calculated by using the capital maintenance concept was $21,000. During 2010 owners contributed $26,000 of new capital. By year-end, the net assets totaled $78,000. Dividends to the owners during 2010 were (Points: 4) $49,000 $28,000 $23,000 $2,000
32. Comprehensive income includes the following changes in equity in a company during a period except (Points: 4) transactions with non-owners events relating to non-owner sources circumstances relating to non-owner sources distributions to owners
33. Characteristics of risk as they relate to the uncertainty or unpredictability of the future results of a company include (Points: 4) the greater the risk, the higher the rate of return expected by investors risk increases as the range and timeframe within which future results are likely to fall increases risk increases as the range and timeframe within which future results are likely to fall decreases the greater the risk, the higher the rate of return expected by creditors
34. The following information relates to the Smith Company: What is the unadjusted January 1, 2010, balance in retained earnings? (Points: 4) $1,170 $1,320 $1,470 $1,630
35. IFRS content in the income statement is similar to U.S. GAAP in all of the following areas except the disclosure of (Points: 4) revenues finance costs extraordinary items tax expense
36. IFRS reporting requires all of the following items except (Points: 4) earnings per share disclosure comprehensive income disclosure in a statement of stockholders’ equity disclosure of the results of discontinued operations operating expenses disclosure
37. Differences that currently exist between IFRS and U.S. GAAP with regard to the presentation of information on the income statement include all of the following except (Points: 4) different acceptable terminology relating to revenue items depreciation measures differ when equipment has been revalued different performance measures such as EBITDA are permitted under IFRS differences resulting because IFRS does not require the use of accrual accounting under the historical cost framework
38. The Philip Company had the following information available for the fiscal year ended December 31, 2010: Philip’s inventory turnover for 2010 was (Points: 4) 3 times 4 times 5.33 times 6 times
39. The following information was obtained from the records of Trophy Company for 2010: How many times was interest earned in 2010? (Points: 4) 1.25 times 1.75 times 2.75 times 32.5 times
40. Monroe Company reported the following information for the year ended December 31, 2010: Monroe’s earnings per share for 2010 was (Points: 4) $6.67 $6.00 $5.11 $0.15
41. Full disclosure is desirable for all of the following reasons except (Points: 4) it helps to prevent the inappropriate use of insider information it helps financial markets to operate more efficiently it helps financial markets to operate more cost effectively it eliminates the need for financial analysis
42. Extensible Business Reporting Language (XBRL) (Points: 4) is limited to the manual comparison of data reported in the SEC 10K report. is expected to complete the development of its system of “tags” for all U.S. GAAP in 10 years. enables recognition and extraction of items of information for various analytical purposes has been applied extensively by financial analysts for over 30 years
43. On September 1, 2010, the Baker Company received $44,940 from 4-Most Finance Company. To pay off this loan, the Baker Company will have to pay 4-Most $10,000 each year for 10 years. The first payment is due September 1, 2011. Which interest rate compounded annually is Baker paying on this loan? (Points: 4) 12% 15% 18% 24%
44. In the present value of an annuity table, the factors (Points: 4) increase as the interest rates increase decrease as the periods increase remain the same as the periods increase decrease as the interest rates increase
45. On January 31, 2010, Richie Company acquired a new machine by paying $40,000 cash and agreeing to pay $20,000 annually for three years, beginning on January 31, 2011. Assuming an interest rate of 10%, Richie should record the acquisition cost of the machine on January 31, 2010, at (Points: 4) $100,000 $94,712 $89,738 $62,092
46. Paul’s Painting Co. acquired a new $800,000 press on April 1, 2010. Paul’s will make six equal payments based upon 8% compound interest, starting on March 31, 2011. How much will each payment be? (Points: 4) $504,136 $173,056 $160,234 $109,052
47. Which of the following methods may not be appropriate for estimating bad debt expense? (Points: 4) percentage of net credit sales percentage of outstanding accounts receivable aging of accounts receivable percentage of sales
48. When an uncollectible account is written off under the estimated bad debts method, it (Points: 4) decreases net income increases working capital increases the accounts receivable net realizable value leaves total assets unchanged
49. When a company writes off an account receivable using the direct write-off method, the effect of this write-off on the financial statements is to (Points: 4) increase the net realizable value of accounts receivable reduce total expenses reduce total assets increase working capital
50. Which of the following is not a disadvantage of using the direct write-off method for recording uncollectible accounts? (Points: 4) reports actual losses violates the matching principle allows manipulation of income overstates accounts receivable
ACC 253—- FINAL EXAM….35 QUESTIONS ANSWERED
1. Areas directly affected by FASB standards included all of the following except a. financial statements b. management’s discussion and analysis c. notes to the financial statements d. supplementary information b. management’s discussion and analysis
2. Which of the following is not a reason for the increase in disclosure requirements? a. accounting as a control and monitoring device b. complexity of the business environment c. full disclosure principle d. necessity for timely information c. full disclosure principle
3. Common notes to the financial statements include disclosures for all of the following except a. credit claims b. equity holders’ claims c. executive compensation d. property, plant & equipment c. executive compensation
4. The financial statements are not corrected for a. errors b. illegal acts c. related party transactions d. irregularities c. related party transactions
5. A subsequenty event that would require adjustment of the financial statements is the a. sale of bonds or capital stock b. settlement of litigation when the event causing the claim took place after the balance sheet date c. loss of plant or inventories from a flood d. loss on an accounts receivable resulting from a customer’s bankruptcy d. loss on an accounts receivable resulting from a customer’s bankruptcy
6. An operating segment is identified as a reportable segment if a its revenue is greater than 10% of the combined revenue of all the company’s operating segments b. its identifiable assets are greater than 10% of the combined assets of all operating segments c. the absolute amount of its profit (loss) is 10% or more of the greater of the combined operating segments’ profit or the combined operating segments’ loss d. any of the options are satisfied
o
c. the absolute amount of its profit (loss) is 10% or more of the
o greater of the combined operating segments’ profit or the combined
o operating segments’ loss
7. The FASB requires that a company report all of the following information except a. segment assets b. major customers c. information about products and services d. all of the options are reported d. all of the options are reported
8. Which of the following statements related to interm reporting is not correct? a. inventory market declines should not be deferred beyond the interm period unless they are temporary b. When LIFO inventories are liquidated at an interm date and are expected to be replaced by year end, cost of goods sold should include the expected cost of replacing the liquidating LIFO base c. Companies may use the gross profit method for annual inventory pricing, but disclosure of the method is required d. planned variances under a standard cost system ordinarily should be deferred c. Companies may use the gross profit method for annual inventory pricing, but disclosure of the method is required
9. Extraordinary items that occur in interim reports are a. prorated over the 4 quarters b. omitted from the quarterly net income c. disclosed only by note d. absorbed entirely in the quarter in which they occur d. absorbed entirely in the quarter in which they occur
10. In preparing the auditor’s report, the auditor follows all of the following reporting standards except the report shall a. contain either an expression of opinion regarding the financial statements or an assertion that an opinion cannot be expressed b. identiry circumstances in which accounting principles have not been consistently observed in the current period in relation to the prior period c. state whether the financial statements are presented in accordance with generally accepted auditing standards d. all of the options are followed by the auditor c. state whether the financial statements are presented in accordance with generally accepted auditing standards
11. When the scope of the auditor’s examination is limited or affected by conditions or restrictions, the auditor would a. express an adverse opinion b. express a qualified opinion c. disclaim an opinion d. issue an unqualified opinion b. express a qualified opinion
12. Management’s discussion and analysis (MD & A) section covers all of the following financial aspects of an enterprise’s business except a. capital resources b. cash flows c. liquidity d. results of operations b. cash flows
13. Propspective financial statements that present, to the best of the responsible party’s knowledge and belief, an entity’s expected financial position, results of operations, and cash flows is a financial a. estimate b. forecast c. projection d. forecast or projection b. forecast
14. Arguments for requiring published forecasts include all of the following except that a. investment decisions are based on future expectations b. forecasts are already circulated informally, but are uncontrolled c. circumstances now change so rapidly that historical information is no longer adequate for prediction d. disclosure of forecasts will be beneficial to organizations d. disclosure of forecasts will be beneficial to organizations
15. Which of the following would not be an opportunity for fraudulent financial reporting? a. accounting estimates, requiring significant subjective judgment b. unusual or complex transactions c. weak or nonexistent internal accounting controls d. all of the options would be opportunities d. all of the options would be opportunities
16. Which of the following should be disclosed in Summary of Significant Accounting Policies? a. Types of executory contracts b. Amount for cumulative effect or change in accounting principle c. Claims of equity holders d. Depreciation method followed d. Depreciation method followed
17. An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the a. amound of income resulting from the involuntary liquidiation of LIFO b. major backlogs of inventory orders c. method used for pricing inventory d. composition of inventory into raw materials, work in process, and finished goods c. method used for pricing inventory
18. 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 d. disclosure of any financial facts significant enough to influence the judgment of an informed reader
19. If a business entity entered into certain related party transaction, 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 b. nature of any future transactions planned between the parties and the terms involved
20. Events that occur after December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable shoud be a. discussed only in the MD&A section of the annual report b. disclosed in the Notes to the Financial Statements c. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008 d. used to record an adjustment directly to the Retained Earnings account c. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008
21. 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 when the event that gave rise to the litigation occurred prior to the balance sheet date c. employee strikes d. issue of a large amount of capital stock d. issue of a large amount of capital stock
22. Which of the following subsequent events (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 d. loss on a lawsuit, the outcome of which was deemed uncertain at year end
23. A segment of a business enterprise is to be reported separately when the revenues of the segment exceed 10% of the a. total combined revenues of all segments reporting profits b. total revenues of all the enterprise’s industry segments c. total export and foreign sales d. combined net income of all segments reporting profits b. total revenues of all the enterprise’s industry segments
24. The profession requires disaggregated information in the following ways a. products or services b. geographic areas c. major customers d. all of these d. all of these
25. APB Opinion No. 28 indicates that a. all companies that issue an annual report should issue interim financial reports b. the discrete view is the most appropriate approach to take in preparing interim financial reports c. the 3 basic financial statments should be presented each time an interim period is reported upon d. the same accounting princeiples used for the annual report should be employed for interim reports d. the same accounting princeiples used for the annual report should be employed for interim reports
26. In considering interim financial reporting, how does the profession conclude that such reporting should be viewed? a. as a “special” type of reporting that need not follow generally accepted accounting principles b. as useful only if activity is evenly spread throughout the year so that estimates are unnecessary c. as reporting for a basic accounting period d. as reporting for an intergral part of an annual period d. as reporting for an intergral part of an annual period
27. The required approach for handling extraordinary items in interm repots is to a. prorate them over all 4 quarters b. prorate them over the current and remaining quareters c. change or credit the loss or gain in the quarter that it occurs d. disclose them only in the notes c. change or credit the loss or gain in the quarter that it occurs
28. If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be a. unqualified b. qualified c. adverse d. exceptional b. qualified
29. The MD&A section of an entrerprise’s annual report is to cover the following 3 items: a. income statement, balance sheet, and statement of owners’ equity b. income statement, balance sheet, and statement of cash flows c. liquidity, capital resources, and results of operations d. changes in stock price, mergers, and acquisitions c. liquidity, capital resources, and results of operations
30. Which of the following best characterizes the difference between a financial forecast and a financial projections? a. forecasts include a complete set of financial statements, while projections include only summary financial data b. a forecast is normally for a full year or more and a projection presents data for less than a year c. a forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen d. a forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification
o c. a forecast attempts to provide information on what is expected to
o happen, whereas a projection may provide information on what is not
o necessarily expected to happen
31. Theoretically, in computing the receivables turnover, the numerator should include a. net sales b. net credit sales c. sales d. credit sales b. net credit sales
32. The rate of return on common stock equity is calculated by dividing a. net income by average common stockholders’ equity b. net income less preferred dividends by average common stockholders’ equity c. net income by ending common stockholders’ equity d. net income less preferred dividends by ending common stockholders’ equity b. net income less preferred dividends by average common stockholders’ equity
33. The payout ratio is calculated by dividing a. dividends per share by earnings per share b. cash dividends by net income plus preferred dividends c. cash dividends by market price per share d. cash dividends by net income less preferred dividends d. cash dividends by net income less preferred dividends
34. Which of te following ratios measures long term solvency? a. acid test ratio b. receivables turnover c. debt to total assets d. current ratio c. debt to total assets
35. The calculation of the number of times interest is earned involves dividing a. net income by annual interest expense b. net income plus income taxes by annual interest expense c. net income plus income taxes and interest expense by annual interest expense d. none of these c. net income plus income taxes and interest expense by annual interest expense
ACC 253—- FINAL EXAM….26 QUESTIONS ANSWERED
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10) Limitations of the income statement include all of the following except |
| A.items that cannot be measured reliably are not reported. B.only actual amounts are reported in determining net income. C.income measurement involves judgment. D.income numbers are affected by the accounting methods employed. |
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11) Which of the following would represent the least likely use of an income statement prepared for a business enterprise? |
| A.Use by customers to determine a company’s ability to provide needed goods and services. B.Use by labor unions to examine earnings closely as a basis for salary discussions. C.Use by government agencies to formulate tax and economic policy. D.Use by investors interested in the financial position of the entity. |
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12) Which of the following is not a generally practiced method of presenting the income statement? |
| A.Including prior period adjustments in determining net income B.The single-step income statement C.The consolidated statement of income D.Including gains and losses from discontinued operations of a component of a business in determining net income |
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13) Which of the following is not a reason why revenue is recognized at time of sale? |
| A.Title legally passes from seller to buyer. B.Realization has occurred. C.All of these are reasons to recognize revenue at time of sale. D.The sale is the critical event. |
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14) In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be |
| A.the method commonly used by the contractor to account for other long-term construc-tion contracts. B.the terms of payment in the contract. C.the inherent nature of the contractor’s technical facilities used in construction. D.the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. |
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15) Which of the following is not an accurate representation concerning revenue recognition? |
| A.Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used. B.Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers. C.Revenue from disposing of assets other than products is recognized at the date of sale. D.Revenue from services rendered is recognized when cash is received or when services have been performed. |
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16) The balance sheet contributes to financial reporting by providing a basis for all of the following except |
| A.determining the increase in cash due to operations. B.computing rates of return. C.assessing the liquidity and financial flexibility of the enterprise. D.evaluating the capital structure of the enterprise. |
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17) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as |
| A.liquidity. B.solvency. C.exchangeability. D.financial flexibility. |
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18) One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is |
| A.an extensive use of estimates. B.failure to reflect current value information. C.failure to include items of financial value that cannot be recorded objectively. D.the extensive use of separate classifications. |
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19) Which of the following should be disclosed in a Summary of Significant Accounting Policies? |
| A.Claims of equity holders B.Types of executory contracts C.Depreciation method followed D.Amount for cumulative effect of change in accounting principle |
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20) The focus of APB Opinion No. 22 is on the disclosure of accounting policies. This information is important to financial statement readers in determining |
| A.the value of obsolete items included in ending inventory. B.net income for the year. C.whether the working capital position is adequate for future operations. D.whether accounting policies are consistently applied from year to year. |
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21) Events that occur after the December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be |
| A.used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008. B.discussed only in the MD&A (Management’s Discussion and Analysis) section of the annual report. C.used to record an adjustment directly to the Retained Earnings account D.disclosed only in the Notes to the Financial Statements. |
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22) If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be |
| A.adverse. B.unqualified. C.exceptional. D.qualified. |
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23) The MD&A section of an enterprise’s annual report is to cover the following three items: |
| A.liquidity, capital resources, and results of operations. B.income statement, balance sheet, and statement of owners’ equity. C.changes in the stock price, mergers, and acquisitions. D.income statement, balance sheet, and statement of cash flows. |
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24) The required approach for handling extraordinary items in interim reports is to |
| A.charge or credit the loss or gain in the quarter that it occurs. B.prorate them over all four quarters. C.disclose them only in the notes. D.prorate them over the current and remaining quarters. |
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25) The payout ratio is calculated by dividing |
| A.cash dividends by market price per share. B.dividends per share by earnings per share. C.cash dividends by net income less preferred dividends. D.cash dividends by net income plus preferred dividends. |
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26) Which of the following ratios measures long-term solvency? |
| A.Debt to total assets B.Acid-test ratio C.Current ratio D.Receivables turnover |
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27) The calculation of the number of times interest is earned involves dividing |
| A.net income plus income taxes and interest expense by annual interest expense. B.net income by annual interest expense. C.none of these. D.net income plus income taxes by annual interest expense. |
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28) An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n) |
| A.cash outflow from investing activities. B.addition to net income in arriving at net cash flow from operating activities. C.cash outflow from financing activities. D.deduction from net income in arriving at net cash flow from operating activities. |
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29) Of the following questions, which one would not be answered by the statement of cash flows? |
| A.Where did the cash come from during the period? B.What was the change in the cash balance during the period? C.What was the cash used for during the period? D.Were all the cash expenditures of benefit to the company during the period? |
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30) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by |
| A.re-recording all income statement transactions that directly affect cash in a separate cash flow journal. B.eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation. C.estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. D.eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. |
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31) In determining net cash flow from operating activities, a decrease in accounts payable during a period |
| A.means that income on an accrual basis is less than income on a cash basis. B.requires a decrease adjustment to cost of goods sold under the direct method. C.requires an addition adjustment to net income under the indirect method. D.requires an increase adjustment to cost of goods sold under the direct method. |
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32) In a statement of cash flows, the cash flows from investing activities section should report |
| A.the issuance of common stock in exchange for a factory building. B.the assignment of accounts receivable. C.stock dividends received. D.a major repair to machinery charged to accumulated depreciation. |
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33) Riley Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Wood Co. during the current year, even though no dividends were declared or paid by Wood during the year. On Riley’s statement of cash flows (indirect method), the $25,000 should |
| A.not be shown. B.be shown as a deduction from net income in the cash flows from operating activities section. C.be shown as cash inflow from investing activities. D.be shown as cash outflow from financing activities. |
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34) Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? |
| A.Future value of an ordinary annuity of 1 B.Present value of an annuity due of 1 C.Present value of an ordinary annuity of 1 D.Future value of an annuity due of 1 |
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35) Which table has a factor of 1.00000 for 1 period at every interest rate? |
| A.Future value of 1 B.Present value of an ordinary annuity of 1 C.Present value of 1 D.Future value of an ordinary annuity of 1 |
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36) Which of the following tables would show the smallest value for an interest rate of 5% for six periods? |
| A.Future value of 1 B.Present value of an ordinary annuity of 1 C.Present value of 1 D.Future value of an ordinary annuity of 1 |
ACC 253—- FINAL EXAM….36 QUESTIONS ANSWERED
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1) An accrued expense can best be described as an amount |
| A.paid and currently matched with earnings.B.not paid and not currently matched with earnings.C.not paid and currently matched with earnings.D.paid and not currently matched with earnings. |
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2) When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue. |
| A.unearnedB.prepaidC.accruedD.cash |
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3) When an item of expense is paid and recorded in advance, it is normally called a(n) |
| A.estimated expense.B.accrued expense.C.prepaid expense.D.cash expense. |
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4) A common set of accounting standards and procedures are called |
| A.objectives of financial reporting. B.generally accepted accounting principles.C.financial accounting standards.D.statements of financial accounting concepts. |
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5) One objective of financial reporting is to provide |
| A.information that is useful in assessing cash flow prospects.B.information about the liquidation values of the resources held by the enterprise.C.information about the investors in the business entity.D.information that will attract new investors. |
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6) The information provided by financial reporting pertains to |
| A.individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.B.business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.C.individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.D.an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries. |
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7) The Financial Accounting Foundation |
| A.provides information to interested parties on financial reporting issues.B.oversees the operations of the AICPA.C.oversees the operations of the FASB.D.works with the Financial Accounting Standards Advisory Council to provide informa-tion to interested parties on financial reporting issues. |
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8) The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is |
| A.all members of the FASB possess extensive experience in financial reporting.B.all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.C.the FASB issues exposure drafts of proposed standards.D.a majority of the members of the FASB are CPAs drawn from public practice. |
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9) The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the |
| A.FASB.B.SEC.C.APB.D.AICPA. |
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10) Limitations of the income statement include all of the following except |
| A.items that cannot be measured reliably are not reported.B.income measurement involves judgment.C.income numbers are affected by the accounting methods employed.D.only actual amounts are reported in determining net income. |
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11) The income statement reveals |
| A.resources and equities of a firm at a point in time.B.net earnings (net income) of a firm at a point in time.C.net earnings (net income) of a firm for a period of time.D.resources and equities of a firm for a period of time. |
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12) Which of the following would represent the least likely use of an income statement prepared for a business enterprise? |
| A.Use by customers to determine a company’s ability to provide needed goods and services.B.Use by government agencies to formulate tax and economic policy.C.Use by investors interested in the financial position of the entity.D.Use by labor unions to examine earnings closely as a basis for salary discussions. |
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13) The process of formally recording or incorporating an item in the financial statements of an entity is |
| A.allocation.B.realization.C.recognition.D.articulation. |
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14) Which of the following is not a reason why revenue is recognized at time of sale? |
| A.Realization has occurred.B.Title legally passes from seller to buyer.C.All of these are reasons to recognize revenue at time of sale.D.The sale is the critical event. |
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15) Which of the following is not an accurate representation concerning revenue recognition? |
| A.Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers.B.Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used.C.Revenue from disposing of assets other than products is recognized at the date of sale.D.Revenue from services rendered is recognized when cash is received or when services have been performed. |
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16) One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is |
| A.an extensive use of estimates.B.the extensive use of separate classifications.C.failure to reflect current value information.D.failure to include items of financial value that cannot be recorded objectively. |
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17) The basis for classifying assets as current or noncurrent is conversion to cash within |
| A.the accounting cycle or one year, whichever is longer.B.the operating cycle or one year, whichever is longer.C.the accounting cycle or one year, whichever is shorter.D.the operating cycle or one year, whichever is shorter. |
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18) The correct order to present current assets is |
| A.Cash, inventories, accounts receivable, prepaid items.B.Cash, accounts receivable, inventories, prepaid items.C.Cash, accounts receivable, prepaid items, inventories.D.Cash, inventories, prepaid items, accounts receivable. |
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19) If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the |
| A.dollar amount of the transactions for each of the periods for which an income state-ment is presented.B.nature of any future transactions planned between the parties and the terms involved.C.nature of the relationship between the parties to the transactions.D.amounts due from or to related parties as of the date of each balance sheet presented. |
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20) Events that occur after the December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be |
| A.used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008.B.disclosed only in the Notes to the Financial Statements.C.discussed only in the MD&A (Management’s Discussion and Analysis) section of the annual report.D.used to record an adjustment directly to the Retained Earnings account |
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21) The full disclosure principle, as adopted by the accounting profession, is best described by which of the following? |
| A.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.B.Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements.C.All information related to an entity’s business and operating objectives is required to be disclosed in the financial statements.D.Disclosure of any financial facts significant enough to influence the judgment of an informed reader. |
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22) The MD&A section of an enterprise’s annual report is to cover the following three items: |
| A.liquidity, capital resources, and results of operations.B.income statement, balance sheet, and statement of cash flows.C.income statement, balance sheet, and statement of owners’ equity.D.changes in the stock price, mergers, and acquisitions. |
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23) If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be |
| A.unqualified.B.adverse.C.qualified.D.exceptional. |
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24) Which of the following best characterizes the difference between a financial forecast and a financial projection? |
| A.Forecasts include a complete set of financial statements, while projections include only summary financial data.B.A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen.C.A forecast is normally for a full year or more and a projection presents data for less than a year.D.A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification. |
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25) Theoretically, in computing the receivables turnover, the numerator should include |
| A.net sales.B.sales.C.net credit sales.D.credit sales. |
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26) Which of the following ratios measures long-term solvency? |
| A.Acid-test ratioB.Debt to total assetsC.Receivables turnoverD.Current ratio |
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27) The rate of return on common stock equity is calculated by dividing |
| A.net income by average common stockholders’ equity.B.net income by ending common stockholders’ equity.C.net income less preferred dividends by average common stockholders’ equity.D.net income less preferred dividends by ending common stockholders’ equity. |
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28) The primary purpose of the statement of cash flows is to provide information |
| A.about the operating, investing, and financing activities of an entity during a period.B.about the cash receipts and cash payments of an entity during a period.C.that is useful in assessing cash flow prospects.D.about the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing. |
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29) The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements? |
| A.Statements of cash flowsB.Income statementsC.Balance sheetsD.Statements of retained earnings |
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30) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by |
| A.eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.B.estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.C.eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.D.re-recording all income statement transactions that directly affect cash in a separate cash flow journal. |
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31) The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n) |
| A.investing activity.B.deduction from net income.C.financing activity.D.addition to net income. |
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32) In determining net cash flow from operating activities, a decrease in accounts payable during a period |
| A.requires an increase adjustment to cost of goods sold under the direct method.B.requires an addition adjustment to net income under the indirect method.C.requires a decrease adjustment to cost of goods sold under the direct method.D.means that income on an accrual basis is less than income on a cash basis. |
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33) In reporting extraordinary transactions on a statement of cash flows (indirect method), the |
| A.net of tax amount of an extraordinary gain should be deducted from net income.B.net of tax amount of an extraordinary gain should be added to net income.C.gross amount of an extraordinary gain should be added to net income.D.gross amount of an extraordinary gain should be deducted from net income. |
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34) Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence? |
| A.A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.B.A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement.C.A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.D.A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. |
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35) Which of the following tables would show the smallest value for an interest rate of 5% for six periods? |
| A.Future value of an ordinary annuity of 1B.Present value of 1C.Present value of an ordinary annuity of 1D.Future value of 1 |
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36) Which table would show the largest factor for an interest rate of 8% for five periods? |
| A.Future value of an annuity due of 1B.Present value of an ordinary annuity of 1C.Present value of an annuity due of 1D.Future value of an ordinary annuity of 1 |
