Acct Exam 4

false

the accountant must make journal entries for all items in the bank section of the bank reconciliation (T/F)

true

money market accounts with original maturities of less than 90 days are cash equivalents

false

a check written by a company but not yet presented to the bank for payment is called a check in transit (T/F)

false

when a bank collects a note on behalf of a company, the bank is likely to issue a debit memo (T/F)

false

all intangible assets are subject to amortization (T/F)

false

federal income taxes payable is not a current liability (T/F)

true

A company provides a one-year warranty for its products. The estimated cost of parts and labor required to satisfy warranty claims should be recorded as a current liability in the period the products are sold. (T/F)

true

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago. It must now depreciate the asset's remaining book value over the current and future accounting periods. (T/F)

false

A company expects to receive a substantial cash settlement from a lawsuit. Therefore, the company must record this on its accounting records if a reasonable estimate can be made of the amount to be received. (T/F)

true

A liability must be recognized when a business is required to transfer assets or provide services to another entity at some point in the future for activities that have already occurred. (T/F)

false

A probable loss from a lawsuit that can be reasonably estimated should not be reported on the balance sheet as a current liability. (T/F)

false

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life. (T/F)

true

An example of a current liability is a note payable that is due in 8 months. (T/F)

c.

Capitalizing an expenditure rather than recording it as a revenue expenditure a.impacts the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period. b.has no impact on the book value of plant assets on the balance sheet or the amount of income reported on the income statement. c.impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period. d.impacts the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet.

false

Costs incurred related to plant assets that are already in use are called revenue expenditures if the cost increases the useful life or the asset's productivity. (T/F)

true

Costs incurred to keep plant assets in normal operating condition are called revenue expenditures. (T/F)

true

Employers withhold taxes from their employees' gross pay and later pay these amounts withheld to the taxing authority. (T/F)

true

The proceeds from advance ticket sales for a concert to be held next month should be recorded as a current liability. (T/F)

true

If a company uses the same depreciation method as other firms in the same industry, investors will have enhanced comparability of the financial reporting results. (T/F)

true

Interest on a note payable can be calculated by multiplying the amount owed by the interest rate by the fraction of year that represents the time elapsed since borrowing. (T/F)

false

Liquidity relates to a company's ability to sell its assets for amounts that exceed the assets' book values. (T/F)

loss of $1,500

On January 1, a company sold a machine for $5,000 that it had used for several years. The machine cost $11,000, and had accumulated depreciation of $4,500 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine for the year ended December 31? a. gain of $1,500 b. loss of $6,500 c. gain of $5,000 d. loss of $1,500

false

On the balance sheet, a company reports plant assets by subtracting residual value from the original cost of the plant asset. (T/F)

accumulated depreciation

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called a. depreciation expense b. accumulated amortization c. accumulated depreciation d. amortization expense

true

One reason management may choose the straight-line method of depreciation is because it is easy to compute. (T/F)

false

Plant assets, current assets, property, plant and equipment, and fixed assets are all tangible assets. (T/F)

a.

The amount of a current liability reported on the balance sheet for interest payable includes a.all interest currently owed related to amounts borrowed in past transactions. b.all interest to be paid within one year into the future related to amounts borrowed in past transactions. c.all interest to be paid in the future related to amounts borrowed in past transactions. d.all interest paid-to-date related to amounts borrowed in past transactions.

true

The current ratio is calculated as follows: Current Assets / Current Liabilities. (T/F)

c.

What is the impact on the accounting equation of recording the issuance of a short-term note payable? a.Both assets and stockholders' equity decrease. b.Liabilities increase and stockholders' equity decreases. c.Both assets and liabilities increase. d.Both assets and stockholders' equity increase.

false

When a company sells goods or provides services for a customer but the customer intends to pay later, the company must record a current liability. (T/F)

true

When a company uses past experience to estimate the amount of likely warranty claims in the future, a current liability account must be created. (T/F)

true

When accrual basis accounting matches an expense to a period before it is actually paid, an adjusting entry is necessary to record the accrued expense and corresponding liability. (T/F)

false

When making lending decisions, lenders generally are not interested in the company's operating assets. (T/F)

false

When plant assets are purchased in a group, each asset is debited to the respective plant asset account for its fair market value at the time of acquisition. (T/F)

false

a company's internal control system must be designed and maintained by its external auditors (T/F)

false

a company's management expects to incur future expenses related to the repair of replacement of defective products sold. those expenses must be matched to revenues in the period of the repair or replacement (T/F)

false

a contingent liability must be recorded if it is reasonably possible and the amount can be reasonably estimated (T/F)

true

a debit memo may be issued in the monthly bank statement in order for the bank to notify a company that a service charge has been assessed on the company's account (T/F)

false

a good system of internal control requires that the physical custody of assets be separated from the accounting for those assets. this concept is known as safeguarding of assets and records. (T/F)

declining balance

accelerated depreciation in early years of the asset's life corresponding to a decreasing rate of decline in service potential, best for technology

false

an accounting system must be computerized in order to ensure the company has proper internal control (T/F)

false

an example of a current liability is a note payable that is due in 2 years (T/F)

true

an example of a current liability is the current maturity of a long-term debt (T/F)

false

an expenditure that does not increase the future economic benefits of the asset is referred to as a capital expenditure (T/F)

false

an impairment is a temporary decline in the future benefit or service potential of an asset (T/F)

false

as a result of the bank reconciliation process, a company will prepare an adjusting entry for a debit memo but NOT for a credit memo (T/F)

true

as part of a sound system of internal controls, all disbursements (with the exception of petty cash) should be made by check (T/F)

false

cash equivalents typically appear in the long-term investments section of a balance sheet (T/F)

straight line method

constant amount of depreciation expense each period corresponding to a constant rate of decline in service potential, best for buildings

true

contingent liabilities must be recorded in the accounting records if they are probable and the amount can be reasonably estimated (T/F)

true

current liabilities should include include any amounts that have been accrued as expenses but not yet paid (T/F)

units of production

depreciation expense rises and falls with asset's use, best for cars (mileage) machines (hours)

true

depreciation has an effect on the company's income taxes (T/F)

b.

depreciation is a. an accumulation of funds to replace the related plant asset b. an effort to achieve proper matching f the cost of operating assets with related revenues c. the difference between the original cost and salvage value of an asset d. the cash allocated each period to maintain a plant asset

false

for any given contingent liability, a company must choose between recording it on the accounting records or disclosing it in the footnotes to the financial statements (T/F)

false

if a company has an internal audit function, it does not need to have external auditors (T/F)

false

if a company hires honest employees and its top management acts with integrity, no internal control procedures will be necessary (T/F)

false

if new equipment purchased during the year is reported on the balance sheet at December 31 as a long-term asset, there will be no related item on the income statement for the year ended December 31. (T/F)

true

if the bank credits a customer's account, then that customer's cash account balance increases (T/F)

false

if the bank debits its customer's checking account, then the customer's cash balance increases (T/F)

true

in a sound system of internal control, cash receipts should be deposited daily (T/F)

true

internal control over financial reporting is concerned with ensuring the reliability of the financial statements (T/F)

false

no special internal control procedures are necessary with a petty cash fund because the amount is so small (T/F)

false

on a bank reconciliation, bank service charges for the month are added to the cash balance per the company records (T/F)

true

on a bank reconciliation, interest earned for the month is added to the cash balance per the company records (T/F)

c.

operating assets with no physical properties are called a. plant assets b.current assets c. intangible assets d. property, plant, and equipment

false

research and development costs should be added to the cost of patents (T/F)

true

the accountant must make journal entries for all items in the book section of the bank reconciliation (T/F)

true

the reason some major intangible assets are not in the financial statements is because they cannot be measured (T/F)

false

the sole purpose for creating an internal control system is to deter embezzlement (T/F)

true

the stronger the system of internal control, the higher the accuracy of the company's accounting records and financial reports (T/F)

true

to revise depreciation expense, the accountant should compute depreciation expense using the asset's remaining book value and useful life and its new residual value (T/F)

balance sheet: accumulated depreciation, income statement: depreciation expense

what are the effects of depreciation on financial statements

true

when a bank pays interest on a company's checking account balance, the bank will likely issue a credit memo (T/F)

false

when plant assets are reported, the current period's depreciation expense is subtracted from the original cost on the balance sheet (T/F)

false

when reconciling a bank account, the company has to prepare an adjusting entry for outstanding checks (T/F)

balance sheet and statement of cash flows

where is cash recorded