ACCY 200 EXAM 1

Which of the following is not a right or attribute of common stock ownership? A) Electing directors. B) Liability limited to amount invested. C) Approving changes in corporate charter. D) Determining dividend policy. E) All of the above are rights of common stock ownership.

D) Determining dividend policy.

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to: A) depreciation. B) amortization. C) depletion. D) consolidation. E) recognition.

B) amortization.

The effect of an adjustment on the financial statements is usually to: A) make the balance sheet balance. B) increase net income. C) increase the accuracy of both the balance sheet and income statement. D) match revenues and assets. E) increase or decrease cash.

C) increase the accuracy of both the balance sheet and income statement.

The allowance for uncollectible accounts is a(n): a. asset. b. contra current asset. c. contra revenue. d. expense.

b. contra current asset.

Which of the following is not usually associated with bonds? a. Coupon rate. b. Maturity rate. c. Maturity value. d. Face amount.

b. Maturity rate.

A debit entry will: a. always increase the account balance. b. always decrease the account balance. c. increase the balance of a revenue account. d. increase the balance of an expense account.

d. increase the balance of an expense account.

Which of the following is not usually a right or attribute of preferred stock? A) Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock. B) Having a priority claim to dividends relative to the common stock's claim to dividends. C) Having a priority claim in liquidation relative to the common stock's claim in liquidation. D) Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied. E) All of the above are usually rights or attributes of preferred stock.

A) Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock.

The balance sheet is sometimes referred to as the: A) Statement of Financial Position. B) Statement of Assets and Liabilities. C) Statement of Changes in Financial Position. D) Statement of Current Affairs. E) None of the above

A) Statement of Financial Position.

Financial leverage refers to which of the following? A) The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE). B) The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. C) The leverage a firm obtains from increasing production. D) Decreasing fixed costs per unit by increasing production. E) None of the above.

A) The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE).

When a depreciable asset is sold: A) a gain arises if the sales proceeds exceed the net book value. B) a loss arises if the sales proceeds exceed the net book value. C) any cash received results in a gain. D) depreciation expense is adjusted so there is no gain or loss. E) accumulated depreciation increases.

A) a gain arises if the sales proceeds exceed the net book value.

The time frame associated with a balance sheet is: A) a point in time in the past. B) a one-year past period of time. C) a single date in the future. D) a function of the information included in it. E) a two-year comparative period of time.

A) a point in time in the past.

The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to: A) determine the amount of cash in the account actually available to the entity. B) satisfy generally accepted accounting principles. C) verify the amount of petty cash on hand. D) determine whether or not the entity has issued an NSF check. E) make sure that the bank is not charging too much in fees.

A) determine the amount of cash in the account actually available to the entity.

In the seller's records, the sale of merchandise on account at an amount that yields a gross profit would: A) increase assets and increase expenses. B) increase assets and decrease liabilities. C) increase assets and increase paid-in capital. D) increase assets and decrease revenues. E) decrease assets and increase expenses

A) increase assets and increase expenses.

All of the following are examples of "accrued expense" types of liabilities except the liability for: A) short-term notes taken out at a bank during the year. B) payroll taxes owed by the employer for the year. C) property taxes owed to local governments for the year. D) salaries and wages owed to employees at the end of the year. E) estimated product warranty costs on products sold during the year.

A) short-term notes taken out at a bank during the year.

Which of the following lists of accounts all have debit balances? A) Land, Equipment, and Paid-in Capital. B) Accounts Receivable, Merchandise Inventory, and Salary Expense. C) Notes Receivable, Dividends Payable, and Interest Expense. D) Accounts Receivable, Accumulated Depreciation, and Buildings. E) None of the above.

B) Accounts Receivable, Merchandise Inventory, and Salary Expense.

Which of the following is not a correct expression of the accounting equation? A) Assets = Equities B) Assets = Liabilities - Stockholders' Equity C) Assets = Liabilities + Paid-in Capital + Retained Earnings D) Assets = Liabilities + Paid-in Capital + Revenues - Expenses E) Assets - Liabilities = Stockholders' Equity

B) Assets = Liabilities - Stockholders' Equity

Which of the following is (are) a true statement(s) pertaining to bonds? A) Bonds can be sold at a discount, par, or payable. B) Bonds can be sold at a discount, par, or premium. C) The SEC sets the market price of a bond. D) The issuing firm sets the price of a bond. E) None of the above.

B) Bonds can be sold at a discount, par, or premium.

Which of the following is not a correct expression of the accounting equation? A) Assets - Liabilities = Stockholders' Equity B) Net Assets = Liabilities + Stockholders' Equity C) Assets = Liabilities + Stockholders' Equity D) Net Assets = Stockholders' Equity E) All of the above are correct expressions of the accounting equation.

B) Net Assets = Liabilities + Stockholders' Equity

The stockholders' equity section of a balance sheet contains two major components: A) Common Stock and Additional Paid-in Capital B) Paid-in Capital and Retained Earnings C) Common Stock and Retained Earnings D) Net Income and Dividends E) Additional Paid-in Capital and Net Income

B) Paid-in Capital and Retained Earnings

Inventories: A) represent a major portion of the property, plant, and equipment assets for many firms. B) are recorded as debits to assets when purchased and as debits to expenses when used. C) must be accounted for using either the LIFO or FIFO method. D) are not an important component of working capital for most firms. E) decrease ROI because they use cash.

B) are recorded as debits to assets when purchased and as debits to expenses when used.

Interest on a note payable is most appropriately accrued: A) when the note is signed. B) as of the end of each accounting period during which the note is a liability. C) when principal payments on the note are made. D) when the interest is paid. E) at the maturity date of the note.

B) as of the end of each accounting period during which the note is a liability.

The current assets of most companies are usually made up of: A) assets that are currently used in the operations of the company. B) cash and assets expected to be converted to cash within a year. C) a very small proportion (less than 10%) of the total assets of the entity. D) cash, marketable securities, and accounts and notes receivable. E) all assets that can be converted into cash.

B) cash and assets expected to be converted to cash within a year.

Prepaid expenses classified as current assets represent: A) current year expenses that have been accrued. B) current year cash payments that will not be treated as expenses and thus matched against revenues until the next year. C) cash that has been segregated to pay for future expenses. D) expenses of the current year that have been paid in advance. E) cash collected in advance for revenues that will be earned in the next year.

B) current year cash payments that will not be treated as expenses and thus matched against revenues until the next year.

Credits are used to record: A) decreases to assets and increases to expenses, liabilities, revenues, and stockholders' equity. B) decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity. C) increases to assets, and decreases to expenses, liabilities, and stockholders' equity. D) increases to assets and expenses and decreases to revenues, liabilities, and stockholders' equity. E) decreases to assets and stockholders' equity and increases to liabilities, expenses and revenues.

B) decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity.

In the buyer's records, the purchase of merchandise on account would: A) increase assets and increase expenses. B) increase assets and increase liabilities. C) increase liabilities and increase paid-in capital. D) increase liabilities and decrease assets. E) have no effect on total assets.

B) increase assets and increase liabilities.

When borrowing money, the most important objective of the borrower should be to: A) minimize monthly payments. B) minimize the APR. C) avoid borrowing on a discount basis. D) make the maturity date as far in the future as possible. E) reading all of the hidden terms and conditions.

B) minimize the APR.

The present value concept is widely applied in business because: A) inflation erodes the purchasing power of money. B) money has value over time. C) accounting for operating leases requires its use. D) most obligations are settled within a year. E) depreciation calculations require its use.

B) money has value over time.

Which of the following statements best describes the process of accounting depreciation? A) A process that attempts to recognize loss in economic value over a period of time. B) A process for setting aside cash so funds will be available to replace the asset. C) A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset over a period of time. D) A process for recognizing all of the economic cost associated with using an asset in a revenue generating activity. E) A process that measures the physical wear and tear of an asset.

C) A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset over a period of time.

Which of the following is not typically classified as a current liability? A) Accounts Payable. B) Notes Payable. C) Bonds Payable. D) Unearned Subscription Revenue. E) Interest Payable.

C) Bonds Payable.

Which of the following does not appear in the stockholders' equity section of a balance sheet? A) Preferred Stock. B) Additional Paid-In Capital. C) Current maturities of long-term debt. D) Accumulated Other Comprehensive Income (Loss). E) Treasury Stock.

C) Current maturities of long-term debt.

Similarities between preferred stock and bonds include all of the following, except: A) Each has a fixed claim to annual income (dividends and interest, respectively). B) Each has a fixed claim on assets (liquidating value and principal amount, respectively). C) Each allows the corporation a tax deduction (dividends and interest, respectively). D) Each may be callable and/or convertible. E) All of the above are similarities between preferred stock and bonds.

C) Each allows the corporation a tax deduction (dividends and interest, respectively).

Which of the following is not one of the 5 questions of transaction analysis? A) What's going on? B) Which accounts are affected? C) Is this an accrual? D) Does the balance sheet balance? E) Does my analysis make sense?

C) Is this an accrual?

Internal control systems involve a series of checks and balances that separate each of the functional duties involved in processing a transaction, and are normally designed to do all of the following except: A) Promote accuracy and reliability of the company's records and financial statements. B) Safeguard and protect a company's assets against improper or unauthorized use. C) Prevent groups of employees from committing collusive acts of fraud. D) Encourage employees to adhere to the company's prescribed policies and procedures. E) Provide an environment that is conducive to efficient operation of the organization.

C) Prevent groups of employees from committing collusive acts of fraud.

In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true? A) The Discount on the Bonds Payable account is a contra asset. B) The Discount on the Bonds Payable account reduces working capital. C) The Discount on the Bonds Payable account is amortized by a credit entry each period. D) As the Premium on Bonds Payable account is amortized each period, the Interest Expense account is increased to the amount it would have been, had the bonds been sold at par. E) The premium on Bonds Payable account is a contra liability.

C) The Discount on the Bonds Payable account is amortized by a credit entry each period.

Consolidated financial statements refer to: A) Financial statements reported on an industry-wide basis. B) The parent's and subsidiary's financial statements are reported on a separate basis. C) The parent's and subsidiary's financial statements are reported on a combined basis. D) The parent's and subsidiary's financial statements are reported ignoring interest, depreciation, and taxes. E) None of the above.

C) The parent's and subsidiary's financial statements are reported on a combined basis.

The entry to record depreciation on long-term assets: A) decreases total assets and increases net income. B) decreases current assets and increases expenses. C) decreases total assets and decreases earnings before taxes. D) increases earnings before taxes and increases tax expense. E) decreases total assets and decreases expenses.

C) decreases total assets and decreases earnings before taxes.

A cash equivalent is a current asset that: A) will be converted to cash within one year. B) will be converted to cash within one month. C) is readily convertible into cash with a minimal risk. D) is readily convertible into cash with a substantial risk. E) none of the above.

C) is readily convertible into cash with a minimal risk.

The effect of an error resulting in an understatement of ending inventory is to: A) overstate the next period's beginning inventory. B) understate cost of goods sold of the current period. C) overstate cost of goods sold of the current period. D) overstate operating expenses of the current period. E) understate cost of goods sold for the next period.

C) overstate cost of goods sold of the current period.

The shares outstanding are the: A) shares authorized minus the shares issued. B) shares authorized minus the shares held in the treasury. C) shares issued minus the shares held in the treasury. D) shares issued minus the shares owned by directors. E) shares held in treasury minus the shares owned by directors.

C) shares issued minus the shares held in the treasury.

The principle of consistency means that: A) the accounting methods used by an entity never change. B) the same accounting methods are used by all firms in an industry. C) the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto. D) there are no alternative methods of accounting for the same transaction. E) the balance sheet must always balance.

C) the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.

The going concern concept refers to a presumption that: A) the entity will be profitable in the coming year. B) the entity will not be involved in a merger within a year. C) the entity will continue to operate in the foreseeable future. D) top management of the entity will not change in the coming year. E) none of the above.

C) the entity will continue to operate in the foreseeable future.

When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land: A) any of the purchase cost allocated to the old building is reported as a loss. B) the cost assigned to the land excludes the cost of the old building. C) the total cost of the land and old building are capitalized as land cost. D) any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building. E) any of the above are generally acceptable accounting alternatives.

C) the total cost of the land and old building are capitalized as land cost.

If a common stock has no par value: A) there is no way of determining the market value per share. B) the stock must have a stated value. C) there will not be any additional paid-in capital related to it, assuming that the common stock does not have a stated value either. D) the common stockholders are not allowed to have a preemptive right. E) the company's shares cannot be listed on an organized stock exchange.

C) there will not be any additional paid-in capital related to it, assuming that the common stock does not have a stated value either.

Which of the following would not affect total Retained Earnings? (Assume it is the end of the fiscal year and that the books have been closed.) A) Cash dividends. B) Net Income. C) Stock dividends. D) Stock splits. E) All of the above would affect total Retained Earnings.

D) Stock splits.

Which statement best describes the purpose of closing entries: A) To continue recording the effects of transactions which began in one year and will be completed in another year. B) To compute net income or net loss for the year. C) To prepare the books for the posting process and taking a trial balance. D) To eliminate the balances in the revenue and expense accounts so they have zero balances at the beginning of the next fiscal year. E) To eliminate the need for preparing adjustments.

D) To eliminate the balances in the revenue and expense accounts so they have zero balances at the beginning of the next fiscal year.

Arch Co. has a note payable to its bank. An adjusting entry is likely to be required on Arch's books at the end of every month that the loan is outstanding to record the: A) amount of interest paid during the month. B) amount of total interest to be paid when the note is paid off. C) amount of principal payable at the maturity date of the note. D) accrued interest expense for the month. E) all of the above.

D) accrued interest expense for the month.

Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because: A) the accounts receivable asset should be stated at original cost. B) the exact amount of the losses from bad debts is known. C) revenues should be stated at realizable value. D) all costs incurred in the current period should be subtracted from current period revenues. E) write-offs are always recorded in the period during which the sale takes place.

D) all costs incurred in the current period should be subtracted from current period revenues.

Expenditures capitalized as noncurrent assets generally include those expenditures that: A) are made for normal repairs to maintain the usefulness of the asset over a number of years. B) are for items that have a physical life of more than a year, regardless of their cost. C) are material and that have an economic benefit to the entity only in the current year. D) are material and that have an economic benefit to the entity that extends beyond the current year. E) are immaterial.

D) are material and that have an economic benefit to the entity that extends beyond the current year.

The principal reason for a company having a common stock split is to: A) increase the total cash dividends paid to stockholders. B) capitalize retained earnings. C) decrease total stockholders' equity. D) decrease the market value per share of common stock. E) change from par value to no par value stock.

D) decrease the market value per share of common stock.

When comparing its effects to LIFO during an inflationary time, the effects of FIFO are to: A) decrease net income and decrease total assets. B) decrease net income and increase total assets. C) increase net income and decrease total assets. D) increase net income and increase total assets. E) none of the above.

D) increase net income and increase total assets.

If you owed $200 at the end of each year for the next three years, the present value of the obligation would be: A) less than it would be if you owed all $600 at the end of three years. B) the same as it would be if you had to pay $300 today and $300 at the end of three years. C) more than $600. D) less than it would be if you had to pay $300 today and $300 at the end of this year. E) none of the above.

D) less than it would be if you had to pay $300 today and $300 at the end of this year.

The principle stating that all expenses incurred while earning revenues should be identified with the revenues when they are earned, and reported for the same time period is the: A) cost principle. B) revenue principle. C) expense principle. D) matching principle. E) timing principle.

D) matching principle.

The purpose of the income statement is to show the: A) change in the fair market value of the assets from the prior income statement. B) market value per share of stock at the date of the statement. C) revenues collected during the period covered by the statement. D) net income or net loss for the period covered by the statement. E) all of the above.

D) net income or net loss for the period covered by the statement.

A stock dividend is similar to a cash dividend in that: A) an individual stockholder's equity in the firm's net assets is reduced by each. B) an individual stockholder's cash is increased by each. C) an individual stockholder's equity in the firm's net assets is increased by each. D) retained earnings and the amount of potential future dividends is reduced by each. E) each is an application of the return on investment concept.

D) retained earnings and the amount of potential future dividends is reduced by each.

Which of the following is true regarding a note receivable? A) A note receivable is always a long-term asset. B) A note receivable is always a current asset. C) A note receivable is usually non-interest bearing. D) A note receivable is normally issued by a bank. E) A note receivable is a more formal document than an account receivable.

E) A note receivable is a more formal document than an account receivable.

Which of these is not a limitation of financial statements? A) Qualitative data are not reflected in financial statements. B) Market values of assets are not generally reported. C) Estimates are commonly used and are sometimes inaccurate. D) It may be difficult to compare firms in the same industry because they often use different accounting methods. E) All of the above are limitations of financial statements.

E) All of the above are limitations of financial statements.

Which depreciation method results in equal depreciation expense for each year of an asset's useful life? A) Units-of-production B) Sum-of-the-years-digits C) Double-declining-balance D) MACRS E) Straight-line

E) Straight-line

When choosing between issuing common stock and issuing bonds, managers of corporations should take into account: A) the tax advantages to the company of deducting the interest costs on bonds. B) the demands placed upon their company by stockholders who expect to be paid quarterly dividends. C) the risks associated with having to make fixed interest payments on bonds at predetermined times. D) the impact that the choice will have on their company's leverage. E) all of the above are considerations.

E) all of the above are considerations.

The recognition of liabilities often results in: A) the recognition of expenses. B) a more conservative representation of financial position. C) a decrease in net income. D) a decrease in ROI. E) all of the above.

E) all of the above.

Treasury stock involves shares which are: A) authorized, but not yet issued. B) authorized, issued, and outstanding. C) issued and outstanding, but not yet authorized. D) not yet authorized. E) authorized and issued, but not currently outstanding.

E) authorized and issued, but not currently outstanding.

Retained Earnings is not: A) increased by net income. B) decreased by expenses. C) increased by revenues. D) decreased by dividends declared. E) decreased by losses.

E) decreased by losses.

The distinction between a current asset and other assets: A) is based on how long the asset has been owned. B) is based on amounts that will be paid to other entities within a year. C) is based on the ability to determine the current fair value of the asset. D) is based upon whether the asset is tangible or intangible. E) is based on when the asset is expected to be converted to cash, or used to benefit the entity.

E) is based on when the asset is expected to be converted to cash, or used to benefit the entity.

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI is: A) more than the fair value of the net assets of the acquiring company. B) less than the fair value of the net assets of the acquiring company. C) equal to the fair value of the net assets of the acquiring company. D) less than the fair value of the net assets of the acquired company. E) more than the fair value of the net assets of the acquired company.

E) more than the fair value of the net assets of the acquired company.

Which of the following inventory accounting systems has been made much more feasible as a result of computer systems developments? a. Perpetual. b. Physical. c. Periodic. d. Just-in-time.

a. Perpetual.

The balance sheet might also be called: a. Statement of Financial Position. b. Statement of Assets. c. Statement of Changes in Financial Position. d. None of the above.

a. Statement of Financial Position.

The financial leverage characteristic of long-term debt results in: a. a magnification of ROE relative to what it would be without long-term debt. b. the deductibility, for income tax purposes, of dividends to stockholders. c. a reduction of the risk that creditors will not be paid. d. a magnification of ROI relative to what it would be without long-term debt.

a. a magnification of ROE relative to what it would be without long-term debt.

Many current liabilities are affected by accrual accounting entries. This happens because: a. accrual accounting involves recognizing liabilities before they are paid. b. liabilities are usually paid when they are incurred. c. accrual accounting frequently involves recognizing liabilities before they are incurred. d. the only way to reduce a liability account balance is with an adjusting entry.

a. accrual accounting involves recognizing liabilities before they are paid.

When a firm purchases supplies for its business: a. an adjustment will probably be required as supplies are used. b. the supplies expense account should always be debited. c. the supplies account should always be debited. d. either the supplies account or the supplies expense account should be credited.

a. an adjustment will probably be required as supplies are used.

The adjusting entry to accrue Interest Expense results in: a. an increase in Interest Expense. b. a decrease in Cash. c. a decrease in Interest Expense. d. a decrease in Interest Payable.

a. an increase in Interest Expense.

The accrual of interest on short-term marketable securities results in: a. an increase in current assets and an increase in net income. b. an increase in current liabilities and an increase in net income. c. an increase in current assets and a decrease in net income. d. an increase in noncurrent assets and an increase in liabilities.

a. an increase in current assets and an increase in net income.

Retained earnings represents: a. cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends. b. net income plus gains (or minus losses) on treasury stock transactions. c. the total net income of the firm since its beginning. d. cash that is available for dividends.

a. cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.

Expenses are: a. decreases in net assets resulting from usual operating activities. b. decreases in net assets from uninsured accidents. c. cash disbursements. d. decreases in net assets from dividends to stockholders.

a. decreases in net assets resulting from usual operating activities.

If there is a loss on the disposal of a depreciable asset: a. in retrospect, the depreciation expense recognized over the asset's life was too low. b. the net book value of the asset was negative. c. no cash was received in the disposal transaction. d. in retrospect, the life over which the asset was depreciated was too short.

a. in retrospect, the depreciation expense recognized over the asset's life was too low.

A credit entry will: a. increase a liability account. b. increase an asset account. c. increase an expense account. d. decrease paid-in capital.

a. increase a liability account.

The current liability for Wages Payable (or Accrued Payroll) represents the: a. net pay earned by employees for which they have not yet been paid. b. employer's federal and state payroll tax obligation. c. employer's liability for various withholdings that taken out of the gross pay earned by employees. d. gross pay earned by employees for which they have not yet been paid.

a. net pay earned by employees for which they have not yet been paid.

The net book value of a depreciable asset is: a. the difference between the asset's cost and accumulated depreciation. b. the difference between the asset's cost and depreciation expense. c. the fair value of the asset. d. the amount for which the asset should be insured.

a. the difference between the asset's cost and accumulated depreciation.

When an uncollectible account receivable is written off against the allowance for bad debts: a. total current assets are not affected. b. current assets decrease and expenses are not affected. c. total current assets decrease and expenses decrease. d. total current assets decrease and expenses increase.

a. total current assets are not affected.

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to: a. depreciation. b. amortization. c. depletion. d. consolidation.

b. amortization.

Which of the following statements best describes the process of accounting for depreciation? a. A process for setting aside cash so funds will be available to replace the asset. b. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset. c. A process for recognizing all of the cost associated with using an asset in a revenue generating activity. d. A process that attempts to recognize loss in economic value over a period of time.

b. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.

When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required: a. No adjustment will probably be required. b. Dr. Supplies expense Cr. Supplies c. Dr. Supplies Cr. Accounts payable d. Dr. Supplies Cr. Supplies expense

b. Dr. Supplies expense Cr. Supplies

When costs are rising over time: a. LIFO results in higher profits that FIFO. b. FIFO results in higher profits than LIFO. c. ending inventory balances will be greater under LIFO. d. Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold.

b. FIFO results in higher profits than LIFO.

The entry to record depreciation expense: a. decreases a contra asset and decreases net income. b. increases a contra asset and decreases net income. c. decreases an asset and increases a contra asset. d. decreases working capital and decreases net income.

b. increases a contra asset and decreases net income.

The purpose of the income statement is to show the: a. market value per share of stock at the date of the statement. b. net income or net loss for the period covered by the statement. c. revenues collected during the period covered by the statement. d. change in the fair value of the assets from the prior income statement.

b. net income or net loss for the period covered by the statement.

A working capital loan will generally: a. be classified as a noncurrent liability. b. not affect working capital. c. not have an interest rate. d. require that interest (if any) be paid monthly.

b. not affect working capital.

If the market price of a bond exceeds its face amount: a. the company's ROI and working capital have been increasing over time. b. the coupon rate is more than the market interest rate. c. the maturity rate has been declining. d. the coupon rate is less than the market interest rate.

b. the coupon rate is more than the market interest rate.

Regardless of the inventory cost flow assumption used, inventories on the balance sheet are stated at: a. original cost. b. the lower of cost or market. c. realizable value. d. replacement cost.

b. the lower of cost or market.

The effect of an adjustment is: a. to close the books. b. to increase the accuracy of the financial statements. c. to correct an entry that was not in balance. d. to record transactions not previously recorded.

b. to increase the accuracy of the financial statements.

An Accounts Payable normally results from which of the following transactions? a. Purchasing accounts for cash. b. Purchasing property, plant and equipment on credit. c. Purchasing goods and services from suppliers on credit. d. All of the above.

c. Purchasing goods and services from suppliers on credit.

When a depreciable asset is sold: a. depreciation expense is adjusted so there is no gain or loss. b. a loss arises if the sales proceeds exceed the net book value. c. a gain arises if the sales proceeds exceed the net book value. d. any cash received results in a gain.

c. a gain arises if the sales proceeds exceed the net book value.

Matching revenues and expenses refers to: a. having revenues equal expenses. b. recording revenues when a product is sold or a service is rendered. c. accurately reflecting the results of operations for a fiscal period. d. recording revenues when cash is received.

c. accurately reflecting the results of operations for a fiscal period.

The adjusting entry to accrue Interest Expense results in: a. a decrease in Cash. b. a decrease in Interest Expense. c. an increase in Interest Expense. d. a decrease in Interest Payable.

c. an increase in Interest Expense.

Interest on a Note Payable is most appropriately accrued: a. when principal payments on the note are made. b. when the interest is paid. c. as of the end of each accounting period during which the note is a liability. d. when the note is signed.

c. as of the end of each accounting period during which the note is a liability.

Interest on a Note Payable is most appropriately accrued: a. when principal payments on the note are made. b. when the note is signed. c. as of the end of each accounting period during which the note is a liability. d. when the interest is paid.

c. as of the end of each accounting period during which the note is a liability.

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI: a. is less than the fair value of the net assets of the acquiring company. b. is less than the fair value of the net assets of the acquired company. c. is more than the fair value of the net assets of the acquired company. d. is more than the fair value of the net assets of the acquiring company.

c. is more than the fair value of the net assets of the acquired company.

A cash equivalent is a current asset that: a. will be converted to cash within one year. b. will be converted to cash within one month. c. is readily convertible into cash with a minimal risk. d. is readily convertible into cash with a substantial risk. e. none of the above.

c. is readily convertible into cash with a minimal risk.

Many companies use accelerated depreciation for tax purposes because: a. it is easier to calculate than straight-line depreciation. b. it reflects the amount of cash used in depreciation. c. it results in lower taxable income than straight-line depreciation. d. it is used for determining net income reported to stockholders.

c. it results in lower taxable income than straight-line depreciation.

A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is: a. magazines are printed for the publisher. b. cash is received from new subscribers. c. magazines are mailed to subscribers. d. subscriptions are sold to new subscribers.

c. magazines are mailed to subscribers.

The amortization of bond discount: a. reduces the carrying value of bonds payable on the balance sheet. b. increases the cash paid to bondholders for interest. c. results in bond interest expense being greater than the interest paid to bondholders. d. results in bond interest expense being less than the interest paid to bondholders.

c. results in bond interest expense being greater than the interest paid to bondholders.

Depreciation, in accounting, is a process that results in: a. depreciable assets being reported in the balance sheet at their fair value. b. accumulating cash for the replacement of the asset. c. spreading the cost of an asset over its useful life to the entity. d. an accurate measurement of the economic usefulness of an asset.

c. spreading the cost of an asset over its useful life to the entity.

The principal challenge to calculating depletion is estimating: a. the salvage value of the exploration equipment. b. the demand for the product. c. the quantity of material to be recovered. d. the cost of the asset.

c. the quantity of material to be recovered.

Which of the following is not a stockholders' equity account? a. Capital stock. b. Paid-in-capital in excess of par. c. Common stock. d. Accumulated depreciation. e. Retained earnings.

d. Accumulated depreciation.

The declaration of a cash dividend by the directors results in: a. a decrease in net income and a decrease in cash. b. a decrease in cash and a decrease in retained earnings. c. a decrease in net income and an increase in current liabilities. d. a decrease in retained earnings and an increase in current liabilities.

d. a decrease in retained earnings and an increase in current liabilities.

A transaction that is likely to cause an increase in a current liability is: a. payment of accrued wages. b. depreciation of equipment. c. accrual of bad debts expense. d. accrual of interest expense.

d. accrual of interest expense.

The liability for product warranty claims is an example of a liability that: a. has been calculated using estimates. b. has been recorded in the process of matching revenue and expense. c. also resulted in a reduction of net income. d. all of the above.

d. all of the above.

When a firm uses the LIFO inventory cost flow assumption: a. cost of goods sold will be the same as if FIFO were used. b. net income will be greater than if FIFO were used. c. cost of goods sold will be greater than if FIFO were used. d. better matching of revenue and expense is achieved than under FIFO.

d. better matching of revenue and expense is achieved than under FIFO.

One of the principal reasons for selecting the LIFO cost flow assumption instead of the FIFO cost flow assumption in an inflationary economic environment is that: a. a higher selling price can be established. b. net income will be higher. c. balance sheet inventory values will be higher. d. income taxes will be lower.

d. income taxes will be lower.

A fiscal year: a. must end on the last day of a month. b. is always the same as the calendar year. c. must always end on the same date each year. d. is frequently selected based on the firm's operating cycle.

d. is frequently selected based on the firm's operating cycle.

Current maturities of long-term debt: a. represent cash that has been set aside for debt payments due within a year. b. reflect overdue installments of bonds payable. c. are classified with long-term debt. d. permit a more accurate determination of working capital.

d. permit a more accurate determination of working capital.

When a company issues a bond at a premium: a. the company is more profitable than most companies in its industry. b. investors perceive the bond to be a very safe investment. c. the company's interest expense will be more than the interest paid each year. d. the company's interest expense will be less than the interest paid each year.

d. the company's interest expense will be less than the interest paid each year.

One inventory cost flow assumption will result in different cost of goods sold from another inventory cost flow assumption only if: a. price levels do not change during the year. b. a new product is added to inventory during the year. c. inventory quantities change from the beginning to end of the year. d. the cost of inventory items changes during the year.

d. the cost of inventory items changes during the year.