ACCY 200: Exam 1

In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account in which all the aforementioned accounts are closed into? Retained Earnings Cash Net Income Sales

Retained Earnings

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of (older/newer), (higher/lower) costs to the income statement results in (higher/lower) profits than if current costs were to be recognized.

older lower higher

The investments by and distributions to owners during a reporting period are reported on the: statement of stockholders' equity income statement statement of cash flows balance sheet

statement of stockholders' equity

A firm prepares comparative financial statement so that _____. the management of the firm can easily spot errors in the financial statement and rectify them the users of the data can easily spot changes in the firm's financial position and in its results of operations the shareholders can participate in the day-to-day functioning of the firm the external auditors of the firm can easily spot errors in the internal audit reports

the users of the data can easily spot changes in the firm's financial position and in its results of operations

In the United States, the dollar is the (...) of (...) for all transactions.

unit of measurement

Understating assets and/or overstating liabilities when making judgments and estimates is driven by which of the following concepts/principles? Conservatism Materiality Objectivity Matching

Conservatism

Limiting a firm's ability to switch back and forth between alternative generally accepted accounting methods is driven by which of the following concepts/principles? Matching Consistency Full disclosure Conservatism

Consistency

Which of the following is true regarding the balance sheet components? Stockholders' equity are the owners' claims to the organization's liabilities. Assets are the obligations of the organization. Liabilities are the obligations of the organization. Liabilities are the resources of the organization.

Liabilities are the obligations of the organization.

(...) refers to accountants' desire to have a given transaction recorded in the same way in all situations.

Objectivity

Which concept/principle suggests that a given transaction should be recorded in the same way in all situations? Matching Accrual Objectivity Full disclosure

Objectivity

The time frame associated with an income statement is: a past period of time. a function of the information included in it. a point in time in the past. a future period of time.

a past period of time.

The effects on the financial statements of accruing interest on short-term marketable debt securities include: an increase in net income. an increase in revenues. an increase in liabilities. an increase in assets. an increase in expenses.

an increase in net income. an increase in revenues. an increase in assets.

An entity's financial position at the end of a reporting period is reported on the: statement of cash flows income statement balance sheet statement of stockholders' equity

balance sheet

Assets = Liabilities + Paid-in capital + Retained earnings (beginning/ending) + (Revenues/Expenses) - (Revenues/Expenses)

beginning Revenues expenses

Periodically, the petty cash fund is reimbursed to: ensure that there will be enough cash on hand to pay the next month's electric bill. record the sales that have taken place since the fund was last reimbursed. record all of the debits to Merchandise Inventory that have accumulated. bring the cash in the fund back to the original amount

bring the cash in the fund back to the original amount.

The four concepts/principles that relate to the financial statements are:

consistency, full disclosure, materiality, and conservatism

Most assets are not recorded at their current market values because of the limitations imposed by the (...) principle.

cost

An agreement by the borrower to supply financial statements to the lender and an agreement by the borrower to refrain from paying dividends until the note is paid are both examples of provisions known as (collateral/covenants/interest/default).

covenants

In bookkeeping and accounting, (...) means left and (...) means right, and nothing more.

debits credits

The cost of an inventory item is released to the income statement as an: expense when the product is sold (or becomes worthless or is lost or stolen). asset when the product is sold (or becomes worthless or is lost or stolen). asset when the product is purchased (or becomes worthless or is lost or stolen). expense when the product is purchased (or becomes worthless or is lost or stolen).

expense when the product is sold (or becomes worthless or is lost or stolen).

The (...) (...) concept requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled.

full disclosure

The (...) (...) concept refers to the presumption that the entity will continue to operate in the future.

going concern

The concept that refers to the presumption that the entity will continue to operate in the future is known as the: going concern concept accounting period concept consistency concept materiality concept

going concern concept

Although revenues and expenses are reported on the income statement, they also: impact the ending balance of paid-in capital on the balance sheet. impact stockholders' equity on the balance sheet. increase the noncurrent assets on the balance sheet. are treated as financing activities in the statement of cash flows.

impact stockholders' equity on the balance sheet.

Liability accounts: increase with credit entries decrease with debit entries decrease with credit entries increase with debit entries normally have a debit balance normally have a credit balance

increase with credit entries decrease with debit entries normally have a credit balance

The balance sheet:

is like a snapshot of the organization's financial position, frozen at a specific point in time.

Transactions are initially recorded in a (journal/ledger/chart of accounts).

journal

The (...) concept does not mean that revenue and expense for a reporting period are equal.

matching

Most assets are reported on the balance sheet based on their: original (historical) cost replacement cost current market (fair) value cost or market value whichever is lower

original (historical) cost

The LIFO cost flow assumption results in the most (distant/recent) costs being transferred to cost of goods sold. In times of rising prices, the costs transferred to cost of goods sold under LIFO will therefore be (higher/lower) than the costs transferred to cost of goods sold under FIFO.

recent higher

Although (...) and (...) are reported on the income statement, they also impact the ending balance of retained earnings shown on the balance sheet.

revenues expenses

Accounts are summarized in financial (...), whereas (...) are summarized in accounts.

statements transactions

If debits equal credits, then: the company will have a positive balance in the retained earnings account. the company's assets will be greater than the sum of its liabilities and stockholders' equity. the company's balance sheet equation will be in balance. the company's revenues will be greater than its expenses.

the company's balance sheet equation will be in balance.

If the total assets is equal to $15,000 and the total liabilities is equal to $9,000, then:

the total stockholders' equity is equal to $6,000.

Revenue is recognized at the time of sale, which is when: the cash payment from the buyer to seller is made title passes to the buyer or when the services are performed a discount is provided for prompt payment the cash payment from the seller to buyer is made

title passes to the buyer or when the services are performed

Assume that Missvel Inc. has credit sales terms of 3/10, n90. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying:

$9,700 by May 15 or paying $10,000 by August 3.

The balance sheet equation can be represented by: Assets = Liabilities + Stockholders' Equity Assets - Liabilities = Stockholders' Equity Net Assets = Stockholders' Equity All of the answers are correct.

All of the answers are correct.

Beginning inventory = $30,000, Ending inventory = $27,000, and Cost of goods sold = 150,000. Thus: Cost of goods available for sale = $177,000 and Purchases = $147,000. Cost of goods available for sale = $123,000 and Purchases = $93,000. Cost of goods available for sale = $57,000 and Purchases = $93,000. Cost of goods available for sale = $180,000 and Purchases = $153,000.

Cost of goods available for sale = $177,000 and Purchases = $147,000. Beginning inventory + Purchases = Cost of goods for Sale Cost of Goods for Sale - Ending Inventory = Cost of Goods Sold

Providing more (rather than less) detail in the notes to the financial statements is driven by which of the following concepts/principles? Conservatism Consistency Full disclosure Objectivity

Full disclosure

Which of the following accounts would be closed during the year-end closing process? Wages Expense Sales Loss on Sale of Buildings Cash Accounts Payable Dividends Buildings Rent Expense

Wages Expense Sales Loss on Sale of Buildings Dividends Rent Expense

The petty cash fund: is used to make small payments of cash. uses petty cash vouchers to make payments rather than cash. is used as management's slush fund for personal expenditures. records expenses each day as disbursements are made.

is used to make small payments of cash.

Transactions are summarized in: the notes for the financial statements. the independent auditor's report. the entity's accounts. the Accounting Standards Updates (ASUs).

the entity's accounts.

A corporation's annual report contains the reporting firm's financial statements and each of the following key components, except: management's discussion and analysis of the financial statements the reporting firm's operating budget for the next fiscal year the report of the external auditor's examination of the financial statements the notes to the financial statements

the reporting firm's operating budget for the next fiscal year

A corporation's annual report contains the reporting firm's financial statements and each of the following key components, except: the report of the external auditor's examination of the financial statements management's discussion and analysis of the financial statements the reporting firm's operating budget for the next fiscal year the notes to the financial statements

the reporting firm's operating budget for the next fiscal year

Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded?

$47,000

A = L + SE is called the (...) (...).

Accounting Equation

The balance sheet might also be called: Statement of Financial Position. Statement of Assets. Statement of Changes in Financial Position. Statement of Equity.

Statement of Financial Position.

Assets = Liabilities + Retained earnings Stockholders' equity Net income Paid-in capital

Stockholders' equity

The three concepts/principles that relate to the entire model are: accounting entity, going concern, and materiality accounting equation, accounting entity, and going concern accounting equation, conservatism, and objectivity unit of measurement, cost principle, and objectivity

accounting equation, accounting entity, and going concern

The four concepts/principles that relate to bookkeeping procedures and the accounting process are: matching, revenue recognition, unit of measurement, and full disclosure accounting period, matching, revenue recognition, and accrual accounting period, going concern, cost principle, and accrual accounting equation, going concern, revenue recognition, and materiality

accounting period, matching, revenue recognition, and accrual

If debits equal credits, then: assets will equal the sum of liabilities and stockholders' equity. liabilities will equal the sum of assets and net income. net income minus dividends will be equal to total assets. assets will equal the sum of liabilities and retained earnings.

assets will equal the sum of liabilities and stockholders' equity.

Financial statements that show a column for the current year and the prior year are known as (...) financial statements.

comparative

Companies are not allowed to switch back and forth between alternative accounting methods from year to year because of the (...) concept.

consistency

Transactions are: initially recorded in a journal and then posted to a ledger. initially listed in the chart of accounts and then posted to a ledger. initially recorded in a journal and then listed in the chart of accounts. initially posted to a ledger and then recorded in a journal.

initially recorded in a journal and then posted to a ledger.

Inventory is reported on the balance sheet at: current replacement cost. current market value. original (historical) cost. lower of cost or market value.

lower of cost or market value.

Asset accounts: normally have a debit balance normally have a credit balance decrease with credit entries increase with debit entries increase with credit entries decrease with debit entries

normally have a debit balance decrease with credit entries increase with debit entries

Companies are not allowed to switch back and forth between alternative accounting methods from year to year because of the (...) concept.

Consistency

Transactions: are summarized in accounts, and accounts are further summarized in financial statements can be seen as the bricks that build financial statements are procedures for sorting, classifying, and processing accounting information

are summarized in accounts, and accounts are further summarized in financial statements can be seen as the bricks that build financial statements

When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the: net income for the year is greater than total liabilities. income statement effect on stockholders' equity is considered. net income for the year plus total assets is greater than total liabilities. revenues minus the expenses from the income statement equal zero.

income statement effect on stockholders' equity is considered.

In the horizontal model representation of the financial statements, the arrow going from net income to stockholders' equity means that net income affects the (...)(...) account within stockholders' equity.

retained earnings

The "market" in the lower of cost of market valuation is generally: the replacement cost of the inventory. the current selling price of the inventory. the current selling price of the inventory less the company's normal profit margin. the historical cost of the inventory less depreciation.

the replacement cost of the inventory.

The amount in the Cash account, which is reported as an asset on the balance sheet, includes: supplies on hand IOUs from credit worthy customers undeposited receipts including checks checking account balances savings account balances money on hand in petty cash funds

undeposited receipts including checks checking account balances savings account balances money on hand in petty cash funds

Which of the following items are normally included as key components of a corporation's annual report? A five-year (or longer) summary of key financial data The notes to the financial statements A corporate structure chart showing line and staff reporting responsibilities of all key personnel employed by the reporting firm The report of the external auditor's examination of the financial statements The reporting firm's operating budget for the next fiscal year

A five-year (or longer) summary of key financial data The notes to the financial statements The report of the external auditor's examination of the financial statements

Which concept/principle supports the fact that assets such as land, buildings, and equipment are not reported at their fair values? Consistency Conservatism Cost principle Full disclosure

Cost principle

Which of the following statements are true regarding the matching concept? Cash inflows and cash outflows are matched to the period in which revenues are earned. Expenses are recorded in the period in which they are incurred. Revenues and expenses for the period must be equal. Revenues are recorded in the period in which they are earned.

Expenses are recorded in the period in which they are incurred. Revenues are recorded in the period in which they are earned.

Which of the following concepts/principles relate to financial statements? Matching Materiality Conservatism Full disclosure Objectivity Consistency Accrual

Materiality Conservatism Full disclosure Consistency

In times of rising prices, LIFO results in: lower ending inventory value and higher cost of goods sold value than FIFO. higher ending inventory value and higher cost of goods sold value than FIFO. lower ending inventory value and lower cost of goods sold value than FIFO. higher ending inventory value and lower cost of goods sold value than FIFO.

lower ending inventory value and higher cost of goods sold value than FIFO.

Short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at: the entity's cost of the securities less accumulated depreciation. the lower of the entity's cost of the securities or the market value of the securities. the market value of the securities. the entity's cost of the securities.

the entity's cost of the securities.

Short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at: the entity's cost of the securities. the entity's cost of the securities less accumulated depreciation. the lower of the entity's cost of the securities or the market value of the securities. the market value of the securities.

the entity's cost of the securities.

The entry to record accrued interest on Notes Receivable is: Dr. Cash xx Cr. Interest Income xx Dr. Interest Receivable xx Cr. Interest Expense xx Dr. Cash xx Cr. Interest Receivable xx Dr. Interest Receivable xx Cr. Interest Income xx

Dr. Interest Receivable xx Cr. Interest Income xx

The idea that tells absolute exactness in the amounts shown in the financial statements is not necessary is portrayed by the concept of _____. accrual rounding materiality conservatism

materiality

Assets = Liabilities + Paid-in capital + Retained earnings (end of period) + Revenues (during the period) - Expenses (during the period) Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Retained earnings (beginning of period) + Revenues (during the period) + Expenses (during the period) Revenues (during the period) - Expenses (during the period)

Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)

Which of the following accounts would be closed during the year-end closing process? Common Stock Notes Payable Service Revenue Cost of Goods Sold Rent Expense Dividends Payable Gain on Sale of Land Merchandise Inventory

Service Revenue Cost of Goods Sold Rent Expense Gain on Sale of Land (Only income statement accounts (revenues, expenses, gains, and losses) and dividends are closed to retained earnings.)

Prepaid expenses such as insurance premiums and lease (rental) payments that have been paid in advance should be treated as (assets/liabilities) until the benefits associated with the prepayment are received and thus the (revenue/expense) has been (earned/incurred).

assets expense incurred

Firm A has 8 percent, $50 par value cumulative preferred stock, 30,000 shares authorized, issued, and outstanding. Dividends are paid semiannually, and no dividends are in arrears. The semiannual dividend requirement is: 30,000 x $50 x 8% x 6/12 = $60,000 Indeterminable without knowing how much dividends in arrears are owed to common stockholders. 30,000 x $50 x 8% x 2 = $240,000 30,000 x $50 x 8% = $120,000

30,000 x $50 x 8% x 6/12 = $60,000

The beginning inventory for ProKnows Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each, and during May, an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the LIFO cost flow assumption, cost of goods sold: = (30 @ $6) = $180. = (40 @ $6) + (30 @ $5) = $240 + $150 = $390. = (20 @ $4) + (40 @ $5) + (10 @ $6) = $80 + $200 + $60 = $340. = (20 @ $4) + (10 @ $5) = $130.

= (40 @ $6) + (30 @ $5) = $240 + $150 = $390.

Which of the following is true regarding notes receivables? A note is a more formal document than an account receivable. A notes receivable is always a long-term asset. A notes receivable is always a current asset. A note is a less formal document than an account receivable.

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

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

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

Which of the following accounting methods accomplishes much of the matching of revenues and expenses? Match accounting. Accrual accounting. Cash accounting. Full disclosure accounting.

Accrual accounting.

The balance sheet equation can be represented by: Assets = Liabilities + Stockholders' Equity Assets - Liabilities = Stockholders' Equity Net Assets = Stockholders' Equity All of the answers are correct.

All of the answers are correct.

An expanded version of the accounting equation could be: Multiple Choice Assets − Liabilities = Paid-in Capital − Revenues − Expenses Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues − Expenses − Dividends Assets = Liabilities + Paid-in Capital − Revenues + Expenses Assets + Revenues = Liabilities + Stockholders' Equity − Expenses

Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues − Expenses − Dividends

When using an accelerated depreciation method during inflationary times, in the later years of an asset's life, depreciation expense will be _____. less than it would be using the straight-line depreciation method and net income would be higher. less than it would be using the straight-line depreciation method and net income would be lower. more than it would be using the straight-line depreciation method and net income would be higher. more than it would be using the straight-line depreciation method and net income would be lower.

less than it would be using the straight-line depreciation method and net income would be higher.

In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of older, lower costs to the income statement results in higher profits than if current costs were to be recognized. This creates a problem for the reporting company because: lower costs means higher net income and higher retained earnings. lower costs means lower net income and lower retained earnings. lower costs means lower taxable income and lower taxes payable. lower costs means higher taxable income and higher taxes payable.

lower costs means higher taxable income and higher taxes payable.

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

magazines are mailed to subscribers.

Buildings and equipment are recorded at their original cost, which includes the purchase price plus: the cost of the land that is being used for the building's construction site. material, labor, and overhead costs for equipment made by a firm's own employees. the cost of paving a parking lot next to the building and lighting for the parking lot. interest costs incurred during the construction phase of a building. installation and shakedown costs.

material, labor, and overhead costs for equipment made by a firm's own employees. interest costs incurred during the construction phase of a building. installation and shakedown costs.

The intangible asset goodwill: represents management's assessment of the value of the superior customer service provided by the company. may arise when one company purchases another company. arises because the fair value of a company's inventory is greater than its cost. is recorded on the parent company books at the time a subsidiary company is sold or otherwise disposed of

may arise when one company purchases another company.

he employer's Wages Payable or Accrued Payroll for a payroll period represents employees' (gross/net) pay.

net

Another term frequently used to describe stockholders' equity is: net assets. gross assets. paid-in capital. capital stock.

net assets.

Factors that usually affect retained earnings directly include: Multiple Choice stock dividends and gains or losses from the sale of treasury stock. restructuring charges and losses from discontinued operations. net income or net loss, and the issuance of stock at an amount in excess of par value. net income or net loss, and dividends.

net income or net loss, and dividends.

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

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

Accounts receivable are reported at: historical cost. market value. weighted average cost. net realizable value.

net realizable value.

The portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company (reporting entity) is referred to as the (unusual/noncontrolling/extraordinary) interest.

noncontrolling

The payment of a current liability will: not affect working capital. increase working capital. decrease net income. decrease working capital.

not affect working capital.

In an inflationary economic environment, the selling price set for a firm's products will: not be affected by the cost flow assumption used. be higher if LIFO is used than if FIFO is used. be higher if FIFO is used than if LIFO is used. be derived from the weighted average cost of inventory.

not be affected by the cost flow assumption used.

Short-term marketable debt securities that fall in the held-to-maturity category are reported on the balance sheet at the entity's cost, which is usually about the same as market value, because _____. of their high quality and the short time until maturity the underlying assets in these securities are equities of banking companies the underlying assets in these securities are equities of small-cap companies of their high risk and the short time until maturity

of their high quality and the short time until maturity

Short-term marketable debt securities that fall in the held-to-maturity category are reported on the balance sheet at the entity's cost, which is usually about the same as market value, because _____. the underlying assets in these securities are equities of banking companies of their high risk and the short time until maturity the underlying assets in these securities are equities of small-cap companies of their high quality and the short time until maturity

of their high quality and the short time until maturity

Depletion is usually recognized: using the MACRS rates. using the double-declining-balance method. on a straight-line basis. on a FIFO basis.

on a straight-line basis.

Accounts payable are normally shown: on the balance sheet as a current liability, net of anticipated cash discounts. on the balance sheet as a noncurrent liability, but not reduced by anticipated cash discounts. on the income statement as an expense, but not reduced by anticipated cash discounts. on the balance sheet as a current liability, but not reduced by anticipated cash discounts.

on the balance sheet as a current liability, but not reduced by anticipated cash discounts.

Land that is owned and used in the operations of the firm is shown on the balance sheet at its: original cost less accumulated depreciation. original cost. replacement cost. current market value.

original cost.

Additional paid-in capital is a stockholders' equity category that reflects the excess of the amount received from the sale of preferred or common stock over the (surplus/market/par) value per share.

par

Intangible assets include: notes receivables, dividends, accounts receivables, and unearned revenues. accounts payables, notes receivables, unearned revenue, and prepaid rent. merchandise inventory, prepaid expenses, bills payables, and prepaid insurance. patents, trademarks, copyrights, and customer lists.

patents, trademarks, copyrights, and customer lists.

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

permit a more accurate determination of working capital.

Accrual accounting results in: recognition of revenues when cash is received and recognition of expenses when they are incurred recognition of revenues when the cash is received and recognition of expenses when cash is paid recognition of revenues when they are earned (at the point of sale) and recognition of expenses when cash is paid recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred

recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred

Intangible assets are amortized over their: remaining useful life or their statutory life, whichever is shorter. remaining useful life or their statutory life, whichever is longer. remaining useful life. their statutory life.

remaining useful life or their statutory life, whichever is shorter.

A note receivable: represents a formal, legal contract. involves penalties if not paid on the maturity date. usually bears interest. are notes that are only offered to the most creditworthy customers. is easier to account for.

represents a formal, legal contract. involves penalties if not paid on the maturity date. usually bears interest.

The financial statements prepared by the not-for-profit organizations focus on the requirement of _____. long-term lenders resource providers short-term lenders investors

resource providers

Net income from the income statement is added to the beginning balance of: paid-in capital in the balance sheet. retained earnings in the statement of changes in retained earnings. paid-in capital in the statement of changes in retained earnings. retained earnings in the statement of changes in paid-in capital.

retained earnings in the statement of changes in retained earnings.

In the horizontal model representation of the financial statements, _____. A = L + SE - R - E the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings the balance sheet and income statement columns are completely independent of each other the statement of cash flows is the key financial statement illustrated in the model

the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings

In the horizontal model representation of the financial statements, _____. the balance sheet and income statement columns are completely independent of each other the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings A = L + SE - R - E the statement of cash flows is the key financial statement illustrated in the model

the arrow pointing from net income to stockholders' equity indicates that net income affects retained earnings

When a company issues a bond at a discount: the company will pay less than the face amount of the bond at its maturity. the company's interest expense will be less than the interest paid each year. the company will pay more than the face amount of the bond at its maturity. the company's interest expense will be more than the interest paid each year.

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

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

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

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

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

When an accelerated depreciation method is used to calculate depreciation expense: the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used. the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.

the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.

When an accelerated depreciation method is used to calculate depreciation expense: the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used. the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.

the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.

he difference between the gross and net methods of recording the accounts payable relates to: the timing of the recognition of cash discounts. both the timing of the recognition of cash discounts and the amount of cash discounts allowed. neither the timing of the recognition of cash discounts nor the amount of cash discounts allowed. the amount of cash discounts allowed.

the timing of the recognition of cash discounts.

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: any of the purchase cost allocated to the old building is reported as a loss. the cost assigned to the land excludes the cost of the old building. any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building. the total cost of the land and old building are capitalized as land cost.

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

With respect to the write-off of an uncollectible account receivable against the Allowance for Bad Debts account, a sound system of internal control would require: the write-off be approved by two employees. a lawsuit to be initiated to recover the uncollectible amount. an investigation of why credit was extended to this customer in the first place. the write-off to be made within six months after the date of sale.

the write-off be approved by two employees.

Not-for-profit and governmental organizations normally report to resource providers rather than investors because: these types of organizations do not have owners who have direct financial interests in the entities. total assets are not reported anywhere in the financial statements. with these types of organizations, operating funds must be accounted for separately from restricted funds. net income is not reported for most of these types of organizations because of their service orientation.

these types of organizations do not have owners who have direct financial interests in the entities.

Under accrual accounting, year-end adjustments are made: to ensure that revenues are recognized in the year in which they are incurred. to ensure that expenses are recognized in the year in which they are incurred. because revenue receipts may occur before or after the event that causes revenue recognition.

to ensure that expenses are recognized in the year in which they are incurred. because revenue receipts may occur before or after the event that causes revenue recognition.

Buildings and equipment are recorded at their original cost, which includes the purchase price plus all ordinary and necessary costs incurred: to get the building or equipment ready for its use in the operations of the firm. to get the building or equipment ready for sale in the ordinary course of business. to obtain legal title to the building or equipment. to use the building or equipment in a manner that will enhance the firm's profitability.

to get the building or equipment ready for its use in the operations of the firm.

The effect of an adjustment is: to record cash receipts and payments not previously recorded. to increase the accuracy of the financial statements. to correct an entry that was not in balance. to close the books.

to increase the accuracy of the financial statements.

When the tenant of an office building makes modifications to the office space, the cost of these modifications is a capital expenditure to be amortized over their useful life _____. to the tenant or over the life of the lease, whichever is shorter to the owner or over the life of the lease, whichever is shorter to the owner or over the life of the lease, whichever is longer to the tenant or over the life of the lease, whichever is longer

to the tenant or over the life of the lease, whichever is shorter

When a firm purchases its own shares as treasury stock: total stockholders' equity is increased. retained earnings is decreased. paid-in capital is decreased. total stockholders' equity is decreased.

total stockholders' equity is decreased.

Any salary paid to the proprietor of a firm is _____. treated as reduction to the proprietor's capital treated as the firm's income treated as the firm's expenses treated as a grant given to the proprietor

treated as reduction to the proprietor's capital

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

when the asset is expected to be converted to cash, or used to benefit the entity.

Current maturities of long-term debt are a current liability representing that portion of long-term debt that: will be maturing within a year of the balance sheet date. is similar to an account payable owed to suppliers for the purchase of goods in the normal course of business. is expected to be used as part of a debt/equity swap transaction. has been refinanced with the bank as short-term debt.

will be maturing within a year of the balance sheet date.

Which of the following are acceptable/correct expressions of the balance sheet equation? Assets = Liabilities + Paid-in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Assets - Liabilities = Stockholders' equity Assets = Liabilities + Paid-in capital + Average retained earnings (for period) Assets = Liabilities + Paid-in capital + Retained earnings (end of period) + Revenues (during the period) - Expenses (during the period) Assets = Liabilities + Stockholders' equity Assets = Liabilities + Paid-in capital + Retained earnings

Assets = Liabilities + Paid-in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Assets - Liabilities = Stockholders' equity Assets = Liabilities + Stockholders' equity Assets = Liabilities + Paid-in capital + Retained earnings

In the cost of goods sold model, the "Cost of goods available for sale" equals: Ending inventory - Cost of goods sold Beginning inventory + Purchases Cost of goods sold + Purchases Cost of goods sold + Ending inventory

Beginning inventory + Purchases Cost of goods sold + Ending inventory

Purchases = $144,000, Cost of goods available for sale = $200,000, and Ending inventory = $40,000. Thus: Beginning inventory = $56,000 and Cost of goods sold = $240,000. Beginning inventory = $56,000 and Cost of goods sold = $160,000. Beginning inventory = $160,000 and Cost of goods sold = $156,000. Beginning inventory = $62,000 and Cost of goods sold = $188,000.

Beginning inventory = $56,000 and Cost of goods sold = $160,000.

Which of the following is true regarding bond discounts and/or premiums? Both bond discount and premium are amortized. Neither bond discount nor premium is amortized. Bond premium is amortized but bond discount is not. Bond discount is amortized but bond premium is not.

Both bond discount and premium are amortized.

In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings which of the following is true? Treasury stock purchased needs to be subtracted (negative amount) Cash dividends for common and preferred stock need to be subtracted (negative amount) Stock dividends need to be subtracted (negative amount) The beginning balance of Retained Earnings account needs to be added (positive amount) Stock splits need to be added (negative amount)

Cash dividends for common and preferred stock need to be subtracted (negative amount) Stock dividends need to be subtracted (negative amount) The beginning balance of Retained Earnings account needs to be added (positive amount)

Which of the following is the correct balance sheet presentation for current assets? Cash equivalents, cash, other current assets, accounts receivable. Cash, inventories, account receivables, prepaid expenses. Marketable securities, cash, accounts receivable, prepaid expenses. Cash, accounts receivable, inventories, prepaid expenses, other current assets.

Cash, accounts receivable, inventories, prepaid expenses, other current assets.

If ending inventory was understated at the end of Year 1 but counted correctly at the end of Year 2 and this error was not discovered until sometime in Year 3, then: Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total. Cost of goods sold was overstated in Year 1 and overstated in Year 2 and the error would have doubled in total. Cost of goods sold was understated in Year 1 and overstated in Year 2 but the error would have self-corrected in total. Cost of goods sold was understated in Year 1 and understated in Year 2 and the error would have doubled in total.

Cost of goods sold was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total.

Assume that on September 1, Year 1, a six-month property insurance premium of $12,000 was paid for a policy whose coverage began on that day. Assume also that the Prepaid Insurance account was debited for $12,000 at this time. The December 31, Year 1, adjustment with respect to the this policy will include a: Credit to Insurance Expense for $12,000. Debit to Prepaid Insurance for $8,000. Debit to Insurance Expense for $8,000. Credit to Prepaid Insurance for $4,000.

Debit to Insurance Expense for $8,000.

Identify the correct statements about accounting for depletion of natural resources. Depletion expense is recorded in the statement of cash flows along with the related natural resources. Depletion expense is very easy to estimate in practice. Depletion expense is recorded in the income statement for the related natural resources. Depletion expense allowed for federal income tax purposes frequently differs from that recognized for financial accounting purposes.

Depletion expense is recorded in the income statement for the related natural resources. Depletion expense allowed for federal income tax purposes frequently differs from that recognized for financial accounting purposes.

Which of the following statements regarding net income (loss) and retained earnings are correct? Dividends declared during the period increase net loss. Retained earnings is not affected by the declaration of dividends. Dividends declared during the period decrease retained earnings. Net loss for the period decreases retained earnings.

Dividends declared during the period decrease retained earnings. Net loss for the period decreases retained earnings.

Multiple Choice Question Stills Inc. leases a machine and agrees to make annual lease payments of $14,000 for 3 years. The present value of all of the lease payments is $38,000. The entry to record this transaction is: Dr. Equipment 42,000 Cr. Notes Payable 42,000 Dr. Equipment 42,000 Cr. Capital Lease Liability 42,000 Dr. Equipment 38,000 Cr. Notes Payable 38,000 Dr Equipment 38,000 Cr Lease Liability 38,000

Dr Equipment 38,000 Cr Lease Liability 38,000

Crosby Co. leases a machine and agrees to make annual lease payments of $11,000 for 5 years. The present value of all of the lease payments is $40,000. The entry to record this transaction is: Dr. Equipment 40,000 Cr. Notes Payable 40,000 Dr. Equipment 55,000 Cr. Notes Payable 55,000 Dr. Equipment 55,000 Cr. Lease Liability 55,000 Dr. Equipment 40,000 Cr. Lease Liability 40,000

Dr. Equipment 40,000 Cr. Lease Liability 40,000

The entry made to record the impairment of goodwill is: Dr. Goodwill Impairment Loss Cr. Goodwill Dr. Accumulated Amortization Cr. Goodwill Dr. Goodwill Impairment Loss Cr. Accumulated Amortization Dr. Goodwill Cr. Goodwill Impairment Loss

Dr. Goodwill Impairment Loss Cr. Goodwill

The entry to accrue interest on short-term marketable debt securities is: Dr. Cash xx Cr. Interest Receivable xx Dr. Interest Receivable xx Cr. Interest Income xx Dr. Interest Receivable xx Cr. Interest Expense xx Dr. Cash xx Cr. Interest Income xx

Dr. Interest Receivable xx Cr. Interest Income xx

Identify the information that the current generally accepted accounting principles and auditing standards require the financial statements of an entity to show for the reporting period. Market value of the entity's net assets Financial position at the end of the period Investments by and distributions to owners (i.e., stockholders) during the period Budget versus actual comparisons of key balance sheet and income statement accounts Cash flows during the period Number of people employed by the entity Earnings for the period

Financial position at the end of the period Investments by and distributions to owners (i.e., stockholders) during the period Cash flows during the period Earnings for the period

Which of the following accounts are examples of intangible assets? Merchandise inventory Goodwill Leaseholds Copyrights Current maturities of long-term debt Customer lists

Goodwill Leaseholds Copyrights Customer lists

If ending inventory was overstated at the end of Year 1 but counted correctly at the end of Year 2 and this error was not discovered until sometime in Year 3, then: Gross profit (and net income) was understated in Year 1 and understated in Year 2 and the error would have doubled in total. Gross profit (and net income) was overstated in Year 1 and overstated in Year 2 and the error would have doubled in total. Gross profit (and net income) was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total. Gross profit (and net income) was understated in Year 1 and overstated in Year 2 but the error would have self-corrected in total.

Gross profit (and net income) was overstated in Year 1 and understated in Year 2 but the error would have self-corrected in total.

If ending inventory was understated at the end of Year 1, but counted correctly at the end of Year 2, and this error was not discovered until sometime in Year 3, then: Gross profit (and net income) was understated in Year 1 and understated in Year 2, and the error would have doubled in total. Gross profit (and net income) was overstated in Year 1 and overstated in Year 2, and the error would have doubled in total. Gross profit (and net income) was overstated in Year 1 and understated in Year 2, but the error would have self-corrected in total. Gross profit (and net income) was understated in Year 1 and overstated in Year 2, but the error would have self-corrected in total.

Gross profit (and net income) was understated in Year 1 and overstated in Year 2, but the error would have self-corrected in total.

Identify the true statements regarding a bank reconciliation. In a bank reconciliation, outstanding checks are subtracted from the bank balance. In a bank reconciliation, interest earned is added to the bank balance. In a bank reconciliation, deposits in transit are added to the bank balance. In a bank reconciliation, service charges are subtracted from the bank balance. In a bank reconciliation, NSF checks are subtracted from the bank balance.

In a bank reconciliation, outstanding checks are subtracted from the bank balance. In a bank reconciliation, deposits in transit are added to the bank balance.

Identify the true statements regarding a bank reconciliation. In a bank reconciliation, service charges are subtracted from the company's book balance. In a bank reconciliation, outstanding checks are subtracted from the company's book balance. In a bank reconciliation, NSF checks are subtracted from the company's book balance. In a bank reconciliation, deposits in transit are added to the company's book balance. In a bank reconciliation, interest earned is added to the company's book balance.

In a bank reconciliation, service charges are subtracted from the company's book balance. In a bank reconciliation, NSF checks are subtracted from the company's book balance. In a bank reconciliation, interest earned is added to the company's book balance.

Which of the following groups of accounts would be closed in the year-end closing process? Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales Gain on Sale of Equipment, Sales, Merchandise Inventory, and Supplies Expense Wages Payable, Service Revenue, Cost of Goods Sold, and Dividends Dividends, Common Stock, Sales, and Rent Expense

Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales (Only income statement accounts and dividends are closed)

Leasehold is an example of which of the following types of assets? Intangible asset. Property, plant and equipment. Current asset. Goodwill.

Intangible asset.

Identify the true statements regarding noncontrolling interest. It is the portion of equity in a parent not attributable, directly or indirectly, to the subsidiary company. It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties. It arises in the consolidation process when a subsidiary is 100 percent owned by the parent company. It is sometimes called minority interest.

It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties. It is sometimes called minority interest.

If a company issues a stock dividend, identify the true effects on the financial statements of the company. Its retained earnings is decreased. Its total stockholders' equity is not affected. Its cash is decreased. Its net income is deceased. Its total assets are not affected. Its total liabilities are increased.

Its retained earnings is decreased. Its total stockholders' equity is not affected. Its total assets are not affected.

Identify the true effects on the financial statements of a company if it purchases treasury stock. There will be no effect on its total stockholders' equity. Its total assets will decrease. There will be no effect on its total liabilities. Its net income will increase.

Its total assets will decrease. There will be no effect on its total liabilities.

Which of the following items are normally included as key components of a corporation's annual report? Legal counsel's assessment of the likelihood that the reporting firm may face future patent infringement lawsuits Management's discussion and analysis of the financial statements Highlights for the year, including net revenues, diluted earnings per share, and return of stockholders' equity The reporting firm's financial statements for the year The net present value of expected future cash flows of the reporting firm's next major capital investment project

Management's discussion and analysis of the financial statements Highlights for the year, including net revenues, diluted earnings per share, and return of stockholders' equity The reporting firm's financial statements for the year

Which of the following is not usually associated with bonds? Maturity value Maturity rate Coupon rate Face amount

Maturity rate

Which of the following is NOT an example of an inventory account a manufacturing firm might use? Raw materials inventory. Work in process inventory. Merchandise inventory. Finished goods inventory.

Merchandise inventory.

Building..................................................... $300,000 Less: Accumulated depreciation.............. (120,000) ___ ____ ____ of building.......................... $180,00 Gross book value Net book value Depreciated net value Fair market value

Net book value

Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities? No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Distributions to owners during the year (sometimes referred to as withdrawals) are treated as expenses. Owners' equity for proprietorships and partnerships is usually referred to as capital. Neither proprietorships or partnerships issue stock. Each partner ordinarily has a voice in the management of the firm that is proportionate to his or her capital account balance.

No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Owners' equity for proprietorships and partnerships is usually referred to as capital. Neither proprietorships or partnerships issue stock.

Identify the frequently listed other noncurrent liabilities. Estimated bonds payable in long term Noncontrolling interest in subsidiaries Estimated liabilities under lawsuits Accounts payable

Noncontrolling interest in subsidiaries Estimated liabilities under lawsuits

Identify an item that is commonly included with noncurrent liabilities. Contingent gains Accounts receivable Interest payables Product warranties

Product warranties

An Accounts Payable normally results from which of the following transactions? Purchasing accounts for cash Purchasing land on credit Purchasing goods and services from suppliers on credit Purchasing buildings and equipment on credit

Purchasing goods and services from suppliers on credit

Identify the impact of allocation of unearned revenue to the fiscal year in which the product is delivered and the revenue is earned. Current assets increase. Revenues increase. Liabilities decrease. Working capital increases. Net income remains unaffected.

Revenues increase. Liabilities decrease. Working capital increases.

Identify the requirements that must be met for a corporation to pay a cash dividend. The shareholders' approval by a majority vote is required to ratify the declaration of the dividend and its payment. The board of directors must declare the dividend first to pay a cash dividend. The declaration of a cash dividend must not result in a violation of any existing contractual agreements such as bond covenants.

The board of directors must declare the dividend first to pay a cash dividend. The declaration of a cash dividend must not result in a violation of any existing contractual agreements such as bond covenants.

Identify the requirements that must be met for a corporation to pay a cash dividend. The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend. The corporation must agree not to issue a stock dividend within the same calendar year as the declaration of the cash dividend. The corporation must have enough cash to be able to pay the dividend.

The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend. The corporation must have enough cash to be able to pay the dividend.

Identify the requirements that must be met for a corporation to pay a cash dividend. The corporation must have enough cash to be able to pay the dividend. The corporation must agree not to issue a stock dividend within the same calendar year as the declaration of the cash dividend. The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend.

The corporation must have enough cash to be able to pay the dividend. The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend.

Which of the following are true of intangible assets? The cost of obtaining intangible assets should be capitalized. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is longer. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter.

The cost of obtaining intangible assets should be capitalized. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter

Which of the following are true of intangible assets? The cost of obtaining intangible assets should be capitalized. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is longer. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter.

The cost of obtaining intangible assets should be capitalized. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter.

Financial leverage refers to which of the following? The leverage a firm obtains from increasing production. Decreasing fixed costs per unit by increasing production. The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE).

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

Which of the following items are capitalized as part of the cost of land acquired? Cost of architectural drawings for the construction of a building on the land Title fees Depreciation of the land Legal fees Purchase price of the land Cost of razing an old building on the land, net of salvage proceeds

Title fees Legal fees Purchase price of the land Cost of razing an old building on the land, net of salvage proceeds

True or false: The determination of a contingent liability depends on one or more future events.

True

True or false: The key to using the horizontal model is to keep the balance sheet in balance.

True

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components? Unrealized gains or losses on available-for-sale investments Treasury stock Cumulative gains or losses from discontinued operations Changes in certain pension or other postretirement benefit items

Unrealized gains or losses on available-for-sale investments Changes in certain pension or other postretirement benefit items

Identify the impact of allocation of unearned revenue to the fiscal year in which the product is delivered and the revenue is earned. Net income remains unaffected. Current assets increase. Working capital increases. Liabilities decrease. Revenues increase.

Working capital increases. Liabilities decrease. Revenues increase.

Accumulated depreciation is: a liability account. an expense account. a revenue account. a contra asset account.

a contra asset account.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes: a credit to Common Stock account for the market price per dividend share issued. a debit to Retained Earnings account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued.

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes: a credit to Additional Paid-in Capital account for market price per dividend share issued. a debit to Retained Earnings account for the market price per dividend share issued. a credit to Common Stock account for the par value per dividend share issued.

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Common Stock account for the par value per dividend share issued.

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

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

The financial statement effects of the entry to record actual warranty costs in the year in which the warranty is honored include: a decrease to current liabilities and a decrease to cash (or repair parts inventory). an increase to expenses and a decrease to net income. no effect on net income. an increase to current liabilities and no effect on cash.

a decrease to current liabilities and a decrease to cash (or repair parts inventory). no effect on net income.

The entry to record actual warranty costs in the year in which the warranty is honored includes: a decrease to expenses. a decrease to current liabilities. an increase to current liabilities. an increase to expenses.

a decrease to current liabilities.

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

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

One of the effects of a goodwill impairment loss on the financial statements is that: a loss is recognized, which decreases net income. the net book value of intangible assets remains the same with offsetting debits and credits. a liability is recorded for the amount of the goodwill impairment. total assets increase as the fair value of goodwill appreciates.

a loss is recognized, which decreases net income.

Debt financing usually has _____. a lower cost to a firm as compared to equity financing the same cost to a firm as equity financing no economic cost to a firm a higher cost to a firm as compared to equity financing

a lower cost to a firm as compared to equity financing

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

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

Many current liabilities are affected by accrual accounting entries. This happens because: accrual accounting frequently involves recognizing liabilities before they are incurred. the only way to reduce a liability account balance is with an adjusting entry. accrual accounting involves recognizing liabilities when expenses have been incurred but not yet paid. liabilities are usually paid when they are incurred.

accrual accounting involves recognizing liabilities when expenses have been incurred but not yet paid.

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

accrual of interest expense.

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

accrual of interest expense.

Paid-in capital includes: retained earnings treasury stock additional paid-in capital common stock preferred stock

additional paid-in capital common stock preferred stock

If a firm sells treasury stock for more than its cost: a gain is recognized in the income statement. retained earnings is increased. additional paid-in capital is increased. total stockholders' equity does not change.

additional paid-in capital is increased.

If a firm sells treasury stock for more than its cost: a gain is recognized in the income statement. total stockholders' equity does not change. retained earnings is increased. additional paid-in capital is increased.

additional paid-in capital is increased.

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

all of these answers are correct.

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

amortization.

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

an adjustment will probably be required as supplies are used

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

an increase in Interest Expense.

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

an increase in Interest Expense.

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

an increase in Interest Expense.

The effects on the financial statements of accruing interest on short-term marketable debt securities include: an increase in revenues. an increase in expenses. an increase in net income. an increase in assets. an increase in liabilities.

an increase in revenues. an increase in net income. an increase in assets.

The entry to record the estimated warranty liability in the year in which the product is sold includes: a decrease to cash (or repair parts inventory). an increase to expenses. a decrease to expenses. a decrease to current liabilities.

an increase to expenses.

The effects on the financial statements of accruing interest on Notes Receivable include: an increase to expenses. an increase to net income. an increase to revenues. an increase to assets. an increase to liabilities.

an increase to net income. an increase to revenues. an increase to assets.

Deposits in transit: are subtracted from the bank's balance. are added to the bank's balance. are added to the company's book balance. are subtracted from the company's book balance.

are added to the bank's balance.

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

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

Bank service charges: are subtracted from the company's book balance. are added to the bank's balance. are subtracted from the bank's balance. are added to the company's book balance.

are subtracted from the company's book balance.

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

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

Leasehold improvements made with respect to leased assets are recorded as: liabilities by the lessee for the cost of expenditures properly capitalized. assets by the lessor for the cost of expenditures properly capitalized. liabilities by the lessor for the cost of expenditures properly capitalized. assets by the lessee for the cost of expenditures properly capitalized.

assets by the lessee for the cost of expenditures properly capitalized.

Leasehold improvements made with respect to leased assets are recorded as: liabilities by the lessor for the cost of expenditures properly capitalized. liabilities by the lessee for the cost of expenditures properly capitalized. assets by the lessee for the cost of expenditures properly capitalized. assets by the lessor for the cost of expenditures properly capitalized.

assets by the lessee for the cost of expenditures properly capitalized.

Prepaid expenses such as insurance premiums and lease (rental) payments that have been paid in advance by a company should be treated as: liabilities until the benefits associated with the prepayment are received and thus the revenue has been earned. assets until the benefits associated with the prepayment are received and thus the expense has been incurred. assets until the benefits associated with the prepayment are received and thus the revenue has been earned. liabilities until the benefits associated with the prepayment are received and thus the liability has been settled.

assets until the benefits associated with the prepayment are received and thus the expense has been incurred.

Under accrual accounting, year-end adjustments are made: to ensure that expenses are recognized in the year in which they are earned. because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that revenues are recognized in the year in which they are earned.

because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that revenues are recognized in the year in which they are earned.

Under accrual accounting, year-end adjustments are made: because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that expenses are recognized in the year in which they are earned. to ensure that revenues are recognized in the year in which they are earned.

because the cash disbursement for expenses may occur before or after the event that causes expense recognition. to ensure that revenues are recognized in the year in which they are earned.

The security pledged by the borrower to support the loan is known as (collateral/covenants/interest/maturity).

collateral

Potential claims on a company's resources arising from such things as pending litigation, environmental hazards, casualty losses to property, and product warranties are referred to as (callable/contingent/convertible) liabilities.

contingent

The Allowance for Bad Debts account is a(n): contra current asset. current asset. expense. contra revenue.

contra current asset.

Common stock is an example of what is sometimes referred to as (contributed/earned) capital.

contributed

A building was sold for $510,000, which resulted in a gain of $30,000. Accumulated depreciation on the building (updated to the date of sale) was $140,000. The journal entry to record this transaction would include all of the following except a: credit to Buildings for $620,000. credit to Gain on the Sale of Buildings for $30,000. debit to Accumulated Depreciation for $140,000. credit to Cash for $510,000.

credit to Cash for $510,000.

A machine that cost $7,000 when new and had a net book value of $2,000 was sold for $1,400. The journal entry to record the sale of the machine would include a: debit to Accumulated Depreciation for $2,000. credit to Machine for $7,000. credit to Cash for $3,000. debit to Loss on Sale of Machine for $1,400.

credit to Machine for $7,000.

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

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

Retained Earnings represents: cumulative net income that has not been distributed to stockholders as dividends. cash that is available for dividends. the amount invested in the entity by the stockholders. par value of common stock outstanding.

cumulative net income that has not been distributed to stockholders as dividends.

Towns Co. purchased Timber Inc. for $4,200,000 in cash. The fair value of the net acquired assets were as follows: Inventory = $700,000; Land = $1,000,000; Buildings = $2,000,000; and Notes Payable = $400,000 (Towns Co. assumed the note in full). As a result of this transaction, Towns Co. would: debit Goodwill for $900,000 debit Goodwill for $100,000 debit Goodwill for $500,000 credit Goodwill for $900,000

debit Goodwill for $900,000

Equipment that cost $16,000 when new and had $12,000 of accumulated depreciation was sold at a loss of $300. The journal entry to record the sale of the equipment would include all of the following except: credit to Equipment for $16,000. debit to Cash for $3,700. debit to Loss on Sale of Equipment for $300. debit to Accumulated Depreciation for $4,000.

debit to Accumulated Depreciation for $4,000.

Deferred tax liabilities arise because of the _____. difference between a company's book income and taxable income accounting process of recording the expenses as and when they are paid for difference between a company's book value and market value accounting process of matching revenues and expenses

difference between a company's book income and taxable income accounting process of matching revenues and expenses

The beginning inventory for ProKnows Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each, and during May, an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the weighted-average cost flow assumption, _____.

ending inventory = 30 units x $5.20 per unit = $156.

The cost of an inventory item is released to the income statement as an: revenue when the product is sold. expense when the product is purchased. expense when the product becomes worthless. asset when the product is purchased. expense when the product is sold. expense when the product is lost or stolen.

expense when the product becomes worthless. expense when the product is sold. expense when the product is lost or stolen.

The cost of an inventory item is released to the income statement as an: expense when the product is sold (or becomes worthless or is lost or stolen). expense when the product is purchased (or becomes worthless or is lost or stolen). asset when the product is sold (or becomes worthless or is lost or stolen). asset when the product is purchased (or becomes worthless or is lost or stolen).

expense when the product is sold (or becomes worthless or is lost or stolen).

Common stockholders: generally assume considerably less risk than do bondholders. experience no upper limit to the value of their ownership interests. are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset.

experience no upper limit to the value of their ownership interests. are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset.

Maintenance expenditures should be capitalized if they: form the part of routine expenses for the concerned firm. are recorded as an expense rather than as an asset. extend the useful life and/or increase the salvage value of an asset. are required by the regularity authority to do so.

extend the useful life and/or increase the salvage value of an asset.

Taking the following list on an item-by-item basis (i.e., without considering the other listed factors), a maintenance expenditure should be capitalized if the expenditure: is required by law or regulation. extends the useful life of the asset. is material in amount. increases the salvage value of the asset.

extends the useful life of the asset. increases the salvage value of the asset.

The inventory cost flow assumption describes the flow of product cost: from the asset (inventory) account and to the revenue (sales) account. from the revenue (sales) account and to the expense (cost of goods sold) account. from the warehouse to the customer. from the asset (inventory) account and to the expense (cost of goods sold) account.

from the asset (inventory) account and to the expense (cost of goods sold) account.

An accounts receivable results from the sale of: goods and services to customers for cash. property, plant, and equipment for cash. goods and services to customers on account. the firm's common stock.

goods and services to customers on account.

Relative to the straight-line method, the effects of using an accelerated depreciation method during inflationary times are: greater amounts reported as depreciation expense and higher amounts reported as net income. lower amounts reported as depreciation expense and lower amounts reported as net income. greater amounts reported as depreciation expense and lower amounts reported as net income. lower amounts reported as depreciation expense and higher amounts reported as net income.

greater amounts reported as depreciation expense and lower amounts reported as net income.

Accelerated depreciation methods result in (greater/lower) depreciation expense and (higher/lower) net income than the straight-line depreciation method during the early years of an asset's life.

greater lower

The employer's Wages Expense for a payroll period represents the employees' (gross/net) pay.

gross

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

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

Current maturities of long-term debt are reported _____. in the noncurrent liability section along with long-term debt in the noncurrent liability section but separately from long -term debt in the current liability section but separately from short-term debt in the current liability section along with short-term debt

in the current liability section but separately from short-term debt

When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the: net income for the year plus total assets is greater than total liabilities. revenues minus the expenses from the income statement equal zero. net income for the year is greater than total liabilities. income statement effect on stockholders' equity is considered.

income statement effect on stockholders' equity is considered.

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: balance sheet inventory values will be higher. income taxes will be lower. net income will be higher. a higher selling price can be established.

income taxes will be lower.

The effect of an adjustment on the financial statements is usually to: make the balance sheet balance. match revenues and assets. increase the accuracy of both the balance sheet and income statement. increase net income.

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

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

increases a contra asset and decreases net income.

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

increases a contra asset and decreases net income.

Buildings and equipment are recorded at their original cost, which includes the purchase price plus: the cost of paving a parking lot next to the building and lighting for the parking lot. interest costs incurred during the construction phase of a building. material, labor, and overhead costs for equipment made by a firm's own employees. installation and shakedown costs. the cost of the land that is being used for the building's construction site.

interest costs incurred during the construction phase of a building. material, labor, and overhead costs for equipment made by a firm's own employees. installation and shakedown costs.

One of the key advantages of issuing debt as opposed to common stock to raise additional funds is that: issuing common stock substantially increases a corporation's perceived risk. issuing debt reduces a corporation's financial leverage and thus allows ROI to become approximately equal to ROE. interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible. capital investment projects are normally more successful when financed by debt as opposed to equity.

interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible.

When bonds are issued at a premium: interest expense on the bonds will be more than the interest paid. interest expense on the bonds will be less than the interest paid. the coupon interest rate is less than the market interest rate. the bonds are sold for less than their face amount.

interest expense on the bonds will be less than the interest paid.

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

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

Additional paid-in capital: is one of the items included in the paid-in capital (or contributed capital) category of stockholders' equity. is sometimes referred to as capital surplus. is recorded as equity when bonds are issued at a premium.

is one of the items included in the paid-in capital (or contributed capital) category of stockholders' equity. is sometimes referred to as capital surplus.

The period of time selected for reporting financial statements is known as the (...) (...)

accounting period

Identify the true statements regarding the balance sheet presentation of accounts receivable. "Net accounts receivable" represents the balance of an asset account less the balance of a contra asset account. "Net accounts receivable" is the net realizable value reported on the balance sheet. The allowance for bad debts is added to accounts receivable while presenting the accounts receivable in the balance sheet. In the balance sheet, the Allowance for Bad Debts account that is added to the accounts receivable represents accounts written off during the year. The allowance for bad debts is subtracted from accounts receivable while presenting the accounts receivable in the balance sheet.

"Net accounts receivable" represents the balance of an asset account less the balance of a contra asset account. "Net accounts receivable" is the net realizable value reported on the balance sheet. The allowance for bad debts is subtracted from accounts receivable while presenting the accounts receivable in the balance sheet.

Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. Depreciation expense for Year 1 (the first year of the asset's life) under the straight-line method would be: $10,000 $12,000 ($0.50 per mile × total miles driven during Year 1) ($0.60 per mile × total miles driven during Year 1)

$10,000 straight-line depreciation formula: (Cost - Estimated Salvage Value) / Estimated useful life

Calculate the amount of interest (straight basis) on a 2-year loan of $2,000 at a 15 percent interest rate. $2,000 x 0.15 x 24 = $7,200 $2,000 x 0.15 x 1/2 = $150 $2,000 x 0.15 = $300 $2,000 x 0.15 x 2 = $600

$2,000 x 0.15 x 2 = $600

Wiggs Co. purchased Wolves Inc. for $6,000,000 in cash. The fair value of the net acquired assets were as follows: Inventory = $1,500,000; Land = $1,000,000; Buildings = $2,000,000; and Mortgage Payable = $600,000 (Wiggs Co. assumed the mortgage in full). As a result of this transaction, Wiggs Co. would report goodwill for: $2,100,000 $1,500,000 $900,000 Indeterminable.

$2,100,000

Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded? $48,000 $47,000 $50,000 $46,000

$47,000

Assume that on September 1, Year 1, a six-month property insurance premium of $12,000 was paid for a policy whose coverage began on that day. Also assume that the Prepaid Insurance account was debited for $12,000 at this time. The December 31, Year 1, adjustment with respect to the this policy will include a: Credit to Prepaid Insurance for $4,000. Debit to Insurance Expense for $12,000. Debit to Insurance Expense for $4,000. Credit to Prepaid Insurance for $8,000.

Credit to Prepaid Insurance for $8,000.

Identify the impact of recording the cash received in advance from customers. Current liabilities increase. Cash increases. Working capital increases. Net income is not affected. Unearned revenues are recorded and this increases net income.

Current liabilities increase. Cash increases. Net income is not affected.