ACCY200

The time frame associated with an income statement is:

A past period of time

Objectivity

Accountants' desire to have a given transaction recorded in the same way in all situations

The closing balance in an account can be determined as:

Beginning Balance + Input - Output = Ending Balance

The Allowance for Bad Debts account is a(n):

Contra current asset

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.

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: Multiple choice question.

Cost of goods sold was understated in Year 1 and overstated 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. 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 $8,000.

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. 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:

Debit to Insurance Expense for $8,000

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. Lease Liability 40,000

he entry made to record the impairment of goodwill is:

Dr. Goodwill Impairment Loss Cr. Goodwill

When costs are rising over time:

FIFO results in higher profits than LIFO

Comparative Financial Statements

Financial statements with a column for the current year and the prior year

Unit of measurement

For companies reporting their financial statements in United States dollars, no adjustments are made for the effects of inflation

Which group of accounts would be closed in the year-end closing process?

Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales (In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed)

Consistency

Limiting a firm's ability to switch back and forth between alternative generally accepted accounting methods

Conservatism

Making judgments and estimates that result in lower profits and asset valuation estimates rather than higher profits and asset valuation estimates

Most assets are reported on the balance sheet based on their __

Original/ Historical Cost

The stockholders' equity section of a balance sheet contains two major components:

Paid-in Capital and Retained Earnings

On the balance sheet, _________ would reflect premiums paid to an insurance company for an insurance policy.

Prepaid expense

In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account into which all those accounts are closed?

Retained Earnings

The balance sheet might also be called:

Statement of Financial Position

Statement of Stockholder's Equity

The investments by and the distributions to owners during a reporting period

Accounting Period

The period of time selected for reporting financial statements

Going Concern

The presumption that the entity will continue to operate in the future

Collateral

The security pledged by the borrower to support the loan

A firm prepares comparative financial statements so that __

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

T/F: Accounts are summarized in financial statements

True

T/F: Net income affects retained earnings

True

If we paid employees in cash this month, we would debit __________ .

Wages expense

The 3 concepts/ principles that relate to the entire model are:

accounting equation, accounting entity, going concern

The accrual of interest on short-term marketable securities results in:

an increase in current assets and an increase in net income

Leasehold improvements made with respect to leased assets are recorded as:

assets by the lessee for the cost of expenditures properly capitalized

Periodically, the petty cash fund is reimbursed to

bring the cash in the fund back to the original amount

A cash equivalent is a current asset that:

is readily convertible into cash with a minimal risk

Transactions are initially recorded in a ___

journal

In times of rising prices, LIFO results in:

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

Goodwill is an asset that arises because the purchase price of the acquired company is:

more than the fair value of the net assets of the acquired company

The effect of an error resulting in an understatement of ending inventory is to: (regarding cost of goods sold)

overstate cost of goods sold of the current period.

An organization's system of internal control is designed primarily to:

provide an operating framework for all employees as they work to achieve the organization's goals

Depletion is usually recognized:

straight line basis

Transactions are summarized in:

the entity's accounts

Regardless of the inventory cost flow assumption used, inventories on the balance sheet are stated at:

the lower of cost or market

The "market" in the lower of cost of market valuation is generally:

the replacement cost of the inventory

he "market" in the lower of cost of market valuation is generally:

the replacement cost of the inventory.

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:

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

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.

Which of the following accounts are examples of intangible assets?

- Franchises - Trademarks - Brand names - Patents

Which of the following items are capitalized as part of the cost of land acquired?

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

Which of these would be included in the Cash account, which is reported as an asset on the balance sheet?

- Money on hand in petty cash funds - Checking account balances - Undeposited receipts, including checks - Savings account balances

Under accrual accounting, year-end adjustments are made:

- 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.

Matching Concept

- Revenues are recorded in the period they are earned - Expenses are recorded in the period they are incurred

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 shorter.

Transactions

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

The amount in the Cash account, which is reported as an asset on the balance sheet, includes:

- demand deposit balances - undeposited receipts, including checks - petty cash fund balances - savings account balances - checking account balances

The cost of an inventory item is released to the income statement as an:

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

Without considering the other factors, a maintenance expenditure should be capitalized if the expenditure does which of the following?

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

A corporation's annual report contains the reporting firm's financial statements and

- management's discussion and analysis of the financial statements - the report of the external auditor's examination of the financial statements - the notes to the financial statements

Buildings and equipment are recorded at their original cost, which includes the purchase price plus:

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

A note receivable:

- often identifies collateral pledged by the borrower to support the loan. - normally includes a maturity date. - often includes covenants made by the borrower.

Which depreciation method results in equal depreciation expense for each year of an asset's useful life?

Straight-Line

What is financial leverage?

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

Income Statement

The entity's earnings for a period

Balance Sheet

The entity's financial position at the end of a period

T/F: Transactions are summarized in accounts

True

T/F: transactions are initially recorded in a journal and then posted to a ledger.

True

On the balance sheet, ________ would reflect cash from customers is received before income recognition.

Unearned revenue

When a depreciable asset is sold:

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

The time frame associated with a balance sheet is:

a point in time in the past

In a bank reconciliation, NSF (not sufficient funds) checks ______

are subtracted from the company's book balance

Which of the following is not typically classified as a current liability? a) Accounts Payable. b) Short-Term Notes Payable. c) Bonds Payable. d) Unearned Subscription Revenue. e) Interest Payable.

c) Bonds Payable

The current assets of most companies are usually made up of:

cash and assets expected to be converted to cash within a year

Accumulated depreciation is:

contra asset account

The Allowance for Bad Debts account is a(n):

contra current asset

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. $4.2 million - ($0.7 + $1.0 + $2.0 - $0.4) million= $4.2 - $3.3 million = $900,000

A truck that cost $14,000 when new and had a net book value of $3,000 was sold for $4,400. The journal entry to record the sale of the truck would include a:

debit to Accumulated Depreciation for $11,000

Credits are used to record:

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

The entry to record depreciation on long-term assets:

decreases total assets and decreases earnings.

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

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)

Matching concept

expenses incurred to generate revenues must be matched to revenues earned for any given period

Maintenance expenditures should be capitalized if they:

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

An accounts receivable results from the sale of:

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 lower amounts reported as net income

The net book value (carrying value) of a noncurrent asset:

is the difference between the cost of the asset and the accumulated depreciation on that asset

The sum of the cash on hand in the petty cash box and the receipts in support of disbursements (called petty cash vouchers) ______.

should equal the amount initially put in the petty cash fund

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

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

The balance sheet equation can be represented by:

- Assets = Liabilities + Stockholders' Equity - Assets - Liabilities = Stockholders' Equity - Net Assets = Stockholders' Equity

How can "Cost of goods available for sale" be calculated?

- Beginning inventory + Purchases - Cost of goods sold + Ending inventory

Which of the following are correct statements about accounting for depletion of 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.

What are examples of inventory accounts a manufacturing firm might use?

- Finished goods inventory - Raw materials inventory - Work in process inventory

Which accounts on financial statements will increase when interest is accrued on short-term marketable debt securities?

- Net income - Revenues - Assets

Which of these statements regarding a bank reconciliation are true?

- Outstanding checks are subtracted from the bank balance - Deposits in transit are added to the bank balance

On the balance sheet, _________ would reflect charges on a billing statement received by your firm from a consulting firm.

Accounts Payable

On the balance sheet, ________ would reflect cash from customers received after income recognition

Accounts receivable

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. - The allowance for bad debts is subtracted from accounts receivable while presenting the accounts receivable in the balance sheet. - "Net accounts receivable" is the net realizable value reported on the balance sheet.

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 - The report of the external auditor's examination of the financial statements

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" after the write-off entry was recorded?

$47,000 - The net change in the net accounts receivable after a write-off is zero because Accounts Receivable will be reduced by the same amount as the Allowance for Bad Debts account.

Which of the following concepts/ principles relate to bookkeeping procedures and the accounting process

- Accounting Period - Matching - Revenue Recognition - Accrual