Exam 2 ACCT 5312

On January 31, an entity's balance sheet showed net assets of $1,025 and liabilities of $225. Stockholders' equity on January 31 was:

$1,025

A firm's cash dividends were $3.96 per share of common stock for calendar 2013. In 2014, the stock was split 3-for-1, and in 2015 a 10% stock dividend was issued. Dividends per share for 2013, to be reported in the firm's annual report for 2015, are:

$1.20

Bonner's, Inc. borrowed $12,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Bonner's, Inc. actually had available to use from this loan was:

$11,680

Orpah, Inc. borrowed $12,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Orpah, Inc. actually had available to use from this loan was:

$11,680

8. Bonner's, Inc. borrowed $12,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Bonner's, Inc. actually had available to use from this loan was: A. $11,040. B. $11,680. C. $12,000. D. $12,320.

$11,680.

7. Cassady, Inc. borrowed $5,000 for 3 months at an APR of 10%. The amount of interest paid on this loan was: A. $240. B. $120. C. $125. D. $500.

$125.

Cassady, Inc. borrowed $5,000 for 3 months at an APR of 10%. The amount of interest paid on this loan was:

$125.

11. Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the accumulated depreciation for this asset on December 31, 2015? A. $4,400 B. $5,280 C. $8,800 D. $14,080

$14,080

At the end of the year, retained earnings totaled $1,700. During the year, net income was $250, and dividends of $120 were declared and paid. Retained earnings at the beginning of the year totaled:

$1570

At the beginning of the year, paid-in capital was $82 and retained earnings was $47. During the year, the stockholders invested $24 and dividends of $6 were declared and paid. Retained earnings at the end of the year were $52. Total stockholders' equity at the end of the year was:

$158

The present value of $3,000 to be received every year for 9 years, at 10%, is:

$17,277.00.

For the fiscal year ended March 31, 2014, a company reported earnings per share of $3.25 and cash dividends per share of $0.50. During fiscal 2015, the company had a 3-for-2 stock split. In the annual report for the fiscal year ended March 31, 2015, earnings per share and cash dividends for fiscal 2014 would be reported, respectively, as:

$2.17 and $0.33.

The present value of an obligation of $4,000 payable in 7 years at 8% is:

$2334

A particular common stock has an annual cash dividend of $2.00 per share and is predicted to have a market value of $30 per share 5 years from now. Assuming a discount rate of 10%, a fair market price for the stock today is:

$26.21

Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method. What is the accumulated depreciation for this asset on December 31, 2018?

$28,160 Year 2 depreciation expense: ($44,000 - 17,600) × 40% = $10,560. Year 2 accumulated depreciation: $17,600 + 10,560 = $28,160.

For 2013, Skresso Co. reported $3.64 of earnings per share of common stock. During 2014, the firm had a 4% common stock dividend. The 2013 earnings per share to be reported in the annual report for 2014 are:

$3.50

Martin & Associates borrowed $5,000 on April 1, 2013 at 8% interest with both principal and interest due on March 31, 2014. How much should be in the firm's interest payable account at December 31, 2013?

$400

At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and stockholders' equity of $836. During the year, assets increased $74 and liabilities decreased $38. Liabilities at the end of the year totaled:

$490

Present Value of $1 Discount Rate Present Value of an Annuity of $1 Discount Rate Periods 8% 10% 8% 10% 5 0.6806 0.6209 3.9927 3.7908 7 0.5835 0.5132 5.2064 4.8684 9 0.5002 0.4241 6.2469 5.7590 A particular common stock has an annual cash dividend of $4 per share and is predicted to have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%, a fair market price for the stock today is:

$52.41

Present Value of $1 Discount Rate Present Value of an Annuity of $1 Discount Rate Periods 8% 10% 8% 10% 5 0.6806 0.6209 3.9927 3.7908 7 0.5835 0.5132 5.2064 4.8684 9 0.5002 0.4241 6.2469 5.7590 Psyche Company wants to acquire Trim Company. Trim's ROI has been above average for its industry; net income has averaged $140,000 a year more than the industry average. These "excess" earnings are expected to continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from Psyches' purchase of Trim?

$558,978

Sage, Inc. has 20 employees who work Monday through Friday each week; each employee earns $100 per day and is paid every Friday. The end of the accounting period is on a Wednesday. How much wages expense should the firm accrue at the end of the period?

$6000

Cassady, Inc. borrowed $25,000 for 3 months at an APR of 10%. The amount of interest paid on this loan was

$625

15. If an organization purchases $700 of supplies on account, with terms of 2/15, n50: A. $650 must be paid within 15 days of the invoice date. B. $698 must be paid within 50 days of the invoice date. C. $686 can be paid within 15 days of the invoice date, or $700 must be paid within 50 days of the invoice date. D. $686 can be paid within 15 days of the invoice date, or $714 must be paid within 50 days of the invoice date.

$686 can be paid within 15 days of the invoice date, or $700 must be paid within 50 days of the invoice date.

10. Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the firm's depreciation expense for the year ended December 31, 2014? A. $2,000 B. $4,400 C. $6,000 D. $8,800

$8,800

Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the firm's depreciation expense for the year ended December 31, 2014?

$8800

A firm's net income for the year was $200,000. Average assets totaled $1.5 million, and average liabilities totaled $0.3 million. Return on equity was:

16.7%

Braco has 40,000 shares of $100 par value common stock outstanding, and 10,000 shares in the treasury. The number of additional shares that would be issued in a 5% stock dividend is:

2,000

An item that cost $240 is to be sold for a price that will yield a gross profit ratio of 20%. The selling price should be:

300

An item that cost $90 is sold for $120. The gross profit ratio for this item is:

33.3%

If a firm's debt ratio was 25%, its debt/equity ratio would be:

33.33%

A firm has an ROI of 15%, turnover of 3, and sales of $6 million. The firm's margin is:

5%

Which of the following are qualified to express an auditor's opinion about an entity's financial statements?

A Certified Public Accountant.

4. For which of the following reconciling items would an adjusting entry be necessary on the company's book? A. A deposit in transit. B. An error by the bank. C. Outstanding checks. D. A bank service charge.

A bank service charge.

For which of the following reconciling items would an adjusting entry be necessary on the company's book?

A bank service charge.

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

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

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

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 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.

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

Accounts receivable, inventories, prepaid expenses, other current assets.

Which of the following is the correct balance sheet presentation for current assets?

Accounts receivable, inventories, prepaid expenses, other current assets.

Which of the following accounting methods accomplishes much of the matching of revenues and expenses?

Accrual accounting.

32. Which of the following is not a term that describes part of the accounting for noncurrent assets? A. Accumulation. B. Depletion. C. Amortization. D. Depreciation.

Accumulation.

Which of the terms is not used to identify owners' equity or stockholders' equity?

Additional-paid-in-retained earnings.

Which of the following is an accurate statement regarding a statement of cash flows?

All material operating, investing, and financing activities are included.

Which of the following is not a characteristic or limitation of the kind of information that financial reporting by business enterprises can provide?

All of these are characteristics or limitations of the kind of information that financial reporting by business enterprises can provide.

Which of the following entities would not require accounting information pertaining to their economic activities?

All of these require accounting information.

17. Which of the following is(are) a category for securities? A. Trading. B. Held-to-maturity. C. Available-for-sale. D. All of these.

All of these.

An expanded version of the accounting equation could be:

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

Which of the following requires an explanatory paragraph in the independent auditors' report?

Basing the opinion on the work of another auditor, uncertainties about the outcome of a significant event that would have affected the presentation of the financial statements and substantial doubt about the entity's viability to continue as a going concern are correct.

28. Which of the following is(are) a true statement(s) pertaining to bonds? A. Bonds can be sold at a discount, par, or payable. B. Bonds can be sold at a discount, par, or premium. C. The SEC sets the market price of a bond. D. The issuing firm sets the price of a bond.

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

Which of the following is true regarding bond discounts and/or premiums?

Both bond discount and premium are amortized

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

Both bond discount and premium are amortized.

Which of the following is not usually considered a measure of an entity's liquidity?

Cash ratio

22. Which of the following is not sometimes associated with bonds? A. Debenture. B. Callable. C. Cumulative. D. Convertible.

Cumulative

Which of the following is not sometimes associated with bonds?

Cumulative

Which of the following is one of the two generally practiced methods for electing corporate directors?

Cumulative voting.

15. Which of the following could be a correct journal entry to record the disposition of equipment? A. Option A B. Option B C. Option C D. Option D

Debit Cash, Loss on sale of equipment, accumulated depreciation, credit equipment

42. Assume that on September 1, 2013, a 6-month rent payment for $3,000 per month (for a total of $18,000) was made with respect to a commercial lease that the company entered into on that date as a tenant. The company took occupancy of the rented space immediately. The lease term will expire on February 28, 2014. The $18,000 payment was recorded as a debit to Prepaid Rent on September 1, 2013. The adjusting entry on December 31, 2013, is as follows: A. Option A B. Option B C. Option C D. Option D

Debit Rent Expense 12 Cr. Prepaid Rent 12

Which of the following is(are) an example of a measure of leverage?

Debt/equity ratio.

Which of the following is not a right or attribute of common stock ownership?

Determining dividend policy.

Which of the following could be a correct journal entry to record the disposition of equipment?

Dr. Cash Dr. Loss on sale of equipment Dr. Accumulated depreciation Cr. Equipment

When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required:

Dr. Supplies expense Cr. Supplies

The provisions of the Sarbanes-Oxley Act of 2002 had the following components:

Enforce auditing, Attestation and Quality control are correct.

The officer of a corporation responsible for the firm's published financial statements would be most concerned about pronouncements of the

FASB.

24. When costs are rising over time: A. LIFO results in higher profits that FIFO. B. Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold. C. ending inventory balances will be greater under LIFO. D. FIFO results in higher profits than LIFO.

FIFO results in higher profits than LIFO.

When costs are rising over time:

FIFO results in higher profits than LIFO.

The authoritative financial accounting standards-setting body in the United States is presently the:

Financial Accounting Standards Board (FASB).

Which of the following is an objective of financial reporting by business enterprises?

Financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and changes in those resources and claims to them.

12. Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the firm's gain or loss if the machinery is sold for $11,000 on December 31, 2015? A. Gain of $4,000 B. Gain of $3,080 C. Loss of $600 D. Loss of $4,000

Gain of $3,080

Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method. What is the firm's gain or loss if the machinery is sold for $22,000 on December 31, 2018?

Gain of $6,160 $44,000 - $28,160 accumulated depreciation = $15,840 net book value. $22,000 - $15,840 = $6,160 gain on sale

Which of the following accounts/captions are not ever included in the calculation for Gross Profit?

General and Selling Expenses.

5. Which of the following is a true statement regarding interest calculation methods? A. Interest is calculated on either a straight-basis or a delayed-basis. B. Interest is calculated on either a straight-basis or an undiscounted-basis. C. If a borrower receives a loan on a discount-basis, the APR will be less than the simple interest. D. If a borrower receives a loan on a discount-basis, the APR will be more than the simple interest rate.

If a borrower receives a loan on a discount-basis, the APR will be more than the simple interest rate.

Which of the following is a true statement regarding interest calculation methods?

If a borrower receives a loan on a discount-basis, the APR will be more than the simple interest rate.

39. Which of the following is (are) true regarding cost flow assumptions? A. Manufacturing firms are required to use FIFO. B. Service firms are required to use LIFO. C. If a firm uses FIFO for tax purposes, then FIFO must be used for financial reporting purposes. D. If a firm uses LIFO for tax purposes, then LIFO must be used for financial reporting purposes. E. All of these.

If a firm uses LIFO for tax purposes, then LIFO must be used for financial reporting purposes.

Which of the following is(are) true regarding cost flow assumptions?

If a firm uses LIFO for tax purposes, then LIFO must be used for financial reporting purposes.

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

Intangible asset.

Leasehold is an example of which of the following types of assets?

Intangible asset.

Which of the following is the proper paragraph sequence for an independent Auditor's Report?

Introduction, scope, opinion.

Which of the following is not one of the 5 questions of transaction analysis?

Is this an accrual?

17. The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for land? A. 150% declining-balance. B. Double-declining-balance. C. Straight line. D. Land is not a depreciable asset.

Land is not a depreciable asset.

The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for land?

Land is not a depreciable asset.

Cost accounting is a subset of which of the following?

Managerial accounting.

Which classification of accounting is most concerned with the use of economic and financial information to plan and control many of the activities of the entity?

Managerial accounting.

3. Which of the following accounting concepts/principles is most significant in the development of a capitalization policy? A. Matching of revenue and expense. B. Materiality. C. Original Cost. D. Consistency.

Materiality.

Which of the following accounting concepts/principles is most significant in the development of a capitalization policy?

Materiality.

17. Which of the following is not usually associated with bonds? A. Coupon rate. B. Maturity value. C. Face amount. D. Maturity rate.

Maturity rate.

Which of the following is not usually associated with bonds?

Maturity rate.

Which of the following accounts is part of working capital?

Merchandise Inventory.

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

Merchandise inventory.

Which of the following is not a topic that is likely to be discussed as a significant accounting policy?

Method of estimating uncollectible accounts receivable.

37. The noncurrent liability, Noncontrolling Interest, arises if: A. A firm owns less than 50% of another entity. B. A firm owns more than 50%, but less than 100%, of another entity. C. A firm owns 100% of another entity. D. Noncontrolling Interest is accounted for as an equity item.

Noncontrolling Interest is accounted for as an equity item.

The noncurrent liability, Noncontrolling Interest, arises if:

Noncontrolling Interest is accounted for as an equity item.

6. A loan discount is: A. a loan used to purchase a bond at a discount. B. a discount market interest rate on a loan. C. the same as a bond discount. D. None of these.

None of these.

A loan discount is:

None of these.

The payment of a current liability will

Not affect working capital

Which of the following is true about the International Accounting Standards Board (IASB)?

Only the IASB has been working with the FASB in recent years to achieve convergence of International Financial Reporting Standards (IFRS) and U.S. GAAP and the goal of the IASB is to develop a single set of high quality, understandable, enforceable, and globally accepted financial reporting standards based upon clearly articulated principles are correct.

An engineering consultant provided $300 of services to a client; the client paid $50 when the bill was submitted and will pay the balance within a week. The consultant will record this transaction by:

Option A

Martin & Associates borrowed $5,000 on April 1, 2013 at 8% interest with both principal and interest due on March 31, 2014. Which of the following journal entries should the firm use to record the payment of interest on March 31, 2014?

Option A

To accrue $3,200 of employee salaries for the last week of February, the employer's journal entry is:

Option B

Martin & Associates borrowed $5,000 on April 1, 2013 at 8% interest with both principal and interest due on March 31, 2014. Which of the following journal entries should the firm use to accrue interest at the end of each month?

Option C

When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required:

Option C

28. Which of the following inventory accounting systems has been made much more feasible as a result of computer systems developments? A. Periodic. B. Physical. C. Perpetual. D. Just-in-time.

Perpetual

Which of the following inventory accounting systems has been made much more feasible as a result of computer systems developments?

Perpetual

Which of the following inventory accounting systems has been made much more feasible as a result of computer systems developments?

Perpetual.

Which of the following is not an example of a decision or informed judgment that a potential employee could make from accounting information?

Personnel turnover statistics (i.e., hiring and terminations).

Computing a borrower's effective interest rate is another application of which of the following concepts?

Present Value Concept

The term preemptive right pertains to which of the following?

Present shareholders' right to purchase shares from any additional share issuances.

Computing a borrower's effective interest rate is another application of which of the following concepts?

Present value concept

4. Computing a borrower's effective interest rate is another application of which of the following concepts? A. Present value concept. B. Current value concept. C. Periodic interest concept. D. None of these.

Present value concept.

Which of the following is not an example of a decision or informed judgment that a potential investor would make from accounting information?

Probability of success of a new product development.

Which of the following is not a category of financial statement ratios?

Prospectus.

18. An Accounts Payable normally results from which of the following transactions? A. Purchasing accounts for cash. B. Purchasing property, plant and equipment on credit. C. Purchasing goods and services from suppliers on credit. D. All of these.

Purchasing goods and services from suppliers on credit.

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

Purchasing goods and services from suppliers on credit.

Which of the following is not a transaction to be recorded in the accounting records of an entity?

Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive.

Another term for return on investment is:

Return on assets.

Which of the following is a universally accepted measure of profitability?

Return on investment.

The balance sheet might also be called:

Statement of Financial Position.

16. The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for buildings? A. 150% declining-balance. B. Double-declining-balance. C. Straight line. D. Buildings are not depreciable assets.

Straight line.

The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for buildings?

Straight line.

Which of the following statements about the Financial Accounting Standards Board is correct?

The FASB follows a due process procedure that permits input from interested parties before a standard is issued.

Balance sheet disclosures for preferred stock include all of the following except:

The credit or market value.

The declaration date pertains to:

The date on which the board of directors declares a dividend.

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

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

Financial leverage refers to which of the following?

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

The term, "earned," in revenue recognition refers to which of the following?

The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.

Transactions are summarized in:

The entity's accounts.

The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)?

The operating activities section only.

Stockholders' equity refers to which to the following?

The ownership right of the stockholder(s) of the entity.

The term, "realization," in revenue recognition refers to which of the following?

The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.

If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be:

The same.

The Interest Receivable account for February showed transactions totaling $8,500 and an adjustment of $11,200.

The transactions were probably entered on the credit side of the account.

The balance in the Wages Payable account increased from $12,200 at the beginning of the month to $15,000 at the end of the month. Wages accrued during the month totaled $61,000.

Wages paid during the month totaled $58,200.

Most entities satisfy the accounting criteria for recognizing an expense when:

a cost is incurred in the revenue generating process.

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

The declaration of a cash dividend by the directors results in:

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

A leveraged buyout refers to:

a firm goes heavily into debt in order to obtain the funds to purchase the shares of the public stockholders and thus take the firm private.

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

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

When a depreciable asset is sold:

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

The financial leverage characteristic of long-term debt results in

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

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

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

The financial leverage characteristic of long-term debt results in:

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

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 longterm debt

The time frame associated with a balance sheet is:

a point in time in the past.

Many current liabilities are affected by accrual accounting entries. This happens because:

accrual accounting involves recognizing liabilities before they are paid

Many current liabilities are affected by accrual accounting entries. This happens because: liabilities are usually paid when they are incurred. accrual accounting involves recognizing liabilities before they are paid. 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 before they are paid

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

accrual accounting involves recognizing liabilities before they are paid.

Many current liabilities are affected by accrual accounting entries. This happens because:

accrual accounting involves recognizing liabilities before they are paid.

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

accrual accounting involves recognizing liabilities before they are paid.

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

accrual of interest expense

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

accrual of interest expense.

A transaction that is likely to cause an increase in a current liability is:

accrual of interest expense.

Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom's books at the end of every month that the loan is outstanding to record the:

accrued interest expense for the month.

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

accumulated depreciation

Matching revenues and expenses refers to:

accurately reflecting the results of operations for a fiscal period.

Management's use of resources can best be evaluated by focusing on measures of:

activity

If a firm sells treasury stock for more than its cost:

additional paid-in capital is increased.

Management's statement of responsibility:

affirms that management is responsible for assuring adherence to internal control policies and procedures.

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

all

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

all

11. Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because: A. the accounts receivable asset should be stated at original cost. B. the exact amount of the losses from bad debts is known. C. revenues should be stated at realizable value. D. all costs incurred in the current period should be subtracted from current period revenues.

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

The concept of matching revenue and expense refers to the fact that:

all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.

The liability for product warranty claims is an example of a liability that:

all of the above.

12. The purpose of reporting Current Maturities of Long-Term debt is to: A. report any portion of a long-term borrowing that is to be paid in the upcoming accounting period as a current liability. B. reclassify a portion of debt from the noncurrent section of the balance sheet to the current section of the balance sheet. C. properly classify liabilities. D. all of these.

all of these.

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

all of these.

The purpose of reporting Current Maturities of Long-Term debt is to:

all of these.

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

amoritization

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

amortization.

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to:

amortization.

When a firm purchases supplies for its business:

an adjustment will probably be required as supplies are used.

15. The adjusting entry to accrue Interest Expense results in: A. an increase in Interest Expense. B. a decrease in Interest Expense. C. a decrease in Cash. D. a decrease in Interest Payable.

an increase in Interest Expense.

8. The accrual of interest on short-term marketable securities results in: A. an increase in current assets and a decrease in net income. B. an increase in current assets and an increase in net income. C. an increase in noncurrent assets and an increase in liabilities. D. an increase in current liabilities and an increase in net income.

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

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

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

If the P/E ratio of a company's common stock were 12, and its earnings were $2.50 per common share:

an increase in earnings of $0.20 per share, with no change in the multiple, would result in a market price increase of $2.40 per share.

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

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

an increase in the interest expense

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

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

Gains differ from revenues because gains:

are not a result of the entity's ongoing, central operations.

Financial leverage:

arises because most borrowed funds have a fixed interest rate.

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 note is signed. when the interest is paid. when principal payments on the note are made.

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

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

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

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

A firm's independent auditors have the responsibility to:

assess the firm's accounting policies.

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

assets=liabilities+paid-in capital+beggining retained earnings+revenues-expesnses-dividends

The ethical concept of integrity means that an individual must:

attempt to be honest and forthright in dealings and communications with others.

In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

be subtracted from net income because this means that revenues were more than cash collected.

When a firm uses the LIFO inventory cost flow assumption:

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

If a firm's payment terms for sales made on account to its customers were 2/10, n30, the number of days' sales in accounts receivable would be expected to be:

between 10 and 25.

Corporate governance includes concerns about:

business ethics and social responsibility. the responsibilities of the board of directors. equitable treatment of all stakeholders. disclosures and transparency.

The ethical concept of independence means that an accountant employed:

by an auditing firm cannot own any stock in the company being audited.

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

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

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

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

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

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

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

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

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

contra current asset

10. The allowance for uncollectible accounts is a(n): A. asset. B. contra current asset. C. expense. D. contra revenue.

contra current asset.

The allowance for uncollectible accounts is a(n): asset

contra current asset.

When the periodic inventory system is used:

cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases.

Retained earnings represents: 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. cash that is available for dividends.

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

13. When a machine having a net book value of $5,000 is sold for $4,000: A. current assets decrease, equipment (net) increases, and net income increases. B. current assets increase, equipment (net) decreases, and net income increases. C. current assets increase, equipment (net) decreases, and net income decreases. D. current assets increase, equipment (net) increases, and net income decreases.

current assets increase, equipment (net) decreases, and net income decreases.

When a machine having a net book value of $15,000 is sold for $12,000:

current assets increase, equipment (net) decreases, and net income decreases.

32. Prepaid expenses classified as current assets represent: A. current year expenses that have been accrued. B. current year cash payments that will be matched against revenues of the next year or for several future years. C. cash that has been segregated to pay for future expenses. D. expenses of the current year that have been paid in advance.

current year cash payments that will be matched against revenues of the next year or for several future years.

Prepaid expenses classified as current assets represent:

current year cash payments that will be matched against revenues of the next year or for several future years.

The principal reason for a company having a common stock split is to:

decrease the market value per share of common stock.

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

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

The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to:

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

The largest item of the Deferred Tax Liability for most companies is caused by

differences in depreciation methods (accelerated vs. straight-line) for tax versus financial accounting purposes

33. The largest item of the Deferred Tax Liability for most companies is caused by: A. providing the allowance for doubtful accounts for book purposes. B. differences in inventory cost flow assumptions (FIFO vs. LIFO) for tax versus financial accounting purposes. C. differences in depreciation methods (accelerated vs. straight-line) for tax versus financial accounting purposes. D. amortizing bond premium or discount for tax purposes.

differences in depreciation methods (accelerated vs. straight-line) for tax versus financial accounting purposes.

The largest item of the Deferred Tax Liability for most companies is caused by:

differences in depreciation methods (accelerated vs. straight-line) for tax versus financial accounting purposes.

The comparison of activity measures of different companies is complicated by the fact that:

different inventory cost flow assumptions may be used.

When a corporation has both common stock and preferred stock outstanding:

dividends on preferred stock must be paid before dividends on common stock can be paid.

Another term for the price/earnings ratio is:

earnings multiple.

The impact of changing price levels on amounts reported in financial statements is:

encouraged, but not required to be described in the notes to the financial statements.

An audit conducted in accordance with generally accepted auditing standards includes each of the following except:

evaluation of the efficiency and effectiveness of management.

The notes to the financial statements:

explain the significant accounting policies of the company.

A common size income statement:

expresses items as a percentage of revenues.

Which is the following descriptions is not one of the "Thirteen Financial Shenanigans" identified by Schilit and Perler, and listed in Exhibit 10-1:

failing to record intangible assets which the company has ownership rights to.

Major classifications of accounting activity would not include

financial accounting, national accounting, cost accounting.

The objectives of financial reporting for nonbusiness enterprises:

focus on providing information for resource providers, rather than investors.

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because:

for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

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

goods and services to customers on account.

An accounts receivable results from the sale of:

goods and services to customers on account.

A current ratio of 6.0 is usually an indication that the firm:

has not made the most productive use of its assets.

Additional paid-in capital is most likely to appear on the balance sheet of a corporation that:

has par value stock.

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

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

Revenue may be recognized:

if a company trades inventory at its usual selling price for newspaper advertising.

35. One of the most important reasons for having a system of internal control is to: A. improve the effectiveness and efficiency of the operations of the organization. B. ensure no employees have ever been convicted of stealing. C. eliminate any temptations that may be presented to employees that could lead to theft from the company. D. prevent a salesperson from using a company car for personal transportation.

improve the effectiveness and efficiency of the operations of the organization.

One of the most important reasons for having a system of internal control is to: prevent a salesperson from using a company car for personal transportation. eliminate any temptations that may be presented to employees that could lead to theft from the company. improve the effectiveness and efficiency of the operations of the organization. ensure no employees have ever been convicted of stealing.

improve the effectiveness and efficiency of the operations of the organizations

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

in retrospect the depreciation expense recognized over the assets life was too low

14. If there is a loss on the disposal of a depreciable asset: A. no cash was received in the disposal transaction. B. the net book value of the asset was negative. C. in retrospect, the life over which the asset was depreciated was too short. D. 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.

If there is a loss on the disposal of a depreciable asset:

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

The independent auditors' report usually:

includes an opinion that the financial statements present fairly, in all material respects, financial information about the company.

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

income taxes will be lower.

The accountant at Abco, Inc. made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to:

increase ROI for February.

A credit entry will:

increase a liability account.

A debit entry will:

increase an expense account.

In the seller's records, the sale of merchandise on account would:

increase assets and increase expenses.

In the buyer's records, the purchase of merchandise on account would:

increase assets and increase liabilities.

A newspaper ad submitted and published this week, with the agreement to get paid for it next week would, in the newspaper's records:

increase assets and increase revenues.

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

increase contra and decreases net income

In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would:

increase liabilities and increase expenses.

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

increase liability account

The effect of an adjustment on the financial statements is usually to:

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

A credit entry will:

increase the balance of a revenue account.

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

increase the balance of an expense account

A debit entry will:

increase the balance of an expense account.

5. The entry to record depreciation expense: A. increases a contra asset and decreases net income. B. decreases a contra asset and decreases net income. C. decreases working capital and decreases net income. D. decreases an asset and increases a contra asset.

increases a contra asset and decreases net income.

The entry to record depreciation expense:

increases a contra asset and decreases net income.

Revenues are:

increases in net assets from selling a product.

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 bonds are sold for less than their face amount. the coupon interest rate is less than the market interest rate.

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

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

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

When bonds are issued at a premium:

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

22. The inventory cost flow assumption describes the flow of product cost: A. from the warehouse to the customer. B. into the asset (inventory) account and out to the expense (cost of goods sold) account. C. into the revenue (sales) account and out to the expense (cost of goods sold) account. D. into the asset (inventory) account and out to the revenue (sales) account.

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

The inventory cost flow assumption describes the flow of product cost:

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

31. Accounting for natural resources: A. involves using the accumulated depreciation account. B. involves estimating the quantity of the natural resource to be recovered. C. involves an exception to the matching concept. D. involves a sum-of-the-year's-digits depletion calculation.

involves estimating the quantity of the natural resource to be recovered.

Accounting for natural resources:

involves estimating the quantity of the natural resource to be recovered.

The price/earnings ratio:

is a measure of the relative expensiveness of a firm's common stock.

The inventory turnover calculation:

is an alternative way of expressing the number of days' sales in inventory.

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

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

The distinction between a current asset and other assets:

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

The return on investment measure of performance:

is calculated using net income as the amount of return.

The earnings per share of common stock calculation:

is complicated by the presence of preferred stock in the capital structure.

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

is frequently selected based on the firms operating cycle

18. If an organization has an obligation to pay $5,000 to a supplier two years from now, the present value of the obligation: A. is less than $5,000. B. is $5,000. C. is more than $5,000. D. could be calculated using an annuity factor from the present value tables.

is less than $5,000.

If an organization has an obligation to pay $5,000 to a supplier two years from now, the present value of the obligation:

is less than $5,000.

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

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

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

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

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI:

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

Book value per share of common stock of a manufacturing company:

is not a very useful measure most of the time.

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

is readily convertible into cash with a minimal risk.

A cash equivalent is a current asset that:

is readily convertible into cash with a minimal risk.

The return on investment measure of performance:

is used by individuals to compare investment performance.

The dollar amount of the common stock on the balance sheet of a corporation that has common stock with a par value is the number of shares:

issued, multiplied by the par value per share.

The gross profit ratio is useful to the manager for each of the following purposes except that:

it can be used to estimate the amount of operating expenses for a period.

An advantage of the DuPont model for calculating ROI is that:

it focuses on asset utilization as well as net income.

33. Many companies use accelerated depreciation for tax purposes because: A. it is easier to calculate than straight-line depreciation. B. it reflects the amount of cash used in depreciation. C. it results in lower taxable income than straight-line depreciation. D. it is used for determining net income reported to stockholders.

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

Many companies use accelerated depreciation for tax purposes because:

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

In most states, par value of issued shares represents:

legal capital.

27. The balance sheet valuation of inventories is: A. lower of cost or market. B. lower of selling price or cost. C. lower of realizable value or selling price. D. cost, regardless of the cost of replacing the inventory.

lower of cost or market.

The balance sheet valuation of inventories is:

lower of cost or market.

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

magazines are mailed to subscribers.

A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is:

magazines are mailed to subscribers.

The nature and content of disclosures relate to all of the following except:

management's plans for the future.

A firm's net income is $315,000 on sales of $31.5 million. Average assets for the period were $7 million. For the year:

margin was 1%, turnover was 4.5, and ROI was 4.5%.

16. Trading and Available-for-Sale securities are reported on the balance sheet at: A. net realizable value. B. historical cost. C. weighted average cost. D. market value.

market value.

Trading and Available-for-Sale securities are reported on the balance sheet at:

market value.

7. The accounting concept or principle applied when the cost of short-term marketable securities is adjusted to market value is: A. objectivity. B. matching revenue and expense. C. original cost. D. consistency.

matching revenue and expense.

9. The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is: A. consistency. B. matching revenue and expense. C. original cost. D. objectivity.

matching revenue and expense.

The accounting concept or principle applied when the cost of short-term marketable securities is adjusted to market value is:

matching revenue and expense.

The accounting concept/principle being applied when an adjustment is made is usually:

matching revenue and expense.

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

maturity rate

The intangible asset goodwill: represents the management team's assessment of its value to the company. all of these are correct. may arise when one company purchases another company. arises because the fair value of a company's assets is greater than cost.

may arise when one company purchase another company

30. The intangible asset goodwill: A. represents the management team's assessment of its value to the company. B. may arise when one company purchases another company. C. arises because the fair value of a company's assets is greater than cost. D. all of these are correct.

may arise when one company purchases another company.

The intangible asset goodwill:

may arise when one company purchases another company.

When borrowing money, the most important objective of the borrower should be to:

minimize the APR

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

minimize the APR.

When borrowing money, the most important objective of the borrower should be to:

minimize the APR.

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

money has value over time.

The present value concept is widely applied in business because:

money has value over time.

The Statement of Changes in Stockholders' Equity shows:

net income and dividends for the period.

36. A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2014 by selling more merchandise than it purchases, the effect on 2014 net income of the inventory reduction, compared to having no change in inventory quantity from the beginning to the end of 2014, is: A. net income for 2014 will be greater if the inventory quantity declines. B. net income for 2014 will be less if the inventory quantity declines. C. net income for 2014 will not be affected because of the inventory quantity decline. D. can't tell from the information given.

net income for 2014 will be greater if the inventory quantity declines.

A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2014 by selling more merchandise than it purchases, the effect on 2014 net income of the inventory reduction, compared to having no change in inventory quantity from the beginning to the end of 2014, is:

net income for 2014 will be greater if the inventory quantity declines.

34. A firm has used LIFO for several years during which costs have trended higher. The effect on 2014 net income using LIFO, relative to FIFO, will be: A. net income for 2014 will be greater under LIFO than FIFO. B. net income for 2014 will be less under LIFO than FIFO. C. net income for 2014 will be the same under LIFO as under FIFO. D. can't tell from the information given.

net income for 2014 will be less under LIFO than FIFO.

A firm has used LIFO for several years during which costs have trended higher. The effect on 2014 net income using LIFO, relative to FIFO, will be:

net income for 2014 will be less under LIFO than FIFO.

A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2017 by selling more merchandise than it purchases, the effect on 2017 net income of the inventory reduction, compared to having no change in inventory quantity from the beginning to the end of 2017, is:

net income for 2017 will be greater if the inventory quantity declines.

A firm has used LIFO for several years during which costs have trended higher. The effect on 2017 net income using LIFO, relative to FIFO, will be:

net income for 2017 will be less under LIFO than FIFO.

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

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

The purpose of the income statement is to show the:

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

19. The current liability for Wages Payable (or Accrued Payroll) represents the: A. gross pay earned by employees for which they have not yet been paid. B. net pay earned by employees for which they have not yet been paid. C. employer's federal and state payroll tax obligation. D. 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.

The current liability for Wages Payable (or Accrued Payroll) represents the

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

The current liability for Wages Payable (or Accrued Payroll) represents the:

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

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 liability for various withholdings that taken out of the gross pay earned by employees. employer's federal and state payroll tax obligation.

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

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

net realizable value

The balance sheet presentation of accounts receivable net of the allowance for doubtful accounts has the effect of stating accounts receivable at: original cost. net realizable value. market value. lower of cost or market.

net realizable value

19. Accounts receivable are reported at: A. net realizable value. B. historical cost. C. weighted average cost. D. market value.

net realizable value.

33. The balance sheet presentation of accounts receivable net of the allowance for doubtful accounts has the effect of stating accounts receivable at: A. original cost. B. net realizable value. C. market value. D. lower of cost or market.

net realizable value.

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

net realizable value.

The first caption in most income statements in annual reports is:

net sales.

A loan discount is:

none of the above

Another term for return on equity is:

none of these

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

not affect working capital

The payment of a current liability will:

not affect working capital

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

not affect working capital

2. The payment of a current liability will: A. decrease net income. B. decrease working capital. C. increase working capital. D. not affect working capital.

not affect working capital.

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

not affect working capital.

A working capital loan will generally

not affect working capital.

A working capital loan will generally:

not affect working capital.

The payment of a current liability will:

not affect working capital.

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

not be affected by the cost flow assumption used.

In an inflationary economic environment, the selling price set for a firm's products will:

not be affected by the cost flow assumption used.

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

not be affected by the cost flow assumption used.

A concept or principle that relates to transactions is:

original cost

A concept or principle that relates to transactions is: original cost. consistency. full disclosure. materiality.

original cost

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

overstate cost of goods sold of the current period.

The effect of an error resulting in an understatement of ending inventory is to:

overstate cost of goods sold of the current period.

31. Southern Company's accountant failed to accrue as of 12/31/13 some employee fringe benefit program expenses that were incurred in 2013 and that will be paid in 2014. The result of this omission is to: A. overstate the current ratio at 12/31/13 and overstate ROI and ROE for the year ended 12/31/13. B. overstate the current ratio at 12/31/13 and understate ROI and ROE for the year ended 12/31/13. C. understate the current ratio at 12/31/13 and understate ROI and ROE for the year ended 12/31/13. D. not affect the current ratio at 12/31/13 but to overstate ROI and ROE for the year ended 12/31/13.

overstate the current ratio at 12/31/13 and overstate ROI and ROE for the year ended 12/31/13.

Southern Company's accountant failed to accrue as of 12/31/16 some employee fringe benefit program expenses that were incurred in 2016 and that will be paid in 2017. The result of this omission is to

overstate the current ratio at 12/31/13 and overstate ROI and ROE for the year ended 12/31/13.

Southern Company's accountant failed to accrue as of 12/31/16 some employee fringe benefit program expenses that were incurred in 2016 and that will be paid in 2017. The result of this omission is to:

overstate the current ratio at 12/31/16 and overstate ROI and ROE for the year ended 12/31/16.

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

permit a more accurate determination of working capital

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

permit a more accurate determination of working capital.

A potential creditor's judgment about granting credit would be most influenced by the potential customer's:

practice with respect to taking cash discounts offered by current suppliers.

14. An organization's system of internal control is designed primarily to: A. ensure that no employees steal the organization's property. B. increase efficiency by letting one employee handle all aspects of a transaction from beginning to end. C. ensure that the organization's balance sheet will always balance. D. provide an operating framework for all employees as they work to achieve the organization's goals.

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

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.

An organization's system of internal control is designed primarily to: ensure that no employees steal the organization's property. ensure that the organization's balance sheet will always balance. provide an operating framework for all employees as they work to achieve the organization's goals. increase efficiency by letting one employee handle all aspects of a transaction from beginning to end.

provide an operating framework for all employees as they work to achieve the organizations goals

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

purchasing goods and services from suppliers on credit

A management that wanted to increase the financial leverage of its firm would:

raise additional capital by selling fixed interest rate long-term bonds.

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it:

raises the current ratio.

13. When a supplier makes a downward adjustment in the amount owed by a creditor, the creditor will: A. reduce the amount of the account payable to the supplier, and decrease an asset such as inventory. B. increase the amount of the account payable to the supplier, and decrease an asset such as inventory. C. reduce the amount of the account payable to the supplier, and increase cash. D. reduce the amount of the account payable to the supplier, and decrease cash.

reduce the amount of the account payable to the supplier, and decrease an asset such as inventory.

When a supplier makes a downward adjustment in the amount owed by a creditor, the creditor will:

reduce the amount of the account payable to the supplier, and decrease an asset such as inventory.

Return on equity:

relates net income and stockholders' equity.

When comparing entity financial ratios with industry ratios:

relative values at a point in time may not be significant.

A journal entry recording an accrual:

results in a better matching of revenues and expenses.

The amortization of bond discount:

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

30. The amortization of bond discount: A. increases the cash paid to bondholders for interest. B. results in bond interest expense being greater than the interest paid to bondholders. C. results in bond interest expense being less than the interest paid to bondholders. D. reduces the carrying value of bonds payable on the balance sheet.

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

The amortization of bond discount:

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

A stock dividend is similar to a cash dividend in that:

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

The income statement shows amounts for:

revenues, gains, expenses and losses

An individual interested in making a judgment about the profitability of a company should:

review the trend of the company's ROI for several years.

When a manufacturer invests in short-term marketable securities: A. the return on investment is more important than the risk involved. B. the securities are likely to have a maturity date more than a year in the future. C. the market value of the securities is likely to fluctuate significantly. D. risk avoidance is of great importance.

risk avoidance is of great importance.

When a firm has financial leverage:

risk is greater than if there wasn't any leverage.

Asset turnover calculations:

should be evaluated by observing the turnover trend over a period of time.

The notes to the financial statements:

should be referred to if more than a cursory, and perhaps misleading impression of a firm's financial position and its results of operations is to be achieved.

The balance sheet of an entity:

shows amounts that are not adjusted for changes in the purchasing power of the dollar.

34. The noncurrent Deferred Tax Liability account arises because: A. some book income will never be subject to income tax. B. some expenses are deducted for tax purposes before they are deducted for book purposes. C. income tax rates change from year to year. D. the company has not paid income taxes currently due.

some expenses are deducted for tax purposes before they are deducted for book purposes.

The long-term liability for deferred income taxes arises because:

some expenses are deducted for tax purposes before they are deducted for book purposes.

The noncurrent Deferred Tax Liability account arises because:

some expenses are deducted for tax purposes before they are deducted for book purposes.

Income from operations is:

sometimes used in the ROI calculation.

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

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

Depreciation, in accounting, is a process that results in:

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

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

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

An unqualified auditors' opinion about an entity's financial statements:

states that they are presented in conformance with U.S. generally accepted accounting principles.

The Sarbanes-Oxley Act (SOX) of 2002 does not specifically prohibit an independent auditor from performing the following non-audit function(s) for an audit client:

tax services.

41. The reason for recording a prepaid expense as a current asset is: A. that the prepaid item will be returned for a cash refund. B. that the prepaid item has not yet become an expense. C. that the expense has been incurred but not yet paid. D. to avoid recognizing an expense so net income will be higher for the current accounting period.

that the prepaid item has not yet become an expense.

Recognition of revenue in accrual accounting requires:

that the revenue be realized or realizable, and earned.

The most powerful corporate governance legislation to date has been:

the Sarbanes-Oxley Act (SOX) of 2002.

Paid-in Capital represents:

the amount invested in the entity by the stockholders

37. The amount of cash related to a particular bank checking account that is shown on the balance sheet at December 31 is: A. the cash balance shown on the bank's records at the close of business on December 31, without further adjustments. B. the cash balance shown in the company's general ledger account for this checking account at the close of business on December 31, without further adjustments. C. the cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any outstanding checks and/or deposits in transit from the December 31 bank account reconciliation. D. the cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any bank service charges and/or interest income from the December 31 bank account reconciliation.

the cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any bank service charges and/or interest income from the December 31 bank account reconciliation.

The amount of cash related to a particular bank checking account that is shown on the balance sheet at December 31 is:

the cash balance shown in the general ledger account for this checking account as of the close of business on December 31, after recognizing any bank service charges and/or interest income from the December 31 bank account reconciliation.

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

the company's interest expense wil be less than the interest paid each year

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

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

When a company issues a bond at a premium

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

When a company issues a bond at a premium:

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

When a company issues a bond at a discount

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

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

When a company issues a bond at a discount:

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

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

the cost of inventory items changes during the year.

One inventory cost flow assumption will result in different cost of goods sold from another inventory cost flow assumption only if:

the cost of inventory items changes during the year.

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

the coupon rate is less than the market interest rate.

If the market price of a bond exceeds its face amount

the coupon rate is more than the market interest rate.

If the market price of a bond exceeds its face amount:

the coupon rate is more than the market interest rate.

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

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

The net book value of a depreciable asset is:

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 difference between the asset's cost and accumulated depreciation. the difference between the asset's cost and depreciation expense. the amount for which the asset should be insured.

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

Financial leverage refers to which of the following? Decreasing fixed costs per unit by increasing production. The leverage a firm obtains from increasing production. 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 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)

When an entity changes its accounting from one generally accepted method to another generally accepted method:

the dollar effect of the change on both the balance sheet and income statement must be disclosed.

The principle of consistency means that:

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

Transactions are summarized in: None of these. The notes for the financial statements. The independent auditor's opinion letter. The entity's accounts.

the entitys accounts

38. The valuation of short-term marketable securities on the balance sheet is likely to be for an amount that is approximately equal to the cost of these investments because: A. the market value of short-term marketable securities does not fluctuate from cost. B. the high quality and close maturity date of the securities cause their market values to be relatively stable. C. generally accepted accounting principles require that short-term marketable securities be reported at cost. D. the question statement is false; the valuation of short-term marketable securities on the balance sheet is not likely to be for an amount that is approximately equal to the cost of these investments.

the high quality and close maturity date of the securities cause their market values to be relatively stable.

The valuation of short-term marketable securities on the balance sheet is likely to be for an amount that is approximately equal to the cost of these investments because:

the high quality and close maturity date of the securities cause their market values to be relatively stable.

An entity's current ratio will be influenced by:

the inventory cost flow assumption used.

When a company issues a bond at a premium

the investors' interest income will be less than the interest received each year

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

the lower of cost or market

31. Regardless of the inventory cost flow assumption used, inventories on the balance sheet are stated at: A. original cost. B. realizable value. C. replacement cost. D. the lower of cost or market.

the lower of cost or market.

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

the lower of cost or market.

The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at:

the market rate

24. The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at: A. the market rate. B. the coupon rate. C. the dividend rate. D. the prime rate.

the market rate.

The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at:

the market rate.

When a company splits its common stock 3 for 1:

the market value of the company's stock normally falls by two-thirds.

9. When an accelerated depreciation method is used to calculate depreciation expense: A. the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used. B. the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used. C. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. D. 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.

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.

21. The principal reason for converting a customer's account receivable to a note receivable is: A. the note receivable earns interest and the account receivable does not. B. the receivable is less likely to have to be written off as uncollectible. C. working capital is immediately increased. D. the customer is more likely to continue purchasing the company's products.

the note receivable earns interest and the account receivable does not.

The principal reason for converting a customer's account receivable to a note receivable is:

the note receivable earns interest and the account receivable does not.

The number of shares of a class of stock that are outstanding is:

the number of shares issued minus the number of shares held as treasury stock.

38. In consolidated financial statements: A. the parent's and subsidiary's financial statements are reported on a separate basis. B. the parent's and subsidiary's financial statements are reported on a combined basis. C. financial statements are reported on an industry-wide basis. D. None of these.

the parent's and subsidiary's financial statements are reported on a combined basis.

In consolidated financial statements:

the parent's and subsidiary's financial statements are reported on a combined basis.

The dividend payout ratio describes:

the proportion of earnings paid as dividends.

26. The principal challenge to calculating depletion is estimating: A. the cost of the asset. B. the salvage value of the exploration equipment. C. the demand for the product. D. the quantity of material to be recovered.

the quantity of material to be recovered.

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

the quantity of material to be recovered.

Significant accounting policies are described in the notes to the financial statements because:

the reader must be aware of which of the alternative generally accepted accounting practices have been used.

Under most circumstances, in order to recognize revenue:

the revenue must be realized or realizable, and earned.

When a manufacturer invests in short-term marketable securities: the market value of the securities is likely to fluctuate significantly. the securities are likely to have a maturity date more than a year in the future. risk avoidance is of great importance. the return on investment is more important than the risk involved.

the risk avoidance is of great importance.

A higher P/E ratio means that:

the stock is relatively expensive.

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

the supplies expense account should always be debited (and credit supplies)

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

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

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.

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

the write-off be approved by two employees.

With respect to the write-off of an uncollectible account receivable against the allowance for bad debts, a sound system of internal control would require: 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.

the write-off be approved by two empoyees

If a common stock has no par value:

there will not be any additional paid-in capital related to it.

When common stock has a par value:

there will probably be additional paid-in capital on the balance sheet.

In the statement of cash flows, depreciation and amortization expense is added back to net income because:

these expenses do not affect cash, but were subtracted in the determination of net income.

The effect of an adjustment is:

to increase the accuracy of the financial statements.

12. When an uncollectible account receivable is written off against the allowance for bad debts: A. total current assets decrease and expenses increase. B. total current assets are not affected. C. total current assets decrease and expenses decrease. D. current assets decrease and expenses are not affected.

total current assets are not affected.

When a stock dividend is declared and issued:

total stockholders' equity does not change.

Southern Company's accountant failed to accrue as of 12/31/10 some employee fringe benefit program expenses that were incurred in 2010 and that will be paid in 2011. The result of this omission is to:

understate 2010 expenses and current liabilities at 12/31/10.

32. Southern Company's accountant failed to accrue as of 12/31/13 some employee fringe benefit program expenses that were incurred in 2013 and that will be paid in 2014. The result of this omission is to: A. overstate 2013 net income and understate noncurrent liabilities at 12/31/13. B. understate 2013 expenses and understate current liabilities at 12/31/13. C. understate 2013 expenses and overstate current liabilities at 12/31/13. D. understate 2013 net income and overstate assets at 12/31/13.

understate 2013 expenses and understate current liabilities at 12/31/13.

35. Many airlines have frequent flyer programs that permit travelers to accumulate credits that can be applied to the cost of tickets for future flights. Most airlines recognize the cost of their frequent flyer programs when the credits are used to purchase tickets. This practice, which seems to ignore the matching concept, results in: A. stating liabilities and expenses at appropriate amounts. B. overstating liabilities and expenses. C. understating liabilities and expenses. D. understating liabilities and overstating expenses.

understating liabilities and expenses.

Many airlines have frequent flyer programs that permit travelers to accumulate credits that can be applied to the cost of tickets for future flights. Most airlines recognize the cost of their frequent flyer programs when the credits are used to purchase tickets. This practice, which seems to ignore the matching concept, results in:

understating liabilities and expenses.

7. It is not unusual for a company to use different depreciation methods for book and tax purposes. When this happens, the firm usually: A. uses an accelerated depreciation method for book purposes. B. uses an accelerated depreciation method for tax purposes. C. is trying to maximize its taxable income. D. is trying to minimize its book income.

uses an accelerated depreciation method for tax purposes.

Management's statement of responsibility:

usually refers to the company's system of internal controls.

Financial statement ratios support informed judgments and decision making most effectively:

when the trend of entity data is compared to the trend of industry data.