FINANCIAL ACCT #2

Madison Outlet has the following inventory transactions for the year: (LO6-3) Date Transaction Number of Units Unit Cost Total Cost Jan. 1 Beginning inventory 10 $200 $2,000 Mar. 14 Purchase 15 300 4,500 $6,500 Jan. 1- Dec. 31 Total sales to customers 12 Page 302What amount would Madison report for cost of goods sold using FIFO? a) $2,600. b) $2,900. c) $3,600. d) $3,900.

a) $2,600.

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The profit margin is: a) 10%. b) 12.5%. c) 80%. d) 125%.

a) 10%.

For the year, Simmons Incorporated reports net sales of $100,000, cost of goods sold of $80,000, and an average inventory balance of $40,000. What is Simmons' gross profit ratio? (LO6-7) a) 20%. b) 25%. c) 40%. d) 50%.

a) 20%.

Lincoln County retires a $50 million bond issue when the carrying value of the bonds is $48 million, but the market value of the bonds is $54 million. Lincoln County will record the retirement as: a) A debit of $6 million to Loss due to early extinguishment. b) A credit of $6 million to Gain due to early extinguishment. c) No gain or loss on retirement. d) A debit to Cash for $54 million.

a) A debit of $6 million to Loss due to early extinguishment.

Which of the following is an example of a conservative accounting practice? a) Adjust the allowance for uncollectible accounts to a larger amount. b) Record inventory at market rather than lower-of-cost-or-market. c) Change from double-declining-balance to straight-line depreciation. d) Record sales revenue before it is actually earned.

a) Adjust the allowance for uncollectible accounts to a larger amount.

Which of the following is a publicly traded company? a) American Eagle. b) Cargill. c) Ernst & Young. d) Koch Industries.

a) American Eagle.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will settle the lawsuit for an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation? (LO8-5) a) As a liability for $75,000 with disclosure of the range. b) As a liability for $125,000 with disclosure of the range. c) As a liability for $175,000 with disclosure of the range. d) As a disclosure only. No liability is reported.

a) As a liability for $75,000 with disclosure of the range.

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds? a) Carrying value and interest expense increase. b) Carrying value and interest expense decrease. c) Carrying value decreases and interest expense increases. d) Carrying value increases and interest expense decreases.

a) Carrying value and interest expense increase.

We can identify operating activities from income statement information and changes in: a) Current asset and current liability accounts. b) Long-term asset accounts. c) Long-term liability accounts. d) Stockholders' equity accounts.

a) Current asset and current liability accounts.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be: (LO8-5) a) Disclosed but not reported as a liability. b) Disclosed and reported as a liability. c) Neither disclosed nor reported as a liability. d) Reported as a liability but not disclosed.

a) Disclosed but not reported as a liability.

What is the concept behind separation of duties in establishing internal control? a) Employee fraud is less likely to occur when access to assets and access to accounting records are separated. b) The company's financial accountant should not share information with the company's tax accountant. c) Duties of middle-level managers of the company should be clearly separated from those of top executives. d) The external auditors of the company should have no contact with managers while the audit is taking place.

a) Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

Which of the following levels of profitability in a multiple-step income statement represents revenues from the sale of inventory less the cost of that inventory? (LO6-2) a) Gross profit. b) Operating income. c) Income before income taxes. d) Net income.

a) Gross profit.

Which financial statement conveys a company's ability to generate profits in the current period? a) Income statement. b) Statement of cash flows. c) Balance sheet. d) Statement of stockholders' equity.

a) Income statement.

Which of the following adjusts the company's balance of cash in a bank reconciliation? a) Interest earned. b) Checks outstanding. c) Deposits outstanding. d) An error by the bank.

a) Interest earned.

Current liabilities: (LO8-1) a) May include contingent liabilities. b) Include obligations payable within one year or one operating cycle, whichever is shorter. c) Can be satisfied only with the payment of cash. d) Are preferred by most companies over long-term liabilities.

a) May include contingent liabilities.

Which of the following is not a characteristic of adjusting entries? a) Reduce the balances of revenue, expense, and dividend accounts to zero. b) Allow for proper application of the revenue recognition principle (revenues) or the matching principle (expenses). c) Are part of accrual-basis accounting. d) Are recorded at the end of the accounting period.

a) Reduce the balances of revenue, expense, and dividend accounts to zero.

What are the two fundamental qualitative characteristics identified by the Financial Accounting Standards Board's (FASB) conceptual framework? a) Relevance and faithful representation. b) Materiality and efficiency. c) Comparability and consistency. d) Costs and benefits.

a) Relevance and faithful representation.

Which of the following expenditures should be recorded as an expense? (LO7-3) a) Repairs and maintenance that maintain current benefits. b) Adding a major new component to an existing asset. c) Replacing a major component of an existing asset. d) Successful legal defense of an intangible asset.

a) Repairs and maintenance that maintain current benefits.

The price of a bond is equal to: a) The present value of the face amount plus the present value of the stated interest payments. b) The future value of the face amount plus the future value of the stated interest payments. c) The present value of the face amount only. d) The present value of the interest only.

a) The present value of the face amount plus the present value of the stated interest payments.

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity? a) The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time. b) The stockholders' equity section shows activity over a period of time, whereas the statement of stockholders' equity is at a point in time. c) There are no differences between them. d) The stockholders' equity section is more detailed than the statement of stockholders' equity.

a) The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.

When using vertical analysis, we express balance sheet accounts as a percentage of: a) Total assets. b) Total liabilities. c) Total stockholders' equity. d) Sales.

a) Total assets.

A debit is used to increase which of the following accounts? (LO2-3) a) Utilities Expense. b) Accounts Payable. c) Service Revenue. d) Common Stock.

a) Utilities Expense.

Providing services to customers on account for $100 is recorded as: a. Accounts Receivable 100 Service Revenue 100 b. Cash 100 Accounts Receivable 100 c. Service Revenue 100 Accounts Receivable 100 d. Service Expense 100 Accounts Payable 100

a. Accounts Receivable 100 Service Revenue 100

At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of goods sold? (LO6-2) a) $11,000. b) $11,500. c) $12,000. d) $12,500.

b) $11,500.

Refer to the information in the previous question. What is the amount of net revenues (sales minus sales discounts) as of March 23? (LO5-2) a) $0. b) $11,760. c) $12,000. d) $12,240.

b) $11,760.

Suppose the balance of Allowance for Uncollectible Accounts at the end of the current year is $400 (credit) before any adjustment. The company estimates future uncollectible accounts to be $3,200. At what amount would bad debt expense be reported in the current year's income statement? (LO5-3) a) $400. b) $2,800. c) $3,200. d) $3,600.

b) $2,800.

On January 1, 2018, Roberson Supply borrows $10,000 from Nees Manufacturing by signing a 9% note due in eight months. Calculate the amount of interest revenue Nees will record on September 1, 2018, the date that the note is due. (LO5-7) a) $300. b) $600. c) $900. d) $1,000.

b) $600.

Which of the following leases is essentially the purchase of an asset with debt financing? a) An operating lease. b) A capital lease. c) Both an operating lease and a capital lease. d) Neither an operating lease nor a capital lease.

b) A capital lease.

Using the allowance method, the entry to record a write-off of accounts receivable will include: (LO5-5) a) A debit to Bad Debt Expense. b) A debit to Allowance for Uncollectible Accounts. c) No entry because an allowance for uncollectible accounts was established in an earlier period. d) A debit to Service Revenue.

b) A debit to Allowance for Uncollectible Accounts.

The book value of an asset is equal to the: (LO7-4) a) Replacement cost. b) Asset's cost less accumulated depreciation. c) Asset's fair value less its historical cost. d) Historical cost plus accumulated depreciation.

b) Asset's cost less accumulated depreciation.

Serial bonds are: a) Bonds backed by collateral. b) Bonds that mature in installments. c) Bonds the issuer can repurchase at a fixed price. d) Bonds issued below the face amount.

b) Bonds that mature in installments.

Interest expense on bonds payable is calculated as: a) Face amount times the stated interest rate. b) Carrying value times the market interest rate. c) Face amount times the market interest rate. d) Carrying value times the stated interest rate.

b) Carrying value times the market interest rate.

Which of the following is an example of horizontal analysis? a) Comparing operating expenses with sales. b) Comparing the growth in sales with the growth in cost of goods sold. c) Comparing property, plant, and equipment with total assets. d) Comparing gross profit across companies.

b) Comparing the growth in sales with the growth in cost of goods sold.

We normally record a long-term asset at the: (LO7-1) a) Cost of the asset only. b) Cost of the asset plus all costs necessary to get the asset ready for use. c) Appraised value. d) Cost of the asset, but subsequently adjust it up or down to appraised value.

b) Cost of the asset plus all costs necessary to get the asset ready for use.

Treasury stock: a) Has a normal credit balance. b) Decreases stockholders' equity. c) Is recorded as an investment. d) Increases stockholders' equity.

b) Decreases stockholders' equity.

Which inventory cost flow assumption generally results in the lowest reported amount for cost of goods sold when inventory costs are rising? (LO6-4) a) Lower of cost and net realizable value. b) First-in, first-out (FIFO). c) Last-in, first-out (LIFO). d) Weighted-average cost.

b) First-in, first-out (FIFO).

Based on the introductory section of this chapter, which course is most like financial accounting? a) College algebra. b) Foreign language. c) Molecular biology. d) Physical education.

b) Foreign language.

The purchase of a long-term asset is classified in the statement of cash flows as a(n): a) Operating activity. b) Investing activity. c) Financing activity. d) Noncash activity.

b) Investing activity.

Why does financial accounting have a positive impact on our society? a) It entails a detailed transaction record necessary for filing taxes with the Internal Revenue Service (IRS). b) It allows investors and creditors to redirect their resources to successful companies and away from unsuccessful companies. c) It prevents competitors from being able to steal the company's customers. d) It provides a system of useful internal reports for management decision making.

b) It allows investors and creditors to redirect their resources to successful companies and away from unsuccessful companies.

Refer to the information in Self-Study Question 2. Using cash-basis accounting, on which date should Papa's Pizza record the extermination expense? a) January 17 (date of the contract). b) January 29 (date of cash payment). c) February 7 (date of extermination service). d) Evenly over the three dates.

b) January 29 (date of cash payment).

The advantages of owning a corporation include: a) Difficulty in transferring ownership. b) Limited liability. c) Lower taxes. d) Less paperwork.

b) Limited liability.

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? (LO7-4) a) Short service life, high residual value, and straight-line depreciation. b) Long service life, high residual value, and straight-line depreciation. c) Short service life, low residual value, and double-declining-balance depreciation. d) Long service life, high residual value, and double-declining-balance depreciation.

b) Long service life, high residual value, and straight-line depreciation.

On May 5, Johnson Plumbing receives a phone call from a customer needing a new water heater and schedules a service visit for May 7. On May 7, Johnson installs the new water heater. The customer pays for services on May 10. According to the revenue recognition principle, on which date should Johnson record service revenue? a) May 5 (date of phone call). b) May 7 (date of service). c) May 10 (date of cash receipt). d) Evenly over the three dates.

b) May 7 (date of service).

The correct order from the smallest number of shares to the largest number of shares is: a) Authorized, issued, and outstanding. b) Outstanding, issued, and authorized. c) Issued, outstanding, and authorized. d) Issued, authorized, and outstanding.

b) Outstanding, issued, and authorized.

Operating cash flows would include which of the following? a) Repayment of borrowed money. b) Payment for employee salaries. c) Services provided to customers on account. d) Payment for a new operating center.

b) Payment for employee salaries.

Which of the following is an example of a noncash activity? a) Sale of land for more than its cost. b) Purchase of land by issuing common stock. c) Sale of land for less than its cost. d) Purchase of land using cash proceeds from issuance of common stock.

b) Purchase of land by issuing common stock.

Which of the following is an example of a cash inflow from an investing activity? a) Receipt of cash from the issuance of common stock. b) Receipt of cash from the sale of equipment. c) Receipt of cash from the issuance of a note payable. d) Receipt of cash from the sale of inventory.

b) Receipt of cash from the sale of equipment.

Which of the following generally would not be considered good internal control of cash receipts? a) Allowing customers to pay with a debit card. b) Requiring the employee receiving the cash from the customer to also deposit the cash into the company's bank account. c) Recording cash receipts as soon as they are received. d) Allowing customers to pay with a credit card.

b) Requiring the employee receiving the cash from the customer to also deposit the cash into the company's bank account.

Sales of products or services are referred to as: a) Assets. b) Revenues. c) Liabilities. d) Expenses

b) Revenues.

When using vertical analysis, we express income statement accounts as a percentage of: a) Net income. b) Sales. c) Gross profit. d) Total assets.

b) Sales.

Which of the following is true for bonds issued at a discount? a) The stated interest rate is greater than the market interest rate. b) The market interest rate is greater than the stated interest rate. c) The stated interest rate and the market interest rate are equal. d) The stated interest rate and the market interest rate are unrelated.

b) The market interest rate is greater than the stated interest rate.

Suppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the reported amount of cost of goods sold in the year of the error? (LO6-9) a) Overstate cost of goods sold. b) Understate cost of goods sold. c) Have no effect on cost of goods sold. d) Not possible to determine with information given.

b) Understate cost of goods sold.

Which of the following is not deducted from an employee's salary? (LO8-3) a) FICA taxes. b) Unemployment taxes. c) Income taxes. d) Employee portion of insurance and retirement payments.

b) Unemployment taxes.

We record interest expense on a note payable in the period in which: (LO8-2) a) We pay cash for interest. b) We incur interest. c) We pay cash and incur interest. d) We pay cash or incur interest.

b) We incur interest.

Ambassador Hotels purchases one year of fire insurance coverage on December 1 for $24,000 ($2,000 per month), debiting Prepaid Insurance. On December 31, Ambassador would record the following year-end adjusting entry: Debit Credit a. Insurance Expense 24,000 Prepaid Insurance 24,000 b. Insurance Expense 2,000 Prepaid Insurance 2,000 c. Insurance Expense 22,000 Prepaid Insurance 22,000 d. No entry is required on December 31 because full cash payment was made on December 1 and the insurance does not expire until the following November 30.

b. Insurance Expense 2,000 Prepaid Insurance 2,000

If Express Jet borrows $100 million on October 1, 2018, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 2018? (LO8-2) a) $0. b) $1 million. c) $1.5 million. d) $6 million.

c) $1.5 million.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17? (LO5-2) a) $12,400. b) $11,760. c) $12,000. d) $12,240.

c) $12,000.

Kidz Incorporated reports the following aging schedule of its accounts receivable with the estimated percent uncollectible. What is the total estimate of uncollectible accounts using the aging method? (LO5-4) Age Group Amount Receivable Estimated Percent Uncollectible 0-60 days $20,000 2% 61-90 days 6,000 15% More than 90 days past due 2,000 50% Total $28,000 a) $1,150. b) $1,900. c) $2,300. d) $5,900.

c) $2,300.

At the beginning of 2018, Clay Ventures has total accounts receivable of $100,000. By the end of 2018, Clay reports net credit sales of $900,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Clay Ventures? (LO5-8) a) 2.0. b) 4.5. c) 6.0. d) 9.0.

c) 6.0.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If it sells the equipment for $55,000, the company should record: (LO7-6) a) No gain or loss. b) A gain of $10,000. c) A loss of $10,000. d) A loss of $40,000.

c) A loss of $10,000.

Accounts receivable are best described as: a) Liabilities of the company that represent the amount owed to suppliers. b) Amounts that have previously been received from customers. c) Assets of the company representing the amount owed by customers. d) Amounts that have previously been paid to suppliers.

c) Assets of the company representing the amount owed by customers.

Which financial statement shows that a company's resources equal claims to those resources? (LO1-3) a) Income statement. b) Statement of stockholders' equity. c) Balance sheet. d) Statement of cash flows.

c) Balance sheet.

Preferred stock: a) Is always recorded as a liability. b) Is always recorded as part of stockholders' equity. c) Can have features of both liabilities and stockholders' equity. d) Is not included in either liabilities or stockholders' equity.

c) Can have features of both liabilities and stockholders' equity.

Which of the following items do we report in the statement of cash flows using the direct method? a) Depreciation expense. b) Gain on sale of an asset. c) Cash paid to suppliers. d) Loss on sale of an asset.

c) Cash paid to suppliers.

The acid-test ratio is: (LO8-6) a) Current assets divided by current liabilities. b) Cash and current investments divided by current liabilities. c) Cash, current investments, and accounts receivable divided by current liabilities. d) Cash, current investments, accounts receivable, and inventory divided by current liabilities.

c) Cash, current investments, and accounts receivable divided by current liabilities.

Which of the following describes the information reported in the statement of stockholders' equity? a) Net income for the period calculated as revenues minus expenses. b) Equality of total assets with total liabilities plus stockholders' equity. c) Change in stockholders' equity through changes in common stock and retained earnings. d) Net cash flows from operating, investing, and financing activities.

c) Change in stockholders' equity through changes in common stock and retained earnings.

Which of the following is considered cash for financial reporting purposes? a) Accounts receivable. b) Investments with maturity dates greater than three months. c) Checks received from customers. d) Accounts payable.

c) Checks received from customers.

Using a periodic inventory system, the purchase of inventory on account would be recorded as: (LO6-8) a) Debit Cost of Goods Sold; credit Inventory. b) Debit Inventory; credit Sales Revenue. c) Debit Purchases; credit Accounts Payable. d) Debit Inventory; credit Accounts Payable.

c) Debit Purchases; credit Accounts Payable.

Which of the following ratios is most useful in evaluating solvency? a) Receivables turnover ratio. b) Inventory turnover ratio. c) Debt to equity ratio. d) Current ratio.

c) Debt to equity ratio.

We record cash dividends on the: a) Declaration date, record date, and payment date. b) Record date and payment date. c) Declaration date and payment date. d) Declaration date and record date.

c) Declaration date and payment date.

Which of the following items would we report at the very bottom of the income statement just before net income? a) Losses due to the write-down of inventory. b) Gain on the sale of long-term assets. c) Discontinued operations. d) Losses due to restructuring.

c) Discontinued operations.

On January 17, Papa's Pizza signs a contract with Bug Zappers for exterminating services related to a recent sighting of cockroaches in the restaurant. Papa's pays for the extermination service on January 29, and Bug Zappers sprays for bugs on February 7. According to the matching principle, on which date should Papa's Pizza record the extermination expense? a) January 17 (date of the contract). b) January 29 (date of cash payment). c) February 7 (date of extermination service). d) Evenly over the three dates.

c) February 7 (date of extermination service).

The issuance of bonds payable is classified in the statement of cash flows as a(n): a) Operating activity. b) Investing activity. c) Financing activity. d) Noncash activity.

c) Financing activity.

The issuance of common stock is classified in the statement of cash flows as a(n): a) Operating activity. b) Investing activity. c) Financing activity. d) Noncash activity.

c) Financing activity.

Which of the following causes the accounting equation not to balance? a) Increase assets; increase liabilities. b) Decrease assets; increase expenses. c) Increase assets; increase dividends. d) Decrease liabilities; increase revenues.

c) Increase assets; increase dividends.

The PE ratio: a) Tends to be lower for growth stocks. b) Tends to be higher for value stocks. c) Indicates how a stock is trading in relation to current earnings. d) Typically is less than 1.

c) Indicates how a stock is trading in relation to current earnings.

Which of the following transactions causes an increase in total assets? a) Pay employee salaries for the current month. b) Pay dividends to stockholders. c) Issue common stock in exchange for cash. d) Purchase office equipment for cash.

c) Issue common stock in exchange for cash.

Which of the following statements regarding liabilities is not true? (LO8-1) a) Liabilities can be for services rather than cash. b) Liabilities are reported in the balance sheet for almost every business. c) Liabilities result from future transactions. d) Liabilities represent probable future sacrifices of benefits.

c) Liabilities result from future transactions.

Refer to the information in Self-Study Question 2. Using cash-basis accounting, on which date should Johnson record service revenue? a) May 5 (date of phone call). b) May 7 (date of service). c) May 10 (date of cash receipt). d) Evenly over the three dates.

c) May 10 (date of cash receipt).

Which of the following is an example of a cash outflow from a financing activity? a) Payment of interest. b) Purchase of an intangible asset. c) Payment of cash dividends. d) Purchase of land.

c) Payment of cash dividends.

Which of the following represents an external transaction? a) Lapse of insurance due to passage of time. b) Use of office supplies by employees over time. c) Payment of utility bill. d) Salaries earned by employees but not yet paid.

c) Payment of utility bill.

The return on assets is equal to the: a) Profit margin plus asset turnover. b) Profit margin minus asset turnover. c) Profit margin times asset turnover. d) Profit margin divided by asset turnover.

c) Profit margin times asset turnover.

The purpose of a petty cash fund is to: a) Provide a convenient form of payment for the company's customers. b) Pay employee salaries at the end of each period. c) Provide cash on hand for minor expenditures. d) Allow the company to save cash for major future purchases.

c) Provide cash on hand for minor expenditures.

Convertible bonds: a) Provide potential benefits only to the issuer. b) Provide potential benefits only to the investor. c) Provide potential benefits to both the issuer and the investor. d) Provide no potential benefits.

c) Provide potential benefits to both the issuer and the investor.

Which of the following transactions causes an increase in stockholders' equity? a) Pay dividends to stockholders. b) Obtain cash by borrowing from a local bank. c) Provide services to customers on account. d) Purchase advertising on a local radio station.

c) Provide services to customers on account.

Which of the following accounts is not listed in a post-closing trial balance? a) Prepaid Rent. b) Accounts Payable. c) Salaries Expense. d) Retained Earnings.

c) Salaries Expense.

Which of the following statements is true regarding the amortization of intangible assets? (LO7-5) a) Intangible assets with a limited useful life are not amortized. b) The service life of an intangible asset is always equal to its legal life. c) The expected residual value of most intangible assets is zero. d) In recording amortization, Accumulated Amortization is always credited.

c) The expected residual value of most intangible assets is zero.

Posting is the process of: a) Analyzing the impact of the transaction on the accounting equation. b) Obtaining information about external transactions from source documents. c) Transferring the debit and credit information from the journal to individual accounts in the general ledger. d) Listing all accounts and their balances at a particular date and showing the equality of total debits and total credits.

c) Transferring the debit and credit information from the journal to individual accounts in the general ledger.

Sandwich Express incurred the following costs related to its purchase of a bread machine. (LO7-1) Cost of the equipment $20,000 Sales tax (8%) 1,600 Shipping 2,200 Installation 1,400 Total costs $25,200 At what amount should Sandwich Express record the bread machine? a) $20,000. b) $21,600. c) $23,800. d) $25,200.

d) $25,200.

Suppose the balance of Allowance for Uncollectible Accounts at the end of the current year is $400 (debit) before any adjustment. The company estimates future uncollectible accounts to be $3,200. At what amount would bad debt expense be reported in the current year's income statement? (LO5-3) a) $400. b) $2,800. c) $3,200. d) $3,600.

d) $3,600.

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The asset turnover is: a) 0.10 times. b) 0.80 times. c) 8 times. d) 1.25 times.

d) 1.25 times.

A trial balance can best be explained as a list of: a) The income statement accounts used to calculate net income. (LO2-6) b)Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings. c) The balance sheet accounts used to show the equality of the accounting equation. d) All accounts and their balances at a particular date.

d) All accounts and their balances at a particular date.

Which of the following is not a step in the process of measuring external transactions? (LO2-1) a) Analyze the impact of the transaction on the accounting equation. b) Record the transaction using debits and credits. c) Post the transaction to the T-account in the general ledger. d) All of the above are steps in the measurement process of external transactions.

d) All of the above are steps in the measurement process of external transactions.

Fraudulent reporting by management could include: a) Fictitious revenues from a fake customer. b) Improper asset valuation. c) Mismatching revenues and expenses. d) All of the above.

d) All of the above.

The Sarbanes-Oxley Act (SOX) mandates which of the following? a) Increased regulations related to auditor-client relations. b) Increased regulations related to internal control. c) Increased regulations related to corporate executive accountability. d) All of the above.

d) All of the above.

What is a benefit to a career in accounting? (LO1-6) a) High salaries. b) Wide range of job opportunities. c) High demand for accounting graduates. d) All of the above.

d) All of the above.

At the end of a reporting period, Maxwell Corporation determines that its ending inventory has a cost of $1,000 and a net realizable value of $800. What would be the effect(s) of the adjustment to write down inventory to net realizable value? (LO6-6) a) Decrease total assets. b) Decrease net income. c) Decrease retained earnings. d) All of these answer choices are correct.

d) All of these answer choices are correct.

Which of the following could cause a company to have a high ratio of cash to noncash assets? a) Highly volatile operations. b) Low dividend payments. c) Significant foreign operations. d) All of these factors could contribute to a high ratio of cash to noncash assets.

d) All of these factors could contribute to a high ratio of cash to noncash assets.

An adjusted trial balance: (LO3-4) a) Lists all accounts and their balances at a particular date after updating account balances for adjusting entries. b) Is used to prepare the financial statements. c)Includes balances for revenues, expenses, and dividends. d) All the above.

d) All the above.

The indirect and direct methods: a) Are used by companies about equally in actual practice. b) Affect the presentations of operating, investing, and financing activities. c) Arrive at different amounts for net cash flows from operating activities. d) Are two allowable methods to present operating activities in the statement of cash flows.

d) Are two allowable methods to present operating activities in the statement of cash flows.

Resources of a company are referred to as: a) Liabilities. b) Stockholders' equity. c) Dividends. d) Assets.

d) Assets.

Which of the following is a positive sign that a company can quickly turn its receivables into cash? a) A low receivables turnover ratio. b) A high receivables turnover ratio. c) A low average collection period. d) Both a high receivables turnover ratio and a low average collection period.

d) Both a high receivables turnover ratio and a low average collection period.

Financial accounting serves which primary function(s)? a) Measures business activities. b) Communicates business activities to interested parties. c) Makes business decisions on behalf of interested parties. d) Both a. and b. are functions of financial accounting.

d) Both a. and b. are functions of financial accounting

Which of the following describes the purpose(s) of closing entries? a) Adjust the balances of asset and liability accounts for unrecorded activity during the period. b) Transfer the balances of temporary accounts (revenues, expenses, and dividends) to Retained Earnings. c) Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next period. d) Both b. and c.

d) Both b. and c.

Which of following companies record revenues when selling inventory? (LO6-1) a) Service companies. b) Manufacturing companies. c) Merchandising companies. d) Both manufacturing and merchandising companies.

d) Both manufacturing and merchandising companies.

We can separate cash return on assets into: a) Cash flow to sales and return on assets. b) Profit margin and asset turnover. c) Cash flow to sales and profit margin. d) Cash flow to sales and asset turnover.

d) Cash flow to sales and asset turnover.

Which of the following adjusts the bank's balance of cash in a bank reconciliation (LO4-5) a) NSF checks. b) Service fees. c) An error by the company. d) Checks outstanding.

d) Checks outstanding.

Using a perpetual inventory system, the purchase of inventory on account would be recorded as: (LO6-5) a) Debit Cost of Goods Sold; credit Inventory. b) Debit Inventory; credit Sales Revenue. c) Debit Purchases; credit Accounts Payable. d) Debit Inventory; credit Accounts Payable.

d) Debit Inventory; credit Accounts Payable.

The direct write-off method is generally not permitted for financial reporting purposes because: (LO5-6) a) Compared to the allowance method, it would allow greater flexibility to managers in manipulating reported net income. b) This method is primarily used for tax purposes. c) It is too difficult to accurately estimate future bad debts. d) Expenses (bad debts) are not properly matched with the revenues (credit sales) they help to generate.

d) Expenses (bad debts) are not properly matched with the revenues (credit sales) they help to generate.

The body of rules and procedures that guide the measurement and communication of financial accounting information is known as: a) Standards of Professional Compliance (SPC). b) Code of Ethical Decisions (COED). c) Rules of Financial Reporting (RFP). d) Generally Accepted Accounting Principles (GAAP).

d) Generally Accepted Accounting Principles (GAAP).

Retained earnings: a) Has a normal debit balance. b) Decreases stockholders' equity. c) Is equal to the balance in cash. d) Increases stockholders' equity.

d) Increases stockholders' equity.

Horizontal analysis examines trends in a company: a) Between income statement accounts in the same year. b) Between balance sheet accounts in the same year. c) Between income statement and balance sheet accounts in the same year. d) Over time.

d) Over time.

Which of the following is not a primary source of corporate debt financing? a) Bonds. b) Notes. c) Leases. d) Receivables.

d) Receivables.

Both cash dividends and stock dividends: a) Reduce total assets. b) Reduce total liabilities. c) Reduce total stockholders' equity. d) Reduce retained earnings.

d) Reduce retained earnings.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as: (LO8-4) a) Sales tax expense. b) Sales tax revenue. c) Sales tax receivable. d) Sales tax payable.

d) Sales tax payable.

A credit is used to increase which of the following accounts? a) Dividends. b) Insurance Expense. c) Cash. d) Service Revenue.

d) Service Revenue.

Research and development costs generated internally: (LO7-2) a) Are recorded as research and development assets. b) Are capitalized and then amortized. c) Should be included in the cost of the patent they relate to. d) Should be expensed.

d) Should be expensed.

The balance in the Accumulated Depreciation account represents: (LO7-4) a) The amount charged to expense in the current period. b) A contra expense account. c) A cash fund to be used to replace plant assets. d) The amount charged to depreciation expense since the acquisition of the plant asset.

d) The amount charged to depreciation expense since the acquisition of the plant asset.

Which of the following ratios measures financial leverage? a) The return on assets ratio. b) The inventory turnover ratio. c) The times interest earned ratio. d) The debt to equity ratio.

d) The debt to equity ratio.