ACCT 5312 Final Exam (Chapters 9-11)

An accrued expense can be described as an amount

b. not paid and matched with earnings for the current period.

Form 10-K is submitted to the

d. SEC.

Recognition of revenue in accrual accounting requires: A. that cash be received. B. only that the amount of cash to be received from the sale of a product or service be known. C. only that a product be delivered or a service be performed. D. that the revenue be realized or realizable, and earned.

that the revenue be realized or realizable, and earned.

Which of the following would typically be considered a source document?

b. Invoice received from seller

Most entities satisfy the accounting criteria for recognizing revenue when: A. an order is received from a customer. B. cash is received from a customer. C. an unearned revenue account is credited. D. a product is delivered or a service is provided.

a product is delivered or a service is provided.

What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively?

a. No effect No effect

In an effort to improve the conceptual framework, the FASB, in conjunction with the IASB has been moving towards more __________ standards.

a. principles approach

Caribou Corporation shows the following balances: Beginning of Year End of Year Inventory $80,000 $72,500 Accounts payable 40,000 30,000 Caribou paid suppliers $100,000 during the year. What is Caribou's cost of goods sold for the year?

b. $97,500

A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue. The journal entry to correct this error would be

b. a debit to Sales Revenue and a credit to Accounts Receivable.

The balance in a deferred revenue account represents an amount that is

c. No Yes

In November and December 2013, Bee Company, a newly organized newspaper publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2, 2014, issue of the newspaper. How much should Bee report in its 2013 income statement for subscription revenue?

c. $0

Iowa Cattle Company uses a perpetual inventory system. Iowa purchased cattle from Big D Ranch at a cost of $19,500, payable at time of delivery. The entry to record the delivery would be

c. Inventory ........................... 19,500 Cash .............................. 19,500

Important constraints underlying the qualitative characteristics of accounting information are

c. materiality, conservatism, and cost-effectiveness.

The premium on a two-year insurance policy expiring on June 30, 2015, was paid in total on July 1, 2013. The original payment was debited to the insurance expense account. The appropriate journal entry has been recorded on December 31, 2013. The balance in the prepaid asset account on December 31, 2013, should be

c. the same as it would have been if the original payment had been initially debited to an asset account.

When a large number of individuals, using the same measurement method, demonstrate that a high degree of consensus can be secured among independent measurers, then the result exhibits the characteristic of

c. verifiability

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

Net sales.

The term, "earned," in revenue recognition refers to which of the following? A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits. B. 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. C. The entity has received an irrevocable order for goods or services. D. Cash has been received with an irrevocable order for goods or services.

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

Which of the following accounts/captions are not ever included in the calculation for Gross Profit? A. Revenues. B. Cost of Goods Sold. C. Net Sales. D. General and Selling Expenses.

General and Selling Expenses.

Recording the purchase price of a paper shredder (with an estimated useful life of 10 years) as an expense of the current period is justified by the

a. materiality constraint

The use of computers in processing accounting data

a. may result in the elimination of document trails used to verify accounting records

Historical cost has been the valuation basis most commonly used in accounting because of its

a. reliability.

Earnings per share calculations are required on the income statement for:

Extraordinary Items, Income from Continuing Operations, and Discontinued Operations.

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.

The following is NOT a major component of the financial statements:

a. annual report

Which of the following is an internal user of a company's financial information?

a. Board of directors

Because of their importance to financial statement users, certain expenses are normally reported as separate items on the income statement (especially when significant in amount). Which of the following expenses is not normally reported as a separate item?

Advertising Expense

Which of the following is an accurate statement regarding a statement of cash flows? A. Only cash items that affect the income statement are included. B. Only material cash items that affect the income statement are included. C. All material operating, investing, and financing activities are included. D. Immaterial financing activities that affect cash do not need to be included.

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

Gains differ from revenues because gains:

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

Which of the following transactions would not be shown under the operating activities category of the Statement of Cash Flows (using the direct method):

Cash paid to purchase land.

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 purchases

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.

Income from operations is:

Sometimes used in the ROI calculation.

The major difference between the indirect and the direct method of a statement of cash flows appears in which the following activities section(s)? A. The investing activities and financing activities sections. B. The investing activities section only. C. The operating activities and financing activities sections. D. The operating activities section only.

The operating activities section only.

The term, "realization," in revenue recognition refers to which of the following? A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits. B. 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. C. The entity has received an irrevocable order for goods or services. D. Cash has been received with an irrevocable order for goods or services. E. None of these.

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.

Under most circumstances, in order to recognize revenue:

The revenue must be realized or realizable, and earned.

Most entities satisfy the accounting criteria for recognizing an expense when: A. a commitment is made to purchase a product or service. B. cash is paid to a supplier. C. a cost is incurred in the revenue generating process. D. a dividend is paid to stockholders.

a cost is incurred in the revenue generating process.

Sky Corporation's salaries expense for 2012 was $136,000. Accrued salaries payable on December 31, 2013, was $17,800 and $8,400 on December 31, 2012. The cash paid for salaries during 2013 was

a. $126,600.

Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If collections from clients during the period were $80,000, then total services rendered on account were apparently

a. $76,000.

Which of the following statements regarding assets is NOT true?

a. Assets reported on the balance sheet include both monetary and nonmonetary resources.

What accounting concept justifies the use of accruals and deferrals?

a. Going-concern assumption

Which of the following measurement attributes is not currently used in practice?

a. Inflation-adjusted cost

Which of the following accounts most likely would not appear in a post-closing trial balance?

a. Sales Revenue

Which of the following is true about international accounting standards?

a. Significant differences exist between U.S. GAAP and GAAP of other countries.

Which of the following is NOT a purpose of the conceptual framework of accounting?

a. To provide specific guidelines for resolving situations not covered by existing accounting standards

Which of the following characteristics may result in the classification of a liability as current?

a. Violation of provisions of a debt agreement

In an accrual accounting system,

a. a debit entry is recorded on the left-hand side of an account.

Generally accepted accounting principles

a. derive their credibility and authority from general recognition and acceptance by the accounting profession

Conservatism is best described as selecting an accounting alternative that

a. has the least favorable impact on owners' equity

The disclosure of accounting policies

a. may describe policies that are peculiar to the reporting company's industry.

The United States Securities and Exchange Commission

a. requires foreign companies listing their shares on U.S. stock exchanges to restate their financial statements to U.S. GAAP.

Analysis of a firm's balance sheet provides information on its liquidity, which is the ability to

a. satisfy short-term obligations.

The overall objective of financial reporting is to provide information

a. that is useful for decision making.

The concept of matching revenue and expense refers to the fact that: A. expenses for a period equal the revenues for the period. B. all costs incurred in the process of earning revenues during a period are recorded as expenses in that period. C. all cash disbursements during a period are subtracted from all cash receipts during the period. D. costs incurred in the process of earning revenues during a period are deferred and expensed in a future period.

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

Gains differ from revenues because gains: A. are not a result of the entity's ongoing, central operations. B. do not have to be realized. C. are reported as income from operating activities. D. do not involve any offsetting costs or expenses.

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

For a given year, beginning and ending total liabilities were $8,400 and $10,000, respectively. At year-end, owners' equity was $26,000 and total assets were $2,000 larger than at the beginning of the year. If new capital stock issued exceeded dividends by $2,400, net income (loss) for the year was apparently

b. ($2,000).

Which of the following is an item that is reportable in the financial records of an enterprise?

b. Changes in inventory costing methods

Which of the following elements of financial statements is not a component of comprehensive income?

b. Distributions to owners

Which of the following would NOT be reported in the stockholders' equity section of the balance sheet?

b. Dividends declared on preferred stock

The following private-sector organization was created by the Sarbanes-Oxley Act of 2002 to perform required audits on U. S. publicly traded companies:

b. Public Company Accounting Oversight Board

Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of $27,000 on credit. The entry to record the receipt of the cattle would be

b. Purchases ........................... 27,000 Accounts Payable .................. 27,000

The responsibility to review the work of the accountants and issue opinions as to the fairness of the financial statements rests with

b. the external auditor

Total net income over the life of an enterprise is

b. the same under the cash basis as under the accrual basis.

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: A. be added to net income because this represents earned revenues that have not been collected. B. be subtracted from net income because this represents earned revenue provided by operating earnings. C. be added to net income because this means that revenues were less than cash collected. D. be subtracted from net income because this means that revenues were more than cash collected.

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

Which of the following criteria must be met before an event should be recorded for accounting purposes?

c. The event must be measurable in financial terms.

An example of an adjusting entry involving a deferred revenue is

c. Unearned Rental Revenue ............ xxx Rental Revenue ................... xxx

The process of establishing financial accounting standards is

c. a social process which incorporates political actions of various interested user groups as well as professional research and logic.

Pending litigation would generally be considered a(n)

c. contingent liability.

If an inventory account is understated at year end, the effect will be to overstate the

c. cost of goods sold.

A company sold 10,000 shares of its own $1 par value common stock for $60,000. The entry to record the sale would include a

c. credit to common stock, $1 par value for $10,000..

Unearned rent would normally appear on the balance sheet as a

c. current liability.

Arid Company paid $1,704 on June 1, 2013, for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2013, adjusting entry is

c. debit Prepaid Insurance and credit Insurance Expense, $1,207.

The primary measurement basis currently used to value assets in external financial statements of an enterprise is the

c. market price of the assets held by an enterprise at the date the assets were acquired (although some assets may be valued at their current selling price or net realizable value).

When the periodic inventory system is used: A. operating profit from the sale of an item from inventory is known when the item is sold. B. gross profit from the sale of an item from inventory is known when the item is sold. C. cost of goods sold can be calculated by subtracting the ending inventory amount from the sum of beginning inventory and net purchases. D. a physical inventory must be taken in order to estimate the cost of goods sold.

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

The basic financial statements are listed below: (1) Balance sheet (2) Statement of retained earnings (3) Income statement (4) Statement of cash flows In which of the following sequences does the accountant ordinarily prepare the statements?

d. 3, 2, 1, 4

Information from Brian Company's balance sheet is as follows: Current assets: Cash ............................................ $ 1,200,000 Investment securities ........................... 3,750,000 Accounts receivable ............................. 28,800,000 Inventories ..................................... 33,150,000 Prepaid expenses ................................ 600,000 Total current assets ............................ $67,500,000 Current liabilities: Notes payable ................................... $ 750,000 Accounts payable ................................ 9,750,000 Accrued expenses ................................ 6,250,000 Income taxes payable ............................ 250,000 Payments due within one year on long-term debt .. 1,750,000 Total current liabilities ....................... $18,750,000 What is Brian's current ratio?

d. 3.60 to 1

Which of the following is NOT an implication of the going-concern assumption?

d. Amortizing research and development costs over multiple periods is justifiable and appropriate.

Which of the following is not presented in an income statement?

d. Dividends

Operations of the FASB are overseen by the:

d. Financial Accounting Foundation

Which of the following would NOT be classified as a current asset on a classified balance sheet?

d. Intangible assets

Which of the following is true regarding the accounting process?

d. Preparation of the trial balance determines that total debits equal total credits.

Primary responsibility for GAAP and public reporting currently rests with the

d. SEC

Financial information exhibits the characteristic of consistency when

d. accounting entities give similar events the same accounting treatment each period.

When financial reports from two different companies have been prepared and presented in a similar manner, the information exhibits the characteristic of

d. comparability

A conceptual framework of accounting should

d. define the basic objectives, terms, and concepts of accounting.

The International Accounting Standards Board was formed to

d. develop worldwide accepted accounting standards

The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of

d. going concern

A contingent liability should be recorded when

d. it is probable that a liability has been incurred even though the amount of the loss cannot be reasonably estimated.

On June 30, a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31:

d. overstates both owners' equity and assets.

According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is

d. recognition.

Under the cash basis of accounting,

d. the matching principle is ignored.

A trial balance is useful because it indicates that

d. total debits equal total credits.

Revenue may be recognized: A. from the sale of a company's own common stock. B. if a company trades inventory at its usual selling price for newspaper advertising. C. if management believes the market value of land held for future development has increased during the year. D. in 2013 from the sale of subscriptions of a magazine to be published in 2014.

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

The earnings per share of common stock calculation: A. is made by dividing net income by the number of shares of common stock outstanding at the end of the year. B. is complicated by the declaration of cash dividends during the year. C. includes gains or losses from treasury stock transactions. D. is complicated by the presence of preferred stock in the capital structure.

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

The gross profit ratio is useful to the manager for each of the following purposes except that: A. it can be used to determine the selling price to set for an item. B. it can be used to estimate the amount of inventory lost in a fire. C. it can be used to determine the amount available from a given amount of revenue to cover operating expenses. D. it can be used to estimate the amount of operating expenses for a period.

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

The first caption in most income statements in annual reports is: A. gross sales. B. net sales. C. earned revenues. D. sales, less sales returns and allowances.

net sales.

Income from operations is: A. sometimes called the "bottom line." B. sometimes used in the ROI calculation. C. usually used in the ROE calculation. D. usually calculated after income tax expense.

sometimes used in the ROI calculation.

Under most circumstances, in order to recognize revenue: A. cash must have been received. B. the entity must expect to receive cash in the future. C. the entity must have paid for all expenses incurred in generating the revenue. D. the revenue must be realized or realizable, and earned.

the revenue must be realized or realizable, and earned.

In the statement of cash flows, depreciation and amortization expense is added back to net income because: A. these expenses do not affect cash, but were subtracted in the determination of net income. B. these expenses affect investing activities, not operating activities. C. the cash disbursements for these accrued expenses will be made in a future period. D. these expenses are recognized for accounting purposes, but they do not represent economic costs.

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

Failure to record depreciation expense at the end of an accounting period results in

b. overstated assets.

The allowance for doubtful accounts is an example of a(n)

d. contra account.