ACCY 200 Exam 1
Which of the following is true regarding notes receivables? A notes receivable is always a long-term asset. A note is a more formal document than an account receivable. A notes receivable is always a current asset. A note is a less formal document than an account receivable.
A note is a more formal document than an account receivable.
Which of the following statements best describes the process of accounting for depreciation? A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset. A process that attempts to recognize loss in economic value over a period of time. A process for setting aside cash so funds will be available to replace the asset. A process for recognizing 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 accounts is not an asset? Cash. Inventory. Accounts Payable. Equipment. Land.
Accounts Payable.
Which of the following groups of accounts all have debit balances? Land, Equipment, and Paid-In Capital. Accounts Receivable, Merchandise Inventory, and Salary Expense. Notes Receivable, Dividends Payable, and Interest Expense. Accounts Receivable, Accumulated Depreciation, and Buildings. None of the above.
Accounts Receivable, Merchandise Inventory, and Salary Expense.
Which of the following lists of accounts all have debit balances? Land, Equipment, and Paid-in Capital. Accounts Receivable, Merchandise Inventory, and Salary Expense. Notes Receivable, Dividends Payable, and Interest Expense. Accounts Receivable, Accumulated Depreciation, and Buildings. None of the above.
Accounts Receivable, Merchandise Inventory, and Salary Expense.
Which of the following accounting methods accomplishes much of the matching of revenues and expenses? Cash accounting. Match accounting. Full disclosure accounting. Accrual accounting.
Accrual accounting
Which of the following is not a stockholders' equity account? Retained earnings. Paid-in-capital in excess of par. Capital stock. Common stock. Accumulated depreciation.
Accumulated depreciation.
The Discount on Short-Term Debt account is a contra liability account. reduces the total amount of liabilities reported on the balance sheet. is often netted against the liability account to which it relates for financial reporting purposes. is amortized to interest expense over the life of the liability to which it relates. all of the above.
All of the above
The accounting for deferred income taxes is a controversial topic because it is sometimes unclear whether deferred income taxes will ever have to be paid by companies that continue to grow (in total assets). estimating future tax rates that should be used in current calculations is difficult because changes in the tax code are difficult to project. price-level increases have caused the replacement cost of assets to be higher than the original costs of assets being replaced. new temporary differences originating on assets being purchased during the current year are often larger in dollar amount than old temporary differences reversing on assets purchased in prior years. all of the above.
All of the above
Which of these is not a limitation of financial statements? Qualitative data are not reflected in financial statements. Market values of assets are not generally reported. Estimates are commonly used and are sometimes inaccurate. It may be difficult to compare firms in the same industry because they often use different accounting methods. All of the above are limitations of financial statements.
All of the above are limitations of financial statements.
The recognition of liabilities often results in the recognition of expenses. a more conservative representation of financial position. a decrease in net income. a decrease in ROI. all of the above.
All of the above.
When choosing between issuing common stock and issuing bonds, managers of corporations should take into account the tax advantages to the company of deducting the interest cost of bonds. the demands placed on their company by stockholders who expect to be paid quarterly dividends. the risks associated with having to make fixed interest payments on bonds at predetermined times. the impact that the choice will have on their company's financial leverage. all of the above.
All of the above.
The balance sheet equation can be represented by: Assets - Liabilities = Stockholders' Equity. Net Assets = Stockholders' Equity. Assets = Liabilities + Stockholders' Equity. All of these.
All of these
Which of the following entities would not require accounting information pertaining to their economic activities? Social clubs. Not-for-profit entities. State governments. All of these require accounting information. None of these requires accounting information.
All of these require accounting information.
The Buildings account should be increased (debited) for the purchase or construction price of the building, plus any ordinary and necessary costs incurred to get the building ready for use. any interest costs incurred on amounts borrowed to finance the building during its construction. any installation and inspection costs incurred to get the building ready for use. any material, labor, and overhead costs incurred by an entity in the construction of its own building. all of the above.
All the above.
An expanded version of the accounting equation could be: Assets + Revenues = Liabilities + Stockholders' Equity - Expenses Assets = Liabilities + Paid-in Capital - Revenues + Expenses Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues - Expenses - Dividends Assets - Liabilities = Paid-in Capital - Revenues - Expenses
Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues - Expenses - Dividends
Which of the following is not a correct expression of the accounting equation? Assets = Liabilities + Stockholders' Equity. Assets = Liabilities − Stockholders' Equity. Assets = Liabilities + Paid-In Capital + Retained Earnings. Assets = Liabilities + Paid-In Capital + Revenues Expenses. Assets Liabilities = Stockholders' Equity
Assets = Liabilities − Stockholders' Equity.
Which of the following classifications would represent the largest number of shares of common stock? Issued shares. Outstanding shares. Treasury shares. Authorized shares. Unissued shares.
Authorized shares
Which of the following financial statement descriptions is inaccurate? Balance Sheet—shows the organization's financial position for a period of time. Income Statement—shows what the organization's earnings were for a period time. Statement of Cash Flows—shows what the organization's receipts and disbursements were for a period of time. Statement of Stockholders' Equity—shows the investments by and distributions to stockholders for a period of time. All of the above descriptions are accurate.
Balance Sheet—shows the organization's financial position for a period of time.
Which of the following is(are) a true statement(s) pertaining to bonds? Bonds can be sold at a discount, par, or payable. The issuing firm sets the price of a bond. The SEC sets the market price of a bond. Bonds can be sold at a discount, par, or premium.
Bonds can be sold at a discount, par, or premium.
Which of the following does not appear in the stockholders' equity section of a balance sheet? Preferred Stock. Bonds Payable. Additional Paid-In Capital. Accumulated Other Comprehensive Income (Loss). Treasury Stock.
Bonds payable
Which of the following is not typically classified as a current liability? Accounts Payable. Notes Payable. Bonds Payable. Unearned Subscription Revenue. Interest Payable
Bonds payable
Which of the following is true regarding bond discounts and/or premiums? Both bond discount and premium are amortized. Neither bond discount nor premium is amortized. Bond discount is amortized but bond premium is not. Bond premium is amortized but bond discount is not.
Both bond discount and premium are amortized.
Expenditures incurred on long-term assets after they have been placed in service are either capitalized or expensed. Which of the following statements concerning such expenditures is true? Capitalized amounts represent future economic benefits that extend beyond one year. Expensed amounts benefit no more than three future years. Capitalized amounts decrease net income for the entire amount in the year of the expenditure. Expensed amounts are added to the net book value of the related asset. Immaterial amounts should always be capitalized.
Capitalized amounts represent future economic benefits that extend beyond one year.
Which of the following is not an example of a source document? Purchase invoice. Chart of accounts. Cash register tape printout. Receipt from sales register at the point of purchase. Check stub.
Chart of accounts.
Regarding bank reconciliations, which of the following is true? Deposits in transit are added to the bank balance. Service charges are subtracted from the bank balance. Interest earned on notes collected by the bank is not a reconciling item (only the note itself is a reconciling item). NSF checks result in the recognition of bad debts expense on the books. Outstanding checks are subtracted from the book balance.
Deposits in transit are added to the bank balance.
Which of the following is not a right or attribute of common stock ownership? Electing directors. Liability limited to amount invested. Approving changes in corporate charter. Determining dividend policy. All of the above are rights of common stock ownership.
Determining dividend policy.
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. Interest Payable, Cr. Cash Dr. Interest receivable, Cr. Interest Payable Dr. Interest expense, Cr. Interest Payable Dr. Interest Payable, Cr. Interest expense
Dr. Interest expense, Cr. Interest Payable
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? $1,000 $0 $2,000 $6,000
$6,000
Which of the following are qualified to express an auditor's opinion about an entity's financial statements? A Comptroller. A Certified Management Accountant. A Certified Internal Auditor. A Certified Public Accountant. None of these.
A Certified Public Accountant.
Which statement best describes the purpose of closing entries: To continue recording the effects of transactions which began in one year and will be completed in another year. To compute net income or net loss for the year. To prepare the books for the posting process and taking a trial balance. To eliminate the balances in the revenue and expense accounts so they have zero balances at the beginning of the next fiscal year. To eliminate the need for preparing adjustments.
To eliminate the balances in the revenue and expense accounts so they have zero balances at the beginning of the next fiscal year.
Which of the following is normally a contra stockholders' equity account? Retained Earnings. Treasury Stock. Preferred Stock. Additional Paid-In Capital. None of the above.
Treasury Stock.
The declaration of a cash dividend by the directors results in: a decrease in net income and a decrease in cash. 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 an increase in current liabilities.
a decrease in retained earnings and an increase in current liabilities.
The lessee's entry to record a periodic cash lease payment on a capital lease results in an increase in total liabilities and an increase in net income. an increase in total liabilities and a decrease in net income. a decrease in total liabilities and a decrease in net income. a decrease in total liabilities and an increase in net income.
a decrease in total liabilities and a decrease in net income.
When a depreciable asset is sold: depreciation expense is adjusted so there is no gain or loss. a gain arises if the sales proceeds exceed the net book value. any cash received results in a gain. a loss arises if the sales proceeds exceed the net book value.
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 ROI relative to what it would be without long-term debt. a magnification of ROE relative to what it would be without long-term debt. a reduction of the risk that creditors will not be paid. 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 time frame associated with an income statement is: a function of the information included in it. a point in time in the past. a past period of time. a future period of time.
a past period of time
Many current liabilities are affected by accrual accounting entries. This happens because: accrual accounting frequently involves recognizing liabilities before they are incurred. liabilities are usually paid when 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.
accrual accounting involves recognizing liabilities before they are paid.
A transaction that is likely to cause an increase in a current liability is: accrual of bad debts expense. payment of accrued wages. accrual of interest expense. depreciation of equipment.
accrual of interest expense.
Arch Co. has a note payable to its bank. An adjusting entry is likely to be required on Arch's books at the end of every month that the loan is outstanding to record the: amount of interest paid during the month. amount of total interest to be paid when the note is paid off. amount of principal payable at the maturity date of the note. accrued interest expense for the month. all of the above.
accrued interest expense for the month.
Matching revenues and expenses refers to: recording revenues when cash is received. having revenues equal expenses. recording revenues when a product is sold or a service is rendered. accurately reflecting the results of operations for a fiscal period.
accurately reflecting the results of operations for a fiscal period.
If a firm sells treasury stock for more than its cost: a gain is recognized in the income statement. retained earnings is increased. total stockholders' equity does not change. additional paid-in capital is increased.
additional paid-in capital is increased.
Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because: the exact amount of the losses from bad debts is known. the accounts receivable asset should be stated at original cost. all costs incurred in the current period should be subtracted from current period revenues. revenues should be stated at realizable value.
all costs incurred in the current period should be subtracted from current period revenues.
The liability for product warranty claims is an example of a liability that: has been recorded in the process of matching revenue and expense. has been calculated using estimates. also resulted in a reduction of net income. all of these.
all of these.
Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to: amortization. consolidation. depreciation. depletion.
amortization
Total assets remain the same when depreciation expense is recorded. common stock is issued for cash. an account payable is paid to a creditor. an account receivable is reclassified as a note receivable. dividends are paid to common stockholders.
an account receivable is reclassified as a note receivable.
When a firm purchases supplies for its business: the supplies expense account should always be debited. an adjustment will probably be required as supplies are used. either the supplies account or the supplies expense account should be credited. the supplies account should always be debited.
an adjustment will probably be required as supplies are used.
The adjusting entry to accrue Interest Expense results in: a decrease in Cash. an increase in Interest Expense. a decrease in Interest Payable. a decrease in Interest Expense.
an increase in Interest Expense.
The accrual of interest on short-term marketable securities results in: an increase in noncurrent assets and an increase in liabilities. an increase in current liabilities and an increase in net income. an increase in current assets and a decrease in net income. an increase in current assets and an increase in net income.
an increase in current assets and an increase in net income.
Expenditures capitalized as long-lived assets generally include those expenditures that: are for items that have a physical life of more than a year, regardless of their cost. are material in amount and that have an economic benefit to the entity only in the current year. are 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 material in amount and that have an economic benefit to the entity that extends beyond the current year.
Inventories: represent a major portion of the property, plant, and equipment assets for many firms. are recorded as debits to assets when purchased and as debits to expenses when used. must be accounted for using either the LIFO or FIFO method. are not an important component of working capital for most firms. decrease ROI because they use cash.
are recorded as debits to assets when purchased and as debits to expenses when used.
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 principal payments on the note are made. when the interest is paid.
as of the end of each accounting period during which the note is a liability.
The ethical concept of integrity means that an individual must: sign a pledge to abide by all laws and regulations. report to a supervisor any violation of the code of conduct of her company that is observed. read, understand, and agree to follow all provisions of her employer's code of conduct. attempt to be honest and forthright in dealings and communications with others.
attempt to be honest and forthright in dealings and communications with others.
Treasury stock involves shares that are authorized but not yet issued. authorized, issued, and outstanding. issued and outstanding but not yet authorized. not yet authorized. authorized and issued but not currently outstanding.
authorized and issued but not currently outstanding.
Treasury stock involves shares which are: authorized, but not yet issued. authorized, issued, and outstanding. issued and outstanding, but not yet authorized. not yet authorized. authorized and issued, but not currently outstanding.
authorized and issued, but not currently outstanding.
When a firm uses the LIFO inventory cost flow assumption: cost of goods sold will be greater than if FIFO were used. net income will be greater than if FIFO were used. cost of goods sold will be the same as if FIFO were used. better matching of revenue and expense is achieved than under FIFO.
better matching of revenue and expense is achieved than under FIFO.
The current assets of most companies are usually made up of: assets that are currently used in the operations of the company. cash and assets expected to be converted to cash within a year. a very small proportion (less than 10%) of the total assets of the entity. 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. assets that are currently used in the operations of the company. a very small proportion (less than 10%) of the total assets of the entity. cash, marketable securities, and accounts and notes receivable.
cash and assets expected to be converted to cash within a year.
The allowance for uncollectible accounts is a(n): contra current asset. expense. contra revenue. asset.
contra current asset.
Retained earnings represents: net income plus gains (or minus losses) on treasury stock transactions. 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. 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.
Retained Earnings represents: cumulative net income that has not been distributed to stockholders as dividends. cash that is available for dividends. the amount invested in the entity by the stockholders. par value of common stock outstanding.
cumulative net income that has not been distributed to stockholders as dividends.
The principal reason for a company having a common stock split is to: increase the total cash dividends paid to stockholders. capitalize retained earnings. decrease total stockholders' equity. decrease the market value per share of common stock. change from par value to no par value stock.
decrease the market value per share of common stock.
Retained Earnings is not increased by net income. decreased by expenses. increased by revenues. decreased by dividends declared. decreased by gains and losses.
decreased by gains and losses.
Retained Earnings is not: increased by net income. decreased by expenses. increased by revenues. decreased by dividends declared. decreased by losses.
decreased by losses.
Expenses are: decreases in net assets from dividends to stockholders. cash disbursements. decreases in net assets resulting from usual operating activities. decreases in net assets from uninsured accidents.
decreases in net assets resulting from usual operating activities
Credits are used to record: decreases to assets and increases to expenses, liabilities, revenues, and stockholders' equity. decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity. increases to assets and decreases to expenses, liabilities, and stockholders' equity. increases to assets and expenses and decreases to revenues, liabilities, and stockholders' equity. decreases to assets and stockholders' equity and increases to liabilities, expenses, and revenues.
decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity.
Credits are used to record: decreases to assets and increases to expenses, liabilities, revenues, and stockholders' equity. decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity. increases to assets, and decreases to expenses, liabilities, and stockholders' equity. increases to assets and expenses and decreases to revenues, liabilities, and stockholders' equity. decreases to assets and stockholders' equity and increases to liabilities, expenses and revenues.
decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity.
The entry to record depreciation on long-term assets decreases total assets and increases net income. decreases current assets and increases net income. decreases total assets and decreases net income. increases total assets and increases net income. increases total assets and decreases net income.
decreases total assets and decreases net income.
Similarities between preferred stock and long-term debt (bonds) include all of the followingexcept each has a fixed claim to annual income (dividends and interest, respectively). each has a fixed claim on assets (liquidating value and principal amount, respectively). each allows the corporation a tax deduction (dividends and interest, respectively). each may be callable and/or convertible. All of the above are similarities between preferred stock and long-term debt (bonds).
each allows the corporation a tax deduction (dividends and interest, respectively).
Partnerships, as contrasted with corporations, can be characterized as being relatively easier to form, less risky to be an owner of, and easier to raise large amounts of capital for. easier to form, more risky to be an owner of, and harder to raise large amounts of capital for. harder to form, more risky to be an owner of, and harder to raise large amounts of capital for. harder to form, less risky to be an owner of, and easier to raise large amounts of capital for. none of the above.
easier to form, more risky to be an owner of, and harder to raise large amounts of capital for.
An accounts receivable results from the sale of: goods and services to customers on account. property, plant, and equipment for cash. the firm's common stock. goods and services to customers for cash.
goods and services to customers on account.
One of the most important reasons for having a system of internal control is to: improve the effectiveness and efficiency of the operations of the organization. ensure no employees have ever been convicted of stealing. eliminate any temptations that may be presented to employees that could lead to theft from the company. prevent a salesperson from using a company car for personal transportation
improve the effectiveness and efficiency of the operations of the organization
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 net book value of the asset was negative. in retrospect, the life over which the asset was depreciated was too short. no cash was received in the disposal transaction.
in retrospect, the depreciation expense recognized over the asset's life was too low.
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 higher selling price can be established. income taxes will be lower. balance sheet inventory values will be higher. net income will be higher.
income taxes will be lower.
A credit entry will: increase an expense account. decrease paid-in capital. increase a liability account. increase an asset account.
increase a liability account.
In the seller's records, the sale of merchandise on account at an amount that yields a gross profit would: increase assets and increase expenses. increase assets and decrease liabilities. increase assets and increase paid-in capital. increase assets and decrease revenues. decrease assets and increase expenses
increase assets and increase expenses.
In the buyer's records, the purchase of merchandise on account would: increase assets and increase expenses. increase assets and increase liabilities. increase liabilities and increase paid-in capital. increase liabilities and decrease assets. have no effect on total assets.
increase assets and increase liabilities.
When comparing its effects to LIFO during an inflationary time, the effects of FIFO are to decrease net income and decrease total assets. decrease net income and increase total assets. increase net income and decrease total assets. increase net income and increase total assets.
increase net income and increase total assets.
The carrying value of a bond in the liability section of the balance sheet will increase over time as the Premium on Bonds Payable account is amortized. increase over time as a bond issued at a discount reaches maturity. increase over time as a bond issued at par reaches maturity. decrease over time as the Discount on Bonds Payable account is amortized. increase over time as Interest Expense on the bond is accrued each year.
increase over time as a bond issued at par reaches maturity.
The effect of an adjustment on the financial statements is usually to: make the balance sheet balance. increase the accuracy of both the balance sheet and income statement. increase net income. match revenues and assets.
increase the accuracy of both the balance sheet and income statement.
A debit entry will: always decrease the account balance. always increase the account balance. increase the balance of a revenue account. increase the balance of an expense account.
increase the balance of an expense account.
The entry to record depreciation expense: decreases an asset and increases a contra asset. decreases a contra asset and decreases net income. increases a contra asset and decreases net income. decreases working capital and decreases net income.
increases a contra asset and decreases net income.
Revenues are: increases in net assets from selling a product. increases in net assets from selling common stock. increases in net assets from occasional sales of equipment. cash receipts.
increases in net assets from selling a product.
When bonds are issued at a premium: interest expense on the bonds will be less than the interest paid. the coupon interest rate is less than the market interest rate. the bonds are sold for less than their face amount. interest expense on the bonds will be more than the interest paid.
interest expense on the bonds will be less than the interest paid.
The inventory cost flow assumption describes the flow of product cost: into the revenue (sales) account and out to the expense (cost of goods sold) account. from the warehouse to the customer. into the asset (inventory) account and out to the expense (cost of goods sold) account. 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.
A fiscal year: must always end on the same date each year. is always the same as the calendar year. must end on the last day of a month. is frequently selected based on the firm's operating cycle.
is frequently selected based on the firm's operating cycle
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 acquiring company. is less than the fair value of the net assets of the acquiring 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 acquired company.
is more than the fair value of the net assets of the acquired company.
A cash equivalent is a current asset that: will be converted to cash within one year. none of these. is readily convertible into cash with a substantial risk. is readily convertible into cash with a minimal risk. will be converted to cash within one month.
is readily convertible into cash with a minimal risk.
LIFO is the only method of inventory costing that is allowed for tax purposes. assigns the highest dollar amount to ending inventory when prices are rising. is used in inflationary times to improve net income. is required for financial reporting purposes by firms that use it for tax purposes. presents the best approximation of the underlying value of inventory on the balance sheet.
is required for financial reporting purposes by firms that use it for tax purposes.
Many companies use accelerated depreciation for tax purposes because: it is used for determining net income reported to stockholders. it results in lower taxable income than straight-line depreciation. it reflects the amount of cash used in depreciation. it is easier to calculate than straight-line depreciation.
it results in lower taxable income than straight-line depreciation.
The balance sheet valuation of inventories is: lower of selling price or cost. lower of cost or market. lower of realizable value or selling price. cost, regardless of the cost of replacing the inventory.
lower of cost or market.
A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is: magazines are printed for the publisher. magazines are mailed to subscribers. subscriptions are sold to new subscribers. cash is received from new subscribers.
magazines are mailed to subscribers.
Depreciation on assets such as equipment and machinery is recorded because of the cost principle. matching principle. unit of measurement assumption. conservatism constraint. going concern concept.
matching principle.
The principle stating that all expenses incurred while earning revenues should be identified with the revenues when they are earned and reported for the same time period is the cost principle. revenue principle. expense principle. matching principle. timing principle.
matching principle.
Similarities between preferred stock and bonds include all of the following, except: Each has a fixed claim to annual income (dividends and interest, respectively). Each has a fixed claim on assets (liquidating value and principal amount, respectively). Each allows the corporation a tax deduction (dividends and interest, respectively). Each may be callable and/or convertible. All of the above are similarities between preferred stock and bonds.
Each allows the corporation a tax deduction (dividends and interest, respectively).
All of the following are typically classified as current assets except Marketable Securities. Accounts Receivable. Cash. Equipment. Notes Receivable.
Equipment.
The principle stating that all expenses incurred while earning revenues should be identified with the revenues when they are earned, and reported for the same time period is the: cost principle. revenue principle. expense principle. matching principle. timing principle.
matching principle.
The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is: objectivity. matching revenue and expense. original cost. consistency.
matching revenue and expense.
The intangible asset goodwill: all of these are correct. arises because the fair value of a company's assets is greater than cost. represents the management team's assessment of its value to the company. may arise when one company purchases another company.
may arise when one company purchases another company.
When borrowing money, the most important objective of the borrower should be to: minimize monthly payments. minimize the APR. avoid borrowing on a discount basis. make the maturity date as far in the future as possible. reading all of the hidden terms and conditions.
minimize the APR.
The present value concept is widely applied in business because: inflation erodes the purchasing power of money. money has value over time. accounting for operating leases requires its use. most obligations are settled within a year. depreciation calculations require its use.
money has value over time.
All of the following give rise to a liability except money borrowed from a bank. interest costs resulting from the passage of time. employees working before being paid. products sold with warranties. negotiations to make a purchase on credit.
negotiations to make a purchase on credit.
Another term frequently used to describe stockholders' equity is: capital stock. gross assets. net assets. paid-in capital.
net assets.
Factors that usually affect retained earnings directly include: net income or loss, and the issuance of stock at an amount in excess of par value. extraordinary items and losses from discontinued operations. stock dividends and gains or losses from the sale of treasury stock. net income or loss, and dividends.
net income or loss, and dividends.
The purpose of the income statement is to show the: 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. revenues collected during the period covered by the statement. market value per share of stock at the date of the statement.
net income or net loss for the period covered by the statement.
The current liability for Wages Payable (or Accrued Payroll) represents the: employer's liability for various withholdings that taken out of the gross pay earned by employees. employer's federal and state payroll tax obligation. 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.
net pay earned by employees for which they have not yet been paid.
Accounts receivable are reported at: net realizable value. market value. historical cost. weighted average cost.
net realizable value
A working capital loan will generally: require that interest (if any) be paid monthly. not have an interest rate. be classified as a noncurrent liability. not affect working capital.
not affect working capital.
The payment of a current liability will: not affect working capital. increase working capital. decrease net income. decrease working capital.
not affect working capital.
In an inflationary economic environment, the selling price set for a firm's products will: be derived from the weighted average cost of inventory. not be affected by the cost flow assumption used. be higher if LIFO is used than if FIFO is used. be higher if FIFO is used than if LIFO is used.
not be affected by the cost flow assumption used.
All of the following are examples of intangible assets except leaseholds. goodwill. trademarks. oil reserves. patents.
oil reserves.
A concept or principle that relates to transactions is: materiality. original cost. consistency. full disclosure
original cost.
The effect of an error resulting in an understatement of ending inventory is to: understate cost of goods sold of the current period. overstate cost of goods sold of the current period. overstate operating expenses of the current period. overstate the next period's beginning inventory.
overstate cost of goods sold of the current period
Current maturities of long-term debt: reflect overdue installments of bonds payable. represent cash that has been set aside for debt payments due within a year. permit a more accurate determination of working capital. are classified with long-term debt.
permit a more accurate determination of working capital.
When costs are rising over time: FIFO results in higher profits than LIFO. Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold. ending inventory balances will be greater under LIFO. LIFO results in higher profits that FIFO.
FIFO results in higher profits than LIFO.
Which of the following is not usually a right or attribute of preferred stock? Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock. Having a priority claim to dividends relative to the common stock's claim to dividends. Having a priority claim in liquidation relative to the common stock's claim in liquidation. Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied. All of the above are usually rights or attributes of preferred stock.
Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock.
Leasehold is an example of which of the following types of assets? Current asset. Property, plant and equipment. Goodwill. Intangible asset.
Intangible asset.
Which of the following is not one of the 5 questions of transaction analysis? What's going on? Which accounts are affected? Is this an accrual? Does the balance sheet balance? Does my analysis make sense?
Is this an accrual?
Cost accounting is a subset of which of the following? Internal auditing. Public auditing. Cost analysis. Managerial accounting.
Managerial accounting.
Which of the following is not usually associated with bonds? Maturity rate. Face amount. Maturity value. Coupon rate.
Maturity rate.
Normal account balances are as follows: Cash, Accounts Receivable, and Service Revenues are debits. Interest Expense, Wages Payable, and Retained Earnings are credits. Merchandise Inventory, Cost of Goods Sold, and Equipment are debits. Accumulated Depreciation, Cash, and Merchandise Inventory are debits. None of the above.
Merchandise Inventory, Cost of Goods Sold, and Equipment are debits.
Which of the following is NOT an example of an inventory account a manufacturing firm might use? Finished goods inventory. Work in process inventory. Merchandise inventory. Raw materials inventory.
Merchandise inventory.
Which of the following is not a correct expression of the accounting equation? Assets - Liabilities = Stockholders' Equity Net Assets = Liabilities + Stockholders' Equity Assets = Liabilities + Stockholders' Equity Net Assets = Stockholders' Equity All of the above are correct expressions of the accounting equation.
Net Assets = Liabilities + Stockholders' Equity
Bank reconciliations often result in the recording of adjusting (or correcting) entries affecting the cash account on the books of the company involved. Which of the following items would not cause such an adjustment? Bank service charges. Outstanding checks. Notes collected on behalf of the company by the bank. Errors made in recording amounts of checks written. Not sufficient funds checks.
Outstanding checks.
The stockholders' equity section of a balance sheet contains two major components: Common Stock and Additional Paid-in Capital. Paid-in Capital and Retained Earnings. Common Stock and Retained Earnings. Net Income and Dividends. Additional Paid-in Capital and Net Income.
Paid-in Capital and Retained Earnings.
Which of the following is not true about a 10% stock dividend? Retained earnings decrease. Paid-in capital increases. Par value decreases. Information concerning the market value of the stock is needed to record the stock dividend journal entry. Total stockholders' equity remains the same.
Par value decreases.
Which of the following inventory accounting systems has been made much more feasible as a result of computer systems developments? Physical. Periodic. Just-in-time. Perpetual.
Perpetual.
An Accounts Payable normally results from which of the following transactions? Purchasing goods and services from suppliers on credit. All of these. Purchasing accounts for cash. Purchasing property, plant and equipment on credit.
Purchasing goods and services from suppliers on credit.
The balance sheet might also be called: Statement of Assets. Statement of Financial Position. Statement of Changes in Financial Position. None of these.
Statement of Financial Position.
Which of the following would not affect total retained earnings? Assume that it is the end of the fiscal year and that the books have been closed. Cash dividends. Net income. Stock dividends. Stock splits. All of the above would affect total retained earnings.
Stock splits.
Which depreciation method results in equal depreciation expense amounts for each year of an asset's useful life? Units-of-production. Straight-line. Double-declining-balance. MACRS.
Straight-line.
In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true? The Discount on the Bonds Payable account is a contra asset. The Discount on the Bonds Payable account reduces working capital. The Discount on the Bonds Payable account is amortized by a credit entry each period. As the Premium on Bonds Payable account is amortized each period, the Interest Expense account is increased to the amount it would have been, had the bonds been sold at par. E) The premium on Bonds Payable account is a contra liability.
The Discount on the Bonds Payable account is amortized by a credit entry each period.
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 leverage a firm obtains from increasing production. The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. 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).
Transactions are summarized in: The entity's accounts. The notes for the financial statements. None of these. The independent auditor's opinion letter.
The entity's accounts.
Stockholders' equity refers to which to the following? None of these. The ownership right of the stockholder(s) of the entity. A listing of the organization's assets and liabilities. All of these. Probable future sacrifices of economic benefits.
The ownership right of the stockholder(s) of the entity.
Internal control systems involve a series of checks and balances that separate each of the functional duties involved in processing a transaction, and are normally designed to do all of the following except promote accuracy and reliability of the company's records and financial statements. safeguard and protect a company's assets against improper or unauthorized use. prevent groups of employees from committing collusive acts of fraud. encourage employees to adhere to the company's prescribed policies and procedures. provide an environment that is conducive to efficient operation of the organization.
prevent groups of employees from committing collusive acts of fraud.
An organization's system of internal control is designed primarily to: ensure that no employees steal the organization's property. provide an operating framework for all employees as they work to achieve the organization's goals. ensure that the organization's balance sheet will always balance. 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 organization's goals.
As contrasted with the periodic inventory system, the perpetual system shows higher ending inventory and lower cost of goods sold in all cases. does not require a continuous record of all purchases and sales made during the period. is easier to use and does not often require the use of computers. provides better information for management to control unauthorized use and theft of inventory.
provides better information for management to control unauthorized use and theft of inventory.
The amortization of bond discount: results in bond interest expense being greater than the interest paid to bondholders. results in bond interest expense being less than the interest paid to bondholders. increases the cash paid to bondholders for interest. reduces the carrying value of bonds payable on the balance sheet.
results in bond interest expense being greater than the interest paid to bondholders.
A stock dividend is similar to a cash dividend in that: an individual stockholder's equity in the firm's net assets is reduced by each. an individual stockholder's cash is increased by each. an individual stockholder's equity in the firm's net assets is increased by each. retained earnings and the amount of potential future dividends is reduced by each. each is an application of the return on investment concept.
retained earnings and the amount of potential future dividends is reduced by each.
The income statement shows amounts for: revenues, assets, gains, and losses. revenues, expenses, losses, and liabilities. revenues, expenses, gains, and fair value per share. revenues, gains, expenses and losses.
revenues, gains, expenses and losses.
When a manufacturer invests in short-term marketable securities: the securities are likely to have a maturity date more than a year in the future. the market value of the securities is likely to fluctuate significantly. risk avoidance is of great importance. the return on investment is more important than the risk involved.
risk avoidance is of great importance.
The shares outstanding are the: shares authorized minus the shares issued. shares authorized minus the shares held in the treasury. shares issued minus the shares held in the treasury. shares issued minus the shares owned by directors. shares held in treasury minus the shares owned by directors.
shares issued minus the shares held in the treasury.
All of the following are examples of "accrued expense" types of liabilities except the liability for short-term notes taken out at a bank during the year. payroll taxes owed by the employer for the year. property taxes owed to local governments for the year. salaries and wages owed to employees at the end of the year. estimated product warranty costs on products sold during the year.
short-term notes taken out at a bank during the year.
All of the following are examples of "accrued expense" types of liabilities except the liability for: short-term notes taken out at a bank during the year. payroll taxes owed by the employer for the year. property taxes owed to local governments for the year. salaries and wages owed to employees at the end of the year. estimated product warranty costs on products sold during the year.
short-term notes taken out at a bank during the year.
The balance sheet of an entity: reports plant and equipment at its opportunity cost. shows the fair value of the assets at the date of the balance sheet. shows amounts that are not adjusted for changes in the purchasing power of the dollar. reflects the impact of inflation on the replacement cost of the assets.
shows amounts that are not adjusted for changes in the purchasing power of the dollar.
The Statement of Cash Flows: shows how cash changed during the period. shows the change in the fair value of the entity's common stock during the period. shows the dividends that will be paid in the future. is an optional financial statement.
shows how cash changed during the period.
Depreciation, in accounting, is a process that results in: an accurate measurement of the economic usefulness of an asset. spreading the cost of an asset over its useful life to the entity. depreciable assets being reported in the balance sheet at their fair value. accumulating cash for the replacement of the asset.
spreading the cost of an asset over its useful life to the entity.
Paid-in Capital represents: earnings retained for use in the business. the amount invested in the entity by the stockholders. fair value of the entity's common stock. net assets of the entity at the date of the statement.
the amount invested in the entity by the stockholders.
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 will be less than the interest paid each year.
When a company issues a bond at a discount: the company will pay more than the face amount of the bond at its maturity. the company will pay less than the face amount of the bond at its maturity. the company's interest expense will be less than the interest paid each year. the company'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.
One inventory cost flow assumption will result in different cost of goods sold from another inventory cost flow assumption only if: a new product is added to inventory during the year. the cost of inventory items changes during the year. inventory quantities change from the beginning to end of the year. price levels do not change during the year.
the cost of inventory items changes during the year.
If the market price of a bond exceeds its face amount: the maturity rate has been declining. the coupon rate is less than the market interest rate. the company's ROI and working capital have been increasing over time. the coupon rate is more than the market interest rate.
the coupon rate is more than the market interest rate.
The net book value of a depreciable asset is: the amount for which the asset should be insured. the difference between the asset's cost and depreciation expense. the fair value of the asset. the difference between the asset's cost and accumulated depreciation.
the difference between the asset's cost and accumulated depreciation.
The principle of consistency means that: there are no alternative methods of accounting for the same transaction. the same accounting methods are used by all firms in an industry. the accounting methods used by an entity never change. the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.
the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.
The going concern concept refers to a presumption that: the entity will be profitable in the coming year. top management of the entity will not change in the coming year. the entity will continue to operate in the foreseeable future. the entity will not be involved in a merger within a year.
the entity will continue to operate in the foreseeable future.
Corporate annual reports do not ordinarily include a transmittal letter from the president or chairman of the board of directors. financial statements for the most recent year. explanatory notes and comments about the financial statements. the internal auditor's report and opinion about the financial statements. a historical summary of selected financial data for the past five years or more.
the internal auditor's report and opinion about the financial statements.
Regardless of the inventory cost flow assumption used, inventories on the balance sheet are stated at: the lower of cost or market. replacement cost. original cost. realizable value.
the lower of cost or market.
When an accelerated depreciation method is used to calculate depreciation expense: the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used. the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.
the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
With some simple adjustments, an annuity table for present values can be used to compute the present value of a series of future payments, even if the amounts involved vary from year to year. the payment periods are quarterly rather than yearly. the payment periods are interrupted for a few years and later continued. the amounts involved are paid at different times during different years.
the payment periods are quarterly rather than yearly.
The principal challenge to calculating depletion is estimating: the cost of the asset. the quantity of material to be recovered. the demand for the product. the salvage value of the exploration equipment.
the quantity of material to be recovered.
When a firm purchases supplies for its business: an adjustment will probably be required as supplies are used. the supplies account should always be debited. either the supplies account or the supplies expense account should be credited. the supplies expense account should always be debited.
the supplies account should always be debited.
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 capitalized as part of the cost of the new building. 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.
the total cost of the land and old building are capitalized as land cost.
With respect to the write-off of an uncollectible account receivable against the allowance for bad debts, a sound system of internal control would require: the write-off be approved by two employees. an investigation of why credit was extended to this customer in the first place. a lawsuit to be initiated to recover the uncollectible amount. the write-off to be made within six months after the date of sale.
the write-off be approved by two employees.
If a common stock has no par value: there is no way of determining the market value per share. the stock must have a stated value. there will not be any additional paid-in capital related to it, assuming that the common stock does not have a stated value either. the common stockholders are not allowed to have a preemptive right. the company's shares cannot be listed on an organized stock exchange.
there will not be any additional paid-in capital related to it, assuming that the common stock does not have a stated value either.
The effect of an adjustment is: to close the books. to record transactions not previously recorded. to correct an entry that was not in balance. to increase the accuracy of the financial statements.
to increase the accuracy of the financial statements.
Assuming that ending inventory is counted correctly at the end of 2014, an error in the physical count of ending inventory at the end of 2013 will have had an effect on all of the following except cost of goods sold in the year of the error (2013). total assets in the year of the error (2013). cost of goods sold in the year after the error (2014). total assets in the year after the error (2014).
total assets in the year after the error (2014).
When an uncollectible account receivable is written off against the allowance for bad debts: total current assets are not affected. total current assets decrease and expenses increase. total current assets decrease and expenses decrease. current assets decrease and expenses are not affected.
total current assets are not affected.
When a firm purchases its own shares as treasury stock: paid-in capital is decreased. retained earnings is decreased. total stockholders' equity is increased. total stockholders' equity is decreased.
total stockholders' equity is decreased.
A firm wishing to minimize the amount reported for taxable income and maximize the amount reported as net income in the year in which a new long-term asset is placed in service would use straight-line depreciation for both book and tax purposes. use an accelerated depreciation method for both book and tax purposes. use straight-line depreciation on the books and an accelerated method for tax purposes. use an accelerated depreciation method on the books and straight-line depreciation for tax purposes
use straight-line depreciation on the books and an accelerated method for tax purposes.
