ACIS 3115 - Concept Check Questions

The Stinch Fertilizer Corporation wants to accumulate $8,000,000 for plant expansion. The funds are needed on January 1, 2029. Stinch intends to make five equal annual deposits in a fund that will earn interest at 7% compounded annually. The first deposit is to be made on January 1, 2024. Present value and future value facts are as follows: Future value of an ordinary annuity of $1 at 7% for five periods = 5.75 Future value of an annuity due of $1 at 7% for five periods = 6.15 Present value of $1 at 7% for five periods = .713 Present value of an ordinary annuity of $1 at 7% for five periods = 4.10 What is the amount of the required annual deposit? a. $1,300,813 b. $1,391,304 c. $1,951,220 d. $1,704,000

a. $1,300,813 $8,000,000 ÷ 6.15* = $1,300,813 *Future value of an annuity due of $1 at 7% for five periods

Which disclosure provides an independent and professional opinion about the fairness of the representations in the financial statements and about the effectiveness of internal controls? a. Auditors' report b. Proxy statement c. Management's discussion and analysis d. Summary of significant accounting policies

a. Auditors' report

Which of the following is not a component of relevance as defined in the FASB's conceptual framework? a. Free from error b. Materiality c. Predictive value d. Confirmatory value

a. Free from error

Which of the following is not an example of other comprehensive income? a. Income from sales b. Unrealized loss on securities available for sale c. Foreign currency translation adjustments d. Deferred gains from derivatives

a. Income from sales

Where is management's discussion and analysis located? a. Preceding the financial statements and audit report in the annual report b. In the annual chairman's letter to shareholders c. At the end of the annual report as an appendix d. At the beginning of the proxy statement

a. Preceding the financial statements and audit report in the annual report

Accounting standards in the United States are currently set by: a. The FASB b. The AICPA c. The EITF d. The NCAA

a. The FASB

If you have a set of present value tables, an annual interest rate, the dollar amount of equal payments made, and the number of semiannual payments, what other information do you need to calculate the present value of the series of payments? a. The timing of the payments (whether they are at the beginning or end of the period) b. The future value of the annuity c. No other information is needed d. The rate of inflation

a. The timing of the payments (whether they are at the beginning or end of the period)

Which of the following captions would more likely be found in a single-step income statement? a. Total revenues and gains b. Gross profit c. Operating income d. All of these answers are incorrect

a. Total revenues and gains

The Cansela Baseball Bat Company reported income before taxes of $375,000. This amount included a $75,000 loss on discontinued operations. The amount reported as income from continuing operations, assuming a tax rate of 25%, is: a. $375,000 b. $337,500 c. $300,000 d. $225,000

b. $337,500 [$375,000 (income before income taxes) + $75,000 (loss on discontinued operations)] × [1.0 - 0.25 (tax rate)] = $337,500

The Omagosh Company purchased office furniture for $25,800 and agreed to pay for the purchase by making five annual installment payments beginning one year from today. The installment payments include interest at 8%. The present value of an ordinary annuity for five periods at 8% is 3.99271. The present value of an annuity due for five periods at 8% is 4.31213. What is the required annual installment payment? a. $5,160 b. $6,462 c. $5,983 d. $4,398

b. $6,462 $25,800 ÷ 3.99271* = $ 6,462 *present value of an ordinary annuity for five periods at 8%

Gary's Grocery borrowed $12,000 at 8% interest on May 1, 2024, with principal and interest due on April 30, 2025. The company's fiscal year ends December 31. What amount of interest expense would appear in the company's income statement for the year ended December 31, 2024, related to this loan? a. $480 b. $640 c. $960 d. $560

b. $640 $12,000 × 8% × 8/12 = $640

Jacob Lee invested $600 in a savings account paying 8% interest compounded twice a year. What will be his investment balance at the end of the year? Round to the nearest dollar. a. $680 b. $649 c. $624 d. $600

b. $649 Initial deposit $600 After 6 months 4%* × $600 = $24 ($624) End of year 4%* × $624 = $25 ($649) *8%/2 = 4% semi-annual rate.

Temporary accounts would not include: a. Salaries expense b. Accounts receivable c. Rent revenue d. All of these answers are incorrect

b. Accounts receivable

Which of the following is most likely to be reported as a long-term asset? a. Accounts receivable b. Buildings c. Prepaid rent d. Inventory

b. Buildings

Which of the following represents a change in accounting principle? a. Using a journal entry to correct a misstatement in current-year financial statements b. Changing inventory costing method from LIFO to average cost method c. Modifying the amount of bad debt expense in accounts receivables as new information on customer insolvency is obtained d. Correcting a material error in financial statements that have already been released to investors

b. Changing inventory costing method from LIFO to average cost method

Recording an expense for salaries incurred and paid in cash would be recorded by: a. Debiting a liability b. Debiting an expense c. Debiting cash d. Crediting an expense

b. Debiting an expense

Which of the following is not an advantage of accrual accounting? a. Spreads out the influence of one-time events that affect multiple reporting periods b. Highlights cash effects of operations c. Captures long-run performance d. Recognizes assets and liabilities associated with receivables and payables

b. Highlights cash effects of operations

Buffalo Manufacturing Company is restructuring and closing the platinum mining division. The mine will be closed and its assets sold off over the course of the next three years. When should the costs related to closing of the mine be recognized? a. In the year the restructuring plan is announced to the board of directors b. In the year(s) the costs are actually incurred c. In the year the restructuring is complete d. All of these answers are incorrect

b. In the year(s) the costs are actually incurred

Which of the following would be commonly reported in the summary of significant accounting policies note? a. Errors and fraud b. Method used to record depreciation c. Subsequent events d. Related-party transactions

b. Method used to record depreciation

The Versa Tile Company purchased a delivery truck on February 1, 2024. The agreement required Versa Tile to pay the purchase price of $44,000 on February 1, 2025. Assuming an 8% rate of interest, to calculate the price of the truck Versa Tile would multiply $44,000 by the: a. Future value of an ordinary annuity of $1 b. Present value of $1 c. Present value of an ordinary annuity of $1 d. Future value of $1

b. Present value of $1

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows? a. Purchase of inventory b. Purchase of machinery c. Payment of income taxes d. Collection of interest on a note

b. Purchase of machinery

The correct amount of prepaid insurance shown on a company's December 31, 2024, balance sheet was $1,400. On May 1, 2025, the company paid an additional insurance premium of $1,100. In the December 31, 2025, balance sheet, the amount of prepaid insurance was correctly shown as $1,000. The amount of insurance expense that should appear in the company's 2025 income statement is: a. $2,000 b. $1,900 c. $1,500 d. $1,600

c. $1,500 [$1,400 (beginning balance) + $1,100 (additional payment) − $1,000 (ending balance)] = $1,500

On October 1, 2024, American Medical Inc. adopted a plan to discontinue its generic drug division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by March 30, 2025. On December 31, 2024, the company's year-end, the following information relative to the discontinued division was accumulated: Operating loss for 2024 - $195 million Excess of book value over fair value, less costs to sell, at year-end - 25 million In its income statement for the year ended December 31, 2024, American would report a before-tax loss on discontinued operations of: a. $170 million b. $195 million c. $220 million d. All of these answers are incorrect

c. $220 million $195 million operating loss plus a $25 million impairment loss.

I. R. Wright plans to make quarterly deposits of $200 for five years into a savings account. The first deposit will be made immediately. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Wright have accumulated in the savings account at the end of the five-year period? Round to the nearest dollar. Future value of an ordinary annuity of $1 at 8% for five periods = 6.3359 Future value of an annuity due of $1 at 8% for five periods = 5.8666 Future value of an ordinary annuity of $1 at 2% for 20 periods = 24.2974 Future value of an annuity due of $1 at 2% for 20 periods = 24.7833 a. $2,672 b. $4,000 c. $4,957 d. $5,237

c. $4,957

Kringle Pastries reported net income of $432,000 for its year ended December 31, 2024. Purchases of merchandise totaled $304,000. Accounts payable balances at the beginning and end of the year were $72,000 and $66,000, respectively. Beginning and ending inventory balances were $88,000 and $92,000, respectively. Assuming that all relevant information has been presented, Kringle Pastries would report operating cash flows of: a. $310,000 b. $442,000 c. $422,000 d. $302,000

c. $422,000 Net income $432,000 Deduct increase in inventory (4,000) Deduct decrease in account payable (6,000) Cash flows from operating activities = $422,000

Turp and Tyne Distillery is considering investing in a two-year project. The company's required rate of return is 10%. The present value of $1 for one period at 10% is .909 and .826 for two periods at 10%. The project is expected to create cash flows, net of taxes, of $240,000 in the first year, and $300,000 in the second year. The distillery should invest in the project if the project's cost is less than or equal to: a. $540,000 b. $490,860 c. $465,960 d. $446,040

c. $465,960 $218,160 ($240,000 × 0.909) 247,800 ($300,000 × 0.826) = $465,960

Dan White Draperies maintains its records on a cash basis. During 2024, the company collected $75,000 from customers and paid $21,000 in expenses. Depreciation expense of $8,000 would have been recorded on an accrual basis. Over the course of the year, accounts receivable increased $7,000, prepaid expenses decreased $5,000, and accrued liabilities decreased $4,000. Dan's accrual basis net income was: a. $41,000 b. $57,000 c. $52,000 d. $45,000

c. $52,000 Cash receipts $ 75,000 Less cash disbursements (21,000) Cash basis net income 54,000 Deduct: Depreciation expense (8,000) Decrease in prepaid expenses (5,000) Add: Increase in accounts receivable 7,000 Decrease in accrued liabilities 4,000 Accrual basis net income = $52,000

Geisner Inc. has total assets of $1,000,000 and total liabilities of $600,000. The industry average debt to equity ratio is 1.20. Calculate Geisner's debt to equity ratio and indicate whether the company's default risk is higher or lower than the average of other companies in the industry. a. 0.60; Higher default risk b. 0.60; Lower default risk c. 1.50; Higher default risk d. 1.50; Lower default risk

c. 1.50; Higher default risk Debt to equity ratio = $600,000 / $400,000 = 1.50 * Equity = Assets − Liabilities = $1,000,000 − $600,000 = $400,000

Creecher purchased $200,000 worth of Troman stock, received four quarterly dividends of $1,000 each, and sold the Troman shares for $206,000 after one year. What is Creecher's rate of return? a. 1% b. 2.5% c. 5% d. 10%

c. 5% • Dividends = 4 × $1,000 = $4,000 • Share price appreciation = $206,000 − $200,000 = $6,000 Rate of return = $4,000 + $6,000 / $200,000= 5%

The journal entry to record the issuance of common stock in exchange for cash involves: a. A debit to common stock and a credit to cash b. A debit to cash and credits to common stock and retained earnings c. A debit to cash and a credit to common stock d. All of these answer choices are incorrect

c. A debit to cash and a credit to common stock

Which of the following is a subclassification of assets in the balance sheet? a. Cash and cash equivalents b. Revenue c. Current assets d. Disposable assets

c. Current assets

Which of the following is not a measurement attribute defined in the FASB's conceptual framework? a. Net realizable value b. Historical cost c. List price d. Fair value

c. List price

Which of the following is true regarding GAAP and IFRS? a. There are more differences than similarities between U.S. GAAP and IFRS b. IFRS specifies a maximum number of items to be reported in the balance sheet c. Many companies reporting under IFRS present noncurrent assets before current assets in the balance sheet d. U.S. GAAP specifies a minimum number of items to be reported in the balance sheet

c. Many companies reporting under IFRS present noncurrent assets before current assets in the balance sheet

Harry Byrd's Chicken Shack agrees to pay an employee $50,000 a year for six years beginning two years from today and decides to fund the payments by depositing one lump-sum in a savings account today. The company should use which present value concept to determine the required deposit? a. Future value of $1 b. Future value of a deferred annuity c. Present value of a deferred annuity d. None of the above

c. Present value of a deferred annuity

On May 31, 2024, the Gusto Beer Company leased a machine from B. A. Lush, Inc. The lease agreement requires Gusto to pay six annual payments of $16,000 on each May 31, with the first payment due on May 31, 2024. Assuming an interest rate of 6% and that this lease is treated as an installment sale (capital lease), Gusto will initially value the machine by multiplying $16,000 by which of the following? a. Present value of $1 at 6% for six periods b. Present value of an ordinary annuity of $1 at 6% for six periods c. Present value of an annuity due of $1 at 6% for six periods d. Future value of an annuity due of $1 at 6% for six periods

c. Present value of an annuity due of $1 at 6% for six periods

Justin Investor wants to calculate how much money he needs to deposit today into a savings account that earns 4% in order to be able to withdraw $6,000 at the end of each of the next five years. He should use which present value concept? a. Present value of $1 for five periods b. Present value of an annuity due of $1 for five periods c. Present value of an ordinary annuity of $1 for five periods d. Future value of $1 for five periods

c. Present value of an ordinary annuity of $1 for five periods

Which of the following represents tangible, long-lived assets used in the operations of the business? a. Current assets b. Investments c. Property, plant, and equipment d. Intangible assets

c. Property, plant, and equipment

The key distinction between current liabilities and long-term liabilities is: a. The amount of the obligation to be satisfied—large versus small b. To whom the obligation is owed—those inside versus those outside of the company c. The length of time until the obligation is expected to be satisfied—less than one year versus more than one year, or operating cycle if longer d. The nature of the obligation—determinable amount versus estimated amount

c. The length of time until the obligation is expected to be satisfied—less than one year versus more than one year, or operating cycle if longer

Which of the following is not a component of faithful representation as defined in the FASB's conceptual framework? a. Free from error b. Neutrality c. Understandability d. Completeness

c. Understandability

The Trident Corporation's results for the year ended December 31, 2024, include the following material items: Sales revenue ($8,200,000) Cost of goods sold ($4,800,000) Selling and administrative expenses ($2,000,000) Gain on sale of investments ($300,000) Loss on discontinued operations ($1,200,000) Restructuring costs ($280,000) Trident Corporation's income from continuing operations before income taxes for 2024 is: a. $1,120,000 b. $ 220,000 c. $1,700,000 d. $1,420,000

d. $1,420,000 $8,200,000 − 4,800,000 − 2,000,000 + 300,000 - 280,000 = $1,420,000

The Knotworth Gedding Consulting Company purchased a machine for $15,000 down and $500 a month payable at the end of each of the next 36 months. How would the company calculate the cash price of the machine, assuming the annual interest rate is known? a. $15,000 plus the present value of $18,000 ($500 × 36) b. $15,000 plus the present value of an annuity due of $500 for 36 periods c. $33,000 d. $15,000 plus the present value of an ordinary annuity of $500 for 36 periods

d. $15,000 plus the present value of an ordinary annuity of $500 for 36 periods

The Contra Costa Times Company reported a $17,200 liability in its 2024 balance sheet for subscription revenue received in advance. During 2025, $68,000 was received from customers for subscriptions and the 2025 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2025 balance sheet? a. $0 b. $17,200 c. $18,900 d. $15,500

d. $15,500 $17,200 beginning balance 68,000 additional receipts (69,700) subscription revenue recognized = $15,500

U. B. Wong plans to make quarterly deposits of $200 for five years into a savings account. The deposits will be made at the end of each quarter. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Wong have accumulated in the savings account at the end of the five-year period? Round to the nearest dollar. Future value of an ordinary annuity of $1 at 8% for five periods = 6.3359 Future value of an annuity due of $1 at 8% for five periods = 5.8666 Future value of an ordinary annuity of $1 at 2% for 20 periods = 24.2974 Future value of an annuity due of $1 at 2.5% for 20 periods = 24.7833 a. $2,672 b. $4,000 c. $5,237 d. $4,859

d. $4,859 $200 × 24.2974 = $4,859 *Future value of an ordinary annuity for 20 periods at 2%

Oliver Kim invests $5,000 in an investment account earning 8% interest compounding annually. How much will he have in his account in four years? The future value of $1 at 8% for four years is 1.36049 per Table 1 (Future Value of $1). Round to the nearest dollar. a. $5,412 b. $6,242 c. $5,937 d. $6,802

d. $6,802 FV = I × FV Factor FV = $5,000 × 1.36049 FV = $6,802

Bledsoe Motors reported revenue of $7,500,000 for its year ended December 31, 2024. Accounts receivable at December 31, 2023 and 2024, were $480,000 and $532,500, respectively. Using the direct method for reporting cash flows from operating activities, Bledsoe Motors would report cash collected from customers of: a. $7,500,000 b. $7,552,500 c. $7,567,500 d. $7,447,500

d. $7,447,500 ($480,000 + 7,500,000 − 532,500 = $7,447,500)

Harrington's Pet Supplies begin the year with an inventory balance of $220,000. At year-end, the inventory balance was $185,000. Cost of goods sold for the year was $900,000. Calculate the inventory turnover ratio and average days in inventory (round to two decimals). a. 5.04, 72.42 b. 4.86, 75.10 c. 4.09, 89.24 d. 4.44, 82.21

d. 4.44, 82.21 Inventory turnover ratio = $900,000/(($220,000+185,000)/2) = 4.44 Average days in inventory = 365/4.44 = 82.21

Which of the following is true concerning the statement of cash flows? a. The statement of cash flows can provide information helpful in assessing future profitability, liquidity, and solvency b. The statement of cash flows shows cash receipts and cash disbursements of an enterprise c. The statement of cash flows is required to be presented for any period for which an income statement is presented d. All of the answers above are true

d. All of the answers above are true

Which of the following is accurate concerning presentation of financial statements in regards to IFRS compliance? a. Unlike U.S. GAAP, IFRS requires certain minimum information to be disclosed on the face of the income statement b. U.S. GAAP and IFRS display interest and dividends differently on the statement of cash flows c. Both U.S. GAAP and IFRS allow companies to report comprehensive income as a single statement or in two separate statements d. All of the answers are correct

d. All of the answers are correct

Which of the following transactions would increase a company's liquidity ratios? a. Receive cash from customers on accounts receivable b. Purchase office supplies with cash c. Pay dividends to shareholders d. Borrow cash by signing a three-year note

d. Borrow cash by signing a three-year note

What are temporary earnings? a. Earnings from transactions that are not likely to occur again in the foreseeable future b. Earnings from transactions that are likely to generate similar profits in the future c. Earnings from transactions likely to have a different impact on income in the future d. Both a and c

d. Both a and c

Which of the following describes the risk that the company cannot pay its obligations when they come due? a. Operational risk b. Cash management risk c. Horizontal risk d. Default risk

d. Default risk

Which of the following is not true? a. The fair value hierarchy reflects the subjectivity of inputs used to compute fair values b. Level 1 of the fair value hierarchy refers to quoted market prices that can be directly observed c. Level 3 of the fair value hierarchy refers to inputs that are not directly observable, and so must be based on the entity's own assumptions d. Level 3 inputs are preferred to Level 2, which are preferred to Level 1

d. Level 3 inputs are preferred to Level 2, which are preferred to Level 1

Which of the following is not one of the ways in which high-quality accounting is encouraged by the U.S. financial reporting system? a. Accounting standards encourage comparability b. Auditors assess whether financial statements are materially misstated c. Sarbanes-Oxley instituted reforms designed to improve the quality of financial reporting d. Managers are required to use frameworks for ethical decision making when deciding how to account for transactions

d. Managers are required to use frameworks for ethical decision making when deciding how to account for transactions

Current assets include cash and all other assets expected to become cash or be consumed: a. Within one year b. Within one operating cycle c. Within one year or one operating cycle, whichever is shorter d. Within one year or one operating cycle, whichever is longer

d. Within one year or one operating cycle, whichever is longer