econ 3A Midterm 1
Define asset
probable future economic benefit as result of past transaction
define liability
probable future economic sacrifice as result of past transaction
Whether or not information can influence a decision
relevance
Effect on equity: TUITION
none
Paying an open account payable should have what impact on income?
none
A current asset is A) expected to be converted to cash or used in the business within a relatively short period of time. B) usually found as a separate classification in the income statement. C) the last asset purchased by a business. D) an asset which is currently being used to produce a product or service.
A
A list of accounts and their balances at a given time is called a(n) A) trial balance. B) journal. C) income statement. D) posting.
A
At December 31, 2007 Long Company had retained earnings of $1,092,000. During 2007 they issued stock for $49,000, and paid dividends of $17,000. Net income for 2007 was $201,000. The retained earnings balance at the beginning of 2007 was: A) $908,000 B) $957,000 C) $1,227,000 D) $1,276,000
A
If a company buys a $700 machine on credit, this transaction will affect the: A) balance sheet only. B) income statement and retained earnings statement only. C) income statement only. D) income statement, retained earnings statement, and balance sheet.
A
If management is responsible to the Board of Directors, to whom is the Board of Directors accountable to, and what mechanism enables this accountability? A) The shareholders, through shareholder voting. B) "C" Level management through Board of Director voting C) The SEC through sanctions D) The FASB through rules enforcement
A
If total liabilities increased by $5,000, then A) assets must have increased by $5,000, or stockholders' equity must have decreasedby $5,000. B) assets and stockholders' equity each increased by $2,500. C) stockholders' equity must have increased by $5,000. D) assets must have decreased by $5,000.
A
It was established in class that auditors lend credibility to financial statements. After completion of an audit, who has primary responsibility for the financial statements, and how much assurance does an auditor provide? A) Management remains responsible and the auditors provide reasonable assurance in the form of an opinion. B) The auditors are primarily responsible but only provide reasonable assurance. C) The auditors are primarily responsible and provide positive assurance. D) Management remains responsible and the auditors provide absolute assurance.
A
Office equipment is classified on the balance sheet as A) property, plant, and equipment. C) a current asset. B) a long-term investment. D) an intangible asset
A
On March 1, 2007, Dillon Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not? A) No, hiring an employee is an important event, however it is not an economic event that should be recorded. B) Yes, failure to record the event would cause the financial statements to be misleading. C) No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known. D) Yes, the company is now obligated to pay the employee, thus that event must be recorded.
A
Some critics of GAAP financial statements prepared on the accrual basis of accounting assert that net income is "paper income". What GAAP concept negates the merit of this claim? A) Statement of cash flows B) Statement of Retained Earnings C) Accrual basis of accounting D) Balance sheet
A
The operating cycle of a company is the average time that is required to go from cash to A) cash in producing revenues. B) accounts receivable in producing revenues. C) sales in producing revenues. D) inventory in producing revenues
A
The relationship between current assets and current liabilities is important in evaluating a company's A) liquidity. B) market value. C) solvency. D) profitability.
A
The right side of an account A) is the credit side. B) is the correct side. C) reflects all transactions for the accounting period. D) shows all the balances of the accounts in the system.
A
The statement of cash flows solves which of the following criticisms of the accrual basis of accounting? A) Paper income B) Income C) Operating income D) Net income
A
The usual sequence of steps in the transaction recording process is: A) analyze → journalize → post to the ledger. B) journalize → post to the ledger → analyze. C) post to the ledger → journalize → analyze. D) journalize → analyze → post to the ledger.
A
We sell goods to customers and record revenue even though the cash has not been received. This is an example of where revenue has been _____ when the cash payment has not yet been_____. A) recognized and realized, respectively C) adjusted and collected, respectively B) realized and recognized, respectively D) given and taken, respectively
A
When Bob Anderson in class keeps saying that GAAP "levels the playing field", which attribute of GAAP most closely is associated with this statement? A) Consistency/ Comparability C) Conservatism B) Compatibility D) Completeness
A
Which of the following groups uses accounting information to determine whether the company can pay its obligations? A) Creditors C) Marketing managers B) Chief Financial Officer D) Investors in common stock
A
Which of the following is not classified properly as a current asset? A) A receivable from the sale of an asset to be collected in two years B) Supplies C) Marketable securities D) A fund to be used to purchase a building within the next year
A
Which of the following is not considered an asset? A) Dividends B) Accounts receivable C) Inventory D) Equipment
A
Which statement is true with respect to compliance with GAAP. A) A company must comply with GAAP only if they are required to by a user of their financial statements, such as public companies B) All companies incorporated in the United States of America must comply with GAAP C) A company need only comply with GAAP if they are a public company governed by the SEC D) No company must comply with GAAP REPEATED
A
Who is the author of the following quote: "what we learn to do, we learn by doing" A) Aristotle B) Bell C) Anderson D) Armstrong
A
Collection of a $600 Accounts Receivable A) decreases a liability $600; increases stockholders' equity $600. B) increases an asset $600; decreases an asset $600. C) decreases an asset $600; decreases a liability $600. D) increases an asset $600; decreases a liability $600.
B
If services are rendered for cash, then A) stockholders' equity will decrease. B) assets will increase. C) liabilities will decrease. D) liabilities will increase.
B
If services are rendered for cash, then A) stockholders' equity will decrease. B) assets will increase. C) liabilities will decrease. D) liabilities will increase.
B
In 2006 Bombay Corporation had cash receipts of $14,000 and cash disbursements of $8,000. Their ending cash balance at December 31, 2006 was $22,000. What was their beginning cash balance? A) $28,000 B) $16,000 C) $20,000 D) $30,000
B
Management could determine the amounts due from customers by examining which ledger account? A) Accounts Payable C) Supplies B) Accounts Receivable D) Service Revenue
B
On a classified balance sheet, companies usually list current assets A) with the largest dollar amounts first. B) in the order in which they are expected to be converted into cash. C) in the order of acquisition. D) in alphabetical order.
B
One significant difference between a classified and a non-classified balance sheet is the distinction between a. economic resources (assets) and the sources of the assets (liabilities and owners' equity). b. current and noncurrent items. c. liabilities and owners' equity. d. resources invested by owners and resources earned from revenue activities.
B
The ACE Company has five plants nationwide that cost $300 million. The current market value of the plants is $500 million. The plants will be reported as assets at A) $500 million. B) $300 million. C) $200 million. D) $800 million.
B
The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) A) revenue. B) account payable. C) expense. D) account receivable.
B
The unearned revenue account is classified as a(n) A) revenue. B) liability. C) asset. D) expense.
B
What body is primarily responsible for the statements which comprise GAAP? A) PCAOB B) FASB C) SEC D) AICPA REPEATED
B
Which financial statement is used to determine cash generated from operations? A) retained earnings statement B) statement of cash flows C) income statement D) statement of operations
B
Which group ultimately controls a company, and through what activity is this accomplished? A) The shareholders through dat to day decision-making B) The shareholders through voting C) The Board of Directors through appointment of management D) Management through day to day decision-making REPEATED
B
Which of the following categories on a statement of cash flows is used to report the cash flow effects of buying and selling long-term assets? a. Operating activities b. Investing activities c. Financing activities d. Both financing and investing activities
B
Which of the following is a correct expression of one of the three basic financial statement models? a. Assets - Liabilities = Net income b. Assets - Liabilities = Owners' equity c. Revenues + Expenses = Net income d. Beginning retained earnings + Net income + Dividends = Ending retained earnings
B
Which of the following would not be considered an internal user of accounting data for the XYZ Company? A) Production manager C) President of the company B) President of the employees' labor union D) Merchandise inventory clerk
B
With respect to revenue recognition, which factor below is most relevant to determining when a revenue should be reported: A) Collection B) Earning C) Write-off D) Billing
B
Accounting is a process of doing three principal things, which item below is NOT one of them A) Communicating B) Identifying C) Validating D) Measuring
C
An investment by the stockholders in a business increases A) assets and liabilities. C) assets and stockholders' equity. B) assets only. D) liabilities and stockholders' equity
C
At January 31, 2001, the balance in Prieto Inc,'s supplies account was $250. During February. Prieto purchased supplies of $300 and used supplies of $400. At the end of February, the balance in the supplies account should be A) $950 debit. B) $250 debit. C) $150 debit D) $350 credit.
C
Every transaction in the history of a company is reflected in the ending balance of the accounts on which statement? A) Statement of cash flows B) Statement of independence from taxation without representation C) Balance sheet D) Income statement REPEATED
C
How can a company improve its current ratio? A) Use cash to reduce current liabilities B) Use excess cash to buy new equipment C) Work with a creditor to reclassify some current debt into long-term debt D) Nothing can ethically be done to improve the current ratio
C
The historical cost principal is one which results in: A) Textbooks for students B) More information C) Less information but more consistent reporting D) Inflated balance sheets
C
Valuing assets at their market value rather than at their cost is inconsistent with the: A) time period assumption. C) cost principle. B) full disclosure principle. D) economic entity assumption.
C
Which of the following errors, each considered individually, would cause the trial balance to be out of balance? A) A transaction was not posted. B) A payment of $59 for supplies was posted as a debit of $95 to supplies and a credit of $95 to cash. C) A payment of $148 to a creditor was posted as a debit to accounts payable and a debit of $148 to cash. D) Cash received from a customer on account was posted as a debit of $350 to cash and as a credit of $350 to accounts payable.
C
Which of the following is a limitation of the corporate form of ownership? A) Ease of raising capital C) Dual taxation B) Personal liability D) Ease of ownership transfer
C
Which of the following is a measure of liquidity? A) Profit margin C) Working capital B) Debt to equity ratio D) Earnings per share
C
Which of the following is an asset? A) Supplies expense B) Service revenue C) Prepaid rent D) Notes payable
C
Which of the following statements is not true A) Accounting provides users with a mechanism for developing expectations about a company. B) Accounting reports activity which has already taken place. C) Accounting reports activity which will take place. D) Accounting is process which provides information useful for various decision makers.
C
Which set of the following accounts normally would be reported as current liabilities on a classified balance sheet? a. Accounts payable and Bonds payable b. Interest payable and Mortgage payable c. Income taxes payable and Salaries payable d. Capital stock and Accounts payable
C
An item is considered material if A) it is of a tangible good. B) the cost of reporting the item is greater than its benefits. C) it doesn't costs a lot of money. D) it is likely to influence the decision of an investor or creditor.
D
At October 1, 2007, Deet Industries had an accounts payable balance of $30,000. During the month, the company made purchases on account of $25,000 and made payments on account of $40,000. At October 31, 2007, the accounts payable balance is A) $10,000 credit B) $40,000 credit C) $30,000 debit D) $15,000 credit
D
Current assets and current liabilities will be satisfied within: A) One year or the operating cycle, whichever is shorter B) One year C) The operating cycle D) One year or the operating cycle, whichever is longer REPEATED
D
If services are rendered for cash, then A) stockholders' equity will decrease. C) liabilities will increase. B) liabilities will decrease. D) assets will increase.
D
Preparation of financial statements in accordance with GAAP is required.... A) For all companies B) For all companies whose users have required it C) For all public companies D) B and C
D
The declaration that the financial statements "in our opinion, present fairly the financial position, operating results, and cash flows, in conformity with generally accepted accounting principles" would be found in which of the following parts of an annual report? a. Balance Sheet b. Management Discussion and Analysis c. Notes to Financial Statements d. Auditors' Report
D
The going concern assumption is inappropriate when A) the business is organized as a proprietorship. B) market values are higher than costs. C) the business is just starting up. D) liquidation appears likely.
D
The group of users of accounting information charged with achieving the goals of the business is its A) creditors. B) auditors. C) investors. D) managers. REPEATED
D
The historical cost basis of accounting implies that: A) The cost of an asset will be matched to the period the benefit is derived. B) Assets measured at historical cost are intended to be used, not sold. C) Consistent and verifiable data is provided in a format that requires little to no judgment. D) All of these are true.
D
The purchase of an asset on credit A) leaves total assets unchanged. B) decreases assets and increases liabilities. C) increases assets and stockholders' equity. D) increases assets and liabilities.
D
The sum of the debit account balances equals the sum of the credit account balances in the trial balance. This indicates that A) it is time to prepare the financial statements. B) the ledger accounts are error free. C) all transactions of the accounting period have been posted. D) the ledger accounts are in balance.
D
The usual ordering of accounts in the general ledger is A) assets, liabilities, stockholders' equity, expenses, and revenues. B) liabilities, assets, stockholders' equity, revenues, and expenses. C) stockholders' equity, assets, liabilities, expenses, and revenues. D) assets, liabilities, stockholders' equity, revenues, and expenses.
D
What body is primarily responsible for the rules governing audits, those rules commonly referred to as GAAS? A) PCAOB B) SEC C) FASB D) AICPA
D
When collection is made on Accounts Receivable, A) total assets will increase. C) stockholders equity will increase. B) total assets will decrease. D) total assets will remain the same.
D
Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase? A) Marketing managers C) Chief Financial Officer B) Creditors D) Investors in common stock
D
Which of the following items has no effect on retained earnings? A) Dividends B) Revenue C) Expense D) Land purchase
D
Accounting is a process designed to do all of the following relative to econcomic information, except: a. project c. communicate b. identify d. measuer
a
Information that is material means that an error or alternative method of handling a transaction a. would possibly affect the judgment of someone relying on the financial statements. b. would not affect the decisions of users. c. might cause a company to understate its earnings for the accounting period. d. could increase the profitability of a company.
a
Which of the following statements is true? a. Profits distributed to the owners are called dividends. b. The income statement shows the assets, liabilities, and profits of a company. c. Dividends are an expense and are reported on the income statement as a deduction from net income. d. The income statement reports the cash deposits and cash withdrawals.
a
define equity
assets - liabilities residual interest of owners
The preparation of financial statements require that the information be understandable a. only to those with a Ph.D. in accounting or a CPA. b. to those willing to spend the time to understand it. c. only to those who take an accounting course. d. only to financial analysts.
b
Made possible by using standardized accounting principle
comparability
Choosing the option that is least likely to overstate assets and net income
conservatism
Using the same accounting methods year to year
consistency
Journal Entry for : Sold common stock for $100,000
debit cash, credit common stock
Journal entry for: Borrowed $200,000 from a bank
debit cash, credit debt
Journal entry for: Sold goods for $10,000 cash, which cost $7,000
debit cash, credit sales debit cogs, credit inventory
Effect on equity: INSURANCE EXPENSE
decrease
Effect on equity: NET LOSS
decrease
Effect on equity: PAYING RENT ON 31ST
decrease expense so decreases net income
Effect on equity: DIVIDENDS
decreases
Effect on equity: EXPENSES
decreases
Under GAAP, revenue is recognized when it is __________ and expenses when they have been ___________.?
earned, incurred
Each economic entity can by separately identified and accounted for
economic entity assumption
Assumption that the company will continue in operation for the foreseeable future
going concern assumption
Effect on equity: NET INCOME
increase
Effect on equity: REVENUE
increases
Recording an expense in the period when the benefit is derived is a fundamental GAAP process of _______________.
matching
Determining whether an item is large enough to influence decisions
materiality
Collecting an open account receivable should have what impact on income?
none
Effect on equity: COLLECT ACCOUNTS RECIEVABLE
none
Effect on equity: PREPAID RENT (1ST)
none
Effect on equity: RECEIPT OF NONREFUNDABLE DEPOSIT
none