ACNT 2336 Final Exam Chapters 1 - 10

T / F Dissimilar year ends will have no impact on the results of ratios.

False

T/F A disclaimer of opinion is necessary when the exceptions to fair presentation are so material that a qualified opinion is not justified

False

T/F A given ratio is always computed the same way, no matter what the source

False

T/F Absolute figures usually have more meaning than ratio comparisons.

False

T/F In vertical common - size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year.

False

T/F Liquidity ratios measure the degree of protection of long-term suppliers of funds.

False

T/F The principle asset of a merchandising firm will usually be accounts receivable

False

Changes in accounts balances of Multi- Plus Inc. during 2012 were: Assets: $420,000 Liabilities $125,000 Capital Stock $100,000 Additional Paid-in Capital $140,000 Retained Earnings ? Assuming that there were no charges to retained earnings other than dividends of $62,000, the net income for 2010 was: a. -7,000 b. 55,000 c. 117,000 d. 257,000 e. none of the answers are correct

c. 117,000

If liabilities total $70,000 and stockholders equity totals $50,000, then total assets must be: a. 20,000 b. 80,000 c. 120,000 d. 30,000 e. 30,000

c. 120,000

The Financial Accounting Standards Board has issued statements between: a. 1960-1973 b. 1939-1959 c. 1973-present d. 1966-1976 e. none of the answers are correct

c. 1973 - present

The going concern assumption: a. is applicable to all financial statements b. primarily involves periodic income measurement c. allows for the statement to be prepared under generally accepted accounting principles. d. requires that accounting procedures be the same from period to period. e. none of the answers are correct

C. allows for the statement to be prepared under generally accepted accounting principles.

T/ F Different accounting methods can cause some ratios to differ substantially

True

T/F Financial statements of legally separate entities may be issued to show financial position, income, and cash flow as they would appear if the companies were a single entity.

True

T/F In order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful.

True

T/F The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

True

T/F The responsibility for the preparation and integrity of financial statements rests with management.

True

A service firm will usually have a low amount of inventory, consisting primarily of supplies

True.

The following relate to Data Original in 2012. What is the ending inventory? Purchases: $540,000 Beginning Inventory: $80,000 Purchase Returns: $10,000 Sales: $800,000 Cost of Goods Sold: $490,000 a. 120,000 b. 140,000 c. 210,00 d. 260,000 e. none of the answers are correct

a. 120,000

The Accounting Principles Board issued Opinions between: a. 1959 - 1973 b. 1939- 1959 c. 1973-present d. 1966-1976 e. None of the answers are correct

a. 1959 - 1973

Which of the following is a temporary account? a. advertising expense b. land c. building d. accounts payable e. bonds payable

a. advertising expense

Which of the following is not true about an ESOP? a. an ESOP will reduce the amount of voting stock in the hands of employees b. an esop must be a permanent trusted plan for the exclusive benefit of the employees c. the plan participants become eligible for favorable taxation of distributions from the plan d. commercial lending institutions, insurance companies, and mutual funds are permitted an exclusion from income for 50% of the interest received on loans used to finance an ESOP's acquisition of company stock.

a. an ESOP will reduce the amount of voting stock in the hands of employees

Tangible assets on the balance sheet should include: a. equipment b. inventory c. trademarks d. investments e. accrued insurance

a. equipment

Which of the following is a recurring item? a. equity in earnings of nonconsolidated subsidiaries b. error of a prior period c. discontinued operations d. extraordinary gain e. cumulative effect of change in accounting principle

a. equity in earnings of nonconsolidated subsidiaries

The assumption that deals with when to recognize the costs that are associated with the revenue that is being recognized is: a. matching b. going concern c. consistency d. materiality e. none of the answers are correct.

a. matching

The accounting principle that assumes that inflation will not take place or will be immaterial is: a. monetary unit b. historical cost c. realization d. going concern e. none of the answers are correct

a. monetary unit

Which of the following is not a category within accumulated other comprehensive income? a. post retirement commitments on health plans b. foreign currency translation adjustments c. unrealized holding gains and losses on avaliable-for-sale marketable securities d. changes to stockholders equity resulting from additional minimum pension liability adjustments

a. post retirement commitments on health plans

The assumption that enables us to prepare periodic statements between the time that a business commences operations and the time it goes out of business is: a. time period b. business entity c. historical cost d. transaction e. none of the answers are correct.

a. time period

Which of the following is a type of audit opinion that a firm would usually prefer? a. unqualified opinion b. qualified opinion c. adverse opinion d. clear opinion e. none of the answers are correct.

a. unqualified opinion

Which of the following items on the income statement is not disclosed net of tax? a. unusual or infrequent item disclosed separately b. discontinued operations c.extraordinary loss d. cumulative effect of change in accounting principle e. unusual or infrequent item disclosed separately and discontinued operations are both not disclosed net of tax

a. unusual or infrequent item disclosed separately

Which of the following is not a common characteristic of preferred stock? a. voting rights b. preference to dividends c. preference in liquidation d. call-ability by the corporation e. none of the answers are correct

a. voting rights

Which of the following accounts would not be classified as an intangible? a. franchises b. research and development c. patent d. trademarks e. goodwill

b research and development

If investor Company owns 20% of the stock of Investee Company and Investee Company reports profits of $100,000, then investor COmpany reports equity income of: a. 80,000 b. 20,000 c. 40,000 d. 60,000. e. none of the answer are correct

b. 20,000

Fisher Company has 1,000,000 share of common stock with a par value of $10. Additional paid-in capital totals $10,000,000 and retained earnings is $12,000,000. The directors declare a 6% stock dividend when the market value is $5. The reduction of retained earnings as a result of the declaration will be: a. 0 b. 300,000 c. 600,000 d. 500,000 e. none of the answers are correct

b. 300,000

Smith Company had retained earnings of $60,000 at the end of the current year. For the current year, income was $30,000 and dividends $10,000. What was the balance in retained earnings at the end of the prior year? a. 30,000 b. 40,000 c. 60,000 d. 30,000 e. 70,000

b. 40,000

The organization that has by federal law the responsibility to adopt auditing standards is the: a. New York Stock Exchange b. Public Company Accounting Oversight Board c. Accounting Principles Board d. Financial Accounting Standards Board e. AICPA Committee on Accounting Procedure

b. Public Company Accounting Oversight Board

If a parent has some control over a subsidiary but the subsidiary is not consolidated, the subsidiary is accounted for as: a. a marketable security b. an investment c. a liability d. a fixed asset e. none of the answers are correct

b. an investment

Which of the following would NOT appear on a conventional balance sheet? a. income taxes payable b. funds from operations c. cash surrender value of life insurance d. appropriation for contingencies (restriction of retained earnings) e. patents

b. funds from operations

Who is responsible for the preparation and integrity of financial statements? a. a cost accountant b. management c. an auditor d. a bookkeeper e. the FASB

b. management

Which of the following is not a source of industry statistics? a. annual statement studies b. mergent dividend record c. value line d. standard and poors industry surveys e. the department of commerce financial report

b. mergent dividend record

If a firm consolidates subsidiaries that are not wholly owned, an income statement item is created that is termed: a. dividend income b. minority share of earnings c. equity income d. extraordinary e. gain from sale of subsidiary

b. minority share of earnings

Which of the following will not affect retained earnings? a. declaration of a stock dividend b. payment of a cash dividend previously disclosed c. adjustment for an error of a prior period d. net income e. net loss

b. payment of a cash dividend previously disclosed

Accountants face a problem of when to recognize revenue. Which of the following methods of recognizing revenue is not used in practice? a. point of sale b. point of order acceptance c. end of production d. receipt of cash e. revenue recognized during production

b. point of order acceptance

Which of the following would be included in operating income? a. interest income for a manufacturing firm b. rent income for a leasing subsidiary c. gain from sale of marketable securities for a retailer d. dividend income for a service firm e. none of the answers are correct

b. rent income for a leasing subsidiary

The stockholders' equity of Anamanda Company at September 30, 2012, is presented below. Common Stock, par value $10, authorized 500,000 shares; 200,000 shares issued and outstanding $2,000,000 Paid-in capital in excess of par 300,000 Retained earnings $1,300,000 On October 1, 2012, the board of directors of Anamanda declared a 10% stock dividend to be distributed on November 10. The market price of the common stock was $15 on October 1 and $17 on November 10. What is the amount of the charge to retained earnings as a result of the delcaration and distribution of this stock dividend? a. 0 b. 200,000 c. 300,000 d. 340,000 e. 750,000

c. 300,000

Tiffin Company had retained earnings of $50,000 at the end of last year. For the current year, income was $20,000 and dividends $15,000. What is the balance in retained earnings at the end of the current year? a. 85,000 b. 45,000 c. 55,00 d. 60,000 e. none of the answers above

c. 55,000

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt. The following figures are for a particular industry's current ratio: 1.6;1.6;1.2. Which best describes these three numbers? a. one third of each of the companies experienced each ratio b. the average ratio was 1.3. The best firm had 1.6. The worst had 1.2 c. The median was 1.3 1.6 is the figure for the upper quartile, 1.25 is the figure for the lower quartile d. the median was 1.3. 1.6 is the figure for the lower quartile, 1.2 is the figure for the upper quartile. e. none of the answers are correct

c. The median was 1.3 1.6 is the figure for the upper quartile, 1.25 is the figure for the lower quartile

In addition to the balance sheet, the income statement, and the statement of cash flows, a complete set of financial statements must include: a. an auditors opinion b. a ten-year summary of operations c. a note disclosure of such items as accounting policies d. historical common-size (percentage) summaries e. a list of corporate officers

c. a note disclosure of such items as accounting polices

In terms of debits and credits, which of the following accounts have the same normal balances? a. accounts payable, accounts receivable, notes payable b. dividends, accounts receivable, notes payable c. advertising expense, selling expense, accounts receivable d. land, building, accounts payable, e. common stock, notes payable, land

c. advertising expense, selling expense, accounts receivable

Which of the following is a permanent account? a. dividends b. advertising expense c. building d. selling expense. e. insurance expense

c. building

The business being separate and distinct from the owners is an integral part of the: a. time period assumption b. going concern assumption c. business entity assumption d. realization assumption e. none of the answers are correct.

c. business entity assumption

In financial statement analysis, ratios are: a. the only type of analysis where industry data are available b. absolute numbers converted to a common base c. fractions usually expressed in percent or times d. the only indication of the financial position of the firm e. none of the answers are correct

c. fractions usually expressed in percent or times

Valuing assets at their liquidation values is not consistent with: a. conservatism b. materiality c. going concern d. time period e. none of the answers are correct.

c. going concern

Drama Products Inc. has issued redeemable preferred stock. For analysis purposes, these securities are best classified as: a. marketable securities b. long-term investments c. long-term debt d. paid-in capital e. retained earnings

c. long-term debt

Ownership of debt instruments of the government and other companies that can be readily converted to cash are best reported as: a. long-term investments b. cash c. marketable securities d. intangibles e. inventory of near-cash items

c. marketable securities

At the end of the fiscal year, an adjusting entry is made that increases both interest expense and interest payable. This entry is an application for which accounting principle? a. full disclosure b. materiality c. matching d. going concern e. realization

c. matching

A retailing firm has which type of inventory? a. raw materials b. work in process c. merchandise d. raw materials and merchandise e. raw materials, work in process, and merchandise

c. merchandise

Gross profit is the difference between: a. net income and operating income b. revenues and expenses c. sales and cost of goods sold d. income from continuing operations and discontinued operations e. gross sales and sales discounts

c. sales and cost of goods sold

An accounting period that ends when operations are at a low ebb is: a. a calendar year b. a fiscal year c. the natural business year d. an operating year. e. none of the answers are correct

c. the natural business year

If the disposal of a segment meets the criteria of a disposal of a segment, then: a. the loss on disposal is an extraordinary item. b. the loss on disposal is categorized as "other expense" c. the results of operations of the segment will be reported in conjunction with the gain or loss on disposal d. the disposal qualifies as a change in entity, and prior years statements presented on comparative purposes must be restated e. the effects of the disposal are shown as part of operations

c. the results of operations of the segment will be reported in conjunction with the gain or loss on disposal

Which of the following is not an objective of the SEC's integrated disclosure system? a. to coordinate the form 10-k requirements with those of the annual report. b. to lessen the impact of the FASB c. to expand the management discussion of liquidity, capital resources, and results of operations d. to improve the quality of disclosure e. to standardize information requirements

c. to expand the management discussion of liquidity, capital resources, and results of operations

Which of the following is not a current asset? a. marketable securities b. material inventory c. unearned rent income d. prepaid interest e. accrued insurance

c. unearned rent income

Which of the following is a current liability? a. prepaid insurance b. retained earnings c. unearned rent revenue d. bonds payable e. common stock

c. unearned rent revenue

At the beginning of the year, Execon Company had total assets of $200,000, total liabilities of $110,000 and shareholders equity of $90,000. For the year, Execon Company earned net income of $75,000 and declared cash dividends of $30,000. At the end of the year, the company had total assets of $300,000 and its shareholders equity was at $135,000. At the end of the year, Execon Corporation had total liabilities of: a. 0 b. 45,000 c. 50,000 d. 165,000 e. none of the answers are correct

d. 165,000

By law, the setting of accounting standards is the responsibility of the: a. AICPA Committee on Accounting Procedure b. New York Stock Exchange c. Accounting Principles Board d. Securities and Exchange Commission e. Financial Accounting Standards Board

d. Securities and Exchange Commission

Which of the following is government document that provides industry statistics? a. The Wall Street Journal b. Business Week c. Dun's d. The Department of Commerce Financial Report e. Standard and Poor's Industry Survey

d. The Department of Commerce Financial Report

All but one of the following statements indicates a difference between the Financial Accounting Standards Board (FASB) and prior approaches. Select the one that is not a difference. a. The FASB is independent of the AICPA. b. The size of the board is much smaller. c. The FASB has broader representation d. The FASB is the primary board for the development of generally accepted accounting principles. e. Members of the FASB serve on a full time basis.

d. The FASB is the primary board for the development of generally accepted accounting principles.

Treasury stock is best classified as: a. current asset b. a long-term investment c. a contra liability d. a reduction in stockholders equity e. a reduction of retained earnings

d. a reduction in stockholders equity

Which of the following statements is NOT correct concerning summary annual reports? a. a summary annual report omits much of the financial information included in an annual report. b. when a company issues a summary annual report, the proxy materials it sends to shareholders must include a set of fully audited statements and other required financial disclosures c. a summary annual report generally has more nonfinanical pages than financial pages. d. a summary annual report is adequate for reasonable analysis e. the concept of a summary annual report was approved by the SEC.

d. a summary annual report is adequate for reasonable analysis

The current liability section of the balance sheet should include a. buildings b. goodwill c. land held for speculation purposes d. accounts payable e. none of the answers are correct.

d. accounts payable

Which of the following can offer a type of comparison in financial statement analysis? a. past ratios and figures b. industry averages c. statistics of competitors d. all of the answers are correct. e. none of the answers are correct

d. all of the answers are correct

Which of the following is NOT a type of audit opinion? a. unqualified opinion b. qualified opinion c. adverse opinion d. clean opinion e. disclaimer of opinion

d. clean opinion

Statement in which all items are expressed only in relative terms (percentages of a base) are termed: a. vertical statements b. horizontal statements c. funds statements d. common-size statements e. none of the answers are correct

d. common-size statements

Valuing inventory at the lower of cost or market is an application of the: a. time period assumption b. realization principle c. going concern principle d. conservatism principle e. none of the answers are correct

d. conservatism principle

Denver Dynamics has net income of $2,000,000. Oakland Enterprises has net income of $2,500,000. Which of the following best compares the profitability of Denver and Oakland? a. Oakland Enterprises is 25% more profitable than Denver Dynamics. b. Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified. c. Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics. d. Further information is needed for a reasonable comparison. e. Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.

d. further information is needed for a reasonable comparison

Charging off equipment that cost less than $20 would be an example of: a. going concern b. cost. c. matching d. materiality e. realization

d. materiality

The comment that "items are not material may be recorded in the financial statements in the most economical and expedient manner possible" is representative of: a. matching b. conservatism c. realization d. materiality e. none of the answers are correct.

d. materiality

Andromeda Industries had 300,000 shares of common stock with a $3 par value and retained earnings of $180,000 at January 1, 2011. In 2011, the stock split was 3 for 1. In 2010, earnings per share were $1.80. Which of the following would not result from the stock split? a. the new shares would total 900,000 b. the total amount in the capital stock account would remain the same c. the par value would become $1 d. retained earnings would be reduced e. the earnings per share for 20 years prior to the split would be reduced

d. retained earnings would be reduced

The most popular depreciation method for financial reporting is the following: a. units - of - production b. sum of the years digits c. declining balance d. straight line e. other

d. straight line

Company A owns shares of Company B and Company C. The statements of Company B are consolidated with those of Company A. The statements of Company C are not consolidated. Company A reports "Noncontrolling interest" on its balance sheet. This account represents: a. A's non-controlling share of the stock of B. b. A's non-controlling share of the stock of C. c. the non-controlling share by outside owners of the stock A d. the non-controlling share by outside owners of the stock of B. e. the non-controlling share by outside owners of the stock of C.

d. the non-controlling share by outside owners of the stock of B.

The realization principle leads accountants to usually recognize revenue at: a. the end of production b. during production c. the receipt of cash d. the point of sale e. none of the answers are correct.

d. the point of sale

Which fo the following is not a proper use of notes? a. to describe the nature and effect of a change in accounting principle, such as from FIFO to LIFO. b. to indicate the basis for asset valuation c. to indicate the method of depreciation d. to correct an improper financial statement presentation e. to describe a firm's debt

d. to correct an improper financial statement presentation

Anchor Company has 1,000,000 shares of common stock with a par value of $5.Additional paid-in capital totals $5,000,000 and retained earnings is $8,000,000. The directors declare a 10% stock dividend when the market value is $15. The reduction of retained earnings as a result of the deceleration will be. a. 0 b. 500,000 c. 800,000 d. 1,000,000 e. 1,500,000

e. 1,500,000

The most significant current source of generally accepted accounting principles is the: a. New York Stock Exchange b. Accounting Principles Board c. Accounting Research Studies d. AICPA committee on Accounting Procedure e. Financial Accounting Standards Boards

e. Financial Accounting Standards Board

Which of the following would be classified as an extraordinary item on the income statement? a. loss on disposal of a segment of business b. cumulative effect of a change in accounting principle c. a sale of land d. an error correction that relates to a prior year e. a loss from a flood in a location that would not be expected to flood.

e. a loss from a flood in a location that would not be expected to flood.

When a company discontinues and disposes of a component segment of its operations, the gain or loss from disposal should be reported as: a. an adjustment to retained earnings b. a sale of fixed assets in "other" expense c. an extraordinary item d. an accounting change e. a special item after continuing operations and before extraordinary items.

e. a special item after continuing operations and before extraordinary items.

Which of the following will be disclosed in the reconciliation of retained earnings? a. adjustment for an error of a prior period b. net income c. net loss d. dividends e. all of the answers are correct

e. all of the answer are correct.

Which of the following would not be a user of financial statements? a. management b. bankers c. employee unions d. investment analysts e. all of the answers are users

e. all of the answers are users

Which of the following would be classified as an extraordinary item on the income statement? a. loss from a strike b. correction of an error related to a prior period c. write-off obsolete inventory d. loss on disposal of segment of business e. loss from prohibition of a product

e. loss from prohibition of a product

The principle that assumes the reader of the financial statement is NOT interested in the liquidation values is: a. conservatism b. matching c. time period d. realization e. none of the answers are correct

e. none of the answers are correct.

Understating assets and revenues is justified based on: a. realization assumption b. matching c. consistency d. realization e. none of the answers are correct.

e. none of the answers are correct.

A manufacturing firm will most likely have the heaviest investment in which type of assets? a. cash b. inventory c. accounts receivable d. investments e. plant, property, and equipment

e. plant, property, and equipment

Which of the following statements is not true? a. a qualified opinion or an adverse opinion may bring into question the reliability of the financial statements b. a disclaimer of opinion indicates that one should not look to the auditors report as an indication of the reliability of the statements c. in some cases, outside accountants are associated with financial statements when they have performed less than an audit. d.a review is substantially less in scope than an examination in accordance with generally accepted auditing statements. e. the accountants report expresses an opinion on reviewed financial statements

e. the accountants report expresses an opinion on reviewed financial statements

Which of the following is not true about a stock dividend? a. with a stock dividend, the firm issues a percentage of outstanding stock as new shares to existing shareholders b. the overall effect of a stock dividend is to leave total stockholders equity and each owner's share of stockholders equity unchanged c. in theory with a stock dividend, total market value considering all outstanding shares should not change. d. since the number of shares changes under a stock dividend any ratio based on the number of shares must be restated e. the accounting for a stock dividend, assuming the distribution is relatively small, requires that the par value of the stock be removed from retained earnings.

e. the accounting for a stock dividend, assuming the distribution is relatively small, requires that the par value of the stock be removed from retained earnings.

The balance sheet reports: a. the assets, liabilities, gains, and losses for a period oft time. b. the changes in assets, liabilities, and equity for a period of time c. the assets, expenses, and liabilities as of a certain date d. the probable future benefits, probable future sacrifices, and residual interest for a period of time. e. the financial condition of an accounting entity as of a particular date.

e. the financial condition of an accounting entity as of a particular date.

Which of these statements is NOT true? a. transactions must be recorded in a journal b. all transactions could be recorded in the general journal c. companies use a number of special journals to record most transactions d. special journals are designed to improve record -keeping efficiency e. the form of the journals are the same from industry to industry.

e. the form of the journals are the same from industry to industry.

Which of the following is not a problem inherent in balance sheet presentation? a. most assets are valued at cost b. varying methods are used for asset valuation c. not all items of value to the firm are included as assets d. liabilities related to contingencies may not appear on the balance sheet e. the owners' interest will be indicated

e. the owners' interest will be indicated

Which of the following is NOT a true statement relating to the Treadway Commission? a. the treadway commission is the popular name for the national commission on fraudulent reporting b. the treadway commission has released reports detailing internal control systems c. managements report on internal control over financial reporting and the independent public accounting from report to the shareholders and board of directors often refer to criteria established on internal control by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) d. the treadway comission has issued a number of recommendations for the prevention of fraud on financial reports, ethics, and effective internal controls. e. the treadway commission is a voluntary-sector organization formed to support the Sarbones-Oxley Act.

e. the treadway commission is a voluntary-sector organization formed to support the Sarbones-Oxley Act.

Which of the following is not true relating to treasury stock? a. a firm creates treasury stock when it repurchases its own stock and does not retire it. b. treasury stock lowers the stock outstanding c. treasury stock may be recorded at the cost of the stock d. treasury stock may be recorded at par or stated value e. treasury stock is, in essence, an increase in paid-in capital.

e. treasury stock is, in essence, an increase in paid-in capital.

Which of these statements is NOT true? a. asset, liability, and stockholders equity accounts are referred to as permanent accounts b. revenue, expense, and dividend accounts are described as temporary accounts c. temporary accounts are closed at the end of the period to retained earnings d. the balance sheet will not balance until the temporary accounts are closed to retained earnings. e. with double entry, each transaction is recorded twice.

e. with double entry, each transaction is recorded twice.

The current asset section of the balance sheet should include: a. land b. trademarks c. investment in C Company (for purposes of control) d. dividends payable e. work in process inventory

e. work in process inventory