ACCY 200 Exam 1 UIUC

What is true regarding notes receivables?

A note is a more formal document than an account receivable.

This 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.

This accounting method accomplishes much of the matching of revenues and expenses?

Accrual accounting

An expanded version of the accounting equation could be:

Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues - Expenses - Dividends

The balance sheet equation can be represented by:

Assets = Liabilities + Stockholders' Equity.

True statement pertaining to bonds:

Bonds can be sold at a discount, par, or premium.

This is true regarding bond discounts and/or premiums:

Both bond discount and premium are amortized.

These accounts are assets:

Cash. Inventory. Equipment. Land.

examples of an inventory account a manufacturing firm might use?

Finished goods inventory. Work in process inventory. Raw materials inventory.

Leasehold is an example of which type of asset?

Intangible asset.

This is not usually associated with bonds:

Maturity rate.

Normal account balances are as follows:

Merchandise Inventory, Cost of Goods Sold, and Equipment are debits.

The stockholders' equity section of a balance sheet contains two major components:

Paid-in Capital and Retained Earnings.

This inventory accounting system has been made much more feasible as a result of computer systems developments:

Perpetual.

An Accounts Payable normally results from which of the following transactions?

Purchasing goods and services from suppliers on credit.

Limitations 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.

This is a stockholders' equity account:

Retained earnings. Paid-in-capital in excess of par. Capital stock. Common stock.

The balance sheet might also be called:

Statement of Financial Position.

Financial leverage refers to?

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.

Stockholders' equity refers to?

The ownership right of the stockholder(s) of the entity.

When a firm uses the LIFO inventory cost flow assumption:

There is better matching of revenue and expense is achieved than under FIFO.

The declaration of a cash dividend by the directors results in:

a decrease in retained earnings and an increase in current liabilities.

When a depreciable asset is sold:

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 ROE relative to what it would be without long-term debt.

The time frame associated with an income statement is:

a past period of time

Many current liabilities are affected by accrual accounting entries. This happens because:

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 interest expense.

If a firm sells treasury stock for more than its cost:

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:

all costs incurred in the current period should be subtracted from current period revenues.

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to:

amortization

The adjusting entry to accrue Interest Expense results in:

an increase in Interest Expense.

The accrual of interest on short-term marketable securities results in:

an increase in current assets and an increase in net income.

Expenditures capitalized as long-lived assets generally include those expenditures that:

are material in amount and that have an economic benefit to the entity that extends beyond the current year.

Interest on a Note Payable is most appropriately accrued:

as of the end of each accounting period during which the note is a liability.

The current assets of most companies are usually made up of:

cash and assets expected to be converted to cash within a year.

The allowance for uncollectible accounts is a:

contra current asset.

Retained earnings represents:

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.

Retained Earnings is not:

decreased by gains and losses.

Expenses are:

decreases in net assets resulting from usual operating activities

Partnerships, as contrasted with corporations, can be characterized as being relatively:

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.

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.

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

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.

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:

income taxes will be lower.

A credit entry will:

increase a liability account.

The effect of an adjustment on the financial statements is usually to:

increase the accuracy of both the balance sheet and income statement.

A debit entry will:

increase the balance of an expense account.

The entry to record depreciation expense:

increases a contra asset and decreases net income.

Revenues are:

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 inventory cost flow assumption describes the flow of product cost:

into the asset (inventory) account and out to the expense (cost of goods sold) account.

A fiscal year:

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 acquired company.

A cash equivalent is a current asset that:

is readily convertible into cash with a minimal risk.

Many companies use accelerated depreciation for tax purposes because:

it results in lower taxable income than straight-line depreciation.

The balance sheet valuation of inventories is:

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 mailed to subscribers.

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:

matching principle.

The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is:

matching revenue and expense.

The intangible asset goodwill:

may arise when one company purchases another company.

Another term frequently used to describe stockholders' equity is:

net assets.

Factors that usually affect retained earnings directly include:

net income or loss, and dividends.

The purpose of the income statement is to show the:

net income or net loss for the period covered by the statement.

The current liability for Wages Payable (or Accrued Payroll) represents the:

net pay earned by employees for which they have not yet been paid.

Accounts receivable are reported at:

net realizable value

A working capital loan will generally:

not affect working capital.

The payment of a current liability will:

not affect working capital.

In an inflationary economic environment, the selling price set for a firm's products will:

not be affected by the cost flow assumption used.

A concept or principle that relates to transactions is:

original cost.

The effect of an error resulting in an understatement of ending inventory is to:

overstate cost of goods sold of the current period

Current maturities of long-term debt:

permit a more accurate determination of working capital.

An organization's system of internal control is designed primarily to:

provide an operating framework for all employees as they work to achieve the organization's goals.

The amortization of bond discount:

results in bond interest expense being greater than the interest paid to bondholders.

The income statement shows amounts for:

revenues, gains, expenses and losses.

When a manufacturer invests in short-term marketable securities:

risk avoidance is of great importance.

The Statement of Cash Flows:

shows how cash changed during the period.

Depreciation, in accounting, is a process that results in:

spreading the cost of an asset over its useful life to the entity.

Paid-in Capital represents:

the amount invested in the entity by the stockholders.

When a company issues a bond at a premium:

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'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:

the cost of inventory items changes during the year.

If the market price of a bond exceeds its face amount:

the coupon rate is more than the market interest rate.

The net book value of a depreciable asset is:

the difference between the asset's cost and accumulated depreciation.

The principle of consistency means that:

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 continue to operate in the foreseeable future.

Corporate annual reports do not ordinarily include:

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.

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 principal challenge to calculating depletion is estimating:

the quantity of material to be recovered.

When a firm purchases supplies for its business:

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:

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.

The effect of an adjustment is:

to increase the accuracy of the financial statements.

When an uncollectible account receivable is written off against the allowance for bad debts:

total current assets are not affected.

When a firm purchases its own shares as treasury stock:

total stockholders' equity is decreased.

Income Statement: Statement of Cash Flows: Statement of Stockholders' Equity:

—shows what the organization's earnings were for a period time. —shows what the organization's receipts and disbursements were for a period of time. —shows the investments by and distributions to stockholders for a period of time.