acc 356 midterm
Major Co. reported 2013 income of $300,000 from continuing operations before income taxes and a before-tax loss on discontinued operations of $80,000. All income is subject to a 30% tax rate. In the 2013 income statement, Major Co. would show the following line-item amounts for income tax expense and net income:
90,000 and 154,000
the quick ratio is
Current assets minus inventory and prepaid items divided by current liabilities.
disclosure notes would not include
Data to adjust the financial statements so that they are not misleading.
cash equivalents would include
Debt instruments with maturity dates of less than three months from the date of the purchase.
gains are
Increases in equity from peripheral transactions of an entity
Which of the following is not true about net operating cash flow?
It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows
noncurrent assets include
Land held for a possible future plant site.
Accruals occur when cash flows
Occur after revenue or expense recognition
the international accounting standards board
Promotes the use of high-quality, understandable global accounting standards
The final paragraph of the audit report:
Provides the auditor's opinion on the effectiveness of internal control.
Which of the following has the statutory authority to set accounting standards in the US
SEC
liquidity refers to
The readiness of an asset to be converted to cash
a subsequent event for an entity with a December 31, 2013 year end would not include
a change in the estimated useful lives of equipment in jan 2014
the adjusting entry required to record accrued expenses includes
a credit to liability
the adjusting entry required when amounts previously recorded as unearned revenues are earned includes
a debit to a liability
Popson Inc. incurred a material loss which was not unusual in character but was clearly an infrequent occurrence. This loss should be reported as
a line item within income from continuing operations
Making insurance payments in advance is an example of:
a prepaid expense transaction
Which of the following is not a provision of the Public Company Accounting Reform and investor protection act of 2002 (Sarbanes-Oxley):
a. Changed the entity responsible for setting accounting standards
The FASB issues accounting standards in the form of
accounting standards update
Porite company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. Porite's practice is an example of:
accrual accounting
adjusting entries are primarily needed for
accrual accounting
an example of a contra asset account is
accumulated depreciation
which of the following accounts has a debit balance
advertising expense
Intraperiod income tax presentation is primarily a matter of:
allocation
Recording revenue that is earned, but not yet collected, is an example of:
an accrued receivable transaction
An exception that is so serious that even a qualified opinion is not justified would result in:
an adverse opinion
When a magazine company collects cash for selling a subscription, it is an example of:
an unearned revenue transaction
the management discussion and analysis section of the annual report can best be described as
baised but informative
the purpose of closing entries is to transfer
balances in tempory accounts to a permanent account
Stayman Associates has sold a good to a buyer and wants to recognize revenue. Which of the following is an indicator that control of a good has passed from Stayman to the buyer?
buyer has assumed the risk and rewards of ownership
note payable
cannot determine its classification without additional information
which of the following applies to a seller who is an agent
charges a commission for each transaction
Which of the following was the first private sector entity that set accounting standards in the US
committee on accounting procedure
Enhancing qualitative characteristics of accounting information include
comparability and timeliness
Surefeet corporation changed its inventory valuation method. Which characteristic is jeopardized by this change?
consistency
Primecoat corporation could disseminate its annual financial statements 2 days earlier if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is
cost effectiveness
The recognition of which of the following expenses exemplifies the application of the matching principle?
cost of goods sold
When recognizing revenue over time according to percentage-of-completion for long-term contracts, the percentage of completion used to recognize gross profit in the first year usually is determined by measuring:
costs incurred in first year, divided by estimated total costs of the completed project
working capital is equal to
current assets minus current liabilities
which of the following is not a financing ratio
current ratio
in which of the following is the option described not a performance obligation
customers can get 5% cash back for every $100 spent on eco-friendly products
Which of the following groups is not among the external users for whom financial statements are prepared
customers, suppliers, employees
Somerset Leasing received $12,000 for 24 months rent in advance. How should Somerset record this transaction?
debit cash 12,000; credit unearned revenue 12,000
which of the following is not an adjusting entry
debit cash, credit unearned revenue
Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase?
debit inventory 2,000; credit accounts payable 2,000
Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2013, and charged the $4,200 premium to Insurance expense. At its December 31, 2013, year-end, Yummy Foods would record which of the following adjusting entries?
debit prepaid insurance 3325; debit insurance expense 3325
Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a
debit to investments
Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:
debit to note recievable
incurring an expense for advertising on account would be recorded by
debiting an expense
Red Onion Restaurant classifies a six-month prepaid insurance policy as a current asset. Its rationale is based on:
definition
the principal concern with accounting for related party transactions is
differences between economic substance and legal form
which of the following is an example of a variable consideration
excellent electronics has a 10% mail-in rebate program for the Model X 001 speaker system. the company sold $10,000 worth of systems and believes there is a 50% chance that rebates will be redeemed.
The usual difference between accounts payable and notes payable is:
explicitly stated interest
which of the following is considered a performance obligation
extended warranties on electronic products
When there is agreement between a measure or description and the phenomenon it purports to represent, information possesses which characteristic
faithful representation
which of the following is not true about accounting for revenue from franchise arrangements
franchise arrangements typically include one performance obligation because the goods and services included in the arrangement are not separately identifiable
Which of the following is typically characterized as a principle, rather than an assumption
full disclosure
each of the following would be reported as items of other comprehensive income except
gains from the sale of equipment
The conceptual frameworks recognition and measurement concepts recognize which of the following as an assumption, rather than a principle
going concern
When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:
he usually debits an expense account
which of the following is one of the steps for recognizing revenue
identify the performance obligations of the contract
Reporting comprehensive income can be accomplished by each of the following methods except:
in the statement of shareholder's equity
The Maytag Corporation's income statement includes income from continuing operations and a loss from discontinued operations. Earnings per share information would be provided for:
income from continuing operations, loss from discontinued operations, and net income only
permanent accounts would not include
interest expense
which of the following is not true about EPS
it must be reported on operating income
When a company pays its bill from a plumber for previous services on account:
its debt to equity ratio always decreases
when a company sells land for cash and recognizes a $25,000 gain
its debt to equity ratio decreases
a cause and effect relationship implicit in the
matching principle
Mega loan company has very stringent credit requirements and accordingly has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The concept demonstrated is
materiality
elements of financial statements do not include
monetary unit
comprehensive income is the change in equity from
nonowner transactions
assets do not include
paid in capital
examples of internal transactions include all of the following except
paying wages to company employees
the principal benefit of separately reporting discontinued operations is to enhance
predictive ability of future profitability
The conceptual framework's qualitative characteristic of relevance includes
predictive value
which of the following is never a current liability account
prepaid rent
the difference between single step and multiple step income statements is primarily an issue of
presentation
the distinction between operating and nonoperating income related to
principal activities of the reporting entity
the acid test ratio is also known as the
quick ratio
The full disclosure principle requires a balance between
relevance and cost-effectiveness
The Claxton Company manufactures children's toys and also has a division that makes automobile parts. Due to a change in its strategic focus, the company sold the automobile parts division. The division qualifies as a component of the entity according to GAAP regarding disposal of long-lived assets. How should Claxton report the sale in its 2013 income statement?
report it as a discontinued operation, reported below income from continuing operations
Which of the following is typically true for a bill-and-hold arrangement?
revenue is recognized at the point in time when the delivery of goods is made
which of the following is most true regarding consignment arrangements
revenue is recognized upon sale by the consignee to an end customer
temporary accounts would not include
salaries payable
In a recent annual report, apple computer reported the following in one of its disclosure notes: "warranty expense: the company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This note exemplifies Apple's use of:
the matching principle
which of the following is not an indicator that revenue can be recognized over time
the seller is creating an asset that has an alternative use to the seller, and the seller can receive payment for its progress even if the customer cancels the contract
Maltec corporation has started placing its quarterly financial statements on its web page, thereby reducing by 10 days the to get information to investors and creditors. The qualitative concept improved is
timeliness
reconciliation between net income and comprehensive income would include
unrealized losses and inrealized gains on available for sale securities
4 different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is
verifiability
An important argument in support of historical cost information is
verifiability
Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers purchase his work there). Sweeney recently transferred a painting on consignment to a local barbershop. Sweeney most likely should recognize revenue when:
when the barbershop sells the painting
current assets include cash and all other assets expected to become cash or be consumed
within one year or one operating cycle, whichever is longer