Accounting 352-Chapter 3 Quiz, AC 352 Final Exam All Quizzes

What are three major cost flow assumptions used by U.S. companies in valuing inventory? FIFO, LIFO, average cost. Answers:a. FIFO, LIFO, double-declining balance. b. FIFO, LIFO, average market. c. FIFO, LIFO, actual cost. d. FIFO, LIFO, average cost.

. FIFO, LIFO, average cost

ABC Company purchases five products for sale in the order and at the costs shown: Unit Cost per Unit 1 $10 2 $12 3 $15 4 $18 5 $13 Assume ABC uses the average cost method of inventory valuation. What unit cost would be used to determine the amount in ending inventory or cost of goods sold? Answers:a. $13.00 b. $13.60 c. $12.67 d. $15.00

13.60

Use the following information for Jett Co. to answer the question: 2015 2014 Sales 1,200 1,000 COGS 850 700 Operating expenses 200 200 Income taxes 30 35 Jett Co.'s gross profit, operating profit and net profit margins for 2015 are:

29.2%, 12.5%, 10.0%

ABC Company purchases five products for sale in the order and at the costs shown: Unit Cost per Unit 1 $10 2 $12 3 $15 4 $18 5 $13 Assume ABC sells two items and uses the LIFO method of inventory valuation. What amount would appear for cost of goods sold on the income statement? Selected Answer:a. $31 Answers:a. $31 b. $37 c. $41 d. $22

31

ABC Company purchases five products for sale in the order and at the costs shown: Unit Cost per Unit 1 $10 2 $12 3 $15 4 $18 5 $13 Assume ABC sells two items and uses the FIFO method of inventory valuation. What amount would appear in ending inventory on the balance sheet? Selected Answer:a. $46 Answers:a. $46 b. $22 c. $45 d. $31

4

What information can be found on a statement of stockholders' equity?

A reconciliation of the beginning and ending balances of all accounts that appears in the stockholders' equity section of the balance sheet.

What is a qualified report?

A report that states that departures from GAAP exist in the firm's financial statements

What is an unqualified audit report?

A report that states the financial statements are presented fairly, in all material respects, and are in conformity with GAAP.

Which type of firm would be most likely carry the most finished goods inventory?

A retail firm

Which of the following items should alert the analyst to the potential for manipulation when analyzing accounts receivable and the allowance for doubtful accounts? Accounts receivable is growing at a large rate and the allowance for doubtful accounts is decreasing. Answers:a. Accounts receivable is growing at a large rate and the allowance for doubtful accounts is decreasing. b. Sales, accounts receivable and the allowance for doubtful accounts are all growing at approximately the same rate. c. An analysis of the "Valuation and Qualifying Accounts" schedule required in the Form 10-K reveals that the amounts recorded for bad debt expense are close in amount to the actual amounts written off each year. d. A company lowers its credit standards and also increases the balance in the allowance for doubtful accounts.

Accounts receivable is growing at a large rate and the allowance for doubtful accounts is decreasing.

Which of the following accounts would be classified as current assets on the balance sheet? Answers: Accounts receivable, inventory, cash equivalents. Property, plant and equipment, inventory, goodwill. Marketable securities, accounts payable, property, plant and equipment. Prepaid expenses, goodwill, long-term investments.

Accounts receivable, inventory, cash equivalents.

Which of the following items is a discretionary expenditure?

Advertising.

How are deferred taxes recorded on the balance sheet?

As current or noncurrent assets or liabilities.

The balancing equation is expressed as:

Assets = Liabilities + Stockholders' Equity

Which financial statement shows the assets, liabilities and stockholders' equity of the firm on a particular date?

Balance sheet

What basic financial statements can be found in a corporate annual report?

Balance sheet, income statement, statement of shareholders' equity, and statement of cash flows.

Which of the following is an external source of liquidity?

Borrowing

According to Section 302 of the Sarbanes-Oxley Act, who must certify the accuracy of the financial statements of a public company?

CEO and CFO.

Which of the following statements is false? Each item on a common-size balance sheet is expressed as a percentage of sales. b. Common-size balance sheets allow for comparison of firms with different levels of total assets by introducing a common denominator. c. The common-size balance sheet reveals the composition of assets within major categories. d. The common-size balance sheet reveals the capital and the debt structure of the firm.

Each item on a common-size balance sheet is expressed as a percentage of sales.

Which of the following statements is true? The revenues and cost of goods sold should be netted together and reported as a single line item. b. All revenue sources should be added together and shown as one line item and all cost of goods sold should be added together and shown as one line item. c. Each revenue line should be shown separately with a corresponding cost of goods sold line for each revenue source. d. Each revenue source should be reported separately, but all cost of goods sold should be added together and reported as a single amount.

Each revenue line should be shown separately with a corresponding cost of goods sold line for each revenue source.

Which of the items below would be included under "Other income and expense"?

Equity earnings, gains from sale of assets, interest income.

Which method of inventory assumes the last units purchased will remain in ending inventory on the balance sheet?

FIFO

A firm's annual report contains only two pieces of information: the financial statements and the notes to the financial statements.(true or false)

False

Information that is significant enough to make a difference in a decision is considered to be immaterial.(True or False)

False

True or false:Operating profit margin is impacted by sales and all operating expenses except cost of goods sold.

False

True or false:The common size income statement expresses each income statement item as a percentage of total assets.

False

True or false:The income statement comes in two basic formats, the multiple-step and the single-step versions; however, for analysis purposes the single-step version should be used.

False

True or false:The income statement presents cash revenues, cash expenses, net income, and earnings per share for an accounting period.

False

Working capital refers to the investment in property, plant and equipment.(True or False)

False

What information would not be found in a firm's annual report?

Financial Reporting Rulings.

Which of the following statements is true? Fixed assets are reported at historical cost less accumulated depreciation on the balance sheet. Answers:a. Straight-line depreciation is the least used method for financial reporting purposes. b. The straight-line method of depreciation allocates a decreasing amount of depreciation expense each year. c. Fixed assets are reported at historical cost less accumulated depreciation on the balance sheet. d. The total amount of depreciation over the asset's life is larger when using an accelerated method of depreciation.

Fixed assets are reported at historical cost less accumulated depreciation on the balance sheet.

Which of the following statements is true? Gross profit margin and operating profit margin are complements of each other and the two percentages add up to 100%. b. In capital intensive industries sales volume changes result in a stable gross profit margin. c. In stable industries, such as retailers, the gross profit margin is generally volatile from year to year. d. Fixed costs do not vary proportionately with volume changes but remain the same within a relevant range of activity.

Fixed costs do not vary proportionately with volume changes but remain the same within a relevant range of activity.

Which financial statement presents the results of operations?

Income statement

Which item would not be classified as an operating expense? . Interest expense. b. Rent expense. c. Depreciation. d. Repairs and maintenance.

Interest expense.

How is earnings per common share calculated?

Net profit divided by the average number of common stock shares outstanding.

Which of the following accounts could be categorized as either a current or noncurrent liability depending on date the debt is due? Notes payable and deferred taxes. Answers:a. Deferred taxes and mortgages due in 30 years. b. Accounts payable and current portion of long-term debt. c. Notes payable and deferred taxes. d. Long-term warranties and accounts payable.

Notes payable and deferred taxes.

In what industry would it be expected that companies would spend a significant amount on research and development activities?

Pharmaceutical

What organization has the authority to register, inspect, and discipline auditors of all publicly owned companies?

Public Company Accounting Oversight Board.

Which of the following items could be found on a statement of shareholders' equity? Reasons for retained earnings increases or decreases. b. A reconciliation of beginning to ending cash. c. The market value of the firm's common stock. d. Assets = Liabilities + Stockholders' Equity.

Reasons for retained earnings increases or decreases

Which stockholders' equity account represents the sum of every dollar a company has earned since its inception, less any payments made to shareholders in the form of dividends?

Retained earnings.

Which equation represents an income statement?

Revenues - expenses = net income.

How are revenues and expenses recognized under the accrual basis of accounting?

Revenues are recognized in the accounting period when the sale is made and expenses are recognized in the period in which they relate to the sale of the product.

Which agency requires the filing of Form 10-Ks, form 10-Qs, and Form 8-Ks?

SEC

Selling and administrative expenses include which of the following income statement items? Salaries, insurance, interest. b. Salaries, rent, advertising. c. Rent, interest, cost of goods. d. Advertising, research & development, amortization.

Salaries, rent, advertising.

How are sales reported on the income statement?

Sales are shown for three years net of returns and allowances.

Which of the following is an internal source of liquidity?

Sales of products or services.

The was ___passed in 2002 and was one of the most sweeping corporate reforms since the Securities Act of 1934.

Sarbanes-Oxley Act

Which financial statement provides information about operating, financing and investing activities?

Statement of cash flows

How is it possible for a U.S. firm to have increasing earnings but a lower effective tax rate?

Tax rates in foreign countries where the firm operates are lower.

Why is it important to assess operating profit?

The figure for operating profit provides a basis for assessing the success of the firm apart from its financing and investing activities and separate from tax considerations.

Why is the method of valuing inventory important?

The method chosen determines the value of inventory on the balance sheet and the cost of goods sold expense on the income statement, two items which have a considerable impact on the financial position of the company.

What is amortization?

The process used to allocate the cost of capital leases, leasehold improvements and intangible assets.

Which of the following is not a condition that must be met for an item to be recorded as revenue?

The revenue must be received in cash.

What role does the statement of stockholders' equity play in the relationship between the balance sheet and the income statement?

The statement of stockholders' equity is an important link between the balance sheet and the income statement.

Which of the following items would not be classified as cash equivalents? Selected Answer:c. Trading securities. Answers:a. U.S. Treasury bills. b. Commercial paper. c. Trading securities. d. Money market funds.

Trading securities.

Congress passed the Sarbanes-Oxley Act of 2002 in hopes of ending future accounting scandals and renewing investor confidence in the marketplace.(True or False)

True

GAAP-based financial statements are prepared according to the accrual basis of accounting.(True or False)

True

The Management Discussion and Analysis is of potential interest to the analyst because it contains information that can not be found in the financial data.(True or False)

True

The requires all public companies to file a Form 10-K report annually.

U.S Securities and Exchange Commission(SEC)

When will a firm create a goodwill account on its books?

When one company acquires another company for a price in excess of the fair market value of the net identifiable assets acquired

Which items would be classified as long-term debt? Mortgages, convertible debentures, bonds payable. Answers:a. Common stock, retained earnings, bonds payable. b. Deferred taxes, accrued expenses, treasury stock. c. Accounts payable, unearned revenue, pension liabilities.

d. Mortgages, convertible debentures, bonds payable.

How do you calculate average tax rate?

divide the income tax expense by the earnings (or income earned) before taxes

Gross Profit Formula

net sales - cost of goods sold

What is important to remember if the cost of goods sold increases or decreases?

this does not necessarily mean that costs have increased or decreased.

External auditors are required to audit the internal control assessment of the company as well as the financial statements.(True or False)

true