Accounting Exam 1

48) The calculation of operating profit may include three of the following four expenses. Which is the one that is not included? A) Insurance B) Depreciation C) Loan interest D) Accounts payable

d

The two types of accounting are:

financial and managerial

17) The components of internal control do NOT include: A) control environment. B) risk assessment. C) control procedures. D) safeguard assets.

D

10) A construction company paid $81,000 cash for land used in the business. At the time of purchase, the land had a list price of $88,000. When the balance sheet was prepared, the fair value of the land was $84,000. At what amount should the land be reported on the balance sheet of the company? A) $81,000 B) $84,000 C) $84,500 D) $88,000

A

28) Newman Co. purchased CNC router cutting and engraving machinery at a cost of $320,000 in January 2019. The company's estimated useful life of this high tech equipment is 5 years, and the estimated salvage value is $48,000. Using the straight-line method, the depreciation expense to be recognized for 2019, the first year of the machinery's life, would be: A) $54,400. B) $64,000. C) $73,600. D) $128,000.

A

34) The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to: A) determine the amount of cash in the account actually available to the entity. B) satisfy generally accepted accounting principles. C) verify the amount of petty cash on hand. D) determine whether or not the entity has issued an NSF check.

A

37) One of the most important reasons for having a system of internal control is to: A) improve the effectiveness and efficiency of the operations of the organization. B) ensure no employees have ever been convicted of fraud or embezzlement. C) eliminate any temptations that may be presented to employees that could lead to theft from the company. D) prevent a salesperson from using a company car for personal transportation.

A

39) Which of the following is not an internal control procedure for cash? A) Payments should be made with cash. B) There should be limited access to cash. C) The amount of cash on hand should be kept to a minimum. D) Cash should be deposited daily.

A

4) The owner of a ________ is personally liable for all the business's debts. A) proprietorship B) corporation C) limited-liability company D) All of the above are correct.

A

40) A check written by the company for $167 is incorrectly recorded by a company as $176. On the bank reconciliation, the $9 error should be A) added to the balance per books. B) deducted from the balance per books. C) added to the balance per bank. D) deducted from the balance per bank.

A

9) The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is: A) historical cost. B) objectivity. C) reliability. D) stable-monetary-unit.

A

11) ________ is the element in the fraud triangle that results from weak internal controls. A) Motive B) Opportunity C) Rationalization D) Reasoning

B

12) If a company prepares its financial statements three years after the end of its accounting period, it has violated the qualitative characteristic of: A) understandability. B) timeliness. C) verifiability. D) materiality.

B

18) In the buyer's records, the purchase of supplies on account would: A) increase assets and increase expenses. B) increase assets and increase liabilities. C) increase liabilities and increase paid-in capital. D) have no effect on total assets.

B

19) A company borrowed $15,000 from the bank by signing a long-term note. How does this transaction affect the accounting equation? A) Add $15,000 to Cash and add $15,000 to Accounts Payable. B) Add $15,000 to Cash and add $15,000 to Notes Payable. C) Add $15,000 to Cash and add $15,000 to Retained Earnings. D) Add $15,000 to Accounts Receivable and add $15,000 to Accounts Payable.

B

22) One way the risk of not collecting receivables can be managed is: A) have all customers pay by check. B) separate cash-handling duties from record-keeping duties. C) separate cash-handling duties from duties in the mailroom. D) have an imprest petty cash fund.

B

24) A debit entry will: A) decrease an asset account. B) decrease a liability account. C) increase equity. D) decrease an expense account.

B

27) Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2020. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the straight line depreciation method. A) $8,800 B) $8,000 C) $800 D) $1,200

B

31) Stockholders' equity refers to which of the following? A) A listing of the organization's assets and liabilities. B) The ownership right of the stockholder(s) of the entity. C) Probable future sacrifices of economic benefits. D) The amount of resources controlled by the entity.

B

41) For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation? A) Check for $63 recorded by the company as $36. B) Deposit of $600 recorded by the bank as $60. C) A returned $300 check recorded by the bank as $30. D) Check for $75 recorded by the company as $57.

B

5) Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements, such as creditors. This qualitative characteristic of information is called: A) verifiability. B) faithful representative. C) relevant. D) understandability.

B

25) A credit entry will: A) increase an asset account. B) decrease a liability account. C) decrease paid-in capital. D) decrease an expense account.

D

7) To be useful, accounting information must have the fundamental qualitative characteristics of: A) comparability and relevance. B) relevance and faithful representation. C) materiality and understandability. D) faithful representation and timeliness.

B

13) The two most common types of fraud impacting the financial statements are: A) fraudulent financial reporting and e-commerce fraud. B) misappropriation of assets and embezzlement. C) fraudulent financial reporting and misappropriation of assets. D) cooking the books and fraudulent financial reporting.

C

14) The three main components of the fraud triangle are: A) rationalization, opportunity, and greed. B) opportunity, motive, and lack of ethics. C) motive, opportunity, and rationalization. D) none of the above.

C

15) Fraudulent financial reporting is also called: A) the fraud triangle. B) a misappropriation of assets. C) cooking the books. D) investigative reporting.

C

16) For a new business, the beginning balance of retained earnings equals: A) cash invested by the stockholders. B) beginning balance of the common stock account. C) zero. D) budgeted net income for the first year.

C

20) The revenue principle deals with the following: A) when to record revenue and where to record this revenue. B) where to record revenue and the amount of revenue to record. C) when to record revenue and the amount of revenue to record. D) when to record revenue and when to record related expenses.

C

21) The revenue principle requires that a business records revenue when the business: A) receives an order from a customer. B) prepares the invoice for the customer. C) performs a service or delivers a product and not before. D) receives payment from a customer.

C

23) The bookkeeper recorded a deposit of $100 as $10. On the bank reconciliation, this will be a(n): A) addition of $90 to the balance per bank. B) subtraction of $90 from the balance per bank. C) addition of $90 to the balance per books. D) subtraction of $90 to the balance per books.

C

29) Which of the following is not a principal form of business organization? A) Partnership. B) Sole proprietorship. C) Limited unregistered business. D) Corporation.

C

42) Which one of the following is not an objective of a system of internal controls? A) Safeguard company assets. B) Enhance the accuracy and reliability of accounting records. C) Fairness of the financial statements. D) Reduce the risks of errors.

C

43) Which of the following items on a bank reconciliation would require an adjusting entry on the company's books? A) An error by the bank. B) Outstanding checks. C) A bank service charge. D) A deposit in transit

C

45) A key difference between management accounting and financial accounting reports is that management accounting reports tend to______. A) rely more on objective, verifiable evidence B) have longer reporting intervals C) be forward looking D) be more general purpose

C

47) Which of the following items is not a differentiator between financial and management accounting? A) One form of accounting uses data from sources all over the organization to produce its information, the other only uses information recorded in financial ledgers. B) One form of accounting is primarily designed to meet the needs of internal stakeholders, the other is designed to meet the needs of parties who are external to the organization. C) One form of accounting is almost exclusively concerned with historic data and performance, the other uses data to consider past, present and future performance. D) One form of accounting has regulatory requirements and strong practice standards, the other has practice guidance only.

C

49) To be relevant, accounting information must cross a threshold of __________ A) materiality B) comparability C) verifiability D. understandability

C

50) The revenue principle requires that a business records revenue when the business: A) receives an order from a customer. B) prepares the invoice for the customer. C) performs a service or delivers a product and not before. D) receives payment from a customer.

C

6) Which statement is FALSE? A) International Financial Reporting Standards are used by most countries around the world. B) U.S. Generally Accepted Accounting Principles are used by many countries around the world. C) The most commonly used accounting practices are essentially the same under both U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. D) For many years, U.S. Generally Accepted Accounting Principles were considered to be the strongest single set of accounting standards in the world.

C

8) Verifiability means that the accounting information: A) is timely and understandable. B) is understandable. C) must be capable of being checked for accuracy, completeness and reliability. D) is material and relevant.

C

26) Expenditures capitalized as long-lived assets generally include those expenditures that: A) are made for normal repairs to maintain the usefulness of the asset over a number of years. B) are for items that have a physical life of more than a year, regardless of their cost. C) are material in amount and that have an economic benefit to the entity only in the current year. D) are material in amount and that have an economic benefit to the entity that extends beyond the current year.

D

30) The balance sheet equation can be represented by: A) Assets = Liabilities + Stockholders' Equity B) Assets - Liabilities = Stockholders' Equity C) Net Assets = Stockholders' Equity D) All of the answers are correct.

D

32) The purpose of the income statement is to show the: A) change in the fair value of the assets from the prior income statement. B) market value per share of stock at the date of the statement. C) revenues collected during the period covered by the statement. D) net income or net loss for the period covered by the statement.

D

33) The principle of full disclosure means that the reporting entity must fully disclose: A) all client data. B) all proprietary information. C) all necessary information to prevent a reasonably astute user of financial statements from being misled. D) all necessary information to prevent all users of financial statements from being misled.

D

35) For which of the following reconciling items would an adjusting entry be necessary on the company's books? A) A deposit in transit. B) An error by the bank. C) Outstanding checks. D) A bank service charge.

D

36) An organization's system of internal control is designed primarily to: A) ensure that no employees steal the organization's property. B) increase efficiency by letting one employee handle all aspects of a transaction from beginning to end. C) ensure that the organization's balance sheet will always balance. D) provide an operating framework for all employees as they work to achieve the organization's goals.

D

38) Which of the following is an objective of financial reporting by business enterprises? A) Financial reporting should provide assurance that all liabilities of business enterprises will be paid. B) Financial reporting should show the timing and amount of future cash dividends to potential investors. C) The primary focus of financial reporting is information about the assets of the entity. D) Financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and changes in those resources and claims to them.

D

44) Which one of the following is an internal user of financial information? A) Suppliers B) Lenders C) Tax authorities D) Management

D

46) As a management accountant you would be primarily concerned with______. A) the annual reporting of financial performance B) providing information to shareholders on how the management personnel are doing C) the reporting of past data D) preparing plans and forecasts for the future activities of the business

D

Which of the following have unlimited liability for a company's debts? A) owners of a corporation B) members of a limited liability company C) limited partners in a limited liability partnership D) general partner in a limited liability partnership

general partner in a limited liability partnership

Accounting: A) measures business activities. B) processes data into reports and communicates the data to decision makers. C) is often called the language of business. D) is all of the above.

is all of the above.