accounting exam 2: multiple choice

Which of the following correctly describes an installment note? -An installment note requires equal interest payments with the entire principal balance paid at maturity. -An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. -An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of the note. -The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant over the life of the note.

An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note.

Interest charges on notes payable may be based on a(n): -fixed or variable interest rate. -fixed interest rate. -variable interest rate. -installment interest rate.

fixed or variable interest rate.

When the common stock account is disclosed on the balance sheet, it is reported at: -current market value. -average issue price. -par or stated value. -lower of cost or market.

par or stated value.

Regardless of the specific type of long-term debt, which of the following is normally required with debt transactions? -to repay the debt -to pay dividends -to pay interest -to repay the interest and repay the debt

to repay the interest and repay the debt

Which form of business organization is established as a legal entity separate from its owners? -Sole proprietorship -Partnership -Corporation -Correct

Corporation

Houff Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation? -Reduce liabilities and increase stockholders' equity -Increase total assets and increase stockholders' equity -Have no effect on total assets, liabilities or stockholders' equity -Increase total assets and decrease liabilities

Have no effect on total assets, liabilities or stockholders' equity

Which financial statement(s) is (are) affected when depreciation expense is recognized? -Income statement -Balance sheet -Statement of cash flows -Income statement and balance sheet -Income statement, balance sheet, and statement of cash flows

-Income statement and balance sheet

When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)? -LIFO -FIFO -Weighted average -None of these; inventory methods cannot affect cash flows.

-LIFO

Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in: -A $16,000 cash inflow in the investing activities section of the cash flow statement. -A $16,000 increase in total assets. -A $4,000 gain in the investing activities section of the statement of cash flows. -A $4,000 cash inflow in the financing activities section of the cash flow statement.

A $16,000 cash inflow in the investing activities section of the cash flow statement.

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? -A corporation. -A municipality. -A sole proprietorship. -A partnership.

A corporation.

Benitez Company had sales of $600,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $15,700 of warranty obligations paid in cash during Year 1. Based on this information: -Warranty expenses would decrease net earnings by $18,000 in Year 1. -Cash would decrease by $15,700 as a result of the accounting events associated with warranties in Year 1. -The warranties payable account would increase by $2,300 in Year 1. -All of these answer choices are correct.

All of these answer choices are correct.

Which of the following is a reason why a corporation may choose not to pay dividends? -The board and management prefer to reinvest all net income for future growth. -The corporation does not have adequate cash. -The corporation does not have adequate retained earnings. -All of these are valid reasons to not pay dividends.

All of these are valid reasons to not pay dividends.

Which of the following statements best describes the term "par value?" -The number of shares currently in the hands of stockholders. -The amount that must be paid to purchase a share of stock. -Determined by dividing total stockholders' equity by the number of shares of stock. -An amount used in determining a corporation's legal capital.

An amount used in determining a corporation's legal capital.

Which of the following would not be classified as a tangible long-term asset? -Delivery truck -Timber stand -Land -Copyright

Copyright

The term "double taxation" refers to which of the following? -Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation. -In a partnership, both partners are required to claim their share of net income on their tax returns. -A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals. -A sole proprietorship must pay income taxes to both the state government and the federal government.

Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation.

The recognition of depreciation expense acts to: -Decrease assets, stockholders' equity, and cash flow from operating activities. -Increase cash flow from operating activities, and does not affect the amount of total assets. -Increase assets, stockholders' equity, and cash flow from operating activities. -Decrease assets and stockholders' equity, and does not affect cash flow.

Decrease assets and stockholders' equity, and does not affect cash flow.

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true? -Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. -Cost of goods sold will be higher if Blake uses the FIFO cost flow method than if weighted average cost flow method was used. -The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used. -Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.

Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used.

Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. As a result of the lawsuit, Burger Barn should: -Disclose the lawsuit in the notes to the financial statements. -Recognize a $5 million liability on its balance sheet for the contingency. -Ignore the lawsuit in its financial statements. -Settle with the customer immediately for $5 million to avoid harmful publicity.

Ignore the lawsuit in its financial statements.

Which of the following would be classified as a tangible asset? -Land -Goodwill -Copyright -Trademark

Land

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value? -Weighted average -Specific identification -LIFO -FIFO

LIFO

Which of the following terms designates the maximum number of shares of stock that a corporation may issue? -Number of shares issued -Number of shares authorized -Par value -Number of shares outstanding

Number of shares authorized

Which of the following statements about types of business entities is true? -For accounting purposes a sole proprietorship is not a separate entity from its owner. -Ownership in a partnership is represented by having shares of capital stock. -One advantage of a corporation is ability to raise capital. -Sole proprietorships are subject to double taxation.

One advantage of a corporation is ability to raise capital.

Monthly remittance of sales tax: -Reduces liabilities. -Is a claims exchange transaction. -Reduces stockholders' equity. -All of these answer choices are correct.

Reduces liabilities.

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts? -The account is a contra asset account. -The account is a liability -The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables. -The account is increased when the company's' estimate of uncollectible accounts expense is recorded.

The account is a liability

Which of the following is not an advantage of accepting credit cards from retail customers? -The acceptance of credit cards tends to increase sales. -The credit card company performs credit worthiness assessments. -There are fees charged for the privilege of accepting credit cards. -The credit card company assumes the cost of slow collections and write-offs.

There are fees charged for the privilege of accepting credit cards.

Which of the following is a negative or contra equity account? -Retained earnings -Paid-in capital in excess of par value -Treasury stock -Appropriated retained earnings

Treasury stock

Which of the following is a disadvantage of a sole proprietorship? -Entrenched management. -Double taxation. -Unlimited liability. -Excessive regulation.

Unlimited liability.

When do the effects of product warranties appear on the statement of cash flows? -When the sale of merchandise is made. -When the warranty obligation is recognized. -When there is a settlement of a warranty claim made by a customer. -None of these answer choices are correct.

When there is a settlement of a warranty claim made by a customer.

In an inflationary environment: -a company's net income will be higher if it uses LIFO than if it uses FIFO. -a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. -a company's net income will be the same regardless of whether LIFO or FIFO is used. -a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

The par value of a company's stock: -dictates the initial price of the stock. -may be revised each time a company issues more shares of stock. -is generally greater than market value. -has little connection to the market value of the stock.

has little connection to the market value of the stock.

When prices are falling, LIFO will result in: -lower income and a lower inventory valuation than will FIFO. -lower income and a higher inventory valuation than will FIFO. -higher income and a higher inventory valuation than will FIFO. -higher income and a lower inventory valuation than will FIFO.

higher income and a higher inventory valuation than will FIFO.

Bonds payable are usually classified on the balance sheet as: -current liabilities. -long-term liabilities. -investments and funds. -other assets.

long-term liabilities.

A company that uses the allowance method to account for uncollectible accounts: -records Uncollectible Accounts Expense when a receivable is written off. -does not record uncollectible accounts until the amount becomes significant. -reports the net realizable value of its accounts receivable on the balance sheet. -None of these answer choices are correct.

reports the net realizable value of its accounts receivable on the balance sheet.