Accounting Final review CH 1-6

Other factors being equal, the lower the credit risk, the lower the interest rate. True or False

True

Simple interest is computed on the principal only. True or False

True

The Financial Accounting Standards Board Accounting Standards Codification is the only authoritative accounting literature.

True

A deferred annuity does not begin to produce rents until three or more periods have expired. True or False

False

If a potential investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the investor is assessing: Financial flexibility. Solvency. Liquidity. Profitability.

Financial flexibility.

A deferred annuity is one in which the rents begin: before a specified number of periods. at the end of each period. after a specified number of periods. at the beginning of each period.

after a specified number of periods.

The rate used to discount expected cash flows should consider only the pure rate of interest. pure rate of interest and the inflation rate. pure rate of interest, the inflation rate, and the credit risk rate. inflation rate and the credit risk rate.

pure rate of interest and the inflation rate.

Reddaway Corporation reports the following information: Net income $500,000 Dividends on common stock 140,000 Dividends on preferred stock 60,000 Weighted average common shares outstanding 100,000 Reddaway should report earnings per share of

$4.40

Which one of the following accounts would have an amount listed in the debit column of a post-closing trial balance? Accumulated Depreciation - Equipment. Allowance for Doubtful Accounts. Accounts Payable. Prepaid Insurance.

Prepaid Insurance.

Which of the following measurements is considered the most subjective? Unobservable inputs. Inputs that are observable either directly or through corroboration with observable data. Observable inputs that reflect quoted prices for identical assets or liabilities. Historical cost.

Unobservable inputs

An implicit assumption of financial reporting is that Users need reasonable knowledge of business and financial accounting matters. Financial statement preparers provide tutorials and other aids within the body of the financial statements to ensure users can comprehend the information presented. Companies must know how competent their investors and creditors are, and then tailor their financial reporting to that level of competency. Companies can assume that financial statement users are CPAs or business people

Users need reasonable knowledge of business and financial accounting matters.

Posting is the process of transferring items entered in a general journal to the: worksheet. trial balance. general ledger. financial statements

general ledger.

The information provided by financial reporting pertains to individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.

If the balances in both accounts receivable and accounts payable increase during the year the increase in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period. the increase in both the accounts receivable and accounts payable balances will result in a increase in cash for the period. the increase in the accounts receivable balance would result in a decrease in cash for the period. the increase in the accounts payable balance would result in a decrease in cash for the period.

the increase in the accounts receivable balance would result in a decrease in cash for the period

Which of the following items may increase retained earnings? Net income. Changes in accounting principle. Prior period adjustments. All of these answer choices are correct

All of these answer choices are correct

An annuity due must have compounding of interest once each interval. same-length intervals between each payment. All of these answer choices are correct. periodic payments or receipts of the same amount

All of these answer choices are correct.

In order to determine how much $100,000 deposited now will grow to 6 years from now, one would use the: All of these answer choices are correct. future value of 1 table. present value of 1 table. formula FV = PV (FVFn,i).

All of these answer choices are correct.

On a classified balance sheet, a company should report separately? Assets that differ in their type or expected function. Assets and liabilities with different implications for the company's financial flexibility. Assets and liabilities with different general liquidity characteristics. All of these answer choices are correct.

All of these answer choices are correct.

Which of the following statements about the conceptual framework is correct? It is a coherent system of concepts that flow from an objective. It should allow the accounting profession to quickly solve new and emerging practical problems. It increases financial statement users' understanding of and confidence in financial reporting. All of these answer choices are correct.

All of these answer choices are correct.

Fundamental considerations the FASB must keep in mind in its rule-making activities include Improvement in financial reporting. International convergence. Simplification of the accounting literature. All of these choices are correct.

All of these choices are correct

Which of the following relate to the need for one set of international accounting standards? Information technology. Mergers and acquisitions. Financial markets. All of these choices are correct

All of these choices are correct

Supplemental balance sheet information that addresses material events with uncertain outcomes is referred to as Fair values. Contractual situations. Contingencies. Accounting policies.

Contingencies.

Net cash provided by operating activities divided by average current liabilities is the formula to compute: Financial flexibility. Free cash flow. Current cash debt coverage ratio. Cash debt coverage ratio.

Current cash debt coverage ratio.

Which of the following describes the use of present value concepts applied to environmental liabilities? Determining the fair value of future obligations for asset retirements. Measuring service cost components of employers' postretirement benefits expense and postretirement benefits obligation. Determining the value of receivables, payables, liabilities, accruals, and commitments acquired or assumed in a purchase. Determining the fair value of employee services in compensatory stock-option plans.

Determining the fair value of future obligations for asset retirements.

Which of the following statements regarding the statement of cash flows is incorrect? The statement of cash flows presents a detailed summary of all the cash inflows and outflows, or the sources and uses of cash during the period. Due to its format and level of detail, most individuals have difficulty comprehending the information reported in the statement of cash flows.

Due to its format and level of detail, most individuals have difficulty comprehending the information reported in the statement of cash flows.

The assumption that allows the merging of a parent company and its subsidiaries for financial reporting purposes is the: going concern assumption. economic entity assumption. monetary unit assumption. periodicity assumption.

Economic entity assumption

Which of the following is an element that describes amounts of resources or claims to resources at a moment in time? Investments by owners. Comprehensive income. Equity. Gains.

Equity

When a merchandiser prepares closing entries, Cost of Goods Sold is debited and Income Summary is credited. True or False

False

When the account form of the balance sheet is used, current assets will be greater than if the report form of the balance sheet is used. True or False

False

In solving single-sum problems, which of the following values can be calculated? Number of periods and interest rate. Future value, present value, and interest rate. Future value, present value, number of periods and interest rate. Future value and present value.

Future value, present value, number of periods and interest rate.

Which of the following would be added back to net income in the operating activities section of the statement of cash flows? Payment of a cash dividend. Increase in inventory. Increase in accounts payable. Gain on sale of equipment.

Increase in accounts payable.

Which of the following would be reported as a long-term investment at December 31, 2014? Trademark. Trading securities. Equipment used in the manufacturing process. Land held for speculative purposes.

Land held for speculative purposes.

Which of the following investments will result in the smallest future amount? One that offers monthly compounding. One that offers annual compounding. One that offers quarterly compounding. One that offers semi-annual compounding.

One that offers annual compounding.

On December 1, 2014, Doreen Company sold land to McKnight Company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required five equal annual payments with the first payment due on December 1, 2014, the date of the sale. What present value concept is appropriate for this situation? Present value of an ordinary annuity of 1 for five periods Present value of an annuity due of 1 for five periods Future amount of an annuity of 1 for five periods Future amount of 1 for five periods

Present value of an annuity due of 1 for five periods

The ___________ of interest is the amount a lender would charge if there were no possibilities of default and no expectation of inflation. Opportunity cost rate. Pure rate. Expected inflation rate. Credit risk rate.

Pure Rate

Which of the following is a correct definition for one of the variables fundamental to all compound interest problems? The present value is the value today for a future sum or sums discounted assuming compound interest. The rate of interest is a semi-annual rate that must be adjusted, if necessary, to the length of the compounding period. The number of time periods is the number of compounding periods where each period may be equal to or greater than a year.

The present value is the value today for a future sum or sums discounted assuming compound interest.

Which of the following statements is incorrect regarding the variables that are fundamental to all compound interest problems? The number of time periods may be equal to or less than a year. The future value is the value at a future date of a given sum or sums invested assuming compound interest. The present value is the value today for a future sum or sums discounted assuming compound interest. The rate of interest is a semi-annual rate that must be adjusted, if necessary, to the length of the compounding period

The rate of interest is a semi-annual rate that must be adjusted, if necessary, to the length of the compounding period

Compound interest uses the accumulated balance (principal plus interest to date) at each year-end to compute interest in the succeeding year. True or False

True

Monroe Enterprises uses IFRS and has property and equipment on an historical cost basis of $1,000,000. At the end of the year, Monroe appraises its property and equipment and determines it has a revaluation increase of $110,000. Which of the following statements is correct? Under IFRS, Monroe records the revaluation increase with a debit to a valuation reserve in equity and a credit to a contra asset account. Under IFRS, Monroe records the revaluation increase with a debit to property and equipment and a credit to a valuation reserve in equity.

Under IFRS, Monroe records the revaluation increase with a debit to property and equipment and a credit to a valuation reserve in equity.

The financial statements are prepared from the trial balance. adjusted trial balance. post-closing trial balance. closing trial balance.

adjusted trial balance.

When the future value of an annuity due is computed, the number of compounding periods will always be: less than the number of rents. less than or equal to the number of rents. equal to the number of rents. greater than the number of rents.

equal to the number of rents.

When the present value of an ordinary annuity is computed, the number of discount periods will always be: less than the number of rents. less than or equal to the number of rents. equal to the number of rents. greater than the number of rents.

equal to the number of rents.

The residual interest in the assets of a company that remains after deducting its liabilities is called comprehensive income. investments by owners. distributions to owners. equity.

equity

Deferrals include revenues for services performed but not yet received in cash or recorded. expenses paid in cash before they are used or consumed. expenses incurred but not yet paid in cash or recorded. all of these answer choices are correct.

expenses paid in cash before they are used or consumed.

If additional explanations cannot be conveniently shown as parenthetical explanations, the information should be disclosed by: a contra account. notes. supporting schedules. cross reference.

notes.

The cash effects of transactions that enter into the determination of net income are financing activities. income activities. operating activities. investing activities.

operating activities.

Simple interest is expressed in which of the following formulas? (1 + i)n/i. p x i x n. (1 + i)n (1 - i)n.

p x i x n.

The balance sheet format listing liabilities and stockholders' equity directly below assets is called the: account form. financial position form. report form. solvency form.

report form

The first level of the conceptual framework is the recognition, measurement, and disclosure concepts. True or False

False

Companies can change principles, but they must demonstrate that the newly adopted principle is preferable to the old one. True or False

True

Corporations whose securities are listed on a U.S. stock exchange are required to file audited financial statements with the Securities Exchange Commission. True or False

True

The objective of general-purpose financial reporting is to provide financial information about the reporting entity to investors. creditors. potential equity investors. all of these answer choices are correct.

All of these answer choices are correct

Adjusting entries are required every time a company prepares financial statements True or False

True

Which of the following is not considered a cost of providing financial information? Auditing. Potential litigation. Disclosure to competitors. Access to capital at a lower cost

Access to capital at a lower cost

Income statement sections found on a multiple-step income statement include all of the following except Income tax. Extraordinary items. Expenses. Nonoperating section

Expenses.

Although ethical dilemmas are frequently encountered in the business world, accountants are fortunate because adhering to GAAP solves all ethical questions. True or False

False

Elements of the income statement include revenues, assets, expenses, and liabilities. True or False

False

Financial reporting is the process of determining how and at what cost money is allocated among competing interests. True or False

False

The single-step income statement differentiates between operating and nonoperating activities. True or False

False

To satisfy the stewardship reporting responsibility of management, companies prepare multiple sets of special-purpose financial statements to meet the information needs of a variety of financial statement users.

False

Once a company has prepared an adjusted trial balance it is ready to prepare financial statements. Which financial statement is prepared first, second, then third? First the retained earnings statement is prepared, then the balance sheet is prepared, finally the income statement is prepared. First the income statement is prepared, then the balance sheet is prepared, finally the retained earnings statement is prepared. First the income statement is prepared, then the retained earnings statement is prepared, finally the balance sheet is prepared. First the balance sheet is prepared, then the retained earnings is prepared, finally the income statement is prepared.

First the income statement is prepared, then the retained earnings statement is prepared, finally the balance sheet is prepared.

Which assumption makes the current - noncurrent classification of assets and liabilities on the balance sheet useful? Going concern assumption. Economic entity assumption. Monetary unit assumption. Periodicity assumption.

Going concern assumption

International Financial Reporting Standards (IFRSs) are issued by the: FASB IASB SEC EU

IASB

Which of the following is not included in the operating section of a multiple-step income statement? Cost of goods sold. Income tax expense. Administrative expenses. Sales.

Income tax expense.

The objective of financial reporting identifies ______________ as the primary users for general-purpose financial statements. Managers. Regulators (IRS and SEC). Investors and creditors. Employees.

Investors and creditors

Limitations of the income statement include all of the following except: It provides a basis for predicting future performance. Companies omit items from the income statement that they cannot reliably measure. Income measurement involves judgment. Income numbers are affected by the accounting methods employed.

It provides a basis for predicting future performance.

Which of the following statements is correct concerning a conceptual framework in accounting? It results in an objective for accounting. It should allow practical problems to be solved more quickly by reference to it. It should be based on fundamental truths that are derived from the laws of nature. All of these answer choices are correct.

It should allow practical problems to be solved more quickly by reference to it.

The ____________ is the "book of original entry" where the company initially records transactions and other events. Ledger Journal Trial balance Account

Journal

Which of the following is typically the first step in the accounting cycle? Posting to the general ledger. Journalizing a transaction. Recording adjustments to the accounts. Preparing reversing entries.

Journalizing a transaction.

If a company holds a non controlling interest in a subsidiary company, it must present an allocation of net income or loss that is attributable to the noncontrolling interest. True or False

True

Material gains or losses resulting from the disposition of a component of the business are reported in Discontinued Operat True or False

True

One of the primary advantages of the single-step income statement is the absence of any implication that one type of revenue or expense has priority over another. True or False

True

The debit side of an account is used to increase all assets and expense accounts True or False

True

The income statement helps investors and creditors predict amounts, timing, and uncertainty of future cash flows. True or False

True

The internal control standards applicable to Sarbanes-Oxley (SOX) apply only to large public companies listed on U.S. exchanges. True or False

True

The statement of cash flows provides answers to all of the following questions except What is the impact of inflation on the cash balance at the end of the year? What was the change in the cash balance during the period? Where did the cash come from during the period? What was the cash used for during the period?

What is the impact of inflation on the cash balance at the end of the year?

The _________ provides the information needed for preparation of the financial statements without reference to the ledger or other records. worksheet. chart of accounts. unadjusted trial balance. all of these answer choices are correct

Worksheet

To convert cash receipts from customers to revenue on an accrual basis, which of the following adjustments is necessary? Add beginning Accounts Receivable. Add ending Unearned Service Revenue. Subtract ending Accounts Receivable. Add beginning Unearned Service Revenue.

Add beginning Unearned Service Revenue

To convert cash receipts from customers to revenue on an accrual basis, which of the following adjustments is necessary? Add beginning Accounts Receivable. Add ending Unearned Service Revenue. Subtract ending Accounts Receivable. Add beginning Unearned Service Revenue.

Add beginning Unearned Service Revenue.

The financial statements are prepared from the trial balance. adjusted trial balance. post-closing trial balance. closing trial balance.

Adjusted trial balance

Which one of the following guidelines regarding reversing entries is correct? All accruals should be reversed. All deferrals for which a company debited or credited the original cash transaction to an expense or revenue account should be reversed. Adjusting entries for bad debts are not reversed. All of these answer choices are correct.

All of these answer choices are correct.

Which of the following user groups influence the formulation of accounting standards? Government. Academicians. CPAs and accounting firms. All of these choices are correct.

All of these choices are correct

Which of the following is not a type of information that is supplemental to amounts presented in the balance sheet? Balance sheet format. Contractual situations. Accounting policies. Contingencies.

Balance sheet format.

A required step in the accounting cycle is the preparation of: reversing entries. a post-closing trial balances. closing entries. the worksheet.

Closing entries

A _______________ on a balance sheet reduces either an asset, liability, or owners' equity account. Contra account. Parenthetical explanation. Cross-reference. Note.

Contra account.

Which of the following is a constraint recognized by the Conceptual Framework? Materiality. Cost. Periodicity. Timeliness.

Cost

Which of the following accounts appears on the income statement of a merchandising firm but not a service firm? Net income. Cost of goods sold. Salaries and wages expense. Depreciation expense.

Cost of goods sold.

Which of the following is a liquidity ratio? Current cash debt coverage ratio. Profit margin on sales. Price-earnings ratio. Asset turnover.

Current cash debt coverage ratio.

Which of the following best describes the idea that the FASB operates in full view of the public and gives interested parties ample opportunity to make their views known?

Due process.

Which type of account is always credited during the closing process? Common Stock. Expense. Revenue. Retained earnings

Expense

The failure of financial reports to provide information on customer satisfaction indexes, reject rates, and company sustainability efforts describes the financial reporting challenge of Forward-looking information. Nonfinancial measurements. Soft assets. Understandability.

Nonfinancial measurements.

All of the following accounts are increased on the debit side except: Cash. Salaries Expense. Retained Earnings. Accounts receivable.

Retained Earnings.

____________ is the ability of a company to pay its debts as they mature. Financial flexibility. Liquidity. Insolvency. Solvency.

Solvency.

The __________ requires that members prepare financial statements in accordance with GAAP. Financial Accounting Standards Board. Internal Revenue Service. AICPA's Code of Professional Conduct. International Accounting Standards Board

The AICPA's Code of Professional Conduct requires that members prepare financial statements in accordance with GAAP.

The _______ has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules FASB. PCAOB. SEC. IRS.

The PCAOB has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules.

Under IFRS Companies may not apply fair value to natural resources. The monetary unit assumption is not used since every country has its own unit of measure. The existing conceptual framework is very similar to the conceptual framework under GAAP. All of these answer choices are correct

The existing conceptual framework is very similar to the conceptual framework under GAAP.

Which of the following is prohibited under IFRS? Classifying expenses by nature. A single-step income statement. The presentation of extraordinary items. All of these answer choices are correct.

The presentation of extraordinary items.

Capital allocation is the process of determining how and at what cost money is allocated among competing interests True or False

True

All of the following are objectives of financial reporting except to provide information: about enterprise resources, claims to those resources, and changes in them. that is useful in investment and credit decisions. about the management and major shareholders of an enterprise. that is useful in assessing cash flow prospects.

about the management and major shareholders of an enterprise.

Companies use intraperiod tax allocation on the income statement for income from continuing operations. extraordinary items. discontinued operations. all of these answer choices are correct

all of these answer choices are correct

Special journals summarize transactions possessing a common characteristic. reduce bookkeeping time. include cash receipts and cash payments. all of these answer choices are correct.

all of these answer choices are correct.

Krista Company prepares a consolidated income statement that includes its subsidiary, Edward Co. Krista's income statement shows $23,500 of net income attributable to the noncontrolling interest which is presented as an item of income. an item of expense. an allocation of net income. a gain attributable to the noncontrolling interest

an allocation of net income.

Adjusting entries are external events involving a transfer or exchange between two or more entities. reduce the nominal accounts to zero and transfer net income or loss to an owners' equity account. are made at the end of an accounting period to bring all accounts up to date on an accrual basis. all of these answer choices are correct.

are made at the end of an accounting period to bring all accounts up to date on an accrual basis.

A required step in the accounting cycle is the preparation of: reversing entries. a post-closing trial balances. closing entries. the worksheet.

closing entries.

The first step in preparing the statement of cash flows is to: determine the cash provided by or used in investing and financing activities. reconcile the change in cash with the beginning and the ending cash balances. determine the change in cash during the period. determine the cash provided by or used in operations.

determine the cash provided by or used in operations.

Expenses include all of the following except: dividends. cost of goods sold. taxes. depreciation.

dividends.

The cash debt coverage ratio is often used to assess liquidity. profitability. solvency. financial flexibility.

financial flexibility.

Borrowing money from creditors and repaying the amounts borrowed are liquidity activities. operating activities. investing activities. financing activities.

financing activities.

Classification as an extraordinary item on the income statement would be appropriate for the gain or loss on disposal of a component of the business. substantial write-off of obsolete inventories. loss from a strike. gain from condemnation settlement.

gain from condemnation settlement.

A common set of accounting standards and procedures are called financial accounting standards. generally accepted accounting principles. objectives of financial reporting. statements of financial accounting concepts

generally accepted accounting principles

Under IFRS, the monetary unit assumption is part of the conceptual framework. requires all companies to use the same unit of measure for currency, currently the Euro. requires companies to use fair value to report property, plant, and equipment; natural resources; and in some cases intangible assets. all of these answer choices are correct.

is part of the conceptual framework

Faithful representation includes all of the following ingredients except completeness. neutrality. free from error. materiality.

materiality

Enhancing qualities include all of the following except timeliness. comparability. verifiability. materiality.

materiality.

Companies that use IFRS: must report all their assets on the statement of financial position (balance sheet) at fair value. may report property, plant, and equipment and natural resources at fair value. may refer to a concept statement on estimating fair values when market data are not available. may only use historical cost as the measurement basis in financial reporting.

may report property, plant, and equipment and natural resources at fair value.

Earnings per share represents the dollar amount paid to stockholders in the form of dividends. measures the number of dollars earned by each share of common stock. can be reported either on the face of the income statement or in the notes to the financial statement. all of these answer choices are correct.

measures the number of dollars earned by each share of common stock.

The four basic principles of accounting used to record and report transactions include all of the following except measurement. expense recognition. monetary unit. full disclosure.

monetary unit.

The third level of the conceptual framework includes the: elements of financial statements. objective of financial reporting. qualitative characteristics of accounting information. recognition, measurement, and disclosure concepts.

recognition, measurement, and disclosure concepts.

The financial statements most frequently provided include all of the following except the: balance sheet. statement of cash flows. statement of retained earnings. statement of stockholders' equity.

statement of retained earnings

Which of the following would be reported as other comprehensive income? correction for understatement of net income in a prior period. unrealized holding gain on available-for-sale securities. loss on impairment of an intangible asset. gain from the sale of available-for-sale securities.

unrealized holding gain on available-for-sale securities.

Intraperiod tax allocation is used for all of the following except: changes in accounting principle. discontinued operations. extraordinary items. unusual gains/losses.

unusual gains/losses.