Acct 208 Exam 1: Ch 1, 3, 4

Josie Corporation reported the following information for 2017: Sales revenue $1,000,000 Cost of goods sold 700,000 Operating expenses 110,000 Unrealized holding gain on available-for-sale securities 40,000 Cash dividends received on the securities 4,000 For 2017, Josie would report comprehensive income of $234,000. $230,000. $194,000. $40,000.

$234,000.

Clair, Inc. reports net income of $700,000. It declares and pays dividends of $100,000 for the year, one-half of which relate to the preferred shares. The weighted-average number of common shares outstanding during the year is 200,000 shares, and the weighted-average number of preferred shares outstanding during the year is 10,000 shares. Earnings per share for Clair, Inc. is (round your answer to the nearest cent): $3.18. $3.25. $3.00. $2.95.

$3.25.

Sawyer, Inc. consistently estimated its bad debt expense at 1 percent of credit sales. In 2017, however, Sawyer determines that it must revise upward the estimate of bad debts for the current year's credit sales to 2%, or double the prior years' percentage. Sawyer uses the revised estimate of 2% and calculates bad debt expense of $500,000. How is the change in the estimated bad debt expense reported in Sawyer's 2017 financial statements? $500,000 of expense and $500,000 as an unusual loss in the income statement. $500,000 of expense in the income statement as an ordinary item, $500,000 of expense reported as an adjustment to the beginning balance of retained earnings (net of tax). $500,000 of expense reported as a change in accounting principle and accounted for under the retrospective approach. $500,000 of expense in the income statement and $500,000 as a contra asset in the balance sheet.

$500,000 of expense in the income statement and $500,000 as a contra asset in the balance sheet.

Barger Enterprises has an unusual or infrequent loss of $300,000, an unusual gain of $700,000, and a tax rate of 30%. At what amount should Barger report each item? Unusual loss Unusual gain 1. $(300,000) $700,000 2. (300,000) 490,000 3. (210,000) 700,000 4. (210,000) 490,000

1

From the four statements that follow, which are true? 1. Technical competence is not enough when encountering ethical decisions. 2. The pressures "to bend the rules," "to play the game," "to just ignore it" can be considerable. 3. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives. 4. The decision may be easier because there is no comprehensive ethical system to provide guidelines. 1, 2, 3, and 4 are all true. 1, 2, and 4 are true. 2 and 4 are true. 1 and 2 are true.

1 and 2 are true.

Which of the following is an acceptable method of presenting the income statement? A classified income statement. A current operating performance income statement. A condensed income statement. None of these answer choices are correct.

A condensed income statement.

Which of the following is not classified as an unusual and infrequent gain or loss? A discontinued operation. Losses from inventory write-downs. Impairment losses on intangible assets. Flood damage losses to property.

A discontinued operation.

Which of the following generally provides a better indication of an enterprise's present and continuing ability to generate favorable cash flows? Cash basis accounting. Accrual basis accounting. Managerial basis accounting. Financial basis accounting.

Accrual basis accounting.

Which one of the following guidelines regarding reversing entries is incorrect? 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 reversed. None of these answer choices are correct.

Adjusting entries for bad debts are reversed.

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

All of these answer choices are correct.

Which of the following is a reason the trial balance may not contain up-to-date and complete data? ome items may be unrecorded. Some costs are not recorded during the accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions. Some events are not recorded daily because it's not efficient to do so. All of these answer choices are correct.

All of these answer choices are correct.

Which of the following would result if there was not a set of generally accepted and universally practiced accounting standards? It would be almost impossible to prepare statements that could be compared. Each company would have to develop its own standards. Readers of financial statements would have to familiarize themselves with every company's peculiar accounting and reporting practices. All of these answer choices are correct.

All of these answer choices are correct.

When a company transfers an amount of restricted retained earnings into a different account, that account is titled Appropriated Retained Earnings. Unappropriated Retained Earnings. Noncontrolling Retained Earnings. Comprehensive Retained Earnings.

Appropriated Retained Earnings.

Which of the following is an incorrect depiction of the accounting equation? Assets = Liabilities + Stockholders' Equity. Assets - Stockholders' Equity = Liabilities. Assets - Liabilities = Stockholders' Equity. Assets + Stockholder's Equity = Liabilities.

Assets + Stockholder's Equity = Liabilities.

If an adjusting entry is not made for a deferred revenue which was initially credited to an unearned revenue account, which of the following results? Liabilities are understated. Revenues are overstated. Assets are unaffected. All of these answer choices are correct.

Assets are unaffected.

Financial information that is better provided, or can only be provided, by means of financial reporting other than formal financial statements include all of the following except: News releases. Management's forecasts. President's letter. Cash flow information.

Cash flow information.

Which of the following would not represent an accounting error? Mathematical mistakes. Mistakes in the application of accounting principles. Oversight or misuse of facts that existed at the time financial statements were prepared. Change in the method of inventory pricing form FIFO to average-cost.

Change in the method of inventory pricing form FIFO to average-cost.

Companies are required to highlight certain items in the financial statements so that users can better determine the long-run earning power of the company. Which of the following is not one of those items? Unusual gains and losses. Noncontrolling interest. Changes in accounting principle. Discontinued operations.

Changes in accounting principle.

Which of the following is not a recordable event or item? Changes in managerial policy. Sales of the company's product in overseas markets. Declaration of dividends. Purchase of supplies.

Changes in managerial policy.

Which of the following is not transferred to Retained Earnings at the end of the period? Revenues. Dividends. Common stock. Expenses.

Common stock.

All of the following statements about contra asset accounts are true except: Contra asset accounts have normal credit balances. Contra asset accounts are deducted from the related asset account to determine book value. Contra asset accounts are not reported in the financial statements. Contra asset accounts are increased with credits.

Contra asset accounts are not reported in the financial statements.

Which of the following would be reported in a separate income statement category, separately from continuing operations, on the income statement? Discontinued operations. Unusual gains. Income tax expense. Unusual losses.

Discontinued operations.

Which of the following is a nominal account? Interest Payable. Dividends. Cash. Retained earnings.

Dividends.

The organization that provides implementation guidance within the framework of the Codification to reduce diversity in practice on a timely basis is the FASB (Financial Accounting Standards Board). FASAC (Financial Accounting Standards Advisory Council). EITF (Emerging Issues Task Force). AICPA (American Institute of Certified Public Accountants).

EITF (Emerging Issues Task Force).

T/F Cost of goods sold appears on the income statement of a service firm but not a merchandising firm.

F

T/F Discontinued operations occur when a company eliminates the results of operations of a component of the business. The elimination of the component need not represent a strategic shift, having a major effect on the company's operations and financial results.

F

T/F Financial reports generally focus on soft assets such as Apple's brand image or Wal-Mart's supply chain management system.

F

T/F GAAP is established strictly through the application of careful logic and empirical findings.

F

T/F Losses as a result of a strike are reported net of tax as a subdivision of noncontrolling interest section.

F

T/F Politics play no role in establishing GAAP (Generally Accepted Accounting Principles).

F

T/F Real accounts are periodically closed.

F

T/F The statement of retained earnings is one of the financial statements most frequently provided by public companies.

F

Which group selects members of the FASB? FAF (Financial Accounting Foundation). SEC (Securities and Exchange Commission). AICPA (American Institute of Certified Public Accountants). FASAC (Financial Accounting Standards Advisory Council).

FAF (Financial Accounting Foundation).

Each general journal entry consists of how many parts? One. Two. Three. Four.

Four.

Which of the following occur from peripheral or incidental transactions? Sales revenue. Cost of goods sold. Gain on the sale of equipment. Operating expenses.

Gain on the sale of equipment.

Accounting principles are "generally accepted" only when I. an authoritative accounting rule-making body has established it in an official pronouncement. II. a given practice has been accepted as appropriate because of its universal application. I only. II only. I or II. Neither I nor II.

I or II.

In the closing process, all of the revenue and expense account balances are closed to the: Capital account. Income Summary account. Retained Earnings account. Dividends account.

Income Summary account.

Which limitation of an income statement occurs when one company uses an accelerated depreciation method while another company uses straight-line depreciation? Companies omit from the income statement items they cannot measure reliably. Income measurement involves judgment. Income numbers are affected by the accounting methods employed. All of these answer choices are correct.

Income numbers are affected by the accounting methods employed.

Which of the following columns is generally found on a worksheet? Chart of accounts. Statement of cash flows. Income statement. All of these answer choices are correct.

Income statement.

Noncontrolling interest Is not shown on the face of the income statement. Is reported as a separate item below net income or loss. Is shown in a separate section of the income statement after continuing operations but before discontinued operations net of tax. Is shown in a separate section of the income statement after discontinued operations, net of tax.

Is reported as a separate item below net income or loss.

Which of the following statements about a trial balance is incorrect? Its primary purpose is to prove the mathematical equality of debits and credits after posting. It uncovers errors in journalizing and posting. It is useful in the preparation of financial statements. It proves that all transactions have been recorded.

It proves that all transactions have been recorded.

Which of the following is true about intraperiod tax allocation? It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return. It is required for discontinued operations but not for prior period adjustments. Its purpose is to allocate income tax expense evenly over a number of accounting periods. Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision.

Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision.

Which of the following is not a significant difference between the FASB (Financial Accounting Standards Board) and its predecessor, the APB? Greater autonomy. Larger membership. Increased independence. Broader representation.

Larger membership.

Income reporting follows which of the following approaches? Current operating performance. Modified all-inclusive. All-inclusive. Modified current operating performance.

Modified all-inclusive.

Which of the following statements related to noncontrolling interest is incorrect? Noncontrolling interest is sometimes called minority interest. Noncontrolling interest is the portion of equity interest in a subsidiary not attributable to the parent company. Noncontrolling interest in net income is reported as an expense on the income statement. Consolidated net income is allocated to the parent and to the noncontrolling interest in proportion to their appropriate percentages of ownership.

Noncontrolling interest in net income is reported as an expense on the income statement.

Which of the following describes an expense? Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations. Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations. Increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners. Decreases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners.

Outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations.

_________ is the process of transferring the accounts and amounts from the book of original entry to the ledger accounts. Journalizing Posting Closing Ledgerizing

Posting

If the entry to close Income Summary to Retained Earnings includes a debit to Income Summary: The company has incurred a net loss. Retained Earnings will be increased by the current period's net income. Dividends paid exceed the net income earned for the period. Expenses exceed revenues.

Retained Earnings will be increased by the current period's net income.

Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders? AICPA (American Institute of Certified Public Accountants). FASB (Financial Accounting Standards Board). CAP (Committee on Accounting Procedure). SEC (Securities and Exchange Commission).

SEC (Securities and Exchange Commission).

Which of the following publications is not considered a GAAP document? FASB Standards AICPA Research Bulletins APB Opinions Statements of Financial Accounting Concepts

Statements of Financial Accounting Concepts

T/F After journalizing and posting all adjusting entries, a company prepares an adjusted trial balance that is the primary basis for preparation of the financial statements.

T

T/F Capital allocation is the process of determining how and at what cost money is allocated among competing interests.

T

T/F Companies may prepare a trial balance at any time.

T

T/F Depreciation allocates the cost of long-lived assets to expense over the periods which benefit from their use (useful life).

T

T/F Earnings per share (EPS) is net income minus preferred dividends (income available to common stockholders), divided by the weighted average of common shares outstanding.

T

T/F Financial Accounting Concepts are a major type of pronouncement issued by the FASB (Financial Accounting Standards Board).

T

T/F Financial statements can be prepared directly from the adjusted trial balance.

T

T/F Revenue, equity and liability accounts have normal credit balances.

T

T/F Simple adherence to GAAP and technical competence are not enough when encountering ethical decisions.

T

T/F The Codification creates one level of GAAP which is considered authoritative.

T

T/F The Financial Accounting Standards Advisory Council (FASAC) consults with the FASB on major policy and technical issues and helps select task force members.

T

T/F The accounting cycle for a merchandiser is the same as the accounting cycle for a service firm.

T

T/F The passage new FASB guidance in the form of an Accounting Standards Update requires the support of four of the seven Board members.

T

T/F Transaction analysis is the same under GAAP and IFRS, but sometimes different standards impact how transactions are recorded.

T

T/F Transactions are initially recorded in the general journal.

T

T/F When a company makes reversing entries, it debits all cash payments of expenses to the related expense account.

T

T/F When a merchandiser prepares closing entries, Cost of Goods Sold is credited and Income Summary is debited.

T

The proper sequence of financial statement preparation is: The Retained Earnings Statement, the Balance Sheet, the Income Statement, and then the Statement of Cash Flows. The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows. The Balance Sheet, the Retained Earnings Statement, the Income Statement, and then the Statement of Cash Flows. The Statement of Cash Flows, the Income Statement, the Retained Earnings Statement, and then the Balance Sheet.

The Income Statement, the Retained Earnings Statement, the Balance Sheet, and then the Statement of Cash Flows.

Which of the following is an internal event? A transaction with another entity. Using machinery in operations. A change in the price of a good that an entity buys or sells. A flood.

Using machinery in operations.

Adjustments are often prepared after the balance sheet date, but dated as of the balance sheet date. after the balance sheet date, and dated after the balance sheet date. before the balance sheet date, but dated as of the balance sheet date. before the balance sheet date, and dated after the balance sheet date.

after the balance sheet date, but dated as of the balance sheet date.

A multiple-step income statement highlights certain intermediate components of income that analysts use to compute ratios for assessing the performance of the company. separates operating transactions from nonoperating transactions. matches costs and expenses with related revenues. all of these answer choices are correct.

all of these answer choices are correct.

Factors that shape an accounting information system include the transactions in which the business engages. informational demands of management. volume of data to be handled. all of these answer choices are correct.

all of these answer choices are correct.

The Financial Accounting Standards Board Accounting Standards Codification does not create new GAAP. eliminates nonessential information. simplifies user access to all authoritative U.S. generally accepted accounting principles. all of these answer choices are correct.

all of these answer choices are correct.

An effective capital allocation process promotes productivity. encourages innovation. provides an efficient market for buying and selling securities. all of these choices are correct.

all of these choices are correct.

Prior period adjustments are reported as: an unusual gain or loss item in the income statement. an addition to (or deduction from) net income in the income statement. an addition to (or a deduction from) the beginning balance of retained earnings. an addition to (or deduction from) the ending balance of retained earnings.

an addition to (or a deduction from) the beginning balance of retained earnings.

The adjusting entry to record an accrued expense includes a debit to: a liability account and a credit to an expense account. a liability account and a credit to a revenue account. an expense account and a credit to a revenue account. an expense account and a credit to a liability account.

an expense account and a credit to a liability account.

An accrued expense is an expense which is recorded with the passage of time. an expense that has been incurred but for which payment has not yet been made. an expense for which cash is paid before the expense is incurred. initially recorded as an asset.

an expense that has been incurred but for which payment has not yet been made.

The difference between the cost of a depreciable asset and its related contra account, Accumulated Depreciation is referred to as the asset's: book value. fair value. market value. real value.

book value.

Double-entry accounting system is the basis of accounting systems under GAAP only. IFRS only. both GAAP and IFRS. neither GAAP nor IFRS.

both GAAP and IFRS.

A change in the method of inventory pricing from FIFO to LIFO would be accounted for as a (an): part of discontinued operations. accounting error. change in accounting principle. change in estimate.

change in accounting principle.

The occurrence which most likely would have no effect on 20x7 net income (assuming that all amounts involved are material) is the sale in 20x7 of an office building contributed by a stockholder in 20x5. collection in 20x7 of a receivable from a customer whose account was written off in 20x6 by a charge to the allowance account. settlement based on litigation in 20x7 of previously unrecognized damages from a serious accident which occurred in 20x5. worthlessness determined in 20x7 of stock purchased on a speculative basis in 20x4.

collection in 20x7 of a receivable from a customer whose account was written off in 20x6 by a charge to the allowance account.

The objective of general purpose financial reporting adopts an entity perspective, which means that financial reporting should be focused on assessing the company's stewardship. financial reporting should be focused solely on the needs of the owners. companies are viewed as separate and distinct from their owners. none of these answer choices are correct.

companies are viewed as separate and distinct from their owners.

The income statement can be used to assess liquidity. solvency. creditworthiness. all of these answer choices are correct.

creditworthiness.

An adjusting entry would never include a: debit to an expense account and a credit to an asset account. debit to an expense account and a credit to a liability account. debit to a liability account and a credit to a revenue account. debit to an asset account and a credit to a liability account.

debit to an asset account and a credit to a liability account.

Adjusting entries can be classified as either: accruals or reversals deferrals or accruals. real or nominal. internal or external.

deferrals or accruals.

If the adjusting entry for an accrued revenue is not made: assets will be overstated. revenues will be overstated. liabilities will be understated. equity will be understated.

equity will be understated.

Unusual and infrequent gains and losses include restructuring charges. are reported net of tax. include the elimination of a component of the business. include restructuring charges and are reported net of tax.

include restructuring charges.

In the single-step income statement: interest revenue and rental revenue are reported as other revenues and gains just two groupings exist - revenues and expenses expenses are classified by functions, such as merchandising, selling and administration an income from operations figure is presented

just two groupings exist - revenues and expenses

When a dividend is declared: assets decrease. liabilities increase. stockholders' equity increases. all of these answer choices are correct.

liabilities increase.

Unearned revenues are: revenues. liabilities. accruals. all of these answer choices are correct.

liabilities.

Earnings per share is computed as net income: divided by the weighted average of common shares outstanding. minus preferred dividends divided by the weighted average of common shares outstanding. divided by the ending common shares outstanding. minus preferred dividends divided by the ending common shares outstanding.

minus preferred dividends divided by the weighted average of common shares outstanding.

The worksheet: replaces the financial statements. is prepared at the beginning of the period to ready the permanent accounts for the activity that will occur during the period. must be prepared on columnar paper. none of these answer choices are correct.

none of these answer choices are correct.

Gains and losses that bypass net income but affect stockholders' equity are referred to as: prior period adjustments. other comprehensive income. prior period income. unusual gains and losses.

other comprehensive income.

The gain or loss from disposal of a component of a business is shown as a (an): unusual gain or loss. part of discontinued operations. noncontrolling interest. prior period adjustment.

part of discontinued operations.

A trial balance proves that debits and credits are equal in the ledger. chronologically lists transactions and other events. proves that a company recorded all transactions. All of these answer choices are correct.

proves that debits and credits are equal in the ledger.

The statement of stockholders' equity need not be presented if a company is reporting comprehensive income using the two statement approach. is dated using "As of December 31, 20x7". reports the change in each stockholders' equity account and in total stockholders' equity during the year. all of these answer choices are correct.

reports the change in each stockholders' equity account and in total stockholders' equity during the year.

The major elements of the income statement are revenue, cost of goods sold, selling expenses, and general expense. operating section, non-operating section, discontinued operations, and extraordinary items. revenues, expenses, gains, and losses. revenue, cost of goods sold, operating expenses, non-operating section.

revenues, expenses, gains, and losses.

When a corporation purchases a computer for cash, liabilities increase. stockholders' equity decreases. assets increase. the account Cash will be credited.

the account Cash will be credited.

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

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

The double-entry accounting system means each transaction is recorded with two journal entries. each item is recorded in a journal entry, then in a general ledger account. the dual effect of each transaction is recorded with a debit and a credit. each journal entry must have one debit and one credit, or two debits and two credits.

the dual effect of each transaction is recorded with a debit and a credit.

All of the following are true regarding the FASB Codification except: the goal of the Codification was to provide one place where all authoritative literature about a particular topic could be found. the purpose of the Codification is to create new GAAP. the Codification was created to simplify user access. the Codification changes the way GAAP is documented, presented, and updated.

the purpose of the Codification is to create new GAAP.

The first step taken in the establishment of a typical FASB statement is: the board Evaluates responses and changes exposure draft if necessary. Final standard is issued. a public hearing on the proposed standard is held. the board evaluates the research and public response and issues an exposure draft. topics are identified and placed on the board's agenda.

topics are identified and placed on the board's agenda.

The single-step income statement emphasizes the gross profit and income from operations. total revenues and total expenses. discontinued operations more than these are emphasized in the multiple-step income statement. the various components of income from continuing operations.

total revenues and total expenses.

The ________ approach focuses on the income-related activities that have occurred during the period. transaction capital maintenance earnings quality classification

transaction

The role of the Securities and Exchange Commission (SEC) in the formulation of accounting standards can be best described as it develops all accounting standards by itself. it allows the FASB to develop all accounting standards by itself. varied - the SEC relies on FASB to develop standards but gives advice and recommendations to the private sector as needed. non-existent.

varied - the SEC relies on FASB to develop standards but gives advice and recommendations to the private sector as needed.

Jackson, Inc. has the following information is available: Cost of goods sold $148,500 Dividend revenue 3,750 Income tax expense 3,000 Operating expenses 79,500 Sales 255,000 In Jackson's's multiple-step income statement, gross profit will not be reported. will be reported at $24,000. will be reported at $27,000. will be reported at $106,500.

will be reported at $106,500.