Accy 200 Exam 1

Credits are used to record: A) decreases to assets and increases to expenses, liabilities, revenues, and stockholders' equity. B) decreases to assets and expenses and increases to liabilities, revenues, and stockholders' equity. C) increases to assets, and decreases to expenses, liabilities, and stockholders' equity. D) increases to assets and expenses and decreases to revenues, liabilities, and stockholders' equity. E) decreases to assets and stockholders' equity and increases to liabilities, expenses and revenues.

B

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

B

All of the following are examples of "accrued expense" types of liabilities except the liability for: A) short-term notes taken out at a bank during the year. B) payroll taxes owed by the employer for the year. C) property taxes owed to local governments for the year. D) salaries and wages owed to employees at the end of the year. E) estimated product warranty costs on products sold during the year.

A

In the seller's records, the sale of merchandise on account at an amount that yields a gross profit would: A) increase assets and increase expenses. B) increase assets and decrease liabilities. C) increase assets and increase paid-in capital. D) increase assets and decrease revenues. E) decrease assets and increase expenses

A

The balance sheet is sometimes referred to as the: A) Statement of Financial Position. B) Statement of Assets and Liabilities. C) Statement of Changes in Financial Position. D) Statement of Current Affairs. E) None of the above

A

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. E) make sure that the bank is not charging too much in fees.

A

The time frame associated with a balance sheet is: A) a point in time in the past. B) a one-year past period of time. C) a single date in the future. D) a function of the information included in it. E) a two-year comparative period of time.

A

When a depreciable asset is sold: A) a gain arises if the sales proceeds exceed the net book value. B) a loss arises if the sales proceeds exceed the net book value. C) any cash received results in a gain. D) depreciation expense is adjusted so there is no gain or loss. E) accumulated depreciation increases.

A

Which of the following is not usually a right or attribute of preferred stock? A) Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock. B) Having a priority claim to dividends relative to the common stock's claim to dividends. C) Having a priority claim in liquidation relative to the common stock's claim in liquidation. D) Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied. E) All of the above are usually rights or attributes of preferred stock.

A

Inventories: A) represent a major portion of the property, plant, and equipment assets for many firms. B) are recorded as debits to assets when purchased and as debits to expenses when used. C) must be accounted for using either the LIFO or FIFO method. D) are not an important component of working capital for most firms. E) decrease ROI because they use cash.

B

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to: A) depreciation. B) amortization. C) depletion. D) consolidation. E) recognition.

B

Prepaid expenses classified as current assets represent: A) current year expenses that have been accrued. B) current year cash payments that will not be treated as expenses and thus matched against revenues until the next year. C) cash that has been segregated to pay for future expenses. D) expenses of the current year that have been paid in advance. E) cash collected in advance for revenues that will be earned in the next year.

B

The current assets of most companies are usually made up of: A) assets that are currently used in the operations of the company. B) cash and assets expected to be converted to cash within a year. C) a very small proportion (less than 10%) of the total assets of the entity. D) cash, marketable securities, and accounts and notes receivable. E) all assets that can be converted into cash.

B

The present value concept is widely applied in business because: A) inflation erodes the purchasing power of money. B) money has value over time. C) accounting for operating leases requires its use. D) most obligations are settled within a year. E) depreciation calculations require its use.

B

The stockholders' equity section of a balance sheet contains two major components: A) Common Stock and Additional Paid-in Capital B) Paid-in Capital and Retained Earnings C) Common Stock and Retained Earnings D) Net Income and Dividends E) Additional Paid-in Capital and Net Income

B

When borrowing money, the most important objective of the borrower should be to: A) minimize monthly payments. B) minimize the APR. C) avoid borrowing on a discount basis. D) make the maturity date as far in the future as possible. E) reading all of the hidden terms and conditions.

B

Which of the following is not a correct expression of the accounting equation? A) Assets - Liabilities = Stockholders' Equity B) Net Assets = Liabilities + Stockholders' Equity C) Assets = Liabilities + Stockholders' Equity D) Net Assets = Stockholders' Equity E) All of the above are correct expressions of the accounting equation.

B

Which of the following is not a correct expression of the accounting equation? A) Assets = Equities B) Assets = Liabilities - Stockholders' Equity C) Assets = Liabilities + Paid-in Capital + Retained Earnings D) Assets = Liabilities + Paid-in Capital + Revenues - Expenses E) Assets - Liabilities = Stockholders' Equity

B

Which of the following lists of accounts all have debit balances? A) Land, Equipment, and Paid-in Capital. B) Accounts Receivable, Merchandise Inventory, and Salary Expense. C) Notes Receivable, Dividends Payable, and Interest Expense. D) Accounts Receivable, Accumulated Depreciation, and Buildings. E) None of the above.

B

A cash equivalent is a current asset that: A) will be converted to cash within one year. B) will be converted to cash within one month. C) is readily convertible into cash with a minimal risk. D) is readily convertible into cash with a substantial risk. E) none of the above.

C

Consolidated financial statements refer to: A) Financial statements reported on an industry-wide basis. B) The parent's and subsidiary's financial statements are reported on a separate basis. C) The parent's and subsidiary's financial statements are reported on a combined basis. D) The parent's and subsidiary's financial statements are reported ignoring interest, depreciation, and taxes. E) None of the above.

C

If a common stock has no par value: A) there is no way of determining the market value per share. B) the stock must have a stated value. C) there will not be any additional paid-in capital related to it, assuming that the common stock does not have a stated value either. D) the common stockholders are not allowed to have a preemptive right. E) the company's shares cannot be listed on an organized stock exchange.

C

Internal control systems involve a series of checks and balances that separate each of the functional duties involved in processing a transaction, and are normally designed to do all of the following except: A) Promote accuracy and reliability of the company's records and financial statements. B) Safeguard and protect a company's assets against improper or unauthorized use. C) Prevent groups of employees from committing collusive acts of fraud. D) Encourage employees to adhere to the company's prescribed policies and procedures. E) Provide an environment that is conducive to efficient operation of the organization.

C

Similarities between preferred stock and bonds include all of the following, except: A) Each has a fixed claim to annual income (dividends and interest, respectively). B) Each has a fixed claim on assets (liquidating value and principal amount, respectively). C) Each allows the corporation a tax deduction (dividends and interest, respectively). D) Each may be callable and/or convertible. E) All of the above are similarities between preferred stock and bonds.

C

The effect of an adjustment on the financial statements is usually to: A) make the balance sheet balance. B) increase net income. C) increase the accuracy of both the balance sheet and income statement. D) match revenues and assets. E) increase or decrease cash.

C

The effect of an error resulting in an understatement of ending inventory is to: A) overstate the next period's beginning inventory. B) understate cost of goods sold of the current period. C) overstate cost of goods sold of the current period. D) overstate operating expenses of the current period. E) understate cost of goods sold for the next period.

C

The entry to record depreciation on long-term assets: A) decreases total assets and increases net income. B) decreases current assets and increases expenses. C) decreases total assets and decreases earnings before taxes. D) increases earnings before taxes and increases tax expense. E) decreases total assets and decreases expenses.

C

The going concern concept refers to a presumption that: A) the entity will be profitable in the coming year. B) the entity will not be involved in a merger within a year. C) the entity will continue to operate in the foreseeable future. D) top management of the entity will not change in the coming year. E) none of the above.

C

The principle of consistency means that: A) the accounting methods used by an entity never change. B) the same accounting methods are used by all firms in an industry. C) the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto. D) there are no alternative methods of accounting for the same transaction. E) the balance sheet must always balance.

C

The shares outstanding are the: A) shares authorized minus the shares issued. B) shares authorized minus the shares held in the treasury. C) shares issued minus the shares held in the treasury. D) shares issued minus the shares owned by directors. E) shares held in treasury minus the shares owned by directors.

C

When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land: A) any of the purchase cost allocated to the old building is reported as a loss. B) the cost assigned to the land excludes the cost of the old building. C) the total cost of the land and old building are capitalized as land cost. D) any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building. E) any of the above are generally acceptable accounting alternatives.

C

Which of the following does not appear in the stockholders' equity section of a balance sheet? A) Preferred Stock. B) Additional Paid-In Capital. C) Current maturities of long-term debt. D) Accumulated Other Comprehensive Income (Loss). E) Treasury Stock.

C

Which of the following is not one of the 5 questions of transaction analysis? A) What's going on? B) Which accounts are affected? C) Is this an accrual? D) Does the balance sheet balance? E) Does my analysis make sense?

C

Which of the following is not typically classified as a current liability? A) Accounts Payable. B) Notes Payable. C) Bonds Payable. D) Unearned Subscription Revenue. E) Interest Payable.

C

Which of the following statements best describes the process of accounting depreciation? A) A process that attempts to recognize loss in economic value over a period of time. B) A process for setting aside cash so funds will be available to replace the asset. C) A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset over a period of time. D) A process for recognizing all of the economic cost associated with using an asset in a revenue generating activity. E) A process that measures the physical wear and tear of an asset.

C

n reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true? A) The Discount on the Bonds Payable account is a contra asset. B) The Discount on the Bonds Payable account reduces working capital. C) The Discount on the Bonds Payable account is amortized by a credit entry each period. D) As the Premium on Bonds Payable account is amortized each period, the Interest Expense account is increased to the amount it would have been, had the bonds been sold at par. E) The premium on Bonds Payable account is a contra liability.

C

A stock dividend is similar to a cash dividend in that: A) an individual stockholder's equity in the firm's net assets is reduced by each. B) an individual stockholder's cash is increased by each. C) an individual stockholder's equity in the firm's net assets is increased by each. D) retained earnings and the amount of potential future dividends is reduced by each. E) each is an application of the return on investment concept.

D

Arch Co. has a note payable to its bank. An adjusting entry is likely to be required on Arch's books at the end of every month that the loan is outstanding to record the: A) amount of interest paid during the month. B) amount of total interest to be paid when the note is paid off. C) amount of principal payable at the maturity date of the note. D) accrued interest expense for the month. E) all of the above.

D

Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because: A) the accounts receivable asset should be stated at original cost. B) the exact amount of the losses from bad debts is known. C) revenues should be stated at realizable value. D) all costs incurred in the current period should be subtracted from current period revenues. E) write-offs are always recorded in the period during which the sale takes place.

D

Expenditures capitalized as noncurrent 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 and that have an economic benefit to the entity only in the current year. D) are material and that have an economic benefit to the entity that extends beyond the current year. E) are immaterial

D

If you owed $200 at the end of each year for the next three years, the present value of the obligation would be: A) less than it would be if you owed all $600 at the end of three years. B) the same as it would be if you had to pay $300 today and $300 at the end of three years. C) more than $600. D) less than it would be if you had to pay $300 today and $300 at the end of this year. E) none of the above.

D

The principal reason for a company having a common stock split is to: A) increase the total cash dividends paid to stockholders. B) capitalize retained earnings. C) decrease total stockholders' equity. D) decrease the market value per share of common stock. E) change from par value to no par value stock.

D

The principle stating that all expenses incurred while earning revenues should be identified with the revenues when they are earned, and reported for the same time period is the: A) cost principle. B) revenue principle. C) expense principle. D) matching principle. E) timing principle.

D

The purpose of the income statement is to show the: A) change in the fair market 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. E) all of the above.

D

When comparing its effects to LIFO during an inflationary time, the effects of FIFO are to: A) decrease net income and decrease total assets. B) decrease net income and increase total assets. C) increase net income and decrease total assets. D) increase net income and increase total assets. E) none of the above.

D

Which of the following is not a right or attribute of common stock ownership? A) Electing directors. B) Liability limited to amount invested. C) Approving changes in corporate charter. D) Determining dividend policy. E) All of the above are rights of common stock ownership.

D

Which of the following would not affect total Retained Earnings? (Assume it is the end of the fiscal year and that the books have been closed.) A) Cash dividends. B) Net Income. C) Stock dividends. D) Stock splits. E) All of the above would affect total Retained Earnings.

D

Which statement best describes the purpose of closing entries: A) To continue recording the effects of transactions which began in one year and will be completed in another year. B) To compute net income or net loss for the year. C) To prepare the books for the posting process and taking a trial balance. D) To eliminate the balances in the revenue and expense accounts so they have zero balances at the beginning of the next fiscal year. E) To eliminate the need for preparing adjustments.

D

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI is: A) more than the fair value of the net assets of the acquiring company. B) less than the fair value of the net assets of the acquiring company. C) equal to the fair value of the net assets of the acquiring company. D) less than the fair value of the net assets of the acquired company. E) more than the fair value of the net assets of the acquired company.

E

Retained Earnings is not: A) increased by net income. B) decreased by expenses. C) increased by revenues. D) decreased by dividends declared. E) decreased by losses.

E

The distinction between a current asset and other assets: A) is based on how long the asset has been owned. B) is based on amounts that will be paid to other entities within a year. C) is based on the ability to determine the current fair value of the asset. D) is based upon whether the asset is tangible or intangible. E) is based on when the asset is expected to be converted to cash, or used to benefit the entity.

E

The recognition of liabilities often results in: A) the recognition of expenses. B) a more conservative representation of financial position. C) a decrease in net income. D) a decrease in ROI. E) all of the above.

E

Treasury stock involves shares which are: A) authorized, but not yet issued. B) authorized, issued, and outstanding. C) issued and outstanding, but not yet authorized. D) not yet authorized. E) authorized and issued, but not currently outstanding.

E

When choosing between issuing common stock and issuing bonds, managers of corporations should take into account: A) the tax advantages to the company of deducting the interest costs on bonds. B) the demands placed upon their company by stockholders who expect to be paid quarterly dividends. C) the risks associated with having to make fixed interest payments on bonds at predetermined times. D) the impact that the choice will have on their company's leverage. E) all of the above are considerations.

E

Which of the following is true regarding a note receivable? A) A note receivable is always a long-term asset. B) A note receivable is always a current asset. C) A note receivable is usually non-interest bearing. D) A note receivable is normally issued by a bank. E) A note receivable is a more formal document than an account receivable.

E

Which of these is not a limitation of financial statements? A) Qualitative data are not reflected in financial statements. B) Market values of assets are not generally reported. C) Estimates are commonly used and are sometimes inaccurate. D) It may be difficult to compare firms in the same industry because they often use different accounting methods. E) All of the above are limitations of financial statements.

E