ACG

Which one of the following is part of other comprehensive income A. Unrealized gains resulting from translating foreign currency financial statements of majority-owned subsidiaries in U.S. dollar amounts. B. Gains on sales of treasury stock. C. Receipt of land donated by a governmental unit. D. Sale of common stock above par.

Unrealized gains resulting from translating foreign currency financial statements of majority-owned subsidiaries in U.S. dollar amounts

A debit A. increases Accounts Payable. B. increases Cost of Goods Sold. C. decreases Accounts Receivable. D. decreases Equipment

increases Cost of Goods Sold

Under the percentage-of-completion method, the profit to be recognized in any year is based on the ratio of A. incurred contract costs divided by estimated total contract costs. B. incurred contract costs multiplied by estimated total contract costs. C. estimated total contract costs divided by incurred contract costs. D. estimated total contract costs multiplied by incurred contract costs.

incurred contract costs divided by estimated total contract costs

As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are matched against current sales dollars resulting in a profit margin that is A. inflated. B. deflated. C. lower than normal. D. always the same as under FIFO

inflated

Another financial disclosure cost is the possibility that competitors may use the information to harm the company providing the disclosure. All of the following disclosures might create a competitive disadvantage except A. detailed information about company operations, such as sales and cost figures for individual product lines. B. information about the company's technological and managerial innovations. C. information on the company's level of spending on research and development. D. details about the company's strategies, plans and tactics.

information on the company's level of spending on research and development

Conventional wisdom is that A. investors value a company's stock based on sustainable operating earnings. B. investors focus on one-time special charges and write-offs. C. "big bath" items adversely affect stock price. D. restructuring an organization causes bankruptcy

investors value a company's stock based on sustainable operating earnings

Relevant financial information A. is free from bias and error. B. is measured in a similar manner among different companies. C. can be independently verified. D. is capable of making a difference in a decision.

is capable of making a difference in a decision

Financial information that does not favor one set of interested parties over another is A. relevant. B. verifiable. C. neutral. D. faithfully represented.

neutral

If a company fails to disclose information about a lawsuit because it might be embarrassing to the company, it is violating A. relevance. B. verifiability. C. neutrality. D. timeliness.

neutrality

The Financial Accounting Standards Board has responsibility for the establishment of U.S. accounting standards and A. full statutory power to enforce compliance with GAAP. B. authority from the SEC to enforce compliance with GAAP. C. no authority or responsibility to enforce compliance with GAAP. D. responsibility imposed by AICPA to enforce compliance with GAAP.

no authority or responsibility to enforce compliance with GAAP

Which one of the following equations explains why successive balance sheets can be used to prepare a firm's cash flow statement? A. Assets = Liabilities - Equity B. Cash - Noncash assets = Liabilities - Equity C. Cash = Liabilities - Noncash assets + Stockholders' equity D. Cash = Liabilities + Stockholders' equity

Cash = Liabilities - Noncash assets + Stockholders' equity

How much cash did Barden pay for rent during Year4? A. $0 B. $15,000 C. $25,000 D. $40,000

$0

Under the accrual basis, how much revenue should Canon recognize in November A. $0 B. $16,000 C. $24,000 D. $40,000

$0

What are Kris' cash flows from operating activities for Year 2? A. $0 B. $50,000 outflow C. $150,000 outflow D. $400,000 inflow

$0

In a periodicinventory system, the ending LIFO inventory is A. $1,624. B. $1,655. C. $1,678. D. $1,733

$1,624

In a periodicinventory system, the ending FIFO inventory is A. $1,624. B. $1,655. C. $1,678. D. $1,733.

$1,678

If the proper correcting entries were made at the end of 2006, how much will 2007 income before taxes be overstated or understated? A. $2,000 understated B. $2,000 overstated C. $10,000 understated D. $10,000 overstated

$10,000 overstated

What amount will Palmer use to record the sale to Perez A. $90,000 B. $90,595 C. $100,000 D. $110,381

$100,000

What are Kris' cash flows from investing activities for Year 2? A. $0 B. $100,000 inflow C. $100,000 outflow D. $350,000 outflow

$100,000 outflow

If the present value interest factor for two years at 10% is .82645, what will be the new note receivable balance for Mutual Bank? A. $89,256 B. $105,786 C. $108,000 D. $128,000

$105,786

What will be Island's carrying value of the restructured note? A. $100,000 B. $108,000 C. $118,000 D. $128,000

$108,000

If Edsel uses the sales revenue approach for estimating bad debt expense, the income statement should show an expense of A. $10,000 B. $12,000 C. $14,000 D. $20,000

$12,000

Using the completed transaction (sales) method, how much net revenue should Sarver recognize in Year 2? A. $4,000 B. $12,000 C. $24,000 D. $42,000

$12,000

If Edsel uses the sales revenue approach for estimating bad debt expense, the allowance for uncollectibles account after the proper adjustments to the accounts are recorded, should show a balance of A. $11,500 B. $13,500 C. $15,500 D. $21,500

$13,500

The Mick Company reported a LIFO cost of goods sold for the year of $100,000. The LIFO reserve decreased by $30,000 for the year. An estimate of the cost of goods sold under FIFO is A. $70,000. B. $130,000. C. $160,000. D. $200,000.

$130,000

ABC Company has elected to adopt the dollar-value LIFO inventory method when the inventory is valued at $125,000. The adoption takes place as of January 1, 2008 when the entire inventory represents a single pool. ABC Company determined that the inventory at December 31, 2008 was $144,375 at current year cost and $131,250 at base year cost using a relevant price index of 1.10. The inventory at December 31, 2008 under dollar value LIFO is A. $131,250. B. $131,875. C. $138,125. D. $144,375

$131,875

How much did Kris pay in income taxes to the government in Year 2? A. $30,000 B. $80,000 C. $110,000 D. $150,000

$150,000

The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20; Title pays $16,000, and agrees to pay the balance on November 10. Under the cash basis, how much revenue should Canon recognized in October A. $0 B. $16,000 C. $24,000 D. $40,000

$16,000

The Skone Corporation reported at the end of the year a LIFO reserve of $25,000. The beginning LIFO reserve was $20,000. The cost of goods sold was $197,500 under LIFO. The cost of goods sold under FIFO should be A. $192,500. B. $197,500. C. $202,500. D. $222,500.

$192,500

If no correcting entries were made at the end of 2006, by how much will retained earnings be overstated or understated at the end of 2007? Ignore tax consequences. A. $2,000 understated B. $2,000 overstated C. $10,000 understated D. $10,000 overstated

$2,000 understated

On December 1, 2011, how much interest is accrued on this loan? A. $2,933 B. $3,200 C. $6,933 D. $18,933

$2,933

The lower of cost or market for product N-05 is A. $20. B. $22. C. $24. D. $28.

$20

Echo Company's 2008 beginning and ending accounts receivable balances were $72,500 and $41,250 respectively. During 2008, the company's sales (all on credit) amounted to $857,250. Per Echo's 2008 cash flow statement, $873,500 was collected from customers while $18,750 related to uncollectible accounts was listed among the "non-cash expenses." If Echo's beginning balance in the allowance for uncollectibles was $17,600, the ending balance in this account must be A. $15,000 B. $21,350 C. $36,350

$21,350

How much cash did Barden pay for inventory during Year 4? Assume all purchases are on credit. A. $130,000 B. $215,000 C. $225,000 D. $235,000

$225,000

The "market" value for item N-05 is A. $20. B. $24. C. $28. D. $30.

$24

The inventory at the end of Year 2 under dollar-value LIFO is A. $238,095. B. $240,000. C. $250,000. D. $262,500.

$240,000

The inventory under dollar-value LIFO at the end of Year 4 is A. $240,000. B. $263,657. C. $274,074. D. $286,000

$263,657

The Johnson Corporation reported at the end of the year a LIFO reserve of $45,000. The beginning LIFO reserve was $60,000. The cost of goods sold was $260,000 under LIFO. The cost of goods sold under FIFO should be A. $245,000. B. $260,000. C. $275,000. D. $305,000.

$275,000

The inventory under dollar-value LIFO at the end of Year 3 is A. $274,075. B. $276,800. C. $278,856. D. $300,000

$278,856

If Edsel uses the gross accounts receivable approach for estimating bad debt expense, the allowance for uncollectibles account after the proper adjustments to the accounts are recorded, should show a balance of A. $2,600 B. $3,600 C. $5,600 D. $6,200

$3,600

How much did Kris pay in dividends to shareholders in Year 2? A. $30,000 B. $120,000 C. $150,000 D. $330,000

$30,000

How much realized gross profit on installment sales will Ford recognize in Year 1? A. $20,000 B. $30,000 C. $60,000 D. $100,000

$30,000

Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 2? A. $250,000 B. $375,000 C. $625,000 D. $3,125,000

$375,000

On August 1, 2008, Jones discounted the note under the arrangement with National Bank. How much were the proceeds of the discounted note? A. $38,267 B. $39,867 C. $40,000 D. $41,600

$39,867

Using the market price (production) method, how much net revenue should Sarver recognize in Year 2? A. $4,000 B. $12,000 C. $24,000 D. $42,000

$4,000

What amount will Jensen recognize as interest income during 2008 A. $4,356 B. $4,704 C. $5,111 D. $0

$4,356

What amount will Jensen recognize as interest income during 2009? A. $4,356 B. $4,704 C. $5,111 D. $0

$4,704

In a periodic inventory system, the FIFO cost of goods sold is A. $4,952. B. $4,967. C. $4,993. D. $5,006.

$4,952

The lower of cost or market for item M-23 is A. $40. B. $42. C. $46. D. $52.

$42

The minimum limit for market value of product M-23 is A. $42. B. $46. C. $56. D. $60.

$42

Using the completed transaction (sales) method, how much net revenue should Sarver recognize in Year 1? A. $42,000 B. $50,000 C. $105,000 D. $125,000

$42,000

What is the amount of Hickory's May expense when applying the matching principle A. $33,600 B. $42,400 C. $43,600 D. $50,000

$43,600

How much cash did Barden collect from customers in Year 4? Assume all sales are on credit. A. $115,000 B. $407,500 C. $425,000 D. $442,500

$442,500

The maximum limit for market value of product L-19 is A. $36. B. $38. C. $48. D. $50

$48

The Xano Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements. The company also reported a LIFO reserve of $34,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is A. $382,000. B. $416,000. C. $461,000. D. $484,000

$484,000

In a periodic inventory system, the LIFO cost of goods sold is A. $4,952. B. $4,967. C. $4,993. D. $5,006.

$5,006

Using the market price (production) method, how much net revenue should Sarver recognize in Year 1? A. $42,000 B. $50,000 C. $105,000 D. $125,000

$50,000

What is the amount of Hickory's cash-basis expense for the month of May A. $33,600 B. $42,400 C. $50,000 D. $51,600

$50,000

What are Kris' cash flows from financing activities for Year 2? A. $0 B. $50,000 inflow C. $50,000 outflow D. $150,000 outflow

$50,000 inflow

How much cash did Barden pay for insurance during Year 4? A. $6,000 B. $9,000 C. $12,000 D. $18,000

$6,000

What is the amount of the restructuring gain or loss to Corona? A. $6,000 loss B. $6,000 gain C. $8,933 loss D. $13,000 gain

$6,000 gain

What is the amount of the receivable restructuring gain or loss to State Bank? A. $6,000 loss B. $6,000 gain C. $13,000 loss D. $8,933 gain

$6,000 loss

Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 3? A. $375,000 B. $625,000 C. $1,000,000 D. $1,250,000

$625,000

What will be the balance in the Notes Receivable—Lewisburg Fabricators account at the end of 2009? A. $54,447 B. $58,802 C. $63,507 D. $80,000

$63,507

How much realized gross profit on installment sales will Ford recognize in Year 2? A. $24,000 B. $45,500 C. $69,500 D. $130,000

$69,500

How much cash did Kris pay to suppliers for inventory during Year 2? Assume all purchases are on credit. A. $150,000 B. $400,000 C. $500,000 D. $700,000

$700,000

The Wheat Company has used the LIFO method for inventory valuation since the start of business 15 years ago. The current year ending inventory is $375,000. If the FIFO method of inventory had been used, the inventory would be $450,000. If Wheat Company had used the FIFO inventory method, income before income taxes would have been A. $75,000 higher over the 15 year period. B. $75,000 lower over the 15 year period. C. $75,000 higher in the current year. D. $75,000 lower in the current year.

$75,000 higher over the 15 year period

How much cash did Kris collect from customers during Year 2? Assume all sales are on credit. A. $150,000 B. $750,000 C. $850,000 D. $900,000

$850,000

Royal, Inc. discovered that equipment purchased three years ago for $300,000 A. $40,000 B. $60,000 C. $90,000 D. $120,000

$90,000

What amount will Palmer use to record the sale to Berg? A. $90,000 B. $90,595 C. $100,000 D. $110,382

$90,595

What effective interest rate will Mutual Bank use for the restructured note? A. 8.7% B. 8.9% C. 10.0% D. 13.1%

10.0%

If Edsel uses the gross accounts receivable approach for estimating bad debt expense, the income statement will show an expense of A. $2,100 B. $3,600 C. $5,100 D. $8,500

2,100

What effective interest rate will Island use for the restructured note? A. 8.7% B. 8.9% C. 10.0% D. 13.1%

8.9%

Which one of the following is an example of an aggressive revenue recognition policy? A. A firm recognizes revenue at time of collection. B. A firm recognizes revenue at the expiration of the return period. C. A firm with a liberal return policy recognizes revenue at shipment. D. A firm with a liberal return policy recognizes revenue at shipment with a corresponding allowance for returns and allowances.

A firm with a liberal return policy recognizes revenue at shipment

The value of Accounts Receivable is adjusted on the balance sheet by the contra-asset account A. Allowance for Amortization. B. Allowance for Doubtful Accounts. C. Bad Debt Expense. D. Doubtful Accounts Expense

Allowance for Doubtful Accounts

Which one of the following events would be considered an extraordinary event A. A tornado in Kansas. B. An earthquake in New York. C. A flood in St. Louis near the Mississippi River. D. An earthquake in southern California.

An earthquake in New York

Which one of the following entries properly records the deferral of gross profit on Year 2 installment sales not yet collected?

CR Adjustment to AR Year 2

Which one of the following entries properly records realized gross profit on installment sales of Year 1 in Year 2?

CR Realized gross profit 69,500

Assuming that the information provided from the income statement represents all of the pre-tax income of Barden Company, what is the difference between the accrual-basis and cash-basis income in Year 4? A. Accrual exceeds cash basis by $16,500. B. Cash exceeds accrual basis by $23,500. C. Accrual exceeds cash basis by $25,000. D. Cash exceeds accrual basis by $48,500

Cash exceeds accrual basis by $48,500

The change in a firm's cash position between successive balance sheet dates will not equal the reported earnings for that period for all of the following reasons except: A. Reported net income usually will not equal cash flow from operating activities because noncash revenues and expenses are often recognized as part of accrual earnings. B. Reported net income usually will not equal cash flow from operating activities because certain operating cash inflows and outflows are not recorded as revenues or expenses under accrual accounting in the same period the cash flows occur. C. Changes in cash are also caused by nonoperating investing activities like the purchase of treasury stock. D. Additional changes in cash are caused by financing activities like the repayment of a bank loan.

Changes in cash are also caused by nonoperating investing activities like the purchase of treasury stock

Which one of the following types of disclosure costs is the cost of disclosing the company's pricing strategies A. Political cost B. Litigation cost C. Competitive disadvantage cost D. Information collection, processing, and dissemination cost

Competitive disadvantage cost

Which one of the following businesses is likely to recognize revenue during the production phase A. Mining company B. Cruise ship builder C. Citrus grower D. Department store

Cruise ship builder

Which one of the following entries would be made in Year 2 to record the customer billing using the percentage-of-completion method of revenue recognition?

DR Accounts Receivable CR Billings

Which one of the following entries properly records the installment sales for Year 2

DR Accounts Receivable Year 2

Which one of the following entries properly records the cost of installment goods sold for Year 2

DR Cogs CR Inventory $162,500

Which one of the following entries would be made in Year 1 to record the costs incurred using the percentage-of-completion method of revenue recognition?

DR Construction In Progress CR Accounts Payable

Which one of the following entries would be made in Year 1 to record the income recognized using the percentage-of-completion method of revenue recognition?

DR Construction in Progress CR Income On Long Term 250,000

Identify the correct order of the three steps constituting the FASB's "due process" procedure A. Public-hearing stage, exposure-draft stage, and voting stage. B. Discussion-memorandum stage, public-hearing stage, and voting stage. C. Exposure-draft stage, discussion-memorandum stage, and voting stage. D. Discussion-memorandum stage, exposure-draft stage, and voting stage.

Discussion-memorandum stage, exposure-draft stage, and voting stage

The conversion of a LIFO inventory to approximate the inventory at FIFO is accomplished through application of which one of the following formulas? A. FIFO inventory = LIFO inventory LIFO reserve B. FIFO inventory = LIFO inventory LIFO reserve C. FIFO inventory = LIFO inventory - LIFO reserve D. FIFO inventory = LIFO inventory + LIFO reserve

FIFO inventory = LIFO inventory + LIFO reserve

Reasons why companies might accelerate cash collections include the following except: A. The company may have an immediate need for cash but be short of it. B. Generally accepted accounting principles permit "off-balance sheet" treatment of factored receivables and collateralized borrowings, thus enabling management to "window dress" the company's financial position. C. There may be an imbalance between the credit terms of the company's suppliers and the time required to collect customer receivables. D. Competitive conditions require credit sales but the company is unwilling to bear the cost of processing and collecting receivables.

Generally accepted accounting principles permit "off-balance sheet" treatment of factored receivables and collateralized borrowings, thus enabling management to "window dress" the company's financial position

The discontinued operations section of the income statement is comprised of which one of the following A. Income from the operation of discontinued business component and gain or loss from the disposal of the discontinued component. B. Income from the operation of discontinued business component, net of tax, and gain or loss from the disposal of the discontinued component, net of tax. C. Income from the operation of discontinued business component, net of tax and gain or loss from the disposal of the discontinued component. D. Gain or loss from the disposal of the discontinued component, net of tax.

Income from the operation of discontinued business component, net of tax, and gain or loss from the disposal of the discontinued component, net of tax

The growth of global investing has spurred development of worldwide accounting standards that are written by the A. American Institute of Certified Public Accountants. B. Institute of Global Auditors. C. Global Committee on Accounting Standards. D. International Accounting Standards Board

International Accounting Standards Board

What type of cost is the advertising expense A. Product cost B. Traceable cost C. Inventory cost D. Period cost

Period cost

TAD, Inc. uses the lower of cost or market method to value inventory. If the inventoryvalue is replacement cost, which one of the following statements is true? A. Historical cost is less than replacement cost. B. Replacement cost is greater than net realizable value less a normal profit margin. C. Replacement cost is greater than historical cost. D. Net realizable value is greater than historical cost

Replacement cost is greater than net realizable value less a normal profit margin

Which of the following is a true statement A. Revenues decrease owners' equity and increase liabilities. B. Expenses increase owners' equity and decrease liabilities. C. Revenues increase owners' equity and expenses decrease owners' equity. D. Revenues decrease owners' equity and expenses increase owners' equity

Revenues increase owners' equity and expenses decrease owners' equity

When a company transfers receivables with recourse A. SFAS No. 5 requires footnote disclosure of the contingent liability. B. the transferee is responsible for uncollected receivables. C. there is no contingent liability so no disclosure is required. D. the transfer may be reported in a variety of ways as GAAP provides no specific reporting guidance related to such transactions.

SFAS No. 5 requires footnote disclosure of the contingent liability

In 1973 the pronouncements of the Financial Accounting Standards Board were formally acknowledged as having "substantial authoritative support" by the A. American Institute of Certified Public Accountants. B. Securities and Exchange Commission. C. United States Congress. D. National Association of State Boards of Accountancy.

Securities and Exchange Commission

Which one of the following has statutory authority to determine accounting rules A. American Institute of Certified Public Accountants B. State Boards of Accountancy C. Securities and Exchange Commission D. Financial Accounting Standards Board

Securities and Exchange Commission

Securitizations, when carefully designed to enable the transferor to avoid consolidating the special purpose entity (SPE), must meet all of the following conditions except: A. The SPE is demonstrably distinct from the transferor. B. The SPE's activities are narrowly limited. C. The SPE holds only rigidly defined types of assets. D. The SPE has some latitude regarding disposal of assets under its control.

The SPE has some latitude regarding disposal of assets under its control

SFAS No. 45 specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met except: A. The seller's price to the buyer is substantially fixed or determinable at the date of sale. B. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. C. The buyer's obligation to the seller does not change in the event of theft or physical destruction or damage of the product. D. The amount of future returns cannot be reasonably estimated

The amount of future returns cannot be reasonably estimated.

SFAS No. 45 specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met except: A. The seller's price to the buyer is substantially fixed or determinable at the date of sale. B. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. C. The buyer's obligation to the seller changes in the event of theft or physical destruction or damage of the product. D. The amount of future returns can be reasonably estimated.

The buyer's obligation to the seller changes in the event of theft or physical destruction or damage of the product

Which one of the following explanations for the growth of accounts receivable outstripping the growth of sales presents a red flag? A. The firm adopts new credit terms that lengthen the payment terms to the industry average. B. The firm adopts an aggressive revenue recognition policy. C. The firm develops an attractive credit policy for first time buyers. D. The firm changes its timing of revenue recognition to a more conservative approach.

The firm adopts an aggressive revenue recognition policy

A restructured loan can differ from the original loan in any of the several ways listed below except: A. Scheduled interest and principle payments may be reduced or eliminated B. The repayment schedule may be extended over a longer time period. C. The loan terms remain the same, but the amount of collateral securing the loan is increased. D. The customer and lender can settle the loan

The loan terms remain the same, but the amount of collateral securing the loan is increased

Which of the following statements is correct regarding revenue and expense accounts A. These are really owners' equity accounts. B. These are really contributed capital accounts. C. They have no impact on the balance sheet. D. These are balance sheet accounts

These are really owners' equity accounts

With a loan collateralized by receivables, A. the bank makes the loan without recourse. B. the bank has recourse against the accounts receivable customers. C. a company receives cash and is not responsible for repaying the loan. D. a company receives cash and is responsible for repaying the loan.

a company receives cash and is responsible for repaying the loan

Sales returns and allowances account is A. a contra-asset account. B. a contra-revenue account. C. on the balance sheet. D. on the statement of shareholders' equity

a contra-revenue account

Any increase in an asset may be offset by A. a corresponding decrease in a liability. B. a decrease in some other asset account. C. a corresponding decrease in owner' equity. D. an increase in another asset account.

a decrease in some other asset account

Retained earnings are reported on the balance sheet at A. historical cost. B. current market value. C. net realizable value. D. a mixture of different measurement bases

a mixture of different measurement bases

To recognize revenue during the production phase, a specific customer must be identified, an exchange price agreed upon, remaining costs to complete are reliably estimated, a significant portion of the services contracted are performed, and A. a reasonable estimate of cash collection determined. B. the seller has the right to terminate the exchange. C. a firm delivery date established. D. the product is immediately salable at quoted market prices.

a reasonable estimate of cash collection determined

The network of conventions, rules, guidelines, and procedures used by the accounting profession is known as generally accepted A. auditing standards. B. accounting procedures. C. accounting principles. D. auditing principles.

accounting principles

Accounting for long-term credit sales transactions utilizing notes receivable A. ignores interest unless an interest rate is specified in the note. B. makes it difficult to assess the degree to which a company's overall earnings are due to profitable credit sales versus profitable customer financing. C. achieves a clear separation between income from credit sales and interest earned. D. is controversial because it necessitates use of an assumed interest rate.

achieves a clear separation between income from credit sales and interest earned

Inventory turnover distortion under LIFO inventory costing may be adjusted by A. adding the LIFO reserve amounts to cost of goods sold and adjusting beginning and ending inventory for LIFO liquidation profits whenever LIFO dipping occurs. B. subtracting the LIFO reserve amounts from cost of goods sold and adjusting beginning and ending inventory for LIFO liquidation profits whenever LIFO dipping occurs. C. adding the LIFO reserve amounts to beginning and ending inventory and adjusting cost of goods sold for LIFO liquidation profits whenever LIFO dipping occurs. D. subtracting the LIFO reserve amounts from beginning and ending inventory and adjusting cost of goods sold for LIFO liquidation profits whenever LIFO dipping occurs

adding the LIFO reserve amounts to beginning and ending inventory and adjusting cost of goods sold for LIFO liquidation profits whenever LIFO dipping occurs

Current ratio distortion under LIFO inventory costing may be adjusted by A. adding the LIFO reserve to current assets. B. subtracting the LIFO reserve from current assets. C. adding the LIFO reserve to current liabilities. D. subtracting the LIFO reserve from current liabilities

adding the LIFO reserve to current assets

Operating and financial flexibility refers to a company's ability to A. adjust to unexpected downturns in the economic environment in which it operates or to take advantage of profitable investment opportunities as they arise. B. generate sufficient cash flows to maintain its productive capacity and still meet interest and principal payments on long-term debt. C. readily convert assets to cash relative to how soon liabilities will have to paid in cash. D. increase sales

adjust to unexpected downturns in the economic environment in which it operates or to take advantage of profitable investment opportunities as they arise.

GAAP's flexibility in its reporting standards allows companies to A. smooth reported earnings over several reporting periods. B. change accounting estimates to meet target sales or earnings. C. change accounting principles to improve reported earnings. D. adopt specific accounting techniques and reporting procedures

adopt specific accounting techniques and reporting procedures

When reporting a cumulative effect of a change in accounting principle, current disclosure rules require that A. all prior years' income statements be restated to reflect use of the new principle unless it is impractical to do so. B. all prior years' income statements be restated to reflect use of the new principle, and include a pro forma income figure of the previously reported income. C. no prior years' income statements be restated, but a pro forma income figure be provided to reflect use of the new principle for each year presented. D. no prior years' income statements be restated, and no pro forma income figures be provided.

all prior years' income statements be restated to reflect use of the new principle unless it is impractical to do so

When a company uses absorption costing A. only fixed costs are inventoried. B. only variable costs are inventoried. C. all production costs are inventoried. D. fixed costs are expensed as incurred

all production costs are inventoried

The SEC specifies four criteria for revenue recognition and allows recognition of revenue when A. all the criteria are met. B. 3 out of 4 criteria are met. C. 2 out of 4 criteria are met. D. only one criterion is met.

all the criteria are met

Analysts must recognize that the use of the specific identification method to value inventory has a serious deficiency because it A. allows manipulation of income. B. allows manipulation of period costs. C. allows manipulation of selling expenses. D. allows manipulation of administrative expenses

allows manipulation of income

LIFO layers are more likely to be liquidated when inventory records are kept on A. an inventory group basis. B. a total inventory basis. C. an item-by-item basis. D. a specific identification basis

an item-by-item basis

Mutual Bank will record this transaction to recognize A. an extraordinary receivable restructure gain of $2,214. B. an extraordinary debt restructure loss of $2,214. C. neither a gain nor a lost from debt restructuring. D. an ordinary debt restructure loss of $2,214.

an ordinary debt restructure loss of $2,214

For a firm using LIFO, the numerator of the inventory turnover ratio is predominantly current period costs A. and the denominator consists of old LIFO costs. B. thus it must be adjusted to conform to the old LIFO costs in the denominator. C. thus the denominator must be adjusted by adding the LIFO reserve to ending inventory. D. thus the denominator must be adjusted by subtracting the LIFO reserve from both beginning and ending inventory

and the denominator consists of old LIFO costs

Expenses A. are recorded in the accounting period when they are "earned" and become "measurable." B. consist of amounts paid for consumable items and services rendered to the organization during the accounting period. C. are the expired costs or assets "used up" during the accounting period. D. would include cash payments to employees during the period for services rendered

are the expired costs or assets "used up" during the accounting period

Intentional misstatement of estimates A. are highly unusual in financial reporting. B. do not have any impact on earnings. C. are unlikely to draw attention from the external auditor if they fall within acceptable ranges. D. are acceptable under GAAP.

are unlikely to draw attention from the external auditor if they fall within acceptable ranges.

Revenue from nonrefundable up-front fees A. can never be recognized. B. must be recognized immediately. C. are not allowed under GAAP. D. are usually deemed to be earned as the services are delivered over the full term of the service contract.

are usually deemed to be earned as the services are delivered over the full term of the service contract

SFAS No. 130 permits firms to display the components of other comprehensive income in all of the following formats except A. as a schedule appearing in the financial statement footnotes. B. in a two-statement approach, one in which net income comprises one statement and a second, which presents a separate statement of comprehensive income. C. as part of the statement of changes in stockholders' equity. D. as a single statement, one in which net income and other comprehensive income are added together

as a schedule appearing in the financial statement footnotes

A company's financial statements can be used for all of the following purposes except A. as a scorecard on the company's social responsibility. B. as a management report card. C. as an early warning signal. D. as a measure of accountability.

as a scorecard on the company's social responsibility

If the financial reporting environment were unregulated, disclosure would occur voluntarily A. as long as other companies in the reporting company's industry voluntarily disclosed financial information. B. only to analysts that the company believes will report favorably on the company's prospects. C. only when managers wanted to raise additional capital. D. as long as the incremental benefits to the company from supplying financial information exceeded the incremental costs of providing the information

as long as the incremental benefits to the company from supplying financial information exceeded the incremental costs of providing the information

If the critical event and measurability conditions are satisfied, revenue may be recognized before the sale A. as production takes place. B. when the customer pays in advance. C. if the seller legally owns the goods. D. when the customer purchases on credit.

as production takes place

Continuing franchise fees should be recorded by the franchisor A. as revenue when received. B. as revenue in the period they are received and earned. C. in accordance with the franchise agreement. D. as revenue only after the balance of the initial franchise fee has been received

as revenue in the period they are received and earned

In a common-size balance sheet, each balance sheet account is expressed as a percentage of total A. liabilities. B. assets. C. shareholders' equity. D. assets plus shareholders' equity

assets

Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events define A. assets. B. liabilities. C. equity. D. retained earnings.

assets

The earliest moment that the critical event and measurability are both satisfied for revenue recognition is usually A. before the sale. B. after the sale. C. at the time of sale. D. when payment is received

at the time of sale

The amount of income taxes recognized on the income statement but not yet payable to the government are found on the A. balance sheet in the account Deferred Income Taxes. B. balance sheet in the account Income Taxes Payable. C. income statement in the account Income Tax Expense Current. D. income statement in the account Income Tax Expense Deferred.

balance sheet in the account Deferred Income Taxes

The unpaid amount of income taxes due to the government for a given year are found on the A. balance sheet in the account Deferred Income Taxes. B. balance sheet in the account Income Taxes Payable. C. income statement in the account Income Tax Expense Current. D. income statement in the account Income Tax Expense Deferred

balance sheet in the account Income Taxes Payable

Current assets are assets expected to A. be converted to cash within twelve months. B. be converted to cash within twelve months or one operating cycle if it is longer than twelve months. C. remain on the books for at least twelve months. D. remain on the books for at least twelve months or one operating cycle if longer than twelve months.

be converted to cash within twelve months or one operating cycle if it is longer than twelve months.

Adjusting entries must be made A. to correct errors in the accounts. B. to reconcile the accounts to the budget. C. because auditing standards require them. D. because certain types of events will not be recorded in the accounts without them

because certain types of events will not be recorded in the accounts without them

Timeliness is a qualitative characteristic of accounting information that indicates that information should be provided to users A. within one month after the close of the books. B. before it loses its capacity to influence their decisions. C. before statutory deadlines. D. every month.

before it loses its capacity to influence their decisions

To be reported as an extraordinary item on the income statement, an event must be A. both unusual in nature and an infrequent occurrence. B. either unusual in nature or an infrequent occurrence. C. unusual in nature. D. an infrequent occurrence

both unusual in nature and an infrequent occurrence

When a borrower violates a loan covenant that requires minimum achievement of an accounting measure in the financial statements, the lender can A. immediately seize the loan collateral. B. fire the chief operating officer of the borrower. C. report the borrower to the IRS. D. call for immediate repayment of the loan

call for immediate repayment of the loan

Earnings management A. can be used to manipulate earnings. B. is mandated under the SEC rules for publicly held companies. C. is a new theory of management. D. is rarely used

can be used to manipulate earnings

A series of immaterial errors spread across several accounts A. will always have a material impact on earnings. B. must always be corrected. C. if found by the auditors, will result in a disclaimer. D. can, in the aggregate, have a material affect on bottom line earnings

can, in the aggregate, have a material affect on bottom line earnings

When troubled debt is restructured via continuation with modification of debt terms, the original loan is A. continued but interest and principle payments may be reduced or eliminated. B. continued but the repayment schedule may be extended over a longer time period. C. continued but the amount of collateral securing the loan is increased. D. cancelled and a new loan agreement is signed.

cancelled and a new loan agreement is signed

How much of a company's assets are financed from debt versus equity sources refers to the company's A. capital structure. B. maturity structure. C. solvency. D. liquidity.

capital structure

Monetary assets are comprised of A. cash and cash equivalents. B. cash, cash equivalents, and accounts receivable. C. cash, cash equivalents, accounts receivable, and notes receivable. D. cash, accounts receivable, notes receivable, and inventory

cash equivalents, accounts receivable, and notes receivable.

Creditors assess credit risk by comparing a firm's required principal and interest payments to estimates of the firm's current and future A. net assets. B. gross income. C. net income. D. cash flows

cash flows

GAAP's goals are to ensure that financial statements A. do not contain any representation that could jeopardize management. B. provide stockholders all of the information they need to assess management's performance. C. are accurate and free from fraud. D. clearly reflect the economic condition and performance of the company

clearly reflect the economic condition and performance of the company

To get revenue and expense account balances to zero requires a/an A. adjusting entry. B. closing entry. C. operating entry. D. reversing entry.

closing entry

When financial information is measured and reported in a similar manner across different companies in the same industry it is A. consistent. B. comparable. C. neutral. D. faithfully represented

comparable

Analytical review procedures include all of the following except A. simple ratio and trend analysis. B. complex statistical techniques. C. general reasonableness tests. D. comparison of the company's reported financial results to benchmarks established by the SEC.

comparison of the company's reported financial results to benchmarks established by the SEC

The change in equity of an entity during a period from transactions and other events from non-owner sources is known as A. net income. B. net operating income. C. comprehensive income. D. net change in assets.

comprehensive income

Some countries' philosophy of financial reporting differs from GAAP because their financial reports are required to A. be verifiable. B. conform to tax and/or commercial law. C. be reported and measured in a similar manner across companies. D. use the same accounting methods for similar events period to period

conform to tax and/or commercial law

The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of A. cost-benefit. B. matching. C. historical cost. D. conservatism

conservatism

The use of the lower of cost or market method to value inventory indicates a probable loss sustained. This is an application of the accounting principle of A. matching. B. going concern. C. conservatism. D. consistency

conservatism

Using the same accounting methods to record and report similar events from period to period demonstrates A. consistency. B. comparability. C. neutrality. D. faithful representation

consistency

When a company changes from straight-line to the declining balance method of accounting for depreciation, it violates A. comparability. B. consistency. C. neutrality. D. faithful representation.

consistency

Accumulated depreciation is a/an A. expense account. B. liability account. C. contra-asset account. D. owners' equity account

contra-asset account

The formula to convert the cost of goods sold LIFO to an estimate of the cost of goods sold FIFO is A. cost of goods sold LIFO + increase in LIFO reserve = cost of goods sold FIFO B. cost of goods sold LIFO - increase in LIFO reserve = cost of goods sold FIFO C. cost of goods sold LIFO - decrease in LIFO reserve = cost of goods sold FIFO D. cost of goods sold LIFO + beginning LIFO reserve = cost of goods sold FIFO

cost of goods sold LIFO - increase in LIFO reserve = cost of goods sold FIFO

Under the percentage-of-completion method of revenue recognition, the percentage-of-completion ratio is computed by dividing A. profits earned to date by estimated total profits. B. costs incurred to date by estimated total costs. C. costs incurred to date by the contract price. D. profits earned to date by the contract price.

costs incurred to date by estimated total costs

All of the following are questionable restructuring charges except for A. services to be provided in some future period by lawyers and accountants. B. special bonuses for officers. C. expenses for retraining and relocating people. D. costs related to consolidating operations

costs related to consolidating operations

Transitory earnings components fall into all of the following categories except A. special or unusual items. B. discontinued operations. C. extraordinary items. D. cumulative effect of accounting changes.

cumulative effect of accounting changes

Working capital accounts include A. all assets. B. all assets and liabilities. C. current assets and all liabilities. D. current assets and current liabilities

current assets and current liabilities

Cash is always measured for the balance sheet at A. future transaction value. B. current market price. C. realizable future value. D. net transaction value.

current market price

Marketable debt and equity securities that a firm expects to hold as a short-term investment are reported on the balance sheet at A. current market value. B. historical cost. C. amortized current market value. D. amortized historical cost.

current market value

The "critical event" for revenue recognition is A. defined by generally accepted accounting principles for every situation. B. the same for every industry. C. dependent upon the exact nature of the business and industry. D. easily defined by the FASB.

dependent upon the exact nature of the business and industry

Common-size balance sheets may be used for all of the following except A. gaining insights into the nature of a company's operations. B. analyzing a company's asset and financial structure. C. determining how management assesses the risks a company faces. D. learning about the underlying economics of an industry

determining how management assesses the risks a company faces

The fair value of in-process R & D is A. difficult to measure but easy to verify. B. easy to measure but difficult to verify. C. difficult to measure and verify. D. easy to measure and verify.

difficult to measure and verify

Variable costing is also referred to as A. direct costing. B. full costing. C. variable costing. D. fixed costing

direct costing

Long-term debt is reported on the balance sheet at A. current market value. B. net realizable value. C. discounted present value. D. future value.

discounted present value

Income statements are classified into sections to A. separate earned income from unearned income. B. distinguish between sustainable and transitory income. C. separate real income from book income. D. distinguish between book income and taxable income.

distinguish between sustainable and transitory income

A company's financial statements reflect information about A. future projections of sales, expenses, and other future economic events. B. product information and competitive positions. C. the general economy of the industry in which the company operates. D. economic events that affect a company that can be translated into accounting numbers.

economic events that affect a company that can be translated into accounting numbers

Investors who presume that they have no insights about company value beyond the current market price and use financial statement data to assess firm-specific variables believe in the A. market-to-market hypothesis. B. efficient market hypothesis. C. fundamental market hypothesis. D. technical market hypothesis.

efficient market hypothesis

Goods available for sale needs to be allocated between A. beginning inventory and inventory purchases. B. beginning inventory and ending inventory. C. ending inventory and cost of goods sold. D. inventory purchases and cost of goods sold

ending inventory and cost of goods sold

The residual interest in the resources of an entity that remains after deducting its debts to third parties defines A. assets. B. liabilities. C. equity. D. retained earnings.

equity

The term "consolidated" is used in financial statements under U.S. GAAP to refer to the numbers of a parent and its subsidiaries. The equivalent term used on balance sheets in the United Kingdom is A. cooperative. B. satellite. C. consolidated. D. group.

group

The primary mission of the Committee on Accounting Procedure was to A. establish accounting standards. B. develop and enforce accounting standards. C. develop a statement of accounting concepts and solve current accounting controversies. D. establish, review, and evaluate accepted accounting procedures.

establish, review, and evaluate accepted accounting procedures

Once a decision to restructure is made, GAAP requires companies to A. accrue for the cost of services to be provided in some future period by lawyers and accountants. B. overstate estimated charges for future expenditures when such charges are difficult to measure. C. take excessive restructuring write-offs thereby complying with the conservatism principle. D. estimate the future costs they expect to incur to carry out the restructuring.

estimate the future costs they expect to incur to carry out the restructuring.

Investors who follow a fundamental analysis approach A. determine the value the company's assets would yield if sold individually. B. estimate the value of a stock by assessing the amount, timing, and uncertainty of future cash flows that will accrue to the issuing company. C. assess the company's ability to meet its debt-related financial obligations. D. assess the company's ability to raise additional cash by selling assets, issuing stock, or borrowing more

estimate the value of a stock by assessing the amount, timing, and uncertainty of future cash flows that will accrue to the issuing company

Net realizable value of receivables is gross receivables minus A. bad debt expense and sales returns. B. bad debt expense and estimated returns and allowances. C. estimated uncollectibles, returns and allowances. D. proven uncollectibles and estimated returns and allowances.

estimated uncollectibles, returns and allowances

The sale of receivables to a third party is called A. factoring. B. collateralizing. C. discounting. D. securitization

factoring

Reliable information is A. consistent, unbiased, and relevant. B. relevant, comparable, and timely. C. relevant, consistent, and timely. D. factual, truthful, and unbiased

factual, truthful, and unbiased

The ability to raise additional cash by selling assets, issuing stock, or borrowing more is A. financial flexibility. B. a credit risk indicator. C. a stock price predictor. D. one way to project earnings.

financial flexibility

The amounts of executive compensation and bonuses are often determined by A. auditor's recommendations. B. evaluations by subordinates. C. financial statements. D. industry guidelines.

financial statements

All of the following disclosures would appear in the Summary of Significant Accounting Policies except A. inventory method. B. depreciation method. C. long-term construction contract method. D. financing method.

financing method

In the United States, assets are presented in decreasing order of liquidity. In the United Kingdom and other European countries A. fixed assets are presented first followed by the current assets displayed in increasing order of liquidity. B. the current assets are displayed in increasing order of liquidity. C. investments are listed first in descending order of maturity. D. each company decides on the order of its own assets

fixed assets are presented first followed by the current assets displayed in increasing order of liquidity

The rationale behind the rules for multiple-step income statements is to subdivide the income in a manner that facilitates A. cash flows. B. forecasting. C. tax return preparation. D. audits

forecasting

The type of analysis that uses financial statements along with industry and macroeconomic data to forecast future stock movements is A. valuation analysis. B. efficient market analysis. C. fundamental analysis. D. technical analysis.

fundamental analysis

Investors who compare a firm's discounted future cash flows to the current market price of a stock are using the A. efficient market hypothesis. B. market-to-market approach. C. fundamental analysis approach. D. technical analysis approach.

fundamental analysis approach

Black & Decker decides to discontinue producing toasters in lieu of more versatile toaster ovens. In the process of discontinuing this line, the company disposes of the old equipment and buys new. The disposal of the old equipment would be reported in the income statement as A. gain or loss on the sale of equipment as part of continuing operations. B. gain or loss on the sale of production equipment as part of extraordinary gains and losses. C. gain or loss on the disposal of discontinued business component. D. income from operation of a discontinued business component.

gain or loss on the sale of equipment as part of continuing operations

The carrying cost of inventory should include all of the following costs except A. purchase costs. B. sales taxes and transportation costs paid by the purchaser. C. general administrative costs associated with the purchase of inventory. D. insurance and storage costs

general administrative costs associated with the purchase of inventory

Financial statements follow A. rigid guidelines that require specific adherence to regulated procedures. B. generally accepted guidelines that allow management to choose among different procedures. C. general guidelines with little choice among different procedures. D. legal requirements for uniform presentation and disclosure.

generally accepted guidelines that allow management to choose among different procedures

Companies that have projected operating cash flows that are more than sufficient to meet debt payments are A. financially flexible. B. good credit risk companies. C. undervalued. D. overvalued.

good credit risk companies

When applying the installment sales method the accounting system must match collections with the specific sales year to which the cash collections relate in order to apply the correct A. net profit percentage to accounts receivable. B. gross profit percentage to accounts receivable. C. net profit percentage to cash receipts. D. gross profit percentage to cash receipts.

gross profit percentage to cash receipts

When a specific account receivable is written off, the entry A. increases net income. B. decreases net income. C. can either decrease or increase net income. D. has no effect on net income.

has no effect on net income

All financial statements A. provide a picture of the company at a moment in time. B. describe changes that took place over a period of time. C. help to evaluate what happened in the past. D. contain most up to date information about the company.

help to evaluate what happened in the past

Current liabilities are reported on the balance sheet at A. current market value. B. historical cost. C. discounted present value. D. future value.

historical cost

The use of the lower of cost or market method to value inventory for reporting purposes is a departure from the accounting principle of A. going concern. B. conservatism. C. matching. D. historical cost

historical cost

Net property, plant and equipment are reported on the balance sheet at A. current market value. B. historical cost. C. historical cost minus accumulated depreciation. D. net realizable value.

historical cost minus accumulated depreciation

Balance sheets prepared in compliance with GAAP reflect a mixture of A. historical cost and future cash values. B. current value and discounted future cash flows. C. discounted cash flows and future values. D. historical cost, fair value, net realizable value, and discounted present values.

historical cost, fair value, net realizable value, and discounted present values

The Common Stock account is reported on the balance sheet at the A. historical par value of the stock. B. current market value of the stock. C. net realizable value of the stock. D. discounted present value of the future dividends

historical par value of the stock

The Additional Paid-In Capital account is reported on the balance sheet at the A. current market value of the stock minus par value. B. historical sales price of the stock minus the par value. C. net realizable value of the stock minus par value. D. discounted present value of the future dividends minus par value

historical sales price of the stock minus the par value

The LIFO conformity rule states that A. if LIFO is used for tax purposes, the external financial statements must also use LIFO. B. if FIFO is used for tax purposes, the external financial statements must also use FIFO. C. if LIFO is used for tax purposes, the external financial statements must also use FIFO. D. if FIFO is used for tax purposes, the external financial statements must also use LIFO

if LIFO is used for tax purposes, the external financial statements must also use LIFO

By comparing return on assets to return on common equity, statement users can determine A. if debt financing is being used to enhance the return earned by shareholders. B. past patterns of profitability within divisions. C. if return on investments exceed the current market yield. D. management's investment strategies.

if debt financing is being used to enhance the return earned by shareholders

In case of sales with delayed delivery A. seller should always recognize revenue before the products are delivered to the customer. B. the goods belong to the customer. C. if the buyer requests in the sales agreement that the transaction be on a "bill and hold" basis and has a substantial business reason for doing so, the seller may recognize revenue when production of the goods is complete. D. recognized under the installment sales method.

if the buyer requests in the sales agreement that the transaction be on a "bill and hold" basis and has a substantial business reason for doing so, the seller may recognize revenue when production of the goods is complete.

SFAS No. 130 requires firms to report comprehensive income A. at the end of the income statement. B. as a separate statement of comprehensive income. C. in the statement of changes in stockholders' equity. D. in a statement that is displayed with the same prominence as other financial statements.

in a statement that is displayed with the same prominence as other financial statements

The matching principle requires that expenses be recognized A. in the same period in which all the assets are used up. B. in the same period in which the revenue generated by these expenses are recognized. C. when the costs are paid by the entity. D. in the same period in which the revenue generated by these expenses is received

in the same period in which the revenue generated by these expenses are recognized

When losses occur on long-term contracts using the completed-contract method, they are recognized A. proportionately over the contract period using costs incurred as a base. B. evenly over the contract period. C. in their entirety as soon as it becomes known that a loss will be suffered. D. at the completion of the project.

in their entirety as soon as it becomes known that a loss will be suffered

When losses occur on long-term contracts using the percentage-of-completion method, they are recognized A. in their entirety as soon as it becomes known that a loss will be suffered. B. at the completion of the project. C. proportionately over the contract period using costs incurred as a base. D. evenly over the contract period.

in their entirety as soon as it becomes known that a loss will be suffered

The best measure of a firm's sustainable income is A. income from continuing operations. B. income before extraordinary items. C. income before extraordinary item and change in accounting principle. D. net income.

income from continuing operations

Under the cost recovery method of revenue recognition A. income is recognized on a proportionate basis as the cash is received from the sale. B. income is recognized immediately. C. income is recognized when the cash received from the sale exceeds the cost of the product sold. D. income is recognized when all of the cash has been received.

income is recognized when the cash received from the sale exceeds the cost of the product sold.

If a company manages a large portfolio of marketable securities and sells only stocks with substantial gains in poor income years or sells only stocks with substantial losses in good income years, the company is guilty of A. securities fraud. B. wise portfolio management. C. income smoothing. D. violating security trading laws.

income smoothing

Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported income tends to A. increase. B. decrease. C. remain the same. D. become highly volatile

increase

If a bank sells a mortgage portfolio at a price that yields the purchasers a return that is lower than that yielded, on average, by the mortgages in the portfolio, the selling price A. is equal to the carrying value of the mortgages on the bank's books. B. is lower than the carrying value of the mortgages on the bank's books. C. is higher than the carrying value of the mortgages on the bank's books. D. cannot be determined by examining the carrying value of the mortgages on the bank's books because the selling price is determined purely by the market

is higher than the carrying value of the mortgages on the bank's books

The key accounting issue related to bundled sales transactions A. is the timing of revenue recognition. B. is the amount of revenue to recognize over the life of the contract. C. hinges on whether or not the customer has the ability to pay for the contracted services. D. concerns the amount of revenue to allocate to each contract element

is the timing of revenue recognition

Ambiguity can arise as to whether receivables have been sold or instead are being used as collateral for a loan whenever certain obligations, duties, or rights regarding the transferred receivables are retained by the transferor. In distinguishing between sales and collateralized borrowings using receivables, the critical issue A. is whether the terms regarding the transfer were initiated by the transferor or transferee. B. is whether the transferor surrenders control over the receivables. C. comes down to how clearly the rights, etc. being retained are specified in the transfer agreement. D. is whether any gain or loss related to the transfer is recognized in earnings.

is whether the transferor surrenders control over the receivables

A perpetual inventory system A. usually maintains inventory records only in terms of physical units on hand. B. uses a purchases account to record additions to inventory. C. eliminates the need to periodically take a physical inventory count. D. keeps a running record of the amount of inventory on hand

keeps a running record of the amount of inventory on hand

Probable future sacrifices of economic benefits arising from an entity's present obligations to transfer resources or provide services to other entities in the future as a result of past transactions or events define A. assets. B. liabilities. C. equity. D. retained earnings

liabilities

Which of the following measures how readily assets can be converted to cash relative to how soon liabilities will have to be paid in cash? A. capital structure. B. maturity structure. C. solvency. D. liquidity.

liquidity

The LIFO reserve disclosure is required because LIFO inventory costs are A. higher than FIFO inventory costs. B. lower than FIFO inventory costs. C. equal to FIFO inventory costs. D. usually of no consequence

lower than FIFO inventory costs

Investors and analysts are sometimes urged to ignore traditional GAAP numbers and instead focus on nonstandard "pro forma" numbers because A. the political compromises made to achieve consensus when issuing FASB pronouncements lead to inaccurate portrayals of underlying events. B. management believes the pro forma numbers portray the company in a better light. C. the pro forma numbers are closer to those reported under international reporting standards. D. pro forma numbers are easier to understand

management believes the pro forma numbers portray the company in a better light

The section of published reports of public companies that includes a description of the company's business risks, results of operations, financial condition, and future plans for the company is known as the A. management's discussion and analysis. B. management representation letter. C. president's message. D. board of directors' analysis.

management's discussion and analysis

Financial analysts recognize that the deficiency of the FIFO cost flow assumption is the failure to A. match current costs with current revenues. B. match current costs with oldest revenues. C. match oldest costs with current revenues. D. match oldest costs with oldest revenues

match current costs with current revenues

When a financial statement contains omissions or misstatements that would alter the judgment of a reasonable person, it violates A. neutrality. B. consistency. C. conservatism. D. materiality.

materiality

How far into the future the obligations of a company will come due refers to the company's A. capital structure. B. maturity structure. C. solvency. D. liquidity.

maturity structure

If a note receivable is discounted with recourse and the customer defaults at final payment, the seller A. has no obligation to the bank. B. must repay the full amount of the note plus interest to the bank. C. must refund the proceeds of the discounting to the bank. D. must repay the principal only to the bank.

must repay the full amount of the note plus interest to the bank

Island will record this transaction to recognize A. an extraordinary debt restructure gain of $20,000. B. an extraordinary debt restructure loss of $20,000. C. an ordinary debt restructure gain of $20,000. D. neither a gain nor a loss from debt restructuring

neither a gain nor a loss from debt restructuring

When the sum of the future cash flows of a restructured note is above the current note's book value, the debtor recognizes A. a gain on the debt restructure. B. a loss on the debt restructure. C. neither a gain nor a loss on the debt restructure. D. both a restructure gain and an early extinguishment loss

neither a gain nor a loss on the debt restructure

Income recognition always increases A. assets. B. net assets. C. liabilities. D. net liabilities.

net assets

On the income statement, income from discontinued operations is shown A. as a separate section of income from continuing operations. B. as an accounting principle change. C. without any income tax effect. D. net of taxes after income from continuing operations.

net of taxes after income from continuing operations

When applying the lower of cost or market method, market value cannot exceed the A. floor. B. net realizable value. C. net realizable value less a normal profit margin. D. replacement cost

net realizable value

Internet companies that simply act as agent or broker in a transaction must record sales based on A. "gross" basis. B. "net" basis. C. "commission" basis. D. "discount" basis

net" basis

Companies that fail to meet analysts' earnings expectations are A. often rewarded by investors. B. often penalized by investors. C. have had no consequences to the companies. D. are forced into reorganization.

often penalized by investors

Companies that are considered to be in stronger financial health and better credit risks are able to satisfy most of their cash needs from A. operating activities. B. investing activities. C. financing activities. D. investing and financing activities

operating activities

In an effort to "clean up" company balance sheets, managers have often A. taken minimal restructuring write-offs. B. understated estimated charges for future expenditures. C. overstated estimated charges for future expenditures. D. been required to invest their own assets in the company

overstated estimated charges for future expenditures

The basic accounting equation may be expressed as A. assets = liabilities - owners' equity B. liabilities = assets + owners' equity C. owners' equity = assets - liabilities D. assets = owners' equity - liabilities

owners' equity = assets - liabilities

Management must periodically assess the reasonableness of the allowance for uncollectibles if it uses the A. direct write-off method. B. percent of sales method only. C. percent of gross receivables method only. D. percent of sales or the percent of gross receivables method.

percent of sales or the percent of gross receivables method

Manufacturing costs not considered to be closely associated with production are called A. period costs. B. product costs. C. absorption costs. D. variable costs

period costs

The statement, "linkage between these costs and individual sales is difficult to establish," refers to A. period costs. B. expired costs. C. product costs. D. traceable costs.

period costs

In a periodic inventory system the ending inventory and cost of goods sold must be determined by A. external auditors. B. physical count. C. a certification of inventory. D. reference to a running inventory balance

physical count

Entering the DR or CR amount in the appropriate left or right side of the affected T-account is called A. posting. B. cross-referencing. C. journalizing. D. recording.

posting

The market analysis known as fundamental analysis A. predicts future trends in the financial drivers of a company's success or failure. B. relies on price and volume movement of stock. C. have no insights about company value beyond current market price. D. uses microeconomic data to forecast stock values.

predicts future trends in the financial drivers of a company's success or failure

Notes receivable are recorded in the accounts at A. fair market value. B. present value. C. maturity value. D. net realizable value

present value

Non-interest bearing notes are initially recorded at A. historical cost. B. maturity value because they bear no interest. C. present value, based on the prevailing interest for loans of this type. D. future value, based on the prevailing interest for loans of this type

present value, based on the prevailing interest for loans of this type

When EPS is reported as basic EPS for income from continuing operations excluding the effects of special (i.e., nonrecurring) gains or losses and certain other non-cash charges such earnings are frequently referred to as A. normal earnings. B. pro forma earnings. C. sustainable earnings. D. real earnings

pro forma earnings

Operating activities result from the cash effects of A. producing and delivering goods and services. B. purchasing and disposing of fixed assets used in production of revenue. C. borrowing and repaying loans used in the production of revenue. D. selling stocks and bonds to raise capital for the generation of revenue

producing and delivering goods and services

Traceable costs are also called A. period costs. B. expired costs. C. product costs. D. administrative costs.

product costs

A firm's financial statements contain trends that give users insight into the firm's A. future market share. B. position within its industry. C. profitability, productivity, and liquidity. D. current market price for common and preferred stock.

profitability, productivity, and liquidity

When a company changes from any inventory method to LIFO, the change is reported A. prospectively because it is usually impractical to determine the effects of this change on prior years' income. B. as an error correction. C. as a change in an accounting estimate. D. using the retrospective approach.

prospectively because it is usually impractical to determine the effects of this change on prior years' income

The Securities and Exchange Act of 1934 required all publicly traded firms to A. purchase insurance against corporate bankruptcy. B. register with an authorized stock exchange. C. provide annual financial statements audited by independent accountants. D. file balance sheets, income statements, and statements of cash flow with the SEC each year.

provide annual financial statements audited by independent accountants

Investing activities include the cash effects of A. producing and delivering goods and services. B. purchasing and disposing of fixed assets used in production of revenue. C. borrowing and repaying loans used to purchase fixed assets. D. selling stocks and bonds to raise capital to purchase fixed assets

purchasing and disposing of fixed assets used in production of revenue

T-account analysis can be used to gain insights into why accrual basis earnings and cash basis earnings differ and to A. journalize future transactions. B. reconstruct transactions that have occurred during a given reporting period. C. post transactions that have occurred during a given reporting period. D. determine the current market price of common stock.

reconstruct transactions that have occurred during a given reporting period

Under the installment sales method, interest charged by the sellers is A. immaterial and GAAP allows it to be combined with recognized gross profit. B. recognized out of the last cash collection of the sale. C. recorded separately out of the periodic cash proceeds. D. recognized out of the first cash collection of the sale.

recorded separately out of the periodic cash proceeds

A periodic system of inventory A. reduces record keeping. B. increases record keeping. C. increases the cost of maintaining inventory. D. eliminates the need for a physical count

reduces record keeping

Financial information capable of making a difference in a decision is A. relevant. B. verifiable. C. consistent. D. neutral.

relevant

Financial information that is verifiable, faithfully represented, and neutral is A. reliable. B. consistent. C. comparable. D. relevant.

reliable

A component of an entity may be a/an A. reportable or operating segment. B. subsidiary. C. asset group. D. reportable or operating segment, subsidiary, or asset group.

reportable or operating segment, subsidiary, or asset group

All of the following are examples of long-term construction projects except A. military hardware. B. oil tankers. C. bridges. D. residential swimming pool.

residential swimming pool

In case of goods shipped on consignment A. revenue should be recognized by the manufacturer or seller on delivery. B. revenue should not be recognized by the manufacturer or seller on delivery. C. the risk of ownership of the goods is passed on to the distributors. D. they are always counted in the customer's inventory

revenue should not be recognized by the manufacturer or seller on delivery

Firms that use FIFO inventory cost assumptions always include some realized holding gains in reported income in periods of A. level prices. B. deflation. C. falling prices. D. rising prices.

rising prices

When receivables are bundled together and transferred to another organization which issues securities collateralized by the transferred receivables, the arrangement is A. collateralization. B. discounting. C. factoring. D. securitization

securitization

Financing activities include the cash effects of A. producing and delivering goods and services. B. purchasing and disposing of fixed assets used in production of revenue. C. purchasing and disposing of debt securities of other companies. D. selling stocks and bonds to raise capital for the production of revenue.

selling stocks and bonds to raise capital for the production of revenue

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the rapidity of the inventory turnover and the A. change in accounts receivable turnover. B. divergence of total asset turnover from previous periods. C. severity of input cost change. D. rapidity of fixed asset turnover

severity of input cost change

The use of perpetual inventory systems is preferred where a A. large number of expensive inventory units exist. B. small number of expensive inventory units exist. C. large number of inexpensive inventory units exist. D. small number of inexpensive inventory units exist

small number of expensive inventory units exist

Employees demand financial statement information because the firm's performance is often linked to all of the following except A. negotiated increases in union contracts. B. social security benefits. C. pension plan benefits. D. employee profit sharing.

social security benefits

The inventory accounts of a manufacturer would include all of the following accounts except A. raw materials inventory. B. work-in-process inventory. C. finished goods inventory. D. sold goods awaiting shipment inventory

sold goods awaiting shipment inventory

A special one-time charge resulting from corporate restructurings would be reported on the income statement as a/an A. extraordinary item shown net of tax. B. special item in continuing operations. C. special item in continuing operations, shown net of tax. D. special item in discontinued operations, shown net of tax.

special item in continuing operations

If a material event is either unusual in nature or an infrequent occurrence it is classified on the income statement as a/an A. special item in continuing operations. B. special item in continuing operations shown net of tax. C. extraordinary item. D. extraordinary item shown net of tax.

special item in continuing operations

GAAP requires that each set of EPS numbers includes separately reported numbers for all of the following except A. special or unusual items. B. income from continuing operations. C. discontinued operations. D. extraordinary items.

special or unusual items

The allowance for uncollectibles account is A. added to gross accounts receivable. B. added to net accounts receivable. C. subtracted from gross accounts receivable. D. subtracted from net account receivable.

subtracted from gross accounts receivable

The balance sheet amount reported for a long-term debt on the issue date is the A. discounted present value of the future principal repayment. B. discounted present value of the periodic interest payments. C. sum of the future value of principal repayment and the periodic interest payments. D. sum of the discounted present values of the future principal repayments and the periodic interest payments.

sum of the discounted present values of the future principal repayments and the periodic interest payments

Companies offering higher risk securities have incentives to mask their true condition by A. supplying overly optimistic financial information. B. not having their financial statements audited. C. listing on foreign exchanges where reporting requirements are less stringent than those in the U.S.. D. including testimonials from well known executives in their financial statements

supplying overly optimistic financial information

The type of analysis that does not concern itself with financial statement numbers is A. valuation analysis. B. efficient market analysis. C. fundamental analysis. D. technical analysis.

technical analysis

Academic studies have found that actual earnings A. fall randomly around the consensus estimate. B. tend to come in at or above the forecast. C. almost never seem to beat estimates by a penny or two a share, no matter what the economic conditions. D. rarely are close to analysts' forecast earnings for the company

tend to come in at or above the forecast

According to generally accepted accounting principles, revenue should be recognized at the earliest time when A. the "critical event" has taken place and the proceeds are collected. B. the "critical event" has taken place and the amount of revenue collected is reasonably assured. C. collection is reasonably assured and the "critical event" can be measured. D. collection has taken place and the "critical event" can be measured.

the "critical event" has taken place and the amount of revenue collected is reasonably assured

A cumulative effect of a change in an accounting principle is measured as A. the difference between prior periods' income under the old method and what would have been reported if the new method had been used in the prior years. B. the after-tax difference between prior periods' income under the old method and what would have been reported if the new method had been used in the prior years. C. the difference between prior periods' income and current income under the old method and what would have been reported if the new method had been used in the prior years and the current year. D. the after-tax difference between prior periods' income and current income under the old method and what would have been reported if the new method had been used in the prior years and the current year.

the after-tax difference between prior periods' income under the old method and what would have been reported if the new method had been used in the prior years

All of the following are criteria for revenue recognition under the SEC except A. persuasive evidence of an exchange arrangement exists. B. delivery has occurred or services have been rendered. C. collectibility is reasonably assured. D. the buyer's price to the seller cannot be determined until future performance occurs

the buyer's price to the seller cannot be determined until future performance occurs

Common justifications for changing accounting methods include all of the following except A. to conform to industry practice. B. to more accurately represent the company's activities. C. a new pronouncement by the FASB necessitated the change. D. the company's financial position appears significantly better when reported under the new method than under the old one.

the company's financial position appears significantly better when reported under the new method than under the old one

Several different parties are charged with the responsibility for discovering accounting errors and irregularities. These include all of the following except A. the company's internal audit staff. B. the company's external auditors. C. the SEC. D. the company's legal counsel

the company's legal counsel

Goods held on consignment are included in the inventory of A. the consignor. B. the consignee. C. both the consignor and the consignee. D. neither the consignor nor the consignee

the consignor

The Retained Earnings account is comprised of A. cash retained in the business. B. cash reinvested in the business by shareholders. C. the cumulative earnings less dividends since the inception of the corporation. D. the earnings of the corporation for the current year

the cumulative earnings less dividends since the inception of the corporation

When the income effect of a LIFO liquidation is material, the SEC requires that the 10-K report disclose A. the dollar impact of LIFO dipping on both a before- and after-tax basis. B. the dollar impact of LIFO dipping on the year-end inventory balance. C. this fact following a prescribed format. D. the dollar impact of LIFO dipping on income

the dollar impact of LIFO dipping on income

Inventories are reported on the balance sheet at A. current market value. B. historical cost. C. net realizable value. D. the lower of cost or market

the lower of cost or market

The balance sheet provides information on all of the following except for A. how management invested its money. B. where the money came from. C. assessing rates of return. D. the market price of the company's stock.

the market price of the company's stock

Examples of variable costs include all of the following except A. raw materials costs. B. the plant manager's salary. C. direct labor costs. D. electricity used in running production machinery

the plant manager's salary

The matching principle requires that bad debts be treated as an expense in the year A. the sale is made. B. the customer files bankruptcy. C. in which the debt becomes six months past due. D. a court declares it to be uncollectible.

the sale is made

In case of goods sold on layaway, A. the seller should not recognize revenue until the products are delivered to the customer. B. the cash received to date should be recognized as an asset until merchandise is delivered to the customer. C. revenue should be recognized under the installment sales method. D. the seller should recognize revenue before products are delivered to the customer

the seller should not recognize revenue until the products are delivered to the customer

Revenues are earned when A. a contract is signed by both parties. B. the seller substantially completes performance required by an agreement. C. the buyer completes payment required under an agreement. D. the buyer accepts delivery and completes required payments.

the seller substantially completes performance required by an agreement

The determining factor for accounting treatment of troubled debt restructures when there is a continuation with modification of terms is whether A. there is a gain or loss on the transaction to the debtor. B. there is a gain or loss on the transaction to the lender. C. the undiscounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest) at the restructuring date. D. the discounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest) at the restructuring date

the undiscounted sum of the future cash flows under the restructured note is above or below the note's book value (including accrued interest) at the restructuring date

To recognize revenue upon completion of production, the product must be immediately saleable at quoted market prices, no significant uncertainty exists regarding cost of distributing the product, and A. the seller has the right to terminate the exchange. B. the units are homogeneous. C. a firm delivery date must be established. D. a specific customer must be identified

the units are homogeneous

If a transfer of receivables is really a borrowing but is erroneously treated as a sale A. then both assets and liabilities are understated. B. then both assets and liabilities are overstated. C. then both assets and equity are understated. D. then ratios like debt-to-equity are consequently distorted by the overstatements

then both assets and liabilities are understated

To recognize revenue after the time of sale, there must be extreme uncertainty regarding the amount of cash to be collected or A. there must be substantial future services required whose costs cannot be reasonably estimated. B. units are heterogeneous. C. the product is immediately salable at quoted market prices. D. a formal contract must be signed.

there must be substantial future services required whose costs cannot be reasonably estimated

It's common for shareholders to initiate litigation when A. the company reports record profits, but does not declare dividends. B. there's a sudden drop in stock price. C. the company introduces new products that are found to be harmful to the environment. D. rumors about the company appear in the media that, if true, would result in slower growth in future profits.

there's a sudden drop in stock price

Financial information that is provided to decision makers before it loses its capacity to influence their decisions is A. neutral. B. verifiable. C. timely. D. consistent.

timely

The real accounting issue in income recognition is the A. quantity of income recognized. B. type of income recognized. C. timing of the recognition. D. basis of income recognition.

timing of the recognition

According to SFAS No. 140, the determination of whether a transfer of receivables is a sale or collateralized borrowing hinges on whether the A. transfer was with or without recourse. B. transferor collects payments directly from the customer. C. transferor surrenders control over the receivable. D. customer ultimately defaults

transferor surrenders control over the receivable

The input cost changes that occur after the purchase of inventory items in a current cost accounting system are recognized as A. realized gains and losses. B. unrealized holding gains and losses. C. extraordinary gains and losses. D. costs of goods sold.

unrealized holding gains and losses

When reporting a change in an accounting principle, the general rule requires that the current year's income from continuing operations reflect A. use of the newly adopted principle for the current year recognition. B. use of the old principle for the current year recognition. C. management's choice of either the old or newly adopted principle for the current year recognition. D. FASB's designation of either the old or newly-adopted principle based on the item being changed.

use of the newly adopted principle for the current year recognition

When a company changes from LIFO to another inventory method, the change is reported A. prospectively because it is impractical to determine the effects of this change on prior years' income. B. as an error correction. C. as a change in an accounting estimate. D. using the retrospective approach.

using the retrospective approach

When a company changes from straight-line depreciation to double-declining-balance depreciation, the change is reported A. prospectively because it is impractical to determine the effects of this change on prior years' income. B. as an error correction. C. as a change in an accounting estimate. D. using the retrospective approach.

using the retrospective approach

Professional analysts need information on a company's future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment prospects and to A. certify good values in the stock market. B. indemnify creditors against losses. C. certify that no fraud exists in the company. D. value its equity securities.

value its equity securities

Under the purchase method of accounting for combinations A. the seller must allocatea portion of the selling price to the firm's incomplete R & D activities. B. values assigned by the buyer to R & D projects that have no alternative future use are expensed immediately. C. all R & D costs must be capitalized and amortized over future periods. D. R & D activities are not accounted for.

values assigned by the buyer to R & D projects that have no alternative future use are expensed immediately

When independent measurers get similar results when using the same accounting measurement methods, the financial information is A. relevant. B. verifiable. C. timely. D. faithfully represented

verifiable

Initial franchise fees should be recorded as revenue by the franchisor A. in accordance with the franchise agreement. B. when cash is received from the franchisee. C. when all material services relating to the sale have been substantially performed. D. during the year the franchise agreement is signed.

when all material services relating to the sale have been substantially performed

If the critical event and measurability conditions are not satisfied, revenue may be recognized after the sale A. when legal ownership passes to the seller. B. when cash is collected. C. as the goods are shipped. D. on the receipt of goods by the customer.

when cash is collected

GAAP allows companies to use the cost recovery method for recognizing profits A. when collections on installment sales occur over an extended period and there is no reasonable basis for estimating collectibility. B. on any installment sale. C. only when selling to companies with strong credit ratings. D. if they are in industries where this is the accepted practice.

when collections on installment sales occur over an extended period and there is no reasonable basis for estimating collectability

The mechanics of absorption costing can lead to year-to-year income changes A. whenever inventory levels remain fairly constant. B. if the productivity of factory workers improves. C. whenever production and sales are not in balance. D. when raw material prices are increasing

whenever production and sales are not in balance