Business Exam #2 2021
LO7-1 Jefferson Company borrowed $6,000 on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash outflow from operating activities that Jefferson would report in Year 1 and Year 2, respectively would be
$0, and $360.
LO6-2 On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of depreciation expense recognized on the Year 2 income statement is
$10,000.
LO3-6 Walter Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to
$102,000.
LO0-9 If a company had earnings of $40,000 and 20,000 weighted-common shares outstanding what is EPS? No preferred dividends were declared.
$2.00
LO6-2 On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of accumulated depreciation shown on the Year 2 balance sheet is
$20,000.
LO7-1 Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest expense that Clayton would report in Year 1 and Year 2, respectively would be
$270, and $90.
LO6-2 On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 balance sheet is
$28,000.
LO8-1 Alpha Associates was organized on January 1, Year 1. Alpha was organized as a partnership. Alpha reported $200,000 of before tax income during Year 1 and the partners withdrew $30,000 from the company. Assuming a corporate income tax rate of 30% and a personal income tax rate of 15%, the total amount of tax collected by the government is
$30,000.
LO2-7 On October 1 of Year 1 Zeta Company collected $1,200 cash for services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of revenue appearing on the Year 1 income statement would be
$300.
LO5-1 At the end of the accounting period Anderson Company had $4,500 in accounts receivable and $500 in its allowance for doubtful accounts account. Based on this information the net realizable value of accounts receivable is
$4,000.
LO8-3 Perry Corporation was established on January 1, Year 1 when it issued 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par common stock. The company's earnings history is as follows: The corporation paid the maximum amount of dividends possible in each year of operation. The dividend paid to common stockholders at the end of Year 3 is
$40,000.
LO8-1 Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $40,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000 and John Crowe withdrew $15,000 from the business. Based on this information, the Company would show
$45,000 in its capital account on the Year 1 balance sheet.
LO3-1 Keisha Dress Shops experienced the following events during its third accounting period. (1) Sold merchandise that cost $92,000 for $140,000 cash. (2) Paid $30,000 of operating expenses. (3) Paid a $4,000 cash dividend. Based on this information, the amount of the gross margin is
$48,000.
LO2-6 On August 1 of Year 1 Presco Enterprises paid $1,200 cash for an insurance policy that would provide protection for a one year term. The company's fiscal closing date is December 31. Based on this information, the amount of insurance expense appearing on the Year 1 income statement would be
$500.
LO7-1 On September 1, Year 1, Western Company borrowed $36,000 cash. The one-year note carried a 5% rate of interest. The amount of interest expense on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1 financial statements would be
$600 interest expense and zero cash outflow from operating activities.
LO8-1 Alpha Associates was organized on January 1, Year 1. Alpha was organized as a corporation. Alpha reported $200,000 of before tax income during Year 1 and paid a $30,000 cash dividend to its stockholders. Assuming a corporate income tax rate of 30% and a personal income tax rate of 15%, the total amount of tax collected by the government is
$64,500.
LO8-1 Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $50,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000. Based on this information, Crowe can withdraw (assume all transactions are cash transactions)
$70,000 from the business.
LO8-3 Perry Corporation was established on January 1, Year 1 when it issued 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par value common stock. The company's earnings history is as follows: The corporation paid the maximum amount of dividends possible in each year of operation. The dividend paid to preferred stockholders at the end of Year 2 is
$70,000.
LO2-5 Knoll Company started Year 2 with a $500 balance in its Cash account, a $500 balance in its Supplies account and a $1,000 balance in its common stock account. During Year 2 the company experienced the following events. (1) Paid $400 cash to purchase supplies (2) Physical count revealed $100 of supplies on hand at the end of Year 2 Based on this information the amount of supplies expense reported on the Year 2 income statement is
$800.
LO2-6 On November 1 of Year 1 Falloch, Inc. paid $2,400 cash for a contract allowing the company to use office space for one year. The company's fiscal closing date is December 31. Based on this information, the amount of cash flow from operating activities appearing on the Year 1 statement of cash flows would be
($2,400).
LO3-6 Escrow Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to
($8,000).
LO0-9 Earnings per share is calculated as
(Net Income - Preferred Dividends) / Weighted-Avg Shares Outstanding
LO2-8 The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the balance sheet?
1, 2, 4, 7, 8, 11, and 14
LO0-8 A company's annual filing is called a
10K
LO0-8 A company's quarterly filing is called
10Q
LO2-8 The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the statement of changes in stockholders' equity?
11, 12, and 14
LO0-10 Company A has a share price of $42 and a forward EPS of 21. What is the forward PE?
2
LO0-10 Company A has a PE of 20 and forward earnings of 100. What is the share price?
2,000
LO2-8 The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the statement of cash flows?
3, 6, and 13
LO2-8 The following items were drawn from a company's accounting records: (1) Accounts receivable (2) Accounts payable (3) Cash paid to purchase land (4) Supplies (5) Supplies expense (6) Cash collected for service to be provided in the future (7) Unearned revenue (8) Prepaid rent (9) Earned Revenue (10) Accrued salaries expense (11) Common stock (12) Dividends (13) Cash paid for prepaid rent (14) Retained earnings Which of the items listed above appear on the income statement?
5, 9, and 10
LO0-10 Company A has a share price of $40 and 200,000 shares outstanding. What is the market cap?
8,000,000
LO4-5 Which of the following opinions is the least favorable opinion issued by an external auditor?
Adverse opinion
LO2-7 Lawyers Inc. accepted a $12,000 retainer for which the company agreed to provide services in the future. Recognizing this event would
All of the answers are correct.
LO8-2 The book value of a share of stock may be
All of the answers are correct.
LO7-3 According to GAAP a contingent liability can be classified as
All of the answers describe classifications of contingent liabilities.
LO7-10 Which of the following would not likely appear in the current liabilities section of a classified balance sheet?
Bonds payable
LO0-8 If I wanted to understand a company's business model which section should I read in the annual report?
Business
LO0-10 Company A has a share price of $4,400 and forward EPS of $1,100. Company B has a share price of $20 and a forward EPS of 10. Assuming that everything else about these two companies is identical (i.e. growth rate, risk, capital structure, etc.) which company is more expensive?
Company A
LO0-10 Company A has a PE of 44 and Company B has a PE of 51. Assuming that everything else about these two companies is identical (i.e. growth rate, risk, capital structure, etc.) which company is more expensive?
Company B
LO7-10 Which of the following would not likely appear on a classified balance sheet?
Current retained earnings
LO8-1 Which of the following is a disadvantage of a corporate form of business?
Double taxation
LO0-9 It is possible for EPS to be less than diluted EPS?
False
LO2-5 Transactions including the phrase "on account" will only impact expense and liability accounts. This statement is
False
LO3-6 The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step income statement.
False
LO0-9 To get an estimate of future GAAP earnings you should look at
Forward EPS
LO0-9 EPS is based on
Historical GAAP earnings
LO3-6 Which of the following events experienced by a department store would be presented in the operating section of a multistep income statement?
Inventory sold for less than its cost
LO0-8 Which sections are required in a 10K
MD&A, Financial Statements and Supplementary Data, Risk Factors
LO0-8 Who has to assess the effectiveness of internal controls over financial reporting?
Management
LO2-8 Assume a company has Year 1 ending total assets of $50,000, total liabilities of $48,000 and total stockholders' equity of $2,000. Which of the follow is true in regards to this scenario?
Most assets are owned by creditors in this scenario.
LO3-1 When a merchandising company pays cash to purchase inventory
None of the answers is correct.
LO8-1 Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $40,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned net income of $20,000 and John Crowe withdrew $15,000 from the business. Based on this information, the Company would show
None of the answers is correct.
LO2-6 Baltimore Company paid $3,600 cash for the right to use office space during the coming year. Which of the following shows how this event would affect Baltimore's financial statements?
Option A
LO2-6 On June 1 of Year 1 Doe Company paid $1,800 cash for an insurance policy that would protect the company for one year. The company's fiscal closing date is December 31. Based on this information alone, the amount of prepaid insurance and insurance expense shown on the Year 2 financial statements would be
Option A
LO2-6 On May 1 of Year 1 Matthew Company paid $2,400 cash for an insurance policy that would protect the company for one year. The company's fiscal closing date is December 31. Based on this information, the amount of insurance expense and the cash flow from operating activities shown on the Year 1 financial statements would be
Option A
LO2-6 Which of the following shows how paying cash for an insurance policy that protects the company for some future time period affects a company's financial statements?
Option A
LO2-7 Which of the following shows how the adjusting entry to recognize services provided to a client who paid for the services prior to the work being performed?
Option A
LO2-7 Which of the following shows how the event "collected cash for services to be rendered in the future" affects a company's financial statements?
Option A
LO7-4 Taylor Tools, Inc. has sales of $200,000 in Year 1. Taylor warrants its products and estimates warranty expense to be 4% of sales. Which of the following shows how the year end adjusting entry would affect the company's assets, liabilities, and cash flow from operating activities?
Option A
LO2-5 Howard Company purchased $300 of supplies on account. Which of the following shows how is purchase will affect Howard's financial statements?
Option B
LO2-5 Which of the following shows how an adjusting entry to recognize supplies expense will affect a company's financial statements?
Option B
LO2-6 On October 1 of Year 1 Wilburn Company paid cash for an insurance policy that would provide protection for a one year term. Which of the following shows how the required adjusting entry on December 31, Year 1 will affect Wilburn's financial statements?
Option B
LO5-1 On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize $5,470 of uncollectible accounts expense. Which of the following shows how this entry will affect Kardashian's financial statements?
Option B
LO7-1 On August 1, Year 1, Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the accrual of interest expense in Year 2 will effect Gomez's financial statements?
Option B
LO7-4 Explorer Supplies, Inc. had sales of $120,000 in Year 1. Explorer warrants its products and estimates warranty expense to be 3% of sales. Which of the following shows how the year end adjusting entry would affect the company's assets, liabilities, and stockholders' equity?
Option B
LO2-7 On May 1 of Year 1 Matthew Company collected $2,400 cash for services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of service revenue and the cash flow from operating activities shown on the Year 1 financial statements would be
Option C
LO3-1 Which of the following shows the effects of purchasing inventory on account?
Option C
LO3-6 Beachwood Clothing Company operates a chain of high end men's clothing stores. Recently the Company closed one of its stores and sold the equipment that was used in the store. The equipment had cost $5,000 and was sold for $6,000. Which of the following shows how the recognition of this event would affect the Company's financial statements?
Option C
LO5-1 Hope Company determined that an $8,000 account receivable was uncollectible. Which of the following shows how the write-off of this receivable will affect Hope's financial statements?
Option C
LO7-1 On November 1, Year 1, Cove Company borrowed $7,000 cash from Shelter Company. The one-year note carried a 7% rate of interest. Which of the following shows how the loan will affect Cove's financial statements on November 1, Year 1?
Option C
LO7-4 Which of the following shows how paying off a warranty obligation will affect a company's financial statements?
Option C
LO2-5 Which of the following shows how paying cash to purchase supplies will affect a company's financial statements?
Option D
LO2-7 On June 1 of Year 1 Zoe Company collected $1,800 cash for medical services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information the amount of unearned revenue and service revenue shown on the Year 1 financial statements would be
Option D
LO3-1 Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following shows how the recognition of the cost of goods sold will affect the Company's financial statement? (Ignore the effects of the associated revenue recognition.)
Option D
LO6-2 On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $8,000 salvage value. If Marino uses the straight-line method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?
Option D
LO7-1 On August 1, Year 1, Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez's financial statements?
Option D
LO7-4 Tom Tom Toys, Inc. has sales of $500,000 in Year 1. Tom Tom warrants its products and estimates warranty expense to be 2% of sales. Which of the following shows how the year end adjusting entry for warranty expense would affect the company's financial statements?
Option D
LO2-5 Bookmyer Company experienced a business event that affected its financial statements as indicated below. Which of the following events could have caused these effects?
Paid cash to purchase supplies
LO7-1 Forest Beach Company experienced an event that had the following effects on its financial statements. Which of the following events could have caused these effects?
Paid cash to settle the principal balance of note payable
LO2-6 Which of the following statements is false?
Prepaid insurance is shown on the income statement.
LO2-9 Kim Company recorded a claims exchange transaction that had the following effects on its financial statements: Which of the following adjustments could have caused these effects?
Recognized a portion of unearned revenue as earned revenue.
LO7-3 Homeland Security Systems experienced an event that had the following effects on its financial statements. Which of the following events would have caused these effects?
Recognizing a contingent liability that has a probable chance of occurring and is estimable
LO2-8 Assume a company has Year 1 beginning common stock of $10,000 and Year 2 ending stockholders' equity of $150,000. Which of the following is true in regards to this scenario?
Revenues have exceeded expenses over the last two accounting cycles.
LO8-1 Which of the following first required corporations to file quarterly and annual financial statements that are prepared in accordance with Generally Accepted Accounting Principles?
Securities Act of 1934
LO8-1 Which of the following has a single owner?
Sole proprietorship
LO4-5 Which of the following entities is responsible for establishing auditing standards?
The Public Company Accounting Oversight Board.
LO0-8 Public companies file their financial statements with the SEC.
True
LO2-5 A cost may be recorded as an expense or as an asset purchase. This statements is
True
LO2-5 The ending balances for an accounting period become the beginning balances of the subsequent accounting period. This statement is
True
LO7-1 Accrued interest expense will appear on the income statement but not on the statement of cash flows. This statement is
True
LO8-1 In a business organized as a sole proprietorship, retained earnings and capital acquired from owners are combined is a single account. This statement is
True
LO8-1 Partnerships are frequently managed by the owners of the business. This statement is
True
LO4-5 Which of the following opinions is the most favorable opinion issued by an external auditor?
Unqualified opinion
LO8-3 Which of the following is not a common characteristic associated with preferred stock?
Voting rights
LO0-8 When reading a 10k, what does the word "material" mean?
Will change an investor's decision on whether or not to invest in the company
LO2-8 Brown Company's December 31, Year 1 balance sheet showed $1,800 cash, $200 accounts payable, $600 common stock, and $1,000 retained earnings. The company experienced the following events during year 2. (1) On April 1, Year 2 the company paid $1,800 cash to rent office space for the coming year starting immediately. (2) Earned $1,700 cash revenue. (3) Paid a $300 cash dividend. Based on this information, the company would report
a $1,050 balance in retained earnings on the Year 2 balance sheet.
LO3-6 AmRon Company sold land that had cost $25,000 for $26,500. Based on this information, the company's year-end financial statements would show
a cash inflow from investing activities of $26,500 on the statement of cash flows.
LO2-9 Adams Company adjusted its records to recognize accrued salary expense at the end of its Year 1 accounting period. The recognition is
a claims exchange transaction.
LO2-9 Crowe Company collected $18,000 in advance for services to be performed in the future. The year-end adjusting entry necessary to recognize the portion of the revenue that was earned during the year is
a claims exchange transaction.
LO3-1 Inventory is
an asset account that appears on the balance sheet.
LO2-9 On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This event is
an asset exchange transaction.
LO2-9 Styles Company paid cash to purchase supplies. This event is
an asset exchange transaction.
LO3-1 Paying cash to purchase inventory is
an asset exchange transaction.
LO2-9 Crowe Company collected $18,000 in advance for services to be performed in the future. This event is
an asset source transaction.
LO2-9 During its Year 2 accounting cycle Styles Company had $4,000 of supplies available for use. A year-end physical count of supplies found $300 of supplies on hand. Based on this information, the year-end adjusting entry necessary to recognize supplies expense is
an asset use transaction.
LO2-9 On December 1, Year 3 Walton Company paid $3,600 cash for office space to be used during the coming year. This transaction was recorded as an asset exchange transaction. Based on this information, the year-end adjusting entry to recognize rent expense is
an asset use transaction.
LO2-8 On December 31, Year 3 Snack, Inc. adjusted its records to recognize $5,000 of accrued salaries. Based on this information alone, the
balance sheet at the beginning of Year 4 would show $5,000 of accrued salaries payable.
LO2-5 On December 31, Year 1 Adam Company incurred $3,000 of accrued salary expense. The Year 2 recognition of the cash payment for these expenses
decreases the amount of liabilities shown on the Year 2 balance sheet.
LO4-5 If an auditor has insufficient information to determine whether a company's statements are prepared in accordance with Generally Accepted Accounting Principles, the auditor should issue a(n)
disclaimer of opinion.
LO7-4 The adjusting entry required to recognize warranty expense will cause
equity to decrease and will not affect cash flow from operating activities.
LO5-1 In the video, uncollectible accounts expense is
estimated and recognized at the end of the accounting period.
LO2-6 An accrual
exists when a company pays cash after recognizing the associated expense.
LO2-6 A deferral
exists when a company pays cash before recognizing the associated expense.
LO2-7 Accrued revenue
exists when a company receives cash after recognizing the associated revenue.
LO2-7 Deferred revenue
exists when a company receives cash before recognizing the associated revenue.
LO8-3 All common stockholders have the same rights and privileges. This statement is
false
LO3-1 Product costs are expensed when they are incurred. This statement is
false.
LO3-6 McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses. This statement is
false.
LO4-5 An adverse opinion is the most common type of opinion issued by independent auditors. This statement is
false.
LO4-5 An unqualified audit opinion suggests that all aspects financial statements are in compliance with generally accepted accounting principles (GAAP). This statement is
false.
LO5-1 Most companies expect to collect the full balance of all of their accounts receivable. This statement is
false.
LO7-10 A current asset is an asset that is cash or an asset that will be converted into cash within one year or one operating cycle whichever is shorter.
false.
LO7-3 A contingent liability is an actual obligation arising from a past event. This statement is
false.
LO8-2 The number of shares a corporation has outstanding may exceed the number of shares authorized. This statement is
false.
LO0-10 What is true regarding the difference in the PE ratio and the forward PE ratio?
forward PE is based on an estimate of earnings
LO8-3 In general, common stockholders experience
greater risk and greater potential rewards than preferred stockholders.
LO0-9 High-end retailers are more likely to have
higher gross margins
LO3-6 The following income statements were drawn from the annual report of The Western Sales Company. If the trends continue, investors can expect the company's net income for Year 3 to
increase.
LO2-5 When a company purchases supplies on account
liabilities increase.
LO7-4 The adjusting entry required to recognize warranty expense will cause
liabilities to increase and equity to decrease.
LO8-2 Normally companies sell stock for an amount that is
more than the par value.
LO3-1 The gross margin appears on a
multistep income statement.
LO5-1 The recovery and collection of an account receivable that had previously been written off will
not affect total assets.
LO2=7 Unearned revenue
occurs when a Company receives a benefit from a customer but have not yet earned that benefit.
LO6-2 Tangier Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)
over the useful life of the asset.
LO7-3 Standard Company has a contingent liability that has a likelihood of actual occurrence that is classified probable. Also, the amount of the liability can be reasonably estimated. Under these circumstances, Standard is required to
recognize a liability and an expense in its financial statements.
LO3-1 When a merchandising company sells inventory it will
recognize revenue and expense.
LO2-7 Revenue
represents all the benefits earned during an accounting period.
LO7-3 GreyCo has initiated a lawsuit against PhilCo for a copyright violation. Negotiations between the lawyers representing the two companies suggest that it is probable that GreyCo will win the case and will collect a $1,000,000 settlement fee. Generally Accepted Accounting Principles (GAAP)
requires PhilCo to recognize a $1,000,000 contingent liability but does not permit GreyCo to recognize a $1,000,000 contingent asset.
LO2-8 Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately. Based on this information alone,
the Year 2 balance sheet would show $200 of prepaid insurance.
LO2-8 Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2. (1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately. Based on this information alone,
the Year 3 statement of cash flows would show zero outflow to purchase insurance.
LO3-6 Zack's, Inc. sold land that cost $85,000 for $70,000 cash. As a result of this event
total assets decreased.
LO4-5 Public companies under the jurisdiction of the Securities and Exchange Commission are required by law to hire a certified public accounting firm (independent auditor) to assess whether their published financial statements are in compliance with Generally Accepted Accounting Principles (GAAP). This statement is
true.
LO4-5 While independent auditors are responsible to the public they receive compensation for their work from the companies they audit. This statement is
true.
LO5-1 The balance in the allowance for doubtful accounts provides an estimate of the amount of accounts receivable that is expected to be uncollectible. This statement is
true.
LO5-1 The net realizable value of accounts receivable represents an estimate of the amount of the accounts receivable that a company realistically expects to collect. This statement is
true.
LO7-10 A classified balance sheet separates assets and liabilities into categories that distinguish between accounts that are identified as current from those that are identified as long-term. This statement is
true.
LO7-10 The length of an operating cycle is the time it takes to turn cash into inventory, then inventory into accounts receivable, and then accounts receivable back into cash. This statement is
true.
LO7-3 A company is not required to recognize or disclose a contingent liability that has a remote chance of actually occurring. This statement is
true.
LO7-4 Warranty obligations are contingent liabilities that must be recognized and reported in a company's published financial statements. This statement is
true.
LO8-2 A corporation may have issued more shares of stock than it has outstanding. This statement is
true.
LO8-2 The par value or stated value of stock represents the amount of legal capital that a corporation must maintain for the protection of the creditors. This statement is
true.
LO5-1 In the video, recognizing the write-off of an uncollectible account receivable will
will not affect the total amount of the net realizable value of receivables.
LO2-7 On August 1 of Year 1 Accounting Associates collected $1,200 cash for consulting services to be provided for one year beginning immediately. The company's fiscal closing date is December 31. Based on this information, the amount of unearned revenue appearing on the Year 2 balance sheet would be
zero.
