Econ 111A Accounting MC Practice Problems

The balance sheet is useful for analyzing all of the following except A. liquidity. B. solvency. C. financial flexibility. D. profitability.

D

An indication that the customer has taken control of the good or service is that A. the selling company has transferred legal title to the asset. B. the selling company has no right to payment for the good or service. C. the selling company has physical possession of the asset. D. the customer has no significant risks or rewards of ownership.

A

In determining the transaction price, the company must consider: A. variable consideration, non-cash consideration, time value of money, and consideration payable. B. the time value of money, but not consideration payable. C. variable consideration, but not non-cash consideration. D. non-cash consideration, but not the time value of money.

A

The quality of information that means the numbers and descriptions match what really existed or happened is A. faithful representation. B. completeness. C. neutrality. D. relevance.

A

The seller of a good or service should recognize revenue when A. each performance obligation is satisfied. B. they identify the separate performance obligations in the contract. C. they determine the transaction price. D. they identify the contract with customers.

A

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? A. On the face of the income statement. B. On the face of the statement of retained earnings (or, statement of stockholders' equity.) C. On the face of the balance sheet. D. In the footnotes to the financial statements.

A

Which of the following items will not appear in the retained earnings statement? A. Discontinued operations B. Dividends C. Net loss D. Prior period adjustment

A

Which of the following is a requirement for an accounting principle to be called "generally accepted"? A. An authoritative accounting rule-making body has established it or it has been accepted because of its universal application. B. Each company develops its own standards. C. An authoritative accounting rule-making body has established it in an official pronouncement. D. The principle has been accepted as appropriate because of its universal application.

A.

In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product? A. The product must be physically located in the seller's warehouse. B. The product currently must be ready for physical transfer to the customer. C. The reason for the bill-and-hold arrangement must be substantive. D. The seller cannot have the ability to use the product or to direct it to another customer.

A; The response given is not a criteria for a bill-and-hold arrangement. For the customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria should be met: (a) The reason for the bill-and-hold arrangement must be substantive, (b) The product must be identified separately as belonging to the customer, (c) The product currently must be ready for physical transfer to the customer, and (d) the seller cannot have the ability to use the product or to direct it to another customer.

A statement of stockholders' equity includes a column for each of the following except A. accumulated other comprehensive income. B. net income. C. common stock. D. retained earnings.

B

The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in A. receivables back into cash, or 12 months, whichever is longer. B. inventory back into cash, or 12 months, whichever is longer. C. inventory back into cash, or 12 months, whichever is shorter. D. tangible fixed assets back into cash, or 12 months, whichever is longer.

B

The correct order to present current assets is A. cash, inventories, accounts receivable, prepaid items. B. cash, accounts receivable, inventories, prepaid items. C. cash, inventories, prepaid items, accounts receivable. D. cash, accounts receivable, prepaid items, inventories.

B

What is a purpose of having a conceptual framework? A. To segregate activities among different companies. B. To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards. C. To make sure that economic activity can be identified with a particular legal entity. D. To provide comparable information for different companies.

B

What is the objective of financial reporting? A. Provide information that is useful to management in making decisions. B. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors. C. Provide information that excludes claims to the resources. D. Provide information that clearly portrays nonfinancial transactions.

B

When a portion of inventories has been pledged as security on a loan, A. an equal amount of retained earnings should be appropriated. B. the fact should be disclosed but the amount of current assets should not be affected. C. the cost of the pledged inventories should be transferred from current assets to noncurrent assets. D. the value of the portion pledged should be subtracted from the debt.

B

Which of the following statements is true about the accrual basis of accounting? A. This method is used less frequently by businesses than the cash method of accounting. B. Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received. C. The timing of cash receipts and disbursements is emphasized. D. A minimal amount of record keeping is required in accrual basis accounting compared to cash basis.

B

A common set of accounting standards and procedures is called A. financial accounting standards. B. generally accepted accounting principles. C. objectives of financial reporting. D. statements of financial accounting concepts.

B.

Companies that are listed on a stock exchange are required to submit their financial statements to the A. APB B. SEC. C. AICPA. D. FASB.

B.

A contract should be treated as having multiple performance obligations if A. the contract creates enforceable rights or obligations. B. each performance obligation is not highly dependent on other promises in the contract. C. each service provided in the contract is interdependent. D. each service provided in the contract is interrelated.

B; A contract should be treated as having multiple performance obligations if each performance obligation is not highly dependent on other promises in the contract.

On January 1, 2017, Purdy Company enters into a contract to transfer Blue and Rain to Georgia Co. for $300,000. The contract specifies that payment for Blue will not occur until Rain is also delivered. In other words, payment will not occur until both Blue and Rain are transferred to Georgia. Purdy determines that standalone prices are $110,000 for Blue and $190,000 for Rain. Purdy delivers Blue to Georgia on February 10, 2017. On March 15, 2017, Purdy delivers Rain to Georgia. Purdy should record A. Accounts Receivable of $300,000 on January 1. B. Contract Asset of $110,000 on February 10. C. Contract Asset of $110,000 on January 1. D. Accounts Receivable of $110,000 on February 10.

B; Conditional rights to receive consideration are reported as contract assets rather than as receivables. Thus, a contract asset of $110,000 would be reported on February 10.

Stossel Company sells 300 units for $200 each to Liberty Inc. for cash. Stossel allows Liberty to return any unused product within 30 days and receive a full refund. The cost of each product is $120. To determine the transaction price, Stossel decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Stossel estimates that ten (10) units will be returned, the costs of recovering the units will be immaterial, and the returned units are expected to be resold at a profit. What amount of refund liability should Stossel record at the time of sale? A. $1,200 B. $2,000 C. $ 0 D. $800

B; Stossel should record a refund liability of $2,000 (10 estimated units to be returned X $200 selling price).

In a consignment sale, the consignee A. recognizes both commission revenue and sales revenue. B. records a payable when consigned merchandise is sold. C. makes a journal entry when the consigned merchandise is received. D. records advertising paid for the consignment as an expense.

B; The consignee records a payable to the consignor, not sales revenue, when consigned merchandise is sold. The consignee will later record commission revenue.

Accounting information is considered to be relevant when it: A. is verifiable and neutral. B. can be depended on to represent the economic conditions and events that it is intended to represent. C. is capable of making a difference in a decision. D. is understandable by reasonably informed users of accounting information.

C

For Sunland Company, the following information is available: Cost of goods sold $386000 Dividend revenue 15800 Income tax expense 36400 Operating expenses 138000 Sales revenue 610000 In Sunland's multiple-step income statement, gross profit A. should not be reported. B. should be reported at $65400. C. should be reported at $224000. D. should be reported at $239800.

C

If the LIFO inventory method was used last period, it should be used for the current and following periods because of: A. verifiability. B. materiality. C. consistency. D. timeliness.

C

One criteria that indicates that a company should disregard revenue guidance for contracts is when A. the payment terms for the goods and services to be transferred can be identified. B. the contract has commercial substance. C. each party can unilaterally terminate the contract without compensation. D. each party's rights regarding the goods or services to be transferred can be identified.

C

The financial statements most frequently provided include all of the following except the: A. balance sheet. B. statement of cash flows. C. statement of retained earnings. D. income statement.

C

The best measure of the fair value of a performance obligation is A. residual value. B. expected cost plus a margin. C. adjusted market assessment. D. standalone selling price.

D

The major elements of the income statement are A. operating section, nonoperating section, discontinued operations, and cumulative effect. B. revenues, irregular items, and general expenses. C. revenues, expenses, gains, and losses. D. revenue, cost of goods sold, selling expenses, and general expense.

C

The stockholders' equity section is usually divided into what three parts? A. Preferred stock, common stock, treasury stock B. Preferred stock, common stock, retained earnings C. Capital stock, additional paid-in capital, retained earnings D. Capital stock, appropriated retained earnings, unappropriated retained earnings

C

Which of the following organizations is responsible for setting U.S. accounting standards nowadays? A. The Accounting Principles Board. B. The Committee on Accounting Procedure. C. The Financial Accounting Standards Board. D. All of the answer choices are correct.

C.

An indication that the customer has not taken control of the good or service is A. the customer has physical possession of the asset. B. the selling company has right to payment for the good or service. C. the customer has no significant risks or rewards of ownership. D. the selling company has transferred legal title to the asset.

C; When the customer has significant risks or rewards of ownership, it is an indicator that the customer has obtained control, so when the customer has no significant risks or rewards of ownership, it is an indication that the customer has not taken control of the good or service.

A soundly developed conceptual framework of concepts and objectives should A. increase financial statement users' understanding of and confidence in financial reporting. B. enhance comparability among companies' financial statements. C. allow new and emerging practical problems to be more quickly solved. D. all of these answer choices are correct.

D

A trial balance may prove that debits and credits are equal, but A. an amount could be entered in the wrong account. B. a transaction could have been entered twice. C. a transaction could have been omitted. D. all of these answer choices are correct.

D

Debit always means: A. the right side of an account. B. an increase. C. a decrease. D. none of these answer choices are correct

D

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the A. retained earnings statement. B. income statement. C. statement of financial position. D. statement of cash flows.

D

The underlying theme of the conceptual framework is A. understandability. B. faithful representation. C. comparability. D. decision usefulness.

D

When a corporation pays a note payable and interest, A. the account notes payable will be increased. B. the account interest expense will be decreased. C. they will debit cash. D. they will debit notes payable and interest expense.

D

When goods are consigned, the consignee A. recognizes both commission revenue and sales revenue. B. makes a journal entry when the consigned merchandise is received. C. records advertising paid for the consignment as an expense. D. only recognizes revenue associated with commissions.

D

Which of the following is a real (permanent) account? A. Goodwill B. Service Revenue C. Accounts Receivable D. Both Goodwill and Accounts Receivable

D

Which of the following is included in comprehensive income? A. Distributions to owners. B. Changes in accounting principles. C. Investments by owners. D. Unrealized gains on available-for-sale securities.

D

Which type of account is always debited during the closing process? A. Retained earnings B. Dividends C. Expense D. Revenue

D

When using the percentage of completion method, the company A. recognizes revenues and gross profit only when the contract is completed. B. accumulates progress billings in an inventory account (Construction in Process). C. accumulates construction costs only in an inventory account (Construction in Process). D. recognizes revenues and gross profit each period during the contract.

D; When using the percentage of completion method, the company recognizes revenues and gross profit each period based on the progress of the construction.