1&2 A201
In a consolidated balance sheet, the minority interest is reported
c. as part of stockholders' equity.
Cash equivalents would not include short-term investments in
c. available-for-sale securities.
Dingo Boot Company uses the direct method to prepare its statement of cash flows. The company had the following cash flows during 2014: Cash receipts from the issuance of common stock ........ $400,000 Cash receipts from customers ........................... 200,000 Cash receipts from dividends on long-term investments .. 30,000 Cash receipts from repayment of loan made to another company ................................................ 220,000 Cash payments for wages and other operating expenses ... 120,000 Cash payments for insurance ............................ 10,000 Cash payments for dividends ............................ 20,000 Cash payments for taxes ................................ 40,000 Cash payment to purchase land .......................... 80,000 See information regarding Dingo Boot Company above. The net cash provided by (used in) operating activities is a. $(20,000).
d. $60,000.
1.Which of the following is used in calculating the income recognized in the fourth and final year of a contract accounted for by the percentage-of-completion method? 2.When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee upon signing an operating lease?
1. a 2. Over the life of the lease
Revenue in a Multiple-Element Arrangement under Subtopic 605-25 On June 4, Seller Company signed a sales agreement with Buyer Company to deliver and install a piece of factory equipment. The total contract price is $300,000. Customers usually buy an equipment/installation package, but Seller Company does sell equipment without installation and also installs equipment sold by other companies. The selling price of the equipment without installation is $290,000. The separate price for installation of this piece of equipment is $20,000. How much revenue should be recognized by Seller Company when the equipment is delivered but before it is installed? Round calculations to the nearest whole dollar.
280645
Reporting Construction Contracts Kylie Builders Inc. is building a new home for Cassie Proffit at a contracted price of $200,000. The estimated cost at the time the contract is signed (January 2, 2013) is $115,000. At December 31, 2013, the total cost incurred is $60,000 with estimated costs to complete of $59,000. Kylie has billed $80,000 on the job and has received a $55,000 payment. This is the only contract in process at year-end. 1. Prepare the sections of the balance sheet and the income statement of Kylie Builders Inc. affected by these events assuming use of the percentage-of-completion method. Round percentage to two decimal places for percentage completed. Round your answers to the nearest whole dollar
Kylie Builders Inc Partial Balance Sheet and Income Statement Percentage-of-completion method: Balance Sheet . Current assets: Accounts receivable $ 25000 Construction in progress $ 100840 Less: Progress billings on construction contracts 80000 20840 Income statement: Revenue $ 100840 Cost of construction 60000 Gross profit $ 40840
What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively?
a. No effect No effect
In preparing its bank reconciliation for the month of February, Vance Company has available the following information: Balance per bank statement, February 28 ................. $18,025 Deposit in transit, February 28 ......................... 3,125 Outstanding checks, February 28 ......................... 2,875 Check erroneously deducted by bank from Vance's account, February 10 ........................................... 125 Bank service charges for February ....................... 25 What is the corrected cash balance at February 28?
b. $18,400
Commodity L sells for $12.00; selling expenses are $2.40; normal profit is $3.00. If the cost of Commodity L is $7.80 and the replacement cost is $6.00, the lower of cost or market is
b. $6.60.
Pending litigation would generally be considered a(n)
c. contingent liability.
The specific identification method of inventory costing
c. matches the flow of recorded costs with the physical flow of goods.
Which of the following is not presented in an income statement?
d. Dividends
Basic Journal Entries for Revenue Recognition The company collected $1,000 cash in advance from a customer for services to be rendered. Subsequently, the company rendered the services. 1. Make the journal entry necessary to record the receipt of the cash. 2. Make the journal entry necessary to record the subsequent completion of the services
1. Cash 1000 Unearned Service Revenue 1000 2. Unearned Service Revenue 1000 Service Revenue 1000
Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?
d. Higher retail prices
Installment Sales: Financial Statement Reporting The company had sales during the year of $350,000. The gross profit percentage during the year was 20%. Cash collected during the year related to these sales was 40% of the sales. Indicate how the installment sales receivable would be reported in the balance sheet at the end of the year.
Partial Balance Sheet Installment sales receivable $ 210,000 Less deferred gross profit -42000 Net installment sales receivable $ 168,000
Under which of the following circumstances is the installment sales method appropriate for the recognition of revenue in the income statement?
a. For sales where collection is spread over a reasonable long period of time and significant doubt exists about the ultimate collection of the receivables.
What accounting concept justifies the use of accruals and deferrals?
a. Going-concern assumption
In an effort to improve the conceptual framework, the FASB, in conjunction with the IASB has been moving towards more __________ standards.
a. principles approach
Sky Corporation's salaries expense for 2012 was $136,000. Accrued salaries payable on December 31, 2013, was $17,800 and $8,400 on December 31, 2012. The cash paid for salaries during 2013 was
a. $126,600.
Dingo Boot Company uses the direct method to prepare its statement of cash flows. The company had the following cash flows during 2014: Cash receipts from the issuance of common stock ........ $400,000 Cash receipts from customers ........................... 200,000 Cash receipts from dividends on long-term investments .. 30,000 Cash receipts from repayment of loan made to another company ................................................ 220,000 Cash payments for wages and other operating expenses ... 120,000 Cash payments for insurance ............................ 10,000 Cash payments for dividends ............................ 20,000 Cash payments for taxes ................................ 40,000 Cash payment to purchase land .......................... 80,000 See information regarding Ding Boot Company above. The net cash provided by (used in) investing activities is
a. $140,000.
With LIFO, cost of goods sold is $195,000, and ending inventory is $45,000. If FIFO ending inventory is $65,000, how much is FIFO cost of goods sold?
a. $175,000
Which of the following measurement attributes is not currently used in practice?
a. Inflation-adjusted cost
Which of the following statements regarding intangible assets is NOT correct?
a. Intangible assets should be amortized over a period not to exceed 40 years.
Which of the following is NOT correct?
d. Firms always pay dividends on their common stock issues because of the ease with which common shareholders can assume control of the firm.
The premium on a two-year insurance policy expiring on June 30, 2015, was paid in total on July 1, 2013. The original payment was debited to the insurance expense account. The appropriate journal entry has been recorded on December 31, 2013. The balance in the prepaid asset account on December 31, 2013, should be
c. the same as it would have been if the original payment had been initially debited to an asset account.
Form 10-K is submitted to the
d. SEC.
The Narrows Company makes the following entry in its accounting records: Inventory ................................. 400 Cost of Goods Sold...................... 400 This entry would be made when
d. merchandise is returned and the perpetual inventory method is used.
When preparing a statement of cash flows using the direct method, amortization of a patent is
d. not reported in the statement of cash flows or related disclosures.
According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is
d. recognition.
Under the cash basis of accounting,
d. the matching principle is ignored.
Important constraints underlying the qualitative characteristics of accounting information are
c. materiality, conservatism, and cost-effectiveness.
An example of an inventory accounting policy that should be disclosed is the
c. method used for inventory costing.
Recording as an asset expenditures that have no future economic benefit is an example of
c. non-GAAP accounting.
In relation to a set of 2015 basic financial statements, a subsequent event is one that
c. occurs before the 2015 financial statements are issued.
Treasury stock should be reported
a. as a deduction from total stockholders' equity on the balance sheet.
In a statement of cash flows, if equipment is sold at a gain, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment
c. plus the gain only.
Excluding some revenues, expenses, gains, losses from the earnings figure calculated using generally accepted accounting principles is an example of
c. proforma earnings.
Goods on consignment are
c. recorded in a consignment out account which is an inventory account.
Which of the following regarding the weighted-average cost of capital is true?
d. The tax effect of debt should be included in the calculation of the weighted-average cost of capital.
Financial information exhibits the characteristic of consistency when
d. accounting entities give similar events the same accounting treatment each period.
The following information is available for the Underwater Company for the three months ended March 31 of this year: Inventory, January 1 .................................. $ 450,000 Purchases ............................................. 1,700,000 Freight-in ............................................ 100,000 Sales ................................................. 2,400,000 The gross margin was estimated to be 25 percent of sales. What is the estimated inventory balance at March 31
a. $450,000
Waller Corporation had the following account balances for 2014: December 31 January 1 Accounts Payable ...................... $67,200 $58,200 Prepaid Rent Expense .................. 24,600 37,200 Accounts Receivable (net) ............. 84,000 66,600 Waller's 2014 net income is $450,000. What amount should Waller include as net cash provided by operating activities in its 2014 statement of cash flows?
a. $454,200
The following information is available from Dodger Corporation's accounting records for the year ended December 31, 2014: Cash paid to suppliers and employees ................ $1,020,000 Cash dividends paid ................................. 60,000 Cash received from customers ........................ 1,740,000 Rent received ....................................... 20,000 Taxes paid .......................................... 220,000 Net cash flow provided by operating activities for 2014 was
a. $520,000.
The following information is available for Superior Company for 2014: Decrease in merchandise inventory .................... $ 20,000 Increase in accounts payable related to inventory .... 50,000 Disbursements for purchases of merchandise ........... 580,000 What amount should Superior report as cost of goods sold for 2014?
a. $650,000
Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If collections from clients during the period were $80,000, then total services rendered on account were apparently
a. $76,000.
Abe Company sold merchandise on credit to Bee Company for $1,000 on July 1, with terms of 2/10, net /30. On July 6, Bee returned $200 worth of merchandise claiming the materials were defective. On July 8, Abe received a payment from Bee and credited Accounts Receivable for $350. On July 24, Bee Company paid the remaining balance on its account. See Abe Company information above. What was the total cash received from Bee during July?
a. $793
Harris Company reported the following results from operations for 2014: Extraordinary loss (pretax) ........................... $22,000 Net income (after tax) ................................ $75,200 Income tax rate ....................................... 40% Income before extraordinary items was
a. $88,400
Information from Osborne Company's balance sheet is as follows: Current assets: Cash ............................................ $ 1,200,000 Investment securities ........................... 3,750,000 Accounts receivable ............................. 28,800,000 Inventories ..................................... 33,150,000 Prepaid expenses ................................ 600,000 Total current assets ............................ $67,500,000 Current liabilities: Notes payable ................................... $ 750,000 Accounts payable ................................ 9,750,000 Accrued expenses ................................ 6,250,000 Income taxes payable ............................ 250,000 Payments due within one year on long-term debt .. 1,750,000 Total current liabilities ....................... $18,750,000 What is Osborne's acid-test (quick) ratio?
a. 1.80 to 1
Selected information from the accounting records of Espy Company is as follows: Net sales for 2014 ................................... $900,000 Cost of goods sold for 2014 .......................... 600,000 Inventory at December 31, 2014 ....................... 180,000 Inventory at December 31, 2014 ....................... 156,000 Espy's inventory turnover for 2014 is
a. 3.57 times.
The following data were taken from the financial statements of Howard Corporation for the year ended December 31, 2014: Net sales ......................... $120,000 Net income ........................ 30,000 Total assets, January 1, 2014 ..... 400,000 Total assets, December 31, 2014 ... 600,000 What was Howard's rate of return on assets for 2014?
a. 6 percent
Selected information from the accounting records of Monroe Manufacturing Company follows: Net sales ............................................ $3,600,000 Cost of goods sold ................................... 2,400,000 Inventories at January 1 ............................. 672,000 Inventories at December 31 ........................... 576,000 What is the number of days' sales in average inventories for the year?
a. 94.9
Which of the following events would be considered an extraordinary item?
a. A food cannery was faced with a large loss of inventory of canned soups due to government condemnation because of possible botulism contamination; the company had never experienced a similar situation in its history.
Which of the following circumstances would require recording an accrual for a loss contingency under current generally accepted accounting principles?
a. Amount of loss is reasonably estimable and occurrence of event is probable
How should a contingent liability be reported in the financial statements when it is "reasonably possible" the company will have to pay the liability at a future date?
a. As a disclosure only
Which of the following statements regarding assets is NOT true?
a. Assets reported on the balance sheet include both monetary and nonmonetary resources.
Which of the following is an internal user of a company's financial information?
a. Board of directors
Barron Co.'s current ratio is 2:1. Which of the following transactions would normally increase Barney's current ratio?
a. Borrowing money by signing a long-term note
Which of the following is classified as a cash inflow from financing activities?
a. Cash received from re-issuance of treasury stock held by the company
When Progress Billings are made by a contractor on a long-term contract, what account is credited
a. Contract Billings, a contra-asset account
In a statement of cash flows using the direct method, which of the following would increase reported cash flows from operating activities?
a. Dividends received from investments
Under which of the following conditions would hurricane damage be considered an extraordinary item for financial reporting purposes?
a. Only if hurricanes are unusual in nature and infrequent in occurrence in the geographic area
Which of the following would NOT be classified as cash?
a. Postdated checks
Which of the following describes the flow of product costs through the inventory accounts of a manufacturer?
a. Raw materials, goods in process, finished goods
Which of the following accounts most likely would not appear in a post-closing trial balance?
a. Sales Revenue
Which of the following is true about international accounting standards?
a. Significant differences exist between U.S. GAAP and GAAP of other countries.
Which of the following is true?
a. The IASC allows dividends paid to be classified as an operating activity or as a financing activity.
Which of the following is true?
a. The Statement of Cash Flows is classified according to three main categories.
Which of the following is NOT acceptable in estimating uncollectible accounts receivable under GAAP?
a. The estimate of uncollectible accounts is based on a percentage of sales for the period.
Which of the following categories of expenses is subject to immediate recognition on the income statement?
a. The salary of the company president
Which of the following is NOT a purpose of the conceptual framework of accounting?
a. To provide specific guidelines for resolving situations not covered by existing accounting standards
Which of the following characteristics may result in the classification of a liability as current?
a. Violation of provisions of a debt agreement
An adjusting entry in which revenue is recognized and a receivable is established indicates that revenue has been Earned Collected
a. Yes No
Deferring the recognition of revenue for which the earnings process is complete is an example of
a. a "cookie jar" reserve.
Recognizing more bad debt expense in a year than is necessary in order to have flexibility in recognizing bad debt expense in a future year is an example of
a. a cookie jar reserve.
In an accrual accounting system,
a. a debit entry is recorded on the left-hand side of an account.
Excessive earnings management typically begins as a result of
a. a downturn in business.
Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and to identify bank errors. Adjustments should be recorded for
a. all items except bank errors, outstanding checks, and deposits in transit.
All of the following represent the likely options for financing business expansion except
a. an unrealized gain on available-for-sale securities.
The following is NOT a major component of the financial statements:
a. annual report
A Company showed a large restructuring charge on its income statement in 2014 and has experienced a constantly rising earnings trend since that time. This would most nearly represent an example of
a. big bath accounting.
A change from the straight-line method of depreciation to an accelerated method should be accounted for as a(n)
a. change in an accounting estimate.
In accounting for sales on consignment, sales revenue and the related cost of goods sold should be recognized by the
a. consignor when notification is received the consignee has sold the goods.
Accrued revenues would normally appear on the balance sheet as
a. current assets.
When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific customer account would
a. decrease the accounts receivable balance and decrease net income.
Generally accepted accounting principles
a. derive their credibility and authority from general recognition and acceptance by the accounting profession
An example of direct matching of an expense with revenues would be
a. direct labor costs incurred to produce inventory sold during a period.
Noncash investing and financing activities, if material, are
a. disclosed in a note or separate schedule accompanying the statement of cash flows.
In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from
a. financing activities.
Conservatism is best described as selecting an accounting alternative that
a. has the least favorable impact on owners' equity
In a statement of cash flows, payments to acquire debt instruments of other entities would typically be classified as cash outflows for
a. investing activities.
Recording the purchase price of a paper shredder (with an estimated useful life of 10 years) as an expense of the current period is justified by the
a. materiality constraint
The disclosure of accounting policies
a. may describe policies that are peculiar to the reporting company's industry.
The use of computers in processing accounting data
a. may result in the elimination of document trails used to verify accounting records
Historical cost has been the valuation basis most commonly used in accounting because of its
a. reliability.
The United States Securities and Exchange Commission
a. requires foreign companies listing their shares on U.S. stock exchanges to restate their financial statements to U.S. GAAP.
Analysis of a firm's balance sheet provides information on its liquidity, which is the ability to
a. satisfy short-term obligations.
The installment method of recognizing revenue
a. should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables.
The overall objective of financial reporting is to provide information
a. that is useful for decision making.
Cost of goods sold is equal to
a. the cost of inventory on hand at the beginning of a period plus net purchases minus the cost of inventory on hand at the end of a period.
The gross profit method of estimating inventory would NOT be useful when
a. there is a significant change in the mix of products being sold.
All of the following are a component of comprehensive income except
a. unrealized gains and losses on trading securities.
The cost recovery method is
a. used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible.
The average cost method is applicable to which of the following inventory systems?
b. Yes No
Major Co.'s adjusted trial balance at December 31, 2014, includes the following account balances: Common Stock, $3 par ............................................. $360,000 Additional Paid-In Capital........................................ 480,000 Treasury Stock, at cost .......................................... 30,000 Net Unrealized Loss on Available-for-Sale Securities ............. 12,000 Retained Earnings: Appropriated for Uninsured Earthquake Losses .. 90,000 Retained Earnings: Unappropriated ................................ 120,000 What amount should Major report as total stockholders' equity in its December 31, 2014, balance sheet?
b. $1,008,000
Assume the Abokair Corporation sold $30,000 worth of merchandise on the installment basis. The cost of the merchandise was $24,000, and collectibility of the receivable is uncertain. Collection in the current year on the account is $8,000. How much gross profit should be reported as realized?
b. $1,600
For the month of December, the records of Former Corporation show the following information: Cash received on accounts receivable .................. $ 70,000 Cash sales ............................................ 60,000 Accounts Receivable, December 1 ....................... 160,000 Accounts Receivable, December 31 ...................... 148,000 Accounts Receivable written off as uncollectible ...... 2,000 The corporation uses the direct write-off method in accounting for uncollectible accounts receivable. What are the gross sales for the month of December?
b. $120,000
The changes in account balances of the Dunedin Corporation during 2014 are presented below: Increase Assets ............................................... $133,500 Liabilities .......................................... 40,500 Common Stock ......................................... 90,000 Additional Paid-In Capital ........................... 9,000 Assuming there are no changes in retained earnings except for net income and a dividend payment of $19,500, the net income for 2014 should be
b. $13,500.
The financial statements of Mannassass Corporation for 2014 and 2015 contained the following errors: 2014 2015 Ending Inventory $14,000 overstated $20,000 understated Rent Expense $4,800 understated $6,600 overstated Assuming that none of the errors were detected or corrected, by what amount will 2014 operating income be overstated or understated?
b. $18,800 overstated
Net income for Parton Company for 2014 includes the effect of the following transactions involving the sale of fixed assets: Sales Asset Price Cost Gain/Loss X $ 20,000 $ 80,000 $ 10,000 Y 35,000 $ 150,000 $ (28,000) Purchases of fixed assets during 2014 amounted to $340,000. The Accumulated Depreciation account increased $40,000 during 2014. How much was depreciation expense for 2014?
b. $197,000
Silken Corp. reported net income of $420,000 for 2014. Changes occurred in several balance sheet accounts as follows: Equipment ................................. $35,000 increase Accumulated depreciation .................. 56,000 increase Note payable .............................. 42,000 increase Additional information: · During 2014, Silken sold equipment costing $35,000, with accumulated depreciation of $16,800, for a gain of $7,000. · In December 2014, Silken purchased equipment costing $70,000 with $28,000 cash and a 12% note payable of $42,000. · Depreciation expense for the year was $72,800. In Silken's 2014 statement of cash flows, net cash used in investing activities should be
b. $2,800.
Carter Appliance Center sells washing machines that carry a three-year warranty against manufacturer's defects. Based on company experience, warranty costs are estimated at $60 per machine. During the year, Carter sold 48,000 washing machines and paid warranty costs of $340,000. In its income statement for the year ended December 31, Carter should report warranty expense of
b. $2,880,000.
Tussle Company began operations on January 1, 2014, and appropriately uses the installment method of accounting. The following data are available for 2014 and 2015: 2014 2015 Installment sales ...................... $1,200,000 $1,500,000 Cash collections from: 2014 sales ........................... 400,000 500,000 2015 sales ........................... -- 600,000 Gross profit on sales .................. 30% 40% The realized gross profit for 2015 is
b. $390,000.
An analysis and aging of accounts receivable of the Gibson Company at December 31, 2014, showed the following: Accounts Receivable ................................... $800,000 Allowance for Doubtful Accounts (before adjustment) ................................ 36,000 (cr) Accounts estimated to be uncollectible ............... 76,800 Compute the net realizable value of the accounts receivable of Gibson Company at December 31, 2014.
b. $723,200
A gain on the sale of a plant asset in the ordinary course of business should be presented in a statement of cash flows prepared using the indirect method as
d. a deduction from net income.
During 2014, Stewart Company reported revenues on an accrual basis of $70,000. Accounts receivable decreased during the year from $35,000 at the beginning to $24,500 at the end. How much cash was provided by collections from customers during the year?
b. $80,500
Caribou Corporation shows the following balances: Beginning of Year End of Year Inventory $80,000 $72,500 Accounts payable 40,000 30,000 Caribou paid suppliers $100,000 during the year. What is Caribou's cost of goods sold for the year?
b. $97,500
For a given year, beginning and ending total liabilities were $8,400 and $10,000, respectively. At year-end, owners' equity was $26,000 and total assets were $2,000 larger than at the beginning of the year. If new capital stock issued exceeded dividends by $2,400, net income (loss) for the year was apparently
b. ($2,000).
Which of the following services offered by investment firms have some states declared to be incompatible with generating forecasts of company earnings? 1. Assisting a firm in an initial public offering in determining a preliminary offering price. 2. Assisting a firm in an initial public offering in determining the number of shares to be sold. 3. Agreeing to buy the entire issue of stock in an initial public offering and reselling the stock to investors. 4. Agreeing to put forth the firm's best effort to sell the entire issue of stock in an initial public offering.
b. 1, 2, 3, and 4
In calculating a company's accounts receivable turnover, which of the following sets of factors would be used?
b. Average accounts receivable and net credit sales
Which of the following is an item that is reportable in the financial records of an enterprise?
b. Changes in inventory costing methods
Which of the following elements of financial statements is not a component of comprehensive income?
b. Distributions to owners
Which of the following would NOT be reported in the stockholders' equity section of the balance sheet?
b. Dividends declared on preferred stock
Which of the following will occur when inventory costs are decreasing?
b. FIFO will result in lower net income and lower ending inventory than will LIFO.
Which of the following would typically be considered a source document?
b. Invoice received from seller
Which of the following statements is true?
b. LIFO is the only inventory method that must be used for financial reporting purposes if used for tax purposes.
Which of the following would NOT be classified as a current liability on a classified balance sheet?
b. Mandatory redeemable preferred stock
Which of the following would NOT be considered an element of working capital?
b. Organization costs
The following private-sector organization was created by the Sarbanes-Oxley Act of 2002 to perform required audits on U. S. publicly traded companies:
b. Public Company Accounting Oversight Board
Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of $27,000 on credit. The entry to record the receipt of the cattle would be
b. Purchases ........................... 27,000 Accounts Payable .................. 27,000
Which of the following is not a cash inflow from investing activities?
b. Receipts from issuance of equity instruments of the enterprise
Which of the following statements regarding discontinued operations is true?
b. The assets and liabilities of a disposal group of an entity must be shown separately in the asset and liabilities sections of the balance sheet of the entity and cannot be offset.
Which of the following is NOT an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting?
b. The construction period can be reasonably estimated.
Which of the following is NOT correct?
b. The operating cycle always is one year in duration.
Which of the following is NOT a difference between the percentage-of completion and completed-contract methods of accounting for long-term construction contracts?
b. They cause a different cash inflow during the construction period.
When using the periodic inventory method, which of the following generally would NOT be separately accounted for in the computation of cost of goods sold?
b. Trade discounts applicable to purchases during the period
A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue. The journal entry to correct this error would be
b. a debit to Sales Revenue and a credit to Accounts Receivable.
Franchise fees are properly recognized as revenue
b. after the franchiser has substantially performed its service.
A company that changes from the declining-balance method of depreciation for previously recorded assets to the straight-line method should report the change as a(n)
b. change in accounting estimate.
A single-step income statement is a format that
b. combines revenues and gains and subtracts from them expenses and losses, resulting in income from operations.
If the balance shown on a company's bank statement is less than the correct cash balance, and neither the company nor the bank has made any errors, there must be
b. deposits in transit.
The GAAP Oval best represents the
b. flexibility managers have within GAAP to report one earnings number from among many possibilities.
All of the following would appear on a single-step income statement except
b. gross profit.
The amount of income reported for tax purposes
b. may differ from the amount of income determined for financial reporting purposes.
The operating cycle
b. measures the time elapsed between cash disbursement for inventory and cash collection of the sales price.
If the replacement cost of a unit of inventory has declined below original cost, but the replacement cost exceeds net realizable value, the amount to be used for purposes of inventory valuation is
b. net realizable value.
An accrued expense can be described as an amount
b. not paid and matched with earnings for the current period.
Failure to record depreciation expense at the end of an accounting period results in
b. overstated assets.
The amount reported as "Cash" on a company's balance sheet normally should exclude
b. postdated checks that are payable to the company.
Net realizable value can be defined as
b. selling price less costs to complete and sell.
A company providing maintenance services on equipment for a fixed periodic fee would recognize
b. service revenue over the fixed period by the straight-line method.
Goods on consignment should be included in the inventory of
b. the consignor but not the consignee.
The responsibility to review the work of the accountants and issue opinions as to the fairness of the financial statements rests with
b. the external auditor
The gross profit method of inventory valuation is NOT valid when
b. the gross margin percentage changes significantly during the year.
Total net income over the life of an enterprise is
b. the same under the cash basis as under the accrual basis.
Accounts receivable usually are factored
b. without recourse on a notification basis.
Highlight Manufacturing Company uses a perpetual inventory system for its raw materials. The inventory records reflect a raw materials balance of $478,500 at December 31. A physical inventory taken on that date revealed raw materials of $475,750. How will the $2,750 difference affect raw materials inventory and cost of goods sold, assuming it is attributed to normal shrinkage?
c. Decrease Increase
The balance in a deferred revenue account represents an amount that is
c. No Yes
When a specific customer's account is written off by a company using the allowance method, the effect on net income and the net realizable value of the accounts receivable is
c. None None
According to the FASB's conceptual framework, comprehensive income includes which of the following?
c. Yes Yes
The LIFO inventory cost flow method may be applied to which of the following inventory systems?
c. Yes Yes
In November and December 2013, Bee Company, a newly organized newspaper publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2, 2014, issue of the newspaper. How much should Bee report in its 2013 income statement for subscription revenue?
c. $0
Songbird Corporation's trial balance included the following account balances at December 31, 2014: Accounts Payable ....................... $45,000 Bonds Payable, due 2015 ................ 75,000 Discount on Bonds Payable, due 2015 .... 9,000 Dividends Payable January 31, 2015 ..... 24,000 Notes Payable, due January 31, 2018 .... 60,000 What amount should be included in the current liability section of Songbird's December 31, 2014, balance sheet?
c. $135,000
The accounts and balances shown below were gathered from Primer Corporation's trial balance on December 31, 2014. All adjusting entries have been made. Wages Payable .................... $ 25,600 Cash ............................. 17,700 Mortgage Payable ................. 151,600 Dividents Payable ................ 14,000 Prepaid rent ..................... 13,600 Inventory ........................ 81,800 Sinking Fund Assets .............. 52,400 Short-Term Investments ........... 15,200 Premium on Bonds Payable ......... 4,600 Stock Investment in Subsidiary ... 102,400 Taxes Payable .................... 22,800 Accounts Payable ................. 24,800 Accounts Receivable .............. 36,600 The amount that should be reported as current assets on Primer Corporation's balance sheet is
c. $164,900.
The following information was taken from the 2014 financial statements of Glocken Corporation: Accounts receivable, January 1, 2014 ................. $ 108,000 Accounts receivable, December 31, 2014 ............... 152,000 Sales on account...................................... 2,190,000 Uncollectible accounts ............................... 5,000 No accounts receivable were written off or recovered during the year. If Glocken prepares a statement of cash flows using the direct method, what amount should be reported as collected from customers in 2014?
c. $2,146,000
Thomson Company's income statement for the year ended December 31, 2014, reported net income of $360,000. The financial statements also disclosed the following information: Amortization ......................................... $ 20,000 Depreciation ......................................... 60,000 Increase in accounts receivable ...................... 140,000 Increase in inventory ................................ 48,000 Decrease in accounts payable ......................... 76,000 Increase in salaries payable ......................... 28,000 Dividends paid ....................................... 120,000 Purchase of equipment ................................ 150,000 Increase in long-term note payable ................... 300,000 Net cash provided by operating activities for 2014 should be reported as
c. $204,000.
The primary measurement basis currently used to value assets in external financial statements of an enterprise is the
c. market price of the assets held by an enterprise at the date the assets were acquired (although some assets may be valued at their current selling price or net realizable value).
Based on the aging of its accounts receivable at December 31, Quanto Company determined that the net realizable value of the receivables at that date is $760,000. Additional information is as follows: Accounts Receivable at December 31 ................ $880,000 Allowance for Doubtful Accounts at January 1 ...... 128,000 (cr) Accounts written off as uncollectible during the year ............................................ 88,000 Quanto's doubtful accounts expense for the year ended December 31 is
c. $80,000.
On December 31, 2014 and 2015, Williams Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding. Additional information: Stockholders' equity at 12/31/2015 ................... $4,500,000 Net income year ended 12/31/2015 ..................... 1,200,000 Dividends on preferred stock year ended 12/31/2015 ... 300,000 Market price per share of common stock at 12/31/2015 . 144 The price-earnings ratio on common stock at December 31, 2015, was
c. 16 to 1.
Which of the following accounting changes requires the restatement of financial statements presented for prior years?
c. A change from the LIFO to the FIFO inventory valuation method
Which of the following is true regarding the weighted-average cost of capital?
c. A company may have two weighted-average costs of capital if the firm's capital structure is so large that new common stock must be sold.
Which of the following would be considered part of the category "trade receivables"?
c. Amounts due from customers
Citrus Inc. declared and paid cash dividends of $100,000 on common stock and $75,000 on preferred stock. How would these dividends be presented in Citrus' statement of cash flows?
c. As a $175,000 reduction in cash flows from financing activities
Which of the following items of the earnings management continuum is in the correct order?
c. Change in methods or estimates with little or no disclosure, non-GAAP accounting, fictitious transactions
Which of the following is NOT a basic characteristic of a system of cash control? a. Use of a voucher system b. Internal audits at irregular intervals c. Combined responsibility for handling and recording cash d. Daily deposit of all cash received
c. Combined responsibility for handling and recording cash
Which of the following is true?
c. Companies can raise common equity by issuing new shares of common stock and through retained earnings.
Which of the following would NOT be included in the cost of work in process inventory?
c. Depreciation on office equipment in the sales manager's office
Which of the following would NOT be reported for capital stock in the contributed capital section of a classified balance sheet?
c. Dividends per share
Iowa Cattle Company uses a perpetual inventory system. Iowa purchased cattle from Big D Ranch at a cost of $19,500, payable at time of delivery. The entry to record the delivery would be
c. Inventory ........................... 19,500 Cash .............................. 19,500
Which of the following is an appropriate computation for return on investment?
c. Net income divided by total assets
If ending inventory on December 31, 2014, is overstated by $40,000, what is the effect on net income for 2015?
c. Net income is understated by $40,000.
Which of the following typically involves the use of non-GAAP accounting?
c. Proforma earnings
Which of the following is typically associated with cookie jar reserves?
c. Recognizing very high bad debt expense when earnings are high
Which of the following is NOT a function of a financial analyst?
c. Serving as an investment banker for a company for which the analyst is providing research coverage
Which of the following criteria must be met before an event should be recorded for accounting purposes?
c. The event must be measurable in financial terms.
Which one of the following statements is NOT correct?
c. The responsibility of receiving merchandise and paying for it usually should be given to one person.
An example of an adjusting entry involving a deferred revenue is
c. Unearned Rental Revenue ............ xxx Rental Revenue ................... xxx
The process of establishing financial accounting standards is
c. a social process which incorporates political actions of various interested user groups as well as professional research and logic.
On a multiple-step income statement, gains or losses on sale of equipment would be shown
c. after gross profit on sales but before income from continuing operations.
Supplemental disclosures required only when the statement of cash flows is prepared using the indirect method include
c. amounts paid for interest and taxes.
If an inventory account is understated at year end, the effect will be to overstate the
c. cost of goods sold.
A company sold 10,000 shares of its own $1 par value common stock for $60,000. The entry to record the sale would include a
c. credit to common stock, $1 par value for $10,000..
Unearned rent would normally appear on the balance sheet as a
c. current liability.
Arid Company paid $1,704 on June 1, 2013, for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2013, adjusting entry is
c. debit Prepaid Insurance and credit Insurance Expense, $1,207.
Cash inflows from investing result from
c. decreases in noncash assets.
A wholesale bakery would normally recognize revenue when
c. goods are delivered to the customer.
A material loss should be presented separately as a component of income from continuing operations when it is
c. infrequent in occurrence but not unusual in nature.
In a statement of cash flows prepared using the direct method, if wages payable increased during the year, the cash paid for wages would be
c. salary expense less the increase in wages payable from the beginning to the end of the year.
When a business segment is discontinued during the year, the gain or loss on disposal
c. should be shown net of applicable income taxes.
When using the installment sales method,
c. total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale.
When a large number of individuals, using the same measurement method, demonstrate that a high degree of consensus can be secured among independent measurers, then the result exhibits the characteristic of
c. verifiability
The cost of capital is defined as the
c. weighted average of the cost of debt and equity.
The basic financial statements are listed below: (1) Balance sheet (2) Statement of retained earnings (3) Income statement (4) Statement of cash flows In which of the following sequences does the accountant ordinarily prepare the statements?
d. 3, 2, 1, 4
Accounts Receivable xxx Allowance for Uncollectible Accounts xxx This entry would be made when:
d. a previously defaulted customer pays its outstanding balance.
When a contractor determines that a contract will result in an overall loss, when should that loss be recognized within the completed-contract and percentage-of-completion methods?
d. Immediately Immediately
Entole Company began operations in 2014. During the first two years of operations, Entole made undiscovered errors in taking its year-end inventories that overstated 2014 ending inventory by $50,000 and understated 2015 ending inventory by $40,000. The combined effect of these errors on reported income is
d. overstated $50,000 understated $90,000 overstated $40,000
Purchases and sales during a recent period for Lantern, Inc. were: Purchases During the Period Sales During the Period 1st Purchase 500 units @ $2 1st Sale 600 units @ $7 2nd Purchase 1,000 units @ $3 2nd Sale 750 units @ $8 3rd Purchase 500 units @ $4 3rd Sale 500 units @ $9 4th Purchase 500 units @ $5 4th Sale 500 units @ $10 2,500 units 2,350 units Beginning inventory was 100 units at $1 each. See information for Lantern, Inc.above. Given this information, what is the ending inventory if the periodic FIFO costing alternative is used?
d. $1,250
The following changes in American Corporation's account balances occurred during 2014: Increase Assets ............. $267,000 Liabilities ........ 81,000 Capital Stock ...... 198,000 American paid dividends of $39,000 during the year. There were no changes in Retained Earnings for 2014 except dividends and net income. What was American's net income for 2014?
d. $27,000
Warthog Enterprises, which began operations on January 1, appropriately uses the installment method of accounting. The following information is available for its first year: Gross profit on sales ................................. 40% Deferred gross profit at December 31 .................. $120,000 Cash collected, including down payments ............... $225,000 What is the total amount of Warthog's installment sales for the first year?
d. $525,000
Abe Company sold merchandise on credit to Bee Company for $1,000 on July 1, with terms of 2/10, net /30. On July 6, Bee returned $200 worth of merchandise claiming the materials were defective. On July 8, Abe received a payment from Bee and credited Accounts Receivable for $350. On July 24, Bee Company paid the remaining balance on its account. See Abe Company information above. How much was the total Sales Discounts given to Bee during July?
d. $7
Sandy Corporation uses the allowance method of accounting for uncollectible accounts. During 2014, Sandy had charged $80,000 to Bad Debt Expense, and wrote off accounts receivable of $90,000 as uncollectible. What was the amount of the decrease in working capital as a result of these entries?
d. $80,000
On May 1, 2014, Lavender Construction Company entered into a fixed-price contract to construct an apartment building for $3,000,000. Lavender appropriately accounts for this contract under the percentage-of-completion method. Information relating to the contract is as follows: 2014 2015 At December 31: Percentage of completion ........ 20% 60% Estimated costs at completion ... $2,250,000 $2,400,000 Income recognized (cumulative) .. $ 150,000 $ 360,000 What is the amount of contract costs incurred during the year ended December 31, 2015?
d. $990,000
Information from Brian Company's balance sheet is as follows: Current assets: Cash ............................................ $ 1,200,000 Investment securities ........................... 3,750,000 Accounts receivable ............................. 28,800,000 Inventories ..................................... 33,150,000 Prepaid expenses ................................ 600,000 Total current assets ............................ $67,500,000 Current liabilities: Notes payable ................................... $ 750,000 Accounts payable ................................ 9,750,000 Accrued expenses ................................ 6,250,000 Income taxes payable ............................ 250,000 Payments due within one year on long-term debt .. 1,750,000 Total current liabilities ....................... $18,750,000 What is Brian's current ratio?
d. 3.60 to 1
The amortization of a bond premium can correctly be presented in the statement of cash flows in which of the following ways?
d. A negative adjustment to net income in determining cash flows from operating activities
Which of the following is true about a pro forma earnings number?
d. A pro forma earnings number is regular GAAP earnings with certain exclusions.
Which of the following is true regarding Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," accounting and reporting standards for discontinued operations?
d. A test for, and recognition of, an impairment loss would be necessary for a component that had not been sold by year-end if the fair value of the component was determined to be less than the book value.
Which of the following factors are used to compute the number of days' sales in accounts receivable?
d. Accounts receivable turnover and 365 days
Which of the following is NOT an implication of the going-concern assumption?
d. Amortizing research and development costs over multiple periods is justifiable and appropriate.
Which of the following accounts is not affected when an account receivable written off as uncollectible is unexpectedly collected?
d. Bad Debt Expense
Which of the following is not classified as a cash outflow from operating activities?
d. Cash payments to stockholders for dividends
Which of the following typically is NOT associated with a change in estimate for accounting purposes?
d. Change in calculating depreciation from straight-line to sum-of-the-years'-digit
When valuing raw materials inventory at lower of cost or market, what is the general meaning of the term "market"?
d. Current replacement cost
Which of the following is not a source of cash?
d. Declaration of a cash dividend to be paid in the next accounting period
Which of the following would be subtracted from net income when using the indirect method to derive net cash flows from operating activities?
d. Decrease in salaries and wages payable
Which of the following is true?
d. Earnings under the accrual basis is superior to cash flow data in predicting long-term performance of an entity.
Operations of the FASB are overseen by the:
d. Financial Accounting Foundation
Which of the following organizations has recommended that entities provide a reconciliation to GAAP net income whenever reporting proforma numbers?
d. Financial Executives International
Which of the following is the SEC authorized by Congress to do? I. Monitor the standard-setting process of the FASB II. Set accounting standards III. Investigate and punish cases of deceptive financial reporting
d. I, II, and III
Which of the following would NOT be classified as a current asset on a classified balance sheet?
d. Intangible assets
Which of the following would NOT be reported as inventory?
d. Machinery acquired by a manufacturing company for use in the production process
What is the accounting principle underlying the recognition of an estimated liability for warranties in the period of product sale?
d. Matching
If the completed-contract method is used, what is the basis for determining the income to be recognized in the second year of a three-year contract?
d. No income would be recognized in year 2
Which of the following is true? The results of operations of a component of an entity that either has been disposed of or classified as held for sale shall be reported in discontinued operations if:
d. Only I is true.
Which of the following is true regarding the accounting process?
d. Preparation of the trial balance determines that total debits equal total credits.
Which of the following earnings management techniques is frequently associated with start-up companies?
d. Recognizing revenue when a contract is signed and before goods are delivered or services are provided.
Financial statement elements relating to income are defined in FASB Concepts Statement 6 as follows:
d. Revenues are inflows or other enhancements of assets or settlements of liabilities from ongoing major or central operations.
Primary responsibility for GAAP and public reporting currently rests with the
d. SEC
Which of the following accounts would NOT be affected if a company failed to report returns of merchandise sold?
d. Sales allowances
Most companies that engage in earnings management typically do NOT go beyond which of the following activities on the earnings management continuum?
d. Strategic matching
When comparing the allowance method of accounting for bad debts with the direct write-off method, which of the following is true?
d. The allowance method is less exact but it better illustrates the matching principle.
Which of the following best describes the condition(s) that must be present for the recognition of revenue?
d. The revenue must be earned, measurable, and collectible.
When comparing the percentage-of-completion and completed-contract methods of accounting for long-term construction contracts, both methods will report the same
d. balances each period in the Progress Billings account.
When financial reports from two different companies have been prepared and presented in a similar manner, the information exhibits the characteristic of
d. comparability
The allowance for doubtful accounts is an example of a(n)
d. contra account.
"Purchased in-process research and development" is typically associated with
d. creative acquisition accounting.
When the current year's ending inventory amount is overstated, the
d. current year's net income is overstated.
A conceptual framework of accounting should
d. define the basic objectives, terms, and concepts of accounting.
The International Accounting Standards Board was formed to
d. develop worldwide accepted accounting standards
Estimation of uncollectible accounts receivable based on a percentage of sales
d. emphasizes measurement of bad debt expense.
The assumed continuation of a business entity in the absence of evidence to the contrary is an example of the accounting concept of
d. going concern
American Corporation purchased a 3-month U.S. Treasury bill. In preparing American's statement of cash flows, this purchase would
d. have no effect.
The practice of carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next is called
d. income smoothing.
The plan of organization and all the methods and measures adopted within a business to safeguard its assets, check the accuracy of its accounting data, promote operational efficiency, and encourage adherence to managerial policies is called a. accounting control. b. administrative control. c. managerial control. d. internal control
d. internal control.
A contingent liability should be recorded when
d. it is probable that a liability has been incurred even though the amount of the loss cannot be reasonably estimated.
The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet, is an application of the
d. matching principle.
On June 30, a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31:
d. overstates both owners' equity and assets.
Corbin Company has two checking accounts. A special account is used for the weekly payroll only, and the general account is used for all other disbursements. Every week, a check in the amount of the net payroll is drawn on the general account and deposited in the payroll account. The company maintains a $5,000 minimum balance in the payroll account. On a monthly bank reconciliation, the payroll account should
d. reconcile to $5,000.
During periods of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system would
d. result in the same ending inventory as a periodic inventory system.
Under the general rule of revenue recognition, revenue is recognized when
d. the earnings process is complete, and a valid promise of payment has been received.
The transaction approach to determining income is a concept in which
d. the financial statement effects of business events are classified as revenues, gains, expenses, and losses, which are used to measure and define income.
The use of the gross profit method assumes
d. the relationship between selling price and cost of goods sold is similar to prior years.
Earnings management through strategic matching is best exemplified by
d. timing transactions such that large one-time gains and losses occur in the same quarter.
A trial balance is useful because it indicates that
d. total debits equal total credits.
