AC 324 Final

Interest is the excess cash received or repaid over and above the amount lent or borrowed. True False

True

Intraperiod tax allocation relates to the income tax expense of a fiscal period to the specific items that give rise to the amount of the tax provision. True False

True

LIFO is inappropriate where unit costs tend to decrease as production increases. True False

True

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed. True False

True

Prior period adjustments can either be added or subtracted in the Retained Earnings Statement. True False

True

Revenues and gains increase both net income and owners' equity. True False

True

Reversing entries are made at the beginning of the new accounting cycle and are the exact opposite for the related journal entry posted in the prior period. True False

True

The IAASB (International Auditing and Assurance Standards Board) works to establish high quality auditing and assurance and quality-control standards throughout the world. True False

True

The expected cash flow approach uses a range of cash flows and incorporates the probabilities of those cash flows to provide a more relevant present value measurement. True False

True

The future value of a single sum is determined by multiplying the future value factor by its present value. True False

True

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals. True False

True

Companies determine cash provided by operating activities by converting net income on an accrual basis to a cash basis. True False

True

Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year. True False

True

If ending inventory is understated, then net income is understated. True False

True

PCAOB

-regulate auditors who audit public companies -consist of CPA's `

Having multiple allowable alternatives is common when: A. facing ethical dilemmas B. balancing quality versus cost effectiveness C. dealing with conflicts between GAAP and IFRS D. trying to meet objectives of executives

A

Which of the following is a requirement of members of the Financial Accounting Standards Board? A. they must be independent of any other organization B. They are required to hold a CPA certificate C. They must be employed by the American Institute of Certified Public Accountants (AICPA) D. They must be part--time employees of FASB

A

Which of the following is the most important reasons that the APB was dissolved in 1973? A. Many of their decisions were opposed by industry, CPAs, and the government B. the private sector decided to establish its own accounting practices C. they were productive but failed to correct accounting abuses throughout their tenure D. the government could no longer fund the salaries of the board members

A

An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at A. 2% for 32 periods. B. 2% for eight periods. C. 8% for 32 periods. D. 8% for eight periods.

A. 2% for 32 periods.

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

A. Decision usefulness

The most significant current source of generally accepted accounting principles is the: A. FASB. B. APB. C. AICPA. D. SEC.

A. FASB

What is consigned inventory? A. Goods that are shipped, but title remains with the shipper. B. Goods that are sold, but payment is not required until the goods are sold. C. Goods that have been segregated for shipment to a customer. D. Goods that are shipped, but title transfers to the receiver.

A. Goods that are shipped, but title remains with the shipper

Which of the following accounts is credited in the loss method of writing-down of inventory to its net realizable value? A. Inventory B. Cost of Goods Sold C. Loss Due to Decline of Inventory to NRV D. Allowance to Reduce Inventory to NRV

A. Inventory

Which of the following is not a required component of financial statements prepared in accordance with generally accepted accounting principles? A. President's letter to shareholders B. Notes to financial statements C. Income statement D. Balance sheet

A. President's letter to shareholders

What is the "expectations gap"? A. The difference between what the public thinks the accountant should do and what the accountant thinks they can do. B. The difference between what the public thinks the accountant should do and what Congress says the accountant should do. C. The difference between what the accountant should do and what the Courts say the accountant should be doing. D. The difference between what the public thinks the accountant should not do and what the accountant knows they should do.

A. The difference between what the public thinks the accountant should do and what the accountant thinks they can do

Which of the following is not a reason the retail inventory method is used widely? A. To defer income tax liability B. For insurance information C. As a control measure in determining inventory shortages D. To permit the computation of net income without a physical count of inventory

A. To defer income tax liability

Which of the following statements best describes the purpose of closing entries? A. To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period. B. To complete the record of various transactions that were started in a prior period. C. To facilitate posting and taking a trial balance. D. To determine the amount of net income or net loss for the following period.

A. To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.

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

A. Unrealized gains on available-for-sale securities.

When should an expenditure be recorded as an asset rather than an expense? A. When future benefit exists B. Never C. Always D. If the amount is material

A. When future benefit exists

Typical contractual situations that are disclosed in the notes to the balance sheet include all of the following except A. advertising contracts B. lease obligations. C. debt covenants. D. pension obligations

A. advertising contracts

An adjusted trial balance: A. proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have been made. B. is prepared after the financial statements are completed. C. cannot be used to prepare financial statements. D. is a required financial statement under generally accepted accounting principles.

A. proves the equality of the debit balances and credit balances of ledger accounts after all adjustments have been made.

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

A. revenues, expenses, gains and losses.

The reason for eliminating the price change in inventory is: A. to measure the real increase in inventory. B. to increase the cost of inventory. C. to inflate profits of a company. D. to measure the dollar increase in inventory.

A. to measure the real increase in inventory

The organization responsible for overseeing the development of financial auditing standards is the: A. Committee on Accounting Procedure B. Public Company Accounting Oversight Board C. Accounting Standards Executive Committee D. Auditing Standards Board

B

Which of the following is a constraint in presenting financial information? A. Full Disclosure B. Cost C. Consistency D. Relevance

B. Cost

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer? A. Work-in-process B. Finished Goods C. Supplies D. Raw Materials

B. Finished Goods

Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company's stock price? A. Going concern B. Full disclosure C. Historical cost D. Expense recognition

B. Full disclosure

What is meant by comparability when discussing financial accounting information? A. Information has predictive or confirmatory value. B. Information is measured and reported in a similar fashion across companies. C. Information is reasonably free from error. D. Information is timely.

B. Information is measured and reported in a similar fashion across companies.

Which of the following is not a common disclosure for inventories? A. Inventory composition. B. Inventory location. C. Inventory financing arrangements. D. Inventory costing methods employed.

B. Inventory location

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. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors

Which of the following methods is also referred as "parking transactions"? A. Sales on installment B. Sales with buyback agreement C. Consignment sales D. Sales with high rates of return

B. Sales with buyback agreement

What is a LIFO reserve? A. Change in the LIFO inventory during the year. B. The difference between the LIFO inventory and the amount used for internal reporting purposes. C. The tax savings attributed to using the LIFO method. D. The current effect of using LIFO on net income.

B. The difference between the LIFO inventory and the amount used for internal reporting purposes

One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of the following explanations is a description of financial flexibility? A. The firm's ability to invest in a number of projects with different objectives and costs. B. The firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities. C. The nearness to cash of assets and liabilities. D. The firm's ability to pay its debts as they mature.

B. The firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities.

What best describes the time value of money? A. The interest rate charged on a loan. B. The relationship between time and money. C. Accounts receivable that are determined uncollectible. D. An investment in a checking account.

B. The relationship between time and money.

A company issuing its annual financial reports within one month of the end of the year is an example of which enhancing quality of accounting information? A. Verifiability B. Timeliness C. Understandability D. Comparability

B. Timeliness

Neutrality means that information: A. provides benefits which are at least equal to the costs of its preparation. B. cannot favor one set of interested parties over another. C. would have no impact on a decision maker. D. can be compared with similar information about an enterprise at other points in time.

B. cannot favor one set of interested parties over another.

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its: A. invoice price plus the purchase discount lost. B. invoice price less the purchase discount allowable whether taken or not. C. invoice price. D. invoice price less the purchase discount taken.

B. invoice price less the purchase discount allowable whether taken or not

Under current GAAP, inflation is ignored in accounting due to the: A. economic entity assumption. B. monetary unit assumption C. periodicity assumption. D. going concern assumption.

B. montary unit assumption

The single-step income statement emphasizes: A. operating and non-operating expenses. B. total revenues and expenses. C. the gross profit figure. D. the various components of income from continuing operations.

B. total revenues and expenses.

The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is: A. faithful representation. B. verifiability. C. neutrality. D. relevance.

B. verifiability

What is not a variable that is considered in interest computations? A. Time B. Interest rate C. Assets D. Principal

C. Assets

Which basic assumption may not be followed when a firm in bankruptcy reports financial results? A. Monetary unit assumption B. Periodicity assumption C. Going concern assumption D. Economic entity assumption

C. Going concern assumption

Which of the following is false? A. The future value of a deferred annuity is the same as the future value of an annuity not deferred. B. A deferred annuity is an annuity in which the rents begin after a specified number of periods. C. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods. D. To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period.

C. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods.

What is not due process in the context of standard setting at the FASB? A. the FASB operates in full view of the public B. Interested parties can make their views known C. No public hearings are held on proposed accounting standards D. Public hearings are held on proposed accounting standards

C. No public hearings are held on proposed accounting standards

The financial statements most frequently provided include all of the following except the: A. Income Statement B. Statement of Cash Flows C. Statement of Retained Earnings D. Balance Sheet

C. Statement of Retained Earnings

The purpose of the International Accounting Standards Board is to: A. regulate stock prices at the international level. B. develop a uniform currency in which the financial transactions occur. C. develop a single set of high-quality financial reporting standards. D. arbitrate accounting disputes between auditors and international companies.

C. develop a single set of high-quality financial reporting standards.

Preparation of merged financial statements when a parent-subsidiary relationship exists does not violate the: A. neutrality characteristic. B. comparability characteristic. C. economic entity assumption. D. relevance characteristic.

C. economic entity assumption

The residual interest in the assets of a company that remains after deducting its liabilities is called: A. distributions to owners. B. investments by owners. C. equity. D. comprehensive income.

C. equity

Making and collecting loans and disposing of property, plant, and equipment are A. financing activities. B. liquidity activities. C. investing activities. D. operating activities.

C. investing activities.

Expensing the cost of a wastebasket with an estimated useful life of 10 years when purchased is an example of the A. expense recognition principle. B. historical cost principle. C. materiality ingredient. D. consistency characteristic.

C. materiality ingredient

The IASB and the FASB are working on a joint project that has an objective of developing a conceptual framework that leads to standards that are: A. rule-based and internally consistent. B. principle-based and rigid in nature. C. principle-based and internally consistent. D. rule-based and flexible in nature.

C. principle-based and internally consistent.

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

C. profitability

A general description of the depreciation methods applicable to major classes of depreciable assets: A. is needed in financial reporting when company policy differs from income tax policy. B. is not a current practice in financial reporting. C. should be included in corporate financial statements or notes thereto. D. is not essential to a fair presentation of financial position.

C. should be included in corporate financial statements or notes thereto.

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 cash flows. D. statement of financial position.

C. statement of cash flows.

In classifying the elements of financial statements, the primary distinction between revenues and gains is: A. the materiality of the amounts involved. B. the costs versus the benefits of the alternative methods of disclosing the transactions involved. C. the nature of the activities that gave rise to the transactions involved. D. the likelihood that the transactions involved will recur in the future.

C. the nature of the activities that gave rise to the transactions involved.

The basis for classifying assets as current or noncurrent is is conversion to cash within A. the accounting cycle or one year, whichever is longer. B. the operating cycle or one year, whichever is shorter. C. the operating cycle or one year, whichever is longer D. the accounting cycle or one year, whichever is shorter.

C. the operating cycle or one year, whichever is longer

An implicit assumption of financial reporting is that: A. companies can assume that financial statement users are CPAs or business people. B. companies must know how competent their investors and creditors are, and then tailor their financial reporting to that level of competency. C. users need reasonable knowledge of business and financial accounting matters. D. financial statement prepares provide tutorials and other aids within the body of the financial statements to ensure users can comprehend the information presented.

C. users need reasonable knowledge of budiness and financial accounting matters

Under the cash-basis of accounting, revenues are recorded: A. when an accounts receivable is recorded. B. to reflect the company's potential for future cash flows. C. when the payment for goods/services is received. D. recognized when the performance obligation is fulfilled.

C. when the payment for goods/services is received.

Cailyn is looking for a broad array of information on an accounting subject. She wants as much information as possible so that she can sort through it to find what will be relevant for her many areas of research. What part of the Codification will she look at? A. sections B. paragraph C. subtopics D. topic

D

Jonas is the CFO for his company. For mor than 10 years he has been personally reviewing the company's financial statements to ensure they are correct. This was not an expectation of his position 25 years ago. What is responsible for this change? A. the formation of the PCAOB B. the expectations gap C. the ethical guidelines D. th Sarbanes-Oxley Act

D

Pam is working on changing the financial statement for the company to reflect the changes that occurred during this period. Nolan is ensuring that the financial statements he is preparing appeal to both internal and external users. What is implied here? A. Pam is following the objectives of financial reporting, whereas Nolan is following the obectives of accrual-basis accounting B. Pam is following the objectives of financial reporting, whereas Nolan is following the objectives of the entity perspective. C. Nolan is following the objectives of the entity perspective, whereas Pam is following the objectives of accrual-basis accounting. D. Nolan is following the objectives of financial reporting, whereas Pam is following the objectives of accrual-basis accounting.

D

Which of the following is true of generally accepted accounting principles? A. They change over time as the nature of the business environment changes B. They include detailed practices and procedures as well as broad guidelines of general application C. They are influenced by pronouncements of the SEC and IRS D. All of these answer choices are correct

D

__________ ratios measure how effectively a company uses its assets. A. Profitability B. Coverage C. Liquidity D. Activity

D. Activity

Which of the following should be reported for capital stock? A. The shares authorized. B. The shares outstanding. C. The shares issued. D. All of these answer choices are correct.

D. All of these answer choices are correct.

Which of the following is a source of pressure that may influence the accounting standard setting process? A. Congress B. CPA firms C. Lobbyists D. All of these answers are correct.

D. All of these answers are correct

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

D. All of these answers are correct.

The Financial Accounting Standards Board Accounting Standards Codification: A. eliminates nonessential information. B. simplifies user assess to all authoritative U.S. generally accepted accounting principles. C. does not create new GAAP. D. All of these answers are correct.

D. All of these answers are correct.

Which of the following is true about the information provided in the income statement? A. It helps in evaluating the past performance of the company. B. It helps assess the risk or uncertainty of achieving future cash flows. C. It provides a basis for predicting future performance. D. All of these answers are correct.

D. All of these answers are correct.

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

D. Discontinued operations.

International Financial Reporting Standards (IFRS) are issued by the: A. SEC (Securities and Exchange Commission). B. EITF (Emerging Issues Task Force). C. FASB (Financial Accounting Standards Board). D. IASB (International Accounting Standards Board).

D. IASB (International Accounting Standards Board)

If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,: A. an appropriation of retained earnings is necessary. B. disclosure is required only if prices have since risen substantially. C. disclosure is required only if prices have declined since the date of the order. D. this fact must be disclosed.

D. This fact must be disclosed

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

D. consistency

An inventory method which is designed to approximate inventory valuation at the lower of cost or market is: A. specific identification. B. first-in, first-out. C. last-in, first-out. D. conventional retail method.

D. conventional retail method

Valuing assets at liquidation values rather than cost is inconsistent with the: A. expense recognition principle. B. materiality constraint. C. periodicity assumption. D. historical cost principle.

D. historical cost principle

The information provided by financial reporting pertains to: A. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries B. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers C. business industries, rather than to individual enterprises or an economy as a whole or members of society as consumers D. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers

D. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers

Both merchandising and manufacturing companies normally have multiple inventory accounts. True False

False

Dividends declared on common and preferred stock are subtracted from net income in the computation of earnings per share. True False

False

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory. True False

False

In general, debits refer to increases in account balances, and credits refer to decreases. True False

False

In most situations, the gross profit percentage is stated as a percentage of cost. True False

False

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period. True False

False

The cost flow assumption adopted must be consistent with the physical movement of the goods. True False

False

The inventory turnover is computed by dividing the cost of goods sold by the ending inventory on hand. True False

False

The present value of an annuity due table is used when payments are made at the end of each period. True False

False

The rents that compromise an annuity due earn no interest during the period in which they are originally deposited. True False

False

A company that reports a discontinued operation item must report per share amounts for this item (on face of income statement or in notes to the financial statement). True False

True

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts. True False

True

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense. True False

True

help to develop and standardize financial information presented to stakeholders -10k

Security and exchange commissions (SEC)

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost. True False

True