Accounting Exam 1

Inflows or other enhancements of assets or settlements of its liabilities that constitute the entity's ongoing major or central operations:

Revenues

In preparing a statement of cash flows, what transactions would be considered an investing activity?

Sale of equipment at book value

Pay into to replace assets

Sinking Fund

A list of each account and its balance; used to prove equality of debit and credit balances.

Trial Balance

GAAP is more detailed or rules-based True or False

True

Assume ABC Company deposits $90,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually. How much will ABC have in the account after five years if interest is reinvested? a. $120,953. b. $90,000. c. $117,000. d. $120,442.

a. $120,953. (90,000 X 1.34392)

James leases a ski chalet to his best friend, Janet. The lease term is five years with $30,000 annual payments due at the beginning of each year. What is the present value of the payments discounted at 8% per annum? a. $129,364. b. $119,782. c. $114,519. d. $108,732.

a. $129,364. (30,000 X 4.31213)

For Randolph Company, the following information is available: Capitalized leases $560,000 Copyrights 240,000 Long-term receivables 210,000 In Randolph's balance sheet, intangible assets should be reported at a. $240,000. b. $210,000. c. $800,000. d. $770,000.

a. $240,000.

Ortiz Co. had the following account balances: Sales revenue $ 440,000 Cost of goods sold 220,000 Salaries and wages expense 30,000 Depreciation expense 60,000 Dividend revenue 12,000 Utilities expense 24,000 Rent revenue 60,000 Interest expense 36,000 Sales returns and allow. 33,000 Advertising expense 39,000 What would Ortiz report as total revenues in a single-step income statement? a. $479,000 b. $ 70,000 c. $472,000 d. $512,000

a. $479,000 Sales revenue minus sales returns and allowances plus dividend revenue and rent revenue

Korte Company reported the following information for 2017: Sales revenue $2,500,000 Cost of goods sold 1,750,000 Operating expenses 275,000 Unrealized holding gain on available-for-sale securities 85,000 Cash dividends received on the securities 10,000 For 2017, Korte would report comprehensive income of a. $570,000. b. $560,000. c. $485,000. d. $85,000.

a. $570,000. (2,500,000-1,750,000-275,000+85,000+10,000)

What amount should an individual have in a bank account today before withdrawal if $9,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.) a. $9,000 + ($9,000 × 0.909) + ($9,000 × 0.826) + ($9,000 × 0.751) b. $9,000 ÷ 0.683 × 4 c. ($9,000 × 0.909) + ($9,000 × 0.826) + ($9,000 × 0.751) + ($9,000 × 0.683) d. $9,000 ÷ 0.909 × 4

a. $9,000 + ($9,000 × 0.909) + ($9,000 × 0.826) + ($9,000 × 0.751) (9,000+(9,000 X .909) + (9,000 X .826) + (9,000 X .751))

What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income? a. Delay shipments and sales to customers until after the end of the fiscal year. b. Relax credit policies for customers. c. Pay suppliers all amounts owed. d. Delay purchases from suppliers until after the end of the fiscal year

a. Delay shipments and sales to customers until after the end of the fiscal year.

Which of the following is not a generally practiced method of presenting the income statement? a. Including prior period adjustments in determining net income b. The multiple-step income statement c. The consolidated statement of income d. Including gains and losses from discontinued operations of a component of a business in determining net income

a. Including prior period adjustments in determining net income

What is the primary difference between an ordinary annuity and an annuity due? a. The timing of the periodic payment. b. The interest rate. c. Annuity due only relates to present values. d. Ordinary annuity only relates to present values.

a. The timing of the periodic payment.

What is the purpose of information presented in notes to the financial statements? a. To provide disclosure required by generally accepted accounting principles b. to correct improper presentation in the financial statements c. to provide recognition of amounts not included in the totals of the financial statements d. to present management's responses to auditor comments

a. To provide disclosure required by generally accepted accounting principles

Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical cost are more: a. Verifiable b. Relevant c. Indicative of the entity's purchasing power d. Conservative

a. Verifiable

17. How do these prepaid expenses expire? Rent Supplies a. With the passage of time through use and consumption b. With the passage of time with the passage of time c. Through use and consumption through use and consumption d. Through use and consumption with the passage of time

a. With the passage of time through use and consumption

For Mortenson Company, the following information is available: Cost of goods sold $390,000 Dividend revenue 15,000 Income tax expense 36,000 Operating expenses 138,000 Sales revenue 600,000 In Mortenson's single-step income statement, gross profit a. should not be reported. b. should be reported at $51,000. c. should be reported at $210,000. d. should be reported at $225,000.

a. should not be reported.

The failure to properly record an adjusting entry to accrue an expense will result in an a. understatement of expenses and an understatement of liabilities b. understatement of expenses and an overstatement of liabilities c. understatement of expenses and an overstatement of assets d. overstatement of expenses and an understatement of assets

a. understatement of expenses and an understatement of liabilities

What would you pay for an investment that pays you $40,000 at the beginning of each year for the next ten years? Assume that the relevant interest rate for this type of investment is 10%. a. $245,780. b. $270,361. c. $259,804. d. $285,784.

b. $270,361. (40,000 X 6.75902)

Keisler Corporation reports: Cash provided by operating activities $280,000 Cash used by investing activities 110,000 Cash provided by financing activities 140,000 Beginning cash balance 90,000 What is Keisler's ending cash balance? a. $370,000. b. $400,000. c. $530,000. d. $620,000.

b. $400,000. (90,000+280,000-110,000+140,000)

Moorman Corporation reports the following information: Correction of understatement of depreciation expense in prior years, net of tax $ 1,290,000 Dividends declared 960,000 Net income 3,000,000 Retained earnings, 1/1/17, as reported 6,000,000 Moorman should report retained earnings, 12/31/17, at a. $4,710,000. b. $6,750,000. c. $8,040,000. d. $9,330,000.

b. $6,750,000. 96,000,000-1,290,000-960,000+3,000,000)

Ziggy is considering purchasing a new car. The cash purchase price for the car is $43,100. What is the annual interest rate if Ziggy is required to make annual payments of $10,000 at the end of the next five years? a. 4%. b. 5%. c. 6%. d. 7%.

b. 5%. (43,100 / 10,000) = 4.31; 4.32948 is PV factor for 5%

Jeremy is in the process of purchasing a car. The list price of the car is $36,000. If Jeremy pays cash for the car, the dealer will reduce the price by 10%. Otherwise, the dealer will provide financing where Jeremy must pay $7,705 at the end of each of the next five years. Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments? a. 5%. b. 6%. c. 7%. d. 8%.

b. 6%. (36,000 X .90)/7,705 = 4.20506, 4.21236 is PF factor for 6%

Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank. Which time value concept would be used to determine the maturity value of the certificate? a. Present value of one. b. Future value of one. c. Present value of an annuity due. d. Future value of an ordinary annuity.

b. Future value of one.

Which of the following is false about an income statement? a. Items that cannot be measured reliably are not reported in the income statement. b. It is used to measure the solvency of a company. c. Income measurement involves judgment. d. Income numbers are affected by the accounting methods employed.

b. It is used to measure the solvency of a company.

Which of the following is an example of managing earnings down? a. Changing estimated bad debts from 3 percent to 2.5 percent of sales b. Revising the estimated life of equipment from 10 years to 8 years c. Not writing off obsolete inventory d. Reducing research and development expenditures

b. Revising the estimated life of equipment from 10 years to 8 years

The single-step income statement emphasizes: a. The gross profit figure b. Total revenues and total expenses c. Operating and non-operating expenses d. The various components of income from continuing operations

b. Total revenues and total expenses

Which of the following is included in comprehensive income? a. Investments by owners b. Unrealized gains on available for sale securities c. Distributions to owners d. Changes in accounting principles

b. Unrealized gains on available for sale securities

An adjusting entry should never include: a. a debit to an expense account and a credit to a liability account b. a debit to an expense account and a credit to a revenue account c. a debit to a liability account and a credit to a revenue account d. a debit to a revenue account and a credit to a liability account

b. a debit to an expense account and a credit to a revenue account

A separation of operating and non operating activities of a company exists in: a. both a multiple and single step income statement b. a multiple step but not a single step income statement c. a single step but not a multiple step income statement d. neither a single step or a multiple step income statement

b. a multiple step but not a single step income statement

Which of the following properly describes a deferral? a. cash is received after revenue is recognized b. cash is received before revenue is recognized c. cash is paid after expense is incurred d. cash is paid in the same time period that an expense is incurred

b. cash is received before revenue is recognized

Receivables are valued based on their: a. fair value b. estimated amount collectible c. lower-of-cost-or-market-value d. historical cost

b. estimated amount collectible

Which of the following is NOT reported in an income statement under IFRS? a. discontinued operations b. extraordinary items c. cost of goods sold d. income tax

b. extraordinary items

Which of the following is not a long-term investment? a. cash surrender value of life insurance b. franchise c. land held for speculation d. a sinking fund

b. franchise

Current assets under IFRS are listed generally: a. by importance b. in the reverse order of their expect conversion to cash c. by longevity d. alphabetically

b. in the reverse order of their expect conversion to cash

Which of the following situations does not base an accounting measure on present values? a. pensions b. prepaid insurance c. leases d. none of the above

b. prepaid insurance

What is the present value today of $15,000 to be received six years from today? a. $15,000 × 0.909 × 6 b. $15,000 × 0.751 × 2 c. $15,000 × 0.621 × 0.909 d. $15,000 × 0.683 × 3

c. $15,000 × 0.621 × 0.909 (15,000 X .621 X .909)

Items 76 through 79 apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 56 to 59 is based on 10% interest compounded annually. Present Value of $1 Periods Discounted at 10% per Period 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 56. If an individual deposits $20,000 in a savings account today, what amount of cash would be available two years from today? a. $20,000 × 0.826 b. $20,000 × 0.826 × 2 c. $20,000 ÷ 0.826 d. $20,000 ÷ 0.909 × 2

c. $20,000 ÷ 0.826 (.826 X FV = 20,000; FV = 20,000/.826)

Norling Corporation reports the following information: Net income $750,000 Dividends on common stock $210,000 Dividends on preferred stock $ 90,000 Weighted average common shares outstanding 200,000 Norling should report earnings per share of a. $2.25. b. $2.70 c. $3.30. d. $3.75.

c. $3.30. (750,000-90,000)/200,000

Sauder Corporation reports the following information: Net income $380,000 Depreciation expense 70,000 Increase in accounts receivable 30,000 Sauder should report cash provided by operating activities of a. $280,000. b. $340,000. c. $420,000. d. $480,000.

c. $420,000. (380,000+70,000-30,000)

Charlie Corp. is purchasing new equipment with a cash cost of $200,000 for the assembly line. The manufacturer has offered to accept $45,900 payments at the end of each of the next six years. What is the interest rate that Charlie Corp. will be paying? a. 8%. b. 9%. c. 10%. d. 11%.

c. 10%. (200,000 / 45,900) = 4.35730; 4.35526 is PV factor for 10%

When converting from cash-basis to accrual-basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual-basis service revenue? a. Subtract ending AR b. Subtract beginning unearned service revenue c. Add ending accounts receivable d. Add cash sales

c. Add ending accounts receivable

When a company discontinues an operation and disposes of the discontinued operation, the transaction should be included in the income statement as a gain or loss on disposal reported as: a. A prior period adjustment b. An extraordinary item c. An amount after continuing operations d. A bulk sale of plant assets included in income from operations

c. An amount after continuing operations

Which of the following is true of accounting for changes in estimates? a. A company recognizes a change in estimate by making a retrospective adjustment to the financial statements. b. A company accounts for changes in estimates only in the period of the change, even though it affects the future periods. c. Changes in estimates are not carried back to adjust prior years. d. Changes in estimates are considered as errors.

c. Changes in estimates are not carried back to adjust prior years.

Earnings per share data are required on the face of the a. Statement of retained earnings b. Statement of stockholders' equity c. Income statement d. Balance sheet

c. Income statement

Which type of account is always debited during the closing process? a. Dividends b. Expense c. Revenue d. Retained earnings

c. Revenue

Which is not a variable that is considered in interest computations? a. principal b. interest rate c. assets d. time

c. assets

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from: a. operating activities b. investing activities c. financing activities d. lending activities

c. financing activities

What amount should be deposited in a bank today to grow to $10,000 three years from today? a. $10,000 ÷ 0.751 b. $10,000 × 0.909 × 3 c. ($10,000 × 0.909) + ($10,000 × 0.826) + ($10,000 × 0.751) d. $10,000 × 0.751

d. $10,000 × 0.751 (10,000 X .751)

Charlie Corp. is purchasing new equipment with a cash cost of $300,000 for an assembly line. The manufacturer has offered to accept $68,900 payment at the end of each of the next six years. How much interest will Charlie Corp. pay over the term of the loan? a. $68,900. b. $300,000. c. $413,400. d. $113,400.

d. $113,400. (68,900 X 6) - 300,000

Kohler Company owns the following investments: Trading securities (fair value) $120,000 Available-for-sale securities (fair value) 90,000 Held-to-maturity securities (amortized cost) 94,000 Kohler will report securities in its long-term investments section of a. exactly $210,000. b. exactly $214,000. c. exactly $294,000. d. $184,000 or an amount less than $184,000, depending on the circumstances.

d. $184,000 or an amount less than $184,000, depending on the circumstances.

What would you pay for an investment that pays you $25,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%. a. $209,145. b. $1,801,310. c. $25,916. d. $186,736.

d. $186,736. (25,000 X 7.46944)

In 2017, Benfer Corporation reported net income of $210,000. It declared and paid common stock dividends of $24,000 and had a weighted average of 100,000 common shares outstanding. Compute the earnings per share to the nearest cent. a. $2.34 b. $0.48 c. $1.86 d. $2.10

d. $2.10 210,000/100,000

An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at: a. 8% for eight periods b. 2% for eight periods c. 8% for 32 periods d. 2% for 32 periods

d. 2% for 32 periods

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 the above

d. All of the above

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year? a. Daily b. Monthly c. Quarterly d. Annually

d. Annually

Which of the following is a real (permanent) account? a. Goodwill b. Service revenue c. Accounts receivable d. Both Goodwill and Accounts Receivable

d. Both Goodwill and Accounts Receivable

Which of the following is true about intraperiod tax allocation? a. It arises because certain revenue and expense items appear in the income statement either before or after they are included in the tax return. b. It is required for extraordinary items and cumulative effect of accounting changes but not for prior period adjustments. c. Its purpose is to allocate income tax expense evenly over a number of accounting periods. d. Its purpose is to relate the income tax expense to the items which affect the amount of tax.

d. Its purpose is to relate the income tax expense to the items which affect the amount of tax.

Which of the following errors will cause an imbalance in the trial balance? a. Omission of a transaction in the journal. b. Posting an entire journal entry twice to the ledger. c. Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable. d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

According to Statement of Financial Accounting Concepts No. 8, neutrality is an ingredient of the fundamental quality(ies) of: Relevance Faithful Representation a. Yes No b. Yes Yes c. No No d. No Yes

d. No Yes

Debit always means a. The right side of an account b. An increase c. A decrease d. None of the above

d. None of the above

On December 1, 2017, Richards Company sold some machinery to Fleming Company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required four equal annual payments with the first payment due on December 1, 2017, the date of the sale. What time value of money concept is appropriate for this situation? a. Future amount of an annuity of 1 for four periods b. Future amount of 1 for four periods c. Present value of an ordinary annuity of 1 for four periods d. Present value of an annuity due of 1 for four periods.

d. Present value of an annuity due of 1 for four periods.

Which of the following statements is true about the accrual basis of accounting? a. the timing of cash receipts and disbursements is emphasized b. a minimal account of record keeping is required in accrual basis accounting compared to cash basis c. this method is used less frequently by businesses than the cash method of accounting d. revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received

d. revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received

How many members are in FASB

7 and they are full time

Which of the following statements about a trial balance in incorrect? A. It proves that all transactions have been recorded. B. Its primary purpose its to prove the mathematically equality of befit and credits after posting. C. It uncovers errors in journalizing and posting. D. It is useful in the preparation of financial statements.

A. It proves that all transactions have been recorded.

Accounts on the balance sheet are typically shown in order of decreasing: A. Liquidity B. Alphabetic order C. Value D. Date

A. Liquidity

The accounting principle of expense recognition is best demonstrated by: A. Matching effort (expense) with accomplishment (revenue) B. Not recognizing any expense unless some revenue is realized C. Recognizing prepaid rent received revenue D. Establishing an appropriation for contingencies account

A. Matching effort (expense) with accomplishment (revenue)

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

A. Timeliness

Depreciation allocates the cost of long-life assets to expense over the periods which benefits their use (useful life) A. True B. False

A. True

Revenues recorded for services performed but cash has yet to be received at the statements date are _______.

Accrued Revenues

Which of the following is not a basic element of financial statements? A. Assets B. Balance Sheet C. Losses D. Revenue

B. Balance Sheet

Financial information that is better provided, or can only be provided, by means of financial reporting other than formal financial statements included all of the following except: A. News release B. Cash flow information C. Management's forecasts D. President's letter

B. Cash flow information

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

B. Going concern assumption

Accrual accounting is used because: A. Cash flows are considered less important B. It provides a better indication of a company's ability to generate cash flows than the cash basis. C. It recognizes revenues when cash is received and expenses when cash is paid. D. It provides past ability to generate negative cash flows.

B. It provides a better indication of a company's ability to generate cash flows than the cash basis.

_______is the process of transferring the accounts and amounts from the book of original entry to the lever accounts. A. Journalizing B. Posting C. Closing D. Ledgerizing

B. Posting

Which of the following is a fundamental quality of useful accounting information? A. Comparability B. Relevance C. Neutrality D. Materiality

B. Relevance

In classifying the elements of financial statements, the primary distinction between revenue and gain is: A. The materiality of the amounts involved B. The nature of the activities that gave ride to the transaction involved C. When the cash entered the organization D. The costs versus the benefits of the alternative methods of disclosing the transaction involved

B. The nature of the activities that gave ride to the transaction involved

Which of the following is an incorrect depiction of the accounting equation? A. Assets = Liabilities + Stockholder's Equity B. Assets - Stockholder's Equity = Liabilities C. Assets + Stockholder's Equity = Liabilities D. Assets - Liabilities = Stockholder's Equity

C. Assets + Stockholder's Equity = Liabilities

Which of the following is not a recordable event or time? A. Sales of the company's products in overseas market.s B. Declaration of dividends C. Changes in managerial policy D. Purchase of supplies

C. Changes in managerial policy

Issuance of common stock for cash affects which basic element of financial statements? A. Revenues B. Losses C. Equity D. Liabilities

C. Equity

According to the FASB conceptual framework, which of the following elements describes transactions or events that affect a company during a period of time? A. Assets B. Equity C. Expenses D. Liabilities

C. Expenses

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

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

Which accounting assumption or principle is being violated if a company provides financial reports only when it introduces a new product? A. Economic equity B. Revenue recognition C. Periodicity D. Full disclosure

C. Periodicity

Each of the following are true of the SEC except that: A. It is a federal agency. B. The SEC's involvement in the development of accounting standards varies. C. The FASB relies on the SEC to develop accounting standards. D. The SEC requires registrants to adhere to GAAP.

C. The FASB relies on the SEC to develop accounting standards.

When a corporation purchases a computer for cash, A. Liabilities incresae B. Stockholder's Equity decreases C. The account cash will be credited D. Assets increase

C. The account cash will be credited.

The correct order to present current assets is?

Cash, accounts receivable, inventories, prepaid items

If the sum of credit entries are GREATER than the sum of debit entries, the account will have a ________ balance?

Credit

Which of the following organizations has been responsible for setting U.S. accounting standards? A. The Accounting Principles Board B. The Committee on Accounting Procedure C. The Financial Accounting Standards Board D. All of the above

D. All of the above

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

D. FASB

All of the following are true regarding IFRS except? A. The adoption of IFRS by U.S. companies would make it easier to compare them with foreign companies. B. IFRS is more "principle-based" than U.S. GAAP. C. IFRS are developed by the IASB. D. IFRS includes standards referred to as international Auditing Standards (IAS)

D. IFRS includes standards referred to as international Auditing Standards (IAS)

Generally, revenue from sales should be recognized at a point when: A. Management decides to do so B. The product is available for sale to the ultimate customer C. The entire account receivable has been collected from the customer and there remains no further warranty liability D. None of the above

D. None of the above

The assumption that a company will not be sold or liquidated in the near future is known as the: A. Economic entity assumption B. Monetary unit assumption C. Periodicity assumption D. None of the above

D. None of the above

In the conceptual framework for financial reporting, what provides "the why" - the purpose of accounting? A. Recognition, measurement, and disclosure concepts, such as assumptions, principles, and constraints B. Qualitative characteristics of accounting information C. Elements of financial statements D. Objective of financial reporting

D. Objective of financial reporting

Which of the following is a fundamental quality of useful accounting information? A. Comparability B. Neutrality C. Materiality D. Relevance

D. Relevance

Which of the following depicts the proper order of activities in the accounting cycle? A. Journalizing, posting, transaction, trial balance B. Trial balance, posting, journalizing, transaction C. Transaction, posting, journalizing, trial balance D. Transaction, journalizing, posting, trial balance

D. Transaction, journalizing, posting, trial balance

If the sum of debit entries are GREATER than the sum of credit entries, the account will have a_______ balance?

Debit

Major sources of GAAP

FASB standards, interpretations, and staff positions APB opinions AICPA accounting research bulletins

Financial Statements are prepared directly from the adjusted trial balance:

Income Statement Retained Earnings Statement Balance Sheet

IFRS stands for?

International Financial Reporting Standards

What does the IASB issue?

International financial reporting standards (IFRS)

Debit always means the left or right side?

Left

The current cash debt coverage ratio is often used to asses

Liquidity