ACCT 1220 Exam questions
On a classified statement of financial position, prepaid expenses are classified as: (a) a current liability. (b) property, plant, and equipment. (c) a current asset. (d) a long-term investment.
a current asset.
Selection of an inventory cost formula by management should be influenced most by the:
physical flow of goods
If a bond has a face value of $10,000, a 6% coupon interest rate and a 4% market interest rate, then the semi-annual interest payment will be:
$300
A measure of a company's solvency is the:
times interest earned ratio
Inventory that originally cost $11,200 was written down to its net realizable value of $9,400 at the end of 2017. At the end of 2018, the net realizable value is determined to be $11,700. At what amount should the inventory be reported on the December 31, 2018 statement of financial position?
$11,200
The measurement principle that says assets are reported at the price that would be received if the item were sold is called (a) fair value. (b) historical cost. (c) materiality. (d) going concern
(a) fair value.
A short-term creditor is primarily interested in the ___ of the borrower. (a) liquidity (b) profitability (c) comparability (d) solvency
(a) liquidity
For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?
*deposit of $300 recorded by the bank as $30
If interest is due at maturity, a $50,000, 4%, 9-month note payable requires an interest payment of:
1,500
The current assets of Mario Corporation are $420,000. The current liabilities are $300,000. The current ratio expressed as a ratio is (a) 140% (b) 1.4:1 (c) 0.7:1 (d) $420,000 ÷ $300,000
1.4:1
Which of the following statements is true? Liquidity ratios measure a company's long-term ability to pay debt. Solvency ratios measure a company's ability to repay current debt. A high liquidity ratio generally indicates that a company has a greater ability to meet its current obligations. Solvency ratios measure a company's ability to survive on a short-term basis.
A high liquidity ratio generally indicates that a company has a greater ability to meet its current obligations.
The accounting equation may be expressed as Assets = Shareholders' Equity - Liabilities. Assets = Liabilities + Shareholders' Equity. Assets + Liabilities = Shareholders' Equity. Assets + Shareholders' Equity = Liabilities.
Assets = Liabilities + Shareholders' Equity
Which of the following statements is not true? (a) Comparability means using different accounting principles from year to year within a company. (b) Faithful representation means information must be neutral, complete, and free from material error. (c) Relevant accounting information must be capable of making a difference in a user's decision. (d) For accounting information to be relevant, it must have timeliness.
Comparability means using different accounting principles from year to year within a company.
Which of the following is not a suggested procedure to establish a good control activity over cash disbursements? Blank cheques are stored with limited access. The bank statement is reconciled monthly. Pre-signed blank cheques. Different individuals approve and make payments.
Different individuals approve and make payments.
During a period of inflation, using ___ will approximate a company's current cost of ending inventory.
FIFO
Which of the following is not a financial statement element? (a) Liabilities (b) Equity (c) Expenses (d) Fair value
Fair value
Trademarks would appear in which section of the statement of financial position? (a) Shareholders' equity (b) Investments (c) Intangible assets (d) Current assets
Intangible assets
If Bee Corp. fails to adjust the Unearned Rent account for rent that has been earned, what effect will this have on that month's financial statements?
Liabilities will be overstated and revenues will be understated.
Generally, the revenue account for a merchandising company is called:
Sales revenue or Sales
Which of the following is the most appropriate definition of accounting?
The information system that identifies, records, and communicates the economic events of an organization to interested users.
Interest expense on a note payable, with interest due at maturity, is:
accrued over the life of the note.
A statement of financial position shows:
assets, liabilities, and shareholders' equity
Property, plant, and equipment are ordinarily presented on the statement of financial position:
at cost less accumulated depreciation.
The managers of Winning Ways Ltd. receive performance bonuses based on the company's net income. Which inventory cost formula are they likely to favour in periods of declining prices?
average cost
Which of the following is not normally a current liability? (a) salaries payable (b) accounts payable (c) income tax payable (d) bonds payable
bonds payable
A multiple-step income statement shows:
both gross profit and profit operations
The difference between cost and accumulated depreciation is referred to as: (a) net depreciation. (b) carrying amount. (c) fair value. (d) cost value.
carrying amount
Which of the following items affecting retained earnings during a period could be reported in the financing activities section of the statement of cash flows?
cash dividends paid only
The specific identification formula of costing inventories is used when the:
company sells a small number of expensive, easily distinguishable items
The qualitative characteristic that says the value of information should exceed the cost of preparing it is called: (a) relevance. (b) understandability. (c) cost constraint. (d) verifiability.
cost constraint
The current ratio is calculated as: (a) current assets plus current liabilities. (b) current assets minus current liabilities. (c) current assets divided by current liabilities. (d) current assets times current liabilities.
current assets divided by current liabilities.
Working capital is calculated as: (a) current assets plus current liabilities. (b) current assets minus current liabilities. (c) current assets divided by current liabilities. (d) current assets times current liabilities.
current assets minus current liabilities.
Liabilities are generally classified on a statement of financial position as: (a) small liabilities and large liabilities. (b) present liabilities and future liabilities. (c) tangible liabilities and intangible liabilities. (d) current liabilities and non-current liabilities.
current liabilities and non-current liabilities.
Which of the following would not normally be classified as a non-current liability? (a) current maturities of non-current debt (b) bonds payable (c) mortgage payable (d) lease liabilities
current maturities of non-current debt
A supplier to a company would probably be most interested in the (a) debt to total assets. (b) price-earnings ratio. (c) current ratio. (d) earnings per share
current ratio
Under the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a:
debit to the Cost of Goods Sold account
A useful measure of solvency is the (a) current ratio. (b) price-earnings ratio. (c) earnings per share. (d) debt to total assets
debt to total assets
In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is:
deducted from net income
An NSF cheque received from a customer should appear in which section of the bank reconciliation?
deduction from the balance per books
All of the following bank reconciliation items would require an adjusting entry on the depositor's books except: a bank service charge. a customer's NSF cheque. deposits in transit. interest earned.
deposits in transit
Allocating and recording the cost of using property, plant & equipment over their useful lives is called:
depreciation expense
An intangible asset: (a) derives its value from the rights and privileges it provides the company. (b) is worthless because it has no physical substance. (c) is converted into a tangible asset during the year. (d) cannot be classified on the statement of financial position because it lacks physical substance.
derives its value from the rights and privileges it provides the company.
Which of the following is not considered to be an asset? (a) equipment (b) dividends (c) accounts receivable (d) inventory
dividends
A measure of profitability is the: (a) current ratio. (b) debt to total assets ratio. (c) earnings per share. (d) working capital
earnings per share.
Which of the following is not classified as a current asset? (a) supplies (b) short-term (trading) investments (c) a fund to be used to purchase a building within the next year (d) equipment with an estimated useful life of five years
equipment with an estimated useful life of five years
A current asset is: (a) the last asset purchased by a business. (b) an asset which is not currently being used to produce a product or service. (c) usually found as a separate classification in the income statement. (d) expected to be converted to cash or used in the business within a relatively short period of time.
expected to be converted to cash or used in the business within a relatively short period of time.
If a company fails to make an adjusting entry to record Supplies Expense, then:
expenses will be understated
In general, standard setters require that most assets be recorded using historical cost because: (a) fair values may overstate assets and equity. (b) fair values may not always be representationally faithful. (c) cost often cannot be verified. (d) cost values may or may not be relevant.
fair values may not always be representationally faithful.
Accounting information should be neutral in order to enhance: (a) faithful representation. (b) materiality. (c) comparability. (d) understandability.
faithful representation
Which of the following is not a main section of the conceptual framework of accounting? (a) the objective of financial reporting (b) the going concern assumption (c) financial analysis (d) the elements of financial statements
financial analysis
Which one of the following is not a qualitative characteristic of useful accounting information? (a) relevance (b) verifiability (c) going concern (d) comparability
going concern
An asset that cannot be sold separately in the market place is:
goodwill
Of the following businesses, which one would not be likely to use the specific identification formula for inventory costing? piano store car dealership antique shop grocery store
grocery store
In order for accounting information to be relevant, it must: (a) have very little cost. (b) help predict future events or confirm prior expectations. (c) be verifiable. (d) be used by a lot of different organizations
help predict future events or confirm prior expectations.
On a classified statement of financial position, current assets are often listed: (a) in alphabetical order. (b) with the largest dollar amounts first. (c) in the order in which they are expected to be converted into cash. (d) in the order of acquisition.
in the order in which they are expected to be converted into cash.
When a company performs a service for which payment was received in advance, a journal entry is recorded that will is prepared after the financial statements are completed:
increase revenue and decrease unearned revenue
Long-lived assets without physical substance are: (a) listed directly under current assets on the statement of financial position. (b) not listed on the statement of financial position because they do not have physical substance. (c) intangible assets (d) listed as a long-term investment on the statement of financial position.
intangible assets
The partnership form of business organization is a separate legal entity:
is a common form of organization for service-type businesses.
Using the indirect method, depreciation expense for the period:
is added to net income
An advantage of the corporate form of business is that
its ownership is easily transferable via the sale of shares.
The going concern assumption is inappropriate when (a) the business is just starting up. (b) liquidation appears likely. (c) fair values are higher than costs. (d) the business is organized as a proprietorship
liquidation appears likely.
The relationship between current assets and current liabilities is important in evaluating a company's: (a) profitability. (b) liquidity. (c) fair value. (d) solvency
liquidity
An aircraft manufacturer would most likely have a:
low inventory turnover
Which of the following is not a principal type of business activity? operating investing financing marketing
marketing
The two qualitative characteristics that are defined in terms of what influences or makes a difference to a decision maker are: (a) faithful representation and materiality. (b) comparability and timeliness (c) materiality and relevance. (d) relevance and understandability
materiality and relevance.
If a company reports a loss, it:
may still have a net increase in cash.
A company can change to a new accounting principle if management can justify that the change will result in: (a) less likelihood of clerical errors. (b) higher profit. (c) lower profit for tax purposes. (d) more relevant information for decision-making.
more relevant information for decision-making.
If an asset is fully depreciated and retired for proceeds equal to its residual value:
no gain or loss on disposal will be recorded.
The use of electronic funds transfers:
normally results in better internal control
Generally, the first category shown on the statement of cash flows is cash flows provided (used) by:
operating activities
Ingles Corp., a private company reporting under ASPE, engaged in the following transactions. For each transaction, indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used. Ingles Corp. experienced a decrease in accounts receivable in the:
operating activities section
The indirect and direct methods of preparing the statement of cash flows are identical except for the:
operating activities section
Which of the following bank reconciliation items would not require an adjusting entry on the depositor's books? electronic payment on account outstanding cheques bank service charge a customer's NSF cheque
outstanding cheques
Shareholders' equity can be described as claims of:
owners on total assets.
Current liabilities are expected to be: (a) converted to cash within one year. (b) paid within one year. (c) used in the business within one year. (d) acquired within one year
paid within one year.
Independent internal reviews should be done:
periodically on a surprise basis.
Earnings per share is calculated by dividing: (a) revenue by weighted average shareholders' equity. (b) revenue by the weighted average number of common shares. (c) profit by weighted average shareholders' equity. (d) profit by the weighted average number of common shares.
profit by the weighted average number of common shares.
Long-term creditors are usually most interested in evaluating: (a) liquidity and profitability. (b) comparability and profitability. (c) profitability and solvency. (d) consistency and solvency
profitability and solvency
Office equipment is classified on the statement of financial position as: (a) a current asset. (b) property, plant, and equipment. (c) shareholders' equity. (d) a long-term investment
property, plant, and equipment.
An adjusted trial balance:
proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
The primary purpose of the statement of cash flows is to:
provide information about cash receipts and cash payments during a period.
When equipment is sold for cash, the amount received is reflected as a cash:
receipt in the investing activities section.
The most important information needed to determine if companies can pay their current obligations is the: (a) profit for this year. (b) projected profit for next year. (c) relationship between current assets and current liabilities. (d) relationship between current and non-current liabilities.
relationship between current assets and current liabilities.
An income statement:
reports the revenues and expenses for a specific period of time.
Which of the following would not be included in the determination of cash equivalents? money markets 90 day treasury bills restricted cash bank overdrafts
restricted cash
Accrued revenues are:
revenues that have not yet been received but have been earned and have been recorded for the first time by an adjusting entry.
An accounts payable clerk also has cheque signing authority. Which control procedure is violated?
segregation of duties
Inventory becomes part of the cost of goods sold when a company:
sells the inventory
A liquidity ratio measures the: (a) profit or operating success of a company over a period of time. (b) ability of a company to survive over a long period of time. (c) short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. (d) percentage of total financing provided by creditors
short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.
A weakness of the current ratio is: (a) the difficulty of the calculation (b) that it doesn't take into account the composition of the current assets. (c) that it is rarely used by sophisticated analysts. (d) that it can be expressed as a percentage, as a rate, or as a proportion
that it doesn't take into account the composition of the current assets.
A system of internal control can only provide reasonable assurance, which is based on the belief that:
the costs of establishing control activities should not be greater than their expected benefit.
As blended principal and interest payments are made on a long-term loan:
the interest portion decreases and the principal portion increases.
The price-earnings ratio is calculated by dividing: (a) the market price per share by earnings per share. (b) earnings per share by the average number of shares. (c) profit by the market price per share. (d) earnings per share by the market price per share
the market price per share by earnings per share.
The conceptual framework of accounting begins with: (a) qualitative characteristics. (b) the going concern assumption. (c) the objective of financing reporting. (d) elements of financial statements
the objective of financing reporting.
Some accounts need to be adjusted because:
they are not up to date at the time financial statements are prepared.
The debt to total assets ratio is calculated by dividing (a) non-current liabilities by total assets. (b) non-current liabilities by average assets. (c) total liabilities by total assets. (d) total liabilities by average assets
total liabilities by total assets.
In preparing the operating activities section of the statement of cash flows, most companies in Canada prefer to:
use the indirect method
Working capital is: (a) calculated by dividing current assets by current liabilities. (b) used to evaluate a company's liquidity and short-term debt paying ability (c) used to evaluate a company's solvency and long-term debt paying ability. (d) calculated by subtracting current liabilities from total assets
used to evaluate a company's liquidity and short-term debt paying ability.
If accounting information has relevance, it: (a) is not required to be complete. (b) will not have predictive value. (c) will only make a difference for internal stakeholders. (d) will make a difference in users' decisions.
will make a difference in users' decisions.
The going concern assumption assumes that the business: (a) will be liquidated in the near future. (b) will be purchased by another business. (c) is in a growth industry. (d) will remain in operation for the foreseeable future.
will remain in operation for the foreseeable future.