ACCTG 5050 Q's
Depreciation is a process by which
the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.
Net Income appears on which financial statement(s)?
the income statement, statement of cash flows and the statement of retained earnings
The accounting life of intangible assets is determined by
their legal lives or useful lives, whichever is shorter.
Which of the following concepts is important to accrual accounting?
time period, because accrual accounting divides earnings into time periods
What is the primary objective of financial reporting?
to provide useful information for decision making
A cost can be an asset or expense depending on whether or not the future economic benefits have expired.
true
For a merchandising company, the cost of goods sold is subtracted from net sales to arrive at gross profit.
true
Money market accounts with original maturities of less than 90 days are cash equivalents.
true
Most companies use the accrual basis of accounting because it is required under generally accepted accounting principles.
true
The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts receivable.
true
The expense recognition principle requires that expenses be recorded and reported in the same period as the revenue that it helped to generate.
true
The higher the accounts receivable turnover the better because it indicates that the company is more quickly collecting cash (through sales).
true
The inventory turnover ratio is a measure of how many times during a period a company sells off its inventory.
true
The inventory turnover ratio is defined as cost of goods sold divided by average inventory.
true
Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur.
true
When an expense is incurred prior to the payment of cash for that expense, an adjustment that increases an expense account and increases a liability is prepared.
true
Which one of the following items appears on a balance sheet?
unearned revenue
Under accrual accounting when is revenue recognized?
when earned, and expenses when incurred
Parlato Corp. has an inventory turnover rate of 8 times. If its cost of goods sold is $150,000, then the company
will have average inventory of $18,750 $150,000 / 8 = $18,750
Which statement presents financial information not based on accrual accounting?
Statement of Cash Flows
Which of the following best describes the term "retained earnings" of a company?
The accumulated net income of a company that has not been distributed to owners in the form of dividends.
Canterbury Cycles sells Harleys and pays each salesperson a commission of $800 for each cycle sold. During the month of December, a salesperson sold 3 cycles. The company pays commissions on the 5th day of the month following the sale. Which of the following statements is true?
The company will recognize commission expense in the amount of $2,400 in December.
Bennett Motors is facing the following business decisions. Which decision will least likely require financial information?
The company's management is deciding whether to detail its vehicles today or tomorrow.
The Statement of Cash Flows shows cash inflows and cash outflows for a period of time.
True
The classifications in the balance sheet are to help users determine how a company obtained its resources.
True
The purpose of financial reporting is to provide economic information to investors, creditors, and other financial statement users.
True
The three main business activities are financing, operating, and investing.
True
Three common categories of long-term assets are: 1) property, plant, and equipment, 2) long-term investments, and 3) intangibles.
True
Which of the following is not considered to be a cash equivalent?
U.S. Treasury bills with an original maturity of six months
A local tennis club sells season memberships for $1,000 each. During January 2019, 50 season memberships were sold. As of March 31, 2019, only $25,000 of season membership fees had been collected from customers. The tennis season runs for 6 months starting April 01, 2019. Which one of the following is an amount reported on the Balance Sheet dated March 31, 2019?
Unearned tennis membership revenue of $25,000.
Each of the following items is considered a cash equivalent except
a 180-day note issued by a local government.
Which of the following is not included in Cash and Cash Equivalents on a company's balance sheet?
a bank certificate of deposit for one year
Which one of the following is a correct fundamental accounting equation?
assets = liabilities + stockholder's equity
Which financial statement would you refer to in order to determine how much resources (assets) the company owned?
balance sheet
Which one of the following financial statements reports an entity's financial position at a specific date?
balance sheet
You are a potential creditor and are concerned that a particular company you are ready to give a loan to might have too much debt. Which financial statement would provide you information needed in order to evaluate your concern?
balance sheet
Which one of the following financial statements show the end of the year cash balance for a business entity?
balance sheet and statement of cash flows
Goodwill can be recorded as an asset when a(n)
business is purchased and payment is made in excess of the value of the net assets.
Which set of items below are current assets?
cash, accounts receivable, inventory, and office supplies
Which one of the following items is reported as a current stockholders' equity on a classified balance sheet?
common stock
Which one of the following would never be considered a cash equivalent?
common stock issued by a corporation
Which one of the following is an internal user of financial information?
company management
Which of the following is not a form of a business entity?
cooperative
In which form of organization are the owners' legal responsibility for the debt of the business limited to the amount they invested in the business?
corporation
The amount recognized on the balance sheet as the cost of inventory will ultimately be recognized as
cost of goods sold
Which of the following accounts would most likely appear on the income statement of a merchandise company, but not on the income statement of a service company?
cost of goods sold
What is the name for a person who lends funds to a business entity and expects repayment with interest?
creditor
If assets are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year), how are they reported on a classified balance sheet?
current assets
Which one of the following is not a proper method of recognizing assets as expenses in a particular accounting period?
customers' account balances in accounts receivable are assigned to expense in the period in which each customer pays
Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?
depreciation expense--buildings
Generally accepted accounting principles (GAAP) require that research and development costs to develop a new product be
expensed in the period incurred.
Accrued revenue is recognized when cash is received.
false
What is the name of the branch of accounting concerned with providing outside decision makers with information to assess the amounts, timing and uncertainties of the company's future cash flows?
financial accounting
Businesses engage in which of the following three main activity categories?
financing, inventing, operating
Eli Company Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2019. Refer to the information provided for Eli Company. If the customer pays the invoice on March 31, 2013, how much sales discount will Eli Company recognize?
$-0-
Eli Company Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2019. Refer to the information provided for Eli Company. If the customer pays the amount of the invoice for its purchase on March 14, 2019, how much cash will Eli Company receive?
$1,980 ($20 x 100 packages) - 1%($20 x 100) = 2,000 - 0.01(2,000) = 2,000 - 20 = $1,980
An insurance company received advance payments from clients during 2019 of $12,000. At December 31, 2019, $10,000 of the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2019, what will the balances be in the Unearned Insurance Revenue and Insurance Revenue accounts?
$10,000 $2,000
A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year?
$20,000
On January 1, 2019, a company reported assets of $1,000,000 and liabilities of $600,000. During 2019, assets decreased by $100,000 and Stockholders' Equity decreased $200,000. What is the amount of liabilities at December 31, 2019?
$700,000
Parlato Corp. has an inventory turnover rate of 8 times. Calculate the company's average days to sell inventory.
45.625 365 / 8 = 45.625
Which of the following best describes the term "current assets"?
Assets expected to be converted into cash within one year or one operating cycle, whichever is longer.
Which one of the following correctly represents one of the basic financial statement models?
Beginning Retained Earnings + Net Income − Dividends = Ending Retained Earnings
Flag Financial uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much shorter than 10 years, perhaps 5 years. What is the impact on earnings per share and net income of depreciating equipment over 5 years rather than 10 years?
Both earnings per share and net income will decrease.
Current assets include all of the following: cash, inventory, equipment, supplies, and accounts receivable.
False
Current liabilities are typically listed in the order in which they will be paid.
False
The ending cash balance is shown on the Balance Sheet and the Statement of Retained Earnings.
False
The income statement summarizes the assets, liabilities and stockholders' equity for a period of time.
False
The owners of a sole proprietorship, partnership and corporations have limited liability.
False
What should a company do to improve its accounts receivable turnover rate?
Give customers credit terms of 2/10, n/30 rather than 1/10, n/30
Which one of the following groups is considered an internal user of financial statements?
Managers of the company that supervise production workers
Cambridge Cleaners started business on January 1, 2019, and immediately purchased $5,000 of supplies to use in the business. At the end of the month, 30 percent of the supplies remains unpaid and 20% are still on hand. What amounts should appear as an expense on the financial statements for January?
Income Statement = $4,000 Statement of Cash Flows = $3,500 $5,000 x 0.2 = $1,000; $5,000 - $1,000 = $4,000 $5,000 x 0.3 = $1,500; $5,000 - $1,500 = $3,500
Which of the following statements is false regarding the reason that inventory costs are recorded as expenses when sold rather than when incurred?
It gives the company's accounting personnel more time to record inventory transactions.
Coffski, Inc. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10th; credit terms were 1/10, n/30. Which of the following statements is true?
The customer should pay $1,000 if the invoice is paid on July 9th.
The Allowance for Doubtful Accounts represents:
The difference between the recorded value of accounts receivable and the net realizable value of accounts receivable
How are cash equivalents reported or disclosed in the financial statements?
They are included with cash as a current asset on the balance sheet.
Creditors use accounting information to evaluate whether to loan money to a company.
True
Dividend payments appear on the Statement of Retained Earnings.
True
Net loss reduces a company's retained earnings balance.
True
One primary purpose of a classified balance sheet is to help users evaluate the working capital of a company.
True
Stockholders equity is composed of contributed capital and retained earnings.
True
Expenses should be matched against revenue
in the same period as the revenue that they helped generate
Which financial statement would you analyze to assess a firm's operating performance for the past year?
income statement
Which statement summarizes the results of the company's operations?
income statement
"Revenues" are best described as
increases in assets resulting from the sale of products or services
Which of the following situations violates the matching principle during 2019 for a real estate company that pays it's agents on commission?
insurance expense is recognized for the total cost of a 1-year policy purchased in July 2019.
Operating assets with no physical properties are called
intangible assets
What is unearned revenue?
liability
Which of the following are Noncurrent assets?
machinery and equipment
How should intangible assets be disclosed on the balance sheet?
net of the costs already amortized
Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should
not be amortized, but should be reviewed annually for impairment.
When is revenue from the sale of merchandise normally recognized?
on the date the sale is made
Which one of the following is an example of a deferred revenue?
payments are received prior to providing the services to customers
On October 1, 2019, a company paid $9,000 rent in advance. The rent per month is $1,000. Assuming the company's accounting period ends on December 31, 2019, what will be reported on the financial statements?
prepaid Rent of $6,000 on its balance sheet at December 31, 2019
External users of financial information
rely on the financial statements to help make informed decisions.
How is the Balance Sheet linked to the other financial statements?
retained earnings is reported on the balance sheet
A company that sells merchandise to customers should normally recognize
revenue and the related expenses in the period the revenue earned, whether payment is received or not
Which one of the following items is a classification on the Classified Balance Sheet?
stockholder's equity
Which of the following invests funds into a business and is considered an owner?
stockholders
Which one of the following is not an external user of financial statements?
the Company's President
Which of the following best describes the term "expenses"?
the cost of assets used in the operation of a business
