I Hate Accounting

In what order are the following financial statements prepared: (1) balance sheet, (2) income statement, and (3) statement of stockholders' equity?

2, 3, 1

A stock dividend occurs when:

A company distributes to shareholders additional shares of its own stock.

Which of the following is not a current liability?

A note payable due in 2 years

The full set of procedures used to accomplish the measurement/communication process of financial accounting is referred to as the:

Accounting cycle

The accounting basis that records economic events that affect assets, liabilities, revenues, and expenses as they occur is referred to as ____ accounting:

Accrual-basis

A contra asset account representing the total depreciation recorded to date.

Accumulated depreciation

Which one of the following best describes the characteristics of adjusting entries?

Adjusting entries update the balances of assets and liabilities (and their related revenues and expenses).

The allowance method for uncollectible accounts

All of the answer choices are correct.

Which of the following items may be classified as nonoperating revenues and expenses?

All of the other answers are classified as nonoperating revenues and expenses.

Which of the following are included in an employer's payroll tax expense?

All of these answer choices are correct.

Which of the following expenditures should be recorded as an asset?

An addition which increases future benefits.

The equation best describing the balance sheet is:

Assets = Liabilities + Stockholders' Equity

Shares available to sell, stated in the company's articles of incorporation.

Authorized stock

Assets and liabilities

Balance sheet

Fees imposed by the bank to the company for providing routine services.

Bank service fees

Equal to the original cost of the asset minus the current balance in accumulated depreciation.

Book value

Interest expense on bonds issued at a discount or premium is calculated as the:

Carrying value times the market interest rate.

When a company collects sales tax from a customer, the event is recorded by a debit to:

Cash and a credit to Sales Tax Payable.

A list of all account names used to record transactions of a company is referred to as the:

Chart of accounts

Checks written by the company but not yet recorded by the bank.

Checks outstanding

On a bank reconciliation, what would go on the bank side?

Checks outstanding (-) and deposits outstanding.

The closing process includes which of the following?

Closing the balances of revenue, expense and dividend accounts to zero.

Which of the following is the most likely to have voting rights?

Common stock

The two categories of stockholders' equity usually found in the balance sheet of a corporation are:

Common stock and retained earnings.

The company recorded a deposit twice.

Company error

An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.

Copyright

Right side of an account.

Credit

The balance of a revenue account increases with a.

Credit

The balance on a stockholders equity account increases with a.

Credit

We can identify operating activities from income statement information and changes in:

Current asset and current liability accounts.

Left side of an account.

Debit

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

Debit Treasury Stock for $32,000.

Cash receipts received by the company but not yet recorded by the bank.

Deposits outstanding

Allocating the cost of a tangible asset over its service life.

Depreciation

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%. These bonds will sell at a price that is:

Equal to $500,000.

Which of the following is true regarding FICA taxes?

FICA taxes are paid in equal amounts by the employee and the employer.

A good example of separation of duties would be having one person collect cash from customers and account for it, while having another person order inventory and maintain control over it.

False

Collusion refers to the act of a single individual circumventing internal control procedures.

False

Effective internal controls and ethical employees ensure a company's success.

False

Once every three months, managers need to review operations to ensure that control procedures work effectively.

False

Financial accounting and reporting standards in the United States are established primarily by the:

Financial Accounting Standards Board.

The issuance of a note payable is classified in the statement of cash flows as a(n):

Financing activity.

The statement of cash flows reports cash flows from the activities of:

Financing, investing, and operating.

Payment for the exclusive right to use the company's name and to sell its products within a specified geographical area.

Franchise

The body of rules and procedures that guide the measurement and communication of financial accounting information in the United States is known as:

Generally Accepted Accounting Principles (GAAP).

The purchase price of a company less the fair value of the net assets acquired.

Goodwill

What is the formula for goodwill?

Goodwill=Purchase Price−Fair Value of Net Assets

Revenues and expenses

Income statement

Receiving cash from an account receivable:

Increases one asset and decreases another asset.

Separation of duties refers to:

Individuals who have physical responsibility for assets should not also have access to accounting records.

Shares that have been sold to investors.

Issued stock

Chronological record of all transactions.

Journal

Format used to record transactions of a company.

Journal entry

Deferred Revenues is a(n):

Liability account.

Large stock dividends and stock splits are issued primarily to:

Lower the trading price of the stock per share.

The true interest rate used by investors to value a bond is called the:

Market interest rate.

The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should debit Stock Dividends for an amount equal to the:

Market value of the shares issued.

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is:

More than $500,000.

On a bank reconciliation, what would go on the company side?

NSF check from customer (-) and service fees (-)

Checks written to the company that are returned by the bank as not having adequate funds.

NSF checks from customers

Amount collected by the bank on behalf of the company in a lending arrangement.

Note collected

Shares held by investors (shares issued that have not been repurchased by the corporation).

Outstanding stock

Cash dividends are based on the number of shares:

Outstanding.

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit Stock Dividends for an amount equal to the:

Par value of the shares issued.

An exclusive right to manufacture a product or to use a process.

Patent

Shares that have preference over common stockholders to receive dividends.

Preferred stock

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the:

Principal or face amount.

A contingent liability should be reported in a company's financial statements only if the likelihood of a loss occurring is:

Probable and the amount of the loss can be reasonably estimated.

Which of the following would increase assets and increase liabilities?

Purchase office supplies on account.

The amount the company expects to receive from selling the asset at the end of its service life.

Residual value

How do you calculate net income?

Revenues - Expenses

How long the company expects to receive benefits from the asset before disposing of it.

Service life

The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

Stated rate.

Which financial statement separates business activities into operating, investing, and financing activities?

Statement of cash flows

Dividends

Statement of stockholders equity.

What is the effect of a stock dividend on total stockholders' equity?

Stockholders' equity does not change.

A simplified form of a general ledger account.

T account

The balance in retained earnings represents:

The amount of income earned over the company's life minus the dividends paid to shareholders over the company's life.

If a company issues par-value stock, the amount credited to common stock will be:

The par value per share times the number of shares issued.

The lower of cost and net realizable value rule causes losses in the value of inventory to be recognized in the period when:

The value of inventory declines below cost.

A word, slogan, or symbol that distinctively identifies a company, product, or service.

Trademark

Shares of a company's own stock that it has purchased.

Treasury stock

List of all accounts and their balances showing that debits equal credits.

Trial Balance

A lease is a contractual arrangement by which the lessor (owner) provides the lessee (user) the right to use an asset for a specified period of time.

True

Cash-basis accounting is not part of generally accepted accounting principles (GAAP).

True

Detective control procedures are designed to detect errors or fraud that have already occurred, while preventive control procedures are designed to keep errors or fraud from occurring in the first place.

True

Detective controls include reconciling the physical assets of the company with the accounting records and comparing actual performance of individuals or processes against their expected performance.

True

Employee tips historically have been the most common means of detecting employee fraud.

True

For each transaction, the total debit amounts must equal the total credit amounts.

True

Fraud committed by top-level employees is more difficult to detect because those employees more often have the ability to override internal control features.

True

Notes receivable are similar to accounts receivable but are more formal credit arrangements evidenced by a written debt instrument, or note.

True

Par value is the legal capital per share of stock that's assigned when the corporation is first established.

True

The components of internal control are built on the foundation of the ethical tone set by top management.

True

Three primary sources of long-term debt financing are notes, leases, and bonds.

True

How do you calculate the cost of goods sold?

beginning inventory + purchases - ending inventory