Quiz 6
1. When we say that accounting information is reliable, we mean that: a. It could change an investor or creditor's decision b. It is complete, free from errors, and can be verified by an objective 3rd party c. It has been audited d. You can always depend on it to put you to sleep
b. It is complete, free from errors, and can be verified by an objective 3rd party
1. Property, plant, and equipment is a: a. Current asset b. Noncurrent asset c. Liability d. Significant part of every company
b. Noncurrent asset
1. In some cases, cost of goods sold may be capitalized to the property, plant, and equipment account and expensed over time. a. True b. False
b. False
1. One similarity between Financial Accounting and Managerial Accounting is that both require the use of GAAP. a. True b. False
b. False
1. One similarity between Financial Accounting and tax accounting is that both require the use of GAAP. a. True b. False
b. False
1. The Financial Accounting Standards board is a government agency that creates accounting standards for publicly-traded companies in the United States. a. True b. False
b. False
1. Twitter is a publicly-traded company in the U.S. Therefore, Twitter must have its annual financial statements audited by one of Twitter's internal auditors. a. True b. False
b. False
1. Tiny Popcorn has the following account balances as of December 31, 2019: Cash $100 Accounts Payable $200 Accounts Receivable $400 Long-term debt $1,000 Common stock $300 Inventory $200 Retained Earnings $500 Trademark $50 Short-term investments $100 Unearned revenue $300 The amount of total current assets for Tiny Popcorn is: a. $600 b. $700 c. $750 d. $800 e. $850 f. None of the above
Cash 100 AR 400 inventory 200 Short term Investments 100 d. $800
1. Silent Earbuds has the following account balances as of December 31, 2019: Cash $500 Accounts Payable $200 Accounts Receivable $500 Long-term debt $1,000 Common stock $300 Inventory $500 Retained Earnings $200 Trademark $50 Short-term investments $500 Unearned revenue $300 The amount of total current assets for Silent Earbuds is: a. $1,500 b. $1,850 c. $2,000 d. $2,050 e. $2,300 f. None of the above
Cash 500 AR 500 Inventory 500 Short term reserve 500 c. $2,000
1. Rachna's Potato Palace has the following account balances as of December 31, 2019: Wages Payable $50 Inventory $500 Retained Earnings $150 Accounts Payable $200 Unearned Revenue $50 Accounts Receivable $500 Long-term debt $800 Cash $500 Common stock $300 Copyright $50 What is the total current assets for Rachna's Potato Palace? a. $1,000 b. $1,050 c. $1,200 d. $1,500 e. $1,550 f. $1,700 g. None of the above
Inventory 500 AR 500 Cash 500 d. $1,500
1. The Balance Sheet and Income Statement are different in that the amounts on the Balance Sheet are measured as of a specific point in time, whereas the amounts on the Income Statement refer to a specific period of time. a. True b. False
a. True
1. VeganTabulous has $900,000 in total assets and $600,000 in total stockholders' equity. How much does it have in total liabilities? a. $300,000 b. -$300,000 c. $1,500,000 d. -$1,500,000
a. $300,000
1. C3PO, Inc. had the following financial information pertaining to the year ended 12/31/19: $100,000 in Net Sales $60,000 in Cost of Goods Sold $25,000 in Selling, General, & Administrative Expense $10,000 in Nonoperating Expenses $2,000 in Income Tax Expense What was C3PO's Gross Profit? a. $40,000 b. $15,000 c. $5,000 d. $3,000
a. $40,000
1. Uncle Charlie's Snake Farm had the following financial information pertaining to the year ended 12/31/19: $100,000 in Net Sales $50,000 in Cost of Goods Sold $30,000 in Selling, General, & Administrative Expense $5,000 in Nonoperating Expenses $1,000 in Income Tax Expense What was the Gross Profit? a. $50,000 b. $20,000 c. $15,000 d. $14,000
a. $50,000
1. Tweety Pie has $700,000 in total assets and $200,000 in total stockholders' equity. How much does it have in total liabilities? a. $500,000 b. -$500,000 c. $900,000 d. -$900,000
a. $500,000
1. Cash is: a. An asset b. A liability c. A stockholders' equity account d. Some random fourth option
a. An asset
1. In class, we agreed that Coca-Cola's brand and trademark are probably its most valuable assets. Yet, Coca-Cola's Balance Sheet showed a value of only $6 billion for Coca-Cola's trademarks, which is a relatively small amount compared to Coca-Cola's other assets. The discrepancy is explained by the fact that: a. Coca-Cola's Balance Sheet values the trademarks at the amount Coca-Cola paid to register the trademarks, not the trademarks' fair market value b. Coca-Cola's Balance Sheet values the trademarks at fair market value, but fair market value is difficult to estimate c. The value of Coca-Cola's trademarks is reduced by accumulated depreciation because it will only be able to hold the trademarks for a short time window d. Millennials are the first generation to discover that Coca-Cola is just sugar water, so they gave up cola and flocked to prune juice
a. Coca-Cola's Balance Sheet values the trademarks at the amount Coca-Cola paid to register the trademarks, not the trademarks' fair market value
1. Expenses: a. Increase Net Income and increase Stockholders' Equity b. Decrease Net Income and decrease Stockholders' Equity c. Decrease Net Income, but increase Stockholders' Equity d. Occur every time a company pays cash for an asset
a. Decrease Net Income and decrease Stockholders' Equity
1. Your company owns a dump truck that requires an oil change every three months. The cost of the oil change should be: a. Expensed when incurred, thereby reducing Net Income b. Expensed when the cash is paid c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation d. Pocketed by the auto service technician, who will not record the sale and will pour bacon grease into the engine
a. Expensed when incurred, thereby reducing Net Income
1. In class, we discussed a large restructuring charge that was taken by the company First Solar. While the restructuring charge included many items, most of the restructuring charge pertained to the fact that: a. First Solar abandoned some of its manufacturing equipment so it could obtain new manufacturing equipment for building larger solar panels b. First Solar had a large amount of solar panels that it simply couldn't sell, so it needed to take an inventory writedown c. First Solar's Cost of Goods Sold was much higher than the company had anticipated, due in part to an unexpected increase in the price of silicon d. First Solar's CEO had too much to drink and drove a forklift through the factory's production line while trying to show off to the interns
a. First Solar abandoned some of its manufacturing equipment so it could obtain new manufacturing equipment for building larger solar panels
1. The Public Company Accounting Oversight Board is responsible for creating auditing standards for audits of publicly-traded companies in the U.S. a. True b. False
a. True
1. The Securities and Exchange Commission was created after the Great Depression to help restore investors' confidence in stock markets. a. True b. False
a. True
1. Assume that a company capitalizes $800,000 of expenditures that should have been expensed in the current period. This will: a. Increase Net Income in the current period, but decrease Net Income in the future b. Increase Net Income in the current period, but have no effect on Net Income in the future c. Decrease Net Income in the current period, but increase Net Income in the future d. Result in the CEO being named "Executive of the Year" by Forbes
a. Increase Net Income in the current period, but decrease Net Income in the future
1. When we say that accounting information is relevant, we mean that: a. It could change an investor or creditor's decision b. It is complete, free from errors, and could be verified by an objective 3rd party c. It has been audited d. This is a trick question; accounting information is anything but relevant
a. It could change an investor or creditor's decision
1. The unadjusted trial balance: a. Lists the ending balance for all the accounts (e.g., cash, accounts receivable) prior to any adjusting journal entries or closing entries being made b. Lists the ending balance for all the accounts (e.g., cash, accounts receivable) after the closing entries but before the adjusting journal entries have been made c. Lists all the companies' T-accounts d. Lists all the journal entries that were made
a. Lists the ending balance for all the accounts (e.g., cash, accounts receivable) prior to any adjusting journal entries or closing entries being made
1. To do well in this course, I suggested that you: a. Make flashcards to understand the concepts, do the practice exercises, and use other self-testing methods b. Glance at the solutions to the practice exercises, say "I got this," and take a nap in the basement of Olin Library c. Skip class, buy two footlong subs, and watch every season of Game of Thrones d. Read and re-read the textbook until I pass out, then go to Ted Drewes and eat one gallon of custard
a. Make flashcards to understand the concepts, do the practice exercises, and use other self-testing methods
1. A journal entry is used to: a. Record the effect of an individual transaction on a company's financial statements b. Track all the transactions that have affected an account during a period c. Keep a list of all the accounts used by a company d. Inflict pain on undergrads who can't believe they took out loans to experience this
a. Record the effect of an individual transaction on a company's financial statements
1. In our class discussion, we looked at Twitter's financial statements. These reports showed that Twitter posted a $456 million loss for its most recent year, yet Twitter generated $756 million positive cash flow from operating activities over the same time period. We determined that the most important contributor to this discrepancy was: a. Stock compensation expense b. The deferred tax asset valuation allowance c. A large investment Twitter made in a building d. Twitter's payment of a dividend
a. Stock compensation expense
In class, we discussed how the creation of accounting standards in the United States can become a political issue, with Congress occasionally getting involved. What was the example that we discussed, and for which I gave you an HBR article in a handout? a. Stock option expensing b. Asset retirement obligations c. Accounting for warranties d. Accounting for intergalactic space travel
a. Stock option expensing
1. When we say that an asset appears on the Balance Sheet at its fair market value, we mean that its Balance Sheet value represents: a. The amount someone would actually be willing to pay for the asset today in a fair, arm's length transaction b. The amount paid to purchase the asset when it was initially acquired c. The amount paid to purchase the asset, minus any accumulated depreciation d. The amount you might pay after pulling an all-night study session and drinking five cans of Red Bull
a. The amount someone would actually be willing to pay for the asset today in a fair, arm's length transaction
1. What is a 10-K? a. The annual report that publicly-traded companies in the U.S. must file with the SEC b. The annual report that all companies in the U.S. must file with the SEC c. A report that publicly-traded companies in the U.S. must file when there is a material event (e.g., a member of the Board of Directors resigns) A 6-mile race that people run in Forest Park on Saturdays
a. The annual report that publicly-traded companies in the U.S. must file with the SEC
1. The company Accounting Ninja issues shares of common stock to investors in exchange for $80,000 cash. As a result of this transaction: a. Total Assets increase; Total Stockholders' Equity increases b. Total Assets decrease; Total Stockholders' Equity decreases c. Total Assets increase; Total Liabilities increase d. The investors will regret this day for the rest of their lives
a. Total Assets increase; Total Stockholders' Equity increases
1. In class, we learned that Microsoft paid $26 billion for LinkedIn even though LinkedIn's total stockholders' equity was $4.5 billion. The discrepancy could be explained by the fact that: a. Total stockholders' equity does not tell us the actual market value of a firm b. Total stockholders' equity often overstates a firm's actual value c. LinkedIn has liabilities that have not been recorded on the Balance Sheet d. The executive team at Microsoft is incompetent and needs to be fired e. Bill Gates really does want to take over the world
a. Total stockholders' equity does not tell us the actual market value of a firm
1. Debit means left; credit means right. Also, asset accounts increase with a debit, whereas liability and stockholders' equity accounts increase with a credit. a. True b. False
a. True
1. In some cases, interest expense may be capitalized to the property, plant, and equipment account and expensed over time. a. True b. False
a. True
1. Inventory is categorized on the Balance Sheet as a current asset. a. True b. False
a. True
1. On 12/27/19, a customer calls your company and orders 5,000 energy bars. The customer promises to pay $20,000 for the energy bars when she receives an invoice from your company. On 12/28/19 the energy bars are shipped to (and received by) the customer. The customer receives the invoice on 1/2/20 and pays the invoice in full on 1/5/20. When your company is preparing its Income Statement for the year ended 12/31/19, it should include $20,000 in revenue from the sale of the energy bars. a. True b. False
a. True
1. Publicly-traded companies in the U.S. must have their annual financial statements audited by an objective 3rd party. a. True b. False
a. True
1. When an item is small enough that it would not affect the decision-making process of someone using the financial statements, we say the item is NOT material. a. True b. False
a. True
1. When an item is small enough that it wouldn't affect the decision-making process of someone using the financial statements, we say the item is NOT material. a. True b. False
a. True
1. While the CEO of a publicly-traded company typically serves on the company's board of directors, the CEO cannot serve on the audit committee. a. True b. False
a. True
1. You start a company that buys and sells cinnamon rolls. Today, you sold (and delivered) 500 cinnamon rolls to a customer, who did not pay cash but promised to pay $900 later. Your company originally paid $600 for the cinnamon rolls. Assuming that this was a legitimate sale, your accountant should debit Accounts Receivable for $900 and credit Sales Revenue for $900. In addition, your accountant should debit Cost of Goods Sold for $600 and credit Inventory for $600. a. True b. False
a. True
1. Assume that the financial statements of Snapchat are currently being audited. Which type of opinion is the CEO of Snapchat hoping will be issued? a. Unqualified opinion b. Qualified opinion c. Adverse opinion d. Disclaimer of opinion
a. Unqualified opinion
18. What is Company B's current ratio? a. 0.46 b. 1.50 c. 1.59 d. 1.72 e. 1.92
b. 1.50
1. A liability is: a. The same thing as equity b. An obligation of the firm to sacrifice resources c. Something the company owns or controls that has future economic benefit d. A roommate who watches American Idol re-runs until 3 a.m. and shouts "Yeehaw!" every time a contestant is sent home
b. An obligation of the firm to sacrifice resources
1. A liability is: a. The same thing as equity b. An obligation of the firm to sacrifice resources c. Something the company owns or controls that has future economic benefit d. An accounting professor who thinks accounting is fun
b. An obligation of the firm to sacrifice resources
1. The four major financial statements are: a. Balance Sheet, Income Statement, Statement of Cash Flows, Term Sheet b. Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Stockholders' Equity c. Balance Sheet, Income Statement, Pro Forma Statement, Statement of Stockholders' Equity d. Spring, Summer, Fall, Winter
b. Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Stockholders' Equity
1. You create your own company and go on the TV show "Shark Tank." Mark Cuban, one of the show's investors, agrees to pay $1 million in exchange for a 20% ownership stake of your company. The $1 million is: a. Debt b. Equity c. Equity and debt d. Neither equity nor debt
b. Equity
1. An engineering firm just received $500,000 cash for services it has not yet performed. Nevertheless, the firm should recognize $500,000 in revenue today because it received the cash. a. True b. False
b. False
1. In class, we discussed a recent press release about Snapchat's financial performance. This press release mentioned that: a. Snapchat posted a $2.2 billion dollar profit b. Snapchat posted a $2.2 billion dollar loss c. Snapchat is breaking even (no profit or loss) d. Snapchat sold all of its assets to focus on a new venture called Bumblr
b. Snapchat posted a $2.2 billion dollar loss
1. Your friend runs a company called Screenless Computers. The company paid $700 cash for inventory. How should your friend's accountant record this transaction? a. The "Cash" account should be debited and the "Inventory" account should be credited. Total Assets are unchanged. b. The "Inventory" account should be debited and the "Cash" account should be credited. Total Assets are unchanged. c. The "Inventory" account should be debited and the "Cash" account should be credited. Total Assets decrease by $700. d. The "Inventory" account should be debited and the "Accounts Payable" account should be credited. Total Assets increase by $700. e. It doesn't matter, this company is headed for bankruptcy
b. The "Inventory" account should be debited and the "Cash" account should be credited. Total Assets are unchanged.
1. A T-account is used to: a. Record the effect of an individual transaction on a company's financial statements b. Track all the transactions that have affected an account during a period c. Keep a list of all the accounts used by a company d. Can you just give me an A? I want to go to law school for some reason
b. Track all the transactions that have affected an account during a period
1. In class, we discussed a company called W. T. Grant that went bankrupt in the 1970's. I mentioned that the case was noteworthy because W. T. Grant's Net Income had been increasing while its cash flow from operating activities had been decreasing. The reason for the discrepancy was that: a. W. T. Grant was falsifying its sales revenue as part of a complicated financial fraud b. W. T. Grant began allowing its store managers to grant a line of credit to just about anyone who walked in the door, and many of these customers didn't pay their bill c. W. T. Grant was lying about its inventory levels for years, and was able to trick its auditors by moving inventory from warehouse to warehouse d. The CFO of W. T. Grant watched a movie about Enron, got some very bad ideas, and decided to act on them
b. W. T. Grant began allowing its store managers to grant a line of credit to just about anyone who walked in the door, and many of these customers didn't pay their bill
1.App Monster has $100 million in liabilities and $35 million in stockholders' equity. How much does App Monster have in total assets? a.$65 million b.$135 million c.This cannot be determined because there is insufficient information d.This cannot be determined because you're not allowing me to use my phone
b.$135 million
1. On January 1, 2019 your company pays $3,600 for a 12-month insurance policy. Assume the company has no other insurance policies. After all the adjusting journal entries have been made on December 31, 2019, the value of the prepaid insurance asset will be: a. $3,600 b. $3,300 c. $0 d. -$3,600
c. $0
1. A current liability is: a. Something a company owns or controls that has future economic benefit b. A prepaid insurance policy c. A liability that will be due within one year or the length of the operating cycle, whichever is longer d. A liability that will not become due for many years into the future
c. A liability that will be due within one year or the length of the operating cycle, whichever is longer
1. The Chart of Accounts is: a. A list of journal entries made for a particular account b. A list of all the company's T-accounts c. A list of all the account titles used by a firm; it is different for each company d. A list of all the account titles used by a firm; it is the same for each company
c. A list of all the account titles used by a firm; it is different for each company
1. In class, we discussed how Twitter has not earned a profit. When we looked at Twitter's Statement of Stockholders' Equity, which of the following accounts did we see? a. Cash b. Retained Earnings c. Accumulated Deficit d. Inventory
c. Accumulated Deficit
1. Naked and Afraid Jungle Adventures has been in business for many years. On its Balance Sheet as of 12/31/18, the company reported Retained Earnings of $100,000. During the next year of operations, the company reported a $270,000 Net Loss and did not declare or issue any dividends. If you looked at the company's Balance Sheet as of 12/31/19 you would see: a. Retained Earnings of $370,000 b. Retained Earnings of zero c. Accumulated Deficit of $170,000 d. Accumulated Deficit of $370,000
c. Accumulated Deficit of $170,000
1. You have been hired as an analyst, and your boss asks you how much inventory Intel has. To find this information, you would go to Intel's: a. Income Statement b. Statement of Cash Flows c. Balance Sheet d. New Year's Eve party
c. Balance Sheet
1. You have been hired as an analyst, and your boss asks you how much inventory Walmart has. To find this information, you would go to Walmart's: a. Income Statement b. Statement of Cash Flows c. Balance Sheet d. Frozen foods aisle
c. Balance Sheet
1. The costs to acquire a machine and place it into service are: a. Expensed when incurred, thereby reducing Net Income b. Expensed when the cash is paid c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation d. Charged to the controller's personal expense account
c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation
1. Your company pays $50,000 to overhaul one of its machines. As a result of the overhaul, the machine's estimated useful life has doubled. The cost of the overhaul should be: a. Expensed when incurred, thereby reducing Net Income b. Expensed when the cash is paid c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation
c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation
1. Your company recently purchased land and intends to construct a building. Before it can begin building, however, your company first pays $500,000 to another company to demolish and remove an existing building that is on the land. The $500,000 should be: a. Expensed when incurred, thereby reducing Net Income b. Expensed when the cash is paid c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation d. Given to a local politician, who will ensure there are no "unexpected delays" when it comes time to get an occupancy permit
c. Capitalized to the property, plant, and equipment account and expensed over time through depreciation
18. Which of the companies appears to be in the WORST position when it comes to paying its bills in the coming year? a. Company A b. Company B c. Company C d. Company D
c. Company C
1. The acronym "GAAP" stands for: a. Generally Accepted Accounting Priorities b. Generally Accepted Accounting Plans c. Generally Accepted Accounting Principles d. Get Me Out of this Class
c. Generally Accepted Accounting Principles
1. Operating revenues are: a. Assets the company has obtained b. Liabilities the company has incurred c. Increases in assets or settlement of liabilities from the main operations of the company d. Decreases in assets or settlement of liabilities from the main operations of the company
c. Increases in assets or settlement of liabilities from the main operations of the company
1. Unearned revenue: a. Is an operating revenue that would appear on a company's Income Statement b. Is a nonoperating item that would appear on a company's Income Statement c. Is a liability that would appear on a company's Balance Sheet d. Is an asset that would appear on a company's Balance Sheet e. Is an exciting subject that is the topic of conversation in dorms across the U.S.
c. Is a liability that would appear on a company's Balance Sheet
1. When a company declares and issues dividends, this: a. Is an expense and reduces Net Income b. Is an expense but does not reduce Net Income c. Is not an expense, but does reduce Stockholders' Equity d. Increases Stockholders' Equity
c. Is not an expense, but does reduce Stockholders' Equity
1. In class, we learned that Sears has more current assets than current liabilities. However, we said that Sears still might have difficulty paying its bills this year because: a. It has a large amount of long-term debt b. It has a significant amount of pension obligations c. Most of its current assets consist of inventory, which Sears might have trouble converting to cash d. Hello... it's Sears
c. Most of its current assets consist of inventory, which Sears might have trouble converting to cash
1. The primary role of an auditor is to: a. Compile a company's financial statements b. Determine whether a company has committed fraud c. Provide an opinion as to whether a company's financial statements have been fairly presented in accordance with GAAP d. Provide jobs for people who did well in math but decided not to major in it because they like the idea of having a job
c. Provide an opinion as to whether a company's financial statements have been fairly presented in accordance with GAAP
1. An asset is: a. The same thing as equity b. An obligation of the firm to sacrifice resources c. Something the company owns or controls that has future economic benefit d. A roommate who buys you pizza during finals week
c. Something the company owns or controls that has future economic benefit
1. In class, we discussed the revenue recognition policy of an automotive manufacturer (Tesla). One of the things we discussed regarding Tesla's financial statements and the accompanying notes was that: a. Tesla was refusing to write down its inventory, even though some of its inventory had probably become obsolete b. Tesla was showing large profits on its Income Statement, perhaps because of aggressive revenue recognition c. Tesla was deferring a lot of revenue; thus, some of the money it receives from car sales today will affect its profitability several years from now d. Elon Musk is a robot who wants to convince people to colonize Mars so he and his fellow robots can have Earth all to themselves
c. Tesla was deferring a lot of revenue; thus, some of the money it receives from car sales today will affect its profitability several years from now
1. International Accounting Standards are issued by: a. The Financial Accounting Standards Board b. The Securities and Exchange Commission c. The International Accounting Standards Board d. Your professor, when he's feeling generous
c. The International Accounting Standards Board
1. Chainsaw Al's Barbecue Shack is a publicly-traded company in the U.S. that purposely overstated its revenue in its annual report. Chainsaw Al's Barbecue Shack could get into trouble with: a. The Financial Accounting Standards Board (FASB) b. The Public Company Accounting Oversight Board (PCAOB) c. The Securities and Exchange Commission (SEC) d. Chainsaw Al's mom
c. The Securities and Exchange Commission (SEC)
1. The once-famous chain of retail stores, "Going Broke One Day at a Time," was recently in the news when its auditor issued a going concern opinion. This means that: a. The company is about to have an Initial Public Offering (IPO) b. The company is expected to continue operations well into the future c. The company could go bankrupt in the near future d. The CEO is going to fire the auditor and tell the board, "This never happened"
c. The company could go bankrupt in the near future
1. Double-entry accounting is: a. The use of two sets of books, one for the auditors and one for managers b. A creation of the Securities and Exchange Acts of 1933 & 1934 c. The foundation for Financial Accounting as it is used today d. The only thing more entertaining than a room full of clowns
c. The foundation for Financial Accounting as it is used today
1. Financial Accounting is: a. The preparation of financial data for internal use by managers in making decisions b. The preparation of tax filings for the IRS c. The preparation of financial statements and the accompanying notes for the use of external parties such as investors and creditors d. A nightmare from which I hope to wake up
c. The preparation of financial statements and the accompanying notes for the use of external parties such as investors and creditors
1. Stockholders' equity is: a. Something the company owns or controls that has future economic benefit b. An obligation of the firm to sacrifice resources c. The residual interest after liabilities are subtracted from a firm's assets d. The residual interest after your professor receives his cut
c. The residual interest after liabilities are subtracted from a firm's assets
1. Healthy Donuts paid $150,000 cash to purchase a donut machine on 1/1/19. It expects the machine to last 10 years. After 10 years, the machine will break down and become completely worthless. Health Donuts chooses to record depreciation on a straight-line basis (this means it will spread depreciation evenly over the life of the machine). How does the purchase of the donut machine on 1/1/19 affect Healthy Donut's financial statements? (I am looking for the effect on 1/1/19 only) a. Total Assets increase; Net Income decreases b. Total Assets increase; Net Income is unchanged c. Total Assets are unchanged; Net Income is unchanged d. The financial statements will become tastier but will be loaded with gluten
c. Total Assets are unchanged; Net Income is unchanged
1. Companies go bankrupt: a. When they post a massive loss b. When they are consistently are unprofitable c. When they run out of cash d. When your professor invests money in them
c. When they run out of cash
Beaker's Automotive has $200,000 in total assets and $40,000 in total stockholders' equity. How much does it have in total liabilities? a. $240,000 b. -$240,000 c. -$160,000 d. $160,000
d. $160,000
1. In class, we examined the final set of financial statements issued by RadioShack. Which of the following statements is true? a. RadioShack went bankrupt even though it had Retained Earnings b. RadioShack went bankrupt even though it had a lot more in current assets than it did in current liabilities on its final Balance Sheet c. RadioShack went bankrupt even though it had positive cash flows from operating activities on its final Statement of Cash Flows d. All of the above statements are true e. Only "b" and "c" are true
d. All of the above statements are true
1. Total Stockholders' Equity is: a. The book value of the firm b. The fair market value of the firm c. The residual value after the firm's total liabilities are subtracted from its total assets d. Both "a" and "c" e. Both "b" and "c" f. A topic you bring up when a date isn't going well and you'd like it to end early
d. Both "a" and "c"
1. Accrual accounting: a. Requires the recognition of revenue and expenses only when cash changes hands b. Requires the recognition of revenue when it is earned, not necessarily when cash is received c. Requires the recognition of expenses when they are incurred, not necessarily when cash is paid d. Both "b" and "c" are true
d. Both "b" and "c" are true
1. In class, we have discussed a number of companies that committed accounting fraud. One of those companies was Global Crossing, a telecommunications company that was laying a fiber optic cable across the Atlantic. Global Crossing got into trouble with the SEC due to its use of: a. Mark to market accounting b. Complex derivatives that made big bets on the price of capacity in the telecommunications industry c. The deferred tax asset valuation allowance, which is manipulated to make its profits appear smoother than what they actually were d. Capacity swaps, in which it sold capacity to companies like Qwest and then turned around and bought capacity from Qwest, booking all the revenues in the current year but capitalizing the expenses and recognizing them over many years
d. Capacity swaps, in which it sold capacity to companies like Qwest and then turned around and bought capacity from Qwest, booking all the revenues in the current year but capitalizing the expenses and recognizing them over many years
18. Which of the companies appears to be in the BEST position when it comes to paying its bills in the coming year? a. Company A b. Company B c. Company C d. Company D
d. Company D
1. Nutilio borrows $1,000,000 from a bank on January 1. The first payment isn't due until June 30. When Nutilio's first quarter ends on March 31, its financial records show that $25,000 of interest has accumulated on the loan. Before preparing financial statements for the first quarter (ended March 31), Nutilio should: a. Not make a journal entry because the payment isn't due yet b. Not make a journal entry because cash hasn't changed hands yet c. Debit Interest Expense for $25,000; Credit Note Payable for $25,000 d. Debit Interest Expense for $25,000; Credit Interest Payable for $25,000 e. Come up with a new name. What the heck is Nutilio?
d. Debit Interest Expense for $25,000; Credit Interest Payable for $25,000
1. In class, I gave you a handout that included the financial statements of a company that went bankrupt after an accounting fraud. We talked about how this illustrated the importance of financial accounting, and that many people lost their jobs as a result of the financial statement fraud. The name of the company that committed this fraud was: a. Global Crossing b. HealthSouth c. ZoomBibble d. Enron
d. Enron
1. Property, plant, and equipment is presented on the Balance Sheet at: a. Lower of cost or market b. Net realizable value c. Fair value d. Historical cost, minus accumulated depreciation
d. Historical cost, minus accumulated depreciation
1. Gross Profit (aka Gross Margin) is: a. An account that appears on the Balance Sheet b. Total Revenues minus Total Expenses c. Net Sales minus Cost of Goods Sold and Total Operating Expenses d. Net Sales minus Cost of Goods Sold
d. Net Sales minus Cost of Goods Sold
1. In class, we discussed an article by a professor of History and Accounting ("No Accounting Skills? No Moral Reckoning"). Among other things, the author argued that: a. A knowledge of accounting may lead some people to become less moral, since they can use their accounting knowledge to become more proficient at fraud ("The Enron Effect") b. A world without regulation would theoretically have no need for audits c. People today have a stronger grasp of accounting principles than people who lived in Europe during the 16th and 17th centuries d. People must understand accounting to hold institutions accountable
d. People must understand accounting to hold institutions accountable
1. The board members of the Financial Accounting Standards Board are selected by: a. The President of the United States b. Some guy with the Twitter handle @FASBDUDE c. The Securities and Exchange Commission (SEC) d. The Financial Accounting Foundation (FAF)
d. The Financial Accounting Foundation (FAF)
1. Who is responsible for hiring the company's auditor? a. The board of directors b. The CEO c. The CFO d. The audit committee
d. The audit committee
1. Which of the following statements is FALSE? a. All Balance Sheet accounts (assets, liabilities, equity) are permanent accounts b. All Income Statement accounts (revenues, expenses) are temporary accounts c. The Income Statement and the Balance Sheet are connected in that Net Income (or Net Loss) affects Retained Earnings (or Accumulated Deficit) d. The primary purpose of creating a Statement of Cash Flows is to determine the ending balance in the company's Cash account
d. The primary purpose of creating a Statement of Cash Flows is to determine the ending balance in the company's Cash account
1. An accountant tells you that a certain account was debited. This means that the balance of the account: a. Increased b. Decreased c. Increased, decreased, then faked like it was going to increase before decreasing again d. There isn't enough information to say whether the account increased or decreased; we need to know what type of account it is (e.g., asset, liability)
d. There isn't enough information to say whether the account increased or decreased; we need to know what type of account it is (e.g., asset, liability)
1. From our discussion of LinkedIn as well as the article "The End of Accounting" in class, we learned that: a. Companies often have assets whose values are understated on the Balance Sheet b. Companies often have assets that are not recorded on the Balance Sheet c. Companies currently record all assets and liabilities at historical cost on the Balance Sheet, per Generally Accepted Accounting Principles (GAAP) d. All of the above are true e. Both "a" and "b" are true f. None of the above statements are true
e. Both "a" and "b" are true
1. The Sarbanes-Oxley Act did which of the following? a. Required all companies in the U.S. to have their financial statements audited b. Required publicly-traded companies to assess the effectiveness of their internal controls and issue a report on their effectiveness c. Prohibited audit firms from providing some non-audit services to audit clients d. All of the above are correct e. Both "b" and "c" are correct
e. Both "b" and "c" are correct
1. Assets are valued on the Balance Sheet at: a. Historical cost b. Fair value c. Net realizable value d. Replacement cost e. It depends on the type of asset f. Is it too late to drop the class?
e. It depends on the type of asset
