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A company borrows $10,000 and signs a 90-day nontrade

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1) Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?

A. To aid management in cash-flow analysis

B. To match the costs of production with revenues as earned

C. To adhere to the accounting constraint of conservatism

D. To reduce the federal income tax liability

2) If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve

A. an asset or contra asset account and an expense account.

B. a liability account and an expense account.

C. a receivable account and a revenue account.

D. a liability account and an asset account.

3) The debit and credit analysis of a transaction normally takes place

A. when the entry is posted to the ledger.

B. when the trial balance is prepared.

C. at some other point in the accounting cycle.

D. before an entry is recorded in a journal.

4) Which of the following statements is not an objective of financial reporting?

A. Provide information about enterprise resources, claims to those resources, and changes to them.

B. Provide information that is useful in assessing cash flow prospects.

C. Provide information on the liquidation value of an enterprise.

D. Provide information that is useful in investment and credit decisions.

5) General-purpose financial statements are the product of

A. managerial accounting.

B. neither financial nor managerial accounting.

C. both financial and managerial accounting.

D. financial accounting.

6) A common set of accounting standards and procedures are called

A. generally accepted accounting principles.

B. statements of financial accounting concepts.

C. objectives of financial reporting.

D. financial accounting standards.

7) The Financial Accounting Standards Board

A. was the forerunner of the current Accounting Principles Board.

B. is appointed by the Financial Accounting Foundation.

C. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.

D. has issued a series of pronouncements entitled Statements on Auditing Standards.

8) The Financial Accounting Standards Board (FASB) was proposed by the

A. Accounting Principles Board.

B. Special Study Group on establishment of Accounting Principles (Wheat Committee).

C. Study Group on the Objectives of Financial Statements.

D. American Institute of Certified Public Accountants.

9) The Financial Accounting Foundation

A. oversees the operations of the AICPA.

B. works with the Financial Accounting Standards Advisory Council to provide informa-tion to interested parties on financial reporting issues.

C. provides information to interested parties on financial reporting issues.

D. oversees the operations of the FASB.

10) Which of the following would represent the least likely use of an income statement prepared for a business enterprise?

A. Use by labor unions to examine earnings closely as a basis for salary discussions.

B. Use by investors interested in the financial position of the entity.

C. Use by government agencies to formulate tax and economic policy.

D. Use by customers to determine a company's ability to provide needed goods and services.

11) Which of the following is not a generally practiced method of presenting the income statement?

A. The single-step income statement

B. Including gains and losses from discontinued operations of a component of a business in determining net income

C. The consolidated statement of income

D. Including prior period adjustments in determining net income

12) The income statement reveals

A. resources and equities of a firm for a period of time.

B. resources and equities of a firm at a point in time.

C. net earnings (net income) of a firm for a period of time.

D. net earnings (net income) of a firm at a point in time.

13) Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract on each appliance sold. Although Dot Point sells the appliances on an installment basis, all service contracts are cash sales at the time of purchase by the buyer. Collections received for service contracts should be recorded as

A. deferred service revenue.

B. service revenue.

C. a direct addition to retained earnings.

D. a reduction in installment accounts receivable.

14) The process of formally recording or incorporating an item in the financial statements of an entity is

A. articulation.

B. allocation.

C. recognition.

D. realization.

15) The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?

A. The seller's price is substantially fixed or determinable at time of sale.

B. The amount of future returns can be reasonably estimated.

C. The buyer is obligated to pay the seller upon resale of the product.

D. The buyer's obligation to the seller would not be changed in the event of theft or damage of the product.

16) One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is

A. the extensive use of separate classifications.

B. failure to reflect current value information.

C. failure to include items of financial value that cannot be recorded objectively.

D. an extensive use of estimates.

17) The balance sheet contributes to financial reporting by providing a basis for all of the following except

A. evaluating the capital structure of the enterprise.

B. computing rates of return.

C. assessing the liquidity and financial flexibility of the enterprise.

D. determining the increase in cash due to operations.

18) The correct order to present current assets is

A. Cash, accounts receivable, inventories, prepaid items.

B. Cash, accounts receivable, prepaid items, inventories.

C. Cash, inventories, prepaid items, accounts receivable.

D. Cash, inventories, accounts receivable, prepaid items.

19) Which of the following should be disclosed in a Summary of Significant Accounting Policies?

A. Amount for cumulative effect of change in accounting principle

B. Types of executory contracts

C. Depreciation method followed

D. Claims of equity holders

20) An example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the

A. major backlogs of inventory orders.

B. amount of income resulting from the involuntary liquidation of LIFO.

C. composition of inventory into raw materials, work-in-process, and finished goods.

D. method used for pricing inventory.

21) Events that occur after the December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be

A. disclosed only in the Notes to the Financial Statements.

B. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008.

C. discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report.

D. used to record an adjustment directly to the Retained Earnings account

22) Which of the following best characterizes the difference between a financial forecast and a financial projection?

A. A forecast is normally for a full year or more and a projection presents data for less than a year.

B. A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen.

C. Forecasts include a complete set of financial statements, while projections include only summary financial data.

D. A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification.

23) A financial forecast per professional pronouncements presents to the best of the responsible party's knowledge and belief,

A. an assessment of the company's ability to be successful in the future.

B. given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows.

C. an entity's expected financial position, results of operations, and cash flows.

D. an assessment of the company's ability to be successful in the future under a number of different assumptions.

24) The required approach for handling extraordinary items in interim reports is to

A. prorate them over the current and remaining quarters.

B. charge or credit the loss or gain in the quarter that it occurs.

C. prorate them over all four quarters.

D. disclose them only in the notes.

25) The calculation of the number of times interest is earned involves dividing

A. net income plus income taxes and interest expense by annual interest expense.

B. none of these.

C. net income by annual interest expense.

D. net income plus income taxes by annual interest expense.

26) When should an average amount be used for the numerator or denominator?

A. When a ratio consists of an income statement item and a balance sheet item

B. When the numerator is an income statement item or items

C. When the numerator is a balance sheet item or items

D. When the denominator is a balance sheet item or items

27) The rate of return on common stock equity is calculated by dividing

A. net income by ending common stockholders’ equity.

B. net income less preferred dividends by ending common stockholders’ equity.

C. net income by average common stockholders’ equity.

D. net income less preferred dividends by average common stockholders’ equity.

28) An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

A. cash outflow from investing activities.

B. cash outflow from financing activities.

C. addition to net income in arriving at net cash flow from operating activities.

D. deduction from net income in arriving at net cash flow from operating activities.

29) Of the following questions, which one would not be answered by the statement of cash flows?

A. Were all the cash expenditures of benefit to the company during the period?

B. What was the change in the cash balance during the period?

C. Where did the cash come from during the period?

D. What was the cash used for during the period?

30) A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

A. cash inflow from investing activities.

B. cash inflow from financing activities.

C. addition adjustment to net income in the cash flows from operating activities section.

D. cash outflow from investing activities.

31) In reporting extraordinary transactions on a statement of cash flows (indirect method), the

A. net of tax amount of an extraordinary gain should be deducted from net income.

B. gross amount of an extraordinary gain should be added to net income.

C. gross amount of an extraordinary gain should be deducted from net income.

D. net of tax amount of an extraordinary gain should be added to net income.

32) Which of the following would be classified as a financing activity on a statement of cash flows?

A. Sale of a loan receivable

B. Payment of interest to a creditor

C. Declaration and distribution of a stock dividend

D. Deposit to a bond sinking fund

33) In a statement of cash flows, the cash flows from investing activities section should report

A. a major repair to machinery charged to accumulated depreciation.

B. the assignment of accounts receivable.

C. the issuance of common stock in exchange for a factory building.

D. stock dividends received.

34) Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

A. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.

B. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.

C. A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement.

D. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.

35) Which of the following tables would show the smallest factor for an interest rate of 10% for six periods?

A. Future value of an annuity due of 1

B. Future value of an ordinary annuity of 1

C. Present value of an ordinary annuity of 1

D. Present value of an annuity due of 1

36) Which of the following tables would show the smallest value for an interest rate of 5% for six periods?

A. Future value of an ordinary annuity of 1

B. Future value of 1

C. Present value of 1

D. Present value of an ordinary annuity of 1

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