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When an item of revenue is collected and recorded in advance

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1) When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue.
a. accrued
b. prepaid
c. unearned
d. cash

2) The debit and credit analysis of a transaction normally takes place
A. when the trial balance is prepared.
B. when the entry is posted to the ledger.
C. before an entry is recorded in a journal.
D. at some other point in the accounting cycle.

3) When an item of expense is paid and recorded in advance, it is normally called a(n)
a. prepaid expense.
b. accrued expense.
c. estimated expense.
d. cash expense.

4) One objective of financial reporting is to provide
a. information about the investors in the business entity.
b. information about the liquidation values of the resources held by the enterprise.
c. information that is useful in assessing cash flow prospects.
d. information that will attract new investors.

5) A common set of accounting standards and procedures are called
a. financial accounting standards.
b. generally accepted accounting principles.
c. objectives of financial reporting.
d. statements of financial accounting concepts.

6) The Financial Accounting Standards Board
a. has issued a series of pronouncements entitled Statements on Auditing Standards.
b. was the forerunner of the current Accounting Principles Board.
c. is the arm of the Securities and Exchange Commission responsible for setting
financial accounting standards.
d. is appointed by the Financial Accounting Foundation.

7) Companies that are listed on a stock exchange are required to submit their financial statements to the
a. AICPA.
b. APB
c. FASB.
d. SEC.

8) The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. reliability and comparability.

9) The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is
a. the FASB issues exposure drafts of proposed standards.
b. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
c. all members of the FASB possess extensive experience in financial reporting.
d. a majority of the members of the FASB are CPAs drawn from public practice.

10) Which of the following would represent the least likely use of an income statement prepared for a business enterprise?
a. Use by customers to determine a company's ability to provide needed goods and
services.
b. Use by labor unions to examine earnings closely as a basis for salary discussions.
c. Use by government agencies to formulate tax and economic policy.
d. Use by investors interested in the financial position of the entity.

11) The occurrence which most likely would have no effect on 2007 net income (assuming that all amounts involved are material) is the
a. sale in 2007 of an office building contributed by a stockholder in 1983.
b. collection in 2007 of a receivable from a customer whose account was written off in 2006 by a charge to the allowance account.
c. settlement based on litigation in 2007 of previously unrecognized damages from a
serious accident which occurred in 2005.
d. worthlessness determined in 2007 of stock purchased on a speculative basis in 2003.

12) The single-step income statement emphasizes
a. the gross profit figure.
b. total revenues and total expenses.
c. extraordinary items and accounting changes more than these are emphasized in the
multiple-step income statement.
d. the various components of income from continuing operations.

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. service revenue.
b. deferred service revenue.
c. a reduction in installment accounts receivable.
d. a direct addition to retained earnings.

14) Which of the following is not a reason why revenue is recognized at time of sale?
a. Realization has occurred.
b. The sale is the critical event.
c. Title legally passes from seller to buyer.
d. All of these are reasons to recognize revenue at time of sale

15) The balance sheet is useful for analyzing all of the following except
a. liquidity.
b. solvency.
c. profitability.
d. financial flexibility.

16) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
a. solvency.
b. financial flexibility.
c. liquidity.
d. exchangeability.

17) The basis for classifying assets as current or noncurrent is conversion to cash within
a. the accounting cycle or one year, whichever is shorter.
b. the operating cycle or one year, whichever is longer.
c. the accounting cycle or one year, whichever is longer.
d. the operating cycle or one year, whichever is shorter.

18) In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be
a. the terms of payment in the contract.
b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable.
c. the method commonly used by the contractor to account for other long-term construction
contracts.
d. the inherent nature of the contractor's technical facilities used in construction.

19) The focus of APB Opinion No. 22 is on the disclosure of accounting policies. This information is important to financial statement readers in determining
a. net income for the year.
b. whether accounting policies are consistently applied from year to year.
c. the value of obsolete items included in ending inventory.
d. whether the working capital position is adequate for future operations.

20) 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. discussed only in the MD&A (Management's Discussion and Analysis) section of the
annual report.
b. disclosed only in the Notes to the Financial Statements.
c. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008.
d. used to record an adjustment directly to the Retained Earnings account.


21) If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the
a. nature of the relationship between the parties to the transactions.
b. nature of any future transactions planned between the parties and the terms involved.
c. dollar amount of the transactions for each of the periods for which an income statement is presented.
d. amounts due from or to related parties as of the date of each balance sheet presented

22) Which of the following best characterizes the difference between a financial forecast and a financial projection?
a. Forecasts include a complete set of financial statements, while projections include
only summary financial data.
b. A forecast is normally for a full year or more and a projection presents data for less
than a year.
c. 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.
d. A forecast includes data which can be verified about future expectations, while the
data in a projection is not susceptible to verification.

23) The required approach for handling extraordinary items in interim reports is to
a. prorate them over all four quarters.
b. prorate them over the current and remaining quarters.
c. charge or credit the loss or gain in the quarter that it occurs.
d. disclose them only in the notes

24) A financial forecast per professional pronouncements presents to the best of the responsible party's knowledge and belief,
a. an entity's expected financial position, results of operations, and cash flows.
b. an assessment of the company's ability to be successful in the future.
c. given one or more hypothetical assumptions, 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.

25) When should an average amount be used for the numerator or denominator?
a. When the numerator is a balance sheet item or items
b. When the denominator is a balance sheet item or items
c. When a ratio consists of an income statement item and a balance sheet item
d. When the numerator is an income statement item or items

26) Theoretically, in computing the receivables turnover, the numerator should include
a. net sales.
b. net credit sales.
c. sales.
d. credit sales.

27) The payout ratio is calculated by dividing
a. dividends per share by earnings per share.
b. cash dividends by net income plus preferred dividends.
c. cash dividends by market price per share.
d. cash dividends by net income less preferred dividends.

28) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by
a. re-recording all income statement transactions that directly affect cash in a separate
cash flow journal.
b. estimating the percentage of income statement transactions that were originally
reported on a cash basis and projecting this amount to the entire array of income
statement transactions.
c. eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash.
d. eliminating all transactions that have no current or future effect on cash, such as
depreciation, from the net income computation.

29) Of the following questions, which one would not be answered by the statement of cash flows
a. Where did the cash come from during the period?
b. What was the cash used for during the period?
c. Were all the cash expenditures of benefit to the company during the period?
d. What was the change in the cash balance during the period?

30) The primary purpose of the statement of cash flows is to provide information
a. about the operating, investing, and financing activities of an entity during a period.
b. that is useful in assessing cash flow prospects.
c. about the cash receipts and cash payments of an entity during a period.
d. about the entity's ability to meet its obligations, its ability to pay dividends, and its
needs for external financing.

31) In reporting extraordinary transactions on a statement of cash flows (indirect method), the
a. gross amount of an extraordinary gain should be deducted from net income.
b. net of tax amount of an extraordinary gain should be added to net income.
c. net of tax amount of an extraordinary gain should be deducted from net income.
d. gross 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. Declaration and distribution of a stock dividend
b. Deposit to a bond sinking fund
c. Sale of a loan receivable
d. Payment of interest to a creditor

33) Which of the following tables would show the smallest value for an interest rate of 5% for six periods?
a. Future value of 1
b. Present value of 1
c. Future value of an ordinary annuity of 1
d. Present value of an ordinary annuity of 1

34) In a statement of cash flows, the cash flows from investing activities section should report
a. the issuance of common stock in exchange for a factory building.
b. stock dividends received.
c. a major repair to machinery charged to accumulated depreciation.
d. the assignment of accounts receivable

35) Which table would show the largest factor for an interest rate of 8% for five periods?
a. Future value of an ordinary annuity of 1
b. Present value of an ordinary annuity of 1
c. Future value of an annuity due of 1
d. Present value of an annuity due of 1

36) 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 capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
b. A capital lease is entered into with the initial lease payment due one month subsequent
to the signing of the lease agreement.
c. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July
1 and January 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July
1 and January 1 yielding 9%.

ACC422 Final Exam

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