Financial Accounting Test Answers
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Recording revenues when earned and expenses
when incurred is associated with what basis of accounting?
Cash Basis
Modified Accrual
Accrual
Cash Accrual Basis
Deferred Basis
(US GAAP ) You pay a dividend, what happens on
the cash flow statement and in which section?
Cash decreases - Financing section
Cash increases - Operating section
Cash increases - Financing section
Cash increases - Investing section
Cash decreases - Operating section
What is the best definition of Expense?
The increase in resources from the operations of an
entity
None of these
The use of resources to generate revenue
Payable accounts
Which of the following is an example of a
contingent liability?
Prepaid Rent.
An environmental lawsuit.
Notes payable.
Accrued payroll.
Which of the following is a cash expense?
Loss on sale of PP&E
Interest
Impairment of goodwill
Stock-based compensation
Depreciation
The statement of cash flows contains certain
components of both the income statement and the balance sheet.
False
True
Which of the following accounts will be found
on the balance sheet?
Cost of Goods Sold
Tax expense
Rent expense
Inventory
Salary expense
Rules governing financial accounting are for
the benefit of:
Only banks
Internal members of the company
Company management
All outside stakeholders
Company owners only
Which one of the following is NOT one of the
four basic income statement components?
Gains
Depreciation
Expenses
Losses
Revenue
What account group does 'accounts receivable'
belong?
Revenue
Expense
Liability
Asset
Shareholder Equity
How frequently should the 10-Q be filed for a
public company?
Never filed
Daily
Quarterly
Monthly
Annually
What is taxes payable considered?
Revenue
Liability
Shareholder Equity
Expense
Asset
Which reports allow the interested party to
evaluate the profitability of a business?
statement of cash flows
balance sheet
income statement
all of these
statement of owners equity
What is interest payable considered?
Revenue, Loss
Shareholder, Equity
Asset, Liability
Expense, Income
Liability, Expense
Under which category is Mortgage Payable?
Current Assets
Long-term Assets
Current Liabilities
Fixed Assets
Long-term Liabilites
Realized revenue means a transaction where
goods and services are exchanged for cash or claims to cash.
True
False
What is NOT one of the sections of the Cash
Flow statement?
Cash flows from operating activities
Cash flows from investing activities
Cash flows from shareholder contribution
Cash flows from financing activities
An ordinary share dividend is:
Interest on money lent to the company by its
shareholders.
An expense of running the company
Part of the company profits used to reward the
shareholders for their investment
The directors’ remuneration
None of these
If the accountant forgets to record salary
expense in the Statement of Income, what is the result?
Net income is too low.
Retained earnings is correctly stated, as the
omission only affects the Income Statement.
Net income is too high.
Retained earnings is too low.
Payments made to the shareholders of a
corporation for profit are called:
Distributions or Dividends
Payroll
Gain
Share of profits
Salary
Which of the following is a category or
element of the balance sheet?
Losses
Gains
Expenses
Liabilities
Which of the following is NOT an asset
account?
Cash
Accounts Receivable
Inventory
Goodwill
Accounts Payable
______ consist of assets that a retail or
wholesale company acquires for resale or goods that manufacturers produce for
sale.
prepaid expenses
inventories
other assets
intangible assets
Which types of entities are considered
"flow through" entities?
All of these
Limited Liability Corporation
Sole Proprietership
Partnership
Franchise Licenses are an example of:
Liabilities
Depreciation
Intangible assets
Physical assets
PP&E
What is preferred stock considered?
Asset
Expense
Revenue
Shareholder Equity
Liability
The end product for an income statement is:
Net earnings or net interest
Net profits or net gain
Net accumulation or net income
Net income or net loss
Net dividends or net depreciation
What is the bottom line of an income
statement?
Company's total expenses
Company's net earnings or losses
Company's total investments
Company's net worth
Company's total sales
On the cash flow statement, buying of a stock
is found in the _________ section.
Operating
Financing
Not located on the cash flow statement
Income
Investing
What is the definition of Current Liabilities?
Debts that are callable by a creditor
Liabilities that are expected to liquidate within a
year or normal operating cycle, whichever is longer
A contra account to Long Term Liabilities
The balancing account to Short Term Assets
What is Goodwill in financial reporting?
Goodwill is a charitable donation place. You can
take household items to Goodwill and get a tax dedution.
Goodwill is something you do without wanting
anything in return.
Goodwill is an Asset account. When a company is
purchased for more than the assets are worth the off setting account is called
Goodwill.
There is no such account that is considered
Goodwill in accounting.
What is the definition of FIFO for inventory
valuation purposes?
The system updates inventory accounts after each
purchase or sale.
It is assumed that items purchased last are sold
first.
It is assumed that items purchased first are sold
first.
It is assumed that items purchased are valued at
the greater of cost or market value
What is a journal?
book of original entry
a record of financial transactions in order by date
both of these
Once a discontinued operation is disposed of,
the gain or loss can be disclosed in the notes to the financial statements
False
True
To what account group does 'cash on hand'
belong?
Asset
Liability
Revenue
Shareholder Equity
Expense
As found on an income statement, revenue can
best be defined as:
Gross receipts earned by the company selling its
goods or services
Gross receipts earned by the company selling its
intangible assets or services
Gross receipts earned by the company selling its
depreciated supplies or services
Gross receipts earned by the company selling its
goods or intangible assets
Gross receipts earned by the company selling its
shares or services
Tangible, long lived assets used in the
operations of the business are classified as ____.
other assets
inventories
property, plant, and equipment
intangible assets
What does FIFO stand for?
Funds In For Outsiders
Final Inventory, First Out
Fast In, First Out
First in, First out
From Inventory For Orders
Which of the following is the Control Account?
Accounts Receivable
Accounts Payable
All of the listed accounts are Control Accounts
Inventory
What does AICPA stand for?
American Institute of Chartered Public Accountants
American Institute of Credentialed Public
Accountants
American Institute of Certified Public Accountants
American Institute of Certified Private Accountants
American Institute of Chartered Private Accountants
What is a patent considered?
Revenue
Intangible Asset
Tangible Asset
Shareholders Equity
Expense
Why are standard cost amounts not always equal
to the actual cost amounts?
Extraordinary events recognized by the accounting
reporting process.
The variability of commodity inputs.
Standard cost is expected cost, actuals can be
different.
Poor estimation efforts on the part of management.
The acronym for the common rules and standards
that companies must follow when preparing its external financial statements is
______.
GAAP
PAAC
GAP
AAGP
Companies registered with the Securities and
Exchange Commission are required to have their financial statements audited by
an external auditor.
False
True
A copyright is an example of:
A liability
An intangible asset
Depreciation
PP&E
A physical asset
What is plant (facility) considered?
Liability
Shareholder Equity
Expense
Asset
Revenue
How are Accounts Receivables classified on the
Balance Sheet?
As Credit Owed
As a Liability
As a Short Term Liability
As an Asset
What is an example of a current liability?
Prepaid Expense
Accounts Payable
Property, Plant and Equipment
Shareholders Equity
Depreciation
By law, who is the only person qualified to
sign an audit report?
A principal at an accounting firm only
A student with a masters in accounting
Anyone
CPA licensed individual only
An accounting major
Which of the following sections would you find
on a balance sheet?
interest expense
amortized expenses
liabilities
price to earnings ratio
quick ratio
Publicly traded companies employ _____ to
audit the financial statements for their inclusion in reports to the
shareholders.
CPAs
Financial advisors
Lawyers
Investment attorneys
Financial analysts
What must one do to record transactions?
determine which accounts the transaction affects
measure the event in monetary terms
all of these
record the transactions in a ledger
If Assets = $25,000 and Liabilities = $35,000
what is the amount of equity?
$40,000
$10,000
-($10,000)
$5,000
What does CPA stand for?
Commerce Public Accountant
Certified Professional Accountant
Certified Public Accountant
Chartered Public Accountant
What is the definition of posting in the
accounting cycle?
Posting activity moves balances of journal entries
to ledger accounts
Creation of the Income Statement
Development of the Trial Balance
Filing information with the IRS
Under US GAAP, what constitutes an audit?
To ensure that management is not cheating
shareholders.
To make sure that the company does not get in
trouble with the PCAOB.
An examination of the financial reports to ensure
that they represent what they claim and conform with USPAP.
An examination of the financial reports to ensure
that they represent what they claim and conform with GAAP.
Cash balance is found in which section of the
financial statements?
Current Assets
Fixed Assets
Gross Revenues
Other Liabilities
Large corporations must follow the ___________
basis of accounting.
accrual
debit
credit
cash
If Assets = $25,000 and Liabilities = $15,000
what is the amount of equity?
$40,000
$5,000
$10,000
-($10,000)
You have received cash but have not provided a
service, which account should be used to record this?
Unearned Revenue
Revenue
Taxes Payable
Salaries Payable
COGS
Standard costing typically includes which of
the following costs?
All of these
Manufacturing overhead
Direct labor
Direct material
The terms 2/10, n/30 mean?
$2 discount within 10 days, no discount within 30
days
2% penalty incurred if not paid within 10 days.
2 Days to get a $10 discount otherwise you pay in
full.
2% discount if paid within 10 days, net amount due
within 30 days.
Which of the following is the correct format
for the balance sheet in order of occurrence?
assets, stockholder’s equity, liabilities
liabilities, assets, stockholder’s equity.
stockholder’s equity, liabilities, assets.
assets, liabilities, stockholder’s equity.
Financial accounting serves the following
purposes:
producing information used by the management of a
business entity for decision making, planning and performance evaluation
producing financial statements for meeting
regulatory requirements
All of the Above
producing general purpose financial statements
Corporations whose stock is publicly traded
must have their financial statements ________ by independent certified public
accountants.
lend
sold
audited
bought
Financial accounting relies on which of the
following concepts?
principles
assumptions
all of these
conventions
What does LIFO stand for?
Lower inventory for outsiders
Lower interest, first out
Last in, Last out
Last in, first out
Last in final out
Common stock is recorded where on the
financial statements?
In accounts receivable.
In other expense.
In stockholders’ equity.
In accounts payable.
What is an example of an item that would be
included in calculating comprehensive income?
Temporary changes in market value of noncurrent
investments.
All of these
Foreign currency translation adjustments.
Effects of accounting adjustments from earlier
periods.
Accounting firms generally do many things
including:
Management Consulting Services
Audit or Assurance Services
Tax Services
None of these
All of these
Goodwill is an example of:
PP&E
An intangible asset
A physical asset
A liability
Depreciation
Trademarks are an example of:
Intangible assets
Physical assets
Liabilities
PP&E
Depreciation
What is long-term debt considered?
Asset
Revenue
Liability
Expense
Shareholder Equity
Property is listed under which category?
Shareholder Equity
Liability
Asset
Expense
Revenue
What is the FISH inventory method?
First in,last out
First in,first out
first-in, still-here
Last in,last out
If managers are granted the opportunity to buy
additional firm shares at a predetermined price on or before a future date,
they are said to be owners of:
direct intervention.
executive stock options.
takeover threats.
performance shares.
The listing of all of the accounts available
for use in a company's accounting system is known as the ?
Account Information
Account Categorizing
Chart of accounts
Account Classification
Account Heads
What is one method for recording uncollectible
receivables?
Cash basis
Accrual
Direct write-off
Nonrecognition
When a bond is sold at par, what price is it
sold for?
Any of the other options
None of the other options
Face value
Above face value
Below face value
"EBIT" stands for____
It is a form of taxable interest.
Earnings before tax, interest and dividends
It is not an expression or acronym used in
Financial Accounting
Retained Earnings before Interest expense
deductions
On the cash flow statement, buying of a bond
is found in the _________ section.
Income
Operating
Financing
Not located on the cash flow statement
Investing
What is the best definition for Salvage value?
The estimated value that an asset will realize upon
its sale at the end of its useful life
The price that the parts of a piece of equipment
could be sold for
What the property could be sold for today
An industry standard, published valuation
What is short-term debt considered?
Liability
Asset
Expense
Revenue
Shareholder Equity
Standard costing is usually associated with:
High tech contract labor
Comparable industry analysis
Manufacturing cost of product
Commodity pricing
Which of the following gives the correct
sequence of accounting procedures?
Journal, ledger, trial balance, and financial
statements.
Financial statements, trial balance, ledger, and
journal.
Ledger, trial balance, journal, and financial
statements.
Financial statements, journal, ledger, and trial
balance.
At January 1, 2010, the balance of equity was
$200,000. During the year of 2010, revenue and expenses were as follows:
Revenue = $300,000; Expenses = $240,000. What is the balance of equity at December
31, 2010?
$300,000
$360,000
$240,000
$260,000
What is the definition of LIFO for inventory
valuation purposes?
It is assumed that items purchased last are sold
first.
It is assumed that items purchased are valued at
the greater of cost or market value
The system updates inventory accounts after each
purchase or sale.
It is assumed that items purchased first are sold
first.
what is IAS?
included available sale
international auditing standards
International accounting standards
international assignment system
internal accounting system
Which is an example of a Current Asset?
Cash or Bank Balance
Depreciation
Equity
Accounts Payable
Property, Plant and Equipment
What is NOT considered a current asset?
Dividends payable
Cash and cash equivalents
Prepaid expenses
Inventories
The financial statement that reports the
assets, liabilities, and stockholders' (owner's) equity at a specific date is
the
Statement of Cash flows
Statement of Shareholder's (Owner's) Equity
Balance Sheet
Income Statement
Statement of Expenses
What type of account Is Rent Payable?
Property, Plant and Equipment
Asset
Contra-Asset
Liability
Generally Accepted Accounting Principles may
be described as:
The standards used in preparing financial
statements.
Guidelines for establishing a strong system of
internal control.
Guidelines for keeping a business entity profitable
and solvent.
The rules used in preparing tax returns.
Which of the following is considered an
internal user of financial information?
Board of Directors
Suppliers
Government agencies
Investors
Lenders
Prepaid rent can be found on which part of the
balance sheet
Current liabilities
Current assets
Long term liabilities
Property plant and equipment
What is the best definition of Paid-in
capital?
Assets-Liabilities=Paid-in Capital
The amount shareholders contributed to the company
in exchange for the shares of common stock or preferred stock less stated par
value of the securities
The excess of purchase price over asset value when
a company is acquired
Loans made by shareholders to the company
What is considered a current asset?
Accounts Receivable
Property, plant and equipment
Goodwill
Patents
Which of the following is NOT a current asset?
Land
Prepaid insurance
Inventory
Accounts receivable
Which of these is NOT an intangible asset?
Equipment
Franchises
Licenses
Copyrights
Patents
Net income =
Revenues - Expenses
Revenues - Liabilities
Assets - Liabilities
Assets - Expenses
What is the benefit of a limited liabilty
corporation, LLC?
Liability is shared among more than one person.
The company is not liable for the debts it incurs.
The company cannot be sued.
Taxation as a partnership, without personal risks,
financial and legal, like a corporation.
Mergers and acquisitions are covered under
which accounting concept?
Depreciation
Business Combinations
Currency Translation
Inventories
Revenue
GAAP generally uses one of two measurement
principles. Which of the following IS one of these two principles?
Amortized principal
Subsidized value principal
Fair value principal
Logical value principal
Expense principal
What is the purpose of an adjusting journal
entry?
It is an interim step to evaluate if a compilation
of journal acccounts such that Assets=Liabilities+Equity
The equivalent of balancing a check book for a
business with their bank statements and cash accounts
To adjust account balances to reflect correct
amounts under accrual-based accounting
A journal entry to move amounts from Temp. accounts
to B/S or I/S accounts
Which of these is NOT a tangible asset?
Land
Natural Resources
Fixtures
Trademarks
Buildings
What does the acronym EBITDA mean?
Earnings Before Interest, Tax, Depreciation and
Amortization
Earnings Before Investments, Trade receivables,
Depreciation and Amortisation
Which of the following factors is likely to be
an area of difficulty in a large multinational group of companies?
All of the these
Compliance with international accounting standards
None of these
The preparation of the group financial statements.
Foreign currency translation
What is not a component of interest
computations?
Interest Rate
Time
Expected inflation
Principal
What does IFRS stand for?
International Financial Recording Standards
International Financial Reporting Standards
International Fiscal Reporting Standards
Intermediate Financial Recording Standards
Intermediate Fiscal Recording Standards
What is the difference between the accounts
'rent receivable' and 'rent revenue'?
'Rent revenue' is a balance sheet account and 'Rent
receivable' is an income statement account
'Rent receivable' is a balance sheet asset account
and 'Rent revenue' is an income statement account
What is bonds payable considered?
Shareholder Equity
Expense
Revenue
Asset
Liability
What is the best definition of Retained
earnings?
Liquid funds in escrow required by lender
convenants
Cash required to be held for loan repayment
requirements
The remaining balance of Net Income after dividends
have been subtracted.
The difference of cash holdings at the beginning of
the year and cash at end of the year
Which side of a T-account is a debit recorded?
Right
Both
None of these
Left
What is goodwill considered?
Shareholder Equity
Revenue
Asset
Expense
Liability
Why is an increase in inventory shown as a
negative amount in the statement of cash flows?
An increase in inventory indicates that a company
has sold more goods than it has purchased. Increasing inventory requires a cash
inflow. Cash inflows have a negative effect on the company’s cash balance.
An increase in inventory indicates that a company
has purchased more goods than it has sold. Increasing inventory requires a cash
outflow. Cash outflows have a negative effect on the company’s cash balance.
What type of ratio is Return On Assets (ROA)?
Valuation Ratio
Lease vs. Buy Ratio
Credit Analysis Ratio
Merger vs. Consolidation Ratio
Profitability Ratio
The personal assets of the owner of a company
will not appear on the company's balance sheet because of which
principle/guideline?
Monetary Unit
Cost
Economic entity
What type of account is Prepaid Rent?
Asset
Long term Liability
Short term Liability
Contra-Asset
Which one of these is financial accounting
based on?
all of these
single entry bookkeeping
tripple entry bookkeeping
double entry bookkeeping
What is the normal balance of revenue
accounts?
Debit
Credit
Which of the following would not be a current
asset?
Prepaid Insurance
Land
Accounts Receivable
Supplies
What is additional paid-in-capital considered?
Revenue
Asset
Shareholder Equity
Expense
Liability
Which cost are trading securities reported at?
Amortized cost
Historic cost
Amortized cost minus depreciation
Historic cost minus depreciation
Fair value
What is wages payable considered?
Asset
Revenue
Shareholder Equity
Expense
Liability
What type of account is Interest Receivable?
Long term Liability
Contra-Asset
Asset
Short term Liability
A sole proprietorship is a business owned by:
3 people
1 person
4 people
5 people
2 people
At the end of the accounting period, the
revenue and expense accounts of the company are moved to what account?
retained earnings
cash
accounts receivable
depreciation
current liabilities
Equity can be best defined as the amount of
ownership left in the business after deducting total liabilities from total
assets.
True
False
The following items are current assets except:
marketable securities
accounts receivables
inventories
goodwill
cash
Which of the following is a long term asset?
On a balance sheet, the value of a company's
property, equipment and other capital assets expected to be useable for more
than one year, minus depreciation.
On a balance sheet, the value of a company's
property, equipment and other capital assets expected to be used within one
year.
On an income statement, the value of a company's
property, equipment and other capital assets expected to be useable for less
than one year, minus depreciation.
On an income statement, the value of a company's
property, equipment and other capital assets expected to be useable for more
than one year, minus depreciation.
What is NOT a current liability?
Short-term borrowings
Income taxes payable
Accounts payable
Convertible debt
Which of the following is an asset account?
Unearned revenue
Retained earnings
Prepaid rent
Accounts Payable
Treasury stock
For a material item to be classified as an
extraordinary item on the income statement, it must be:
unusual in nature and infrequent in occurrence.
current and unusual in frequency.
estimated and probable.
probable and infrequent in nature.
What are the components of Double Entry
accounting?
Assets=Liabilities+Paid in Capital +Retained
Earnings
Assets=Liabilities+Equity
Revenues-Expenses=Net Income
At least one Debit entry and one Credit entry
What is the Balance Sheet version of the
accounting equation?
Assets + Liabilities = Equity
Assets = Liabilities + Equity
Net Income = Revenue - Expenses
Assets = Liabilities + Beginning Equity + Net
Income
Accounting equation is given as
Liabilities = Assets + Owners Equity
Assets + Liabilities = Owners Equity
Owners Equity = Liabilities+ Assets
Assets = Liabilities + Owners Equity
What is an example of a semi-variable expense?
Workers compensation expense per employee.
Rent
Salesperson's compensation based on both salary and
commission
Utilities
Which of the following would NOT be included
on a balance sheet?
Prepaid Rent.
Retained earnings.
Accumulated depreciation.
Cost of goods sold.
Are audited financial statements guaranteed to
be free of error?
Yes - once audited, no errors can exist (beyond
fraud)
Yes - accuracy is guaranteed
No - they are guaranteed to be presented fairly
Yes - once audited, no errors can exist (including
fraud)
No - auditors only guarantee that the net income is
correct
What is not a typical component of A Work in
Progress Account?
Labor
Raw Materials
Overhead
Sales Tax
Acme company has a beginning year Retained
earnings balance of $10,000, Net income for the year of $5,000 and declares
dividends totaling $3,000. What is the ending Retained earnings balance?
$12,000
$2,000
$7,000
$15,000
What is an increase in the inventory account
journaled as?
Credit.
Debit.
In the USA, how frequently are public
companies required to release financial performance?
Never
Semi-annually
Annually only
Monthly
Quarterly
Which statement would you find accumulated
depreciation?
Statement of retained earnings
Balance sheet
Income statement
Not found on any of the other choices
Cash flow statement
If a company receives cash in exchange for a
note and the present value of the note is less than the amount of the note, the
difference is the:
Convertible value
Discount
Principle
Coupon
Which of these is a Debit account?
Liability
Expense
Revenue
Equity
Which of the following is a category or
element of the balance sheet?
Gains
All of these
Losses
Expenses
Liabilities
On the cash flow statement, depreciation is
found in the _________ section.
Not located on the cash flow statement
Income
Operating
Financing
Investing
What are the assets of a business?
credit
resources
debit
loans
Which of the following is not a current asset?
Bank Balance
Accounts Receivable
Prepaid Insurance
Inventory
Fixtures
On the cash flow statement, a change in
accounts receivable is found in the _________ section.
Investing
Operating
Financing
Not located on the cash flow statement
Income
What is an example of a contra account?
Marketable Securities
Convertible debentures
Patents
Allowance for doubtful accounts
On the cash flow statement, change in accounts
payable is found in the _________ section.
Financing
Operating
Investing
Not located on the cash flow statement
Income
What is retained earnings considered?
Expense
Shareholder Equity
Revenue
Asset
Liability
The fair value principal indicates that assets
and ____ should be reported at fair value (the priced received to sell an asset
or settle ____).
Shareholders equity
Amortized bonds
Liabilities
Debt
Interest
The notes to the financial statement provide
details that are not shown on the financial statements.
True
False
Which of the following defines current assets
on the balance sheet?
Past assets
Assets placed on the balance sheet within the past
year
Expected to be converted to cash or consumed within
a month or normal reporting period whichever is longer
Expected to be converted to cash or consumed within
a year or normal operating cycle whichever is longer
The difference between the balance of a plant
asset account and the related accumulated depreciation account is the asset's
_____.
contra asset
book value
market value
liability
Working capital is a measure of
consistency
profitability
solvency
liquidity
The multiple-step income statement for a
merchandiser shows each of the following features except:
sales revenue
cost of goods sold
investing activities
gross profit
operating expenses
What method of depreciation is used most often
for land?
Land is not depreciated.
Straight-line.
Weighted average balance
Double declining balance.
Which of the following defines market value?
What the property could be sold for today
The value of an executed contract for asset sale
Latest closing price on a publicly traded exchange
An industry standard, published valuation
Which accounting assumption states that an
enterprise will continue in operation long enough to carry out its existing
objectives and commitments?
Monetary unit assumption
Economic entity assumption
Time period assumption
Going concern assumption
What does a business owe all of its assets to?
creditors, owners
creditors, workers
banks, credit unions
workers, owners
On the cash flow statement, taxes paid are found
in the _________ section.
Income
Financing
Operating
Investing
Not located on the cash flow statement
An increase in revenue is journaled as a ____.
Debit
Credit
Why are income taxes not incorporated into the
breakeven unit sales calculation?
Because sales taxes are incorporated into the
analysis.
It is a theoretical budgeting exercise.
Because at breakeven there will be no profit and no
income tax due.
Firms will have different income tax brackets.
An account a retail business would have
_________, but a service business wouldn't.
Sales
Cost Of Goods Sold
Cash
Accounts Receivable
A snapshot of the company best correlates to
which financial statement?
income statement
statement of retained earnings
statement of cash flows
Current Report of Company's Holdings
balance sheet
A decrease in liabilities is recorded as a:
Credit
Debit
What is the net number calculated from the
three parts of the Statement of Cash Flows?
Net increase (decrease) in Shareholder's Equity
Net increase (decrease) in Assets
Net increase (decrease) in cash
Net increase (decrease) in Liabilities
Deciding whether to record a sale when the
order for services is received or when the services are performed is an example
of a
classification issue
recognition issue
valuation issue
communication issue
What are the types of expenses that will
increase and decrease in the same direction as movement in sales?
Variable expenses
Overhead expenses
Labor expenses
Fixed expenses
What is considered a prepaid expense?
Shareholder Equity
Asset
Expense
Liability
Revenue
Which of the following defines book value?
Asset basis less accumulated depreciation
What the property could be sold for today
An industry standard, published valuation
Latest closing price on a publicly traded exchange
What is the correct journal entry for the
purchase of merchandise on account?
debit to inventory; credit to cash
debit to inventory; credit to accounts receivable
debit to accounts payable; credit to cash
debit to inventory; credit to accounts payable
Which of the following defines a fixed asset?
Property used in a productive capacity which will
benefit the enterprise for less than one year
Property used in a productive capacity which will
benefit the enterprise for longer than one year
Property used in a productive capacity which will
be depreciated over a 10 year or greater period of time.
Property used in a productive capacity which will
benefit the enterprise for over five years
Another name for the balance sheet is:
Statement of profit and loss
Statement of assets and assisted assets
Statement of Operations
Statement of Financial Position
How does a company adjust its financial
statements for the effect of inflation?
An entry is made on Other Comprehensive Income
The income or expense is shown as "Other"
on the income statement
The category shows on the financing section of the
cashflow statement.
It does not.
What is the best definition of Net Working
Capital?
A measure of operating leverage
A measure of the margin of current liablities over
current assets
A measure of the margin of current assets over
current liabilities
A measure of asset leverage
ABC Co. incurs cleanup expense of $500 on
December 30, 2010. The supplier's invoice states that the $500 is due by
January 10, 2011. ABC follows the accrual basis of accounting and its
accounting year ends on December 31. What is the effect of the cleanup service
on the December balance sheet of ABC?
Assest increased
Liabilities Increased
No effect on owner's equity
No effect in 2010
Which of these typically has a credit balance?
Liability
Revenue
All of these
Equity
Which of the following measures the number of
times a company sold its average level of inventory during the period?
Accounts receivable turnover
Inventory Turnover
Average Inventory
Average age of Inventories
Sales to inventory ratio
What is the purpose of a subsidiary ledger?
To monitor minority investment returns
To keep detailed information about certain accounts
To keep records of subsidiary companies
To maintain historical trial balance reports
If a business owner wants to protect
him/herself from liabilities associated with their business, it is recommended
that he/she establish a sole proprietorship.
False
True
The current ratio is an indicator of which
following characteristic of an organization?
The liquidity in the short term.
The investment potential
None of these
The current level of profitability.
The future level of profitability
Which one of the following is NOT a principle
of GAAP (US)?
Full Disclosure principle
Materiality
Efficient Operations
Matching principle
Going Concern
At which cost are sale securities reported?
Historic cost
Amortized cost
Fair value
Amortized cost minus depreciation
Historic cost minus depreciation
What are two criteria for identifying an
economic event as an Extraordinary item?
Identified impairment and Market Value increase or
decrease
None of these
Unusual in nature and infrequent in occurrence
Unusual in nature and the first such occurrence
What is the equivalent of a "real account"?
Permanent account
Temporary Account
Sales account
Building expense
Which of the following assets is the hardest
to liquidate?
Land
Inventories
Goodwill
Accounts receivable
On the financial statements, a long-term asset
is reported:
as a prepaid expense on the income statement.
at cost less accumulated depreciation on the
balance sheet.
at cost plus accumulated depreciation on the
balance sheet.
at fair market value on the balance sheet.
What is true about a contra account?
It always has a negative balance
It has the same T-account orientation
(Debit/Credit) as the account it offsets
It always has a positive balance
It has the opposite T-account orientation
(Debit/Credit) as the account it offsets
Plumbing companies, beauty salons, and auto
repair shops are often sole proprietorships.
True
False
What is the basic financial statement
equation?
Assets + Liabilities = Owner's Equity
Current Assets = Current Liabilties + Owner's
Equity
Assets - Liabilities = Owner's Equity
Sales - Allowances - Expenses = Taxable Income
Assets = Cash + Current Assets + Property
A decrease in equity from a Net Income loss
will be a:
Credit to Equity
Debit to Equity
Debit to Cash
Credit Dividends Payable
Which of the following is true regarding the
comparison between managerial and financial accounting?
The emphasis on managerial accounting is relevance
and the emphasis on financial accounting is timeliness.
Managerial accounting is generally more precise.
Managerial accounting need not follow Generally
Accepted Accounting Principles (GAAP), while financial accounting must follow
them.
Managerial accounting has a past focus and
financial accounting has a future focus.
ABC Co. has current assets of $50,000 and
total assets of $150,000. ABC has current liabilities of $30,000 and total
liabilities of $80,000. What is the amount of ABC's owner's equity?
$ 30,000
$ 20,000
$ 120,000
$ 70,000
Which of the following defines liabilities on
the balance sheet?
Present obligations to transfer resources in the
future
Obligations for which full responsibility of the
reporting company has not yet been identified
Expected to be converted to cash or consumed after
a year or normal operating cycle whichever is longer
Which accounting method reflects the matching
principle?
Accrual basis accounting
Cash basis accounting
Equity balanced accounting
Asset based accounting
If a newspaper company receives an annual
subscription payment prior to delivering any papers, what is the initial
accounting entry?
Debit Cash; Credit Unearned Subscription Revenue
Debit Accounts Receivable; Credit Cost of Goods
Sold
Debit Cash; Credit Retained Earnings
Debit Accounts Receivable; Credit Subscription
Revenue
What is one reason for the Shareholder's
Equity balance to be negative?
The amount of Net Income earned to date is a
negative number that is (negatively) greater than the original paid-in-capital
Cash balances have not been sufficient to meet
current liabilities
The company has reported a non-recurring gain on
disposal of assets
The market value of land owned by the company has
dropped
What does a debit signify in bookkeeping?
a decrease in assets or liabilities
an increase in assets or a decrease in liabilities
an increase in assets or liabilities
an increase in liabilities or decrease in assets
What do negative amounts on the Statement of
Cash Flow depict?
Gain on sale of fully depreciated assets
Negative Retained earnings
Use of Cash
Source of Cash
What is a fundamental concept of accrual
accounting?
Recognizing economic activities regardless of when
cash transactions occur
Mark-to-Market to reflect daily changes in
securities' value
Daily posting of balances of journal entries to
ledger accounts
Recognizing economic activities when the
transaction is complete.
On the cash flow statement, repayment of
long-term debt is found in the _________ section.
Operating
Not located on the cash flow statement
Income
Investing
Financing
A firm is purchasing equipment for its
operations. The equipment has a useful life of 7 years. On the firm’s financial
statements the equipment should be recorded as:
Credit to Property, Plant and Equipment and a Debit
to Cash.
Debit to Property, Plant and Equipment and a Credit
to Depreciation Expense.
Debit Property, Plant & Equipment and Credit
Cash.
You issue bonds, what happens on the cash flow
statement and in which section?
Cash decreases - Operating section
Cash increases - Financing section
Cash increases - Operating section
Cash decreases - Financing section
Cash increases - Investing section
On the cash flow statement, proceeds from
issuing bonds are found in the _________ section.
Income
Not located on the cash flow statement
Operating
Investing
Financing
When a sale is made with the credit terms 2/10
net 30, the 2 refers to the:
Interest rate
Discount period
Discount rate
Tax rate
What is NOT an example of an expense account?
Depreciation
Amortization
Dividends
Wages
What is another definition for
"recognizing" revenue?
Issuing a receipt for a customer's payment
Accepting cash for a delivered product/service
Taking an order
Recording revenue
The financial statement that reports the
revenues and expenses for a specific period of time is the:
None of these
Statement of cash flows
Income statement
Statement of Shareholder Equity
Balance Sheet
What is the journal entry for salary?
Salary expense debit/salary payable credit
Salary expense debit/ bank credit
Salary expense debit/ cash credit
On the Statement of Cashflows, the Indirect
and Direct methods for the Cashflows from operations must equal each other.
True
False
With a decrease in an expense, you must _____
the account.
Debit
Credit
Which of the following will be found on the
income statement?
Taxes payable
Taxes due
None are found on a typical income statement
Tax liability
Tax expense
To account for an increase in Accounts
Payable:
Debit Cash
Debit Accounts Payable
Credit Accounts Payable
Credit Cash
Which is considered a cash expense?
Amortization
Depletion
Depreciation
Leasehold Improvements
A client pays ABC Co. $10,000 in December to
perform services in 45 days. ABC uses the accrual basis of accounting. In
December ABC will debit Cash for $10,000. What will be the other account to
balance this entry prepared by ABC?
Drawing
Account receivable
Owners Equity
Asset
Unearned Revenue
Which of the following accounts is a contra
account?
Depreciation expense, office equipment.
Accumulated depreciation, equipment.
Unearned revenue.
Dividends.
Which is considered to be liability?
Prepaid expense
Depreciation
Unearned Revenue
Accounting Receivable
A complete set of financial statements for
Hartman Company, at December 31, 1999, would include each of the following,
except:
Income statement for the year ended December 31,
1999.
Statement of projected cash flows for 2000.
Balance sheet as of December 31, 1999.
Notes containing additional information that is
useful in interpreting the financial statements.
What type of account is Member Distributions?
Expense
Income Statement
Equity
Liability
Asset
A normal balance of asset accounts is journaled
as a ____.
Debit
Credit
Assets are usually reported on the balance
sheet at which amount?
expected selling price
cost
current market value
The U.S. government agency with authority over
the financial reporting requirements of publicly traded corporations is the
_______.
FASB
AICPA
SEC
IRS
Components of the financial statements
include:
Income Statement, Balance Sheet, Ratio analysis,
Cash flow Statement
Balance Sheet, Income Statement, Cash flow
statement, Statement of Changes in equity, Note to the Accounts
Balance Sheet, Cash Flow Statement, Statement of
Changes in Equity, Auditors report
What is an example of an extraordinary item?
Effects of a strike
Gains or losses from the abandonment of property,
plant and equipment
Impairment of receivables and inventories
Impact of a hurricane on a factory
Current assets MINUS current liabilities is:
current ratio
working capital
net worth
The cost principal dictates that companies
record ____ at their cost.
Bonds
Earnings
Assets
Dividends
Stocks
Summarize IAS 1 (IFRS).
Business Combinations
Currency Translation
Presentation of financial statements
Noncontrolling interest
Investments in debt & equity securities
If you own 30% of a company, what is the
appropriate accounting method?
Consolidation
SFAS 115
Equity Method
Doesn't need to be included
Proportionate Consolidation (Joint Venture)
The quick ratio EXCLUDES which of the
following?
Inventory
Cash
Accounts Receivable
Where is the line item Paid-in Capital in
excess of Par?
Convertible securities
Included in Retained earnings
A contra-account to Par Value
Shareholders' equity on the Balance sheet
If you own 40% of a company, what is the
appropriate accounting method?
SFAS 115
Proportionate Consolidation (Joint Venture)
Equity Method
Consolidation
Doesn't need to be included
You purchase $1200 worth of inventory on
credit. Your journal entries would have __
Debits and Credits balance out
Debits will be higher than credits
Cash Balance will go down
Credits will be higher than debits
The normal balance for equity accounts:
Are positive if the company reported a profit in
the latest year
Are equal to Assets + Liabilities
Are on the debit side
Are on the credit side
What is a Perpetual Inventory System?
It is assumed that items purchased are valued at
the greater of cost or market value
The system updates inventory accounts after each
purchase or sale.
It is assumed that items purchased are valued at
the lesser of cost or market value
The system updates inventory accounts at the
beginning and end of each reporting period
What are supplies considered?
Shareholder Equity
Assets
Liabilities
Revenue
Expenses
Which is not a method to account for the loss
of receivables?
Allowance for Doubtful Accounts Method
Factoring of Receivables Method
Direct Write Off Method
Free Cash Flow (FCF) is best described as:
Operating cash flow - Capital expenditures
Operating cash flow - Tax expense
Finance cash flow - Dividends payable
Investing cash flow - Interest receivable
What is the net book value of a noncurrent
asset?
the net amount reported on the balance sheet for a
long-term asset.
the net amount reported on the income statement for
an intangible asset.
the net amount reported on the income statement for
a long-term asset.
the net amount reported on the balance sheet for an
intangible asset.
Accrual basis of accounting is considered
better than the cash basis because:
it matches revenue with expenses
revenue is recognized when cash is received.
adjusting entries are NOT required.
it matches liabilities with expenses.
The monetary unit assumption enables
accounting to _____ economic events.
Track
Quantify
Defend
Attack
Qualify
What is not a typical inventory account for a
manufacturer?
Work in Progress
Raw materials
Merchandise Inventory
Finished materials
Which of the following will be found on the
balance sheet?
Wages payable
Gain on the sale of inventory
Salary expense
Rent expense
Tax expense
What is the normal balance for contra asset
accounts?
Debit
Credit
What is a deposit in transit?
A deposit not received by the company. It's in the
mail.
A deposit that was made at month end but is not
reported on the bank statement until the following month.
A deposit received but not deposited in the bank at
month end.
A deposit that is expected.
Contra Asset Account means?
An asset account which is expected to have a credit
balance (which is contrary to the normal debit balance of an asset account).
All of these
An asset Account Which is depreciated to nil
residual value over its life
An asset Account which is Expected to Have Nil
Balance
In accrual accounting, the matching principle
states that:
an entity should recognize revenues only when
received and expense only when they are paid
transactions and events producing cash flow are
allocated only to time periods in which the cash flow occur
expenses incurred to generate revenue are
recognized in the same time period as the revenue
How do you calculate straight-line
depreciation?
None of the calculations are correct
2 * Asset value - salvage / 2 * useful life
Production in year x / total possible production
Asset value - salvage / useful life
Asset value / useful life
How frequently should the 10-K be filed for a
public company?
Annually
Never filed
Daily
Quarterly
Monthly
If a firm has a great deal of inventory built
up which of the following ratios would be the largest?
Cash ratio.
Gross profit margin ratio.
Current Ratio.
Quick ratio.
Which account is at the bottom of the
Statement of Cash Flows, displaying: _____ at the beginning and at the end of
the period?
Total Assets
Retained Earnings
Shareholders' Equity
Cash
Under IFRS the following costs are expensed:
training
start-up
all of them
relocation and reorganization
none of them
The Governmental Accounting Standards Board
defines general capital assets as all Capital assets other than those accounted
for in Proprietary funds or trust funds.
False
True
Which is not one of the principles of US GAAP?
Materiality
Cost Reduction Principle
Going Concern
Matching Principle
Conservatism
The best definition of noncurrent assets is:
Assets placed on the balance sheet within the past
year.
Assets expected to be converted to cash or consumed
for multiple operating cycle.
Assets that have been appraised at below market
value.
Assets that do not change in value over time.
What type of account is allowance for doubtful
accounts?
A contra asset account
A cost of good account
A liability account
A contra sales account
What is the economic entity assumption?
Requires that activities regarding payroll be kept
separate and distinct from the activities of its owner and all other economic
entities
Requires that activities regarding payroll be kept
unified and combined with the activities of its owner and all other economic
entities
Requires that activities of the entity be kept
separate and distinct from the activities of its owner and all other economic
entities
Requires that activities of the bookkeeper be kept
separate and distinct from the activities of its owner and all other economic
entities
Requires that activities of the entity be kept
unified and combined with the activities of its owner and all other economic
entities
How do you calculate gross profit percentage?
Gross Margin divided by Sales
Sales divided by Net Income
Assets divided by Net Income
Operating Income divided by Cost of Goods Sold
Net Income divided by Sales
On the cash flow statement, proceeds from
issuing stock are found in the _________ section.
Investing
Not located on the cash flow statement
Operating
Income
Financing
What is an investment in stocks considered?
Revenue
Asset
Liability
Shareholder Equity
Expense
Accumulated Depreciation is a(n) ___ on the
balance sheet.
Contra-liability
Contra-asset
Asset
Stockholder's Equity
Liability
What is an investment in bonds considered?
Asset
Liability
Shareholder Equity
Revenue
Expense
What is NOT an acceptable depreciation method?
Accrual method
Straight line method
Declining balance method
Sum-of-the-years'-digits method
Balance sheet provides Financial position of
an organization
For the year
Year to date
Since inception
As of a specific date
The annual form every public company must file
with the SEC is called:
Annual Report
8-q
8-k
10-q
10-k
Which is NOT a common method of depreciation?
Double-Declining Balance
MACRS
Triple-Declining Balance
Straight-Line
Assets are depreciated:
to
determine the salvage value of the asset.
none
of these
because
assets are always worthless after their useful life.
To match
the costs with the benefit of the asset
Which of the following can be found in the
FINANCING section of the cash flow statement?
Issuing bonds
Buying bonds
Net Income
Buying of stock
Taxes
What is a contra-account for Accounts
Receivable?
Unreceived Cash Account
Allowance for Doubtful Accounts
Bad Debt Account
Bad Debt Expense
Allowance for unpaid balances
Under the Securites and Exchange Act of 1933,
("1933 Act") which forms must be filed by U.S. registrants.
Sarbanes-Oxley Form 404F
Form 2X-ZF
Hart-Scott-Rodino
10-K, 10-Q
Form 11-D
What is the balance of all revenue and expense
accounts once closed to Revenue summary?
$0
The same as at the beginning of the period
The average of the beginning and ending balances
The orignial balance less the contra account
balance at the end of the period
What is an appropriate set of journal entries
to recognize the declaration of dividends?
Debit Retained Earnings; Credit Dividends payable
Debit Paid-in capital; Credit Cash
Debit Dividends payable; Credit Retained Earnings;
Debit Convertible Stock; Credit cash
Which organization is most like IASB, but
monitors and improves the standards under US GAAP?
FASB
SEC
AICPA
FAS
PCAOB
Which of the following statements is false?
to increase cash, debit the account
to decrease a receivable, debit the account
to increase a receivable, debit the account
to increase revenue, credit the account
What is the formula for Net Profit Margin?
Gross Profit/Net Income
Gross Profit/Sales
Operating Income/Sales
Net Income/Sales
What are the two methods acceptable to present
cash flows from operating activities?
Direct and Indirect method
Only the matching principle method is accepted
Cash and Accrual method
GAAP and Tax basis method
Internal users are individuals and
organizations outside a company who want financial information about the
company.
False
True
Which is not one of the principles of US GAAP?
Matching Principle
Conservatism
Going Concern
Revenue Recognition Principle
Profitable Entity Principle
What determines if work performed on an owned
building's roof is expensed?
If the repair cost can be deemed material to the
business
If the work is deemed a repair that does not extend
the building's life, it is expensed
The cost will always be capitalized on the balance
sheet
The cost will always be expensed
(US GAAP ) Your accounts receivable drops from
the prior year. What happens on the cash flow statement and in which section?
No change
Cash increases - Operating section
Cash increases - Financing section
Cash decreases - Operating section
Cash decreases - Investing section
Acme company has 5,000 shares outstanding, and
Retained earnings balance of $12,000. If Acme declares a dividend of $3/share,
what is the resulting Retained earnings balance?
$0
-($3,000) ; Retained Losses
$7,000
The dividends are not allowed under corporate law
because a company cannot have negative Retained earnings
What is on the right side of the trial
balance?
Balances of all debit accounts
Balances of all credit accounts
The difference of Assets-Liabilities
The difference of Assets-(Liabilities+Equity)
Which of the following line items are part of
cost of goods sold?
research and development costs
selling, general and administrative costs
advertising
all of them
none of them
Which is NOT an intangible asset?
Patent
Subscriber list
Unused Line of Credit
Trademark
Which of the following can be found in the
INVESTING section of the cash flow statement?
Issuing of bonds
Buying of bonds
Dividends paid
Income taxes
Issuing of stock
Each payment on a mortgage note payable
consists of:
interest on the unpaid balance of the loan and
reduction of loan principal.
interest on the unpaid balance of the loan.
interest on the original balance of the loan.
interest on the original balance of the loan and
reduction of loan principal.
reduction of loan principal only.
What is the best definition for Depletion?
The process of allocating the original cost of
equipment to the periods benefited
The estimated sales price of the property at the
end of its useful life
The process of allocating the original cost of an
intangible asset to the periods benefited
The process of allocating the original cost of a
natural resource to the quantity at which the resource is extracted
Which is NOT one of the major categories on a
cash flow statement?
Operating
Income
Investing
All the options are major categories of a cash flow
statement
Financing
Which of the following principles does NOT
result in adjusting entries being made?
Accrual basis of accounting.
Revenue recognition.
Cash basis of accounting.
The matching principle.
What is the impact to Net cash provided by
(used for) financing activities from a company issuing long-term debt?
Positive: Source of cash
Negative: Use of cash
None of these
No impact: the cash is held by the bank for
covenant requirements
What is NOT true about assets on the balance
sheet?
Assets must equal liabilities
Assets have normal balances on the debit side
Assets represent future economic benefits
Increases in asset accounts are recorded on the
debit side
(US GAAP ) Your accounts receivable increases
from the prior year, what happens on the cash flow statement and in which
section?
Cash increases - Financing section
Cash decreases - Financing section
Cash decreases - Operating section
No change
Cash increases - Operating section
Which of the following will be found on the
balance sheet?
Net Income
Cost of Goods Sold
Wages expense
Additional Paid in Capital
Shares outstanding
An example of financial expense in a multistep
income statement would be:
prepaid expense.
interest expense.
income taxes.
selling expense.
On the cash flow statement, dividends paid are
found in the _________ section.
Investing
Not located on the cash flow statement
Operating
Financing
Income
Which of the following is not closed out to a
zero balance in the closing entries?
Expenses
Revenues
Drawings
Assets
What is done with the transactions in a
company?
they are summarized
neither of these
they are recorded
both of these
Cash flow statements are required by:
Company law.
The auditors of a company.
Non of the above
International Financial Reporting Standard No. 1
The shareholders of a company
When a company pays dividends, which type of
cash flow does this represent?
Free cash flow.
Investing.
Financing.
Operating.
After the initial recognition, bonds payable
shall be measured at amortized cost using:
Nominal interest rate method
Straight line method
Effective interest method
Bond outstanding method
The purpose of the income statement is to show
cash sources and uses during a specific period of time.
True
False
On the cash flow statement, net income is
found in the _________ section.
Financing
Not located on the cash flow statement
Investing
Operating
Income
When the expensed tax rate changes, deferred
tax:
Liability and Asset accounts are maintained at
historical tax rate until reverse.
Expense is calculated using current tax rates with
no adjustments
Liability and Asset accounts are adjusted to
reflect the new expected tax rate.
Under straight-line depreciation, what percent
of the cost of equipment to be allocated will be recognized in the third year
of a 5 year economic life?
30%
20%
10%
15%
Which of the following statements regarding
revenue recognition is FALSE?
Cash must be received to recognize revenue.
Transactions giving rise to revenue should be
arms-length.
Earning activities are substantially completed.
Risk of ownership has passed from seller to buyer.
Which of the following statements is true
about the reporting of operating segments by a business?
Publicly-held companies are required to present
this information while other companies are allowed to present it.
Privately-held companies are required to present
this information while publicly-held companies are allowed to present it.
All companies, whether publicly-held or not, are
allowed to present this information but no companies are required to present
it.
All companies, whether publicly-held or not, are
required to present this information.
If the balance of accounts receivable is
$2,000 at 1/1/2010 and $3,500 at 12/31/2010, how is that represented on the
Statement of Cash Flows?
Cashflows from operating activities reflect a
positive $1,500 source of cash
Cashflows from financing activities reflect a
positive $1,500 source of cash
Cashflows from operating activities reflect a
negative ($1,500) use of cash
Cashflows from financing activities reflect a
negative ($1,500) use of cash
When is an expense recognized under the
matching principle?
When the related revenue is recognized
When cash is received
When the order is accepted
When receipt of payment seems reasonably certain
In a cash flow statement the payment of a
preference dividend will be included:
None of these
Under operating activities
Under returns on investments
Under financing activities
What is the best definition for Amortization?
The process of allocating the original cost of a
natural resource to the quantity at which the resource is extracted
The process of allocating the original cost of an
intangible asset to the periods benefited
Asset basis less accumulated depreciation
The process of allocating the original cost of
equipment to the periods benefited
Which type of lease is reflected on a
company's balance sheet?
Deferred Lease
Capital Lease
Rent Lease
Operating Lease
Which of the following can be found in the
OPERATING section of the income statement?
Issuing bonds
Dividends
Purchase of property
Taxes (not deferred)
Depreciation
Which is not one of the principles of US GAAP?
Value-added Assumption
Time Period Assumption
Full Disclosure Principle
Going Concern
Materiality
Why is the Balance sheet referred to as a
"picture in time"?
The comparison of balances from the prior year
period as compared to the current period show the general health of the company
The balance sheet best depicts the value of the
company over time
The amounts shown on the line items of the balance
sheet are the values as of the last day of the period being presented
The balance sheet reflects historical values of
inventory, assets, debt, etc. rather than market value.
If the balance of inventories is $5,000 at
1/1/2010 and $3,500 at 12/31/2010, how is that represented on the Statement of
cashflows?
Cashflows from financing activities reflect a
negative ($1,500) use of cash
Cashflows from operating activities reflect a negative
($1,500) use of cash
Cashflows from financing activities reflect a
positive $1,500 source of cash
Cashflows from operating activities reflect a
positive $1,500 source of cash
Deferred credits will appear on the balance
sheet in which category?
Reserves
Profit
Liabilities
Assets
Equity
If Company X issued 10,000 shares with a
stated value of $1 per share at $5 a share, how would this transaction be
reflected on their balance sheet?
Debit to Cash for 50,000; Credit to Common Stock
for 10,000; Credit to Additional Paid in Capital for 40,000
Debit to Cash for 50,000; Credit to Common Stock
for 50,000
Credit to Cash for 50,000; Debit to Common Stock
for 10,000; Credit to Additional Paid in Capital for 40,000
Debit to Cash for 50,000; Credit to Common Stock
for 40,000; Credit to Additional Paid in Capital for 10,000
Which of the following is the classification
of a redeemable preference share?
Financial asset
Equity instrument
None of the above
Financial liability
Where is comprehensive income reported in the
income statement?
In Finance section
In the liabilities section of the BalanceSheet
In the Operating section
In Investment section
Seperatly after net income.
Which business components are reported in
Discontinued Operations?
Business components which do not producing revenue
The assets of the operation which are contractually
obligated to an outside entity
The liabilities of the business components which
have been contractually accepted by another entity
Operations and cash flows which are eliminated from
ongoing operation
What is the formula for Accounts Receivable
Turnover Ratio?
Sales/((Beginning Accounts Receivable + Ending
Accounts Receivable)/2))
Average Accounts Receivable/Net Income
Net Income/((Beginning Accounts Receivable + Ending
Accounts Receivable)/2))
Average Accounts Receivable/Assets
If you accept payment in advance of delivering
services, you debit cash and credit what?
Deferred Expense
Accounts Payable
Deferred Revenue
Accounts Receivable
Prepaid Expense
What are the journal entries for a company
issuing 1,000 shares of stock at $8/share issue price and no par value?
Debit cash $8,000; credit paid-in-capital $8,000
Debit Retained Earnings $8,000; credit paid-in
capital $8,000
Debit cash $8,000; Credit Convertible Debt $8,000
A company cannot issue stock without a par value
Which of the following can be found in the
INVESTING section of the cash flow statement?
Income taxes
Buying of equities
Issuing of bonds
Dividends paid
Issuing of stock
Which of the following would NOT be an
adjustment to net income using the indirect method?
Amortization Expense
Increase in market value of company- owned property
Depreciation Expense
An increase in Prepaid Rent
Under which classification on the balance
sheet would Notes Payable NOT appear?
Current Assets
Long term liabilities
All of these are correct.
Current Liabilities
What is the formula for Earnings Per Share
(EPS)?
Retained Earnings/Number of Common Shares
Outstanding
Net Income/Number of Common Shares Outstanding
Net Income per share/Par Value of Common stock
None of these
What is a basis point?
A basis point is 100/1
A basis point is 100/100
A basis point is a hundredth (1/100) of a
percentage point
A basis point is a tenth(1/10) of a percentage
point
A basis point is 10/100
What is an example of a noncurrent liability?
Trade accounts payable
Goodwill
Paid-in Capital
Capital lease obligation
What line item will always be a positive
amount on the Statement of Cash Flows (Indirect Method)?
Cash provided by (used in) operating activities
Cash provided by (used in) financing activities
Depreciation
Net Income (Loss)
What is the asset method of adjusting entries?
Non of the above
All of the above
Initial transaction recorded as a revenue/expense
Initial transaction recorded as an asset/liability
Which of the following can be found in the
FINANCING section of the cash flow statement?
Buying bonds
Taxes
Buying of stock
Dividends received
Issuing stock
What is the formula for Asset Turnover Ratio?
Asset/Shareholders' equity
Sales/Ending Assets
Net Income/Average Assets
Sales/((Beginning Total Assets + Ending Total
Assets)/2))
Which is considered Extraordinary Items?
Effects of major natural casualties, if rare in the
area
Write-down of inventories or write-off of
receivables
all of these
none of these
Effects of major natural casualties, not uncommon
in the area
What is the formula for Return on Equity
(ROE)?
Earnings Per Share/ Common Equity
Shareholders' equity/Operating Income
(Current Shareholders' equity - Diluted earnings)/Total
Shareholders' equity
Net Income/((Beginning Stockholders' Equity +
Ending Stockholders' Equity)/2))
What is the formula for Price Earnings (PE)
Ratio?
Market Price of Common Stock Per Share/Earnings Per
Share
Market price of stock per share/par value of stock
Net Earnings/Common Shares Outstanding
Market price of stock per share/(Paid in
capital/share +par value per share of stock)
In the financial statements, when a
convertible bond is retired, it is shown as:
as a reduction to cash and long-term liability on
the balance sheet.
a reduction in depreciation expense on the income
statement.
as an extraordinary gain or loss on the income
statement.
as equity on the balance sheet.
(US GAAP ) Your accounts payable increases
from the prior year, what happens on the cash flow statement and in which
section?
Cash decreases - Financing section
Cash increases - Operating section
Cash decreases - Operating section
No change
Cash increases - Financing section
Which of the following would normally be a
current liability?
Loan payable in two years
None of these
Unearned revenue
Amount payable in 3 years
All of these
What is the formula for Return on Assets
(ROA)?
Net Income/((Beginning Assets + Ending Assets)/2))
Assets/Operating Income
(Current Assets - Current Liabilities)/Total Assets
Earnings Per Share/Asset Turnover
Notes to Financial Statements are given to
Give as much information as possible
Impress the reader
Increase understandability
Confuse reader
To make Financial Statements look comprehensive
(US GAAP ) Your accounts payable drops from
the prior year, what happens on the cash flow statement and in which section?
Cash decreases - Operating section
Cash decreases - Financing section
Cash increases - Operating section
Cash increases - Financing section
No change
Where are gains / losses shown for securities
classified as trading securities?
Balance Sheet
Letter to investments
Not shown anywhere
Letter from auditors
Income Statement
If the balance of accounts payable is $8,000
at 1/1/2010 and $6,500 at 12/31/2010, how is that represented on the Statement
of cashflows?
Cashflows from financing activities reflect a
positive $1,500 source of cash
Cashflows from operating activities reflect a
negative ($1,500) use of cash
Cashflows from operating activities reflect a
positive $1,500 source of cash
Cashflows from financing activities reflect a
negative ($1,500) use of cash
What is factoring of accounts receivable?
A review of the likelihood of repayment at the end
of each accounting cycle.
A contra account named Allowance for doubtful
accounts
A firm sells receivables at a discount to face
value for immediate cash.
A weighted calculation of expected payment profiles
of customers based on stratification.
Typically, increasing interest rates:
discourage individuals from saving.
encourage corporate expansion.
encourage corporate borrowing.
none of the above.
discourage corporate investments
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