1) What costs are included in inventory of manufacturing and
merchandising firms?
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2) Describe cash and cash equivalents.
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3) Accounting does not normally recognize mutually unexecuted
contracts as assets or liabilities.
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4) The capitalization of interest in the acquisition cost of assets
during construction delays expense recognition from the time
periods of borrowing to the time periods of using the asset.
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5) The cash basis separates the recognition of revenue from the
process of earning those
revenues.
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6) Firms account for material errors in previously issued financial
statements by retrospectively restating net income of prior periods
and adjusting the beginning balance in Retained Earnings of the
current period.
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7) The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB), which is responsible for monitoring the quality of audits of SEC registrants.
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8) Publicly held firms that apply U.S. GAAP or IFRS must show earnings
per common share data in the body of the income statement.
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9) The pension expense for a particular period for a firms defined
benefit pension plans rarely equals the cash contribution.
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10) Explain how tenants record rent paid in advance for an office
building and how a landlord or owner of the property rented records
the receipt of the advance payment. Show journal entries as part of
your answer.
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11) When analyzing leases, the risks of ownership include the risk of
interest rate increases, the risk of technological change and other
factors that would affect the lessors ability to lease or sell the
asset.
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12) Ideally, financial reporting standards should flow from and be
consistent with the financial reporting objectives, qualitative
characteristics of accounting information, and elements of
financial statements that comprise the FASBs and the IASBs
conceptual frameworks.
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13) Firms might use a particular derivative to hedge fair value and to
hedge cash flows.
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14) U.S. GAAP and IFRS permit firms to remeasure inventories upward to
an amount exceeding their acquisition cost.
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15) Securities available-for-sale that a firm intends to sell within
one year appear in marketable securities in the current assets
section of the balance sheet.
Answer:
16) The purpose of the conceptual framework developed by the Financial
Accounting Standards Board (FASB) is to guide?
A.alternative rule making decisions
B.enforcement decisions
C.academic research and study
D.Congressional decision-makers
E.standard setting decisions
Answer:
17) Notes to the financial statements provide additional information
about income tax expense and deferred tax assets and deferred tax
liabilities. Firms report which of the following?
A.components of income before income taxes
B.components of income tax expense
C.reconciliation from statutory to effective tax rate
D.components of deferred tax assets and liabilities
E.all of the above
Answer:
18) Which of the following is/are true regarding the reliability of a
reported amount?
A.that the amount corresponds to what it purports to represent
B.is reasonably free from error and bias in the sense that multiple
independent measurers would agree on the amount
C.neither U.S. GAAP nor IFRS specifies what amount of reliability
is sufficient, suggesting that this judgment is context-specific
and subjective, not quantifiable
D.Answers a, b, and c are correct
E.None of these answer choices is correct
Answer:
19) The accounts receivable turnover ratio captures the speed of cash
collections from credit customers and is calculated as follows:
A.average accounts receivable divided by sales revenue
B.sales revenue divided by average accounts receivable
C.sales revenue plus average accounts receivable
D.sales revenue minus average accounts receivable
E.sales revenue times average accounts receivable
Answer:
20) In accounting, depreciation and amortization involve a systematic
process of
A.cost allocation
B.valuation
C.recognizing holding gains
D.sum-of-the-years-digits
E.declining balances
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21) The adjustment for changes in operating working capital accounts
depends in part on a firms rate of growth. _____ firms usually
experience significant increases in accounts receivable and
inventories.
A.Introduction phase
B.Late maturity
C.Declining
D.Mature
E.Rapidly growing
Answer:
22) The method of revenue recognition where the seller collects parts
of the selling price in cash and at the same time recognizes as
expenses each period the same portion of the cost of goods or
services sold as the portion of total revenues recognized is called
the
A.completed contract method
B.direct payment method
C.installment method
D.cost-recovery-first method
E.cost-recovery-last method
Answer:
23) Corporations sometimes distribute assets other than cash when
paying a dividend. Which of the following is not true?
A.Such a dividend is sometimes known as a dividend in kind
B.Such a dividend is sometimes known as a property dividend
C.The amount debited to Retained Earnings equals the fair value of
the assets distributed
D.When this fair value differs from the carrying value of the
assets distributed, the firm does not recognizes a gain or loss in
net income
E.The accounting for property dividends resembles that for cash
dividends, except that when the firm pays the dividend, it credits
the asset given up, rather than Cash
Answer:
24) Temporary accounts are for recording
A.revenues and expenses
B.assets
C.liabilities
D.shareholders equity
E.assets, liabilities, and shareholders equity
Answer:
25) Jurisdiction-specific corporate laws limit directors freedom to
declare dividends. Which of the following is/are true?
A.The board may declare dividends out of capital, that is, debited
against the contributed capital accounts, which result from
fund-raising transactions with owners
B.The board may not declare dividends out of earnings by debiting
them against the Retained Earnings account, which results from
earnings transactions
C.Capital may mean the par or stated value of outstanding common
shares or the total amount paid in by shareholders
D.No jurisdictions allows corporations to declare dividends out of
the earnings of the current period even if the Retained Earnings
account has a debit (negative) balance because of accumulated
losses from previous period
E.none of the above
Answer:
26) To increase cash flow, a manufacturer might:
A.delay paying its suppliers
B.borrow from a bank using the inventory as collateral
C.institute a just-in-time inventory system
D.all of the above
E.none of the above
Answer:
27) The qualitative characteristics describe the attributes that
enhance the usefulness of financial reporting information. The
FASBs conceptual framework sets forth the qualitative
characteristic of _____ that refers to the faithfulness with which
accounting information represents what it purports to represent and
the extent to which the information is both verifiable by
independent measurers and neutral with respect to the interest of a
particular user group.
A.relevance
B.reliability
C.comparability
D.materiality
E.understandability
Answer:
28) Fox Co., Inc.
On January 1, Year 1, Fox Co., Inc., issues $100,000 par value, 10%
bonds maturing in 10 years to yield 12% per year, compounded
semiannually on January 1 and July 1. Use the present value
tables.
Refer to the Fox Co. Inc. example. What is the bonds payable
account (net of any bond discount or premium) at the end of Year 2
to the nearest amount shown?
A.$104,374
B.$100,000
C.$89,172
D.$85,519
E.$83,519
Answer:
29) Various laws and contracts govern the rights and obligations of a
shareholder. Which of the following is/are not true?
A.The corporation laws of the jurisdiction in which incorporation
takes place govern the rights and obligations of a shareholder
B.The articles of incorporation or the corporate charter sets out
the agreement between the firm and the jurisdiction in which the
business incorporates
C.The board of directors adopts bylaws, which are the rules and
regulations governing the internal affairs of the corporation
D.The jurisdiction grants to the firm the privileges of operating
as a corporation for certain stated purposes and of obtaining its
capital through the issue of shares of stock
E.none of the above
Answer:
30) Which of the following ratios is not a measure of
profitability?
A.rate of return on assets
B.rate of return on common stockholders’ equity
C.earnings per share of common stock
D.rate of return on preferred stockholders’ equity
E.all of the above
Answer:
31) In the Statement of Cash Flows, U.S. GAAP views cash received in
the form of interest and dividends as coming from _____.
A.investing activities
B.operating activities
C.financing activities
D.exchange activities
E.economic activities
Answer:
32) Dominick Inc.
The accounting records of Dominick Inc. indicate that the firm sold
for $1,800 during Year 2 a machine originally costing $6,000, with
accumulated depreciation of $4,600. The journal entry made to
record this sale was as follows:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .1,800
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . .
.4,600
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 6,000
Gain on Disposal of Equipment. . . . . . . . . . . . . . . . . . .
. . . . . . . . 400
(Use the information about Dominick Inc. to answer this question.)
In preparing the Statement of cash flows, all the cash proceeds of
$1,800 appear as an increase in cash from
A.a financing activity
B.an investing activity
C.an operating activity
D.an exchange activity
E.none of the above
Answer:
33) Financing activities on the cash flow statement do not include
A.issuance of stock
B.payment of dividends
C.borrowing from banks
D.payment of interest expense
E.acquiring previously issued bonds
Answer:
34) Cash flow from ____ activities includes increases and decreases in
short-term and long-term borrowing, increases and decreases in
common and preferred stock, and dividends.
A.operating
B.investing
C.financing
D.purchasing
E.exchanging
Answer:
35) Analysts deciding between investments must consider the comparative
risks. Which of the following is/are not economy-wide factors that
affect the risk of business firms?
A.increased inflation
B.increased interest rates
C.unemployment
D.recessions
E.increased competition
Answer:
36) Which of the following is/are not true?
A.U.S. GAAP and IFRS require firms to recognize the cost of
retirement benefits (pensions, health care, life insurance) as an
expense while employees work, not when they receive payments or
other benefits during retirement
B.Employers often contribute cash to a trust, an entity legally
separate from the employer, to fund their retirement
obligations
C.The accounting records of the trust established to fund the
retirement obligations are separate from the accounting records of
the employer, and the amounts on the two sets of books usually
differ
D.Payments to employees come from both the employers contributions
and investment returns of the firms long term investment assets
established to fund the retirement obligations
E.all of the above
Answer:
37) U.S. GAAP specifies that, in the context of inventories, market
means
A.replacement cost, only
B.net realizable value, only
C.replacement cost, except that market may not exceed net
realizable value and may not be less than net realizable value
reduced by a normal profit margin
D.replacement cost, except that market may not exceed net
realizable value and may not be less than present value of future
cash flows
E.replacement cost, except that market may not exceed net
realizable value and may not be less than the total amount of
undiscounted future cash flows
Answer:
38) The statement of cash flows for Goal Corporation, a U.S. retailer,
for the year ended February 2, 20×2 (fiscal 20×1), showed a net
cash inflow from operations of $4,100 million, a net cash outflow
for investing of $6,200 million, and a net cash inflow for
financing of $3,700 million. The balance sheet at February 3, 20×1,
showed a balance in cash of $800 million. Compute the amount of
cash on the balance sheet at February 2, 20×2.
A.$800 million
B.$1,600 million
C.$2,400 million
D.$3,200 million
E.$4,700 million
Answer:
39) Which financial statement reports operating performance for a
specific period of time?
A.Balance sheet
B.Income statement
C.Statement of changes in shareholders’ equity
D.Statement of retained earnings
E.Statement of Cash Flows
Answer:
40) Which of the following statements regarding discontinued operations
is true?
A.The assets and liabilities of a disposal group classified as held
for sale by an entity may be offset and shown as a single item on
the balance sheet of the entity
B.The assets and liabilities of a disposal group of an entity must
be shown separately in the asset and liabilities sections of the
balance sheet of the entity and cannot be offset
C.An adjustment in a subsequent period to the selling price of a
component of an entity sold must be reported as a retroactive
adjustment in the prior-period financial statements of the entity
in which the discontinued operation was reported
D.The gain or loss on disposal of a component of an entity
classified as a discontinued operation need not be disclosed
separately from the loss from operations of the discontinued
segment
E.None of these answers is correct
Answer:
41) The discount rate that firms use in measuring the pension plan
liability is the rate of return on
A.high-quality equity investments
B.low-quality fixed-income investments with a maturity
approximately equal to the period to maturity of the pension
benefits
C.average-quality fixed-income investments with a maturity
approximately equal to the period to maturity of the pension
benefits
D.high-quality fixed-income investments with a maturity
approximately equal to the period to maturity of the pension
benefits
E.certificates of deposit with a maturity approximately equal to
the period to maturity of the pension benefits
Answer:
42) Treasury stock can be defined as
A.unissued stock, that is shares that have never been sold by the
corporation
B.designated stock, that is shares used for the specific purpose of
converting preferred stock to common stock
C.investment stock, that is shares acquired from a subsidiary
company
D.reacquired stock, that is outstanding shares purchased on the
open market by the issuing corporation
E.reacquired stock, that is outstanding shares purchased on the
open market by the Treasury
Answer:
43) (CMA adapted, Dec 92 #9) In a business combination that is
accounted for as a purchase and does not create negative goodwill,
the assets of the acquired company are to be recorded on the books
of the acquiring company at
A.original cost
B.original cost less accumulated depreciation
C.fair market value
D.book value
E.liquidation value
Answer: