Acc 555 Quiz

1) Describe the sources of long-term debt financing.

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2) Describe the steps used for the accounting record-keeping process.

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3) U.S. GAAP and IFRS require firms to recognize as an expense the
cost of retirement benefits when the employees receive payments or
other benefits during retirement not while employees work.

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4) Briefly describe the International Accounting Standards Board
(IASB) and who can use IFRS in the United States?

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5) An entity should derecognize (remove from the balance sheet) an
asset that it no longer controls.

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6) Under both U.S. GAAP and IFRS, the issue or redemption of debt is a
financing activity.

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7) What are the requirements for the disclosure of the carrying and
fair values of debt?

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8) Describe several issues in the accounting for long-lived assets.

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9) All corporations must issue preferred stock.

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10) Theoretical and empirical research has shown that the expected
return from investing in a firm relates, in part, to the expected
profitability of the firm.

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11) The following information is reported by ComCo, a Singapore
company; all figures are in millions of Singapore dollars ($). The
firm reported revenues of $15,882, cost of goods sold of $13,671,
interest and other expenses of $2,113, and tax expense of $67. It
also reported $14,894 in cash receipts from customers, $102 in
miscellaneous cash receipts, $6,447 in cash payments to employees
and creditors, $6,861 in cash payments for milk, $402 in cash
payments for interest, and $64 in cash payments for taxes.

Required:
1> Calculate net income and its net cash flow.
2> Explain why ComCos net income is so much different than its
net cash flow.

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12) Many firms, especially in their first years of operation and
growth, face a variety of challenges obtaining funds to finance
their growth.

Required:

Discuss how a small, young manufacturing firm that has a relatively
unpredictable revenue stream might approach financing a new
manufacturing line.

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13) On November 1, Year 1, Dorian Collections Agency accepted a
$100,000, 3-month note from a customer. The note earns 9% interest
per year. What is the amount of interest receivable recorded by
Dorian Collections Agency at December 31, Year 1? (Assume no other
entries to record interest have been made.)
A.$9,000
B.$1,500
C.$750
D.$0, because interest is not due until February 1 of Year 2
E.$900

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14) The _____ report changes in assets and liabilities over a period of
time, similar to a motion picture.
A.balance sheet and income statement
B.income statement and statement of cash flows
C.balance sheet and statement of cash flows
D.statement of cash flows and funds flow statement
E.balance sheet and statement of cash receipts and disbursements

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15) Most firms prefer to prepare the statement of cash flows after they
have prepared the income statement and the balance sheet. The
amounts debited to various accounts on the T-account work sheet
A.do not equal amounts credited to various accounts
B.must equal amounts credited to the liability accounts, only
C.may or may not equal amounts credited to various accounts
D.must equal amounts credited to various accounts
E.must equal amounts credited to the shareholders equity accounts,
only

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16) Which of the following is/are true?
A.The seller measures revenue as the amount of cash, or the
cash-equivalent value of other assets, that it receives from
customers
B.The seller measures revenue amounts as the exchange price between
buyer and seller at the time of sale
C.If the firm has not performed all of its obligations, it may make
adjustments in the form of sales discounts and allowances
D.If the firm has not performed all of its obligations, it may make
adjustments in the form of sales returns
E.all of the above are true

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17) Firms recognize deferred tax assets only to the extent that they
expect to generate sufficient taxable income to realize the assets
in the form of tax savings in the future. IFRS requires that firms
recognize the _____of deferred tax assets, with explanatory
disclosures.
A.expected realizable amount
B.present value of the amount
C.future value of the amount
D.negotiated value of the amount
E.liquidation value of the amount

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18) Pense Co. purchased 40% of the stock of Stretch Co. in Year 1 for
$100,000. Stretch had net income in Year 1 of $50,000 and net
income in Year 2 of $30,000. Stretch also paid total dividends of
$20,000 in Year 2 . On January 1, Year 3, Pense Co. sold its
investment in Stretch Co. to GE Capital Corporation (GE) for
$130,000. What entry would Pense Co. make to record the sale of
Stretch Co.?
A.Cash130,000
Gain on Sale 6,000
Investment in Stretch124,000
B.Cash130,000
Loss on Sale 2,000
Investment in Stretch132,000
C.Cash130,000
Loss on Sale 10,000
Investment in Stretch140,000
D.Cash130,000
Loss on Sale 30,000
Investment in Stretch 160,000
E.Cash130,000
Loss on Sale 20,000
Investment in Stretch 150,000

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19) Applying IFRS, the test for an impairment loss for long-lived
assets other than nonamortized intangibles and goodwill compares
the balance sheet carrying value with the assets
A.recoverable amount
B.sum of the undiscounted cash flows
C.sum of the discounted cash flows
D.expected future value
E.fair market value

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20) A callable bond
A.must be retired from a sinking fund maintained by the bond
issuer
B.may be retired at a specified price at the option of the bond
purchaser
C.may be reacquired by the issuing company at a specified price
D.are registered with an agent to insure correct payment of bond
interest amounts
E.are convertible into common stock at par values

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21) Generally only investments with maturities of _____ months or less
qualify as cash equivalents.
A.one
B.two
C.three
D.six
E.twelve

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22) Which of the following is/are not true?
A.Firms sometimes issue bonds with stock warrants attached and
allocate the amount received between the bonds and the warrants
based on their respective fair values
B.When firms issue convertible bonds U.S. GAAP requires firms to
allocate the full issue price to the bonds and none to the
conversion feature
C.IFRS requires firms to allocate the full issue price to the bonds
and none to the conversion feature.
D.Under IFRS, the firm allocates the issue price of bonds with
terms similar to those issued but without the conversion feature to
the bonds and the remainder of the issue price to the conversion
option
E.all of the above

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23) Cash flow from investing activities includes
A.cash purchases of property, plant, and equipment
B.cash sales of marketable securities and investments in
securities
C.cash sales of property, plant, and equipment
D.cash sales of intangibles
E.all of the above

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24) The adjustment for changes in operating working capital accounts
depends in part on a firms rate of growth. Some firms use short- or
long-term borrowing or equity financing, which is
A.classified as operating activities
B.classified as financing activities
C.classified as investing activities
D.disclosed in a supplementary schedule or notes to the financial
statements
E.disclose such changes in managements discussion and analysis

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25) Ramer Company and Matson Company

Assume the following information for Ramer Company, Matson Company,
and for their common industry for a recent year.

(CMA adapted, Jun 90 #19) Regarding the data for Ramer Company and
Matson Company, which one of the following is correct if both
companies have the same total assets and the same sales?
A.Ramer has more cash than Matson
B.Ramer has fewer current liabilities than Matson
C.Matson has less shareholders’ equity than Ramer
D.Matson has a shorter operating cycle than Ramer
E.None of the above is correct

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26) Under U.S. GAAP, assets and liabilities in the balance sheet appear
in order of
A.decreasing closeness-to-cash
B.increasing closeness-to-cash
C.alphabetical order
D.numerical order
E.all of the above

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27) Publicly held firms that apply U.S. GAAP or IFRS must show earnings
per common share data in the
A.body of the income statement
B.footnotes to the financial statements
C.management discussion and analysis
D.body of the balance sheet
E.body of the statement of cash flows

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28) (CMA adapted, Jun 88 #19) Which one of the following items would
likely increase earnings per share (EPS) of a corporation?
A.purchase of treasury stock
B.declaration of a stock split
C.declaration of a stock dividend
D.an increase in the common stock shares authorized to be
issued
E.an increase in the preferred stock shares authorized to be issued

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29) Firms account for leases using either the operating lease method or
the capital (finance) lease method. Which of the following is not
true?
A.The operating lease method treats leases as executory
contracts
B.The operating lease method does not recognize a leased asset on
the lessees balance sheet
C.The operating lease method recognizes a lease liability on the
lessees balance sheet
D.The lessor recognizes rent revenue as the lessee uses the leased
asset over time
E.The lessee recognizes rent expense as the lessee uses the leased
asset over time

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30) The FASBs conceptual framework does not include which of the
following as financial reporting objectives?
A.Provide information useful for making rational investment and
credit decisions
B.Provide information to help current and potential investors and
creditors assess the amount, timing, and uncertainty of past cash
flows
C.Provide information about the economic resources of a firm and
the claims on those resources
D.Provide information about a firms operating performance during a
period
E.Provide information about how an enterprise obtains and uses cash

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31) Gains and losses on the purchase and resale of treasury stock may
be reflected only in
A.paid-in capital accounts
B.paid-in capital and retained earnings accounts
C.income, paid-in capital, and retaining earnings accounts
D.income and paid-in capital accounts
E.None of these answer choices is correct

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32) Focus Company decided to construct its own manufacturing building.
Focus Company should capitalize which of the following interest
costs?
A.Building interest costs incurred prior to construction while
occupying another building
B.Building interest costs incurred during construction
C.Building interest costs incurred after construction
D.All interest costs incurred
E.No interest costs incurred

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33) Which of the following is/are true regarding reporting trading
securities at fair value on the balance sheet.
A.Active securities markets provide objective measures of fair
values for trading securities
B.Fair values provide financial statement users with the most
relevant information for assessing the success of a firms trading
activities over time
C.U.S. GAAP and IFRS require firms to report trading securities at
fair value on the balance sheet
D.all of the above
E.none of the above

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34) When preparing consolidated financial statements, the result of the
elimination process generally is the
A.restatement of the cash balance of each company due to
intercompany transactions
B.presentation of only the transactions between the consolidated
entity and others outside the entity
C.replacement of the investment account and the subsidiary’s
shareholders’ equity with only the parent’s share of the individual
assets and liabilities of the subsidiary
D.posting the eliminations to both parent and subsidiarys
accounts
E.posting the eliminations to the subsidiarys accounts, only

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35) Accounting is governed by the balance sheet equation, which shows
the equality of
A.assets with liabilities plus shareholders equity
B.assets plus liabilities with shareholders equity
C.assets plus shareholders equity with liabilities
D.assets with liabilities minus shareholders equity
E.assets with shareholders equity minus liabilities

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36) Which of the following is not true regarding stock rights?
A.U.S. GAAP does not require recognition of the rights on the date
of the grant
B.Firms often issue stock rights to raise new capital from current
employees
C.Shareholders may exercise the stock rights or sell them to
others
D.IFRS does not require recognition of the rights on the date of
the grant
E.When holders exercise the stock rights, the firm records the
issue of shares at the price paid just as it records the issue of
new shares for cash

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37) The method of reporting preferred by U.S. GAAP is/are
A.the direct method
B.the indirect method
C.both the direct method and the indirect method
D.the schedule of cash receipts and cash disbursements
E.the funds flow statement

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38) U.S. GAAP requires the disclosure of the acquisition of a building
by assuming a mortgage obligation
A.as both a financing activity and an operating activity
B.as both an operating activity and an investing activity
C.as both an investing activity and a financing activity
D.in a separate schedule or note, but does not appear in the
statement of cash flows as an operating activity, investing
activity or a financing activity
E.as both an investing activity and a exchange activity

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