ACC 822 Quiz

1) A potential investor can easily ascertain market value of common
equity for a given publicly traded firm by looking up the most
recent share price (as reported in various online services) and
then multiplying this share price times the number of common shares
outstanding, as reported on the balance sheet.

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2) U.S. GAAP and IFRS requires the recognition of changes in the plan
assets or benefit obligations in measuring pension or other
benefits expense as those changes occur.

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3) U.S. GAAP permits firms to remeasure property, plant, and equipment
upward for increases in fair value under certain conditions.

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4) Current accounting practice takes the viewpoint of shareholders by
reporting the amount of net income available to shareholders after
subtracting from revenues all expenses incurred in generating the
revenue by claimants (for example, employees, lenders, governments)
other than shareholders.

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5) Compare and contrast the effect on net income, cost of goods sold,
and inventory of the FIFO, LIFO, and weighted-average cost flow
assumptions.

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6) Discuss measures of long-term liquidity risk.

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7) Modern business usage has come to restrict the word equity to mean
only shareholders equity, both contributed capital and retained
earnings.

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8) Some investing and financing transactions do not involve cash but
appear on the statement of cash flows.

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9) Working capital is the difference between a firms current assets
and its current liabilities.

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10) What are the roles, duties, and responsibilities of the independent
auditor?

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11) Describe the income recognition principles and how they are
applied.

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12) Describe the accounting for a fair value hedge of a recognized
asset or liability.

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13) (U.S. GAAP) A and X are exactly alike except for their choice of
accounting methods. A uses straight-line depreciation while X uses
200 percent declining balance depreciation. A uses FIFO and X uses
LIFO inventory methods.


a. Both corporations issue 5,000 shares of $1 par value stock on
January 1, for $15 per share.
b. Both A and X acquire equipment on January 1, for $40,000 cash.
The equipment has a 5-year life and a $5,000 salvage value.
c. Both A and X purchase inventory as follows:

Required:

Identify and give the balance of any balance sheet and
income statement accounts that have different balances at year end
for companies A and X based on the above information. Ignore any
tax effects.

Answer:

14) Most firms report the amounts in their financial statements using
_____.
A.Euros
B.United States Dollars
C.Japanese Yen
D.currency of the country where they are incorporated and conduct
most of their business activities
E.Swiss Francs

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15) A firm using FIFO had a beginning inventory of $48,000, an ending
inventory of $56,000, and a pretax income of $400,000. If it had
used LIFO, its beginning inventory would have been $20,000, and its
ending inventory would have been $16,000. From the information
provided, one can conclude that:
A.quantities increased and prices decreased
B.quantities decreased and prices increased
C.prices increased but we cannot conclude what happened to
quantities
D.quantities decreased but we cannot conclude what happened to
prices
E.not enough information to reach a conclusion

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16) Bargain Inc.’s beginning inventory is $20,000 and purchases for the
year are $80,000. A physical inventory shows that $15,000 of the
inventory remains at year end. How much is recorded as cost of
goods sold for the year?
A.$75,000
B.$80,000
C.$85,000
D.$95,000
E.$105,000

Answer:

17) U.S. GAAP and IFRS require firms to initially report the results of
most income transactions in the
A.retained earnings bypassing the income statement
B.income statement instead of bypassing the income statement and
reporting the amounts in some other shareholders equity account
C.paid-in-capital bypassing the income statement
D.retained earnings bypassing the income statement
E.treasury stock bypassing the income statement

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18) Which of the following is/are true regarding the Finished Goods
Inventory account?
A.This account measures the total manufacturing cost of units
completed but not yet sold
B.The sale of manufactured goods to customers results in a transfer
of their cost from the Finished Goods Inventory account to Cost of
Goods Sold
C.The journal entry for the sale of the inventory to a customer is
a debit to Cost of Goods Sold and a credit to Finished Goods
Inventory
D.all of the above
E.none of the above

Answer:

19) The preparation of pro forma financial statements typically begins
with the _____, followed by the _____ and then the _____.
A.balance sheet; income statement; statement of cash flows
B.statement of cash flows; income statement; balance sheet
C.income statement; balance sheet; statement of cash flows
D.income statement; statement of cash flows; balance sheet
E.balance sheet; statement of cash flows; income statement

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20) Part 1: Briefly explain a bond contract and its relationship to
cash flows.
Part 2: Define the following terminology with respect to bonds:
a. Face Value
b. Principal
c. Maturity Value
d. Market Value
e. Coupon Interest Rate
f. Historical Market Interest Rate or Initial Yield to Maturity
g. Current Market Interest Rate

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21) A construction firm enters a long-term contract to build a bridge.
The expected and actual cash receipts and disbursements for the
project are as follows:

Required:

What is the income before taxes during each of the following
periods under each of the specified methods of revenue
recognition?


Period Method
a. 1 Completed Contract
b. 4 Completed Contract
c. 1 Percentage of Completion
d. 4 Percentage of Completion
e. 1 Installment Method
f. 4 Installment Method
g. 1 Cost Recovery First
h. 4 Cost Recovery First

Answer:

22) Healthy Lawn Maintenance Company

Healthy Lawn Maintenance Company started a lawn services business
on January 1, 2013 . It sends invoices to its customers for lawn
maintenance services at the end of each month, and expects the
customer to pay within 30 days. During 2013, Healthy Lawn
Maintenance billed its customers a total of $2,000,000 for services
rendered during the year. It made journal entries at the end of
each month.

The 2013 year-end balance in Accounts Receivable, Gross, for
Healthy Lawn Maintenance is $1,085,000 An aging of these accounts
receivable shows that the estimated uncollectible amount is
$24,200. Before aging the accounts, the Allowance for
Uncollectibles has a debit balance of $15,000 from writing off
actual accounts during 2013. Healthy Lawn Maintenance would record
the following adjusting entry at the end of 2013 to obtain a credit
balance in the Allowance for Uncollectibles of $24,200:
A.Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 24,200
Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 24,200
B.Allowance for Uncollectibles . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 24,200
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 24,200
C.Allowance for Uncollectibles . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 39,200
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 39,200
D.Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 39,200
Allowance for Uncollectibles . . . . . .. . . . . . . . . . . . . .
. . . . . . . . . . . . 39,200
E.Allowance for Uncollectibles . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 15,000
Bad Debt Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 15,000

Answer:

23) (CMA adapted, Jun 90 #20) Regarding the data for Ramer Company and
Matson Company, the attitudes of both Ramer and Matson concerning
risk are best explained by the
A.current ratio, accounts receivable turnover, and inventory
turnover
B.return on investment and dividend payout ratio
C.current ratio and earnings per share
D.debt-equity ratio and interest coverage ratio
E.none of the above

Answer:

24) If Wabasso Company pays $55,000 in dividends to its corporate
investor Lament Corporation (Lament owns 35% of The Wabasso
Company), what entry should Lament Corporation record when it
receives the dividends?
A.Cash55,000
Dividend Income 55,000
B.Cash55,000
Investment Income 55,000
C.Cash55,000
Investment in Wabasso Company 55,000
D.Cash55,000
Additional Paid-in Capital 55,000
E.Cash55,000
Common Stock- Wabasso Company 55,000

Answer:

25) How are tangible long-lived assets acquisition cost and accumulated
depreciation disclosed?
A.Tangible long-lived assets typically appear under the title
Property, Plant, and Equipment
B.Information is displayed on the balance sheet
C.Tangible long-lived assets typically appear under noncurrent
assets
D.Acquisition cost and accumulated depreciation are omitted from
the balance sheet but are detailed in the notes
E.all of the above

Answer:

26) Baker Company reports the following information for a year:
Book Income Before Income
Taxes……………………………………$318,000
Income Tax
Expense………………………………………………………
156,000
Income Taxes Payable for the
Year…………………………………. 48,000
Income Tax Rate on Taxable Income
……………………………… 40%
Baker has both permanent and temporary differences between book
income and taxable income.
a. What is the amount of temporary differences for the year? Give
the amount, and indicate whether the effect is to make book income
larger or smaller than taxable income.
b. What is the amount of permanent differences for the year? Give
the amount, and indicate whether the effect is to make book income
larger or smaller than taxable income.

Answer:

27) Equity, or shareholders equity for a corporation,
A.is the residual interest of owners in the assets of an entity,
after subtracting liabilities
B.includes assets exchanged by owners in return for an ownership
interest
C.includes net assets generated by earnings activities in excess of
net assets distributed to owners as dividends
D.is reduced by repurchases by the firm of its ownership
interests
E.all of the above

Answer:

28) Which method of preparing the statement of cash flows is required
by U.S. GAAP?
A.direct
B.indirect
C.funds flow
D.either direct or indirect may be used if appropriate note
disclosure is included
E.either direct or funds flow may be used if appropriate note
disclosure is included

Answer:

29) The balance sheet of Allhear, a communications firm, for the year
ended December 31, 20×1, showed current assets of $20 million,
current liabilities of $16 million, shareholders equity of $17
million, and noncurrent assets of $29 million.

Compute the amount of noncurrent liabilities on Allhears balance
sheet at the end of 20×1.
A.$5 million
B.$10 million
C.$12 million
D.$13 million
E.$16 million

Answer:

30) Claitin Inc. uses large warehouses to store its finished goods
ready for sale. After its personnel and auditors conducted a
physical inventory of goods on one side of its warehouses, Claitin
Inc. transported a portion of the inventory to another part of the
warehouse, removing the inventory tags that indicated that the
items had already been counted in inventory, and thereby included
the items a second time in inventory. In this way, the firm
overstated its ending inventory for the current year, understated
its cost of goods sold, and overstated its earnings. This action
resulted in an overstatement of the beginning inventory for the
next year. Assuming a correct count of the ending inventory for the
second year, the action has the result of overstating cost of goods
sold for the second year and understating earnings. Net income for
the two years combined, however, is correctly stated, the net
result of an overstatement in the first year offset by an equal
understatement in the second year. The actions
A.are in accordance with U.S. GAAP
B.are in accordance with IFRS
C.violate ethical principles
D.are in accordance with U.S. GAAP, but not IFRS
E.are in accordance with IFRS, but not U.S. GAAP

Answer:

31) Firms engage in transactions involving derivatives. For the most
part, the complex parts of these transactions occur _____, but
those transactions do _____ until, possibly, their settlement.
A.after the firm has acquired the derivative; not affect cash
flows
B.before the firm has acquired the derivative; not affect cash
flows
C.when the firm has acquired the derivative; not affect cash
flows
D.after the firm has acquired the derivative; not affect net
income
E.before the firm has acquired the derivative; not affect net
income

Answer:

32) The Perma Company spent $300,000 on research and development during
Year 8 to generate new product lines. One of the three projects
looks like it will ultimately be technologically feasible while the
other two projects resulted in unsuccessful efforts. For the
project which may become technologically feasible, a total of
$125,000 was incurred during Year 8. Under U. S. GAAP, how much of
the $300,000 should be recognized as an expense in Year 8?
A.$300,000
B.$225,000
C.$175,000
D.$50,000
E.$0

Answer:

33) Prepayments for Julianna Company decreased by $2,000 during Year 3,
the firm expensed less cash during Year 3 for new prepayments than
it expensed prepayments of earlier years. Assume that all
prepayments relate to selling and administrative activities. The
journal entries that Julianna Corporation made in the accounting
records during the year had the following combined effect:

Selling and Administrative Expenses . . . . . . . . . . . . . .
35,500
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 33,500
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 2,000

To explain the change in the statement of cash flows T-account work
sheet for Prepayments
A.add back $33,050 to net income
B.add back $2,000 to net income
C.subtract $2,000 from net income
D.subtract $33,500 from net income
E.subtract $2,000 from retained earnings

Answer:

34) Choose the combination below that best reflects the appropriate
classification of cash received from investing and financing
activities.

Cash Received from Cash Received from
Investing Activities Financing Activities
A.Sale of treasury stock Proceeds from issuing common stock

B.Sale of treasury stock Sale of investment securities

C.Sale of investment securities Proceeds of issuing common
stock

D.Proceeds from issuing common stock Sale of investment
securities

E.None of these answers is correct.

Answer:

35) Which of the following is/are not true?
A.All corporations must issue common stock
B.Common shareholders have a claim on the assets of a firm after
creditors and preferred shareholders have received amounts promised
to them
C.Frequently, corporations grant voting rights only to common
shares, giving their holders the right to elect members of the
board of directors and to decide certain broad corporate policies
(spelled out in the stock contract)
D.Some firms issue more than one class of common shares, with each
class granted different voting rights
E.none of the above

Answer:

36) Brussels Products began its Belgian operations on January 1. The
following is the journal entry for the total payroll for January of
60,000: 40,000 paid to factory workers and 20,000 paid to marketing
and administrative personnel:
A.Direct Labor Inventory . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 40,000
Salaries Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 20,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 60,000
B.Salaries Expense. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 60,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 60,000
C.Work-in-Process Inventory. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 60,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 60,000
D.Work-in-Process Inventory. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 40,000
Salaries Expense. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 20,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 60,000
E.Work-in-Process Inventory . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000
Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 40,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 60,000

Answer:

37) Albion Company sells merchandise with a one year warranty. In 2013,
sales consisted of 2,500 units. It is estimated that warranty
repairs will average $20 per unit sold, and 30% of the repairs will
be made in 2013 and 70% in 2014. In the 2013 income statement,
Albion should show warranty expense of:
A.$15,000
B.$35,000
C.$50,000
D.$0
E.$25,000

Answer:

38) Which of the following is not true?
A.Firms must test goodwill annually for impairment
B.Goodwill is the excess of the amount paid for the acquired
company over the fair value of identifiable net assets
C.Goodwill, because it includes unidentifiable intangible
resources, has an indefinite life
D.U.S. GAAP requires tests for impairment of goodwill as part of a
reporting unit because a firm cannot separate goodwill from other
assets
E.U.S. GAAP requires firms to amortize goodwill over its expected
useful life

Answer:

39) First Third Company depreciates an asset with a cost of $55,000
over 10 years using the straight-line method of depreciation and
the yearly depreciation expense is $4,000, what is the estimated
salvage value of the asset?
A.$5,000
B.$10,000
C.$15,000
D.$20,000
E.$20,375

Answer:

40) Management operates the productive capacity of the firm to generate
earnings. Operating activities include the following except
for:
A.Purchasing
B.Research and development
C.Marketing and administration
D.Production
E.Dividend payments

Answer: