The recognition of an expense does not depend on the payment of cash.
A corporation’s bondholders are the primary recipients of financial leverage.
A temporary account is also known as a nominal account.
Inventory turnover is a measure of liquidity that focuses on the relative size of
inventory.
Merchandising companies do not need as good a system of internal control as service
companies.
The Allowance to Adjust Long-Term Investments to Market and the Unrealized Loss on
Long-Term Investments are reciprocal accounts, each with the same dollar balance.
The potential loss of all partners in an ordinary partnership is limited only by personal
bankruptcy laws.
A proper heading for the income statement could include “For the Year Ended
December 31, 20–.”
An advantage of the corporate form is the separation of ownership and control.
Even when no errors have been made, accounting is never 100 percent accurate because
of the extensive use of estimates.
Fair value is the amount for which an asset could be bought or sold in a current
transaction.
The Federal Reserve Board is an example of a consumer group.
The International Accounting Standards Board is the primary and most important
determinant of generally accepted accounting principles.
With few exceptions, all subsidiaries in which the parent company owns a controlling
interest (more than 50 percent) must be consolidated with the parent company for
financial reporting purposes.
Disclosure of segment information is useful in the analysis of diversified companies.
There is sufficient information on a post-closing trial balance to prepare a balance sheet.
The statement of owner’s equity discloses the owner’s withdrawals made during the
period.
The purpose of reversing entries is to simplify the bookkeeping process.
It is usually a good business practice to maintain as large a balance in the Cash account
as possible.
A corporation cannot declare a dividend that would cause stockholders’ equity to fall
below the legal capital.
Extraordinary repairs are recorded with a debit to Accumulated Depreciation.
To assure an efficient system of internal control, management should authorize all
transactions.
A credit to an asset account means that asset account has been increased.
The market interest rate is also called the face interest rate.
Trend analysis requires the establishment of a base year for comparison purposes.
The direct charge-off method makes no attempt to match bad-debt losses with revenues.
When a petty cash fund is replenished, the entry requires a debit to Petty Cash.
It is possible for an asset to be a current asset even though the expected conversion of
that asset into cash is to be longer than one year.
Ordinary repairs usually result in a debit to the appropriate Accumulated Depreciation
account.
In general, one partner acting alone cannot obligate the partnership to another party.
When the Income Statement columns of the work sheet are initially footed, they should
be in balance.
Held-to-maturity securities are valued on the balance sheet at cost adjusted for the
effects of interest.
Lawsuits against a company in connection with an industrial accident would not be
listed in the contingent liabilities section on the balance sheet.
Generally, before Accounts Receivable is debited, it is credited.
The Adjusted Trial Balance columns of the work sheet are prepared by combining the
Trial Balance and Adjustments columns of the work sheet.
Accrual accounting recognizes revenues and expenses at the point that cash changes
hands.
Company A purchases U.S. Treasury bills for $23,700. This investment will be held to
maturity. The bills will mature in 90 days at $24,000. The entry to record the initial
investment will include a
A. credit to Short-Term Investments for $23,700.
B. debit to Short-Term Investments for $23,700.
C. debit to Short-Term Investments for $24,000.
D. credit to Interest Receivable for $300.
Overestimating the number of tons of a mineral that can be mined over a mineral
deposit’s life will result in
A. understated total assets each year.
B. understated net income each year.
C. understated depletion expense each year.
D. no effect on total assets each year.
Assume that the balance of accounts payable does not change during a period. When
preparing a statement of cash flows, an increase in ending inventory over beginning
inventory will result in an adjustment to cost of goods sold under the direct approach
because
A. the amount of cost of goods sold is equal to the amount of cash paid for purchases.
B. consumed inventory is an expense but not a use of funds.
C. the amount of cost of goods sold on an accrual basis is less than the amount of cash
paid for purchases of inventory.
D. the amount of cash paid for purchases of inventory is less than the amount of cost of
goods sold on an accrual basis.
Which of the following is an inventory processing system?
A. Perpetual
B. Last-in, first-out
C. Lower-of-cost-or-market
D. Average-cost
Which of the following is the proper formula for computing free cash flow?
A. = Net Cash Flows from Investing Activities – Purchases of Plant Assets
B. = Net Cash Flows from Financing Activities + Sales of Plant Assets – Dividends
C. = Net Cash Flows from Investing, Financing, and Operating Activities – Purchases of
Plant Assets + Sales of Plant Assets
D. = Net Cash Flows from Operating Activities – Dividends – Purchases of Plant Assets
+ Sales of Plant Assets
Which of the following is not needed in calculating the value of a bond?
A. Face interest rate
B. Market interest rate
C. Future value of periodic interest payments
D. Present value of face (maturity) amount
Dixie Corporation has 2,000,000 authorized shares of $10 par value common stock. As
of June 30, 20×5, there were 1,000,000 shares issued and outstanding. On June 30,
20×5, the board of directors declared a $0.40 per share cash dividend to be paid on
August 1, 20×5, to shareholders of record on July 15, 20×5. Prepare the necessary
entries in journal form to be recorded on (a) the date of declaration, (b) the date of
record, and (c) the date of payment. (Omit explanations.)
In preparing adjustments to the work sheet, which of the following accounts could not
be added to the Account Name column?
A. Interest Receivable
B. Notes Payable
C. Depreciation Expense–Equipment
D. Interest Income
Which of the following would not be a basis for estimating the useful life of a piece of
equipment?
A. Potential production in units
B. Potential hours of service
C. Historical cost
D. Years of service
When a company has a net loss, the net loss amount is entered on the work sheet on the
A. credit side of both the Income Statement and the Balance Sheet columns.
B. credit side of the Income Statement columns and the debit side of the Balance Sheet
columns.
C. debit side of the Income Statement columns and the credit side of the Balance Sheet
columns.
D. debit side of both the Income Statement and the Balance Sheet columns.
Carrying out professional responsibilities with competence and diligence is called
A. integrity.
B. independence.
C. objectivity.
D. due care.
The account Allowance for Uncollectible Accounts is classified as a(n)
A. contra account to Uncollectible Accounts Expense.
B. expense.
C. liability.
D. contra account to Accounts Receivable.
When a fully depreciated asset with a residual value is discarded
A. a loss equal to its residual value may be recognized.
B. a gain equal to its residual value may be recognized.
C. no gain or loss may be recognized.
D. a gain for its carrying value may be recognized.
According to generally accepted accounting principles, goodwill is recorded as an asset
A. when favorable factors combine to create goodwill.
B. when a company has superior earning power.
C. when it is paid for as part of the purchase of a business.
D. under no circumstances.
Which of the following accounts is increased with a credit?
A. Office Supplies
B. Unearned Revenue
C. Land
D. Prepaid Insurance
To evaluate the amount of dividends they receive, investors use the ratio called
A. Price Earning ratio
B. Return on Equity
C. Dividend yield ratio
D. Current ratio
All of the following are indications of significant influence over another company
except
A. exchange of managerial personnel.
B. representation on the board of directors.
C. technological dependency between the two companies.
D. ownership of all of the other company’s debt securities.
What is the best way to study the relationship of the components of financial
statements?
A. Perform ratio analysis.
B. Perform trend analysis.
C. Perform horizontal analysis.
D. Prepare common-size statements.
The income statement for Catlett Company included the following revenues and
expenses for 20×5:
Listed below are the related balance sheet account balances at year end for this year and
last year:
a. Compute cash received for fees during the year.
b. Compute cash paid for wages during the year.
c. Compute cash paid for insurance during the year.
d. Compute cash paid for interest during the year.
Which of the following is a tax borne by the employer but not the employee?
A. State income tax
B. FUTA tax
C. Medicare tax
D. Social security tax
It is necessary to distinguish between capital and revenue expenditures because of
which of the following accounting rules or principles?
A. Matching
B. Full disclosure
C. Materiality
D. Consistency
Which of the following statements is true about investments categorized as trading
securities?
A. They are valued on the balance sheet at cost.
B. They can consist of debt, but not equity, securities.
C. They are purchased to be held to maturity.
D. Changes in market value are reflected in net income.
Hilda wishes to deposit an amount into her savings account that will enable her to
withdraw $1,600 per year for the next four years. She should deposit an amount equal
to $1,600 multiplied by the
A. present value of a single sum factor.
B. present value of an ordinary annuity factor.
C. future value of a single sum factor.
D. future value of an ordinary annuity factor.
Which of the following conditions is not a requirement by the SEC for the recognition
of revenue?
A. Delivery has occurred or services have been rendered.
B. Collectibility is reasonably certain.
C. A written agreement has been signed.
D. The seller’s price to the buyer is fixed or determinable.
When stock is issued for noncash assets or services, the dollar amount to be recorded
for this exchange is determined by the
A. treasurer of the corporation.
B. par value of the stock.
C. market value of the stock or the market value of the consideration received,
whichever is greater.
D. market value of the stock or the market value of the consideration received when the
market value of the stock cannot be determined.
An investment is classified as short term or long term based on
A. whether the investment can be sold immediately.
B. the length of time the investor expects to hold it.
C. the purpose for which it is held.
D. the dollar amount of the investment.
When bonds are sold at face value between interest dates, the result is a debit to the
Cash account that
A. equals face value.
B. depends on the circumstances.
C. is less than face value.
D. exceeds face value.
The document prepared by a department requesting the company to buy something is
called a(n)
A. purchase order.
B. invoice.
C. receiving report.
D. purchase requisition.
Under the periodic inventory system
A. the cost of each item is recorded in the Merchandise Inventory account when it is
purchased.
B. when an inventory item is sold, its cost is transaferred to the Cost of Goods Sold
account.
C. the balance of the Merchandise Inventory account equals the cost of goods on hand.
D. the balance of the Merchandise Inventory account is only accurate on the balance
sheet date.
Book value per share refers to the
A. net assets represented by one share of a company’s stock.
B. highest price that investors will pay for a share of stock.
C. issue price of the stock, less any market decline since issuance.
D. par or stated value of a share of stock.
Which of the following inventory methods when used for income tax purposes must
also be used for reporting purposes?
A. Specific identification
B. LIFO
C. FIFO
D. Average-cost
The development of international accounting standards is the primary function of the
A. IRS.
B. AICPA.
C. IASB.
D. PCAOB.
Failure to prepare closing entries will produce a misstated
A. total liabilities figure on the balance sheet.
B. total assets figure on the balance sheet.
C. owner’s Capital account balance.
D. Income Summary account balance.
Assume the direct method is used to compute net cash flows from operating activities.
For this item extracted from the financial statements—Decrease in Accounts Receivable
—indicate the effect on cash receipts from sales by choosing one of the following:
A. Add to Sales to arrive at cash receipts from sales.
B. Subtract from Sales to arrive at cash receipts from sales.
C. Not used to adjust Sales to arrive at cash receipts from sales.
Mesquite, Inc. engaged in the following transactions during October:
What is the amount of cash still to be paid?
A. $2,300
B. $2,100
C. $1,300
D. $400