Fin 899 Midterm 1 | Course Paper

Unlock access to all the studying documents.

View Full Document

Adjusting entries are journalized after the financial statements are prepared.

Corporations are perpetual entities created in accordance with federal laws.

Comprehensive income includes both net income and the change in market value of

available-for-sale securities.

The depreciable value is the difference between the total acquisition cost and the

predicted residual value.

Temporary differences in the timing of expenses and revenues always result in a

liability called Deferred Tax Liability.

Reliability refers to whether the information makes a difference to the decision maker.

Permanent differences between income tax per GAAP and income tax per the tax law

lead to deferred tax liabilities.

A payment to a creditor will decrease assets and increase liabilities.

When ownership of another company is greater than 50%, consolidation is required.

Consider the following information:

Assuming a 365-day year, determine the days to collect accounts receivable.

A) 304.2 days

B) 125.0 days

C) 31.9 days

D) 32.22 days

E) 28.4 days

If a company uses a perpetual inventory system, it will maintain all the following

accounts except:

A) cost of goods sold.

B) inventory.

C) sales.

D) purchases.

E) All of the above accounts are used with a perpetual inventory system.

Prepare any necessary adjusting or correcting entries called for by the following

situations. Assume that no entries have been made regarding the situation other than

those specifically described.

Consider each situation separately.

a. Equipment is repaired and maintained by an outside maintenance company on an

annual fee basis, payable in advance. The $2,400 fee was paid in advance on September

1 (for 12 months beginning September 1) and was charged to Repair and Maintenance

Expense. What adjustment is necessary on December 31?

b. On January 1, $10,500 of machinery was purchased. $500 cash was paid down and a

3-month, 12% note payable was signed for the balance. The January 1 transaction was

properly recorded. Prepare the adjustment for the interest as of January 31.

c. On February 1, $1,200 was paid in advance to the landlord for three month’s rent.

The tenant debited Prepaid Rent for $1,200 on February 1. What adjustment is

necessary as of February 28?

The primary objective of financial reporting focuses on

A) consistency.

B) representational faithfulness.

C) validity.

D) decision usefulness in making investment, credit and resource allocation decisions.

E) the matching concept.

The following balance sheet is available:

Net income in 2X14 was $5,000,000 and the market price was $61.56 per share of

common stock.

What is the book value per share of common stock for Tabler Company at December

31, 2X14?

A) $9.17

B) $18.44

C) $18.56

D) $20.38

E) $20.52

If a company capitalizes costs that it should have expensed in 2X13 (assume no income

tax effect),

A) cash flows will be overstated in 2X13.

B) cash flows will be understated in 2X13.

C) net income will be understated in 2X13.

D) net income will be overstated in 2X13.

E) no income statement effect will occur.

Fulton Company has the following data available:

What is the percentage increase or (decrease) in wage expense from 2X12 to 2X13 for

Fulton Company?

A) 5.3%

B) (5.3)%

C) 2.6%

D) (5.6)%

E) 5.6%

The adjustment for revenue received in advance, which has been earned in the current

period, involves a

A) debit to unearned revenue.

B) debit to accrued revenue.

C) credit to accrued revenue.

D) debit to cash.

E) credit to cash.

Treasury stock is

A) shares owned by the directors of a company.

B) shares owned by the management of a company.

C) shares that are not yet sold but could be sold at any time by a company.

D) previously issued shares of a company that are now held by the company.

E) shares of a company held in reserve to eventually retire the debt of the company.

Rent is paid one year in advance. The payment is recorded as an asset, Prepaid Rent,

and 1/12 of the amount each month is recorded as Rent Expense. This is an example of

which of the following concepts?

A) Recognition

B) Neutrality

C) Realization

D) Matching

E) Product costs

As the market rate of interest rises above the nominal or stated interest rate for a bond,

the market price of the bond will

A) stay the same.

B) fall.

C) rise.

D) Cannot be determined without more information

E) go in sync with the stock’s price.

The Sarbanes-Oxley Act was passed in 2002 to regulate the accounting profession.

Although the act encompasses many aspects, what is one of the parts of the act?

A) Requires rotation every ten years of the lead audit or coordinating partner and the

reviewing partner on an audit

B) Established the Public Company Accounting Oversight Board

C) Requires all accounting firms to register with the SEC

D) Prohibits public accounting firms from auditing SEC regulated companies

E) Excludes certain industries from conducting business with public accounting firms

Presented below are the balance sheets of Tallton Company and Handel Company at

January 1, 2X13:

On January 1, 2X13, Tallton Company acquired 100% of the outstanding common

stock of Handel Company for $140 in cash. Assume the book value of Handel’s assets

and liabilities equals the market value.

Which of the following statements regarding the consolidated balance sheet

immediately after the acquisition is not correct?

A) Total liabilities will be $360.

B) Total cash will be $170.

C) Total assets will be $730.

D) Total net fixed assets will be $420.

E) Total stockholders’ equity will be $230.

What order does inventory typically travel in an organization?

A) Raw materials, customer, finished goods, work in process

B) Raw materials, work in process, customer, finished goods

C) Raw materials, work in process, finished goods, customer

D) Work in process, raw materials, finished goods, customer

E) Work in process, finished goods, raw materials, customer

Cash dividends

A) are distributions of cash to trade creditors.

B) are expenses like rent and depreciation.

C) should not be deducted from revenues on the income statement.

D) must be paid annually, regardless of the amount of cash in the bank.

E) cannot be paid if a net loss is incurred.

Which statement is true regarding zero coupon bonds?

A) They provide cash interest payments during their life.

B) They are sold for more than the face or maturity value.

C) The investor determines their market value at the issuance date by calculating the

present value of their maturity value, using the market rate of interest for bonds having

similar terms and risks.

D) They are also called callable debentures.

E) They are also called junk bonds.

If an investment is to be held only for a short time, it should be classified on the balance

sheet as a ________.

A) current liability

B) noncurrent asset, which appears in a separate investments category

C) noncurrent asset, which appears as part of other assets below the plant assets