Archives: Quiz

1) Land is purchased on credit. For this transaction, identify the effect on the accounting equation. A.Assets increase and liabilities increase B.Assets increase and owners equity increases C.Liabilities increase and owners equity decreases D.Liabilities decrease and assets decrease 2) Excursion […]

1) The record used to accumulate monetary information for each individual asset, liability, stockholders equity, revenue, and expense item is a(an) A.Account B.General Journal C.General Ledger D.Chart of Accounts 2) The following information is available from the balance sheets at […]

1) On a bank reconciliation, outstanding checks are added to the cash balance per the bank statement. 2) The number of days’ sales in inventory is the same as a companys accounting cycle. Answer: FALSE 3) An expense is an […]

1) The recognition of revenue may result from the settlement of a liability rather than from the acquisition of an asset. 2) The statement of cash flows summarizes the operating, investing, and financing activities of a business for a period […]

1) Cost of goods sold represents an outflow of an asset, inventory, from the sale of products. 2) Dividends are a determinant of net income. Answer: FALSE 3) A note discounted with recourse means that if the original customer fails […]

1) A company gives a two-year warranty for its product. The estimated liability for product warranties is a current liability. 2) The time period assumption assumes a company prepares financial statements every month. Answer: FALSE 3) The issuance of common […]

1) A 12% change in sales will result in a 12% change in net income. 2) Every transaction affects equal numbers of ledger accounts and is recorded by equal dollar amounts of debits and credits. Answer: FALSE 3) Someone to […]

1) The amount of working capital is more meaningful to users than the current ratio because it provides information on the composition of the current accounts. 2) Plant assets, current assets, property, plant and equipment, and fixed assets are all […]

1) The accrual-based income statement is considered to be a good indicator of current cash inflows and outflows. 2) The use of customer statements as a control device will be effective only if the employees responsible for the custody of […]

1) The Loss on Sale of Asset indicates the amount by which the assets sales price is less than its book value. 2) In the statement of cash flows, an increase in a current liability will appear as an increase […]

1) The accounting equation must balance after each transaction. 2) In terms of the statement of cash flows, cash includes actual cash items plus certain cash equivalents such as commercial paper, money market funds, and Treasury bills. Answer: TRUE 3) […]

1) Cash dividends become a liability to a corporation on the date of record. 2) As part of good internal control, disbursements can be made either by check or cash. Answer: FALSE 3) External users of accounting information include present […]

1) Changing inventory methods to take advantage of the tax breaks offered by LIFO is not a valid reason for a change in methods. 2) When reconciling a bank account, the company does not have to prepare an adjusting entry […]

1) Three measures of liquidity are: working capital, the acid-test ratio, and the debt-to-equity ratio. 2) All line items in common-size comparative income statements are stated as a percentage of net income. Answer: FALSE 3) Every business transaction is recorded […]

1) [APPENDIX] A sole proprietorship is a separate entity for legal purposes. 2) The base, or benchmark, on which all items on the income statement are compared is net sales. Answer: TRUE 3) The balance in the account, Rent Collected […]

1) Under the direct method, depreciation expense is treated as an outflow in the Investing Activities section of the statement of cash flows. 2) Under the perpetual inventory system, each time goods are purchased, the inventory account is transferred to […]

1) If a bank discounts a note, then the borrower needs to only pay the cash received and not the face value of the note. 2) When an entity’s revenues exceed its expenses for a period of time, the entity […]

1) A counterbalancing inventory error is one where the error on the balance sheet is offset by the same amount of error on the income statement. 2) In an operating lease, the lessee is not required to record the right […]

1) Independent auditors (CPAs) render an opinion that the financial statements do or do not fairly present a company’s financial position, operating results, and cash flows. 2) An example of horizontal analysis is the increase in cost of goods sold […]

1) The three distinct types of cost to a manufacturer are direct materials, direct labor, and manufacturing overhead. 2) All issued stock is outstanding. Answer: FALSE 3) Under FIFO, the units in the ending inventory represent the oldest purchase(s). Answer: […]

1) If the annual interest is 12%, but the compounding is done quarterly, then the interest rate is 4% per period. 2) An accounting transaction is not recorded when a corporation declares and executes a stock split. Answer: TRUE 3) […]

1) The origins of single-entry accounting were documented in a book written by Pacioli over 500 years ago. It includes the concepts of bookkeeping that are still applied today. 2) For the statement of cash flows, companies are required to […]

1) Both U.S. GAAP and IFRS apply the lower-of-cost-or market rule in a similar manner to inventory. 2) Most investors would prefer to see equity rather than debt on the balance sheet. Answer: TRUE 3) If cost of goods sold […]

1) The statement of cash flows emphasizes explanations for the change in net income. 2) All changes in all stockholders’ equity accounts must be shown in the Stockholders’ Equity section of the balance sheet. Answer: FALSE 3) Many companies report […]

1) IFRS typically uses a more rule-based approach than U.S. GAAP. 2) One measure of a company’s overall long-term financial health is the debt-to-equity ratio. Answer: TRUE 3) Some analysts properly refer to a companys profit margin as its return […]

1) Every accounting transaction affects both the balance sheet and the income statement. 2) Whether LIFO costing is applied at the time each sale is made or only at the end of the period, both the periodic and perpetual systems […]

1) The accounts receivable turnover ratio is computed by dividing net income by average accounts receivable. 2) Flexibility in valuation of property, plant, and equipment under IFRS may cause problems with comparability of one company with another. Answer: TRUE 3) […]

1) Comparing one company with another in the same industry should cause no problems since companies in the same industry are required to use the same GAAP. 2) A company using the periodic inventory system must total the selling prices […]

1) Cash equivalents are reported in the Operating Activities section of the statement of cash flows. 2) The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of […]

1) Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period 2) A high accounts receivable turnover ratio could mean that the companys credit policies […]

1) Focus, Inc. determined that it had incorrectly estimated both the estimated life and the estimated residual value of equipment that it purchased two years ago. When Focus accounts for the change in accounting estimates, it must depreciate the remaining […]

1) Bondholders are internal users of companys accounting information. 2) Three months before year-end, Skyway Company signed a $100,000, 10%, 8-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company […]

1) When merchandise is sold FOB shipping point, the buyer is responsible for the shipping costs. 2) In the statement of cash flows, a decrease in accounts payable would be shown as an increase in the Operating Activities category. Answer: […]

1) Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur. 2) The gross profit ratio is computed by dividing net sales by gross profit. Answer: FALSE 3) […]

1) In countries, like Japan and much of Europe, fewer differences between the amount of income reported to stockholders and that reported to the taxing authorities exist than in the U.S. 2) The Treasury Stock account should be considered an […]

1) A cost can be an asset or expense depending on whether the future economic benefits have expired or not. 2) When borrowing money to be repaid in regular future payments, the payment is based on the present value of […]

1) Recognition is the process of formally recording or incorporating an item into the financial statements 2) If the lease term is 75% or more of the propertys economic life, the lease agreement should be accounted for as an operating […]

1) When the market rate of interest is less than the face rate, then the bond issue will be sold at a discount. 2) A lease is accounted for as a capital lease if the lease term is 75% or […]

1) The payee of a note recognizes a note payable on the balance sheet and interest expense on its income statement. 2) When plant assets are reported, the current period’s depreciation expense is subtracted from the original cost on the […]

1) The effective interest rate method of amortization amortizes the discount or premium in a manner that produces a constant amount of interest expense from period to period. 2) International accounting standards require companies to revalue their property, plant, and […]

1) Bad Debts Expense is increased and Accounts Receivable is decreased at the end of the period to recognize bad debts under the allowance method. 2) Book value is a measure of the market value of the stock. Answer: FALSE […]

1) Accrued wages is not a current liability. 2) Only events that can be measured will be reflected in the journal entries. Answer: TRUE 3) Income taxes payable are recognized as an expense once they are paid to the respective […]

1) Ratios that focus on cash are more useful than those that focus on income in the evaluation of the liquidity of a company. 2) The state of economic development can affect accounting standards. Answer: TRUE 3) Asset turnover is […]

1) Ending inventory valued under the FIFO method will be the same regardless of whether the periodic system or the perpetual system is used. 2) Matching can occur directly (like cost of goods sold), indirectly (like plant assets), or immediately […]

1) The term used to refer to an assets original cost is historical cost. 2) The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among their current assets Answer: FALSE 3) According […]

1) Accounts receivable are shown on the balance sheet at their net realizable amount. 2) Materiality deals with the size of an error in accounting information. Answer: TRUE 3) Stock dividends affect the par value per share of the stock. […]

1) A bond issue price is the present value of the cash flows that the bond will produce. 2) Issuance of stock results in cash inflows that appear in the financing section of the statement of cash flows. Answer: TRUE […]

1) International accounting standards use the term provision for those contingent items that must be recorded on the balance sheet. 2) While most companies make adjustments and prepare statements monthly, many companies complete the accounting cycle only once per year. […]

1) The present value is the value today of a single amount to be paid or received at a specific date in the future. 2) Both U.S. GAAP and international financial reporting standards (IFRS) require the use of the lower-of-cost-or-market […]

1) The primary objective of external auditors is to provide assurance to stockholders and other users that the statements are fairly presented. 2) Estimated liability for product warranties to be paid in the future is a current liability. Answer: TRUE […]