Archives: Quiz

1) The following data are taken from the cash-basis accounting records of Myerson Company for the year ended December 31, 2015: Calculate the amount of revenues and expenses for 2015 under cash-basis accounting. 2) A company maintains its records using […]

1) Consider the following transactions: 1> Pay employees salaries. 2> Repay borrowing to the bank. 3> Purchase equipment with note payable. 4> Provide services to customers on account. 5> Pay dividends to stockholders. 6> Collect cash from customers for services […]

1) Dobson Contractors is considering buying equipment at a cost of $75,000. The equipment is expected to generate cash flows of $15,000 per year for eight years and can be sold at the end of eight years for $5,000. The […]

1) The Shoe Exchange issues 5,000 shares of its $1 par value common stock to provide funds for further expansion. If the issue price is $15 per share, what is the entry to record the issuance of the stock? 2) […]

1) A $10,000 investment on the books of the company is sold for $11,000. How does this transaction affect operating, investing, and financing activities under the indirect method? 2) Match each account classification with its example. Answer: 1-b; 2-d; 3-f; […]

1) Match each qualitative characteristic with its definition. 2) Mobile Video Systems sold land, investments, and issued their own common stock for $10 million, $15 million, and $20 million, respectively. Mobile Video also purchased treasury stock, equipment, and a patent […]

1) Define a contingent liability. Provide three common examples. Under what circumstances should a firm report a contingent liability? 2) A company received a utility bill of $600 but did not pay it. Indicate the amount of increases and decreases […]

1) Using a perpetual inventory system, the purchase of inventory is recorded with a debit to the Purchases account, which is a temporary account closed to cost of goods sold at the end of the period. 2) The debt to […]

1) A corporation has limited liability and attracting outside investment is easier relative to sole-proprietorships and partnerships. 2) The inventory turnover ratio equals cost of goods sold divided by average inventory. Answer: True 3) Commonly, current liabilities are payable within […]

1) Separation of duties refers to auditors not being allowed to perform both audit and nonaudit services for the same client. 2) Accrued revenues involve the receipt of cash after the revenue has been earned and an asset has been […]

1) Notes receivable typically arise from sales to customers. 2) Airlines do not record revenue when a ticket is sold, but wait to record revenue until the actual flight occurs. Answer: True 3) The Sarbanes-Oxley Act is also known as […]

1) Par value has a direct relationship to the market value of the common stock. 2) A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25. Answer: […]

1) Given a choice, most companies would prefer to report a liability as current rather than long-term, because doing so may cause the firm to appear less risky. 2) The location where a loss is reported in the income statement […]

1) The more frequent the rate of compounding, the more interest that is earned on previous interest, resulting in a higher future value. 2) Intangible assets with an indefinite useful life (goodwill and most trademarks) are not amortized. Answer: True […]

1) The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income. 2) Operating activities are both inflows and outflows of cash resulting from the external financing of a business. Answer: False Feedback: […]

1) Prepaid expenses involve payment of cash (or an obligation to pay cash) for the purchase of an asset before the expense is incurred. 2) A credit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last years […]

1) Depreciation expense is not reported on the statement of cash flows under the direct method. 2) When accounts payable decrease, cash paid to suppliers must have been more than purchases. Answer: True 3) Only transactions involving cash affect a […]

1) A companys cash is reported in two financial statements income statement and statement of cash flows. 2) Sales returns and allowances occur when the buyer returns the goods or the seller reduces the customers balance owed. Answer: True 3) […]

1) In a classified balance sheet, we categorize all liabilities as current. 2) When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense increase over time. Answer: False Feedback: When bonds are […]

1) Interest is stated in terms of an annual percentage rate to be applied to the face value of the loan. 2) Interest revenue is calculated as the carrying value of the investment in bonds times the stated interest rate. […]

1) Residual value, also referred to as salvage value, is the amount the company expects to receive from selling the asset at the end of its service life. 2) Some countries are more secretive (Brazil and Switzerland), leading to fewer […]

1) The receivables turnover ratio measures how many times, on average, a company collects its receivables during the year. 2) The Supplies account is an example of an accrued expense. Answer: False Feedback: The Supplies account is an example of […]

1) The Public Company Accounting Oversight Board (PCAOB) has the authority to establish standards dealing with auditing, quality control, ethics, independence, and other activities relating to the preparation of audited financial reports. 2) The gross profit ratio is calculated as […]

1) An extremely high inventory turnover ratio may be a signal that the company is losing sales due to inventory shortages. 2) When preparing a statement of cash flows using the indirect method, a decrease in accounts payable is subtracted […]

1) Accumulated Depreciation is a liability account that is increased by credits. 2) When customers pay for services with a debit card, the company should debit Cash and credit Service Revenue. Answer: True 3) Revenues have the effect of increasing […]

1) Under the indirect method, an increase in inventory is added to net income and a decrease in inventory is subtracted from net income to arrive at net cash flows from operating activities. 2) A copyright is an exclusive right […]

1) An annuity is a series of equal cash payments over equal time intervals. 2) The Dividends account increases with a credit and decreases with a debit. Answer: False Feedback: The Dividends account increases with a debit and decreases with […]

1) We record gain contingencies when the gain is probable and can be reasonably estimated. 2) An S Corporation allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership. Answer: True 3) FICA taxes […]

1) Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement. 2) In an activity-based depreciation method, we allocate an assets cost based on its use. Answer: True […]

1) In general, if a companys net income is increasing, so will its stock price. 2) Adjusting entries should be prepared after financial statements are prepared. Answer: False Feedback: Adjusting entries should be prepared before financial statements are prepared. 3) […]

1) A sale on account for $1,000 offered with terms 2/10, n/30 means that the customers will get a $2 discount if payment is made within 10 days; otherwise, full payment is due within 30 days. 2) Under the allowance […]

1) Financial statements are periodic reports published by the company for the purpose of providing information to managers. 2) Allowing the employee who authorizes purchases to also prepare the check is an example of good internal control. Answer: False Feedback: […]

1) The components of retained earnings include assets, expenses, and dividends. 2) Conservative accounting practices are those that result in reporting lower income, lower assets, and higher liabilities. Answer: True 3) Book value is equal to the original cost of […]

1) The amount reported on the balance sheet for bonds payable is equal to the carrying value at the balance sheet date. 2) Convertible preferred stock allows the stockholder to exchange shares of preferred stock for common stock at a […]

1) Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement. 2) During periods of rising costs, LIFO generally results in a higher ending inventory balance. Answer: False Feedback: During periods of […]

1) Companies should set maximum purchase limits on debit cards and credit cards as part of internal controls. 2) Generally, a lower gross profit ratio reflects positively on a companys ability to manage its inventory. Answer: False Feedback: A higher […]

1) We report extraordinary items separately, net of taxes, near the bottom of the income statement just below discontinued operations. 2) Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities. Answer: False Feedback: […]

1) Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold. 2) Purchasing equipment using cash causes assets to increase. Answer: False Feedback: One asset goes up; another asset goes down. There […]

1) The Financial Accounting Standards Boards conceptual framework does not prescribe Generally Accepted Accounting Principles. It provides an underlying foundation for the development of accounting standards and interpretation of accounting information. 2) Bonds are the most common form of corporate […]

1) A stock split has no effect on the total of any account in stockholders equity. 2) The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings. Answer: False Feedback: The closing […]

1) Unearned Revenue is a liability account. 2) A patent is an exclusive right to a published work such as a song, film, or painting. Answer: False Feedback: A patent is an exclusive right to manufacture a product or to […]

1) A list of all account names used to record transactions of a company is referred to as a T-account. 2) Asset turnover is net sales divided by ending total assets. Answer: False Feedback: Asset turnover is net sales divided […]

1) The CEO, as head of the company, is ultimately responsible for the firms accounting. 2) Treasury stock is a contra-equity account since treasury stock increases total stockholders equity. Answer: False Feedback: Treasury stock is a contra-equity account since treasury […]

1) We can calculate the issue price of a bond as the face amount plus the total periodic interest payments. 2) Financial accounting has an impact on everyday business decisions as well as wide-ranging economic consequences. Answer: True 3) Bond […]

1) Retained earnings represent the earnings retained in the corporation earnings not paid out as dividends to stockholders. 2) A low inventory turnover ratio usually is a positive sign and indicates that inventory is selling quickly. Answer: False Feedback: A […]

1) We record dividends received as a financing activity. 2) Investing activities include cash investments in long-term assets and investment securities. Answer: True 3) We report interest paid on bonds or notes payable with operating activities rather than financing activities. […]

1) During periods of rising costs, FIFO generally results in a higher cost of goods sold. 2) We expense internally generated intangible assets, such as research and development and advertising costs, as we incur them. Answer: True 3) Bonds issued […]

1) Even though the percentage-of-receivables method and the percentage-of-credit-sales method use different accounts to estimate future uncollectible accounts, the amount of bad debt expense reported in the income statement will always be the same under the two methods. 2) The […]

1) Bestie Donuts sells boxes of donuts each with a variable cost percentage of 35%. Its fixed costs are $55,250 per year. Instructions Determine the sales dollars Bestie needs to break even per year. 2) Instructions: Midland Medical Supplies Company […]

1) The internal rate of return method differs from the net present value method in that it results in finding the ___________________ of the potential investment. 2) 1>Picket Industries had 300,000 common shares and 10,000 preferred shares outstanding throughout 2014. […]