Problem 1) Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?
A. To aid management in cash-flow analysis
B. To match the costs of production with revenues as earned
C. To reduce the federal income tax liability
D. To adhere to the accounting constraint of conservatism
Problem 2) An accrued expense can best be described as an amount
A. paid and not currently matched with earnings.
B. paid and currently matched with earnings.
C. not paid and not currently matched with earnings.
D. not paid and currently matched with earnings.
Problem 3) If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve
A. an asset or contra asset account and an expense account.
B. a liability account and an asset account.
C. a liability account and an expense account.
D. a receivable account and a revenue account.
Problem 4) A common set of accounting standards and procedures are called
A. generally accepted accounting principles.
B. financial accounting standards.
C. objectives of financial reporting.
D. statements of financial accounting concepts.
Problem 5) Which of the following statements is not an objective of financial reporting?
A. Provide information about enterprise resources, claims to those resources, and changes to them.
B. Provide information that is useful in investment and credit decisions.
C. Provide information on the liquidation value of an enterprise.
D. Provide information that is useful in assessing cash flow prospects.
Problem 6) The information provided by financial reporting pertains to
A. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.
B. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
C. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
D. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.
Problem 7) The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is
A. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.
B. the FASB issues exposure drafts of proposed standards.
C. all members of the FASB possess extensive experience in financial reporting.
D. a majority of the members of the FASB are CPAs drawn from public practice.
Problem 8) The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the
A. AICPA.
B. FASB.
C. SEC.
D. APB.
Problem 9) The Financial Accounting Standards Board
A. was the forerunner of the current Accounting Principles Board.
B. has issued a series of pronouncements entitled Statements on Auditing Standards.
C. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.
D. is appointed by the Financial Accounting Foundation.
Problem 10) Which of the following is not a generally practiced method of presenting the income statement?
A. The single-step income statement
B. Including prior period adjustments in determining net income
C. The consolidated statement of income
D. Including gains and losses from discontinued operations of a component of a business in determining net income
Problem 11) Which of the following would represent the least likely use of an income statement prepared for a business enterprise?
A. Use by labor unions to examine earnings closely as a basis for salary discussions.
B. Use by customers to determine a company's ability to provide needed goods and services.
C. Use by government agencies to formulate tax and economic policy.
D. Use by investors interested in the financial position of the entity.
Problem 12) Limitations of the income statement include all of the following except
A. only actual amounts are reported in determining net income.
B. items that cannot be measured reliably are not reported.
C. income measurement involves judgment.
D. income numbers are affected by the accounting methods employed.
Problem 13) The process of formally recording or incorporating an item in the financial statements of an entity is
A. articulation.
B. allocation.
C. realization.
D. recognition.
Problem 14) Which of the following is not an accurate representation concerning revenue recognition?
A. Revenue from services rendered is recognized when cash is received or when services have been performed.
B. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers.
C. Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used.
D. Revenue from disposing of assets other than products is recognized at the date of sale.
Problem 15) Which of the following is not a reason why revenue is recognized at time of sale?
A. The sale is the critical event.
B. All of these are reasons to recognize revenue at time of sale.
C. Title legally passes from seller to buyer.
D. Realization has occurred.
Problem 16) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
A. financial flexibility.
B. exchangeability.
C. liquidity.
D. solvency.
Problem 17) The balance sheet is useful for analyzing all of the following except
A. solvency.
B. financial flexibility.
C. profitability.
D. liquidity.
Problem 18) The correct order to present current assets is
A. Cash, accounts receivable, inventories, prepaid items.
B. Cash, inventories, prepaid items, accounts receivable.
C. Cash, inventories, accounts receivable, prepaid items.
D. Cash, accounts receivable, prepaid items, inventories.
Problem 19) If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the
A. nature of any future transactions planned between the parties and the terms involved.
B. amounts due from or to related parties as of the date of each balance sheet presented.
C. dollar amount of the transactions for each of the periods for which an income state-ment is presented.
D. nature of the relationship between the parties to the transactions.
Problem 20) Which of the following should be disclosed in a Summary of Significant Accounting Policies?
A. Amount for cumulative effect of change in accounting principle
B. Depreciation method followed
C. Claims of equity holders
D. Types of executory contracts
Problem 21) Events that occur after the December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be
A. disclosed only in the Notes to the Financial Statements.
B. used to record an adjustment directly to the Retained Earnings account
C. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008.
D. discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report.
Problem 22) The required approach for handling extraordinary items in interim reports is to
A. prorate them over the current and remaining quarters.
B. disclose them only in the notes.
C. charge or credit the loss or gain in the quarter that it occurs.
D. prorate them over all four quarters.
Problem 23) A financial forecast per professional pronouncements presents to the best of the responsible party's knowledge and belief,
A. an assessment of the company's ability to be successful in the future.
B. an assessment of the company's ability to be successful in the future under a number of different assumptions.
C. given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows.
D. an entity's expected financial position, results of operations, and cash flows.
Problem 24) If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be
A. qualified.
B. exceptional.
C. adverse.
D. unqualified.
Problem 25) Which of the following ratios measures long-term solvency?
A. Receivables turnover
B. Current ratio
C. Debt to total assets
D. Acid-test ratio
Problem 26) The payout ratio is calculated by dividing
A. cash dividends by net income plus preferred dividends.
B. cash dividends by net income less preferred dividends.
C. cash dividends by market price per share.
D. dividends per share by earnings per share.
Problem 27) Theoretically, in computing the receivables turnover, the numerator should include
A. net credit sales.
B. sales.
C. credit sales.
D. net sales.
Problem 28) Of the following questions, which one would not be answered by the statement of cash flows?
A. What was the cash used for during the period?
B. Were all the cash expenditures of benefit to the company during the period?
C. What was the change in the cash balance during the period?
D. Where did the cash come from during the period?
Problem 29) The first step in the preparation of the statement of cash flows requires the use of information included in which comparative financial statements?
A. Balance sheets
B. Income statements
C. Statements of retained earnings
D. Statements of cash flows
Problem 30) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by
A. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
B. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
C. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.
D. re-recording all income statement transactions that directly affect cash in a separate cash flow journal.
Problem 31) Which of the following would be classified as a financing activity on a statement of cash flows?
A. Deposit to a bond sinking fund
B. Sale of a loan receivable
C. Payment of interest to a creditor
D. Declaration and distribution of a stock dividend
Problem 32) The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)
A. deduction from net income.
B. investing activity.
C. financing activity.
D. addition to net income.
Problem 33) In determining net cash flow from operating activities, a decrease in accounts payable during a period
A. requires an addition adjustment to net income under the indirect method.
B. requires an increase adjustment to cost of goods sold under the direct method.
C. requires a decrease adjustment to cost of goods sold under the direct method.
D. means that income on an accrual basis is less than income on a cash basis.
Problem 34) Which of the following tables would show the smallest factor for an interest rate of 10% for six periods?
A. Present value of an ordinary annuity of 1
B. Future value of an annuity due of 1
C. Present value of an annuity due of 1
D. Future value of an ordinary annuity of 1
Problem 35) Which table has a factor of 1.00000 for 1 period at every interest rate?
A. Present value of 1
B. Future value of an ordinary annuity of 1
C. Present value of an ordinary annuity of 1
D. Future value of 1
Problem 36) Which table would show the largest factor for an interest rate of 8% for five periods?
A. Present value of an ordinary annuity of 1
B. Future value of an annuity due of 1
C. Present value of an annuity due of 1
D. Future value of an ordinary annuity of 1