1. Which of the following statements is FALSE?
a. Common-size balance sheets allow for comparison of firms with different levels of total assets by introducing a common denominator.
b. The common-size balance sheet reveals the composition of assets within major categories.
c. Each item on a common-size balance sheet is expressed as a percentage of sales.
d. The common-size balance sheet reveals the capital and the debt structure of the firm.
2. Which of the following items would NOT be classified as cash equivalents?
a. U.S. Treasury Bills
b. Trading securities
c. Commercial paper
d. Money market funds
3. Which of the following items should alert the analyst to the potential for manipulation when analyzing accounts receivable and the allowances for doubtful accounts?
a. Sales, accounts receivable and the allowance for doubtful accounts are all growing at approximately the same rate.
b. A company lowers its credit standards and also increases the balance in the allowances for doubtful accounts.
c. Accounts receivable is growing at a large rate and the allowance for doubtful accounts is decreasing.
d. An analysis of the "Valuation and Qualifying Accounts" schedule required in the Form 10-K reveals that the amounts recorded for bad debit expense are close in amount to the actual amounts written off each year.
4. Which type of firm would most likely carry the most finished goods inventory?
a. A manufacturing firm
b. A retail firm
c. A service firm
d. A wholesale firm
5. Which of the following statements is FALSE?
a. Companies are allowed to use more than one inventory valuation method.
b. LIFO is an income tax concept.
c. Using FIFO for high-technology products makes sense if the firm is trying to reduce taxes because the technology industry is generally deflationary.
d. Companies using IFRS may not reverse entries for inventory write-downs if the market recovers.
6. Use the information below to answer the following question.
ABC Company purchases five products for sale in the order and at the cost shown below.
UNIT Cost per unit
1 $10
2 $12
3 $15
4 $18
5 $13
Assume ABC sells two items and uses the LIFO method of inventory valuation, What amount would appear for cost of goods sold on the income statement?
a. $37
b. $41
c. $22
d. $31
7. Which of the following statements is true?
a. The straight-line method of depreciation allocates a decreasing amount of depreciation expense each year.
b. Straight-line depreciation is the least used method for financial reporting purposes.
c. Fixed assets are reported at historical cost less accumulated depreciation on the balance sheet.
d. The total amount of depreciation over the asset's life is larger when using an accelerated method of depreciation.
8. Which of the following accounts could be categorized as either a current or non current liability depending one date the debt is due?
a. Notes payable and deferred taxes
b. Accounts payable and current portion of long-term debt
c. Deferred taxes and mortgages due in 30 years
d. Long-term warranties and accounts payable
9. How are deferred taxes recorded on the balance sheet?
a. as current or non current liabilities
b. as a stockholders' equity
c. as non current assets or non current liabilities
d. as current or non current assets or liabilities
10. Which item below would NOT be a quality of financial reporting issue related to the balance sheet?
a. Mismatching the type of debt (short or long term) used to finance assets
b. Discretionary expenses
c. Overvaluation of assets
d. Off-balance sheet financing
11. Which item below does NOT describe a balance sheet?
a. assets = liabilities + stockholders' equity
b. financial position at a point in time
c. assets - liabilities = stockholders' equity
d. assets + liabilities = stockholders' equity
12. how are marketable securities valued on the balance sheet?
a. Historical cost
b. at cost or fair value depending on how the securities are classified
c. market value
d. at fair value with the difference between cost and fair value reported as revenue
13. If a company chooses the LIFO method of inventory valuation, which inventory will appear as ending inventory on the balance sheet?
a. The last inventory purchased
b. The first inventory purchased
c. An average of all inventory purchased
d. the actual inventory which has not been sold
14. Assume the following purchases of inventory for ABC company and use this information to answer the following question.
Purchase # Purchase price
1 $3
2 $4
3 $5
4 $6
5 $7
Assume ABC uses the average cost method of inventory valuation. What unit cost would be used to determine the amount unending inventory or cost of goods sold?
a. $3
b. $5
c. $7
d. $25
d. incremental depreciation
16. Companies that are paid in advance for services or products record a(n) ___________ on the receipt of cash referred to as unearned revenue or deferred credits.
a. liability
b. receivable
c. asset
d. accrued asset
17. Temporary differences are a result of recording revenues or expenses on financial statements in an accounting period ___________ when these items are recorded on the firm's tax return.
a. before the time
b. after the time
c. the same as
d. different from
18. A deferred tax asset is recorded when expenses are recorded on the ___________ but NOT allowed to be deducted for tax purposes until a later accounting period.
a. balance sheet
b. Income statement
c. stockholders' report
d. consolidation report
19. Which method of inventory assumes the last units purchased will remain in ending inventory on the balance sheet?
a. FIFO
b. LIFO
c. Average cost
d. LIFO & FIFO
20. Use the information below to answer the following question.
ABC company purchases five products for sale in the order and at the costs shown below.
Unit cost per unit
1 $10
2 $12
3 $15
4 $18
5 $13
Assume ABC sells two items and uses the FIFO method of inventory valuation. What amount would appear in ending inventory on the balance sheet?
a. $22
b. $46
c. $45
d. $31
21. ABC Company purchases face products for sale in the order and at the cost shown below.
Unit Cost per unit
1 $10
2 $12
3 $15
4 $18
5 $13
Assume ABC uses the average cost method of inventory valuation. What unit cost would be used to determine the amount in ending inventory or cost of goods sold?
a. $12.67
b. $13.60
c. $15.00
d. $13.00
22. Which of the following statements is FALSE?
a. annual reports must include three-year audited balance sheets and two-year audited income statements
b. interim statements are generally prepared quarterly.
c. when a parent company owns more than 50% of the voting stock of a subsidiary, the financial statements are consolidated for both entities.
23. What does the term "net realizable value" mean with regard to the accounts receivable account?
a. the gross amounts owed by customers for credit purchases
b. total accounts receivable plus an amount estimated for bad debts
c. the allowance for doubtful accounts less bad debt expense
d. actual amounts of accounts receivable less an allowance for doubtful accounts
24. Which of the following items would NOT be considered when analyzing accounts receivable and allowance for doubtful accounts?
a. The relationship among changes in sales, accounts receivable and the allowance for doubtful accounts.
b. A comparison of actual write-offs relative to amounts recognized as bad debts
c. The relationship between accounts receivable, inventory, and accounts payable
d. An analysis of the "valuation and Qualifying Accounts" schedule required in the Form 10-K
25. The inventory of a retail company is comparable to which type of inventory of a manufacturing company?
a. Finished goods
b. Work in process
c. supplies
d. raw materials
26. Assume the following purchases of inventory for ABC Company and use this information to answer the question below.
Purchase # Purchase price
1 $3
2 $4
3 $5
4 $6
5 $7
Assume ABC sells two items and uses the FIFO method of inventory valuation. What amount would appear in ending inventory on the balance sheet?
a. $7
b. $15
c. $18
d. $25
27. Assume the following purchases of inventory for ABC Company and use this information to answer the question below.
Purchase # Purchase price
1 $3
2 $4
3 $5
4 $6
5 $7
Assume ABC sells three items and uses the LIFO method of inventory valuation. What amount would appear for cost of goods sold on the income statement?
a. $18
b. $12
c. $15
d. $25
28. Which of the following statements is true?
a. Land should be depreciated over the period of time it benefits the firm.
b. Accelerated depreciation must be used for financial reporting purposes.
c. Fixed assets are reported at historical cost plus accumulated depreciation.
d. The total amount of depreciation over the asset's life is the same regardless of depreciation method, although the rate of depreciation varies.
29. Which of the following statements is FALSE?
a. Goodwill arises when one company acquires another company for a price in excess of the fair market value of the net identifiable assets acquired,
b, Goodwill should be depreciated.
c. Good will must be evaluated annually to determine if there has been a loss of value.
d. If the carrying value of good will exceeds the fair value, the excess book value must be written off as an impairment expense