Financial Accounting Assignment
1. The physical life of a depreciable asset sets the lower limit of its service life.
A) True
B) False
2. Changes in the estimates involved in depreciation, depletion, and amortization require retroactive restatement of financial statements.
A) True
B) False
3. The factors that need to be determined to compute depreciation are an asset's:
A) Cost, residual value, and physical life.
B) Cost, replacement value, and service life.
C) Fair value, residual value, and economic life.
D) Cost, residual value, and service life.
4. The legal life of a patent is:
A) Forty years.
B) Twenty years.
C) Life of the inventor plus fifty years.
D) Indefinite.
5. Accounting for a change in the estimated service life of equipment:
A) Is handled prospectively.
B) Requires retroactive restatement of prior year's financial statements.
C) Requires a prior period adjustment.
D) Is handled currently as a change in accounting principle.
6. Accounting for impairment losses:
A) Involves a two-step process for recoverability and measurement.
B) Applies only to depreciable, operational assets.
C) Applies only to assets with finite lives.
D) All of these are correct.
7. A change from the straight-line method to the sum-of-years'-digits method of depreciation is handled as:
A) A retrospective change back to the date of acquisition as though the current estimated life had been used all along.
B) A cumulative adjustment to income in the current year for the difference in depreciation under the new vs. old useful life estimate.
C) A prospective change from the current year through the remainder of its useful life.
D) None of these is correct.
8. Advocates of accelerated depreciation methods argue that their use tends to level out the total cost of ownership of an asset over its benefit period if one considers both depreciation and repair and maintenance costs.
A) True
B) False
9. Depreciation, depletion, and amortization:
A) All refer to the process of allocating the cost of operational assets over future periods.
B) All generally utilize the same methods of cost allocation.
C) Are all handled the same in arriving at taxable income.
D) All of these are correct.
10. One of the advantages of group and composite methods is that gains and losses on the disposal of individual assets need not be computed.
A) True
B) False
11. Asset retirement obligations:
A) Increase the balance in the related asset account.
B) Are measured at fair value in the balance sheet.
C) Are liabilities associated with the restoration of an operational asset.
D) All of these are correct.
12. The exclusive right to display a symbol of product identification is a:
A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.
13. Operational assets are:
A)Created by the normal operation of the business and include accounts receivable.
B) All assets except cash and cash equivalents.
C) Current and long-term assets used in the production of either goods or services.
D) Long-term revenue-producing assets.
14. The fair value of the asset, debt or equity securities given in a noncash acquisition should determine the value of the consideration received.
A) True
B) False
15. A distinguishing characteristic of intangible assets is the degree of uncertainty about when or if they will provide future benefits.
A) True
B) False
16. Under current GAAP, fair value is used to measure the components of all nonmonetary exchanges.
A) True
B) False
17. The acquisition costs of tangible operational assets do not include:
A) The ordinary and necessary costs to bring the asset to its desired condition and location for use.
B) The net invoice price.
C) Legal fees, delivery charges, installation, and any applicable sales tax.
D) Maintenance costs during the first 30 days of use.
18. The successful efforts method of accounting for oil and gas exploration costs allows costs incurred in searching for oil and gas within a large geographical area to be capitalized.
A) True
B) False
19. Sales tax paid on equipment acquired for use in the business is not capitalized.
A) True
B) False
20. The FASB's required accounting treatment for research and development costs often understates both net income and assets.
A) True
B) False
21. To use the dollar-value LIFO retail method for inventory, the second step is to determine the estimated:
A) Ending inventory at current year retail prices.
B) Cost of goods sold for the current year.
C) Ending inventory at cost.
D) Ending inventory at base year retail prices.
22. When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are:
A) Net markups and net markdowns.
B) Neither net markups nor net markdowns.
C) Net markups, but not net markdowns.
D) Net markdowns, but not net markups.
23. The primary motivation behind LCM is consistency.
A) True
B) False
24. For a change from the average cost method to FIFO, the current year's income includes the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years.
A) True
B) False
25. In using the LIFO retail method, the current period cost-to-retail percentage includes both net markdowns and net markups.
A) True
B) False
26. Net realizable value is selling price less costs of completion and disposal.
A) True
B) False
27. When computing the cost-to-retail percentage for the conventional retail method, included in the denominator are:
A) Net markups and net markdowns.
B) Neither net markups nor net markdowns.
C) Net markups, but not net markdowns.
D) Net markdowns, but not net markups.
28. The cost-to-retail percentage used in the retail method to approximate average costs considers both markdowns and markups.
A) True
B) False
29. For a purchase commitment contained within a single fiscal year, if the market price is less than the contract price, the purchase is recorded at the contract price.
A) True
B) False
30. Under the retail inventory method:
A) A company measures inventory on its balance sheet by converting retail prices to cost.
B) A company measures inventory on its balance sheet at current selling prices.
C) A company measures inventory on its balance sheet on a LIFO basis.
D) None of these is correct.
31. Unit LIFO is more costly to implement than dollar-value LIFO.
A) True
B) False
32. In a perpetual inventory system, the cost of inventory sold is:
A) Debited to accounts receivable.
B) Credited to cost of goods sold.
C) Debited to cost of goods sold.
D) Not recorded at the time.
33. Cost of goods on consignment is included in the consignee's inventory until sold.
A) True
B) False
34. Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.
A) True
B) False
35. LIFO periodic and LIFO perpetual always produce the same amounts for ending inventory.
A) True
B) False
36. Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.
A) True
B) False
37. Cost of goods sold is given by:
A) Beginning inventory net purchases + ending inventory.
B) Beginning inventory + accounts payable net purchases.
C) Net purchases + ending inventory beginning inventory.
D) Net Purchases + beginning inventory ending inventory.
38. Physical counts of inventory are never done with perpetual inventory systems.
A) True
B) False
39. Ending inventory is equal to the cost of items on hand plus:
A) Items in transit sold f.o.b. shipping point.
B) Purchases in transit f.o.b. destination.
C) Items in transit sold f.o.b. destination.
D) None of these.
40. In a perpetual inventory system, the cost of purchases is debited to:
A) Purchases.
B) Cost of goods sold.
C) Inventory.
D) Accounts payable.
41. Compensating balances represent:
A) Funds in a bank account that can't be spent.
B) Balances in a payroll checking account.
C) Accounts that are subject to bank service charges.
D) Accounts on which banks pay interest, e.g., NOW accounts.
42. In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records.
A) True
B) False
43. Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months.
A) True
B) False
44. Accounts receivable are normally reported at the:
A) Present value of future cash receipts.
B) Current value plus accrued interest.
C) Expected amount to be received.
D) Current value less expected collection costs.
45. Discounts on notes receivable are recognized as interest earned over the term of the related note.
A) True
B) False
46. Accounting for the pledging of accounts receivable as collateral for a loan requires:
A) Reporting the receivables net of the borrowed amount.
B) Removal of the pledged receivables from current assets and including them with noncurrent investments.
C) Disclosure of the arrangement in notes to the financial statements.
D) None of these.
47. Priscilla's Exotic Pets discounted a note receivable without recourse and the sales criteria were met. The discounting is recorded as:
A) A secured borrowing.
B) Only note disclosure of the arrangement is required.
C) A sale.
D) None of these.
48. Using the balance sheet approach, bad debt expense is an indirect result of estimating the net realizable value of accounts receivable.
A) True
B) False
49. COSO defines internal control as a process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in:
A) Effectiveness and efficiency of operations.
B) Reliability of financial advice.
C) Compliance with local ordinances.
D) All of these are correct.
50. From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets.
A) True
B) False
51. A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is:
A) A deferred annuity.
B) An ordinary annuity.
C) An annuity due.
D) A delayed annuity.
52. With an ordinary annuity, a payment is made or received on the date the agreement begins.
A) True
B) False
53. An annuity is a series of equal periodic payments.
A) True
B) False
54. The company's credit-adjusted risk-free rate of interest is used when computing present value applying the expected cash flow approach.
A) True
B) False
55. The calculation of future value requires the removal of interest.
A) True
B) False
56. In the future value of an ordinary annuity, the last cash payment will not earn any interest.
A) True
B) False
57. A series of equal periodic payments that starts more than one period after the agreement is called:
A) An annuity due.
B) An ordinary annuity.
C) A future annuity.
D) A deferred annuity.
58. The calculation of present value eliminates interest from future cash flows.
A) True
B) False
59. Monetary assets include only cash and cash equivalents.
A) True
B) False
60. A deferred annuity is one in which interest charges are deferred for a stated time period.
A) True
B) False
Use the following to answer question 61:
Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers buy the work there). Sweeney recently transferred a painting to a local barbershop.
61. After Sweeney has transferred a painting to a barbershop, the painting:
A) Should be counted in Sweeney's inventory until the barbershop sells it.
B) Should be counted in the barbershop's inventory, as they now possess it.
C) Should be counted in either Sweeney's or the barbershop's inventory, depending on which incurred the cost of preparing the painting for display.
D) None of these.
62. Under the percentage-of-completion method, the percent complete is often estimated by comparing the cost incurred to date with the total estimated cost to complete.
A) True
B) False
63. Which of the following was not a criterion for revenue recognition in SAB 101?
A) Cash has been collected.
B) Collectiblity is reasonably assured.
C) Persuasive evidence of an arrangement exists.
D) The seller's price to the buyer is fixed or determinable.
64. When using the percentage-of-completion method of accounting for long¬term contracts, the percentage of completion used to recognize gross profit in the first year usually is determined by measuring:
A) Costs incurred in the first year, divided by estimated remaining costs to complete the project.
B) Costs incurred in first year, divided by estimated total costs of the completed project.
C) Costs incurred in first year, divided by estimated gross profit.
D) None of these is correct.
65. In the DuPont formula, return on assets equals:
A) Gross margin on sales x Inventory turnover.
B) Profit margin on sales x Inventory turnover.
C) Gross margin on sales x Asset turnover.
D) Profit margin on sales x Asset turnover.
66. Revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about collectibility of the asset received.
A) True
B) False
67. Merchandise sold FOB shipping point indicates that:
A) The seller pays the freight.
B) The buyer holds title after the merchandise leaves the seller's location.
C) The common carrier holds title until the merchandise is delivered.
D) The sale is not consummated until the merchandise reaches the point to which it is being shipped.
68. Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.
A) True
B) False
69. Firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract.
A) True
B) False
70. The percentage-of-completion and completed contract methods calculate different amounts of total profit or loss for a particular contract.
A) True
B) False
71. A voluntary change in accounting principle is accounted for by:
A) A cumulative effect on income in the year of the change.
B) A retrospective reporting of all comparative financial statements shown.
C) A prior period adjustment.
D) A separate line component of income.
72. EPS disclosure is required only for income from continuing operations.
A) True
B) False
73. Comprehensive income reports an expanded version of income to include four types of gains and losses not included in traditional income statements.
A) True
B) False
74. An item must meet the subjective criteria of being either unusual or infrequent to be reported as extraordinary.
A) True
B) False
75. Changes in accounting estimates are reported:
A) Currently and prospectively.
B) Retroactively and currently.
C) Retroactively, currently, and prospectively.
D) By restating prior years.
76. On June 1, 2009, Romano Inc. changed the estimated useful life of its office equipment from 20 to 12 years. This change would be accounted for:
A) Prospectively.
B) Retrospectively.
C) As an accounting error.
D) None of these.
77. Comprehensive income is the total change in shareholders' equity that occurred during the period.
A) True
B) False
78. The statement of cash flows reports cash flows from the activities of:
A) Operating, purchasing, and investing.
B) Borrowing, paying, and investing.
C) Financing, investing, and operating.
D) Using, investing, and financing.
79. Each of the following would be reported as items of other comprehensive income except:
A) Foreign currency translation gains.
B) Unrealized gains on investments accounted for as securities available for sale.
C) Deferred gains from derivatives.
D) Gains from the sale of equipment.
80. Comprehensive income is the change in equity from:
A) Owner transactions.
B) Non-owner transactions.
C) Owner or non-owner transactions.
D) Capital transactions.
81. Prepaid expenses are classified as current assets if the services purchased are expected to expire within twelve months or the operating cycle, if that is longer.
A) True
B) False
82. The criteria for determining which items comprise cash equivalents often is disclosed in the summary of significant accounting policies.
A) True
B) False
83. Which of the following is not a required disclosure for related party transactions?
A) The nature of the relationship
B) A description of the transactions.
C) The amounts due from or to related parties.
D) The impact of the transactions on current year's income.
84. Working capital is equal to:
A) Current assets.
B) Current liabilities.
C) Current assets plus current liabilities.
D) Current assets minus current liabilities.
85. Cash equivalents would not include:
A) Cash not available for current operations.
B) Money market funds.
C) United States treasury bills.
D) Bank drafts.
86. The balance of net receivables represents the amount expected to be collected.
A) True
B) False
87. A company's market value is generally less than its book value.
A) True
B) False
88. The balance sheet reports a company's financial position at a point in time.
A) True
B) False
89. Which is a shareholders' equity account on the balance sheet?
A) Accumulated depreciation.
B) Paid-in capital.
C) Dividends payable.
D) Marketable securities.
90. Cash equivalents would include:
A) Highly liquid equity securities.
B) Accounts receivable from a financial institution.
C) A sinking fund for bonds that mature in three years.
D) Debt instruments with maturity dates of less than three months from the date of the purchase.
91. The sale of merchandise on account would be recorded in a sales journal.
A) True
B) False
92. The post-closing trial balance contains only permanent accounts.
A) True
B) False
93. The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account.
A) True
B) False
94. Cost of goods sold is:
A) An asset account.
B) A revenue account.
C) An expense account.
D) A permanent equity account.
95. Adjusting journal entries are required to comply with the realization and matching principles.
A) True
B) False
96. After an unadjusted trial balance is prepared, the next step in the accounting processing cycle is the preparation of financial statements.
A) True
B) False
97. On December 31, 2009, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2009, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2009 would be:
A) $ 0.
B) $46,300.
C) $ 1,050.
D) $ 2,100.
98. The statement of shareholders' equity discloses the changes in the temporary shareholders' equity accounts.
A) True
B) False
99. Recording revenue earned, but not yet collected, from a customer is an example of:
A) A prepaid expense transaction.
B) An unearned revenue transaction.
C) An accrued liability transaction.
D) An accrued receivable transaction.
100. A future economic benefit owned or controlled by an entity is:
A) A revenue.
B) An asset.
C) A liability.
D) A contra asset until used.
101. The FASB issues a Statement of Accounting Standards if FASB members support it.
A) 5 of 9
B) 5 of 7
C) 4 of 7
D) None of these is correct.
102. Surefeet Corporation changed its inventory valuation method. Which characteristic is jeopardized by this change?
A) Comparability
B) Representational faithfulness.
C) Consistency.
D) Feedback value.
103. The FASB's conceptual framework's qualitative characteristics of accounting information include:
A) Historical cost.
B) Realization.
C) Reliability.
D) Full disclosure.
104. CPAs are licensed by:
A) The AICPA.
B) The SEC.
C) The federal government.
D) State governments.
105. The most political issue in the FASB's most recent deliberations and pronouncements on business combinations was:
A) The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the purchase method of accounting for the combination.
B) The negative effects on subsequent earnings of amortizing goodwill if firms were required to use the pooling method of accounting for the
combination.
C) The unrealistic balance sheet assets that would be created if firms were required to use the purchase method of accounting for the combination.
D) The unrealistic balance sheet assets that would be created if firms were required to use the pooling method of accounting for the combination.
106. The best argument in support of historical cost information is:
A) Relevance.B) Predictive quality for future cash flows.
C) Materiality.
D) Verifiability.
107. Conservatism is a desired qualitative characteristic of accounting information.
A) True
B) False
108. Disclosure notes to a company's financial statements:
A) Are relatively unimportant facts that don't belong in the basic financial statements.
B) Document the source of financial statement facts, like literary footnotes.
C) Are an integral part of a company's financial statements.
D) Are irrelevant facts that are immaterial in amount.
109. Net income equals:
A) Assets minus liabilities.
B) Revenues minus cost of goods sold.
C) Revenues minus expenses.
D) Cash receipts minus cash payments.
110. Primary qualitative characteristics of accounting information are:
A) Relevance and comparability.
B) Comparability and consistency.
C) Reliability and relevance.
D) Reliability and consistency.