Accounting Principles Post-assessment Flashcards
T/F: Under the revenue recognition principle, revenue is recognized when it is both earned and realized.
True
T/F: Investors expect to receive a cash flow indirectly from a business entity, but never anticipate receiving a cash flow directly.
False (Investors and creditors expect to receive a cash flow directly (from the distribution of the company’s earnings), and indirectly (through the disposition of their interests for cash) from a business entity.)
MC: Under the ____________________ basis of accounting, income is recorded in the period in which it is earned.
A. cash
B. accrual
C. matching
D. revenue
B. accrual
MC: Because of the modifying constraint of ____________________, if uncertainty exists, assets are understated rather than overstated.
A. materiality
B. transparency
C. conservatism
D. neutrality
C. conservatism
T/F: The allowance method of accounting for uncollectible accounts is sometimes called the specific charge-off method.
False (The direct charge-off method is sometimes called the specific charge-off method.)
T/F: When the allowance method of recognizing losses from uncollectible accounts is used, the entry to record the write-off of a particular customer’s account includes a debit to Uncollectible Accounts Expense
False (When the allowance method of recognizing losses from uncollectible accounts is used, the entry to record the write-off of a particular customer’s account includes a debit to Allowance for Doubtful Accounts.)
Which of the following statements is not correct?
A. The allowance method involves anticipating losses from uncollectible accounts by recognizing an expense for these losses before the actual accounts are written off.
B. The adjusting entry to record the estimated loss from uncollectible accounts includes a credit to Accounts Receivable.
C. Losses from uncollectible accounts can be estimated by analyzing sales or accounts receivable.
D. Ideally, the balance of Uncollectible Accounts Expense appears under general expenses on the income statement.
B. The adjusting entry to record the estimated loss from uncollectible accounts includes a credit to Accounts Receivable.
MC: The balance of the Allowance for Doubtful Accounts account is reported as
A. a deduction from Accounts Receivable on the balance sheet.
B. a deduction from Sales on the income statement.
C. an addition to Accounts Receivable on the balance sheet.
D. an addition to sales on the income statement.
A. a deduction from Accounts Receivable on the balance sheet.
T/F: The journal entry to record the payment of the amount due on a $4,000 face value, 60-day, 6 percent note, would include a debit to Notes Payable for $4,000.
True
T/F: If the proceeds of a discounted note are less than the face amount, the difference is debited to Interest Expense.
True
MC: The name given to the price charged for the use of money or credit is __________.
A. interest
B. note payable
C. principal
D. draft
A. interest
MC: Interest Expense is usually classified as a(n) __________ on the income statement.
A. nonoperating expense
B. current liability
C. cost of goods sold
D. operating expense
A. nonoperating expense
T/F: An inventory system in which the amount of goods on hand is determined by periodic counts is called a perpetual inventory system.
False. (An inventory system in which the amount of goods on hand is determined by periodic counts is called a periodic inventory system.)
T/F: When using the gross profit method of inventory valuation the cost of goods available for sale is calculated by subtracting net purchases from beginning inventory.
True.
MC: When inventory is valued at the lower of cost or net realizable value, the accountant is applying the principle or convention called ____________________.
A. consistency
B. disclosure
C. conservatism
D. matching
C. conservatism
MC: In periods of rising prices, use of the ____________________ method of inventory valuation results in the lowest inventory cost on the balance sheet.
A. specific identification
B. average cost
C. FIFO
D. LIFO
D. LIFO
T/F: Tangible personal property includes machinery, equipment, furniture, and fixtures that can be removed and used elsewhere.
True.
T/F: When using the double-declining balance method of depreciation, the rate of depreciation in the later years may be limited to ensure that net book value does not drop below salvage value.
True.
MC: The allocation of the acquisition cost of an intangible asset to expense during its estimated useful life is called ____________________.
A. depreciation
B. impairment
C. amortization
D. depletion
C. amortization
MC: If a depreciable asset is sold for an amount that is less than the asset’s book value, ____________________.
A. a gain is recognized
B. a loss is recognized
C. no gain or loss is recognized
D. either a gain or a loss may be recognized, depending on the asset’s accumulated depreciation
B. a loss is recognized
T/F: Each partner is empowered to act as an agent for the partnership creating binding agreements no matter what the agreement concerns.
False. (Each partner is empowered to act as an agent for the partnership, binding the firm by those acts so long as they are within the normal scope of the partnership’s activities.)
T/F: The Articles of Organization are the legal agreement of the partnership that specifies the names of partners, the name, location and nature of the partnership business; the starting date and life of the partnership as well as the rights and duties of each partner.
False. (The Articles of Partnership (Partnership Agreement) specify the necessary information, not the Articles of Organization.)
MC: Each general partner has ____________________ liability for the debts of a partnership.
A. zero
B. equal
C. limited
D. unlimited
D. unlimited
MC: Amounts withdrawn by partners for their personal living expenses are debited to their ____________________ accounts.
A. cash
B. drawing
C. capital
D. accounts receivable
B. drawing
MC: If a partnership’s net income is in excess of the salary and interest allowances, the entry to close Income Summary after the allowances are recorded will include a(n) ____________________.
A. credit to the capital accounts
B. credit to the drawing account
C. debit to Income Summary
D. credit to Income Summary
C. debit to Income Summary
T/F: The “preemptive right” enables shareholders to purchase additional shares to maintain their percentage ownership should the corporation issue additional common shares in the future.
True.
T/F: A reduction in dividends distributed to shareholders from one year to the next can lead to loss of investor confidence and reduced market prices for the stock.
True.
MC: The number of shares of common stock that can be issued for each share of convertible preferred stock is referred to as the _________.
A. stated value.
B. dividends.
C. liquidation value.
D. conversion ratio.
D. conversion ratio.
MC: Ari Hightower owns 300 shares of preferred stock that is convertible into common stock at the rate of 3 shares for every share of preferred stock surrendered. If she surrenders all her preferred stock, she will receive __________ shares of common stock.
A. 300
B. 900
C. 3,000
D. 100
B. 900 (300 preferred shares × 3 common shares per preferred share rate = 900 common shares)
MC: A corporation is owned by:
A. its board of directors.
B. its stockholders.
C. the president of the corporation.
D. the individual who started the company.
B. its stockholders.
MC: One disadvantage of a corporation is:
A. limited liability.
B. continuous existence.
C. transferability of ownership rights.
D. double taxation.
D. double taxation.
T/F: The entry to record the income tax payable would include a debit to Retained Earnings and a credit to Income Tax Payable.
False. (The entry to record the income tax payable would include a debit to Income Tax Expense and a credit to Income Tax Payable.)
T/F: The Deferred Income Tax account represents postponement of taxes payable to a future period.
True.
MC: The amount of capital acquired from capital stock transactions is referred to as ________________________.
A. a stock dividend
B. retained earnings
C. paid-in capital
D. income summary
C. paid-in capital
MC: A(n) ____________________ dividend will decrease Retained Earnings but will not decrease total stockholders’ equity.
A. stock
B. cash
C. equipment
D. none of these answers is correct
A. stock
MC: The ____________________ value of each share of stock is the total equity applicable to the class of stock divided by the number of shares outstanding.
A. market
B. stated
C. par
D. book
D. book
MC: A corporation may use ___________ to lower market share prices in an effort to attract new investors.
A. cash dividends
B. reduction requests
C. appropriations of retained earnings
D. stock splits
D. stock splits
T/F: Bonds are often issued as a means of raising capital to pay off short-term debt.
False. (Bonds are often issued as a means of raising capital to pay off long-term debt.)
T/F: Investors will pay an amount greater than the face amount of a bond if the interest rate on bonds is greater than the market rate of interest.
True.
MC: When bonds are issued at a price below face value, the ____________________ for the difference between the issue price and the face value.
A. Premium on Bonds Payable account is debited
B. Premium on Bonds Payable account is credited
C. Discount on Bonds Payable account is debited
D. Discount on Bonds Payable account is credited
C. Discount on Bonds Payable account is debited
MC: The Discount on Bonds Payable account is ____________________ balance.
A. shown on the balance sheet and has a normal debit
B. shown on the balance sheet and has a normal credit
C. shown on the income statement and has a normal debit
D. shown on the income statement and has a normal credit
A. shown on the balance sheet and has a normal debit
MC: Using borrowed funds to earn a profit greater than the interest that must be paid on the borrowed funds is called trading on the equity, or ____________________.
A. calling
B. amortizing
C. leveraging
D. retiring
C. leveraging
T/F: In vertical analysis, it is customary to express each item on the balance sheet as a percentage of total liabilities.
False. (In vertical analysis, it is customary to express each item on the balance sheet as a percentage of either total assets or total liabilities and stockholders’ equity.)
T/F: In horizontal analysis, the change from year to year itself can be interpreted to represent the changes in external prices that impact the business.
False. (In horizontal analysis, the change from year to year is useful in identifying items that need further investigation.)
MC: The yield on common stock is computed by dividing the dividend per share of common stock by the current ____________________ of the share.
A. cost
B. market price
C. par value
D. stated value
B. market price
MC: Current assets divided by current liabilities is the _________________________.
A. acid-test ratio
B. current ratio
C. asset turnover
D. working capital
B. current ratio
MC: The price-earnings ratio is computed by dividing the current market value per share by the ____________________.
A. earnings per share
B. total assets
C. net sales
D. cash dividend per share
A. earnings per share
T/F: If a firm’s accounts receivable increased during the fiscal period, it is necessary to subtract the amount of the increase from the net income when computing the net cash provided by operating activities.
True.
MC: Purchases and sales of land, buildings, and equipment for cash are shown as ____________ on the statement of cash flows.
A. equity activities
B. operating activities
C. investing activities
D. financing activities
C. investing activities
MC: A gain on the sale of equipment is reported in the ____________ section of the statement of cash flows.
A. equity activities
B. operating activities
C. investing activities
D. financing activities
B. operating activities
