Final Exam MC

Question 1

The correct order to present current assets is:

a. cash, accounts receivable, prepaid items, inventories
b. cash, accounts receivable, inventories, prepaid items
c. cash, inventories, accounts receivable, prepaid items
d. cash, inventories, prepaid items, accounts receivable

Answer 1

b. cash, accounts receivable, inventories, prepaid items

Question 2

The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in

a. inventory back into cash, or 12 months, whichever is shorter
b. receivables back into cash, or 12 months, whichever is longer
c. tangible fixed assets back into cash, or 12 months, whichever is longer
d. inventory back into cash, or 12 months, whichever is longer

Answer 2

d. inventory back into cash, or 12 months, whichever is longer

Question 3

Which of the following is NOT a long-term investment?

a. cash surrender value of life insurance
b. patent
c. land held for speculation
d. a sinking fund

Answer 3

b. patent

Question 4

Working capital is

a. capital which as been reinvested in the business
b. unappropriated retained earnings
c. cash and receivables less current liabilities
d. none of these answer choices are correct

Answer 4

d. none of these answer choices are correct

Question 5

Treasury stock should be reported as a(n)

a. current asset
b. investment
c. other asset
d. reduction of stockholders’ equity

Answer 5

d. reduction of stockholders’ equity

Question 6

The stockholders’ equity section is usually divided into what three parts?

a. preferred stock, common stock, treasury stock
b. preferred stock, common stock, retained earnings
c. capital stock, additional paid-in capital, retained earnings
d. capital stock, appropriated retained earnings, unappropriated retained earnings

Answer 6

c. capital stock, additional paid-in capital, retained earnings

Question 7

Which of the following is NOT an acceptable major asset classification?

a. current assets
b. long-term investments
c. property, plant, and equipment
d. deferred charges

Answer 7

d. deferred charges

Question 8

Which of the following is a contra account

a. goodwill
b. unearned revenue
c. patents
d. accumulated depreciation

Answer 8

d. accumulated depreciation

Question 9

The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general expense
b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect
c. revenues, expenses, gains, and losses
d. revenues, irregular items, and general expenses

Answer 9

c. revenues, expenses, gains, and losses

Question 10

The income statement reveals

a. assets and liabilities of a firm at a point in time
b. assets and liabilities of a firm for a period of time
c. net income of a firm at a point in time
d. net income of a firm for a period of time

Answer 10

d. net income of a firm for a period of time

Question 11

If ending accounts receivable exceeds the beginning accounts receivable

a. cash collections during the period exceed the amount of revenue recognized
b. net income for the period is less than the amount of cash-basis income
c. no cash was collected during the period
d. cash collections during the year are less than the amount of revenue recognized

Answer 11

d. cash collections during the year are less than the amount of revenue recognized

Question 12

Under which of the following conditions would flood damage be considered an extraordinary item for financial reporting purposes?

a. only if floods in the geographical area are unusual in nature and occur infrequently
b. only if the flood damage is material in amount and could have been reduced by prudent management
c. under any circumstances as an extraordinary item
d. flood damage should never be classified as an extraordinary item

Answer 12

a. only if floods in the geographical area are unusual in nature and occur infrequently

Question 13

A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement

a. Net of Tax: NO Disclosed Separately: NO
b. Net of Tax: YES Disclosed Separately: YES
c. Net of Tax: NO Disclosed Separately: YES
d. Net of Tax: YES Disclosed Separately: NO

Answer 13

c. Net of Tax: NO Disclosed Separately: YES

Question 14

A correction of an error in prior periods’ income will be reported

a. In the Income Statement: YES Net of Tax: YES
b. In the Income Statement: NO Net of Tax: NO
c. In the Income Statement: YES Net of Tax: NO
d. In the Income Statement: NO Net of Tax: YES

Answer 14

d. In the Income Statement: NO Net of Tax: YES

Question 15

Which of the following is included in comprehensive income?

a. investments by owners
b. unrealized gains on available-for-sale securities
c. dividends to owners
d. changes in accounting principles

Answer 15

b. unrealized gains on available-for-sale securities

Question 16

A trial balance

a. proves that debits and credits are equal in the ledger
b. supplies a listing of open accounts and their balances that are used in preparing financial statements
c. is normally prepared three times in the accounting cycle
d. all of these answer choices are correct

Answer 16

d. all of these answer choices are correct

Question 17

Transaction analysis normally takes place

a. before an entry is recorded in a journal
b. when the entry is posted to the ledger
c. when the trial balance is prepared
d. at the end of the accounting cycle

Answer 17

a. before an entry is recorded in a journal

Question 18

An optional step in the accounting cycle is the preparation of

a. adjusting entries
b. closing entries
c. statement of cash flows
d. reversing entries

Answer 18

d. reversing entries

Question 19

Which of the following errors will cause an imbalance in the trial balance?

a. omission of a transaction in the journal
b. posting an entire journal entry twice to the ledger
c. posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable
d. listing the balance of an account with a debit balance in the credit column of the trial balance

Answer 19

d. listing the balance of an account with a debit balance in the credit column of the trial balance

Question 20

Which of the following statements best describes the purpose of closing entries?

a. to facilitate posting and taking a trial balance
b. to determine the amount of net income or net loss for the following period
c. to reduce the balance of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period
d. to complete the record of various transactions that were started in a prior period

Answer 20

c. to reduce the balance of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period

Question 21

A journal entry to record the sale of inventory on account will include a

a. debit to inventory
b. debit to accounts receivable
c. debit to sales revenue
d. credit to cost of goods sold

Answer 21

b. debit to accounts receivable

Question 22

A journal entry to record a payment on account will include a

a. debit to accounts receivable
b. credit to accounts receivable
c. debit to accounts payable
d. credit to accounts payable

Answer 22

c. debit to accounts payable

Question 23

Which of the following is true about the information provided in the income statement?

a. it helps in evaluating the past performance of the enterprise
b. it provides a basis for predicting future performance
c. it helps assess the risk or uncertainty of achieving future cash flows
d. all of these answer choices are correct

Answer 23

d. all of these answer choices are correct

Question 24

Which of the following should be reported for capital stock?

a. the share authorized
b. the shares issued
c. the shares outstanding
d. all of these answer choices are correct

Answer 24

d. all of these answer choices are correct

Question 25

An adjusting entry should NEVER include

a. a debit to an expense account and a credit to a liability account
b. a debit to an expense account and a credit to a revenue account
c. a debit to a liability account and a credit to revenue account
d. a debit to a revenue account and a credit to a liability account

Answer 25

b. a debit to an expense account and a credit to a revenue account

Question 26

Present value is

a. the value now of a future amount
b. the amount that must be invested now to produce a known future value
c. always smaller than the future value
d. all of these answer choices are correct

Answer 26

d. all of these answer choices are correct

Question 27

What is the relationship between the future value of one and the present value of one?

a. the present value of one equals the future value of one plus one
b. the present value of one equals one plus future value factor for n-1 periods
c. the present value of one equals one divided by the future value of one
d. the present value of one equals one plus the future value factor for n+1 value

Answer 27

c. the present value of one equals one divided by the future value of one

Question 28

An amount is deposited for eight years at 8%. If compounding occurs quarterly, the the table value is found at

a. 8% for eight periods
b. 2% for eight periods
c. 8% for 32 periods
d. 2% for 32 periods

Answer 28

d. 2% for 32 periods

Question 29

Which of the following situations does not base an accounting measure on present values?

a. pensions
b. accounts payable
c. leases
d. sinking funds

Answer 29

b. accounts payable

Question 30

If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates, then

a. the present value of the annuity due is less than the present value of the ordinary annuity
b. the present value of the annuity due is greater than the present value of the ordinary annuity
c. the future value of the annuity due is equal to the future value of the ordinary annuity
d. the future value of the annuity due is less than the future value of the ordinary annuity

Answer 30

b. the present value of the annuity due is greater than the present value of the ordinary annuity

Question 31

Which of the following is FALSE?

a. the future value of a deferred annuity is the same as the future value of an annuity not deferred
b. a deferred annuity is an annuity in which the rents begin after a specified number of periods
c. to compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period
d. if the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods

Answer 31

d. if the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods

Question 32

Companies that are listed on a stock exchange are required to submit their financial statements to the

a. AICPA
b. APB
c. FASB
d. SEC

Answer 32

d. SEC

Question 33

What is the objective of financial reporting?

a. provide information that is useful to management in making decisions
b. provide information that clearly portrays nonfinancial transactions
c. provide information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors
d. provide information that excludes claims to the resources

Answer 33

c. provide information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors

Question 34

Accrual accounting is used because

a. cash flows are considered less important
b. it provides a better indication of a companies ability to generate cash flows than the cash basis
c. it recognizes revenues when cash is received and expenses when cash is paid
d. non of the answer choices are correct

Answer 34

b. it provides a better indication of a companies ability to generate cash flows than the cash basis

Question 35

The underlying theme of the conceptual framework is

a. decision usefulness
b. understandability
c. faithful representation
d. comparability

Answer 35

a. decision usefulness

Question 36

what is meant by comparability when discussing financial accounting information?

a. information has predictive or confirmatory value
b. information is reasonably free from error
c. information that is measured and reported in a similar fashion across companies
d. information is timely

Answer 36

c. information that is measured and reported in a similar fashion across companies

Question 37

What is meant by consistency when discussing financial accounting information?

a. information that is measured and reported in a similar fashion across points in time
b. information is timely
c. information is measured similarly across the industry
d. information is verifiable

Answer 37

a. information that is measured and reported in a similar fashion across points in time

Question 38

Allowing firms to estimate rather than physically count inventory at interim (quarterly periods) is an example of a trade-off between

a. verifiability and faithful representation
b. faithful representation and comparability
c. timeliness and verifiability
d. neutrality and consistency

Answer 38

c. timeliness and verifiability

Question 39

Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the

a. consistency characteristic
b. expense recognition principle
c. materiality quality
d. historical cost principle

Answer 39

c. materiality quality

Question 40

Neutrality means that information

a. provides benefits which are at least equal to the cost of its preparation
b. can be compared with similar information about an enterprise at other points in time
c. would have no impact on a decision maker
d. cannot favor one set of interested parties over another

Answer 40

d. cannot favor one set of interested parties over another

Question 41

Which of the following is an ingredient of relevance?

a. verifiability
b. neutrality
c. timeliness
d. materiality

Answer 41

d. materiality

Question 42

Which accounting assumption or principle is being violated if a company provides financial statements only when it introduces a new product?

a economic entity

b. periodicity
c. revenue recognition
d. full disclosure

Answer 42

b. periodicity

Question 43

Which basic assumption may not be followed when a firm in bankruptcy reports financial results?

a. economic entity assumption
b. going concern assumption
c. periodicity assumption
d. monetary unit assumption

Answer 43

b. going concern assumption

Question 44

Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the

a. economic entity assumption
b. relevance characteristic
c. comparability characteristic
d. neutrality characteristic

Answer 44

a. economic entity assumption

Question 45

Under current GAAP, inflation is ignored in accounting due to the

a. economic entity assumption
b. going concern assumption
c. monetary unity assumption
d. periodicity assumption

Answer 45

c. monetary unity assumption

Question 46

Accounting for bad debt expense, which is based on an estimate of bad debts, is an application of the

a. consistency characteristic
b. matching principle
c. materiality quality
d. revenue recognition principle

Answer 46

b. matching principle

Question 47

Which accounting assumption or principle is being violated if a company is a party to major litigation that it may lose and decides not to include the information in the financial statements because it may have a negative impact on the company’s stock price?

a. full disclosure
b. going concern
c. historical cost
d. expense recognition

Answer 47

a. full disclosure

Question 48

Revenue generally should be recognized

a. at the end of production
b. at the time of cash collection
c. when realized
d. when the seller’s obligation to deliver goods and/or services is satisfied

Answer 48

d. when the seller’s obligation to deliver goods and/or services is satisfied

Question 49

Which of the following places a constraint on the amount of financial information presented?

a. cost-benefit relationship
b. full disclosure
c. relevance
d. consistency

Answer 49

a. cost-benefit relationship

Question 50

According tot he FASB Conceptual Framework, the elements - assets, liabilities, and equity - describe amounts of resources and claims to resources at/during a

a. Moment in Time: YES Period of Time: NO
b. Moment in Time: YES Period of Time: YES
c. Moment in Time: NO Period of Time: YES
d. Moment in Time: NO Period of Time: NO

Answer 50

a. Moment in Time: YES Period of Time: NO

Question 51

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:

a. offset the overdraft against cash account
b. report the same in the notes to financial statement
c. report the bank overdraft amount as account payable
d. classify the bank overdraft as compensating balance

Answer 51

a. offset the overdraft against cash account

Question 52

Which of the following is NOT considered cash for financial reporting purposes?

a. petty cash funds and change funds
b. money orders, certified checks, and personal checks
c. coin, currency, and available funds
d. postdated checks and I.O.U.’s

Answer 52

d. postdated checks and I.O.U.’s

Question 53

Under which section of the balance sheet is “cash restricted for plant expansion” reported?

a. current assets
b. non-current assets
c. current liabilities
d. stockholders’ equity

Answer 53

b. non-current assets

Question 54

Why is the allowance method preferred over the direct write-off (income tax) method of accounting for bad debts?

a. allowance method is used for tax purposes
b. estimates are used
c. determining worthless accounts under direct write-off method is difficult to do
d. improved matching of bad debt expense with revenue

Answer 54

d. improved matching of bad debt expense with revenue

Question 55

The journal entries for a bank reconciliation

a. are taken from the “balance per bank” section only
b. may include a debit to Office Expense for bank service charges
c. may include a credit to Accounts Receivable for an NSF check
d. may include a debit to Accounts Payable for an NSF check

Answer 55

b. may include a debit to Office Expense for bank service charges

Question 56

Which of the following is a characteristic of a perpetual inventory system?

a. inventory purchases are debited to a purchase account
b. inventory records are not kept for every item
c. cost of goods sold is recorded with each sale
d. cost of goods sold is determined as the amount of purchases less the change in inventory

Answer 56

c. cost of goods sold is recorded with each sale

Question 57

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

a. be accrued during the period when the compensated time is expected to be used by employees
b. be accrued during the period following vesting
c. be accrued during the period when earned
d. not be accrued unless a written contractual obligation exists

Answer 57

c. be accrued during the period when earned

Question 58

The amount of the liability for compensated absences should be based on:

1. the current rates of pay in effect when employees earn the right to compensated absences
2. the future rates of pay expected to be paid when employees use compensated time
3. the present value of the amount expected to be paid in the future

a. 1
b. 2
c. 3
d. either 1 or 2 is acceptable

Answer 58

d. either 1 or 2 is acceptable

Question 59

Which inventory costing method most closely approximates current cost for each of the following?

a. Ending Inventory: FIFO Cost of Goods Sold: FIFO
b. Ending Inventory: FIFO Cost of Goods Sold: LIFO
c. Ending Inventory: LIFO Cost of Goods Sold: FIFO
d. Ending Inventory: LIFO Cost of Goods Sold: LIFO

Answer 59

b. Ending Inventory: FIFO Cost of Goods Sold: LIFO

Question 60

The pricing of issues from inventory must be delayed until the end of the accounting period under the following method of inventory valuation :

a. moving- average
b. weighted- average
c. LIFO perpetual
d. FIFO

Answer 60

b. weighted- average

Question 61

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

a. FIFO
b. LIFO
c. base stock
d. weighted- average

Answer 61

a. FIFO

Question 62

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

a. prices decrease
b. prices remain unchanged
c. prices increase
d. price trend cannot be determined from information given

Answer 62

a. prices decrease

Question 63

Which of the following is TRUE regarding the use of LIFO for inventory valuation?

a. if LIFO is used for external financial reporting, then it must also be used for internal reports
b. for purposes of external financial reporting, FIFO may not be used with the lower of cost or market approach
c. if LIFO is used for external financial reporting, then it cannot be used for tax purposes
d. None of these answers are correct

Answer 63

d. None of these answers are correct

Question 64

Lower-of-cost-or-market

a. is most conservative if applied to the total inventory
b. is most conservative if applied to major categories of inventory
c. is most conservative if applied to individual items of inventory
d. must be applied to major categories for taxes

Answer 64

c. is most conservative if applied to individual items of inventory

Question 65

The designated market value

a. is always the middle value o f replacement cost, net realizable value, and net realizable value less a normal profit margin
b. should always be equal to net realizable value
c. may sometimes exceed net realizable value
d. should always be equal to net realizable value less a normal profit margin

Answer 65

a. is always the middle value o f replacement cost, net realizable value, and net realizable value less a normal profit margin

Question 66

Which of the following is a current liability?

a. a long-term debt maturity currently, which is to be paid with cash in a sinking fund
b. a long-term debt maturing currently, which is to be retired with proceeds from a new debt issue
c. a long-term debt maturing currently, which is to be converted into common stock
d. none of these answers are correct

Answer 66

b. a long-term debt maturing currently, which is to be retired with proceeds from a new debt issue

Question 67

Under what conditions is an employer required to accrue a liability for sick pay?

a. sick pay benefits can be reasonably estimated
b. sick pay benefits vest
c. sick pay benefits equal 100% of the pay
d. sick pay benefits accumulate

Answer 67

b. sick pay benefits vest

Question 68

Of the following items, the only one which should not be classified as a current liability is

a. current maturities of long term debt
b. sales taxes payable
c. short-term obligations expected to be refinanced
d. unearned revenues

Answer 68

c. short-term obligations expected to be refinanced

Question 69

Which of the following is a characteristic of a current liability but NOT a long-term liability?

a. unavoidable obligation
b. present obligation that entails settlement by probable future transfer or use of cash, goods, or services
c. liquidation is reasonably expected to require use of existing resources classified as current assets or created other current liabilities
d. transaction or other event creating the liability has already occurred

Answer 69

c. liquidation is reasonably expected to require use of existing resources classified as current assets or created other current liabilities

Question 70

Which of the following situations may give rise to unearned revenue?

a. providing trade credit to customers
b. selling inventory
c. selling magazine subscriptions
d. providing manufacturer warranties

Answer 70

c. selling magazine subscriptions

Question 71

Which of these is NOT included in an employer’s payroll tax expense?

a. FICA (social security) taxes
b. Federal unemployment taxes
c. State unemployment taxes
d. Federal income taxes

Answer 71

d. Federal income taxes

Question 72

To record an asset retirement obligation (ARO), the cost associated with the ARO is

a. expensed
b. included in the carrying amount of the related long-lived asset
c. included in a separate account
d. capitalized over the asset’s useful life

Answer 72

b. included in the carrying amount of the related long-lived asset

Question 73

Neer Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be

a. zero
b. the maximum of the range
c. the mean of the range
d. the minimum of the range

Answer 73

d. the minimum of the range

Question 74

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

a. amount of loss is reasonably estimable and event occurs infrequently
b. amount of loss is reasonably estimable and occurrence of event is probable
c. event is unusual in nature and occurrence of event is probable
d. event is unusual in nature and event occurs infrequently

Answer 74

b. amount of loss is reasonably estimable and occurrence of event is probable

Question 75

Which of the following best describes the accrual method of accounting for warranty costs?

a. expensed when paid
b. expensed when warranty claims are certain
c. expensed based on estimate in year of sale of product
d. expensed when incurred

Answer 75

c. expensed based on estimate in year of sale of product