Financial Accounting (CONCEPTS) PART 1 Flashcards
Comparing actual outcomes with budget outcomes, then following up, is an example of a
a. planning activities
b. operating activities
c. controlling activities
d. accounting activities
e. staffing activities
c. controlling activities
Which of the following is typically a starting point for the budget process?
a. a summary cash budget
b. a sales budget
c. a budget balance sheet
d. a production budget
e. a materials purchase budget
b. a sales budget
Tax accounting is generally most used by:
a. Share holder
b. Manager
c. Creditors
d. Internal revenue service
e. Decision makers
d. Internal revenue service
Management accountant place more emphases on which of the following
a. certified financial statement
b. future activities
c. historial cost information
d. cash flow
e. annual tax returns
b. future activities
Which of the following organization would be most likely to accept a process costing system?
a. customer homebuilder
b. law office
c. paper manufacture
d. dental office
e. TV sale and services organization
c. paper manufacture
Dividends are reported on the
a. ) income statement.
b. ) retained earnings statement.
c. ) balance sheet.
d. ) statement of cash flows.
b.) retained earnings statement.
The discount rate for use in capital budgeting decision is also referred to as
a. a cost of capital
b. the cost of capital
c. the hurdle rate
d. the minimum required rate of return
e. all none
d. the minimum required rate of return
A balance sheet shows:
a. revenues, liabilities, and stockholders’ equity.
b. expenses, dividends, and stockholders’ equity.
c. revenues, expenses, and dividends.
d. assets, liabilities, and stockholders’ equity.
e. none of the options listed
d. assets, liabilities, and stockholders’ equity
The excess of expenses over revenues for a period is:
a. Net assets.
b. Equity.
c. Net loss.
d. Net income.
e. A liability.
c. Net loss.
Liabilities:
a. are future economic benefits.
b. are debts and obligations.
c. possess service potential.
d. are things of value owned by a business.
e. none of the options listed
b. are debts and obligations.
The common characteristic possessed by all assets is:
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
e. None of the options listed.
d. future economic benefit.
Treasury stock is classified as:
a. An asset account.
b. A contra asset account.
c. A revenue account.
d. A contra equity account.
e. A liability account.
d. A contra equity account.
Olsen Company prepares its statement of cash flows using the indirect method. Indicate whether the item would be added to net income (increase), deducted from net income (decrease), or has no effect on net income to determine net cash flows from operating activities. A decrease in the value from the beginning of the year to the end of the year for Inventory, which is a current asset.
a. Increase
b. Decrease
c. No effect
d. None of the options listed
e. All of the options listed
c. No effect
In present value calculations, the process of determining the present value is called
a. allocating.
b. pricing.
c. negotiating.
d. discounting the future amount
e. none of the options listed
d. discounting the future amount
Present value is based on:
a. the dollar amount to be received.
b. the length of time until the amount is received.
c. the interest rate.
d. all of the options listed
e. none of the options listed
d. all of the options listed
Accrued revenue has:
a. not been earned nor received
b. been earned but not received
c. not been earned but has been received
d. been earned and received
e. none of the options listed
b. been earned but not received
What is the formula to calculate the current ratio?
a. Assets ÷ Liabilities
b. Cash + Accounts Receivables ÷ Current Liabilities
c. Current Assets ÷ Current Liabilities
d. Net Income ÷ Current Liabilities
e. None of the options listed
c. Current Assets ÷ Current Liabilities
For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is:
a. Raises the current ratio.
b. Lowers the current ratio.
c. Doesn’t affect the current ratio.
d. Depends on the amount paid.
e. Not determinable based on the facts given.
a. Raises the current ratio.
Obsolescence:
a. Occurs when an asset is at the end of its useful life.
b. Refers to a condition where a plant asset is no longer useful in producing goods and services.
c. Refers to a condition where the capacity of a company’s plant assets is too small to meet the company’s productive demands.
d. Occurs when an asset’s salvage value is less than its replacement cost.
e. Does not affect plant assets.
b. Refers to a condition where a plant asset is no longer useful in producing goods and services.
Which financial statement would best indicate the proportion of debt and equity that a company uses to finance its assets?
a. Statement of Cash Flows
b. Retained Earnings Statement
c. Income Statement
d. Balance Sheet
e. None of the options listed
d. Balance Sheet
The relevant measure of value of the assets of a company that is going out of business is their:
a. current market value
b. book value
c. historical cost
d. higher of historical cost or current market value
e. none of the options listed
a. current market value
The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:
a. Recognition principle.
b. Cost principle.
c. Cash basis of accounting.
d. Matching principle.
e. Time period principle.
d. Matching principle.
Under the accrual basis of accounting:
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
e. none of the options listed
c. events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
Depreciation is the process of:
a. valuing an asset at its fair market value.
b. increasing the value of an asset over its useful life in a rational and systematic manner.
c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
d. writing down an asset to its real value each accounting period.
c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
Intangible assets are the rights and privileges that result from ownership of long-lived assets that:
a. must be generated internally.
b. are depreciated over their useful life.
c. have been exchanged at a gain.
d. do not have physical substance.
e. none of the options listed
d. do not have physical substance.
Net income results when:
a. Assets > Liabilities
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues
c. Revenues > Expenses.
The accounting equation is:
a. Assets = Liabilities + Equity.
b. Assets + Liabilities = Equity.
c. Assets = Liabilities - Equity.
d. Assets - Liabilities = Equity.
e. Both A and D.
e. Both A and D.
The balance sheet:
a. summarizes the changes in retained earnings for a specific period of time.
b. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.
c. reports the assets, liabilities, and stockholders’ equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
e. none of the options listed
c. reports the assets, liabilities, and stockholders’ equity at a specific date.
An audit provides the following benefit(s) to users of financial statements:
a. To help assure users that financial statements include relevant, reliable, and comparable information.
b. Insures that users can safely invest in, or loan money to, a business.
c. It tells users that the statements are prepared using accepted accounting principles.
d. All of the above.
e. A and C only.
e. A and C only.
Revenue is properly recognized:
a. When the customer’s order is received.
b. Only if the transaction creates an account receivable.
c. At the end of the accounting period.
d. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.
e. When cash from a sale is received.
d. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.
In order for accounting information to be relevant, it must
a. have very little cost.
b. help predict future events or confirm prior expectations.
c. not be reported to the public.
d. be used by a lot of different firms.
e. none of the options listed
b. help predict future events or confirm prior expectations.
What type of activity is the following - “Exchanged 10,000 shares of common stock for 15-year bonds?”.
a. Operating Activity
b. Financing Activity
c. Investing Activity
d. Noncash Transaction
e. None of the options listed
d. Noncash Transaction
Which statement is false regarding the lower of cost or market (LCM) method of inventory?
a. Market is defined as current replacement cost, not selling price.
b. LCM is an example of an accounting concept of conservatism.
c. Inventory is written down to its market value in the period in which the price decline occurs.
d. All of the options listed are true regarding LCM.
e. None of the options listed are true regarding LCM.
d. All of the options listed are true regarding LCM.
In a service-type business, revenue is considered earned:
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.
e. none of the options listed
c. when the service is performed.
Noncurrent, intangible assets such as leasehold improvements and patents are all subject to:
a. depreciation
b. amortization
c. depletion
d. consolidation
e. recognition
b. amortization
The book value of a plant asset is the difference between the:
a. replacement cost of the asset and its historical cost.
b. cost of the asset and the amount of depreciation expense for the year.
c. cost of the asset and the accumulated depreciation to date.
d. proceeds received from the sale of the asset and its original cost.
e. none of the options listed
c. cost of the asset and the accumulated depreciation to date.
