Financial Accounting (CONCEPTS) PART 1

Question 1

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

Answer 1

c. controlling activities

Question 2

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

Answer 2

b. a sales budget

Question 3

Tax accounting is generally most used by:

a. Share holder
b. Manager
c. Creditors
d. Internal revenue service
e. Decision makers

Answer 3

d. Internal revenue service

Question 4

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

Answer 4

b. future activities

Question 5

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

Answer 5

c. paper manufacture

Question 6

Dividends are reported on the

a. ) income statement.
b. ) retained earnings statement.
c. ) balance sheet.
d. ) statement of cash flows.

Answer 6

b.) retained earnings statement.

Question 7

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

Answer 7

d. the minimum required rate of return

Question 8

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

Answer 8

d. assets, liabilities, and stockholders’ equity

Question 9

The excess of expenses over revenues for a period is:

a. Net assets.
b. Equity.
c. Net loss.
d. Net income.
e. A liability.

Answer 9

c. Net loss.

Question 10

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

Answer 10

b. are debts and obligations.

Question 11

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.

Answer 11

d. future economic benefit.

Question 12

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.

Answer 12

d. A contra equity account.

Question 13

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

Answer 13

c. No effect

Question 14

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

Answer 14

d. discounting the future amount

Question 15

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

Answer 15

d. all of the options listed

Question 16

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

Answer 16

b. been earned but not received

Question 17

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

Answer 17

c. Current Assets ÷ Current Liabilities

Question 18

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.

Answer 18

a. Raises the current ratio.

Question 19

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.

Answer 19

b. Refers to a condition where a plant asset is no longer useful in producing goods and services.

Question 20

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

Answer 20

d. Balance Sheet

Question 21

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

Answer 21

a. current market value

Question 22

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.

Answer 22

d. Matching principle.

Question 23

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

Answer 23

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.

Question 24

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.

Answer 24

c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

Question 25

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

Answer 25

d. do not have physical substance.

Question 26

Net income results when:

a. Assets > Liabilities
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues

Answer 26

c. Revenues > Expenses.

Question 27

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.

Answer 27

e. Both A and D.

Question 28

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

Answer 28

c. reports the assets, liabilities, and stockholders’ equity at a specific date.

Question 29

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.

Answer 29

e. A and C only.

Question 30

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.

Answer 30

d. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.

Question 31

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

Answer 31

b. help predict future events or confirm prior expectations.

Question 32

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

Answer 32

d. Noncash Transaction

Question 33

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.

Answer 33

d. All of the options listed are true regarding LCM.

Question 34

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

Answer 34

c. when the service is performed.

Question 35

Noncurrent, intangible assets such as leasehold improvements and patents are all subject to:

a. depreciation
b. amortization
c. depletion
d. consolidation
e. recognition

Answer 35

b. amortization

Question 36

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

Answer 36

c. cost of the asset and the accumulated depreciation to date.