Financial Accounting (CONCEPTS) PART 2

Question 1

An income statement:

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 1

d. presents the revenues and expenses for a specific period of time.

Question 2

Accounting information should be neutral in order to enhance:

a. reliability.
b. consistency.
c. comparability.
d. relevance.
e. none of the options listed

Answer 2

a. reliability.

Question 3

Par value of a stock refers to the:

a. Issue price of the stock.
b. Value assigned to a share of stock by the corporate charter.
c. Market value of the stock on the date of the financial statements.
d. Maximum selling price of the stock.
e. Dividend value of the stock

Answer 3

b. Value assigned to a share of stock by the corporate charter.

Question 4

Retained earnings is:

a. decreased by net income
b. increased by expenses
c. decreased by revenues
d. increased by dividends declared
e. increased by gains

Answer 4

e. increased by gains

Question 5

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:

a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
e. none of the options listed

Answer 5

d. revenues to be understated.

Question 6

Accountants do not attempt to measure the change in a plant asset’s market value during ownership because:

a. of the historical cost assumption.
b. plant assets cannot be sold.
c. losses would have to be recognized.
d. it is management’s responsibility to determine fair values.
e. none of the options listed

Answer 6

a. of the historical cost assumption.

Question 7

Liabilities of a company are owed to:

a. debtors.
b. owners.
c. creditors.
d. stockholders.
e. none of the options listed

Answer 7

c. creditors.

Question 8

Stockholders’ equity can be described as claims of:

a. creditors on total assets.  	
b. owners on total assets. 	
c. customers on total assets. 	
d. debtors on total assets. 	
e. none of the options listed

Answer 8

b. owners on total assets.

Question 9

Retained earnings is:

a. the stockholders’ claim on total assets. 	
b. equal to cash.              	
c. equal to revenues. 	
d. the cumulative amount of net income kept in the corporation for future use. 	
e. none of the options listed

Answer 9

d. the cumulative amount of net income kept in the corporation for future use.

Question 10

The necessity of making adjusting entries relates mostly to the:

a. economic entity assumption. 	
b. time period assumption. 	
c. going concern assumption. 	
d. monetary unit assumption.  	
e. none of the options listed

Answer 10

b. time period assumption.

Question 11

What type of activity is the following - “Sold 2,000 shares of a company’s own common stock for cash?”

a. Operating Activity 	
b. Financing Activity 	
c. Investing Activity 	
d. Noncash Transaction  	
e. None of the options listed

Answer 11

b. Financing Activity

Question 12

Which financial statement is prepared first?

a. Balance sheet
b. Income statement
c. Retained earnings statement
d. Statement of cash flows
e. None of the options listed

Answer 12

b. Income statement

Question 13

Resources owned by a business are referred to as:

a. stockholders’ equity.
b. liabilities.
c. assets.
d. revenues.
e. none of the options listed

Answer 13

c. assets.

Question 14

Which of the following would not result in unearned revenue?

a. Rent collected in advance from tenants
b. Services performed on account
c. Sale of season tickets to football games
d. Sale of two-year magazine subscriptions
e. None of the options listed

Answer 14

b. Services performed on account

Question 15

What is the formula to calculate the profit margin?

a. Gross Profit ÷ Sale
b. Net Income ÷ Sales
c. Gross Profit ÷ Net Income
d. Net Income ÷ Gross Profit
e. None of the options listed

Answer 15

e. None of the options listed

Net Income / Revenue) or (Net Profit / Sales

Question 16

What is the formula to calculate earnings per share?

a. Net Income ÷ Common Stock Outstanding
b. Market Price ÷ Common Stock Outstanding
c. Gross Profit ÷ Total Stock Outstanding
d. Market Price ÷ Total Stock Outstanding
e. None of the options listed

Answer 16

a. Net Income ÷ Common Stock Outstanding

Question 17

Which of the following methods will result in the highest depreciation in the first year?

a. Units-of-activity
b. Time valuation
c. Straight-line
d. Declining-balance
e. None of the options listed

Answer 17

d. Declining-balance

Question 18

An obligation of a business that represents the claims of others against the assets of the business is called:

a. An Asset.
b. An Expense.
c. A Revenue.
d. An Equity.
e. A Liability.

Answer 18

e. A Liability.

Question 19

According to the FASB, the primary objective of financial reporting is to provide information:

a. to the Internal Revenue Service
b. to the Securities and Exchange Commission
c. useful for making investing and lending decisions
d. regarding the revenues and expenses of a business
e. none of the options listed

Answer 19

b. to the Securities and Exchange Commission

Question 20

An annual report includes all of the following except:

a. management discussion and analysis section.
b. notes to the financial statements.
c. an auditor’s report.
d. salary information for the key executives.
e. none of the options listed

Answer 20

d. salary information for the key executives.

Question 21

The accounting equation may be expressed as:

a. Assets = Stockholders’ Equity – Liabilities.
b. Assets = Liabilities + Stockholders’ Equity.
c. Assets + Liabilities = Stockholders’ Equity.
d. Assets + Stockholders’ Equity = Liabilities.
e. None of the options listed

Answer 21

b. Assets = Liabilities + Stockholders’ Equity.

Question 22

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

a. Debit Cash and credit Legal Fees Earned.
b. Debit Cash and credit Unearned Legal Fees.
c. Debit Unearned Legal Fees and credit Legal Fees Earned.
d. Debit Legal Fees Earned and credit Unearned Legal Fees.
e. Debit Unearned Legal Fees and credit Accounts Receivable.

Answer 22

c. Debit Unearned Legal Fees and credit Legal Fees Earned.

Question 23

Expenses are incurred:

A. Only one rare occasion 
B. To produce asset    
C. To produce liability 
D. To generate revenue
E. None.

Answer 23

D. To generate revenue

Question 24

Company A current liability equal 500,000, working capital 120,000. Company B same amount of working capital, but total current liability of 30,000. The company with the better working capital position is?

A. They both has exact the same working capital
B. Company B
C. Company A
D. Don’t determined with the information given
E. None

Answer 24

B. Company B

(It is good when better working capital position decreases)

Question 25

The accumulated depreciation account is a (an)

A. Contra assets reduce
B. Liability
C. Assets 
D. Operating expanse 
E. none of the listed

Answer 25

A. Contra assets reduce

Question 26

Operating cycle of a company is the average time that is require to go from cash to:

A. Sales 
B. Cash in producing revenues
C. Inventory
D. Accounts Receivable
E. None

Answer 26

B. Cash in producing revenues

Question 27

In the annual report, where would a financial statement reader find out if the company’s financial statements give a fair depiction of its financial position and operating results?

A. Management discussion and analysis section
B. Notes to the financial statements
C. An auditor report
D. Survey information for the key executive
E. None.

Answer 27

C. An auditor report

Question 28

If ending inventory is over stead what effect will there be on cost of good and net income?

A. CGS will overstated and Net income overstate
B. CGS will overstated and Net income understated
C. CGS will understated and Net income overstate
D. CGS will understated and Net income understate
E. None.

Answer 28

C. CGS will understated and Net income overstate

Question 29

The rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial affairs and activities of a business are:

a. Both broad and specific principles.
b. Known as geberally accepted accounting principles.
c. Abbreviated as GAAP.
d. Both b and c.
e. All of the above.

Answer 29

e. All of the above.

Question 30

The primary objective of financial accounting is:

a. To help organizations keep track of financing activities
b. To provide financial statements to help users analyze an organization’s activities
c. To help an organization define its ideas, goals, and actions.
d. To help an organization keep track of its buying and selling of resources.

Answer 30

b. To provide financial statements to help users analyze an organization’s activities

Question 31

The cost principle requires that when assets are acquired, they be recorded at

a. market value.
b. the amount paid for them.
c. selling price.
d. list price.

Answer 31

b. the amount paid for them.

(Also called exchange price paid).

Question 32

Which of the following accounts is used in the calculate of working capital:

a. retained earnings—
b. sales
c. merchandise inventory
d. common stock
e. long term debt

Answer 32

c. merchandise inventory

Question 33

On October 29. Company concluded a cost’s 4,400 account receivable was uncollectible and that a acet should be written off. What affect will this write off have on this company’s Net Income and Total Assets assuming the allowing method is used to account for bad debts.

A. Decrease Net income, no effect on Total assets
B. No effect on Net income, no effect on Total assets
C. Decrease in Net income, decrease in Total assets.
D. Increase in Net income, no effect on Total Assets.
E. No effect on Net income, Decrease in Total Assets.

Answer 33

C. Decrease in Net income, decrease in Total assets.

Question 34

A financial statement that reports accounting data a specific date is the

a. Statement of Cash Flows
b. Retained Earnings Statement
c. Income Statement
d. Balance Sheet
e. None of the options listed

Answer 34

d. Balance Sheet

Question 35

The principle entry business to be accounted for separating distinction from it owner or owners what principle would it be:

a. Business Accounting
b. Business entry principle
c. Income Statement
d. Balance Sheet
e. None of the options listed

Answer 35

b. Business entry principle

Question 36

The going concern asset that the business:

(a) Will remain in operation for the section Present
(b) Will remain in operation for the section Past
(c) Will remain in operation for the section future

Answer 36

(c) Will remain in operation for the section future

Question 37

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the:

a. Direct write-off method
b. Aging of accounts receivable method
c. Percentage of sales method
d. Aging of investments method
e. Percent of accounts receivable method

Answer 37

b. Aging of accounts receivable method

Question 38

A non-current intangible asset such as leasehold improvements and patents are all subject to:

a. Amortization
b. depreciation
c. depletion

Answer 38

a. Amortization

Question 39

In the present value calculators, the process of determining the PV is called

a. Statement of Cash Flows
b. Retained Earnings Statement
c. Discount
d. Balance Sheet

(ON THE EXAM)

Answer 39

c. Discount

Question 40

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional (proportionate) shares of common stock issued by the corporation is called:

a. Preemptive right
b. Proxy right
c. Right to call
d. Financial leverage
e. Voting right

Answer 40

a. Preemptive right

Question 41

Which of the following statements is incorrect?

a. The normal balance of the accounts receivable account is debit
b. The normal balance of the accounts payable is a credit
c. The normal balance of an unearned revenues account is credit
d. The normal balance of an expense account is credit
e. All of the above answers are correct

Answer 41

d. The normal balance of an expense account is credit