PPT Qustions CH.1-4

Question 1

Which of the following is not an advantage of accrual accounting?

A) Spreads out the influence of one-time events that affect multiple reporting periods
B) Highlights cash effects of operations
C) Captures long-run performance
D) Recognizes assets and liabilities associated with receivables and payables

Answer 1

B

Question 2

The financial Accounting Standards Board FASB):
A) Is a division of the Securities and Exchange Commission (SEC).
B) Is a private body that helps set accounting standards in the United
States.
C) Is responsible for setting auditing standards that all auditors must follow.
D) Consists entirely of members of the American Institute of Certified Public Accountants.

Answer 2

B

Question 3

Which of the following is not one of the ways in which high-quality accounting is encouraged by the U.S. financial reporting system?
A) Accounting standards encourage comparability
B) Auditors assess whether financial statements are materially misstated
C) Sarbanes-Oxley instituted reforms designed to improve the quality of financial reporting
D) Managers are required to use frameworks for ethical decision making when deciding how to account for transactions

Answer 3

D

Question 4

Which of the following is not a component of faithful representation as defined in the FASB’s conceptual framework?
a. Free from error.
b. Neutrality.
c. Understandability.
d. Completeness.

Answer 4

C

Question 5

Four different competent accountants independently agree on the amount and method of reporting an economic event. The concept demonstrated is:
A. Reliability
B. Comparability
C. Verifiability
D. Completeness

Answer 5

C

Question 6

Primecoat Corporation could disseminate its annual financial statements two days earlier if it shifted substantial human resources from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is:
A) Timeliness
B) Materiality
C) Relevance
D) Cost-effectiveness

Answer 6

D

Question 7

According to the FAB’s conceptual framework, comprehensive income includes which of the following?

A. Operating Income No; Investment by Owners Yes
B. Operating Income No; Investment by Owners No
C. Operating Income Yes; Investment by Owners No
D. Operating Income Yes; Investment by Owners Yes

Answer 7

C

The change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources.

Question 8

Which of the following is not a measurement attribute defined in the FASB’s conceptual framework?

a. Net realizable value
b. Historical cost
c. List price
d. Fair value

Answer 8

C

The correct answer is c. List price is not a measurement attribute.
Rather, it is whatever sales price a seller indicates (which might be negotiable or subject to discounts).

Question 9

Recording an expense for salaries incurred and paid in cash would be recorded by:
a. Debiting a liability
b. Debiting an expense
c. Debiting cash
d. Crediting an expense

Answer 9

B

The correct answer is b. When an expense is incurred, it is recorded as a debit to a temporary shareholders’ equity account, in this case salaries expense.

Question 10

The journal entry to record the issuance of common stock in exchange for cash involves:
a. A debit to common stock and a credit to cash
b. A debit to cash and credits to common stock and retained earnings
c. A debit to cash and a credit to common stock
d. All of these answer choices are incorrect

Answer 10

C

The correct answer is c. Cash is an asset, so it is increased with a debit and common stock is a permanent equity account, so it is increased with a credit.

Question 11

The correct amount of prepaid insurance shown on a company’s December 31, 2024, balance sheet was $1,400. On May 1, 2025, the company paid an additional insurance premium of $1,100. In the December 31, 2025, balance sheet, the amount of prepaid insurance was correctly shown as $1,000. The amount of insurance expense that should appear in the company’s 2025 income statement is:
a. $2,000.
b. $1,900.
c. $1,500.
d. $1,600.

Answer 11

C

Beginning Prepaid + Payment - Expense = Ending Prepaid
[$1,400 (beginning balance) + $1, 100 (additional payment) -
$1,000 (ending balance)] = $1,500

Dr Insurance expense 1,500
Cr Cash 1,100
Car Prepaid Insurance 400

Question 12

The Contra Costa Times Company reported an $17,200 liability in its 2024 balance sheet for subscription revenue received in advance. During 2025, $68,000 was received from customers for subscriptions and the 2025 income statement reported subscription revenue of $69,700. What is the liability amount for deferred subscription revenue that will appear in the 2025 balance sheet?
a. $0.
b. $17,200.
c. $18,900.
d. $15,500.

Answer 12

D

$17,200 beginning balance
68,000 additional receipts
(69,700) subscription revenue recognized
= $15,500

Question 13

The adjusting entry required to record accrued expenses includes:
a. A credit to an asset.
b. A credit to liability.
c. A credit to cash.
d. A debit to an asset.

Answer 13

B

Question 14

An analysis of Georgia Corp.’s unadjusted prepaid insurance account at December 31, 2023, revealed the following
- 2023 beginning balance of prepaid insurance was $400. Georgia had paid an annual premium of $1,200 on May 1, 2022.
- A $1,800 annual insurance premium payment was made on May 1, 2023.

In its December 31, 2023 income statement, what amount should
Georgia report as insurance expenses?
a. $2,500
b. $1,600
c. $1,450
d. $750

Answer 14

B

4/121200+8/121,800=400+1,200
=1,600

Question 15

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2025, and charged the $4,200 premium to Insurance expense. At its December 31, 2025, year-end, Yummy Foods would record which of the following adjusting entries?
a. Insurance expense 875
Prepaid insurance 875
b. Prepaid insurance 3,325
Insurance expense 3,325
c. Insurance expense 875
Prepaid insurance 3,325
Insurance payable 4,200
d. Prepaid insurance 875
Insurance expense 875

Answer 15

B

Yummy has consumed 5 months insurance and needs to reverse
19 months insurance 4,200 x (19/24) = 3,325

Question 16

Temporary accounts would not include:
a. Supplies expense.
b. Depreciation expense.
c. Cost of goods sold.
d. Salaries payable.

Answer 16

D

Question 17

Suppose a company paid $150,000 for salaries to employees during the year and you determine that salaries payable increases by $60,000, what is the salary expense for the year?
a. $150,000
b. $210,000
c. $60,000
d. All of these answer choices are incorrect.

Answer 17

B

Beg Salary Payable + Expense - Payment = End. Salary Payable
Expense = End. SP - Beg. SP + Payment
= 60,000 + 150,000 = $210,000

Dr. Salary expense 210,000
Cr. Cash 150,000
Cr. Salaries payable 60,000

Question 18

TriFecta, a partnership, had revenues of $366,000 in its first year of operations. The partnership has not collected on $45,400 of its sales and still owes $39,200 on $165,000 of merchandise it purchased.
There was no inventory on hand at the end of the year. The partnership paid $30,800 in salaries. The partners invested $47,000 in the business and $27,000 was borrowed on a five-year note. The partnership paid $2,970 in interest that was the amount owed for the year and paid $8,300 for a two-year insurance policy on the first day of business.
Compute net income for the first year for Tri Fecta.
a. $ 163,080
b. $ 170,200
c. $ 243,070
d. $ 201,00.

Answer 18

A

Revenues: $366k
Expenses:
Cost of Goods Sold $165k
Salaries 30,800
Interest 2,970
Insurance 4,150 (202,920)
Net income $ 163,080

Question 19

Compared to the accrual basis of accounting, the cash basis of accounting produces a higher amount of income by the net decrease during the accounting period of:

a. Accounts Receivable Yes; Accrued Liabilities No
b. Accounts Receivable No; Accrued Liabilities Yes
c. Accounts Receivable Yes; Accrued Liabilities Yes
d. Accounts Receivable No; Accrued Liabilities No

Answer 19

A

Dr. Cash xxx
Cr. AR
Cr. Revenue xxx
Decrease in AR increases cash

Dr. Expense
Dr. Accrued liability
Cr. Cash
Decrease in AL decreases cash

Question 20

Cash equivalents would include:
a. Accounts receivable from a financial institution.
b. Highly liquid equity securities.
c. Restricted funds for bonds that mature in three years.
d. Debt instruments with maturity dates of less than three months from the date of the purchase.

Answer 20

D

Question 21

Janson Corporation Co.’s trial balance included the following account balances at December 31, 2022. Investments consist of treasury bills that were purchased in November and mature in January. Prepaid insurance is for the next three years. What amount should be included in the current asset section of Janson’s December 31, 2022, balance sheet?
Accounts receivable $12,000
Inventories $40,000
Patent $12,000
Investments $30,000
Prepaid insurance $6,000
Note receivable, due 2025 $50,000

a. $88,000
b. $84,000
c. $55,000
d. $135,000

Answer 21

B

12,000 + 40,000 + 30,000 + (6,000/3) = 84,000

Question 22

Which of the following represents tangible, long-lived assets used in the operations of the business?
a. Copyrights
b. Land held for investment
c. Machines
d. Accounts receivable

Answer 22

C

Current assets are not long-lived, investments are not used directly in operations, and intangible assets have no physical substance.

Question 23

Which of the following would be commonly reported in the summary of significant accounting policies note?
a. Errors and fraud
b. Method used to record depreciation
c. Subsequent events
d. Related-party transactions

Answer 23

B

The summary of significant accounting policies details key policies and methods including inventory costing, depreciation methods, and revenue recognition.
Disclosures such as subsequent events, related-party transactions, and errors or fraud, if relevant, are explained in separate notes.

Question 24

Which of the following would be disclosed in the summary of significant accounting policies disclosure note?

a. Composition of Long-term debt No; Depreciation Method Yes
b. Composition of Long-term debt Yes; Depreciation Method No
c. Composition of Long-term debt Yes; Depreciation Method Yes
d. Composition of Long-term debt No; Depreciation Method No

Answer 24

A

The summary of significant accounting policies details key policies and methods including depreciation methods.
Composition of long-term debt is reported in a separate footnote.

Question 25

A subsequent event for an entity with a December 31, 2022, year-end would not include:
a. An acquisition of another company in January 2023.
b. A major uncertainty regarding a pending lawsuit at December 31, resolved in January 2023.
c. A change in the estimated useful lives of equipment in January 2023.
d. An issuance of bonds in January 2023.

Answer 25

C

Subsequent events are significant external events.

Question 26

Which disclosure provides future information about the company?
a. Auditors’ report.
b. Proxy statement.
c. Management’s discussion and analysis.
d. Summary of significant accounting policies.

Answer 26

C

Question 27

Which disclosure provides an independent and professional opinion about the fairness of the representations in the financial statements and about the effectiveness of internal controls?
a. Auditors’ report
b. Proxy statement
c. Management’s discussion and analysis
d. Summary of significant accounting policies

Answer 27

A

The correct answer is a. Only the auditors’ report would represent an independent opinion. The other items are prepared by management and thus are not considered independent.

Question 28

Which of the following transactions would increase a company’s liquidity ratios?
a. Receive cash from customers on accounts receivable.
b. Purchase office supplies with cash.
c. Pay dividends to shareholders.
d. Borrow cash by signing a three-year note.

Answer 28

D

Cash increases while current liabilities remain the same, thus increasing the company’s ability to pay existing short-term debt.

Question 29

Geisner Inc. has total assets of $1,000,000 and total liabilities of $600,000. The industry average debt to equity ratio is 1.20, Calculate Geisner’s debt to equity ratio and indicate whether the company’s default risk is higher or lower than the average of other companies in the industry.
a. 0.60; Higher default risk.
b. 0.60; Lower default risk,
c. 1.50; Higher default risk,
d. 1.50; Lower default risk.

Answer 29

C

Debt to equity ratio = $600,000 / $400,000* = 1.50
* Equity = Assets - Liabilities = $1,000,000 - $600,000 = $400,000

Question 30

The Cansela Baseball Bat Company reported income before taxes of $375,000. This amount included a $75,000 loss on discontinued operations. The amount reported as income from continuing operations, assuming a tax rate of 25%, is:
a. $375,000
b. $337,500
c. $300,000
d. $225,000

Answer 30

B

The correct answer is b: [$375,000 (income before income taxes) + $75,000 (loss on discontinued operations)] × [1.0 - 0.25 (tax rate)]
= $337,500

Question 31

The Trident Corporation’s results for the year ended December 31, 2024, include the following material items:
Sales revenue
$8,200,000
Cost of goods sold
4,800,000
Selling and administrative expenses
2,000,000
Gain on sale of investments
300,000
Loss on discontinued operations
Restructuring costs
1,200,000
280,000
Trident Corporation’s income from continuing operations before income taxes for 2024 is:
а. $1,120,000
b. $220,000
c. $1,700,000
d. $1,420,000

Answer 31

D

$8,200,000 - 4,800,000 - 2,000,000 + 300,000 - 280,000 = $1,420,000

Question 32

On October 1, 2022, American Medical Inc. adopted a plan to discontinue its generic drug division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by March 30, 2023. On December 31, 2022, the company’s year-end, the following information relative to the discontinued division was accumulated:
Operating loss for 2022 $195 million
Excess of book value over fair value, less costs to sell, at year-end $25 million

In its income statement for the year ended December 31, 2022, American would report a before-tax loss on discontinued operations of:
a. $170 million.
b. $195 million.
c. $220 million.
d. All of these answers are incorrect.

Answer 32

C

$195 million operating loss plus a $25 million impairment loss.

Question 33

ringle Pastries reported net income of $432,000 for its year ended lecember 31, 2024. Purchases of merchandise totaled $304,000. Accounts ayable balances at the beginning and end of the year were $72,000 and 66,000, respectively. Beginning and ending inventory balances were
588,000 and $92,000, respectively. Assuming that all relevant information as been presented, Kringle Pastries would report operating cash flows of:
a. $310,000.
D. $442,000.
5) 5422,000. d. $302,000.

Answer 33

C

$432,000 Net income
(4,000) Deduct increase in inventory
(6,000) Deduct decrease in account pay.
$422,000 Cash flows from operating act.