1. Which of the following statements is not an objective of financial reporting?
a. Provide information that is useful in investment and credit decisions.
b. Provide information about enterprise resources, claims to those resources, and changes to them.
c. Provide information on the liquidation value of an enterprise.
d. Provide information that is useful in assessing cash flow prospects.
2. The Financial Accounting Standards Board
a. has issued a series of pronouncements entitled Statements on Auditing Standards.
b. was the forerunner of the current Accounting Principles Board.
c. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.
d. is appointed by the Financial Accounting Foundation.
3. The Financial Accounting Standards Board employs a "due process" system which
a. is an efficient system for collecting dues from members.
b. enables interested parties to express their views on issues under consideration.
c. identifies the accounting issues that are the most important.
d. requires that all accountants must receive a copy of financial standards
4. In the House of GAAP, is the following on the highest level of authoritative status (meaning among the most authoritative)?
FASB of Financial of Financial
Technical Accounting FASB Accounting
Bulletin Standards Interpretation Concepts
a. Yes Yes Yes Yes
b. Yes Yes Yes No
c. No Yes No No
d. No Yes Yes N
5. The two primary qualities that make accounting information useful for decision making are
a. comparability and consistency.
b. materiality and timeliness.
c. relevance and reliability.
d. reliability and comparability.
6. The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners'
a. transfers of assets to the entity.
b. rendering services to the entity.
c. satisfaction of liabilities of the entity.
d. all of these.
7. Which of the following is an implication of the going concern assumption?
a. The historical cost principle is credible.
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current-noncurrent classification of assets and liabilities is justifiable and significant.
d. All of these.
8. 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. matching principle.
c. materiality constraint.
d. historical cost principle.
9. The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the
a. conservatism constraint.
b. materiality constraint.
c. substance over form principle.
d. industry practices constraint.
10. Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between
a. verifiability and reliability.
b. reliability and comparability.
c. timeliness and verifiability.
d. neutrality and consistency.
11. The following information is available for Ace Company for 2004:
Disbursements for purchases $700,000
Increase in trade accounts payable 50,000
Decrease in merchandise inventory 20,000
Costs of goods sold for 2004 was
12. On September 1, 2003, Kile Co. issued a note payable to National Bank in the amount of $900,000, bearing interest at 12%, and payable in three equal annual principal payments of $300,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2004. At December 31, 2004, Kile should record accrued interest payable of
Use the following information for questions 13 through 15:
Poole Company paid or collected during 2004 the following items:
Insurance premiums paid $ 15,400
Interest collected 30,900
Salaries paid 135,200
The following balances have been excerpted from Poole's balance sheets:
December 31, 2004 December 31, 2003
Prepaid insurance $ 1,200 $ 1,500
Interest receivable 3,700 2,900
Salaries payable 12,300 10,600
13. The insurance expense on the income statement for 2004 was
14. The interest revenue on the income statement for 2004 was
15. The salary expense on the income statement for 2004 was
16. Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is
a. debit Insurance Expense and credit Prepaid Insurance, $2,100.
b. debit Insurance Expense and credit Prepaid Insurance, $5,100.
c. debit Prepaid Insurance and credit Insurance Expense, $2,100
d. debit Prepaid Insurance and credit Insurance Expense, $5,100
17. An unearned revenue can best be described as an amount
a. collected and currently matched with expenses.
b. collected and not currently matched with expenses.
c. not collected and currently matched with expenses.
d. not collected and not currently matched with expenses
18. Which of these is generally an example of an extraordinary item?
a. Loss incurred because of a strike by employees.
b. Write-off of deferred marketing costs believed to have no future benefit.
c. Gain resulting from the devaluation of the U.S. dollar.
d. Gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot.
19. When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as
a. a prior period adjustment.
b. an extraordinary item.
c. an amount after continuing operations and before extraordinary items.
d. a bulk sale of plant assets included in income from continuing operations.
20. Gross billings for merchandise sold by Otto Company to its customers last year amounted to $10,720,000; sales returns and allowances were $270,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Otto Company were
Use the following information for questions 21 through 23.
Falley Corp.'s trial balance of income statement accounts for the year ended December 31, 2004 included the following:
&nbs p; Debit Credit
Cost of sales $120,000
Administrative expenses 50,000
Loss on sale of equipment 18,000
Commissions to salespersons 20,000
Interest revenue 10,000
Loss due to fire damage 30,000
Bad debt expense 6,000
Totals $250,000 $290,000
Falley's income tax rate is 30%. Finished goods inventory:
January 1, 2004 $160,000
December 31, 2004 140,000
On Falley 's multiple-step income statement for 2004,
21. Cost of goods manufactured is
22. Income before extraordinary item is
23. Extraordinary loss is
24. 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
25. Making and collecting loans and disposing of property, plant, and equipment are
a. operating activities.
b. investing activities.
c. financing activities.
d. liquidity activities.
26. In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?
a. Sale of equipment at book value
b. Sale of merchandise on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable at a discount
Use the following information for questions 27 through 29.
The following trial balance of Rosen Corp. at December 31, 2004 has been properly adjusted except for the income tax expense adjustment.
December 31, 2004
&nbs p; Dr. Cr.
Cash $ 875,000
Accounts receivable (net) 2,695,000
Property, plant, and equipment (net) 7,366,000
Accounts payable and accrued liabilities $ 1,501,000
Income taxes payable 654,000
Deferred income tax liability 85,000
Common stock 2,350,000
Additional paid-in capital 3,680,000
Retained earnings, 1/1/04 3,650,000
Net sales and other revenues 13,360,000
Costs and expenses 11,080,000
Income tax expenses 1,179,000
Other financial data for the year ended December 31, 2004:
• Included in accounts receivable is $800,000 due from a customer and payable in quarterly installments of $100,000. The last payment is due December 29, 2006.
• The balance in the Deferred Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $30,000 is classified as a current liability.
• During the year, estimated tax payments of $325,000 were charged to income tax expense. The current and future tax rate on all types of income is 30%.
In Rosen's December 31, 2004 balance sheet,
27. The current assets total is
28. The current liabilities total is
29. The final retained earnings balance is
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.
Items 31 through 34 apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 31 to 34 is based on 8% interest compounded annually.
Periods Future Value of 1 at 8%
31. What amount should be deposited in a bank account today to grow to $30,000 three years from today?
a. $30,000 × 1.260
b. $30,000 × 1.260 × 3
c. $30,000 ÷ 1.260
d. $30,000 ÷ 1.080 × 3
32. If $10,000 is put in a savings account today, what amount will be available three years from today?
a. $10,000 ÷ 1.260
b. $10,000 × 1.260
c. $10,000 × 1.080 × 3
d. ($10,000 × 1.080) + ($10,000 × 1.166) + ($10,000 × 1.260)
33. What amount will be in a bank account three years from now if $5,000 is invested each year for four years with the first investment to be made today?
a. ($5,000 × 1.260) + ($5,000 × 1.166) + ($5,000 × 1.080) + $5,000
b. $5,000 × 1.360 × 4
c. ($5,000 × 1.080) + ($5,000 × 1.166) + ($5,000 × 1.260) + ($5,000 × 1.360)
d. $5,000 × 1.080 × 4
34. If $9,000 is put in a savings account today, what amount will be available six years from now?
a. $9,000 × 1.080 × 6
b. $9,000 × 1.080 × 1.469
c. $9,000 × 1.166 × 3
d. $9,000 × 1.260 × 2
35. Henson Company wishes to accumulate $500,000 by May 1, 2012 by making 8 equal annual deposits beginning May 1, 2004 to a fund paying 8% interest compounded annually. What is the required amount of each deposit?
36. The market price of a $600,000, ten-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is
37. In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the
a. total costs incurred to date.
b. total estimated cost.
c. unbilled portion of the contract price.
d. total contract price.
38. Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon discovery of water, Winser does not recognize any revenue from water sales until the sales exceed the costs of exploration, the basis of revenue recognition being employed is the
a. production basis.
b. cash (or collection) basis.
c. sales (or accrual) basis.
d. cost recovery basis.
39. The installment-sales method of recognizing profit for accounting purposes is acceptable if
a. collections in the year of sale do not exceed 30% of the total sales price.
b. an unrealized profit account is credited.
c. collection of the sales price is not reasonably assured.
d. the method is consistently used for all sales of similar merchandise
40. Which of the following post-balance sheet events would generally require disclosure, but no adjustment of the financial statements?
a. Retirement of the company president
b. Settlement of litigation when the event that gave rise to the litigation occurred prior to the balance sheet date.
c. Employee strikes
d. Issue of a large amount of capital stock
41. Cash, short-term marketable securities, and net receivables are the numerator for
Acid-Test Ratio Current Ratio
a. Yes No
b. Yes Yes
c. No No
d No Yes
42. The basic limitations associated with ratio analysis include
a. the lack of comparability among firms in a given industry.
b. the use of estimated items in accounting.
c. the use of historical costs in accounting.
d. all of these.
43. Which of the following should be disclosed in a Summary of Significant Accounting Policies?
a. Types of executory contracts
b. Amount for cumulative effect of change in accounting principle
c. Claims of equity holders
d. Depreciation method followed