Intermediate Acct midterm 1

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241 terms

Debit is


Credit is


External decision makers would not look primarily to financial accounting information to assist them in making decisions on

capital budgeting

all of the following are sections of the statement of cash flows except


In a recent annual report, Apple computer reported the following in one of its disclosure notes: "Warranty Expense: The company provides currently for the estimated cost for product warranties at the time the related revenue is recognized." This not exemplifies Apple's use of:

The matching principle

GAAP is an abbreviation for

Generally accepted accounting principles

A firm's comprehensive income always

could be greater than or less than net income

Which of the following has the authority to set accounting standards in the United States


Accounting standard setting has been characterized as

a politcal process

The international Accounting Standards Board

promotes the use of high-quality, understandable global accounting standards.

When a registrant company submits its annual filing to the SEC, it uses:

form 10-K

The recognition of which of the following expenses exemplifies the application of the matching principle?

cost of goods sold

Equity equals

assets minus liabilities

Net income equals

revenues minus expenses

Gains are

increases in equity from peripheral transactions of an entity

Surefeet corporation changed its inventory valuation method. Which characteristic is jeopardized by this change?


Of the following, the most important objective for financial reporting is to provide information useful for

making decisions

Elements of financial statements do not include:

Monetary unit

Land was acquired in 2011 for a future building site at a cost of $40. The assessed valuation for tax purposes is $27, a qualified appraiser placed its value at $48, and a recent firm offer for the land was for a cash payment of $46. The land should be reported in the financial statement at:


Maltec Corporation has started placing its quarterly financial statements on its web page, thereby reducing by ten days the time to get information to investors and creditors. The qualitative concept improved is:


Change in equity from nonowner sources is:

Comprehensive income

The assumption that in the absence of contrary information a business entity will continue indefinitely is the:

Going concern assumption

Mega Loan Company has very stringent credit requirements and, accordingly, has negligible losses from uncollectible accounts. The company's independent accountants did not protest when, contrary to GAAP, the company recorded bad debt expense only when specific accounts were determined to be uncollectible, rather than use an allowance for uncollectible accounts. The concept demonstrated is:


If a company has gone bankrupt, its financial statements likely violate:

The going concern assumption

Which of the following is not an identified valuation technique in GAAP regarding fair value measurement?

Cost-benefit approach

Disclosure notes to a company's financial statements:

are an integral part of a company's financial statements

Which of the following best demonstrates the full disclosure principle

Disclosure notes to financial statements

The matching principle is:

An expense recognition accounting principle

To meet the needs of full disclosure, companies use supplemental information including:

a. Disclosure notes conveying additional insights about company operations, accounting principles, contractual agreements, and pending litigation.
c. Parenthetical comments of modifying comments placed on the face of the financial statements.
d. Supplemental financial statements that report more detailed information than is shown in the primary financial statements.

Financial Accounting Standards Board was established in?



are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues.

Accounting Standards

are an important element of the financial reporting system because they govern the minimum required content of financial statements of U.S. public companies.

Before the present structure was created, financial accounting and reporting standards were established first by the

Committee on accounting procedure of the American Institute of Certified Public Accountants and then by the Accounting Principles Board.

IASB stands for?

International Accounting Standards Board

IASB was formed in


The body that preceded the IASB was?

The international Accounting Standards Committee

Define IFRS as comprising

International Financial Reporting Standards

Compliance with IFRS states: An entity whose financial statements comply with IFRSs shall make an

explicit and unreserved statement of such compliance in the notes.

How many commissioners does the SEC have?


SEC stands for?

Securities and Exchange Commission

The name of the database that has disclosure documents that public companies are required to file with the commission is


If a company has more than:

10 million dollars in assets whose securities are held by more than 500 owners, then it must file annual and other periodic reports.

The accounting equation can be stated as:


Examples of internal transactions include all of the following except:

Paying wages to company employees

Incurring an expense for advertising on account would be recorded by

debiting an expense

Rho Aircraft sold a four-passenger airplane for $380, receiving a $50 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

Debit to note receivable

An example of a contra account is:

Accumulated depreciation

Examples of external transactions include all of the following except

Depreciating equipment

Recording revenue earned from a customer, but not yet collected is an example of:

An accrued receivable transaction

XYZ corporation receives $100 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:

Credit to capital stock

Adjusting entries are primarily needed for

Accrual Accounting

A sale of account would be recorded by

Debiting assets.

Prepayments occur when:

Cash flow precedes expense recognition

Mu Co invested $15 in ABC corporation and received capital stock in exchange. Mu Co's journal entry to record this transaction would include a:

Debit to investments

Accruals occur when cash flows

Occur after revenue or expense recognition

Assume supplies expense of $2,000 this year. The supplies account decreased by $200 during the year to an ending balance of $400. What was the cost of supplies purchased during the year?


On December 31, 2011, the accounts receivable was $54 and estimate of receivables that will not be collected is $2. Accounts receivable in the 2011 balance sheet will be valued at


The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

A debit to a liability

Which of the following accounts has a credit balance

Accrued income taxes payable

When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:


The adjusting entry required to record accrued expenses includes:

A credit to liability

Assume supplies purchased of $270 this year. The supplies account increased by $10 during the year to an ending balance of $66. What was supplies expense during the year?


In its first year of operations Alpha Corp. had income before tax of $400. Acme made income tax payments totaling $150 during the year and has an income tax rate of 40%. What would be the balance in income tax payable at the end of the year?

$10 credit

Nu opened business on January 1, 2011 and paid for two insurance policies effective that date. The liability policy was $36 for eighteen months, and the property policy was $12 for a two-year term. What was the balance in the prepaid insurance as of December 31, 2011.


Fink Insurance collected premiums of $18 from its customers during the current year. The adjusted balance in the unearned premiums account increased from $6-$8 during the year. What was Fink's revenue from earned insurance premiums for the current year?


On November 1, 2011, Tau borrows $30,000 at 9%. The note is for a six month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2011?


A future economic benefit owned or controlled by an entity is:

An asset

Cost of goods sold is

an expense account

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

Plus net income minus dividends

Assume a company in its first year of operations had income before tax of $500, made income tax payments of $210 and has an income tax rate of 40%. What was net income for the year?


Assume cost of golds sold of $2,000 this year and that the inventory account increased by $200 during the year to an ending balance of $400. What was the cost of merchandise purchased during the year?


Permanent accounts would not include:

Interest Expense

Permanent accounts would not include

Cost of goods sold

The purpose of closing entries is to transfer

Balances in temporary accounts to a permanent account

Temporary accounts would not include

Salaries payable

When converting an income statement from a cash basis to an accrual basis, expenses:

May exceed or be less than cash payments to suppliers.

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

An adjustment for bad debts increases the net income.

When the amount of revenue collected in advance decreases during an accounting period:

Accrual-basis revenues exceed cash collections from customers

When converting an income statement from a cash basis to an accrual basis, cash received for services:

May exceed or be less than service revenue

When the amount of interest receivable decreases during an accounting period:

Accrual-basis interest revenues are less than cash collections from borrowers

When the amount of interest receivable decreases during an accounting period:

Accrual-basis interest revenues are less than cash collections from borrowers

Which of the following accounts has a debit balance

Bad debt expense

On December 31, 2011, Chi, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48 and $0, respectively. No receivables were written off during the year. At the end of 2011, Chi estimated that $2 in receivables would not be collected. Bad debt expense for 2011 would be:


Making insurance payments in advance is an example of:

A prepaid expense transaction

When a magazine sells subscriptions to customers, it is an example of:

An unearned revenue transaction

The balance sheet reports:

Assets and equities at a point in time

Current assets include cash and all other assets expected to become cash or be consumedL

Within one year or one operating cycle, whichever is longer.

Red Onion restaurant classifies a six-month prepaid insurance policy as a current asset. its rationale is based on:

Current asset definition

An asset that is not expected to be converted to cash or consumed within one year or the operating cycle is:


Which of the following accounts are closed at the end of the accounting period

Income tax expense

Which is a shareholders' equity account in the balance sheet?

Paid-in capital

Rent collected in advance is

A liability account in the balance sheet

Notes payable:

Cannot determine its classification without additional information

Which of the following is never a current liability account?

Prepaid rent

New Oaks Winery requires two months to make wine, two years to age it, one month to bottle it, two months to sell it, and one month to collect the receivable. Its operating cycle is:

Thirty months

Noncurrent assets include:

Land held for a possible future plant sale

Assets do not include:

Paid-in capital

Cash equivalents would not include

Cash not available for current operations

Cash equivalents would include:

Treasury Bills with maturity dates of less than three months from the date of the purchase

Accrued expenses:

Result from services received before payment.

The usual difference between accounts payable and notes payable is:

Explicitly stated interest.

Which of the following is not a required disclosure for related party transactions?

THe impact of the transactions on current year's income.

Disclosure notes would not include:

Data to adjust the financial statements so that they are not misleading.

A subsequent event for an entity with a December 31, 2011 year end would not include:

A change in the estimated useful lives of equipment in January 2012.

The final paragraph of the audit report:

Provides the auditor's opinion on the effectiveness of internal control.

The management discussion and analysis section of the annual report can best be described as:

Biased but informative

An example of fraud would be:

Knowingly classifying a material non-current receivable as a current receivable.

An example of an error would be

Counting an inventory item twice when taking a physical inventory.

An exception that is so serious that even a qualified opinion is not justified would result in:

An adverse opinion.

Liquidity refers to:

The readiness of an asset to be converted to cash.

Lack of long-term solvency refers to:

Risk of non-payment relative to liabilities in the capital structure.

The current ratio is given by

Current assets divided by current liabilities

The acid-test ratio is also known as the:

Quick ratio.

The quick ratio is:

Current assets minus inventory and prepaid items divided by current liabilities.

Working capital is equal to:

Current assets minus current liabilities

Which of the following is not a financing ratio?

The current ratio.

When a company pays its bill from a plumber for previous services on account:

Its debt to equity ratio always decreases.

When a company accrues federal income taxes at the end of the accounting period:

Its debt to equity ratio inceases

Assume a company's liquidity and financing ratios all are less than 1.0 before it purchases inventory on credit. When it makes the purchase:

Its quick ratio decreases

When a company sells land for cash and recognizes a $25,000 gain:

Its debt to equity ratio decreases.

Other comprehensive income

Changes in accumulated other comprehensive income

Net of tax

Before tax amount* (1-tax rate)

Comprehensive income

Net income+ other comprehensive income

Net income


Income from continuing operations

Income before discontinued operations

Gross profit

Net sales- cost of goods sold

Changes in retained earnings

Net income-Dividends

An exit activity includes but is not limited to a



a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity, or the manner in which that business is conducted.

Variable interest entity

A legal entity subject to consolidation

One time employee termination benefits

benefits provided to current employees that are involuntarily terminated under the terms of a one-time benefit arrangement.

Legal notification period

The period that an entity is required to provide to employees in advance of a specified termination event as a result of an existing law, statute, or contract

Legal entity

Any legal structure used to conduct activities or to hold assets. Some examples of such structures are corporations, partnerships, limited liability companies, grantor trusts, and other trusts.

Business combination

A transaction or other event in which an acquirer obtains control of one or more businesses


The business or businesses that the acquirer obtains control of in a business combination. This term also includes a nonprofit activity or business that a not-for-profit acquirer obtains control of in an acquisition by a not-for-profit entity.


The entity that obtains control of the acquiree. however, in a business combination in which a variable interest entity (VIE) is acquired, the primary beneficiary of that entity always is the acquirer.


An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.

CHanges in accounting estimates are reported:

Currently and prospectively.

Pi Inc. incurred a material loss which was not unusual in character, but was clearly an infrequent occurrence. This lost should be reported as:

A separate line item within income from continuing operations.

Each of the following would be reported as items of other comprehensive income except:

Gains from the sale of equipment.

Beta reported net income of $45 for the year ended December 31, 2011. January 1 balances in accounts receivable and accounts payable were $23 and $26 respectively. Year-end balances in these accounts were $22 and $28, respectively. Assuming that all relevant information has been presented, Beta's cash flows from operating activities would be:


A voluntary change in accounting principle is accounted for by:

A retrospective reporting of all comparative financial statements shown.

If company A acquires company B, required financial statement disclosures include all of the following except:

The effect of the change on market share.

The principal benefit of separately reporting discontinued operations and extraordinary items is to enhance:

Predictive ability

Reconciliation between net income and comprehensive income would include

Unrealized losses and unrealized gains on available for sale securities.

Nu reported net income of $216 for its year ended December 31, 2011. Purchases totaled $152. Accounts payable balances at the beginning and end of the year were $36 and $33, respectively. Beginning and ending inventory balances were $44 and $46, respectively. Assuming that all relevant information has been presented, Nu would report operating cash flows of:


On May 1, Alpha Co. Agreed to sell for $80 the assets a division that qualifies as a component of the entity according to GAAP regarding discontinued operations. The sale was completed on Dec 31, 2011. The book value of the divisions assets totaled $84 on the date of the sale. The division's operating income was a pre-tax loss of $10 in 2011. Alpha's income tax rate is 40%. In its 2011 income statement Alpha Co. would report:

Income (loss) from its continuing and discontinued operations separately.

Reporting comprehensive income according to internal financial reporting standards can be accomplished by each of the following methods except:

In the statement of shareholders' equity.

Cash flows from financing activities include:

Dividends paid

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