Accounting Final Exam

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Chapters 1-12

which of the following best describes financial accounting?

information measurement/communication process.

which definition best describes financial accounting?

measures a company's business activities and communicating those measurements to external parties.

which of the following is a financial activity?

issuing common stock to investors.

which of the following is an investing activity?

purchasing land.

which financial statement reports a company's assets and liabilities?

balance sheet.

which financial statement shows a company's revenues and expenses?

income statement.

which of the following best describes an important function of financial accounting?

to support the efficient distribution of society's resources.

which body has the primary responsibility for the establishment of Generally Accepted Accounting Principles (GAAP)?

Financial Accounting Standards Board (FASB)

traditional careers in public accounting include

auditors, tax preparers/planners, business consultants.

a component of relevant accounting information includes

predictive value.

which of the following does not represent an external business transaction?

expiration of an insurance policy over time.

which step in the process of measuring external transactions involves assessing the equality of total debits and total credits?

preparing a trial balance.

which of the following transactions causes an increase in total liabilities?

purchase office supplies on account.

which of the following transactions causes a decrease in stockholder's equity?

pay salaries expense for the current month.

which of the following is possible for a particular business transaction?

decrease assets; increase expenses

a debit is used to decrease which of the following accounts?

accounts payable.

a credit is used to decrease which of the following accounts?

cash

purchasing office supplies on account for $100 is recorded as:

supplies 100 accounts payable 100

transferring the debit and credit information from a journal to individual accounts in the general ledger is referred to as

posting

which of the following is true about a trial balance?

total debit amounts should always equal total credit amounts.

On September 9, Clearmore Services receives a request for services from a customer. The service is scheduled for September 15. On September 15, the service is provided and the customer pays 1 week later on September 22. According the the revenue recognition principle, on which date should Clearmore Services record service revenue?

September 15 (date of service)

On March 4, Tonkawa Law asks Green Lawn Services for basic lawn maintenance totaling $200. Green Lawn provides maintenance on March 8, Tonkawa pays for the lawn maintenance on March 12. According to the matching principle, on which date should Tonkawa record lawn maintenance expense?

March 8 (date of lawn maintenance service)

Using Cash basis accounting, on which date should Clearmore Services record service revenue?

September 22 (date of cash receipt)

using cash basis accounting, on which date should Tonkawa record lawn maintenance expense?

March 12 (date of cash payment)

which of the following is a characteristic of adjusting entries?

allows for proper application of the revenue recognition principle (revenues) or the matching principle (expenses).

Chan sports purchases 1 year of rent on Nov. 1 for $12,000 (1,000 a month), debiting prepaid Rent. On Dec. 31, Chan Sports would record the following year-end adjusting entry

rent expense $2,000 prepaid rent $2,000

the balance of retained earnings in the adjusted trial balance:

equals the balance of retained earnings at the beginning of the accounting period.

which of the following describes the information reported in the income statement?

net income for the period calculated as revenues minus expenses.

which of the following describes the closing process?

transfer the balance of temporary accounts (revenues, expenses, and dividends) to retained earnings.

which of the following accounts is listed in a post-closing trial balance?

salaries payable.

managers should act:

as stewards of the company's assets.

Sarbanes-Oxley Act was passed in response to:

corporate scandals involving unethical behavior of top executives.

what is a direct purpose of internal controls?

improve the accuracy and reliability of accounting information.

which of the following is considered cash for financial reporting purposes?

balances in savings accounts.

which of the following generally would be considered a good internal control over cash payments?

ensure checks are serially numbered and signed only by authorized employees.

when preparing a bank reconciliation, nonsufficient funds (NSF) checks would be:

subtracted from the company's cash balance.

when preparing a bank reconciliation, outstanding checks would be:

subtracted from the bank's cash balance.

at any given time, the amount of cash in the petty cash fund should equal:

the established balance of the fund less all vouchers written during the accounting period.

operating cash flows would include which of the following?

payment for prepaid insurance.

financing cash flows would include which of the following?

repayment of long-term borrowing to the bank.

which of the following transactions would result in an account receivable?

providing services to customers on account.

on August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

$5,000

What is the amount of net revenues as of August 12?

$4,850

Suppose the balance for allowance for uncollectible accounts at the end of the current year is $800 (debit) before any adjustment. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current years' income statement?

$6,400

Suppose the balance for the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjustment entry. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current years' income statement?

$4,800

the effect of writing off a specific account receivable is

a reduction in the allowance for uncollectible accounts.

Nija Incorporated reports the following aging schedule of its accounts receivable with the estimated percent uncollectible. What is the total estimate of uncollectible accounts using the aging method?

$6,400

under the direct write-off method, bad debt expense is reported

when an account receivable is proven uncollectible.

at the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivable turnover ratio for Dawnetta Fashions?

6.0

on September 1, Bates Supplies borroes $30,000 from Vines Incorporated by signing an 8% note due in 12 months. Calculate the amount of interest revenue Vines will record on December 31, four months after the note is issued.

$800.

which of the following best describes a merchandising company?

a company that purchases products that are primarily in finished form for resale to customers.

at the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold?

$22,200

Katie Malls has the following inventory transactions for the year: What amount would Madison report for cost of goods sold using LIFO under a periodic inventory system?

$2,350

which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

last-in, first-out (LIFO)

under perpetual inventory system:

cost of goods sols is recorded with each sale.

which of the following levels of profitability in a multi-step income statement represents all revenues less all expenses?

net income.

at the end of a reporting period, Gaston Corporation determine that its ending inventory has a cost of $6,500 and a market value of $5,800. The adjustment to write down inventory to market value would include:

a credit to inventory for $700.

For the year, Sealy Incorporated reports net sales of $50,00, cost of goods sold as $40,000, and an average inventory balance of $5,000. what is Sealy's gross profit ratio?

20%

using a periodic inventory system, the sale of inventory on account would be recorded as:

debit cost of goods sold; credit inventory

suppose windell corp. understates its ending inventory amount. what effect will this have on the reported amount of net income in the year of error?

understate net income.

we initially record long-term assets at the

cost of the asset plus all costs necessary to get the asset ready for use.

tasy inn and out incurred the following costs related to its purchase of equipment. what is the recorded cost of the equipment?

$11,900

an exclusive 20-year right to manufacture a product or to use a process is a:

patent

which of the following expenditures should be recorded as an expense

ordinary repairs and maintenance

which of the following will result in higher depreciation expense in the first year of the asset's life?

short service life, low residual value, and double-declining balance depreciation

the asset's cost less accumulated depreciation is called

book value

depreciation in accounting is the

allocation of an asset's cost to an expense over time

which of the following statements is false regarding the amortization of intangible assets?

the service life of an intangible asset is always equal to its legal life

equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $50,000, the company should record:

a gain of $10,000

the return on assets is equal to:

net income divided by average total assets

which of the following statements regarding liabilities is true?

liabilities represent probable future sacrifices of benefits

which of the following is not a characteristic of a liability?

it must be payable in cash

if executive airways borrows $10 million on September 1, 2012, for 1 year at 6% interest, how much interest expense does it record for the year ended December 31, 2012?

$200,000

On November 1, 2012, a company signed an $200,000, 12%, 6 month note payable with the amount borrowed plus accrued interest due 6 months later on May 1, 2011. The company should report the following adjusting entry at December 31, 2012:

debit interest expense and credit interest payable, $4,000.

which of the following is paid by both the employee and the employer?

FICA taxes

when a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

a debit to a liability and a credit to a revenue account.

management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is probable, a contingent liability should be:

disclosed and reported as a liability

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation?

As a liability for $500,000 with disclosure of the range.

the current ratio is:

current assets divided by current liabilities.

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the borrowing of cash over five years affect each ratio?

Increase the current ratio and increase the acid-test ratio.

Which of the following is not a common long-term debt?

accounts payable

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common?

unsecured and term.

convertible bonds

Provide potential benefits to both the investor and the issuer.

bonds issued at a discount are

issued below face value

Which of the following is true for bonds issued at a premium?

The stated interest rate is greater than the market interest rate.

The cash paid for interest on bonds payable is calculated as:

Face amount times the stated interest rate.

When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds?

Carrying value and interest expense decrease.

Douglas County retires a $50 million bond issue when the carrying value of the bonds is $52 million, but the market value of the bonds is only $47 million. The entry to record the retirement will include:

A credit of $5 million to gain on early extinguishment.

Which of the following leases is simply a rental?

an operating lease

Financial leverage is best measured by which of the following ratios

the debt to equity ratio

Common shareholders usually have all of the following rights except:

To participate in the day-to-day operations.

The advantages of owning a corporation include all of the following except:

additional taxes

The correct order from the largest number of shares to the smallest number of shares is:

authorized, issued, and outstanding

Which of the following is not a potential feature of preferred stock?

secured

When treasury stock is purchased, what is the effect on total shareholders' equity?

decrease

retained earnings

increase stockholder's equity

Entries for cash dividends are recorded on all of the following dates except

record date

What effect does a stock dividend have on total stockholders' equity?

No effect on total stockholders' equity

Which of the following summarizes the changes in the balance in each stockholders' equity account over a period of time?

statement of stockholder's equity

Return on equity is calculated as:

Net income divided by average stockholders' equity

The purchase of inventory for cash is classified in the statement of cash flows as a(n):

operating activity

The sale of an intangible asset for cash is classified in the statement of cash flows as a(n):

investing activity

The purchase of long-term assets by issuing debt is classified in the statement of cash flows as a(n):

noncash activity

The payment of dividends is classified in the statement of cash flows as a(n):

financing activity

We can identify operating activities from income statement information and changes in

current asset and current liability accounts

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported or included as a(n):

Addition to net income in the operating activities section.

Which of the following is an example of a cash outflow from an investing activity?

purchase of an intangible asset.

Which of the following is an example of a cash inflow from a financing activity?

Receipt of cash from the issuance of common stock.

We calculate cash return on assets as

Net cash flows from operating activities divided by average total assets.

Which of the following items do we not report in the statement of cash flows using the direct method?

depreciation expense

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