Description
Financial Accounting The Impact on Decision Makers 10th Edition Gary A Porter Curtis L Norton- Test Bank
Sample Questions
Instant Download With Answers
| Chapter_2_Financial_Statements_and_the_Annual_Report
True / False |
| 1. Financial statements are intended to tell the reader the value of a company.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 2. Accountants are the main reason financial statements are prepared.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 3. The SEC created the objectives of financial reporting.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 4. The purpose of financial reporting is to provide economic information to external decision makers only.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 5. An objective of financial reporting is to reflect economic information concerning a company’s cash flows.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 6. The concept of conservatism is the capacity of information to make a difference in a decision.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 7. Materiality deals with the insignificance of an error in accounting information.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 8. Most businesses have an operating cycle of greater than one year.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 9. Current assets, other than cash, are expected to be sold or consumed beyond a company’s normal operating cycle.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 10. Obligations related to operating activities that will be paid within the company’s operating cycle must be reported as current liabilities on a classified balance sheet.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 11. The operating cycle for all businesses is one year.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 12. A construction company that builds skyscrapers is likely to have an operating cycle longer than one year.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Applying |
|
| 13. Three common categories of long-term assets are: 1) property, plant, and equipment, 2) investments, and 3) intangibles.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 14. In the stockholders’ equity section of a classified balance sheet, a distinction is made between amounts invested by owners and amounts accumulated from business earnings.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 15. One primary purpose of a classified balance sheet is to help users evaluate the liquidity of a company.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 16. Companies prepare classified financial statements because they are required by international accounting principles.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 17. The current ratio is irrelevant in liquidity analysis for service companies because they do not have inventories among their current assets
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 18. An advantage of the current ratio is that it considers the makeup of the current assets.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 19. The excess of current assets over current liabilities is referred to as working capital.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 20. A balance sheet shows cash, $75,000; marketable securities, $115,000; accounts receivable, $150,000 and $222,500 of inventories. Current liabilities are $225,000. The current ratio is 2.5 to 1.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| 21. If a firm has a current ratio of 2, the subsequent receipt of a 60-day note receivable to settle an open account will cause the ratio to decrease.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| 22. The purchase of inventory for cash will cause the current ratio to decrease.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 23. Income from operations does not include interest revenue and interest expense because these items are considered to be non-operating in nature.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-05 – LO: 02-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 24. A 12% change in sales will result in a 12% change in net income.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-05 – LO: 02-05
FACC.PONO.13.02-06 – LO: 02-06 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| 25. Some analysts properly refer to a company’s profit margin as its return on assets.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-06 – LO: 02-06 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 26. Dividends declared and paid reduce a company’s retained earnings balance.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-07 – LO: 02-07 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 27. Dividends paid appears on both the income statement and the statement of retained earnings.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-07 – LO: 02-07 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 28. Financing activities are needed to provide the funds to start a business.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-08 – LO: 02-08 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 29. The statement of cash flows, like the income statement, reports only operating activities of a company.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-08 – LO: 02-08 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 30. Funds raised from operating activities should be invested in assets that can be used to carry on business operations.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-08 – LO: 02-08 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 31. The primary responsibility for the preparation and integrity of the financial statements in an annual report belongs to the company’s independent accountants (CPAs).
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-09 – LO: 02-09 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 32. Independent auditors (CPAs) render an opinion that the financial statements do or do not fairly present a company’s financial position, operating results, and cash flows.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-09 – LO: 02-09 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 33. An independent auditor’s (CPA’s) report is a guarantee that the financial statements are free from fraud or material error
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-09 – LO: 02-09 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 34. In the independent auditors’ report included with the annual report, management discusses the financial statements and provides the shareholders with explanations for certain amounts reported in the statements.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-09 – LO: 02-09 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 35. The quality of accounting information that allows a user to analyze two or more companies and look for similarities and differences is known as understandability.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 36. The quality of accounting information that makes it comprehensible to those willing to spend the necessary time is consistency.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 37. The quality of accounting information that allows a user to compare two or more accounting periods for a single company is known as consistency.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 38. There is a standard threshold for materiality set by the Financial Accounting Standards Board for all companies.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 39. The lack of a common depreciation method makes it impossible to compare the performance companies using different methods.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 40. The amount of a transaction may be immaterial by company standards but still be considered significant by financial statement users.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
41. What is the primary objective of financial reporting?
| |
a. |
To help investors make credit decisions. |
| |
b. |
To help management assess cash flows. |
| |
c. |
To protect users from fraudulent financial information. |
| |
d. |
To provide useful information for decision making |
| ANSWER: |
d |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
42. “Claims to economic resources” are known as
| |
a. |
Assets and liabilities |
| |
b. |
Liabilities and stockholders’ equity |
| |
c. |
Owners’ equity and stockholders’ equity |
| |
d. |
Retained earnings and revenues |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
43. Which of the following is not an objective of financial reporting?
| |
a. |
To reflect prospective cash receipts to investors and creditors. |
| |
b. |
To reflect prospective cash flows to an enterprise. |
| |
c. |
To reflect resources and claim to resources. |
| |
d. |
To reflect current stock prices and information concerning stock markets. |
| ANSWER: |
d |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
44. Which of the following statements is true concerning external users of financial information?
| |
a. |
External users need detailed records of the business to make informed decisions. |
| |
b. |
External users are primarily responsible for the preparation of financial statements. |
| |
c. |
External users rely on the financial statements to help make informed decisions. |
| |
d. |
External users rely on management to tell them whether the company is a good investment |
| ANSWER: |
c |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-01 – LO: 03-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
45. Relevant information can be quantitative or qualitative. In deciding whether to go to college part-time or full-time, which of the following is a qualitative factor for a student?
| |
a. |
The cost of tuition |
| |
b. |
The opportunity to make friends |
| |
c. |
The price of football tickets |
| |
d. |
“Good Student” discounts on auto insurance rates. |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
46. The preparation of financial statements requires that the information be understandable
| |
a. |
Only to CPAs. |
| |
b. |
To those willing to spend the time to understand it. |
| |
c. |
Only to those who take an accounting course. |
| |
d. |
Only to financial analysts and brokers. |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
47. Jones, Inc., a manufacturer of tires, has given you its most recent annual report in an effort to obtain a sizable loan. The company is very profitable and appears to have a sound financial position. Based on a report presented on prime-time television last night, you are aware that Jones is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn. The information presented on television is an example of financial information that is
| |
a. |
Relevant |
| |
b. |
Consistent |
| |
c. |
Predictable |
| |
d. |
Comparable |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
48. If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of
| |
a. |
Comparability |
| |
b. |
Consistency |
| |
c. |
Neutrality |
| |
d. |
Understandability |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
49. Jackson Transportation purchases many pieces of office furniture with an individual cost below $200 each. Jackson chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company’s accountant and independent CPA agree that no accounting principle has been violated. What accounting justification allows Jackson to expense the furniture?
| |
a. |
Conservatism |
| |
b. |
Matching |
| |
c. |
Materiality |
| |
d. |
Verifiability |
| ANSWER: |
c |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
50. Tavella Company applies the consistency convention. What does this mean?
| |
a. |
Tavella Co. uses the same names for all its expenses as its competitors. |
| |
b. |
Tavella Co. has selected certain accounting principles that can never be changed. |
| |
c. |
Tavella Co. applies the same accounting principles each accounting period. |
| |
d. |
Tavella Co. applies the same accounting principles as it competitors. |
| ANSWER: |
c |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
51. Information that is material means that an error or alternative method of handling a transaction
| |
a. |
Would possibly affect the judgment of someone relying on the financial statements |
| |
b. |
Would not affect the decisions of users |
| |
c. |
Might cause a company to understate its earnings for the accounting period |
| |
d. |
Could increase the profitability of a company |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
52. An accountant is uncertain about the best estimate of an amount for a business transaction. If two amounts are about equally likely, the amount least likely to overstate assets and income is selected. Which of the following qualities is characterized by this action?
| |
a. |
Comparability |
| |
b. |
Conservatism |
| |
c. |
Materiality |
| |
d. |
Neutrality |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
53. The qualitative characteristics of accounting data include
| |
a. |
Assets reported on the balance sheet |
| |
b. |
All accounting information |
| |
c. |
Cash flows |
| |
d. |
Reliability |
| ANSWER: |
d |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-02 – LO: 02-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
54. Which of the following is a current asset?
| |
a. |
Building |
| |
b. |
Office supplies |
| |
c. |
Land |
| |
d. |
Truck |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
55. Which of the following is a noncurrent asset?
| |
a. |
Land |
| |
b. |
Accounts receivable |
| |
c. |
Cash |
| |
d. |
None of these choices. |
| ANSWER: |
a |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
56. Which of the following include only current assets?
| |
a. |
Accounts receivable, cash, inventory, office supplies |
| |
b. |
Cash, accounts payable, inventory, office supplies |
| |
c. |
Cash, land, accounts receivable, inventory |
| |
d. |
Accounts receivable, cash, furniture, office supplies |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
57. To determine the source of a company’s noncurrent assets, on which financial statement will you look?
| |
a. |
Income statement only |
| |
b. |
Balance sheet only |
| |
c. |
Both the balance sheet and the income statement |
| |
d. |
Both the income statement and the statement of retained earnings |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
Bevco Company
Bevco Company has provided the following information from its accounting records for the current year:
| |
Cash |
$ 55,000 |
|
Accounts receivable |
$ 45,000 |
| |
Inventory |
65,000 |
|
Land |
75,000 |
| |
Accounts payable |
50,000 |
|
Notes payable (due 2020) |
150,000 |
| |
Retained earnings |
? |
|
Capital stock |
20,000 |
|
58. Read the information for Bevco Corporation. What are Bevco’ current assets?
| |
a. |
$ 100,000 |
| |
b. |
$ 165,000 |
| |
c. |
$ 210,000 |
| |
d. |
$ 240,000 |
| ANSWER: |
b |
| RATIONALE: |
($55,000 Cash + $45,000 Accounts Receivable + $65,000 Inventory = $165,000) |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
59. Read the information for Bevco Company. What are Bevco’ current liabilities?
| |
a. |
$ 50,000 |
| |
b. |
$ 125,000 |
| |
c. |
$ 200,000 |
| |
d. |
$ 230,000 |
| ANSWER: |
a |
| RATIONALE: |
($50,000 Accounts Payable) |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
60. Which one of the following items is reported as a current asset on a classified balance sheet?
| |
a. |
Trucks |
| |
b. |
Accounts receivable |
| |
c. |
Land |
| |
d. |
Common stock |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
61. The following information is given for Camino Company:
| Cash |
$ 50,000 |
|
Inventory |
$ 45,000 |
| Land |
75,000 |
|
Accumulated Depreciation |
40,000 |
| Plant & Equipment |
150,000 |
|
Accounts Payable |
60,000 |
What are the company’s current assets?
| |
a. |
$220,000 |
| |
b. |
$155,000 |
| |
c. |
$130,000 |
| |
d. |
$ 95,000 |
| ANSWER: |
d |
| RATIONALE: |
($50,000 Cash + $45,000 Inventory = $95,000) |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
62. Which of the following accounts are normally reported as noncurrent liabilities on a classified balance sheet?
| |
a. |
Notes payable due in 5 years and bonds payable |
| |
b. |
Interest payable and mortgage payable |
| |
c. |
Income taxes payable and salaries payable |
| |
d. |
Capital stock and accounts payable |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
63. Which one of the following is not a major category for long-term assets?
| |
a. |
Receivables |
| |
b. |
Property, plant, and equipment |
| |
c. |
Intangibles |
| |
d. |
Goodwill |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
64. Which of the following would not be considered to be an intangible asset?
| |
a. |
Franchises |
| |
b. |
Copyrights |
| |
c. |
Investments |
| |
d. |
Goodwill |
| ANSWER: |
c |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
65. Which of the following statements is true concerning intangible assets?
| |
a. |
Intangible assets have no economic substance. |
| |
b. |
Intangible assets lack physical existence. |
| |
c. |
Intangible assets are listed in the stockholders’ equity section of the balance sheet. |
| |
d. |
Intangible assets appear in the current assets section of the balance sheet. |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
66. How are assets which are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year) reported on a classified balance sheet?
| |
a. |
Property, plant, and equipment |
| |
b. |
Current assets |
| |
c. |
Intangible assets |
| |
d. |
Current liabilities |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
67. Which of the following terms characterizes the time period between the investment of cash in merchandise and the collection of cash from the sale of that merchandise?
| |
a. |
Operating cycle |
| |
b. |
Natural business year |
| |
c. |
Accounting period |
| |
d. |
Fiscal period |
| ANSWER: |
a |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
68. Which set of items below are current assets?
| |
a. |
Accounts receivable, net income, inventory, and dividends |
| |
b. |
Cash, accounts receivable, capital stock, and sales |
| |
c. |
Net income, cash, office supplies, and inventory |
| |
d. |
Cash, accounts receivable, inventory, and office supplies |
| ANSWER: |
d |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
69. One significant difference between a classified and a non-classified balance sheet is the distinction between which of the following items?
| |
a. |
Assets and liabilities |
| |
b. |
Current and noncurrent items |
| |
c. |
Liabilities and owners’ equity |
| |
d. |
Resources invested by the owners and amounts borrowed from creditors |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
70. For several years, Bosco Corporation has had a current ratio that was consistent with other companies in its industry. For the most recent year, Bosco’s current ratio was significantly higher than that for the industry. What is the best possible explanation for this situation?
| |
a. |
The other companies in the industry were not as profitable. |
| |
b. |
Bosco’s liquidity has improved or is not leveraging financial resources effectively. |
| |
c. |
Bosco has less property, plant and equipment than other companies. |
| |
d. |
Bosco has too much debt. |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Applying |
|
Guinther & Sons, Inc.
Guinther & Sons, Inc. a retailer of men’s clothing, earned a net profit of $77,000 for 2016. The balance sheet for Guinther & Sons includes the following items:
| |
Cash |
$29,000 |
|
Accounts receivable |
$39,000 |
| |
Inventory |
79,000 |
|
Prepaid insurance |
3,000 |
| |
Land |
90,000 |
|
Accounts payable |
14,000 |
| |
Taxes payable |
29,000 |
|
Capital stock |
50,000 |
| |
Retained earnings |
97,000 |
|
Long-term notes payable |
43,000 |
|
71. Read the information for Guinther & Sons. Calculate the total amount of current assets for Guinther & Sons.
| |
a. |
$ 100,000 |
| |
b. |
$ 147,000 |
| |
c. |
$ 150,000 |
| |
d. |
$ 249,000 |
| ANSWER: |
c |
| RATIONALE: |
($29,000 Cash + $39,000 Accounts Receivable + $79,000 Inventory + $3,000 Prepaid Insurance = $150,000) |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-03 – LO: 02-03 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
72. Read the information for Guinther & Sons, Inc. Calculate the current ratio for Guinther & Sons.
| |
a. |
2.58 to 1 |
| |
b. |
2.75 to 1 |
| |
c. |
3.00 to 1 |
| |
d. |
2.00 to 1 |
| ANSWER: |
c |
| RATIONALE: |
($29,000 Cash + $39,000 Accounts Receivable + $79,000 Inventory + $3,000 Prepaid Insurance) / ($21,000 Accounts Payable + $29,000 Taxes Payable) = 3.00 to 1 |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
73. Read the information for Guinther & Sons, Inc. The average current ratio for stores such as Guinther & Sons is 2.4 to 1. What does this comparison tell you about its liquidity?
| |
a. |
It is more liquid than its competitors. |
| |
b. |
It has more long-term assets than its competitors. |
| |
c. |
Since a rule of thumb for current ratios is 2 to 1, neither Guinther & Sons, Inc. nor its competitors is liquid. |
| |
d. |
Guinther & Sons, Inc. is more profitable than its competitors. |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
74. Rosu Company has total current assets of $150,000 and total current liabilities of $50,000. What is the amount of working capital for Rosu Company?
| |
a. |
$200,000 |
| |
b. |
$100,000 |
| |
c. |
$125,000 |
| |
d. |
$ 179,000 |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
75. What is the correct method for calculating working capital?
| |
a. |
Total Assets minus Total Liabilities |
| |
b. |
Current Assets minus Total Liabilities |
| |
c. |
Current Assets minus Current Liabilities |
| |
d. |
Current Assets plus Current Liabilities |
| ANSWER: |
c |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Applying |
|
76. Oreo Company has current assets of $20,000, current liabilities of $8,000, and long-term liabilities of $3,000. Oreo wants to buy new equipment. How much of its existing cash can Oreo use to acquire equipment without allowing its current ratio to decline below 2.0 to 1?
| |
a. |
$ 4,000 |
| |
b. |
$ 8,000 |
| |
c. |
$ 10,000 |
| |
d. |
$ 12,000 |
| ANSWER: |
a |
| RATIONALE: |
($16,000 / $8,000 = 2.0 to 1; $20,000 – $16,000 = $4,000) |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
77. Excursion Corp. increased its dollar amount of working capital over the past several years. To further evaluate the company’s short-run liquidity, which one of the following measures should be used?
| |
a. |
The current ratio |
| |
b. |
An analysis of the company’s long-term debt |
| |
c. |
An analysis of the return on stockholders’ equity |
| |
d. |
An analysis of retained earnings |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Applying |
|
78. Which financial statement reports information helpful in assessing working capital?
| |
a. |
Income statement |
| |
b. |
Balance sheet |
| |
c. |
Statement of retained earnings |
| |
d. |
Statement of cash flows |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Understanding |
|
79. Use Rizwi Corporation’s list of accounts at December 31, 2016 to answer the following question.
| Rizwi Corporation |
| List of Accounts at December 31, 2016 |
| |
|
|
|
|
|
| |
Cash |
$30,000 |
|
Accumulated depreciation |
$ 12,000 |
| |
Merchandise inventory |
14,000 |
|
Notes payable—Due12/31/2024 |
120,000 |
| |
Land |
40,000 |
|
Accounts payable |
14,000 |
| |
Buildings |
80,000 |
|
Equipment |
33,000 |
| |
Accounts receivable |
25,000 |
|
Notes Payable—Due07/01/2018 |
14,000 |
What is Rizwi Corp.’s current ratio?
| |
a. |
0.48 to 1 |
| |
b. |
2.00 to 1 |
| |
c. |
2.55 to 1 |
| |
d. |
2.86 to 1 |
| ANSWER: |
b |
| RATIONALE: |
($30,000 Cash + $21,000 Merchandise Inventory + $25,000 Accounts Receivable) / ($14,000 Accounts Payable + $24,000 Notes Payable–Due 07/01/2015) = 2.00 to 1 |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
80. If the current ratio is 2.5 to 1, net income is $6,000, and current liabilities are $18,000, how much is working capital?
| |
a. |
$ 6,000 |
| |
b. |
$ 14,000 |
| |
c. |
$ 27,000 |
| |
d. |
$ 45,000 |
| ANSWER: |
c |
| RATIONALE: |
($18,000 Current Liabilities × 2.5 = $45,000 Current Assets; $45,000 – $18,000 = $27,000) |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.02-04 – LO: 02-04 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| Chapter_4_Income_Measurement_and_Accrual_Accounting
True / False |
| 1. Recognition is the process of formally recording or incorporating an item into the financial statements.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 2. When initially recording the cost of land purchased, most companies use the current value.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 3. The process of recording an item in the financial statements is called measurement.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 4. The amount of cash that could be received by selling an asset currently is called historical cost.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 5. Under the accrual method, expenses are recognized when revenue is earned.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 6. When a company recognizes the portion of supplies used during a year, the effect is to decrease net income.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 7. All financial statements are prepared using the accrual basis of accounting.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 8. Most companies use the cash basis of accounting.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 9. Revenue is always earned continuously over time.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 10. An asset is always involved when revenue is recognized.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 11. The recognition of revenue may result from the settlement of a liability rather than from the acquisition of an asset.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 12. Expired costs are called assets.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 13. Three months before year-end, Billings Company signed a $100,000, 12%, 6-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Applying |
|
| 14. Matching can occur directly (like cost of goods sold), indirectly (like plant assets), or immediately when no future benefits from the cost are expected.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 15. A cost can be an asset or expense depending on whether the future economic benefits have expired or not.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 16. One effect of recognizing depreciation is to decrease net income.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 17. A company that forgets to recognize depreciation for the year overstates its income and assets.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 18. An entry that includes the Cash account is probably an adjustment.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 19. Every company prepares only four adjustments—one for each of the four types of adjustments.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 20. When cash is paid before an expense is incurred, an accrual is necessary.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 21. The amount of interest accrued is added to the note payable account and reported in the liabilities section of the balance sheet.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 22. Accumulated depreciation is increased when depreciation is recognized.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 23. Adjustments are recorded for all transactions involving outside entities.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 24. When revenue is earned before the receipt of cash, an adjustment that increases a receivable and decreases a liability account is recorded.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 25. Every adjustment involves at least one income statement and one balance sheet account.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 26. When an expense is incurred prior to the payment of cash for that expense, an adjustment that increases an expense account and decreases an asset is prepared.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 27. The balance in the account, Rent Collected in Advance, is reported as an asset on the balance sheet of the landlord.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 28. While most companies make adjustments and prepare statements monthly, many companies complete the accounting cycle only once per year.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-06 – LO: 04-06 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 29. Accountants often prepare work sheets at the end of an accounting period in place of financial statements.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-06 – LO: 04-06 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 30. Financial statements should be prepared before any adjustments are made.
| ANSWER: |
False |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-06 – LO: 04-06 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 31. Interim financial statements are prepared annually.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-06 – LO: 04-06 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 32. Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-06 – LO: 04-06 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 33. Income summary does not appear on the income statement.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-07 – LO: 04-07 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 34. Balance sheet accounts are called real accounts.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-07 – LO: 04-07 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 35. Expense accounts are debited in the closing process.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-07 – LO: 04-07 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 36. Closing entries serve two important purposes: (1) to return the balances in all temporary or nominal accounts to zero to start the next accounting period and (2) to transfer the net income (or net loss) and the dividends of the period to the Retained Earnings account.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-07 – LO: 04-07 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 37. There is one single format for a work sheet.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-08 – LO: 04-08 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 38. According to the text, the income statement is in fact a subset of the balance sheet, because information from the income statement columns flows into the balance sheet columns.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-08 – LO: 04-08 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 39. The unit of measure in Japan is the U.S. dollar.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 40. The accounting profession is currently experimenting with financial statements adjusted for the changing value of the dollar since inflation is increasing.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 41. Because of its objective nature, historical cost is the attribute used to measure many of the assets recognized on the balance sheet.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 42. The income statement tells the reader about the actual cash inflows during a period of time.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 43. The statement of cash flows reflects the revenues actually earned by the business, regardless of whether cash has been collected.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 44. The justification for the accrual basis of accounting lies in the needs of financial statement users for periodic information on the financial position and the profitability of the entity.
| ANSWER: |
True |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 45. The revenue recognition principle involves two factors: paid and incurred.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 46. The revenue recognition principle does not pertain to long-term contracts, franchises, commodities, and installment sales.
| ANSWER: |
False |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 47. Conceptually, anytime a cost is incurred, an asset is acquired.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
| 48. Costs incurred for purchases of merchandise result in an asset, Merchandise Inventory, and are eventually matched with revenue at the time the product is sold.
| ANSWER: |
True |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Remembering |
|
49. Measurement of the economic effects on an entity involves each of the following except
| |
a. |
Quantification of effects |
| |
b. |
Identification of the attribute to be measured |
| |
c. |
Selection of an appropriate unit of measure |
| |
d. |
Recording the economic effects in the financial statements |
| ANSWER: |
d |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
50. The selection of historical cost over current value as the attribute to be measured for assets is an example of the trade-off of
| |
a. |
Reliability over relevance |
| |
b. |
Costs over benefit |
| |
c. |
Comparability over consistency |
| |
d. |
Understandability over verifiability |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
51. An accountant describes the effects of an economic event on an entity by recording the transaction and reporting the amount on the financial statements. What is this called?
| |
a. |
Measurement |
| |
b. |
Recognition |
| |
c. |
Disclosure |
| |
d. |
Matching |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
52. Which of the following is the attribute used to measure many assets that are recognized on a balance sheet, because it is more objective and verifiable?
| |
a. |
Market value |
| |
b. |
Historical cost |
| |
c. |
Liquidation value |
| |
d. |
Current replacement cost |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
53. Why is the use of the U.S. dollar as a unit of measure for financial statement data in the U.S. widely accepted?
| |
a. |
U.S. dollar remains stable over a long period of time. |
| |
b. |
U.S. dollar is universally recognized as a reliable financial measure. |
| |
c. |
U.S. dollar is the medium of monetary exchange in the U.S. |
| |
d. |
U.S. dollar is required for financial statement presentation by the FASB and SEC. |
| ANSWER: |
c |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
54. Which one of the following statements is true?
| |
a. |
Recognition is concerned with the dollar amount of each economic effect that should be reported in the financial statements. |
| |
b. |
Measurement is concerned with how economic effects should be quantified. |
| |
c. |
The stability concept is concerned with identification of the specific entity for which economic effects are to be recognized and measured. |
| |
d. |
The monetary unit assumption is concerned with the valuation of economic effects in terms of current purchasing power. |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-01 – LO: 04-01 |
| KEYWORDS: |
Bloom’s: Understanding |
|
55. Sally’s Choice sells season memberships for $200 each. During January of 2016, 60 season memberships were sold. As of March 31, 2016, only $3,000 of season membership fees had been collected from customers. The season runs for 4 months starting May 15, 2016. Which one of the following is an amount reported on the financial statements for the period ending March 31, 2016?
| |
a. |
Unearned membership revenue of $3,000 |
| |
b. |
Unearned membership revenue of $9,000 |
| |
c. |
Accounts receivable of $3,000 |
| |
d. |
Membership revenue of $9,000 |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
56. Dom’s Motor Mart sold merchandise to a customer for $3,000 on credit on March 10. The customer paid Fox Auto the amount due on March 31. Under the accrual basis of accounting, which of the following statements is true?
| |
a. |
Fox Auto will recognize the revenue on March 31. |
| |
b. |
The March 10th transaction increases revenue, but has no effect on assets because cash has not been received. |
| |
c. |
Revenue is recognized after the cost of the merchandise sold has been paid by Fox Auto. |
| |
d. |
The March 31st transaction has no effect on total assets under the accrual basis. |
| ANSWER: |
d |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
57. Alexander City Consultants started business on January 1, 2016, and immediately purchased $1,000 of supplies to use in the business. At the end of the month, 25 percent of the supplies remains unpaid and 20% are still on hand. What amounts should appear on the financial statements for January, 2016?
Income Statement Statement of Cash Flows
| |
a. |
|
| |
b. |
|
| |
c. |
|
| |
d. |
|
| ANSWER: |
d |
| RATIONALE: |
$1,000 (Immediate Purchase) – $200 (or 20% of $1,000) = $800 $1,000 (Immediate Purchase) – $250 (or 25% of $1,000) = $750 |
| DIFFICULTY: |
Hard |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| 58. During December, Horn Inc. purchased $800 of supplies for use in its business. At the end of December, 20% of the supplies were still on hand, but only 75% had been paid. What amounts will appear on the company’s balance sheet on December 31?
Supplies on Hand Accounts Payable
| ANSWER: |
b |
| RATIONALE: |
$800 (December purchase) × 20% = $160 $800 (December purchase) × (100% – 75% or 25%) = $200 |
| DIFFICULTY: |
Hard |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| 59. Camp Consulting Services started business on January 1, 2016. Camp performed services for customers totaling $100,000 of which 40% remain uncollected at the end of December. Under the accrual basis, what amounts would appear on Camp Consulting’s financial statements for 2016?
Income Statement Statement of Cash Flows
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
| 60. Hensley Painting Company painted four houses in June at $500 each. At the end of June, three homeowners had paid Hensley cash for the jobs. Under the accrual basis, what amounts will be reported on the income statement and the statement of cash flows for June?
Income Statement Statement of Cash Flows
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
61. Holten Farm sells new tractors and pays each salesperson a commission of $1,000 for each tractor sold. During the month of August, a salesperson, Fred, sold 3 new tractors. Jacob pays Jason on the 10th day of the month following the sale. Fred operates on the cash basis; the tractor dealer operates on the accrual basis. Which of the following statements is true?
| |
a. |
Fred will recognize commission revenue earned in the amount of $3,000 in August. |
| |
b. |
Jacob will recognize commission expense in the amount of $3,000 in August. |
| |
c. |
Fred will recognize commission expense in the amount of $3,000 in September. |
| |
d. |
Fred will recognize revenue in the same month that the tractor dealer recognizes expense. |
| ANSWER: |
b |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
62. A pool cleaning service signs a contract with a new customer on May 1. The pool is vacuumed and “shocked” for the customer on June 1, and the bill for the services is paid on July 1. Under the accrual basis, the business should recognize revenue on:
| |
a. |
December 31 |
| |
b. |
July 1 |
| |
c. |
June 1 |
| |
d. |
May 1 |
| ANSWER: |
c |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Applying |
|
63. When are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?
| |
a. |
Under the cash basis of accounting |
| |
b. |
Under the accrual basis of accounting |
| |
c. |
Under the adjusting method of accounting |
| |
d. |
Under both the cash and accrual bases of accounting |
| ANSWER: |
a |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
| 64. On January 1, 2016, ABC, Inc. purchased a copier for $9,000 cash and decided to depreciate it over 5 years. What amounts associated with the copier will appear on ABC’s financial statements for the year ending December 31, 2016?
Income Statement Statement of Cash Flows
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
65. Which of the following concepts is important to accrual accounting?
| |
a. |
Time period, because accrual accounting divides earnings into time periods |
| |
b. |
Monetary unit, because inflation is a big factor in the environment |
| |
c. |
Cash basis, because if cash is not received, revenue is not accrued |
| |
d. |
Entity concept, because personal transactions must be separated from business transactions |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
66. Which of the following statements does not present financial information based on the accrual basis of accounting?
| |
a. |
Balance Sheet |
| |
b. |
Income Statement |
| |
c. |
Statement of Retained Earnings |
| |
d. |
Statement of Cash Flows |
| ANSWER: |
d |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-02 – LO: 04-02 |
| KEYWORDS: |
Bloom’s: Understanding |
|
67. Harvest Catering is a local catering service. Conceptually, when should Harvest recognize revenue from its catering service?
| |
a. |
At the date the customer places the order |
| |
b. |
At the date the meals are served |
| |
c. |
At the date the invoice is mailed to the customer |
| |
d. |
At the date the customer’s payment is received |
| ANSWER: |
b |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
68. When is revenue from the sale of merchandise normally recognized?
| |
a. |
On the date the sale is made. |
| |
b. |
When the customer pays for the merchandise. |
| |
c. |
Either on the date on which the sale occurs, or the date on which the customer pays |
| |
d. |
When the merchandise is sold, if sold for cash, or when payment is received, if sold on credit |
| ANSWER: |
a |
| DIFFICULTY: |
Easy |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
69. Sun Corp. sells merchandise to customers. Sun should normally recognize
| |
a. |
Cash revenue only and the related expenses in the same accounting period as earned whether payment is received or not |
| |
b. |
Revenue when the cash is collected and the expenses when Mendes pays its creditor for the merchandise |
| |
c. |
Revenue and expenses after all payments are collected |
| |
d. |
Cash and credit revenue and the related expenses in the same accounting period as earned whether payment is received or not |
| ANSWER: |
d |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Understanding |
|
70. As a general rule, revenue is recognized at the point of sale. Which one of the following situations illustrates this rule?
| |
a. |
Products are sold to customers on credit with payment due in 30 days. |
| |
b. |
Employees are paid wages the week after the wages are earned. |
| |
c. |
Products are purchased for resale purposes. |
| |
d. |
Interest is collected from amounts loaned to employees. |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
71. What does the phrase, “Revenue is recognized at the point of sale” mean?
| |
a. |
Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on the income statement when sold to the customer. |
| |
b. |
Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer. |
| |
c. |
Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer. |
| |
d. |
Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer. |
| ANSWER: |
d |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
72. On October 31, Michael Corporation signed a one-year contract to provide services to Love Company for $80,000. Love will pay for the services on November 1. Using the accrual basis of accounting, when should Michael Corporation recognize revenue?
| |
a. |
November 1 of the current year when the cash is received from Harris |
| |
b. |
On October 31 of the next year when all services have been provided |
| |
c. |
Throughout the year as the revenue is earned |
| |
d. |
At December 31 of the current year, and October 31 of the next year |
| ANSWER: |
c |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-03 – LO: 04-03 |
| KEYWORDS: |
Bloom’s: Understanding |
|
73. Expenses originate from
| |
a. |
using an asset or recognizing liabilities. |
| |
b. |
incurring liabilities or providing services to customers. |
| |
c. |
collecting cash from customers. |
| |
d. |
paying off liabilities. |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Understanding |
|
74. Which one of the following is not a recognized method of recognizing assets as expenses in a particular accounting period?
| |
a. |
Customers’ account balances in accounts receivable are assigned to expense in the period in which each customer pays. |
| |
b. |
Prepaid insurance is assigned to expense as the insurance expires. |
| |
c. |
A building is depreciated and its cost is assigned to the current and future accounting periods in which the building is expected to be used. |
| |
d. |
Merchandise inventory is assigned to cost of goods sold in the period the goods are sold. |
| ANSWER: |
a |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Understanding |
|
75. Expenses can be matched against revenue
| |
a. |
if the earnings process is not complete. |
| |
b. |
when cash is collected from the sale of products. |
| |
c. |
through allocation to the accounting periods in which the benefits are recognized. |
| |
d. |
when payment is made for costs related to revenue. |
| ANSWER: |
c |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04 |
| KEYWORDS: |
Bloom’s: Understanding |
|
76. Remaz Corp. purchased equipment at a cost of $220,000 in January, 2015. As of January 1, 2016, depreciation of $160,000 had been recorded on this asset. Depreciation expense for 2014 is $50,000. After the adjustments are recorded and posted at December 31, 2016, what are the balances for the Equipment and Accumulated Depreciation?
Equipment Accumulated Depreciation
| ANSWER: |
a |
| RATIONALE: |
$160,000 (Accumulated Depreciation at Jan. 1, 2016) + $40,000 (Depreciation Expense for 2016) = $210,000 (Accumulated Depreciation at Dec. 31, 2016) |
| DIFFICULTY: |
Moderate |
| LEARNING OBJECTIVES: |
FACC.PONO.13.04-04 – LO: 04-04
FACC.PONO.13.04-05 – LO: 04-05 |
| KEYWORDS: |
Bloom’s: Analyzing |
|
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