NAME :___Kelly Creel_______

DATE:__10/11/2011_______________

STUDENT #: ____A10303749_____________________

AC 315 INTERMEDIATE ACCOUNTING I EXAM I (Chapters 1-5)
Directions: Underline the correct answer to the questions or statements listed below. There is only one correct answer to each of the questions or statements. MULTIPLE CHOICE (1 point each)
1. General-purpose financial statements are the product of a. financial accounting. b. managerial accounting. c. both financial and managerial accounting. d. neither financial nor managerial accounting. Users of financial reports include all of the following except a. creditors. b. government agencies. c. unions. d. All of these are users. The financial statements most frequently provided include all of the following except the a. balance sheet. b. income statement. c. statement of cash flows. d. statement of retained earnings. The information provided by financial reporting pertains to a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers. b. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers. c. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers. d. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries. All the following are differences between financial and managerial accounting in how accounting information is used except to a. plan and control company's operations. b. decide whether to invest in the company. c. evaluate borrowing capacity to determine the extent of a loan to grant. d. All the above.

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Which of the following represents a form of communication through financial reporting but not through financial statements? a. Balance sheet. b. President's letter. c. Income statement. d. Notes to financial statements. The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization’s operations is called a. financial accounting. b. managerial accounting. c. tax accounting. d. auditing. How does accounting help the capital allocation process attract investment capital? a. Provides timely, relevant information. b. Encourages innovation. c. Promotes productivity. d. a and b above. Which of the following is not a major challenge facing the accounting profession? a. Nonfinancial measurements. b. Timeliness. c. Accounting for hard assets. d. Forward-looking information. What is a major objective of financial reporting? a. Provide information that is useful to management in making decisions. b. Provide information that clearly portray nonfinancial transactions. c. Provide information that is useful to assess the amounts, timing, and uncertainty of perspective cash receipts. d. Provide information that excludes claims to the resources. Accrual accounting is used because a. cash flows are considered less important. b. it provides a better indication of ability to generate cash flows than the cash basis. c. it recognizes revenues when cash is received and expenses when cash is paid. d. none of the above. Accounting principles are "generally accepted" only when a. an authoritative accounting rule-making body has established it in an official pronouncement. b. it has been accepted as appropriate because of its universal application. c. both a and b. d. neither a nor b.

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13..

A common set of accounting standards and procedures are called a. financial accounting standards. b. generally accepted accounting principles. c. objectives of financial reporting. d. statements of financial accounting concepts.. Which of the following organizations has been responsible for setting U.S. accounting standards? a. Accounting Principles Board. b. Committee on Accounting Procedure. c. Financial Accounting Standards Board. d. All of the above.

14.

15.

A characteristic of generally accepted accounting principles include the following a. common set of standards and principles. b. standards and principles are based federal statutes. c. acceptance requires an affirmative vote of Certified Public Accountants. d. practices that become accepted for at least a year by all industry members.

16 .

Companies that are listed on a stock exchange are required to submit their financial statements to the a. AICPA. b. APB c. FASB. d. SEC. The purpose of the Emerging Issues Task Force is to a. develop a conceptual framework as a frame of reference for the solution of future problems. b. lobby the FASB on issues that affect a particular industry. c. do research on issues that relate to long-term accounting problems. d. issue statements which reflect a consensus on how to account for new and unusual financial transactions that need to be resolved quickly. Which of the following is a primary characteristic of useful accounting information? a. Comparability. b. Relevance. c. Consistency. d. Materiality. Which of the following is an ingredient of relevance? a. Verifiability. b. Representational faithfulness. c. Neutrality. d. Timeliness.

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Which of the following is an ingredient of reliability? a. Predictive value. b. Timeliness. c. Neutrality. d. Feedback value. Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic of accounting information? a. Consistency. b. Verifiability. c. Timeliness. d. Comparability. What is the quality of information that enables users to better forecast future operations? a. Reliability. b. Materiality. c. Comparability. d. Relevance. Representational faithfulness is an ingredient of which primary quality of information? a. Reliability. b. Comparability. c. Relevance. d. Consistency. The overriding criterion by which accounting information can be judged is that of a. usefulness for decision making. b. freedom from bias. c. timeliness. d. comparability. The two primary qualities that make accounting information useful for decision making are a. comparability and consistency. b. materiality and timeliness. c. relevance and reliability. d. reliability and comparability. The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is a. relevance. b. reliability. c. verifiability. d. neutrality. Information is neutral if it a. provides benefits which are at least equal to the costs of its preparation. b. can be compared with similar information about an enterprise at other points in time. c. would have no impact on a decision maker. d. is free from bias toward a predetermined result

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. 28. The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners' a. transfers of assets to the entity. b. rendering services to the entity. c. satisfaction of liabilities of the entity. d. all of these.

29.

In classifying the elements of financial statements, the primary distinction between revenues and gains is a. the materiality of the amounts involved. b. the likelihood that the transactions involved will recur in the future. c. the nature of the activities that gave rise to the transactions involved. d. the costs versus the benefits of the alternative methods of disclosing the transactions involved.

30.

The assumption that a business enterprise will not be sold or liquidated in the near future is known as the a. economic entity assumption. b. monetary unit assumption. c. conservatism assumption. d. none of these . Revenue is generally recognized when realized or realizable and earned. This statement describes the a. consistency characteristic. b. matching principle. c. revenue recognition principle. d. 9elevance characteristic

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32.

Generally, revenue from sales should be recognized at a point when a. management decides it is appropriate to do so. b. the product is available for sale to the ultimate consumer. c. the entire amount receivable has been collected from the customer and there remains no further warranty liability. d. none of these. The accounting principle of matching is best demonstrated by a. not recognizing any expense unless some revenue is realized. b. associating effort (expense) with accomplishment (revenue). c. recognizing prepaid rent received as revenue. d. establishing an Appropriation for Contingencies account.

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34.

According to the FASB's conceptual framework, earnings a. is the same as comprehensive income. b. excludes certain gains and losses that are included in comprehensive income. c. includes certain gains and losses that are excluded from comprehensive income. d. includes certain losses that are excluded from comprehensive income.

35.

Maintaining a set of accounting records is a. optional. b. required by the Internal Revenue Service. c. required by the Foreign Corrupt Practices Act. d. required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

36.

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the a. ledger. b. account. c. trial balance. d. none of these.

37.

A trial balance a. proves that debits and credits are equal in the ledger. b. supplies a listing of open accounts and their balances that are used in preparing financial statements. c. is normally prepared three times in the accounting cycle. d. all of these. Which of the following is a nominal (temporary) account? a. Unearned Revenue b. Salary Expense c. Inventory d. Retained Earning

38

. 39. The double-entry accounting system means a. Each transaction is recorded with two journal entries. b. Each item is recorded in a journal entry, then in a general ledger account. c. The dual effect of each transaction is recorded with a debit and a credit. d. More than one of the above. When a corporation pays a note payable and interest, a. the account notes payable will be increased. b. the account interest expense will be decreased. c. they will debit notes payable and interest expense. d. they will debit cash.

40.

41.

The accounting equation must remain in balance a. throughout each step in the accounting cycle. b. only when journal entries are recorded. c. only at the time the trial balance is prepared. d. only when formal financial statements are prepared. Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a. The event or item can be measured objectively in financial terms. b. The event or item is relevant and reliable. c. The event or item is an element. d. All of these must be met. A general journal a. chronologically lists transactions and other events, expressed in terms of debits and credits. b. contains one record for each of the asset, liability, stockholders’ equity, revenue, and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adjusting entries. A journal entry to record the sale of inventory on account will include a a. debit to inventory. b. debit to accounts receivable. c. debit to sales. d. credit to cost of goods sold. A journal entry to record a payment on account will include a a. debit to accounts receivable. b. credit to accounts receivable. c. debit to accounts payable. d. credit to accounts payable. A journal entry to record a receipt of rent revenue in advance will include a a. debit to rent revenue. b. credit to rent revenue. c. credit to cash. d. credit to unearned rent.

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47. An adjusting entry to record an accrued expense involves a debit to a(an): a. expense account and a credit to a prepaid account. b. expense account and a credit to Cash. c. expense account and a credit to a liability account. d. liability account and a credit to an expense account.

48.

The failure to properly record an adjusting entry to accrue an expense will result in an: a. understatement of expenses and an understatement of liabilities. b. understatement of expenses and an overstatement of liabilities. c. understatement of expenses and an overstatement of assets. d. overstatement of expenses and an understatement of assets.. Adjustments are often prepared a. after the balance sheet date, but dated as of the balance sheet date. b. after the balance sheet date, and dated after the balance sheet date. c. before the balance sheet date, but dated as of the balance sheet date. d. before the balance sheet date, and dated after the balance sheet date.

49.

50.

How do these prepaid expenses expire? Rent a. With the passage of time b. With the passage of time c. Through use and consumption d. Through use and consumption

Supplies Through use and consumption With the passage of time Through use and consumption With the passage of time

51.

Unearned revenue on the books of one company is likely to be a. a prepaid expense on the books of the company that made the advance payment. b. an unearned revenue on the books of the company that made the advance payment. c. an accrued expense on the books of the company that made the advance payment. d. an accrued revenue on the books of the company that made the advance payment. Which of the following statements best describes the purpose of closing entries? a. To faciliate posting and taking a trial balance. b. To determine the amount of net income or net loss for the period. c. To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period. d. To complete the record of various transactions that were started in a prior period. Under the cash basis of accounting, revenues are recorded a. when they are earned and realized. b. when they are earned and realizable. c. when they are earned. d. when they are realized.

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54.

A Company sublet a portion of its warehouse for five years at an annual rental of $24,000, beginning on May 1, 2010. The tenant, Sheri Charter, paid one year's rent in advance, which Murphy recorded as a credit to Unearned Rental Revenue. Murphy reports on a calendar-year basis. The adjustment on December 31, 2010 for Murphy should be a. No entry b. Unearned Rent Revenue ................................................... 8,000 Rent Revenue ........................................................ 8,000 c. Rent Revenue .................................................................... 8,000 Unearned Rent Revenue ........................................ 8,000 d. Unearned Rent Revenue ................................................... 16,000 Revenue Revenue .................................................. 16,000

55.

During the first year of Wilkinson Co.'s operations, all purchases were recorded as assets. Store supplies in the amount of $19,350 were purchased. Actual year-end store supplies amounted to $6,450. The adjusting entry for store supplies will a. increase net income by $12,900. b. increase expenses by $12,900. c. decrease store supplies by $6,450. d. debit Accounts Payable for $6,450.

56.

Big-Mouth Frog Corporation had revenues of $200,000, expenses of $120,000, and dividends of $30,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a a. debit of $50,000. b. debit of $80,000. c. credit of $50,000. d. credit of $80,000.

57. In November and December 2010, Lane Co., a newly organized magazine publisher, received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the January 2011 issue. Lane included the entire $90,000 in its 2010 income tax return. What amount should Lane report in its 2010 income statement for subscriptions revenue? a. $0. b. $5,000. c. $30,000. d. $90,000.

58.

Colaw Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Colaw accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2010 are as follows: Last payroll was paid on 12/26/10, for the 2-week period ended 12/26/10. Overtime pay earned in the 2-week period ended 12/26/10 was $10,000. Remaining work days in 2010 were December 29, 30, 31, on which days there was no overtime. The recurring biweekly salaries total $180,000. Assuming a five-day work week, Colaw should record a liability at December 31, 2010 for accrued salaries of a. $54,000. b. $64,000. c. $108,000. d. $118,000.

59.

The major elements of the income statement are a. revenue, cost of goods sold, selling expenses, and general expense. b. operating section, nonoperating section, discontinued operations, extraordinary items, and cumulative effect. c. revenues, expenses, gains, and losses. d. all of these.

60.

Information in the income statement helps users to a. evaluate the past performance of the enterprise. b. provide a basis for predicting future performance. c. help assess the risk or uncertainty of achieving future cash flows. d. all of these.

61.

Limitations of the income statement include all of the following except a. items that cannot be measured reliably are not reported. b. only actual amounts are reported in determining net income. c. income measurement involves judgment. d. income numbers are affected by the accounting methods employed.

62.

The income statement reveals a. resources and equities of a firm at a point in time. b. resources and equities of a firm for a period of time. c. net earnings (net income) of a firm at a point in time. d. net earnings (net income) of a firm for a period of time.

63.

The single-step income statement emphasizes a. the gross profit figure. b. total revenues and total expenses. c. extraordinary items and accounting changes more than these are emphasized in the multiple-step income statement. d. the various components of income from continuing operations

64.

In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature, infrequent, and material in amount. b. unusual in nature and infrequent, but it need not be material. c. infrequent and material in amount, but it need not be unusual in nature. d. unusual in nature and material, but it need not be infrequent. Which of these is generally an example of an extraordinary item? a. Loss incurred because of a strike by employees. b. Write-off of deferred marketing costs believed to have no future benefit. c. Gain resulting from the devaluation of the U.S. dollar. d. Gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot.

65.

66. Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes? a. Only if floods in the geographical area are unusual in nature and occur infrequently. b. Only if the flood damage is material in amount and could have been reduced by prudent management. c. Under any circumstances as an extraordinary item. d. Flood damage should never be classified as an extraordinary item.

67.

Which of the following is a change in accounting principle? a. A change in the estimated service life of machinery b. A change from FIFO to LIFO c. A change from straight-line to double-declining-balance d. A change from FIFO to LIFO and a change from straight-line to double-decliningbalance When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as a. a prior period adjustment. b. an extraordinary item. c. an amount after continuing operations and before extraordinary items. d. a bulk sale of plant assets included in income from continuing operations.

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69.

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a. On the face of the statement of retained earnings (or, statement of stockholders' equity.) b. In the footnotes to the financial statements. c. On the face of the income statement. d. Either (a) or (c).

70.

Earnings per share should always be shown separately for a. net income and gross margin. b. net income and pretax income. c. income before extraordinary items. d. extraordinary items and prior period adjustments.

71.

Which of the following items will not appear in the retained earnings statement? a. Net loss b. Prior period adjustment c. Discontinued operations d. Dividends

72.

Ortiz Co. had the following account balances: Sales $ 120,000 Cost of goods sold 60,000 Salary expense 10,000 Depreciation expense 20,000 Dividend revenue 4,000 Utilities expense 8,000 Rental revenue 20,000 Interest expense 12,000 Sales returns 11,000 Advertising expense 13,000 What would Ortiz report as total revenues in a single-step income statement? a. b. c. d. $133,000 $ 10,000 $144,000 $120,000

73.

Ortiz Co. had the following account balances: Sales $ 120,000 Cost of goods sold 60,000 Salary expense 10,000 Depreciation expense 20,000 Dividend revenue 4,000 Utilities expense 8,000 Rental revenue 20,000 Interest expense 12,000 Sales returns 11,000 Advertising expense 13,000 What would Ortiz report as total expenses in a single-step income statement? a. $127,000 b. $134,000 c. $123,000 d. $ 63,000

74.

Gross billings for merchandise sold by Lang Company to its customers last year amounted to $15,720,000; sales returns and allowances were $370,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Lang Company were a. $15,720,000. b. $15,350,000. c. $15,175,000. d. $15,035,000.

75.

If plant assets of a manufacturing company are sold at a gain of $820,000 less related taxes of $250,000, and the gain is not considered unusual or infrequent, the income statement for the period would disclose these effects as a. a gain of $820,000 and an increase in income tax expense of $250,000. b. operating income net of applicable taxes, $570,000. c. a prior period adjustment net of applicable taxes, $570,000. d. an extraordinary item net of applicable taxes, $570,000.

76.

In 2010, Esther Corporation reported net income of $1,000,000. It declared and paid preferred stock dividends of $250,000 and common stock dividends of $100,000. During 2010, Esther had a weighted average of 200,000 common shares outstanding. Compute Esther's 2010 earnings per share. a. b. c. d. $3.25 $3.75 $5.00 $6.25

77

Which of the following is a limitation of the balance sheet? a. Many items that are of financial value are omitted. b. Judgments and estimates are used. c. Current fair value is not reported. d. All of these

78.

The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as a. solvency. b. financial flexibility. c. liquidity. d. exchangeability.

79.

The basis for classifying assets as current or noncurrent is conversion to cash within a. the accounting cycle or one year, whichever is shorter. b. the operating cycle or one year, whichever is longer. c. the accounting cycle or one year, whichever is longer. d. the operating cycle or one year, whichever is shorter

80.

Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as a. current assets. b. property, plant, and equipment. c. intangible assets. d. long-term investments.

81.

When a portion of inventories has been pledged as security on a loan, a. the value of the portion pledged should be subtracted from the debt. b. an equal amount of retained earnings should be appropriated. c. the fact should be disclosed but the amount of current assets should not be affected. d. the cost of the pledged inventories should be transferred from current assets to noncurrent assets. Long-term liabilities include a. obligations not expected to be liquidated within the operating cycle. b. obligations payable at some date beyond the operating cycle. c. deferred income taxes and most lease obligations. d. all of these

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83.

Treasury stock should be reported as a(n) a. current asset. b. investment. c. other asset. d. reduction of stockholders' equity.

84.

Which of the following is not a required supplemental disclosure for the balance sheet? a. Contingencies b. Financial forecasts c. Accounting policies d. Contractual situations Which of the following best exemplifies a contingency that is reported in the notes to the financial statements? a. Losses from potential future lawsuits b. Loss from a lawsuit settled out of court prior to the end of the fiscal year c. Warranty claims on future sales d. Estimated loss from an ongoing lawsuit

85.

86.

Significant accounting policies may not be a. selected on the basis of judgment. b. selected from existing acceptable alternatives. c. unusual or innovative in application. d. omitted from financial-statement disclosure.

87.

It is mandatory that the essential provisions of which of the following be clearly stated in the notes to the financial statements? a. Stock option plans b. Pension obligations c. Lease contracts d. All of these

88.

The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the a. retained earnings statement. b. income statement. c. statement of cash flows. d. statement of financial position.

89.

In preparing a statement of cash flows, cash flows from operating activities a. are always equal to accrual accounting income. b. are calculated as the difference between revenues and expenses. c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash. d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

90.

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from a. lending activities. b. operating activities. c. investing activities. d. financing activities.

91.

In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash equivalents) should be classified as cash outflows for a. operating activities. b. investing activities. c. financing activities. d. lending activities.

PROBLEMS
92. Balance sheet presentation (5 points) Given the following account information for Leong Corporation, prepare a balance sheet in report form for the company as of December 31, 2010. All accounts have normal balances. Equipment Interest Expense Interest Payable Retained Earnings Dividends Land Inventory Bonds Payable Notes Payable (due in 6 months) Common Stock Accumulated Depreciation - Eq. Prepaid Advertising Revenue Buildings Supplies Taxes Payable Utilities Expense Advertising Expense Salary Expense Salaries Payable Accumulated Depr. - Bld. Cash Depreciation Expense, Building & Equipment 40,000 2,400 600 ? 50,400 137,320 102,000 78,000 14,400 60,000 10,000 5,000 331,400 80,400 1,860 3,000 1,320 1,560 53,040 900 15,000 30,000 8,000

93. Statement of cash flows preparation (5 points) Selected financial statement information and additional data for Stanislaus Co. is presented below. Prepare a statement of cash flows for the year ending December 31, 2010 December 31 2009 Cash ....................................................... $42,000 Accounts receivable (net) ....................... 84,000 Inventory ................................................ 168,000 Land ....................................................... 58,800 Equipment .............................................. 504,000 TOTAL ........................................$856,800 Accumulated depreciation ...................... $84,000 Accounts payable ................................... 50,400 Notes payable - Short-term..................... 67,200 Notes payable - Long-term ..................... 168,000 Common stock ....................................... 420,000 Retained earnings .................................. 67,200 TOTAL ........................................$856,800 2010 $63,000 151,200 201,600 21,000 789,600 $1,226,400 $115,600 86,000 29,400 302,400 487,200 205,800 $1,226,400

Additional data for 2010: 1. Net income was $235,200. 2. Depreciation was $31,600. 3. Land was sold at its original cost. 4. Dividends of $96,600 were paid. 5. Equipment was purchased for $84,000 cash. 6. A long-term note for $201,600 was used to pay for an equipment purchase. 7. Common stock was issued to pay a $67,200 long-term note payable.

94. Multiple-step income statement. (5 Points) Presented below is information related to Farr Company. Retained earnings, December 31, 2010 Sales Selling and administrative expenses Hurricane loss (pre-tax) on plant (extraordinary item) Cash dividends declared on common stock Cost of goods sold Gain resulting from computation error on depreciation charge in 2009 (pre-tax) Other revenue Other expenses $ 650,000 1,400,000 240,000 290,000 33,600 780,000 520,000 120,000 100,000

Instructions Prepare in good form a multiple-step income statement for the year 2011. Assume a 30% tax rate and that 80,000 shares of common stock were outstanding during the year.

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