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extraordinary items and accounting changes more than these are emphasized in the multiple-

step income statement.

the various components of income from continuing operations.

should be

nature.

unusual in nature and material, but it need not be

infrequent.

unusual in nature and infrequent, but it need not be

material.

unusual in nature, infrequent, and material in amount.

Under which of the following conditions would material flood damage be considered an

extraordinary item for financial reporting purposes?

item.

Only if the flood damage is material in amount and could have been reduced by prudent

management.

Flood damage should never be classified as an extraordinary

item.

Only if floods in the geographical area are unusual in nature and occur

infrequently.

Which of the following is a required disclosure in the income statement when reporting the disposal

of a component of the business?

item.

Results of operations of a discontinued component should be disclosed immediately below

extraordinary items.

Earnings per share from both continuing operations and net income should be disclosed on the

face of the income statement.

The gain or loss on disposal should not be segregated, but should be reported together with

the results of continuing operations.

Which of the following items would be reported net of tax on the face of the income statement?

Discontinued operations

Unusual gain

principle

Where must earnings per share be disclosed in the financial statements to satisfy generally

accepted accounting principles?

equity.)

In the footnotes to the financial statements.

statement.

Either (a) or (c).

No Ye

s

No N

o

Yes N

o

Yes Ye

s

Earnings per share data are required on the face of which of the following financial statements?

Statement of retained

earnings

Statement of stockholders' equity

Income statement

Balance sheet

dividend revenue.

investments by owners.

of Depreciable Assets Principle to Accepted Principle

Yes Yes

Yes No

No No

No Yes

Chapter 5

omitted.

Judgments and estimates are

used.

Current fair value is not

reported.

All of these.

The amount of time that is expected to elapse until an asset is realized or otherwise converted into

cash is referred to as

liquidity.

exchangeability.

solvency.

financial

flexibility.

The basis for classifying assets as current or noncurrent is the period of time normally required by

the accounting entity to convert cash invested in

longer.

tangible fixed assets back into cash, or 12 months, whichever is

longer.

inventory back into cash, or 12 months, whichever is longer.

patents.

goodwill.

inventory.

machinery.

debt.

the fact should be disclosed but the amount of current assets should not be

affected.

the cost of the pledged inventories should be transferred from current assets to noncurrent

assets.

an equal amount of retained earnings should be

appropriated.

Trade accounts

payable

Stock dividends

distributable

The currently maturing portion of long-term debt

Unearned revenue

Working capital is

None of these.

cycle.

obligations payable at some date beyond the operating

cycle.

deferred income taxes and most lease

obligations.

All of these.

other asset.

current asset.

investment.

Which of the following balance sheet classifications would normally require the greatest amount of

supplementary disclosure?

Long-term liabilities

Current assets

Current liabilities

Plant assets

omitted.

Judgments and estimates are

used.

Current fair value is not

reported.

All of these.

The amount of time that is expected to elapse until an asset is realized or otherwise converted into

cash is referred to as

liquidity.

exchangeability.

solvency.

financial

flexibility.

The basis for classifying assets as current or noncurrent is the period of time normally required by

the accounting entity to convert cash invested in

longer.

tangible fixed assets back into cash, or 12 months, whichever is

longer.

inventory back into cash, or 12 months, whichever is longer.

patents.

goodwill.

inventory.

machinery.

debt.

the fact should be disclosed but the amount of current assets should not be

affected.

the cost of the pledged inventories should be transferred from current assets to noncurrent

assets.

an equal amount of retained earnings should be

appropriated.

Trade accounts

payable

Stock dividends

distributable

The currently maturing portion of long-term debt

Unearned revenue

Working capital is

None of these.

cycle.

obligations payable at some date beyond the operating

cycle.

deferred income taxes and most lease

obligations.

All of these.

other asset.

current asset.

investment.

Which of the following balance sheet classifications would normally require the greatest amount of

supplementary disclosure?

Long-term liabilities

Current assets

Current liabilities

Plant assets

Chapter 6

uncollectible.

The relationship between time and

money.

An investment in a checking account.

Which of the following situations does NOT base an accounting measure on present values?

Sinking funds.

Leases.

Pensions.

Prepaid

insurance.

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would

return the lowest amount after one year?

Annually.

Monthly.

Daily

.

Quarterly

.

Which factor would be greater - the present value of $1 for 10 periods at 8% per period or the

future value of $1 for 10 periods at 8% per period?

Need more

information.

Present value of $1 for 10 periods at 8% per

period.

Future value of $1 for 10 periods at 8% per

period.

Which of the following tables would show the smallest value for an interest rate of 5% for six

periods?

1.

Present value of an ordinary annuity of

1.

Future value of 1.

Present value of 1.

Which table would you use to determine how much you would need to have deposited three years

ago at 10% compounded annually in order to have $1,000 today?

1.

Present value of an ordinary annuity of

1.

Future value of 1 or present value of

1.

Future value of an ordinary annuity of

1.

The figure .94232 is taken from the column marked 2% and the row marked three periods in a

certain interest table. From what interest table is this figure taken?

Present value of 1.

Future value of 1.

1.

Future value of annuity of 1.

Which of the following transactions would best use the present value of an annuity due of 1 table?

Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in three

years.

Fernetti, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at

the beginning of each year.

Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction of a new

parking lot in 4 years.

Edmiston Co. rents a warehouse for 7 years with annual rental payments of $120,000 to be

made at the end of each year.

What is the relationship between the future value of one and the present value of one?

The present value of one equals one plus future value factor for n-1

periods.

The present value of one equals one divided by the future value of

one.

The present value of one equals one plus the future value factor for n+1

value.

The present value of one equals the future value of one plus

one.

due.

Rents occur at the beginning of each period of an annuity

due.

None of these.

Which of the following tables would show the largest value for an interest rate of 10% for 8 periods?

Present value of 1

table.

Future amount of an ordinary annuity of 1 table.

table.

On December 1, 2010, Richards Company sold some machinery to Fleming Company. The two

companies entered into an installment sales contract at a predetermined interest rate. The contract

required four equal annual payments with the first payment due on December 1, 2010, the date of

the sale. What present value concept is appropriate for this situation?

periods.

Present value of an annuity due of 1 for four

periods.

Future amount of 1 for four periods.

If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the

new models are next available, which time value concept would be used to determine the monthly

payment?

Future value of

one.

Present value of one.

The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary

annuity table value for one less period.

The factor for the present value of an annuity due is found by multiplying the ordinary annuity

table value by one minus the interest rate.

The factor for the future value of an annuity due is found by subtracting 1.00000 from the

ordinary annuity table value for one more period.

The factor for the future value of an annuity due is found by multiplying the ordinary annuity

table value by one plus the interest rate.

Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of

each year for five years. How should he compute his required initial investment at the beginning of

the first year if the fund earns 10% compounded annually?

1.

$20,000 times the present value of a 5-year, 10% ordinary annuity of 1.

1.

$20,000 divided by the present value of a 5-year, 10% ordinary annuity of

1.

If an annuity due and an ordinary annuity have the same number of equal payments and the same

interest rates, then

the future value of the annuity due is equal to the future value of the ordinary

annuity.

the present value of the annuity due is greater than the present value of the ordinary

annuity.

the future value of the annuity due is less than the future value of the ordinary

annuity.

the present value of the annuity due is less than the present value of the ordinary

annuity.

What is the relationship between the present value factor of an ordinary annuity and the present

value factor of an annuity due for the same interest rate?

factor.

The annuity due factor equals the ordinary annuity factor for n+1 periods minus

one.

The annuity due factor equals one plus the ordinary annuity factor for n 1

periods.

The ordinary annuity factor equals one plus the annuity due factor for n+1

periods.

Assume ABC Company deposits $25,000 with First National Bank in an account earning interest at

6% per annum, compounded semi-annually. How much will ABC have in the account after five years

if interest is reinvested?

$33,456.

$25,000.

$33,598.

$32,500.

What would you pay for an investment that pays you $10,000 at the end of each year for the next

twenty years? Assume that the relevant interest rate for this type of investment is 12%.

$83,658.

$10,367.

$74,694.

$720,524.

On May 1, 2010, a company purchased a new machine which it does not have to pay for until May

1, 2012. The total payment on May 1, 2012 will include both principal and interest. Assuming

interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time

value of money factor?

Present value of 1

Future value of 1

1

Future value of annuity of

1

Chapter 7

Postdated checks

accounts

Money market savings

certificates

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known

amounts of cash and

cost.

bears an interest rate that is at least equal to the prime rate of interest at the date of

liquidation.

is acceptable as a means to pay current

liabilities.

is so near its maturity that it presents insignificant risk of changes in interest

rates.

What is the preferable presentation of accounts receivable from officers, employees, or affiliated

companies on a balance sheet?

As offsets to capital.

receivables.

As trade notes and accounts receivable if they otherwise qualify as current

assets.

Which of the following concepts relates to using the allowance method in accounting for accounts

receivable?

uncollectible.

Bad debt expense is an estimate that is based on historical and prospective

information.

Bad debt expense is an estimate that is based only on an analysis of the receivables

aging.

Bad debt expense is management's determination of which accounts will be sent to the

attorney for collection.

What is the normal journal entry when writing-off an account as uncollectible under the allowance

method?

Expense.

Debit Bad Debt Expense, credit Allowance for Doubtful

Accounts.

Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

Which of the following methods of determining bad debt expense does not properly match expense

and revenue?

method.

Charging bad debts with an amount derived from aging accounts receivable under the

allowance method.

Charging bad debts with an amount derived from a percentage of accounts receivable under

the allowance method.

Charging bad debts as accounts are written off as

uncollectible.

rate.

Interest based on the coupon

rate.

Interest based on the stated interest rate.

rate.

Which of the following is true when accounts receivable are factored without recourse?

The transaction may be accounted for either as a secured borrowing or as a sale, depending

upon the substance of the transaction.

The receivables are used as collateral for a promissory note issued to the factor by the owner

of the receivables.

The financing cost (interest expense) should be recognized ratably over the collection period of

the receivables.

The factor assumes the risk of collectibility and absorbs any credit losses in collecting the

receivables.

period.

percentage of accounts receivable arising during certain seasons.

period.

number of times the average balance of accounts receivable is collected during the

period.

What is a possible reason for accounts receivable turnover to increase from one year to the next

year

write-off uncollectible

receivables.

granting credit to customers with lower credit

quality.

improved collection process.

recession.

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