1. General-purpose financial statements are the product of b.

information about the liquidation values of the resources

a. financial accounting. held by the enterprise.
b. managerial accounting. c. information that is useful in assessing cash flow
c. both financial and managerial accounting. prospects.
d. neither financial nor managerial accounting. d. information that will attract new investors.

2. Users of financial reports include all of the following except 12. Accounting principles are "generally accepted" only when
a. creditors. a. an authoritative accounting rule-making body has
b. government agencies. established it in an official pronouncement.
c. unions. b. it has been accepted as appropriate because of its
d. All of these are users. universal application.
c. both a and b.
3. The financial statements most frequently provided include all of d. neither a nor b.
the following except the
a. balance sheet. 13. A common set of accounting standards and procedures are called
b. income statement. a. financial accounting standards.
c. statement of cash flows. b. generally accepted accounting principles.
d. statement of retained earnings. c. objectives of financial reporting.
d. statements of financial accounting concepts.
4. The information provided by financial reporting pertains to
a. individual business enterprises, rather than to industries 14. The role of the Securities and Exchange Commission in the
or an economy as a whole or to members of society as formulation of accounting principles can be best described as
consumers. a. consistently primary.
b. business industries, rather than to individual enterprises b. consistently secondary.
or an economy as a whole or to members of society as c. sometimes primary and sometimes secondary.
consumers. d. non-existent.
c. individual business enterprises, industries, and a
economy as a whole, rather than to members of society as 15. The body that has the power to prescribe the accounting practices
consumers. and standards to be employed by companies that fall under its
d. an economy as a whole and to members of society a jurisdiction is the
consumers, rather than to individual enterprises or a. FASB.
industries. b. AICPA.
c. SEC.
5. The process of identifying, measuring, analyzing, and d. APB.
communicating financial information needed by management to plan,
evaluate, and control an organization’s operations is called 16. Which of the following best illustrates the accounting concept of
a. financial accounting. conservatism?
b. managerial accounting. a. Use of the allowance method to recognize bad debt
c. tax accounting. losses from credit sales
d. auditing. b. Use of the lower of cost or market approach in valuing
inventories.
6. Whether a business is successful and thrives is determined by c. Use of the same accounting method from one period to
a. markets. the next in computing depreciation expense
b. free enterprise. d. Utilization of a policy of deliberate understatement of
c. competition. asset values in order to present
d. all of these. a conservative net income figure

7. An effective capital allocation process 17. Trade-offs between the characteristics that make information
a. promotes productivity. useful may be necessary or beneficial. Issuance of interim financial
b. encourages innovation. statements is an example of a trade-off between
c. provides an efficient market for buying and selling a. relevance and reliability.
securities. b. reliability and periodicity.
d. all of these. c. timeliness and materiality.
d. understandability and timeliness.
8. Financial statements in the early 2000s provide information related
to 18. Allowing firms to estimate rather than physically count inventory
a. non-financial measurements. at interim (quarterly) periods is an example of a trade-off between
b. forward-looking data. a. verifiability and reliability.
c. hard assets (inventory and plant assets). b. reliability and comparability.
d. none of these. c. timeliness and verifiability.
d. neutrality and consistency.
9. Which of the following statements is not an objective of financial
reporting? 19. In matters of doubt and great uncertainty, accounting issues
a. Provide information that is useful in investment and should be resolved by choosing the alternative that has the least
credit decisions. favorable effect on net income, assets, and owners' equity. This
b. Provide information about enterprise resources, claims to guidance comes from the
those resources, and changes to them. a. materiality constraint.
c. Provide information on the liquidation value of an b. industry practices constraint.
enterprise. c. conservatism constraint.
d. Provide information that is useful in assessing cash flow d. full disclosure principle.
prospects.
20. The allowance for doubtful accounts, which appears as a
10. Accrual accounting is used because deduction from accounts receivable on a balance sheet and which is
a. cash flows are considered less important. based on an estimate of bad debts, is an application of the
b. it provides a better indication of ability to generate cash a. consistency characteristic.
flows than the cash basis. b. matching principle.
c. it recognizes revenues when cash is received and c. materiality constraint.
expenses when cash is paid. d. revenue recognition principle.
d. none of the above.

11. One objective of financial reporting is to provide 21. The accounting principle of matching is best demonstrated by
a. information about the investors in the business entity. 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.
22. Which of the following serves as the justification for the periodic
recording of depreciation expense?
a. Association of efforts (expense) with accomplishments
(revenue)
b. Systematic and rational allocation of cost over the
periods benefited
c. Immediate recognition of an expense
d. Minimization of income tax liability
23. Application of the full disclosure principle
a. is theoretically desirable but not practical because the
costs of complete disclosure exceed the benefits.
b. is violated when important financial information is
buried in the notes to the financial statements.
c. is demonstrated by the use of supplementary information
presenting the effects of changing prices.
d. requires that the financial statements be consistent and
comparable.
24. Which of the following statements concerning the cost-benefit
relationship is not true?
a. Business reporting should exclude information outside of
management's expertise.
b. Management should not be required to report
information that would significantly harm the company's
competitive position.
c. Management should not be required to provide
forecasted financial information.
d. If needed by financial statement users, management
should gather information not included in the financial
statements that would not otherwise be gathered for internal
use.
25. Revenue generally should be recognized
a. at the end of production.
b. at the time of cash collection.
c. when realized.
d. when realized or realizable and earned.
26. The major elements of the income statement are
a. revenue, cost of goods sold, selling expenses, and
general expense.
b. operating section, non-operating section, discontinued
operations, extraordinary items,
and cumulative effect.
c. revenues, expenses, gains, and losses.
d. all of these.
27. 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.
28. 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.
29. Which of the following would represent the least likely use of an
income statement prepared for a business enterprise?
a. Use by customers to determine a company's ability to
provide needed goods and services.
b. Use by labor unions to examine earnings closely as a
basis for salary discussions.
c. Use by government agencies to formulate tax and
economic policy.
d. Use by investors interested in the financial position of
the entity.
30. 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.
31. The income statement information would help in which of the
following tasks?
a. Evaluate the liquidity of a company.
b. Evaluate the solvency of a company
c. Estimate future cash flows
d. Estimate future financial flexibility
32. Which of the following is an example of managing earnings
down?
a. Changing estimated bad debts from 3 percent to 2.5
percent of sales.
b. Revising the estimated life of equipment from 10 years
to 8 years.
c. Not writing off obsolete inventory.
d. Reducing research and development expenditures.
33. Which of the following is an example of managing earnings up?
a. Decreasing estimated salvage value of equipment.
b. Writing off obsolete inventory.
c. Underestimating warranty claims.
d. Accruing a contingent liability for an ongoing lawsuit.
34. What might a manager do during the last quarter of a fiscal year if
she wanted to improve current annual net income?
a. Increase research and development activities.
b. Relax credit policies for customers.
c. Delay shipments to customers until after the end of the
fiscal year.
d. Delay purchases from suppliers until after the end of the
fiscal year.
35. What might a manager do during the last quarter of a fiscal year if
she wanted to decrease current annual net income?
a. Delay shipments to customers until after the end of the
fiscal year.
b. Relax credit policies for customers.
c. Pay suppliers all amounts owed.
d. Delay purchases from suppliers until after the end of the
fiscal year.
36. Which of the following is an advantage of the single-step income
statement over the multiple-step income statement?
a. It reports gross profit for the year.
b. Expenses are classified by function.
c. It matches costs and expenses with related revenues.
d. It does not imply that one type of revenue or expense has
priority over another.
37. 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.
40. Which of the following is an acceptable method of presenting the
income statement?
a. A single-step income statement
b. A multiple-step income statement
c. A consolidated statement of income
d. All of these
41. Which of the following is not a generally practiced method of
presenting the income statement?
a. Including prior period adjustments in determining net
income
b. The single-step income statement
c. The consolidated statement of income
d. Including gains and losses from discontinued operations
of a component of a business in determining net income
42. The occurrence which most likely would have no effect on 2010
net income (assuming that all amounts involved are material) is the
a. sale in 2010 of an office building contributed by a
stockholder in 1983.
b. collection in 2010 of a receivable from a customer whose
account was written off in 2009 by a charge to the
allowance account.
 c. settlement based on litigation in 2010 of previously
unrecognized damages from a serious accident which
occurred in 2008.
d. worthlessness determined in 2010 of stock purchased on
a speculative basis in 2006.
43. The occurrence that most likely would have no effect on 2010 net
income is the
a. sale in 2010 of an office building contributed by a
stockholder in 1961.
b. collection in 2010 of a dividend from an investment.
c. correction of an error in the financial statements of a
prior period discovered subsequent to their issuance.
d. stock purchased in 1996 deemed worthless in 2010.
44. Which of the following is not a selling expense?
a. Advertising expense
b. Office salaries expense
c. Freight-out
d. Store supplies consumed
45. The accountant for the Lintz Sales Company is preparing the
income statement for 2010 and the balance sheet at December 31,
2010. The January 1, 2010 merchandise inventory balance will
appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the income
statement.
c. as a deduction in the cost of goods sold section of the
income statement and as a current asset on the balance
sheet.
d. as an addition in the cost of goods sold section of the
income statement and as a current asset on the balance
sheet.
46. 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
47. The balance sheet is useful for analyzing all of the following
except
a. liquidity.
b. solvency.
c. profitability.
d. financial flexibility.
48. The balance sheet contributes to financial reporting by providing
a basis for all of the following except
a. computing rates of return.
b. evaluating the capital structure of the enterprise.
c. determining the increase in cash due to operations.
d. assessing the liquidity and financial flexibility of the
enterprise.
49. One criticism not normally aimed at a balance sheet prepared
using current accounting and reporting standards is
a. failure to reflect current value information.
b. the extensive use of separate classifications.
c. an extensive use of estimates.
d. failure to include items of financial value that cannot be
recorded objectively.
50. 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.
51. The net assets of a business are equal to
a. current assets minus current liabilities.
b. total assets plus total liabilities.
c. total assets minus total stockholders' equity.
d. none of these.
52. The correct order to present current assets is
a. Cash, accounts receivable, prepaid items, inventories.
b. Cash, accounts receivable, inventories, prepaid items.
c. Cash, inventories, accounts receivable, prepaid items.
d. Cash, inventories, prepaid items, accounts receivable.
53. 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.
54. 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
a. inventory back into cash, or 12 months, whichever is
shorter.
b. receivables back into cash, or 12 months, whichever is
longer.
c. tangible fixed assets back into cash, or 12 months,
whichever is longer.
d. inventory back into cash, or 12 months, whichever is
longer.
55. The current assets section of the balance sheet should include
a. machinery.
b. patents.
c. goodwill.
d. inventory.
56. Which of the following is a current asset?
a. Cash surrender value of a life insurance policy of which
the company is the beneficiary.
b. Investment in equity securities for the purpose of
controlling the issuing company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installment receivables normally collectible in 18
months.
57. Which of the following should not be considered as a current
asset in the balance sheet?
a. Installment notes receivable due over 18 months in
accordance with normal trade practice.
b. Prepaid taxes which cover assessments of the following
operating cycle of the business.
c. Equity or debt securities purchased with cash available
for current operations.
d. The cash surrender value of a life insurance policy
carried by a corporation, the beneficiary, on its president.
58. 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.
59. 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.
60. Which of the following is not a long-term investment?
a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund
61. A generally accepted method of valuation is
1. trading securities at market value.
2. accounts receivable at net realizable value.
3. inventories at current cost.
a. 1
b. 2
c. 3
d. 1 and 2
62. Which item below is not a current liability?
a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable
63. Working capital is
a. capital which has been reinvested in the business.
b. unappropriated retained earnings.
c. cash and receivables less current liabilities.
d. none of these.
64. An example of an item which is not an element of working capital
is
a. accrued interest on notes receivable.
b. goodwill.
c. goods in process.
d. temporary investments.
65. 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.
66. Of the approaches to record cash discounts related to accounts
receivable, which is more theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.
67. All of the following are problems associated with the valuation of
accounts receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.
68. Why is the allowance method preferred over the direct write-off
method of accounting for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off
method is difficult to do.
d. Improved matching of bad debt expense with revenue.
69. Which of the following concepts relates to using the allowance
method in accounting for accounts receivable?
a. Bad debt expense is an estimate that is based on
historical and prospective information.
b. Bad debt expense is based on the actual amounts
determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an
analysis of the receivables aging.
d. Bad debt expense is management's determination of
which accounts will be sent to the attorney for collection.
70. How can accounting for bad debts be used for earnings
management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt
expense.
c. Using an aging of the accounts receivable balance to
determine bad debt expense.
d. Reversing previous write-offs.
71. What is the normal journal entry for recording bad debt expense
under the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts
Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt
Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful
Accounts.
d. Debit Accounts Receivable, credit Allowance for
Doubtful Accounts.
72. What is the normal journal entry when writing-off an account as
uncollectible under the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts
Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt
Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful
Accounts.
d. Debit Accounts Receivable, credit Allowance for
Doubtful Accounts.
73. Which of the following is included in the normal journal entry to
record the collection of accounts receivable previously written off
when using the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts
Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt
Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful
Accounts.
d. Debit Accounts Receivable, credit Allowance for
Doubtful Accounts.
74. Assuming that the ideal measure of short-term receivables in the
balance sheet is the discounted value of the cash to be received in the
future, failure to follow this practice usually does not make the
balance sheet misleading because
a. most short-term receivables are not interest-bearing.
b. the allowance for uncollectible accounts includes a
discount element.
c. the amount of the discount is not material.
d. most receivables can be sold to a bank or factor.
75. Which of the following methods of determining bad debt expense
does not properly match expense and revenue?
a. Charging bad debts with a percentage of sales under the
allowance method.
b. Charging bad debts with an amount derived from a
percentage of accounts receivable
under the allowance method.
c. Charging bad debts with an amount derived from aging
accounts receivable under the
allowance method.
d. Charging bad debts as accounts are written off as
uncollectible.
76. Of the following conditions, which is the only one that is not
required if the transfer of receivables with recourse is to be accounted
for as a sale?
a. The transferor is obligated to make a genuine effort to
identify those receivables that are uncollectible.
b. The transferor surrenders control of the future economic
benefits of the receivables.
c. The transferee cannot require the transferor to repurchase
the receivables.
d. The transferor's obligation under the recourse provisions
can be reasonably estimated.
77. The accounts receivable turnover ratio measures the
a. number of times the average balance of accounts
receivable is collected during the period.
b. percentage of accounts receivable turned over to a
collection agency during the period.
c. percentage of accounts receivable arising during certain
seasons.
d. number of times the average balance of inventory is sold
during the period.
78. The accounts receivable turnover ratio is computed by dividing
a. gross sales by ending net receivables.
b. gross sales by average net receivables.
c. net sales by ending net receivables.
d. net sales by average net receivables.
79. Which of the following items should be included in accounts
receivable reported on the balance sheet?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers.
80. How is days to collect accounts receivable determined?
a. 365 days divided by accounts receivable turnover.
b. Net sales divided by 365.
c. Net sales divided by average net trade receivables.
d. Accounts receivable turnover divided by 365 days.
81. What is a possible reason for accounts receivable turnover to
increase from one year to next year
a. Decreased credit sales during a recession.
b. Write-off uncollectible receivables.
 c. Granting credit to customers with lower credit quality.
d. Improved collection process.
82. Which of the following is an appropriate reconciling item to the
balance per bank in a bank reconciliation?
a. Bank service charge.
b. Deposit in transit.
c. Bank interest.
d. Chargeback for NSF check.
83. Which of the following is not true?
a. The imprest petty cash system in effect adheres to the
rule of disbursement by check.
b. Entries are made to the Petty Cash account only to
increase or decrease the size of
the fund or to adjust the balance if not replenished at year-
end.
c. The Petty Cash account is debited when the fund is
replenished.
d. All of these are not true.
84. A Cash Over and Short account
a. is not generally accepted.
b. is debited when the petty cash fund proves out over.
c. is debited when the petty cash fund proves out short.
d. is a contra account to Cash.
85. The journal entries for a bank reconciliation
a. are taken from the "balance per bank" section only.
b. may include a debit to Office Expense for bank service
charges.
c. may include a credit to Accounts Receivable for an NSF
check.
d. may include a debit to Accounts Payable for an NSF
check.
86. Which of the following inventories carried by a manufacturer is
similar to the merchandise inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
87. Where should raw materials be classified on the balance sheet?
a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
88. Which of the following accounts is not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
89. Why are inventories included in the computation of net income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net
income.
90. Which of the following is a characteristic of a perpetual inventory
system?
a. Inventory purchases are debited to a Purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of
purchases less the change in inventory.
91. How is a significant amount of consignment inventory reported in
the balance sheet?
a. The inventory is reported separately on the consignor's
balance sheet.
b. The inventory is combined with other inventory on the
consignor's balance sheet.
c. The inventory is reported separately on the consignee's
balance sheet.
d. The inventory is combined with other inventory on the
consignee's balance sheet.
92. Where should goods in transit that were recently purchased f.o.b.
destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
93. If a company uses the periodic inventory system, what is the
impact on net income of including goods in transit f.o.b. shipping
point in purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine effect on net
income.
94. If a company uses the periodic inventory system, what is the
impact on the current ratio of including goods in transit f.o.b.
shipping point in purchases, but not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on the
current ratio.
95. What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
b. Goods that are sold, but payment is not required until the
goods are sold.
c. Goods that are shipped, but title remains with the
shipper.
d. Goods that have been segregated for shipment to a
customer.
96. When using a perpetual inventory system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
97. Goods in transit which are shipped f.o.b. shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
98. Goods in transit which are shipped f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
99. Which of the following items should be included in a company's
inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on
consignment.
c. Goods sold to a customer which are being held for the
customer to call for at his or her convenience.
d. None of these.
100. During 2010 Carne Corporation transferred inventory to Nolan
Corporation and agreed to repurchase the merchandise early in 2011.
Nolan then used the inventory as collateral to borrow from Norwalk
Bank, remitting the proceeds to Carne. In 2011 when Carne
repurchased the inventory, Nolan used the proceeds to repay its bank
loan.
This transaction is known as a(n)
a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.