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Question(s) / Instruction(s):

ACC 421 FINAL EXAM

 

 1.) When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue.

 A. prepaid

 B. accrued

 C. cash

 D. unearned

 

 

 2) The debit and credit analysis of a transaction normally takes place

 A. when the entry is posted to the ledger.

 B. before an entry is recorded in a journal.

 C. at some other point in the accounting cycle.

 D. when the trial balance is prepared.

 

 

 3) When an item of expense is paid and recorded in advance, it is normally called a(n)

 A. accrued expense.

 B. prepaid expense.

 C. cash expense.

 D. estimated expense.

 

 

 4) Which of the following statements is not an objective of financial reporting?

 A. Provide information about enterprise resources, claims to those  resources, and changes to them.

 B. Provide information that is useful in investment and credit decisions.

 C. Provide information that is useful in assessing cash flow prospects.

 D. Provide information on the liquidation value of an enterprise.

 

 

 5) General-purpose financial statements are the product of

 A. managerial accounting.

 B. financial accounting.

 C. neither financial nor managerial accounting.

 D. both financial and managerial accounting.

 

 

 6) A common set of accounting standards and procedures are called

 A. generally accepted accounting principles.

 B. financial accounting standards.

 C. statements of financial accounting concepts.

 D. objectives of financial reporting.

 

 

 7) The Financial Accounting Standards Board

 A. was the forerunner of the current Accounting Principles Board.

 B. has issued a series of pronouncements entitled Statements on Auditing Standards.

 C. is appointed by the Financial Accounting Foundation.

 D. is the arm of the Securities and Exchange Commission responsible for setting financial accounting standards.

 8) The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is

 A. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions.

 B. the FASB issues exposure drafts of proposed standards.

 C. a majority of the members of the FASB are CPAs drawn from public practice.

 D. all members of the FASB possess extensive experience in financial reporting.

 

 

 9) Companies that are listed on a stock exchange are required to submit their financial statements to the

 A. APB.

 B. AICPA.

 C. SEC.

 D. FASB.

 

 

 10) Which of the following is not a generally practiced method of presenting the income statement?

 A. The single-step income statement

 B. The consolidated statement of income

 C. Including gains and losses from discontinued operations of a component of a business in determining net income

 D. Including prior period adjustments in determining net income

 

 

 11) Which of the following would represent the least likely use of an income statement prepared for a business enterprise?

 A. Use by labor unions to examine earnings closely as a basis for salary discussions.

 B. Use by government agencies to formulate tax and economic policy.

 C. Use by investors interested in the financial position of the entity.

 D. Use by customers to determine a company's ability to provide needed goods and services.

 

 

 

 12) The single-step income statement emphasizes

 A. total revenues and total expenses.

 B. extraordinary items and accounting changes more than these are emphasized in the multiple-step income statement.

 C. the various components of income from continuing operations.

 D. the gross profit figure.

 

 

 

13) The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?

 A. The seller's price is substantially fixed or determinable at time of  sale.

 B. The buyer's obligation to the seller would not be changed in the event of theft or damage of the product.

 C. The buyer is obligated to pay the seller upon resale of the product.

 D. The amount of future returns can be reasonably estimated.

 

 

 14) In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be

 A. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable.

 B. the method commonly used by the contractor to account for other long-term construc-tion contracts.

 C. the inherent nature of the contractor's technical facilities used in construction.

 D. the terms of payment in the contract.

 

 

 

 15) Which of the following is not a reason why revenue is recognized at time of sale?

 A. The sale is the critical event.

 B. Title legally passes from seller to buyer.

 C. All of these are reasons to recognize revenue at time of sale.

 D. Realization has occurred.

 

 

 16) One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is

 A. the extensive use of separate classifications.

 B. an extensive use of estimates.

 C. failure to include items of financial value that cannot be recorded objectively.

 D. failure to reflect current value information.

 

 

 17) The balance sheet is useful for analyzing all of the following except

 A. solvency.

 B. profitability.

 C. financial flexibility.

 D. liquidity.

 

 

 18) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as

 A. financial flexibility.

 B. liquidity.

 C. exchangeability.

 D. solvency.

 

 

 19) If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the

 A. nature of any future transactions planned between the parties and the terms involved.

 B. dollar amount of the transactions for each of the periods for which an income state-ment is presented.

 C. amounts due from or to related parties as of the date of each balance sheet presented.

 D. nature of the relationship between the parties to the transactions.

 

 20) Events that occur after the December 31, 2008 balance sheet date (but before the balance sheet is issued) and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be

 A. disclosed only in the Notes to the Financial Statements.

 B. used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008.

 C. used to record an adjustment directly to the Retained Earnings account

 D. discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report.

 

 

 21) The full disclosure principle, as adopted by the accounting profession, is best described by which of the following?

 A. Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements.

 B. Enough information should be disclosed in the financial statements so a person wishing to invest in the stock of the company can make a profitable decision.

 C. Disclosure of any financial facts significant enough to influence the judgment of an informed reader.

 D. All information related to an entity's business and operating objectives is required to be disclosed in the financial statements.

 

 

 22) A financial forecast per professional pronouncements presents to the best of the responsible party's knowledge and belief,

 A. an assessment of the company's ability to be successful in the future.

 B. given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows.

 C. an assessment of the company's ability to be successful in the future under a number of different assumptions.

 D. an entity's expected financial position, results of operations, and cash flows.

 

 

 23) Which of the following best characterizes the difference between a financial forecast and a financial projection?

 A. A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen.

 B. A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification.

 C. A forecast is normally for a full year or more and a projection presents data for less than a year.

 D. Forecasts include a complete set of financial statements, while projections include only summary financial data.

 

 

 24) The MD&A section of an enterprise's annual report is to cover the following three items:

 A. liquidity, capital resources, and results of operations.

 B. changes in the stock price, mergers, and acquisitions.

 C. income statement, balance sheet, and statement of cash  flows.

 D. income statement, balance sheet, and statement of owners' equity.

 

 

 25) Theoretically, in computing the receivables turnover, the numerator should include

 A. sales.

 B. credit sales.

 C. net credit sales.

 D. net sales.

 

 

 26) When should an average amount be used for  the numerator or denominator?

 A. When a ratio consists of an income statement item and a balance sheet item

 B. When the numerator is an income statement item or items

 C. When the denominator is a balance sheet item or items

 D. When the numerator is a balance sheet item or items

 

 

 27) The calculation of the number of times interest is earned involves dividing

 A. net income plus income taxes and interest expense by annual interest  expense.

 B. none of these.

 C. net income plus income taxes by annual interest expense.

 D. net income by annual interest expense.

 

 

 28) An increase in inventory balance would be reported in a statement of cash flows using the indirect method (reconciliation method) as a(n)

 A. cash outflow from investing activities.

 B. cash outflow from financing activities.

 C. deduction from net income in arriving at net cash flow from operating activities.

 D. addition to net income in arriving at net cash flow from operating activities.

 

 

 29) A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this event would be reflected as a(n)

 A. cash inflow from investing activities.

 B. cash inflow from financing activities.

 C. cash outflow from investing activities.

 D. addition adjustment to net income in the cash flows from operating activities section.

 

 

 30) The primary purpose of the statement of cash flows is to provide information

 A. about the cash receipts and cash payments of an entity during a period.

 B. about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

 C. that is useful in assessing cash flow prospects.

 D. about the operating, investing, and financing activities of an entity during a period.

 

 

 31) In reporting extraordinary transactions on a statement of cash flows (indirect method), the

 A. net of tax amount of an extraordinary gain should be deducted from net income.

 B. gross amount of an extraordinary gain should be added to net income.

 C. net of tax amount of an extraordinary gain should be added to net income.

 D. gross amount of an extraordinary gain should be deducted from net income.

 

 

 32) Which of the following would be classified as a financing activity on a statement of cash flows?

 A. Sale of a loan receivable

 B. Payment of interest to a creditor

 C. Deposit to a bond sinking fund

 D. Declaration and distribution of a stock dividend

 

 

 33) Riley Company reports its income from investments under the equity method and recognized income of $25,000 from its investment in Wood Co. during the current year, even though no dividends were declared or paid by Wood during the year. On Riley's statement of cash flows (indirect method), the $25,000 should

 A. be shown as cash outflow from financing activities.

 B. be shown as a deduction from net income in the cash flows from operating activities section.

 C. be shown as cash inflow from investing activities.

 D. not be shown.

 

 

 34) Which of the following tables would show the smallest factor for an interest rate of 10% for six periods?

 A. Future value of an annuity due of 1

 B. Present value of an annuity due of 1

 C. Present value of an ordinary annuity of 1

 D. Future value of an ordinary annuity of 1

 

 

 35) Which table would show the largest factor for an interest rate of 8% for five periods?

 A. Future value of an annuity due of 1

 B. Future value of an ordinary annuity of 1

 C. Present value of an ordinary annuity of 1

 D. Present value of an annuity due of 1

 

 

 36) Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

 A. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.

 B. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.

 C. A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement.

 D. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.

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