Walsh College FIN 506 Midterm Exam 2014

The following
applies to the Matt
Company for 2006:
Loss on sale of an
automobile $4,000
Purchase of Ithaca
bonds
(face value
$400,000)
$375,000
Proceeds from sale
of machinery $200,000
Dividends paid $25,000
Proceeds from sale
of treasury stock $100,000
Based on this
information, the
amount to be
reported as net
cash from financing
activities is…
Select one:
A. $(25,000).
B. $30,000.
C. $75,000.
D. $80,000.
The rationale behind the rules for multiple-step income statements
is to subdivide the statement in
a manner that facilitates…
Select one:
A. cash flows.
B. forecasting and ease of interpretation/analysis.
C. tax return preparation.
D. audits.
The sale of receivables to a third party is called…
Select one:
A. factoring.
B. collateralizing.
C. discounting.
D. securitization.
Pipe Corporation reported cost of goods sold of $250,000 for 2006.
It also reported an increase in
inventory for the year of $30,000, and an increase in accounts
payable of $24,000. Pipe would
report cash paid to suppliers in 2006 under the direct method for
cash flows of…
Select one:
A. $250,000.
B. $256,000.
C. $280,000.
D. $304,000.
The appropriate time to recognize revenue is
Select one:
A. defined by GAAP for every situation
B. the same for every industry
C. dependent upon the nature of the business or industry
D. easily defined by the FASB
The following relates to Data Original Company in 2006. What is
the company’s ending inventory?
Purchases $540,000
Beginning Inventory 80,000
Purchases returned
by Data Original to
its suppliers in 2006
10,000
Sales 800,000
Cost of goods sold 490,000
Select one:
A. $120,000
B. $140,000
C. $210,000
D. $260,000
E. none of the above
The Canon Corporation sells ten copiers to the Title Company on
October 15 for $40,000. Canon
delivers the copiers to Title on October 20; Title pays $16,000,
and agrees to pay the balance on
November 10. Under the cash basis method of accounting, how much
revenue is recognized in
October?
Select one:
A. $0
B. $16,000
C. $24,000
D. $40,000
Which of the following statements is false?
Select one:
A. Asset accounts typically carry debit balances
B. Liability accounts typically carry credit balances
C. Revenue accounts typically carry debit balances
D. Equity accounts typically carry credit balances
The balance sheet is an expression of the accounting equation.
Select one:
True
False
Many receivables recognition irregularities can be discovered by
tracking the relationship between
changes in sales and changes in receivables.
Select one:
True
False
Which of the following is not an underlying assumption/concept
upon which GAAP is established?
Select one:
A. The Going-Concern assumption
B. The FASB Concept of Commonality
C. The Matching Concept
D. The Concept of Materiality
E. Full Disclosure
The principle/concept of “matching” involves recognizing
expenses in the same period in which
revenue generated by these expenses are recognized
Select one:
True
False
If the critical event and measurability conditions are not
satisfied, revenue may be recognized
after the sale…
Select one:
A. when legal ownership passes to the seller.
B. when cash is collected.
C. as the goods are shipped.
D. on the receipt of goods by the customer.
Property tax expense is an item that would appear below the Net
Operating Income line on the
multi-step format Income Statement.
Select one:
True
False
A company purchases a piece of equipment and plans on depreciating
it using straight-line
depreciation for financial statement purposes, and an accelerated
method of depreciation for tax
purposes. Taking this into consideration, which of the following
is true for the first year of the
equipment’s depreciation?
Select one:
A. This approach will reduce my net income as reported on the
financial statements to
investors and thereby reduce my taxes – a benefit to my investors.
B. Applying the two different depreciation methods above between
book accounting and tax
accounting will result in a deferred income tax liability.
C. The above scenario will result in a greater tax bill to me from
the IRS
D. Recording the taxes due under the above scenario will require a
debit to cash or taxes
payable, and a credit to tax expenses and deferred taxes.
E. None of the above are true.
The network of conventions, rules, guidelines, and procedures used
by the accounting profession
is known as generally accepted…
Select one:
A. auditing standards.
B. accounting procedures.
C. accounting principles.
D. auditing principles.
The direct approach and the indirect approach are two alternative
methods of presenting cash
flows from…
Select one:
A. investing activities.
B. operating activities.
C. financing activities.
D. research activities.
Which one of the following businesses is likely to recognize
revenue during the production phase?
Select one:
A. Mining company
B. Cruise ship builder
C. Citrus grower
D. Department store
Balance sheets prepared in compliance with GAAP can actually
reflect a mixture of…
Select one:
A. historical cost and future cash values.
B. current value and discounted future cash flows.
C. discounted cash flows and future values.
D. historical cost, fair value, net realizable value, and
discounted present values.
Prior to the establishment of the SEC in the 1930’s, the
requirements for financial reporting had
little regulatory support and were generally dictated by the New
York Stock Exchange for those
stocks that traded on that particular exchange.
Select one:
True
False
Cash flows arising from transactions related to the production and
delivery of goods and services
are classified as Operating Activities.
Select one:
True
False
The Financial Accounting Standards Board has the sole
responsibility for setting generally
accepted auditing standards.
Select one:
True
False
The following
applies to the Matt
Company for 2006:
Loss on inventory
write-off $4,000
Purchase of Ithaca
bonds
(face value
$400,000)
$375,000
Proceeds from sale
of machinery $200,000
Dividends paid $25,000
Proceeds from sale
of treasury stock $100,000
Based on this
information, the
amount to be
reported as net
cash from investing
activities is…
Select one:
A. $(175,000).
B. $(150,000).
C. $87,500.
D. $575,000.
Which of the following statements is correct?
Select one:
A. The direct approach and the indirect approach are two
alternative methods of presenting
cash flows from investing activities
B. FASB recommends using the direct method of preparing the
statement of cash flows while
the method used by the majority of firms is the indirect method
C. The Indirect Method of presenting the Cash Flow Statement is
not allowed by the SEC. If
companies show their Cash Flow Statement using this method, they
also have to show the
Cash Flow Statement using the Direct Method
D. When it comes to the Financing and Investing Activities
sections of the Cash Flow
Statement, there is no difference between the Direct and Indirect
Method of Cash Flow
Statement reporting
The term “Equity Income” that appears on the Income
Statement refers to additional capital that
has been contributed to my company from equity shareholders.
Select one:
True
False
I have determined the annual depreciation expense for my company’s
office equipment and am
now ready to record the expense. How should I record this expense?
Select one:
A. Debit “Accumulated Depreciation – Office Equipment”
and credit “Depreciation Expense –
Office Equipment”
B. Credit “Accumulated Depreciation – Office Equipment”
and debit “Depreciation Expense –
Office Equipment”
C. Debit “Office Equipment” and credit
“Depreciation Expense – Office Equipment”
D. Credit “Cash” and debit “Depreciation Expense –
Office Equipment”
E. You do not need to record this transaction because it does not
involve cash
The term “Minority-interest” is an item that may appear
on both the Income Statement and
Balance Sheet and it develops only when one company owns greater
than 50% of the voting
stock of another company.
Select one:
True
False
Accumulated depreciation is a/an…
Select one:
A. expense account.
B. liability account.
C. contra-asset account.
D. owners’ equity account.
Which of the following is a measure of how readily assets can be
converted to cash relative to
how soon liabilities will have to paid in cash?
Select one:
A. Capital structure
B. Maturity structure
C. Solvency
D. Liquidity
Studies have found that actual corporate earnings
Select one:
A. fall randomly around the consensus estimate
B. tend to be at or above the forecast
C. almost never seem to beat estimates, no matter what the
economic conditions
D. are rarely close to analysts’ forecasts
Current assets are assets expected to…
Select one:
A. be converted to cash within twelve months.
B. be converted to cash within twelve months or one operating
cycle if it is longer than twelve
months.
C. remain on the books for at least twelve months.
D. remain on the books for at least twelve months or one operating
cycle if longer than twelve
months.
Depreciation is added back to net income as a step in determining
cash from operating activities
under the indirect method.
Select one:
True
False
The Financial Accounting Standards Board has responsibility for
the establishment of U. S.
accounting standards and…
Select one:
A. full statutory power to enforce compliance with GAAP.
B. authority from the SEC to enforce compliance with GAAP.
C. no authority or responsibility to enforce compliance with GAAP.
D. responsibility imposed by AICPA to enforce compliance with
GAAP.
When a company changes from one depreciation method to another,
the change is reported
Select one:
A. prospectively only because it is impractical to determine the
effect on prior years
B. as an error correction, restating prior years
C. as a change in an accounting estimate, without restatement
D. as a change in accounting principle, with prior years restated
Operating activities result from the cash effects of producing and
delivering goods and services.
Select one:
True
False
Which of the following is a true statement?
Select one:
A. Revenues decrease owners’ equity and increase liabilities.
B. Expenses increase owners’ equity and decrease liabilities.
C. Revenues increase owners’ equity and expenses decrease owners’
equity.
D. Revenues decrease owners’ equity and expenses increase owners’
equity.
The fair value of in-process R & D is…
Select one:
A. difficult to measure but easy to verify.
B. easy to measure but difficult to verify.
C. difficult to measure and verify.
D. easy to measure and verify.
The matching principle requires that bad debts be treated as an
expense in the period…
Select one:
A. the sale is made.
B. the customer files bankruptcy.
C. in which the debt becomes six months past due.
D. a court declares it to be uncollectible.
A contra account is an account that is subtracted from a related
account.
Select one:
True
False
Bruce Company reported net income for 2006 of $100,000. The
company reported depreciation
expense of $17,500 and amortization of $5,000. Based only on this
information, the company
would report cash flow from operations of…
Select one:
A. $117,500.
B. $120,000.
C. $127,500.
D. $122,500.
At the beginning of the year, Acme Company had:
– total assets of $200,000
– total liabilities of $110,000
– retained Earnings of $50,000
– total shareholders’ equity of $90,000
During the year Acme:
– earned net income of $75,000
– declared cash dividends of $30,000.
At the end of the year, Acme had:
– total assets of $300,000
– total shareholders’ equity of $135,000
What was the balance of Retained Earnings at the end of the
year?totaled:
Select one:
A. $125,000
B. $75,000
C. $95,000
D. $165,000
E. None of the above
An increase in a liability may be offset by
Select one:
A. a corresponding decrease in an asset
B. a decrease in another liability account
C. a corresponding increase in owner’ equity
D. an increase in another liability account
The change in cash during a period is equal to the net income for
the period.
Select one:
True
False
Assuming a company has established a reserve for uncollectible
accounts, the net realizable
value of accounts receivable is decreased when a bad debt is
written off.
Select one:
True
False
Any increase in an asset may be offset by…
Select one:
A. a corresponding decrease in a liability.
B. a decrease in some other asset account.
C. a corresponding decrease in owner’ equity.
D. an increase in another asset account.
The correction of an error causes previous year financial
statements to be retroactively restated
for comparative purposes.
Select one:
True
False
A large portion of inventory is outdated and will not likely be
sold. Identify the correct treatment.
Select one:
A. Nothing, the inventory is recorded correctly at its historical
cost
B. Write the inventory account down to its market value and
recognize the loss
C. Write the inventory account down to its market value and create
a contra-asset account
D. Dispose of the worthless inventory at the best price possible
and recognize the proceeds
in other gains and losses
Marketable securities such as investments in short-term U.S.
Treasury bills or the commercial
paper of other companies are so liquid (easily converted to cash)
that they are often totaled with
cash and considered to be a cash equivalent.
Select one:
True
False
Generally accepted accounting principles allows choice and
flexibility such that managers can
manipulare how earnings are reported.
Select one:
True
False
The balance sheet provides information on all of the following
except for…
Select one:
A. how management invested its money.
B. where the money came from.
C. the relationship between debts and equity.
D. ascertaining stock market prices.
Identify the false statement.
Select one:
A. Corporations help shield their owners from the liabilities of
the corporation.
B. Sole Proprietorships generally have little or no required
financial reporting obligations.
C. An LLC is a limited liability company.
D. The SEC requires greater levels of reporting for partnerships
than for sole proprietorships.
E. Publicly-traded Corporations face greater reporting
requirements than the typical sole
proprietorship or partnership.
A company has $80,000 of assets and $70,000 of total stockholder’s
equity on its books. What is
the total amount of this company’s liabilities?
Select one:
A. $150,000
B. No answer-it’s a negative number
C. $70,000
D. $80,000
E. $10,000
The principle/concept of “conservatism” involves using
GAAP except in those instances where it
would be difficult or expensive and where it makes no real
difference to the reader’s ability to
make reasonable assessments.
Select one:
True
False
The amount of income taxes recognized on the income statement but
not yet payable to the
government are found on the…
Select one:
A. balance sheet in the account Deferred Income Taxes.
B. balance sheet in the account Income Taxes Payable.
C. income statement in the account Income Tax Expense Current.
D. income statement in the account Income Tax Expense Deferred.
Firms using the indirect approach must separately disclose the
amount of income taxes paid and
interest paid.
Select one:
True
False
Cash flows arising from the purchase or sale of productive assets
are cash flows from operating
activities.
Select one:
True
False
Identify the true Statement:
Select one:
A. Extraordinary items are gains or losses that are either
infrequent in occurrence or unusual
in nature
B. If the value of my land rises relative to the figure that
appears on my Balance Sheet,
GAAP requires that I recognize an unrealized gain on the land in
my Income Statement.
C. Copyrights, Patents and Goodwill are examples of Tangible
assets.
D. I should only recognize revenue when I have received payment
from my customer.
E. All of the above statements are false.
Common justifications for changing accounting methods include all
of the following EXCEPT:
Select one:
A. to conform to industry practice
B. to represent the company’s activities more accurately
C. to conform to a new pronouncement by the FASB
D. to improve
the appearance of the firm’s financial position