TRUE/FALSE QUESTIONS 5 POINTS



TRUE/FALSE QUESTIONS                              5 POINTS

1. A liability is classified as a current liability if it is to be paid within the coming year.

True          False

2. The main difference between intangible assets and property, plant and equipment is the length of the asset’s life.

True          False

3. GAAP stands for generally accepted accounting procedures.

True          False

4. If a building is offered for sale at $100,000 and the buyer pays $95,000 cash for it, the buyer would record the building at $100,000.

True          False

5. The economic entity assumption states that assets should be recorded at their cost.

True          False

6. The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned.

True          False

7. Applying accrual accounting results in a more accurate measurement of net income for the period than does cash basis accounting.

True          False

8. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

True          False

9. The cash basis of accounting is not in accordance with generally accepted accounting principles.

True          False

10.     Revenue received before it is earned and expenses paid before being used or consumed    are both initially recorded as liabilities.

True          False

MULTIPLE CHOICE QUESTIONS                         10 POINTS

1. One of the two constraints in accounting is

          a.     comparability.

          b.     materiality.

          c.     reliability.

          d.     relevance.

2. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the

          a.     economic entity assumption.

          b.     going concern assumption.

          c.     monetary unit assumption.

          d.     time period assumption.

3. All of the following are intangible assets except

          a.     patents.

          b.     land improvements.

          c.     goodwill.

          d.     franchises.

4. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?

          a.     Documentation procedures

          b.     Segregation of duties

          c.     Establishment of responsibility

          d.     Independent internal verification

5. Larken Company's records show the following for the month of January:

          Total Retained Earnings at January 1           $400,000

          Total Retained Earnings at January 31           500,000

          Total Revenues                          670,000

          Total Dividends Declared                     40,000

          

          Total expenses for January were

          a.     $740,000.

          b.     $770,000.

          c.     $570,000.

          d.     $530,000.

6. Petson Company's financial information is presented below.

          Sales     $     ????     Purchase Returns and Allowances     $ 15,000

          Sales Returns and Allowances     30,000      Ending Merchandise Inventory     35,000

          Net Sales     250,000     Cost of Goods Sold     180,000

          Beginning Merchandise Inventory     ????     Gross Profit     ????

          Purchases     170,000          

       

          The missing amounts above are:

                  Sales          Beginning Inventory     Gross Profit

          a.     $280,000     $45,000     $70,000

          b.     $220,000     $45,000     $100,000

          c.     $280,000     $60,000     $70,000

          d.     $220,000     $60,000     $100,000

7. The primary accounting standard-setting body in the United States is the

          a.     Securities and Exchange Commission.

          b.     Accounting Principles Board.

          c.     Financial Accounting Standards Board.

          d.     Internal Revenue Service.

8. Which of the following would not be included in the operating activities section of a statement of cash flows?

          a.     Cash inflows from returns on loans (i.e., interest)

          b.     Cash inflows from returns on equity securities (i.e., dividends)

          c.     Cash outflows to governments for taxes

          d.     Cash outflows to reacquire treasury stock

9. Which of the following should be classified as an extraordinary item?

          a.     Effects of major casualties not infrequent in the area

          b.     Write-off of a significant amount of receivables

          c.     Loss from the expropriation of facilities by a foreign government

          d.     Losses due to a bitter, lengthy labor strike

10. The revenue recognition principle dictates that revenue should be recognized in the accounting records

          a.     when cash is received.

          b.     when it is earned.

          c.     at the end of the month.

          d.     in the period that income taxes are paid.

11. Javier’s Tune-Up Shop follows the revenue recognition principle. Javier services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Javier on September 5. Javier receives the check in the mail on September 6. When should Javier show that the revenue was earned?

          a.     August 31

          b.     August 1

          c.     September 5

          d.     September 6

12. A company spends $20 million dollars for an office building. Over what period should the cost be written off?

          a.     When the $20 million is expended in cash

          b.     All in the first year

          c.     Over the useful life of the building

          d.     After $20 million in revenue is earned

13. The following is selected information from J Corporation for the fiscal year ending October 31, 2007.

Cash received from customers      $300,000

Revenue earned          350,000

Cash paid for expenses         170,000

Cash paid for computers on November 1, 2006 that will be used for 3 years     

      48,000

Expenses incurred, not including any depreciation         200,000

Proceeds from a bank loan, part of which was used to pay for the computers     

    100,000

Based on the accrual basis of accounting, what is J Corporation’s net income for the year ending October 31, 2007?

          a.     $114,000

          b.     $134,000

          c.     $82,000

          d.     $150,000

Use the following information to answer questions 14 and 15.

Renfro Company had the following transactions during 2006.

•     Sales of $5,400 on account

•     Collected $2,400 for services to be performed in 2007

•     Paid $750 cash in salaries

•     Purchased airline tickets for $300 in December for a trip to take place in 2007

14. What is Renfro’s 2006 net income using accrual accounting?

          a.     $4,650

          b.     $7,050

          c.     $6,750

          d.     $4,350

15. What is Renfro’s 2006 net income using cash basis accounting?

          a.     $7,050

          b.     $1,650

          c.     $6,750

          d.     $1,350

Use the following information to answer questions 16–20:

Cain Auto Supplies

Balance Sheet

December 31, 2007

Cash     $    50,000     Accounts Payable     $ 55,000

Prepaid Insurance     30,000     Salaries Payable     10,000

Accounts Receivable     40,000     Mortgage Payable         90,000

Inventory     70,000     Total Liabilities     $155,000

Land held for investment     80,000     

Land     75,000          

Building     $110,000          Common Stock     $120,000

   Less Accumulated          Retained Earnings      250,000

      Depreciation     (20,000)     90,000        Total stockholders’ equity     $370,000

Trademark         70,000            Total Liabilities and

Total Assets     $525,000                Stockholders’ Equity     $525,000

     

16.      The total dollar amount of assets to be classified as current assets is

          a.     $270,000.

          b.     $120,000.

          c.     $190,000.

          d.     $130,000.

17. The total dollar amount of assets to be classified as property, plant, and equipment is

          a.     $335,000.

          b.     $255,000.

          c.     $205,000.

          d.     $165,000.

18. The total dollar amount of assets to be classified as investments is

          a.     $0.

          b.     $155,000.

          c.     $80,000.

          d.     $185,000.

19. The total amount of working capital is

          a.     $205,000.

          b.     $125,000.

          c.     $50,000.

          d.     $80,000.

20. The current ratio is

          a.     1.85 : 1.

          b.     2.92 : 1.

          c.     4.15 : 1.

          d.     1.07 : 1.

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