10) Limitations of the income statement include all of the ...
10) Limitations of the income statement include all of the following except | |
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|A. |
|[pic] |
|items that cannot be measured reliably are not reported. |
| |
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|B. |
|[pic] |
|only actual amounts are reported in determining net income. |
| |
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|C. |
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|income measurement involves judgment. |
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|D. |
|[pic] |
|income numbers are affected by the accounting methods employed. |
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|11) Which of the following would represent the least likely use of an income statement prepared for a business enterprise? |
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|A. |
|[pic] |
|Use by customers to determine a company's ability to provide needed goods and services. |
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|B. |
|[pic] |
|Use by labor unions to examine earnings closely as a basis for salary discussions. |
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|C. |
|[pic] |
|Use by government agencies to formulate tax and economic policy. |
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|D. |
|[pic] |
|Use by investors interested in the financial position of the entity. |
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|12) Which of the following is not a generally practiced method of presenting the income statement? |
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|A. |
|[pic] |
|Including prior period adjustments in determining net income |
| |
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|B. |
|[pic] |
|The single-step income statement |
| |
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|C. |
|[pic] |
|The consolidated statement of income |
| |
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|D. |
|[pic] |
|Including gains and losses from discontinued operations of a component of a business in determining net income |
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|13) Which of the following is not a reason why revenue is recognized at time of sale? |
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|A. |
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|Title legally passes from seller to buyer. |
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|B. |
|[pic] |
|Realization has occurred. |
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|C. |
|[pic] |
|All of these are reasons to recognize revenue at time of sale. |
| |
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|D. |
|[pic] |
|The sale is the critical event. |
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|14) In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be |
| |
|A. |
|[pic] |
|the method commonly used by the contractor to account for other long-term construc-tion contracts. |
| |
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|B. |
|[pic] |
|the terms of payment in the contract. |
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|C. |
|[pic] |
|the inherent nature of the contractor's technical facilities used in construction. |
| |
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|D. |
|[pic] |
|the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. |
| |
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|15) Which of the following is not an accurate representation concerning revenue recognition? |
| |
|A. |
|[pic] |
|Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used. |
| |
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|B. |
|[pic] |
|Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers. |
| |
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|C. |
|[pic] |
|Revenue from disposing of assets other than products is recognized at the date of sale. |
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|D. |
|[pic] |
|Revenue from services rendered is recognized when cash is received or when services have been performed. |
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|16) The balance sheet contributes to financial reporting by providing a basis for all of the following except |
| |
|A. |
|[pic] |
|determining the increase in cash due to operations. |
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|B. |
|[pic] |
|computing rates of return. |
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|C. |
|[pic] |
|assessing the liquidity and financial flexibility of the enterprise. |
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|D. |
|[pic] |
|evaluating the capital structure of the enterprise. |
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|17) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as |
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|A. |
|[pic] |
|liquidity. |
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|B. |
|[pic] |
|solvency. |
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|C. |
|[pic] |
|exchangeability. |
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|D. |
|[pic] |
|financial flexibility. |
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|18) One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is |
| |
|A. |
|[pic] |
|an extensive use of estimates. |
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|B. |
|[pic] |
|failure to reflect current value information. |
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|C. |
|[pic] |
|failure to include items of financial value that cannot be recorded objectively. |
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|D. |
|[pic] |
|the extensive use of separate classifications. |
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|19) Which of the following should be disclosed in a Summary of Significant Accounting Policies? |
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|A. |
|[pic] |
|Claims of equity holders |
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|B. |
|[pic] |
|Types of executory contracts |
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|C. |
|[pic] |
|Depreciation method followed |
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|D. |
|[pic] |
|Amount for cumulative effect of change in accounting principle |
| |
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|20) The focus of APB Opinion No. 22 is on the disclosure of accounting policies. This information is important to financial statement readers|
|in determining |
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|A. |
|[pic] |
|the value of obsolete items included in ending inventory. |
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|B. |
|[pic] |
|net income for the year. |
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|C. |
|[pic] |
|whether the working capital position is adequate for future operations. |
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|D. |
|[pic] |
|whether accounting policies are consistently applied from year to year. |
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|21) 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. |
|[pic] |
|used to record an adjustment to Bad Debt Expense for the year ending December 31, 2008. |
| |
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|B. |
|[pic] |
|discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report. |
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|C. |
|[pic] |
|used to record an adjustment directly to the Retained Earnings account |
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|D. |
|[pic] |
|disclosed only in the Notes to the Financial Statements. |
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|22) If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of |
|sufficient magnitude to invalidate the statement as a whole, the opinion is said to be |
| |
|A. |
|[pic] |
|adverse. |
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|B. |
|[pic] |
|unqualified. |
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|C. |
|[pic] |
|exceptional. |
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|D. |
|[pic] |
|qualified. |
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|23) The MD&A section of an enterprise's annual report is to cover the following three items: |
| |
|A. |
|[pic] |
|liquidity, capital resources, and results of operations. |
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|B. |
|[pic] |
|income statement, balance sheet, and statement of owners' equity. |
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|C. |
|[pic] |
|changes in the stock price, mergers, and acquisitions. |
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|D. |
|[pic] |
|income statement, balance sheet, and statement of cash flows. |
| |
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|24) The required approach for handling extraordinary items in interim reports is to |
| |
|A. |
|[pic] |
|charge or credit the loss or gain in the quarter that it occurs. |
| |
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|B. |
|[pic] |
|prorate them over all four quarters. |
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|C. |
|[pic] |
|disclose them only in the notes. |
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|D. |
|[pic] |
|prorate them over the current and remaining quarters. |
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|25) The payout ratio is calculated by dividing |
| |
|A. |
|[pic] |
|cash dividends by market price per share. |
| |
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|B. |
|[pic] |
|dividends per share by earnings per share. |
| |
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|C. |
|[pic] |
|cash dividends by net income less preferred dividends. |
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|D. |
|[pic] |
|cash dividends by net income plus preferred dividends. |
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|26) Which of the following ratios measures long-term solvency? |
| |
|A. |
|[pic] |
|Debt to total assets |
| |
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|B. |
|[pic] |
|Acid-test ratio |
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|C. |
|[pic] |
|Current ratio |
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|D. |
|[pic] |
|Receivables turnover |
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|27) The calculation of the number of times interest is earned involves dividing |
| |
|A. |
|[pic] |
|net income plus income taxes and interest expense by annual interest expense. |
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|B. |
|[pic] |
|net income by annual interest expense. |
| |
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|C. |
|[pic] |
|none of these. |
| |
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|D. |
|[pic] |
|net income plus income taxes by annual interest expense. |
| |
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|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. |
|[pic] |
|cash outflow from investing activities. |
| |
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|B. |
|[pic] |
|addition to net income in arriving at net cash flow from operating activities. |
| |
| |
|C. |
|[pic] |
|cash outflow from financing activities. |
| |
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|D. |
|[pic] |
|deduction from net income in arriving at net cash flow from operating activities. |
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|29) Of the following questions, which one would not be answered by the statement of cash flows? |
| |
|A. |
|[pic] |
|Where did the cash come from during the period? |
| |
| |
|B. |
|[pic] |
|What was the change in the cash balance during the period? |
| |
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|C. |
|[pic] |
|What was the cash used for during the period? |
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|D. |
|[pic] |
|Were all the cash expenditures of benefit to the company during the period? |
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|30) To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by |
| |
|A. |
|[pic] |
|re-recording all income statement transactions that directly affect cash in a separate cash flow journal. |
| |
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|B. |
|[pic] |
|eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation. |
| |
| |
|C. |
|[pic] |
|estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the |
|entire array of income statement transactions. |
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|D. |
|[pic] |
|eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. |
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|31) In determining net cash flow from operating activities, a decrease in accounts payable during a period |
| |
|A. |
|[pic] |
|means that income on an accrual basis is less than income on a cash basis. |
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|B. |
|[pic] |
|requires a decrease adjustment to cost of goods sold under the direct method. |
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|C. |
|[pic] |
|requires an addition adjustment to net income under the indirect method. |
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|D. |
|[pic] |
|requires an increase adjustment to cost of goods sold under the direct method. |
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|32) In a statement of cash flows, the cash flows from investing activities section should report |
| |
|A. |
|[pic] |
|the issuance of common stock in exchange for a factory building. |
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|B. |
|[pic] |
|the assignment of accounts receivable. |
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|C. |
|[pic] |
|stock dividends received. |
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|D. |
|[pic] |
|a major repair to machinery charged to accumulated depreciation. |
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|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. |
|[pic] |
|not be shown. |
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|B. |
|[pic] |
|be shown as a deduction from net income in the cash flows from operating activities section. |
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|C. |
|[pic] |
|be shown as cash inflow from investing activities. |
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|D. |
|[pic] |
|be shown as cash outflow from financing activities. |
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|34) Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? |
| |
|A. |
|[pic] |
|Future value of an ordinary annuity of 1 |
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|B. |
|[pic] |
|Present value of an annuity due of 1 |
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|C. |
|[pic] |
|Present value of an ordinary annuity of 1 |
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|D. |
|[pic] |
|Future value of an annuity due of 1 |
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|35) Which table has a factor of 1.00000 for 1 period at every interest rate? |
| |
|A. |
|[pic] |
|Future value of 1 |
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|B. |
|[pic] |
|Present value of an ordinary annuity of 1 |
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|C. |
|[pic] |
|Present value of 1 |
| |
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|D. |
|[pic] |
|Future value of an ordinary annuity of 1 |
| |
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|36) Which of the following tables would show the smallest value for an interest rate of 5% for six periods? |
| |
|A. |
|[pic] |
|Future value of 1 |
| |
| |
|B. |
|[pic] |
|Present value of an ordinary annuity of 1 |
| |
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|C. |
|[pic] |
|Present value of 1 |
| |
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|D. |
|[pic] |
|Future value of an ordinary annuity of 1 |
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