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. |

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|items that cannot be measured reliably are not reported. |

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|B. |

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|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. |

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|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. |

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

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|B. |

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

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|C. |

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

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|D. |

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|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. |

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|Including prior period adjustments in determining net income |

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|B. |

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|The single-step income statement |

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|C. |

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|The consolidated statement of income |

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|D. |

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|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. |

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|Realization has occurred. |

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|C. |

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

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|D. |

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|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 |

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|A. |

|[pic] |

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

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|B. |

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|the terms of payment in the contract. |

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|C. |

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

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|D. |

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|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? |

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|A. |

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|Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used. |

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|B. |

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|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. |

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|Revenue from disposing of assets other than products is recognized at the date of sale. |

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|D. |

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|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 |

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|A. |

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|determining the increase in cash due to operations. |

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|B. |

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|computing rates of return. |

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|C. |

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|assessing the liquidity and financial flexibility of the enterprise. |

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|D. |

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|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. |

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|liquidity. |

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|B. |

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|solvency. |

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|C. |

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|exchangeability. |

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|D. |

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|financial flexibility. |

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|18) One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is |

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|A. |

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|an extensive use of estimates. |

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|B. |

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|failure to reflect current value information. |

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|C. |

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

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|D. |

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|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. |

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|Claims of equity holders |

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|B. |

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|Types of executory contracts |

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|C. |

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|Depreciation method followed |

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|D. |

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|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. |

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|the value of obsolete items included in ending inventory. |

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|B. |

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|net income for the year. |

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|C. |

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|whether the working capital position is adequate for future operations. |

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|D. |

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|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 |

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|A. |

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

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|B. |

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

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|C. |

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|used to record an adjustment directly to the Retained Earnings account |

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|D. |

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|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 |

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|A. |

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|adverse. |

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|B. |

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|unqualified. |

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|C. |

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|exceptional. |

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|D. |

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|qualified. |

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|23) The MD&A section of an enterprise's annual report is to cover the following three items: |

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|A. |

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

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|B. |

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

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|C. |

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

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|D. |

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|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 |

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|A. |

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|charge or credit the loss or gain in the quarter that it occurs. |

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|B. |

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|prorate them over all four quarters. |

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|C. |

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|disclose them only in the notes. |

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|D. |

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|prorate them over the current and remaining quarters. |

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|25) The payout ratio is calculated by dividing |

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|A. |

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|cash dividends by market price per share. |

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|B. |

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|dividends per share by earnings per share. |

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|C. |

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|cash dividends by net income less preferred dividends. |

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|D. |

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|cash dividends by net income plus preferred dividends. |

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|26) Which of the following ratios measures long-term solvency? |

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|A. |

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|Debt to total assets |

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|B. |

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|Acid-test ratio |

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|C. |

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|Current ratio |

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|D. |

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|Receivables turnover |

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

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|A. |

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

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|B. |

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|net income by annual interest expense. |

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|C. |

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|none of these. |

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|D. |

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|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)|

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|A. |

|[pic] |

|cash outflow from investing activities. |

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|B. |

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

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|C. |

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|cash outflow from financing activities. |

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|D. |

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|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? |

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|A. |

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|Where did the cash come from during the period? |

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|B. |

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|What was the change in the cash balance during the period? |

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|C. |

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|What was the cash used for during the period? |

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|D. |

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|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 |

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|A. |

|[pic] |

|re-recording all income statement transactions that directly affect cash in a separate cash flow journal. |

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|B. |

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|eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation. |

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|C. |

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|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. |

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|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 |

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|A. |

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|means that income on an accrual basis is less than income on a cash basis. |

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|B. |

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|requires a decrease adjustment to cost of goods sold under the direct method. |

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|C. |

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|requires an addition adjustment to net income under the indirect method. |

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|D. |

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|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 |

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|A. |

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|the issuance of common stock in exchange for a factory building. |

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|B. |

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|the assignment of accounts receivable. |

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|C. |

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|stock dividends received. |

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|D. |

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|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 |

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|A. |

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|not be shown. |

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|B. |

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

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|C. |

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|be shown as cash inflow from investing activities. |

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|D. |

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|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? |

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|A. |

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|Future value of an ordinary annuity of 1 |

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|B. |

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|Present value of an annuity due of 1 |

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|C. |

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|Present value of an ordinary annuity of 1 |

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|D. |

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|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? |

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|A. |

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|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. |

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|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? |

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|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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