Acc101 Final Test
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Interim Periods
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Monthly and quarterly time periods are called:
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The economic life of a business can be divided into artificial time periods
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The time period assumption states that
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lifetime operations
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Adjustments would not be necessary if financial statements were prepared to reflect net income from
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The business
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The fiscal year of a business is usually determined by
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when it is earned
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The revenue recognition principle dictates that revenue should be recognized in the accounting records
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Expenses with revenues
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The expense recognition principle matches
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July 31st
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Ron's Hot Rod Shop follows the revenue recognition principle. Ron services a car on July 31st. The customer picks up the vehicle on August 1, and mails the payment to Ron on August 5. Ro receives the check in the mail on August 6. When should Ron show that the revenue was earned?
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Efforts should be matched with accomplishments
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The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
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November 30.
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A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. Th flower shop follows GAAP ad applies the revenue recognition principle. When is the $1,000 considered to be earned?
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Events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received
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Under Accrual-basis accounting
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Every time financial Statements are prepared
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Adjusting entries are required
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Affects a balance sheet account and a income statement account
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An adjusting entry
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Accrued expenses
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Expenses incurred but not yet reported are called
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revenues to be understated
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A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
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accruals and deferrals
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Adjusting entries can be classified as
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paid and recorded in an asset account before they are used or consumed
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Prepaid expenses are
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incurred but not yet paid or recorded
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Accrued expenses are
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Debit Office Supplies Expense, $4,800; Credit Office Supplies $4,800
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Bee-In-The-Bonnet Company purchased office supplies costing $8,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $3,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
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a contra asset account
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Accumulated Depreciation is
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Debit Depreciation Expense $60; Credit Accumulated Depreciation $60
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Hercules Company purchased a computer for $3,600 on Dec 1. It is estimated that annual depreciation on the computer will be $720. If financial statements are to be prepared on December 31, the company should make the following adjusting entry
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Debit Unearned Rent $3k; Credit Rental Revenue $3k
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Action Real Estate received a check for $18k on Jul 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credit for the full $18k. Financial statements will be prepared on Jul 31. Action Real Estate should make the following adjusting entry on Jul 31
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$4,450
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At Dec 31, 2011, before an year-end adjustments, Cable Car Company's Insurance Expenses account had a balance of $1,450 and its Prepaid Insurance had expired. The adjusted balance for insurance Expense for the year would be
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Debit Laundry Supplies Expenses $5k; Credit Laundry Supplies $5k
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Speedy Clean laundry Purchased $6,500 worth of laundry supplies on Jun 2 and recorded the purchase as an asset. On Jun 30, an inventory of the laundry supplies indicated only $1,500 on hand. The adjusting entry that should be made by the company on Jun 30 is
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Will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $67,500
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Southwestern City College sol season tickets for the 2011 football season for $180k. A total of 8 games will be played during Sept, Oct and Nov. In Sept, three games were payed. The Adjusting journal entry at Sept 30
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credit to the supplies account for $1,500
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At Mar 31, 2011, Jupiter Corp. had supplies on hand of $500. During the month Jupiter purchased supplies of $1,200 and used of $1,500. he Mar 31 adjusting journal entry should include a
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$1,080
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On Jan 1, 2011, P.T. Scope Company purchased a computer system for $3,240. The company expects to use the system for 3 years. The asset has no salvage value. The book value of the system at Dec 31, 2012 is
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$6,500
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On Jan 1, 2011, Grills and Grates Inc. purchased equipement for $45,000. The company is depreciating the equipment at the rate of $600 per month. At Jan 31, 2012, the balance in Accumulated Depreciation is
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Debit Accounts Receivable and credit Services Revenue
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Betty Carson has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Betty make?
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Interest expense $1,000 Interest Payable $1,000
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Joyce's Gift signs a three-month note payable to help finance increase in inventory for the Christmas Shopping season. The note is signed on Nov 1 in the amount of $50k with annual interest 12%. What is the adjusting entry to be made on Dec 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
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Salaries Expense $5k Salaries Payable $40 Cash $45k
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A company shows a balance in Salary Payable of $40k at the end of the month. The next payroll amounting to $$45k is to be paid in the following month. What will be then entry to record the payment salary?
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$8k
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Becki Jean Corporation issued a one-year, 6%, $200k note on Apr 30, 2011. Interest expense for the year ended Dec 31, 2011 was
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five steps
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Preparing a work sheet involves
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general ledger accounts
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The information for preparing a trial balance on a work sheet is obtained from
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proves the equality of the debits and the credits of the ledger accounts
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An adjusted trial balance
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preparation of financial statements
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A work sheet is a multiple column form that facilitates the
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after the work sheet is completed and after financial statements have been prepared
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When using a work sheet, adjusting entries are journalizes
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will increase because net income has occurred
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If the total debits exceed total credits in the balance sheet columns o the work sheet, retained earnings
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in order to transfer net income (or loss) and dividend to retained earnings
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Closing entries are made
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the amount of the Retained Earnings reported on the balance sheet
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After closing entries are posted, the balance in the Retained Earnings account in the ledger will be equal to
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Prepare a work sheet
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Which one of the following is an optional step in the accounting cycle of a business enterprise?
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After closing entries have been journalized and posted
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A post-closing trial balance is prepared
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After closing entries are posted to the ledger accounts
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A post-closing trial balance should be prepared
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Journalizing and posting closing entries
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Which of the following is usually prepared only at the end of a company's annual accounting period?
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Prepared a trial balance, prepare a adjusting entries, prepare financial statements
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The step in the accounting cycle that is performed on a periodic basis (monthly, quarterly) is
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Wages Payable $24k Wages Expenses $24k
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Cole Company paid weekly payroll on Jan 2 by debiting Wages Expense for $40k. The accountant preparing the payroll entry overlooked the fact that Wages Expense of $24k had been accrued at year end on Dec 31. The correcting entry is
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Cash $180 Accounts Receivable $680 Unearned Revenue $860
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A lawyer collected $860 of legal fees in advance. He erroneously debited Cash for $680 and credit Accounts Receivable for $860. The correcting entry is
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goods that were sold on credit are returned
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A credit memorandum is prepared when
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Merchandise inventory
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In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the period is credit to
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A debit to cash for $300
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The credit terms offered by Neutron Enterprise are 2/10, n/30. Neutron sold goods on account to James Company on Jun 14 for $300. If James Company pays the bill on Jun 27, Neutron's journal entry to record the collection on account will include
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Sales
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Which of the following would not be classified as a contra account
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credit, debit, debit
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The respective normal account balance of Sales, Sales Returns and Allowances, And Sales Discounts are
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sales
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In preparing closing entries for a merchandise, the Income Summary account will be credit for the balance of
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net sales
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The gross profit rate is computed by dividing gross profit by
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$88,000
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Baden Shoe Store has a beginning merchandise inventory of $15k. During the period, purchases were $70k; purchase return $2k; and freight-in $5k. A physical count of inventory at the end if the period revealed that $10k was still on hand. The Cost of goods available for sales are
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Purchase Returns and Allowances
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In a periodic inventory system, a return of defective merchandise by a customer is recorded by crediting
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Cash received on account with a discount
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Which of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system
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Accounts Payable Purchase Return and Allowances
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The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be
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Purchases account
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Under a periodic inventory system, acquisition of merchandise is debited to the
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debit, credit, debit
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The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are
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Accounts payable $4k Merchandise Inventory $80 Cash $3,920
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Klugg Company made a purchase of merchandise on credit from Claude Corporation on Aug 3, for $4k, terms 2/10 n/45. On Aug 10, Klugg makes the appropriate payment to Claude. The entry on Aug 10 for Klugg Company is
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reported as a current asset on the balance sheet
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Merchandise Inventory is
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legal title
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The factor which determines whether or not goods should be included in a physical count of inventory is
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Segregation of duties
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A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure?
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FOB destination / FOB shipping point
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Which items should be included in Westcoe's inventory at Dec 31?
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consignor has ownership until goods are sold to a customer
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Under a consignment arrangement, the
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$37,700
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Farley Company had beginning inventory of $15k Mar 1, 2006. During the month, the company made purchases of $40k. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March?
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$65
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A Company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be
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the first to be allocated to cost of goods sold
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The LIFO inventory method assumes that the cost of the latest units purchased are
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Hardware Store
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Of the following companies, which one would not likely employ the specific identification method for inventory costing?
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Middle-in, First-Out
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Which if the following is not a common cost flow assumption used in costing inventory?
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ending inventory
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The cost of goods available for sale is allocated to the cost of goods sold and the
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FIFO method
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In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is current cost is the
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FIFO costing assumption
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In periods of inflation, phantom or paper profits may be reported as a result using the
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$105
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The accountant ad Kline Company is figuring out the difference in income taxes company will pay depending on the choice of wither FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $3,640. The LIFO method will result in income taxes of $3,290. What is the difference in tax that would be paid between the two methods?
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Specific identification, FIFO and LIFO can be used
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Which costing method cannot be used to determine the cost of inventory items before lower of cost or market is applied?
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conservatism
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The lower of cost or market basis of valuing inventories is an example of
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Asset= Understated / Stockholders' equity=overstated
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An error in the physical count of goods on hand at the end of a period resulted in a $10k overstatement of the ending inventory. The effect of this error in the current period is
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Asset= correct / Stockholders' equity=correct
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A company uses the periodic inventory method and the beginning inventory is overstated by $4k because the ending inventory in the previous period was overstated by $4k. The amounts reflected in the current end of the period balance sheet are
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cost of goods sold
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Overstating ending inventory will overstate all of the following except
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liquidity
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The relationship between current assets and liabilities is important in evaluating
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operating expenses
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Income from operations is gross profit less
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retailer
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An enterprise which sells goods to consumers is known as a
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gross profit
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Sales revenue less cost of goods sold is called
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at the end of the accounting period
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In a periodic inventory system, the cost of goods sold is determined
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sales return
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A purchaser, dissatisfied with merchandise received, may return goods to seller for credit. From the standpoint of the seller, this transaction is known as a
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debit Merchandise inventory $1k / credit Accounts payable $1k
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Meyer Company. uses a perpetual inventory system. Meyer purchased inventory on account for $1k. The credit terms are 2/10, n/60. the purchase will be recorded with the following journal entry
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in operating expenses for the seller
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Freight costs paid by seller on merchandise sold to customers will cause an increase
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buyer
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Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs will be paid by the
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$0
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Morton Company uses a perpetual inventory system. On Dec 1, 2006, the company purchased inventory on account for $9k. the credit terms are 2/10, n/30. If Morton pays the bill on Dec 29, 2006, what amount of discount will be taken?
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goods have been transferred from the seller to the buyer
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Sales revenues are usually considered earned when
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increased the cost of merchandise purchased
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The Freight-in account
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statement presentation and analysis
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The conceptual framework includes all of the following except
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principles
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Operating guidelines that are part of FASB's conceptual framework would best be described as
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maximize social welfare
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All of the following are objectives of financial reporting except
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how should financial information be recorded in the accounting records
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Determining the objectives of financial reporting requires answer to each of the following except
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investors and creditors
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An objective of financial reporting is to provide information that is mainly useful to
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has either predictive or feedback value
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Accounting information is relevant if it
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decision usefulness
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An overriding criterion in evaluating the accounting information to be presented is
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Cash flow
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Which of the following is not an element of financial statements?
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predictive value, feedback value, and timeliness
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Qualitative characteristics associated with relevant accounting information are
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the information is a faithful representation of what it purports to be
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Reliability means that
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economic entity assumption
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Te assumption that states that the activities of each company be kept separate from the activities of its owners and all other companies is the
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economic events can be identified with a particular entity
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The economic entity assumption states that
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will continue in operation long enough to carry out its existing objectives and commitments
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The going concern assumption assumes that the business
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economic entity assumption
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It is assumed that the activities o Daimler Chrysler Corporation can be distinguished from those of General Motors because of the
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going concern principle
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The basic principle of accounting include each of the following except the
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requires that revenue be recognize in the accounting period when it is earned
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The revenue recognition principle
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matching principle
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The principle that dictates that expense be matched with revenues in the period in which efforts are made to generate revenues is the
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at the point of sale
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In a merchandising enterprise, revenue should be recognized
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earned
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The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is
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loss on the sale of plants assets
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All of the following costs are operating expenses except
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total employees
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To determine the materiality of an account, an accountant would compare it with any of the following except
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Lower of cost or market method for inventories
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A common application of the conservatism constraint is the use of the
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capital investments
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A classified income statements typically includes all of the following except
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owner's equity
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On the balance sheet of a proprietorship, invested capital is referred to as
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Materiality
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Zendejas Company purchased a ruler for $2.00. The ruler is expected to last for ten years. Tony, the accountant, expensed the cost of the ruler in the year of the purchase. Which constraint has Tony taken into the account when making his accounting decision?
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choose the method that will be least likely to overstate assets and income
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Conservatism in accounting means to
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are firms that conduct their operations in more than one country through subsidiaries divisions, or branches in foreign countries
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Multinational corporations
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earned
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The revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is
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loss on the sale of plant assets
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All of the following costs are operating expenses except
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irrelevant
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The cost principle has been criticized for being
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circumstances and events that make a difference to financial statements users should be disclosed in the financial statements
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The full disclosure principle requires that
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expenses should be matched against the revenues they help generate
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The matching principle states that
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matching principle
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The practice of "letting the expense follow the revenue" is referred to as the
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cost of goods sold
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Overstating ending inventory will overstate all of the following except
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50.0 days
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The following information was available for Hover Company at Dec 31, 2011; beginning inventory $110k; ending inventory $70k; cost of goods sold $660k; and sales $900k. Hoover's days in inventory in 2011 was
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Short-term creditors
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Which one of the following is primarily interested in the liquidity of a company?
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ratio analysis
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A technique for evaluating financial statements that express the relationship among selected items of financial statement data is
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trend analysis
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Horizontal analysis is also called
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profitability and solvency
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Long-term creditors are usually most interested in evaluating
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60%
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Assume the following sales data for a company 2013 $1.2mil / 2012 $960k / 2011 $840k / 2010 $600k If 2010 is the base year, what is the percentage increase in sales from 2010 to 2011?
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two years
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Comparative balance sheets are usually prepared for
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30%
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Assume the following sales data for a company 2012 - $945k 2011 - $845k 2010 - $650k If 2010 is the base year, what is the percentage increase in sales from 2010 to 2011?
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common size analysis
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Vertical analysis is also called
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debt to total assets ratio
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Each of the following is a liquidity ration except the
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used to evaluate a company's liquidity and short-term debt paying ability
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The current ration is
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relates cash, short-term investments, and net receivables to current liabilities
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The acid-test (quick) ratio
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6 times
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Waters Department Store had net credit ales of $16mil and cost of goods sold of $12mil for the year. The average inventory for the year amounted to $2mil. inventory turnover for the year is
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73 days
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Walker Clothing Store has a balance in the Accounts Receivable account of $390k at the beginning of the year and a balance of $410k at the end of the year. Net credit sales during the year amounted $2mil. The average collection period of the receivables in terms of days was
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10 times
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Parr Hardware Store had net credit sales of $6.5mil and cost of goods sold of $5mil for the year. The Accounts Receivable balances at the beginning and end of the year were $600k and $700k, respectively. The receivables turnover was
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61 days
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Water Departments Store had a net credit sales of $16mil and a cost of goods sold of $12k for the year. the average inventory for the year amounted to $2mil. The average number of days in inventory during the year was
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1.5:1
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The current assets of Kile Company are $150k. The current liability are $100k. The current ratio expressed as a proportion is
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No effect
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Baden Company had $375k of current assets and $150k of current liabilities before borrowing $75k from the bank with 3-month note payable. What effect did the borrowing transaction have on the amount of Baden Company's working capital?
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$200k
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A company has an average inventory on hand of $40k and the days in inventory is 73 days. What is the cost of goods sold?
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Times interest earned
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Which of the following is not a profitability ratio?
