ACCT 311 Ch3 – Flashcards
Unlock all answers in this set
Unlock answersquestion
1. The balance sheet reports a company's financial position at a point in time.
answer
T
question
2. A company's market value is generally less than its book value.
answer
F
question
3. All current assets are either cash or assets that will be converted into cash or consumed within 12 months or the operating cycle, whichever is longer.
answer
T
question
4. The balance of net receivables represents the amount expected to be collected.
answer
T
question
5. Prepaid expenses are classified as current assets if the services purchased are expected to expire within 12 months or the operating cycle, whichever is longer.
answer
T
question
6. Property, plant, and equipment includes machinery, equipment, and inventories.
answer
F
question
7. Intangible assets usually are reported in the balance sheet as current assets.
answer
F
question
8. Accrued salaries and wages in a balance sheet represent salary and wages that have been earned by employees but not yet paid.
answer
T
question
9. The criteria for determining which items comprise cash equivalents often is disclosed in the summary of significant accounting policies.
answer
T
question
10. Payment terms, interest rates, and other details of long-term liabilities usually are reported in disclosure notes.
answer
T
question
11. Subsequent events are significant developments that take place after a firm's year-end, and after the financial statements are issued or available to be issued.
answer
F
question
12. Illegal acts will only need to be disclosed if the impact of the act is material.
answer
F
question
13. The ultimate responsibility for the financial statements lies with the auditors.
answer
F
question
14. The compensation of top executives is disclosed in the proxy statement.
answer
T
question
15. Horizontal analysis involves expressing each item in the financial statements as a percentage of an appropriate total, or base amount, within the same year.
answer
F
question
16. Liquidity refers to the riskiness of a company with regard to the amount of liabilities in its capital structure.
answer
F
question
17. A payment on account has no effect on working capital but will increase the current ratio if it is already greater than 1.0.
answer
T
question
18. Segment reporting requires disclosure of each customer that accounts for more than 5% of total enterprise revenue.
answer
F
question
19. The balance sheet reports: A. Net income at a point in time. B. Cash flows for a period of time. C. Assets and equities at a point in time. D. Assets and liabilities for a period of time.
answer
C
question
20. Current assets include cash and all other assets expected to become cash or be consumed: A. Within one year. B. Within one operating cycle. C. Within one year or one operating cycle, whichever is shorter. D. Within one year or one operating cycle, whichever is longer.
answer
D
question
21. Red Onion Restaurant classifies a six-month prepaid insurance policy as a current asset. Its rationale is based on: A. Materiality. B. Operating cycle. C. Definition. D. Liquidity.
answer
C
question
22. An asset that is not expected to be converted to cash or consumed within one year or the operating cycle is: A. Goodwill. B. Accounts receivable. C. Inventory. D. Supplies.
answer
A
question
23. Which of the following accounts are closed at the end of the accounting period? A. Allowance for uncollectible accounts. B. Unearned revenue. C. Retained earnings. D. Income tax expense.
answer
D
question
24. Which is a shareholders' equity account in the balance sheet? A. Accumulated depreciation. B. Paid-in capital. C. Dividends payable. D. Marketable securities.
answer
B
question
25. Rent collected in advance is: A. An asset account in the balance sheet. B. A liability account in the balance sheet. C. A shareholders' equity account in the balance sheet. D. A temporary account, not in the balance sheet at all.
answer
B
question
26. Notes payable: A. Is a current liability account. B. Usually has a debit balance. C. Is a noncurrent liability account. D. Cannot determine its classification without additional information.
answer
D
question
27. Which of the following is never a current liability account? A. Accrued payroll B. Dividends payable C. Prepaid rent D. Subscriptions collected in advance
answer
C
question
28. New Oaks Winery requires two months to make wine, two years to age it, one month to bottle it, two months to sell it, and one month to collect the receivable. Its operating cycle is: A. Twelve months. B. Thirty months. C. Six months. D. Three months.
answer
B
question
29. Noncurrent assets include: A. Inventory held for sale. B. Prepaid rent. C. Accounts receivable. D. Land held for a possible future plant site.
answer
D
question
Listed below are account balances (in $ millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=57=863 30. What would Symphony report as total current assets? A. $823. B. $838. C. $843. D. $1,696.
answer
A Total current assets: ($680 - 20) + 34 + 50 + 30 + 16 + 5 + 20 + 8 = $823
question
Listed below are account balances (in $ millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=57=863 31. What would Symphony report as total assets? A. $2,338. B. $2,323. C. $2,318. D. $2,303.
answer
D Total assets: ($680 - 20) + ($920 - 80) + 34 + 50 + 30 + 16 + 150 + 450 + 5 + 20 + 8 + 40 = $2,303
question
Listed below are account balances (in $ millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=57=863 32. What would Symphony report as total shareholders' equity? A. $323. B. $808. C. $838. D. $928.
answer
B Total shareholders' equity: $485 + 15 + 48 - 120 + 380 = $808
question
Listed below are account balances (in $ millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=57=863 33. What is the amount of working capital for Symphony? A. $98. B. $143. C. $128. D. $113.
answer
C https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=59=863
question
34. Assets do not include: A. Property, plant, and equipment. B. Investments. C. Paid-in capital. D. Unexpired insurance.
answer
C
question
35. Cash equivalents would not include: A. Cash not available for current operations. B. Money market funds. C. U.S. treasury bills. D. Bank drafts.
answer
A
question
36. Cash equivalents would include: A. Highly liquid equity securities. B. Accounts receivable from a financial institution. C. A sinking fund for bonds that mature in three years. D. Debt instruments with maturity dates of less than three months from the date of the purchase.
answer
D
question
37. Accrued expenses: A. Are generally paid in services rather than cash. B. Result from payment before services are received. C. Result from services received before payment. D. Are deferred charges to expense.
answer
C
question
38. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2013: https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=61&w=863 Investments consist of treasury bills that were purchased in November and mature in January. Prepaid insurance is for the next two years. What amount should be included in the current asset section of Janson's December 31, 2013, balance sheet? A. $88.000. B. $85,000. C. $55,000. D. $135,000.
answer
B $12,000 + 40,000 + 30,000 + 3,000 (1/2 of prepaid insurance) = $85,000.
question
39. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2013: https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=62&w=863 What amount should be included in the current liability section of Janson's December 31, 2013, balance sheet? A. $63,000. B. $41,000. C. $61,000. D. $101,000.
answer
C $25,000 + 16,000 + 20,000 = $61,000.
question
40. The usual difference between accounts payable and notes payable is: A. Legally enforceable debt. B. Current-noncurrent classification. C. Known payment terms. D. Explicitly stated interest.
answer
D
question
41. Which of the following would be disclosed in the summary of significant accounting policies disclosure note? https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=63=863 A. Option a B. Option b C. Option c D. Option d
answer
A
question
42. Which of the following is not a required disclosure for related-party transactions? A. The nature of the relationship. B. A description of the transactions. C. The amounts due from or to related parties. D. The impact of the transactions on current year's income.
answer
D
question
43. Disclosure notes would not include: A. Depreciation methods used and estimated useful life. B. Definition of cash equivalents. C. Details of pension plans. D. Data to adjust the financial statements so that they are not misleading.
answer
D
question
44. The principal concern with accounting for related-party transactions is: A. The size of the transactions. B. Differences between economic substance and legal form. C. The absence of legally binding contracts. D. The lack of accurate data to record transactions.
answer
B
question
45. A subsequent event for an entity with a December 31, 2013, year-end would not include: A. A change in the estimated useful lives of equipment in January 2014. B. An issuance of bonds in January 2014. C. An acquisition of another company in January 2014. D. A major uncertainty at December 31, resolved in January 2014.
answer
A
question
46. How are management's responsibility and the auditors' opinion on internal controls represented in the standard auditor's report? https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=65=863 A. Option a B. Option b C. Option c D. Option d
answer
B
question
47. The final paragraph of the audit report: A. Provides the auditors' opinion on the fairness of the financial statements. B. Provides the auditor's opinion on the effectiveness of internal control. C. Describes the scope of the audit. D. States management's responsibility for the financial statements.
answer
B
question
48. The Management Discussion and Analysis section of the annual report can best be described as: A. Frank but objective. B. Independent but precise. C. Legalistic and lengthy. D. Biased but informative.
answer
D
question
49. An example of fraud would be: A. Issuing a purchase order without first securing bids. B. Buying raw materials from an affiliated company. C. Knowingly classifying a material noncurrent receivable as a current receivable. D. Forgetting to accrue salaries and wages payable.
answer
C
question
50. An example of an error would be: A. Purchasing inventory from a related party. B. Counting an inventory item twice when taking a physical inventory. C. Holding back invoices so that accounts payable are understated. D. Receiving kickbacks in exchange for issuing a purchase order to a vender.
answer
B
question
51. An exception that is so serious that even a qualified opinion is not justified would result in: A. A disclaimer. B. An unqualified opinion. C. An adverse opinion. D. A consistency exception.
answer
C
question
52. Liquidity refers to: A. The amount of cash on hand at a given time. B. The readiness of an asset to be converted to cash. C. The period until cash is used and refinancing becomes necessary. D. Financial leverage.
answer
B
question
53. Lack of long-term solvency refers to: A. Risk of nonpayment relative to liabilities in the capital structure. B. The length of time before long-term debt becomes due. C. The ability to refinance long-term debt when it becomes due. D. Long-term assets.
answer
A
question
54. The current ratio is given by: A. Current assets divided by noncurrent assets. B. Current assets divided by total assets. C. Current assets divided by current liabilities. D. Current assets divided by total liabilities.
answer
C
question
55. The acid-test ratio is also known as the: A. Current ratio. B. Debt to equity ratio. C. Times interest earned ratio. D. Quick ratio.
answer
D
question
56. The quick ratio is: A. The liquidity ratio divided by the equity ratio. B. Current assets minus inventory divided by current liabilities minus accounts payable. C. Current assets minus inventory and prepaid items divided by current liabilities. D. Cash divided by accounts payable.
answer
C
question
57. Working capital is equal to: A. Current assets. B. Current liabilities. C. Current assets plus current liabilities. D. Current assets minus current liabilities.
answer
D
question
58. Which of the following is not a financing ratio? A. Times interest earned ratio. B. Debt to equity ratio. C. Current ratio. D. All of the above are financing ratios.
answer
C
question
59. When a company pays its bill from a plumber for previous services on account: A. Its debt to equity ratio always decreases. B. Its acid-test ratio always remains unchanged. C. Its current ratio always remains unchanged. D. All of the above are correct.
answer
A
question
60. When a company accrues federal income taxes at the end of the accounting period: A. Its acid-test ratio increases. B. Its current ratio increases. C. Its debt to equity ratio decreases. D. Its debt to equity ratio increases.
answer
D
question
61. Assume a company's liquidity and financing ratios all are less than 1.0 before it purchases inventory on credit. When it makes the purchase: A. Its current ratio decreases. B. Its quick ratio decreases. C. Its current ratio remains unchanged. D. Its quick ratio remains unchanged.
answer
B
question
62. When a company sells land for cash and recognizes a $25,000 gain: A. Its acid-test ratio decreases. B. Its current ratio decreases. C. Its debt to equity ratio decreases. D. Cannot determine from the given information.
answer
C
question
The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=71=863 63. The current ratio is (rounded): A. 1.98. B. 1.58. C. 1.17. D. 0.66.
answer
B Current ratio: $505/$320 = 1.58
question
The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=71=863 64. Working capital is: A. $505. B. $265. C. $185. D. $75.
answer
C Working capital: $505 - 320 = 185
question
The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=71=863 65. Quick assets total: A. $60. B. $230. C. $280. D. $305.
answer
C Quick assets: $505 - 200 - 25 = 280
question
The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=71=863 66. The acid-test ratio is (rounded): A. 0.25. B. 0.88. C. 1.17. D. 1.58.
answer
B Acid-test ratio: ($505 - 200 - 25)/$320 = .88
question
Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=73=863 67. HHF's debt to equity ratio is (rounded): A. 0.75. B. 1.13. C. 0.53. D. 1.80.
answer
B Debt to equity ratio: $540/$480 = 1.13
question
Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=73&w=863 68. HHF's times interest earned ratio is (rounded): A. 3.47. B. 1.73. C. 2.47. D. 10.0.
answer
A Times interest earned ratio:125/$36 = 3.47
question
Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below. https://docs.google.com/file/d/0By6mLiFT5J_Bd2JOQ0pibVk2LVU/image?pagenumber=73=863 69. HHF's long-term debt to equity ratio equity is: A. 133.3%. B. 75%. C. 180%. D. 0%.
answer
B Long-term debt to equity ratio: $360/$480 = 75%
question
70. Which of the following is not a required segment reporting disclosure according to U.S. GAAP? A. Segment profit or loss. B. Segment assets. C. Segment liabilities. D. General information about the operating segment.
answer
C
question
71. Which of the following is not a required segment reporting disclosure according to International Financial Reporting Standards? A. Segment profit or loss. B. Segment assets. C. Segment liabilities. D. All are required disclosures.
answer
D
question
72. Which of the following is not a characteristic that defines a reportable operating segment according to U.S. GAAP? A. Operating results are regularly reviewed by the enterprise's chief operating officer. B. Discrete financial information is available. C. Engages in business activities from which it may earn revenues and incur expenses. D. Represents more than 20% of total company revenues, assets, or net income.
answer
D
