ACCY 200 Midterm 1 Practice Questions – Flashcards
Unlock all answers in this set
Unlock answersquestion
Transactions are summarized in: a) None of these b) The independent auditor's opinion letter c) The entity's accounts d) The notes for the financial statements
answer
c) The entity's accounts
question
Revenues are: a) increases in net assets from occasional sales of equipment b) increases in net assests from selling a product c) increases in net assets from selling common stock d) cash recepts
answer
b) increases in net assets from selling a product
question
Expenses are: a) decreases in net assets resulting from usual operating activities b) decreases in net assets from uninsured accidents c) cash disbursements d) decreases in net assets from dividents to stockholders
answer
a) decreases in net assets resulting from usual operating activities
question
The purpose of the income statement is to show the: a) change in the fair value of the assets from the prior income statement. b) net income or net loss for the period covered by the statement. c) revenues collected during the period covered by the statement. d) market value per share of stock at the date of the statement.
answer
b) net income or net loss for the period covered by the statement.
question
Stockholders' equity refers to which to the following? a) None of these. b) Probable future sacrifices of economic benefits. c) The ownership right of the stockholder(s) of the entity. d) A listing of the organization's assets and liabilities. e) All of these.
answer
c) The ownership right of the stockholder(s) of the entity
question
A debit entry will: a) always decrease the account balance. b) always increase the account balance. c) increase the balance of a revenue account. d) increase the balance of an expense account.
answer
d) increase the balance of an expense account.
question
A credit entry will: a) increase a liability account. b) increase an expense account. c) increase an asset account. d) decrease paid-in capital.
answer
a) increase a liability account.
question
The effect of an adjustment on the financial statements is usually to: a) make the balance sheet balance. b) increase net income. c) increase the accuracy of both the balance sheet and income statement. d) match revenues and assets.
answer
c) increase the accuracy of both the balance sheet and income statement.
question
When a firm purchases supplies for its business: a) either the supplies account or the supplies expense account should be credited. b) an adjustment will probably be required as supplies are used. c) the supplies expense account should always be debited. d) the supplies account should always be debited.
answer
b) an adjustment will probably be required as supplies are used.
question
An expanded version of the accounting equation could be: a) Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues - Expenses - Dividends b) Assets + Revenues = Liabilities + Stockholders' Equity - Expenses c) Assets = Liabilities + Paid-in Capital - Revenues + Expenses d) Assets - Liabilities = Paid-in Capital - Revenues - Expenses
answer
a) Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues - Expenses - Dividends
question
Which of the following entities would not require accounting information pertaining to their economic activities? a) Social clubs. b) Not-for-profit entities. c) State governments. d) All of these require accounting information. e) None of these requires accounting information.
answer
d) All of these require accounting information.
question
Cost accounting is a subset of which of the following? a) Internal auditing. b) Public auditing. c) Cost analysis. d) Managerial accounting.
answer
d) Managerial accounting.
question
The ethical concept of integrity means that an individual must: a) sign a pledge to abide by all laws and regulations. b) report to a supervisor any violation of the code of conduct of her company that is observed. c) read, understand, and agree to follow all provisions of her employer's code of conduct. d) attempt to be honest and forthright in dealings and communications with others.
answer
d) attempt to be honest and forthright in dealings and communications with others.
question
The time frame associated with an income statement is: a) a function of the information included in it. b) a point in time in the past. c) a past period of time. d) a future period of time.
answer
c) a past period of time.
question
The balance sheet might also be called: a) Statement of Changes in Financial Position. b) Statement of Financial Position. c) None of these. d) Statement of Assets.
answer
b) Statement of Financial Position
question
The balance sheet equation can be represented by: a) All of these. b) Assets = Liabilities + Stockholders' Equity. c) Assets - Liabilities = Stockholders' Equity. d) Net Assets = Stockholders' Equity
answer
a) All of these.
question
A debit entry will: a) decrease an asset account. b) increase a liability account. c) increase paid-in capital. d) increase an expense account.
answer
d) increase an expense account.
question
Sage, Inc. has 20 employees who work Monday through Friday each week; each employee earns $100 per day and is paid every Friday. The end of the accounting period is on a Wednesday. How much wages expense should the firm accrue at the end of the period? a) $6,000 b) $1,000 c) $0 d) $2,000
answer
a) $6,000
question
The current assets of most companies are usually made up of: a) assets that are currently used in the operations of the company. b) cash and assets expected to be converted to cash within a year. c) a very small proportion (less than 10%) of the total assets of the entity. d) cash, marketable securities, and accounts and notes receivable.
answer
b) cash and assets expected to be converted to cash within a year.
question
An organization's system of internal control is designed primarily to: a) increase efficiency by letting one employee handle all aspects of a transaction from beginning to end. b) ensure that no employees steal the organization's property. c) ensure that the organization's balance sheet will always balance. d) provide an operating framework for all employees as they work to achieve the organization's goals.
answer
d) provide an operating framework for all employees as they work to achieve the organization's goals.
question
A cash equivalent is a current asset that: a) none of these. b) will be converted to cash within one month. c) will be converted to cash within one year. d) is readily convertible into cash with a substantial risk. e) is readily convertible into cash with a minimal risk.
answer
e) is readily convertible into cash with a minimal risk.
question
The allowance for uncollectible accounts is a(n): a) asset. b) contra revenue. c) expense. d) contra current asset.
answer
d) contra current asset.
question
Expenditures capitalized as long-lived assets generally include those expenditures that: a) are made for normal repairs to maintain the usefulness of the asset over a number of years. b) are for items that have a physical life of more than a year, regardless of their cost. c) are material in amount and that have an economic benefit to the entity only in the current year. d) are material in amount and that have an economic benefit to the entity that extends beyond the current year.
answer
d) are material in amount and that have an economic benefit to the entity that extends beyond the current year.
question
The entry to record depreciation expense: a) increases a contra asset and decreases net income. b) decreases a contra asset and decreases net income. c) decreases working capital and decreases net income. d) decreases an asset and increases a contra asset.
answer
a) increases a contra asset and decreases net income.
question
The net book value of a depreciable asset is: a) the fair value of the asset. b) the amount for which the asset should be insured. c) the difference between the asset's cost and accumulated depreciation. d) the difference between the asset's cost and depreciation expense.
answer
c) the difference between the asset's cost and accumulated depreciation.
question
When an accelerated depreciation method is used to calculate depreciation expense: a) the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used. b) the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used. c) depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. d) the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.
answer
a) the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
question
A transaction that is likely to cause an increase in a current liability is: a) payment of accrued wages. b) accrual of interest expense. c) depreciation of equipment. d) accrual of bad debts expense.
answer
b) accrual of interest expense.
question
The adjusting entry to accrue Interest Expense results in: a) an increase in Interest Expense. b) a decrease in Interest Expense. c) a decrease in Cash. d) a decrease in Interest Payable.
answer
a) an increase in Interest Expense.
question
An Accounts Payable normally results from which of the following transactions? a) Purchasing accounts for cash. b) Purchasing property, plant and equipment on credit. c) Purchasing goods and services from suppliers on credit. d) All of these.
answer
c) Purchasing goods and services from suppliers on credit.
question
One of the most important reasons for having a system of internal control is to: a) improve the effectiveness and efficiency of the operations of the organization. b) eliminate any temptations that may be presented to employees that could lead to theft from the company. c) ensure no employees have ever been convicted of stealing. d) prevent a salesperson from using a company car for personal transportation.
answer
a) improve the effectiveness and efficiency of the operations of the organization.
question
One inventory cost flow assumption will result in different cost of goods sold from another inventory cost flow assumption only if: a) the cost of inventory items changes during the year. b) price levels do not change during the year. c) inventory quantities change from the beginning to end of the year. d) a new product is added to inventory during the year.
answer
a) the cost of inventory items changes during the year.
question
When an uncollectible account receivable is written off against the allowance for bad debts: a) total current assets decrease and expenses decrease. b) current assets decrease and expenses are not affected. c) total current assets decrease and expenses increase. d) total current assets are not affected.
answer
not c or a d) total current assets are not affected. (assuming that current assets is total current assets)
question
The inventory cost flow assumption describes the flow of product cost: a) from the warehouse to the customer. b) into the asset (inventory) account and out to the expense (cost of goods sold) account. c) into the revenue (sales) account and out to the expense (cost of goods sold) account. d) into the asset (inventory) account and out to the revenue (sales) account.
answer
b) into the asset (inventory) account and out to the expense (cost of goods sold) account.
question
The accrual of interest on short-term marketable securities results in: a) an increase in current assets and an increase in net income. b) an increase in noncurrent assets and an increase in liabilities. c) an increase in current assets and a decrease in net income. d) an increase in current liabilities and an increase in net income.
answer
a) an increase in current assets and an increase in net income.
question
One of the principal reasons for selecting the LIFO cost flow assumption instead of the FIFO cost flow assumption in an inflationary economic environment is that: a) a higher selling price can be established. b) balance sheet inventory values will be higher. c) net income will be higher. d) income taxes will be lower.
answer
d) income taxes will be lower.
question
When a manufacturer invests in short-term marketable securities: a) risk avoidance is of great importance. b) the return on investment is more important than the risk involved. c) the market value of the securities is likely to fluctuate significantly. d) the securities are likely to have a maturity date more than a year in the future.
answer
a) risk avoidance is of great importance.
question
The balance sheet valuation of inventories is: a) lower of realizable value or selling price. b) lower of cost or market. c) lower of selling price or cost. d) cost, regardless of the cost of replacing the inventory.
answer
b) lower of cost or market.
question
An accounts receivable results from the sale of: a) goods and services to customers on account. b) property, plant, and equipment for cash. c) the firm's common stock. d) goods and services to customers for cash.
answer
a) goods and services to customers on account.
question
When an accelerated depreciation method is used to calculate depreciation expense: a) the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used. b) the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used. c) depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. d) the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used.
answer
b) the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
question
Leasehold is an example of which of the following types of assets? a) Current asset. b) Property, plant and equipment. c) Goodwill. d) Intangible asset.
answer
d) Intangible asset.
question
The intangible asset goodwill: a) may arise when one company purchases another company. b) all of these are correct. c) arises because the fair value of a company's assets is greater than cost. d) represents the management team's assessment of its value to the company.
answer
a) may arise when one company purchases another company.
question
When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land: a) any of the purchase cost allocated to the old building is reported as a loss. b) any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building. c) the cost assigned to the land excludes the cost of the old building. d) the total cost of the land and old building are capitalized as land cost.
answer
d) the total cost of the land and old building are capitalized as land cost.
question
Many companies use accelerated depreciation for tax purposes because: a) it is easier to calculate than straight-line depreciation. b) it is used for determining net income reported to stockholders. c) it results in lower taxable income than straight-line depreciation. d) it reflects the amount of cash used in depreciation.
answer
c) it results in lower taxable income than straight-line depreciation.
question
When a depreciable asset is sold: a) depreciation expense is adjusted so there is no gain or loss. b) any cash received results in a gain. c) a loss arises if the sales proceeds exceed the net book value. d) a gain arises if the sales proceeds exceed the net book value.
answer
d) a gain arises if the sales proceeds exceed the net book value.
question
Depreciation, in accounting, is a process that results in: a) depreciable assets being reported in the balance sheet at their fair value. b) an accurate measurement of the economic usefulness of an asset. c) accumulating cash for the replacement of the asset. d) spreading the cost of an asset over its useful life to the entity.
answer
d) spreading the cost of an asset over its useful life to the entity.
question
Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI: a) is more than the fair value of the net assets of the acquiring company. b) is less than the fair value of the net assets of the acquiring company. c) is less than the fair value of the net assets of the acquired company. d) is more than the fair value of the net assets of the acquired company.
answer
d) is more than the fair value of the net assets of the acquired company.
question
The net book value of a depreciable asset is: a) the amount for which the asset should be insured. b) the fair value of the asset. c) the difference between the asset's cost and depreciation expense. d) the difference between the asset's cost and accumulated depreciation.
answer
d) the difference between the asset's cost and accumulated depreciation.
question
Which of the following statements best describes the process of accounting for depreciation? a) A process for setting aside cash so funds will be available to replace the asset. b) A process for recognizing all of the cost associated with using an asset in a revenue generating activity. c) A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset. d) A process that attempts to recognize loss in economic value over a period of time.
answer
d) A process that attempts to recognize loss in economic value over a period of time.
question
A transaction that is likely to cause an increase in a current liability is: a) payment of accrued wages. b) accrual of bad debts expense. c) depreciation of equipment. d) accrual of interest expense.
answer
d) accrual of interest expense.
question
Interest on a Note Payable is most appropriately accrued: a) when principal payments on the note are made. b) when the interest is paid. c) as of the end of each accounting period during which the note is a liability. e) when the note is signed.
answer
c) as of the end of each accounting period during which the note is a liability.
question
The current liability for Wages Payable (or Accrued Payroll) represents the: a) net pay earned by employees for which they have not yet been paid. b) employer's federal and state payroll tax obligation. c) gross pay earned by employees for which they have not yet been paid. d) employer's liability for various withholdings that taken out of the gross pay earned by employees.
answer
a) net pay earned by employees for which they have not yet been paid.
question
Current maturities of long-term debt: a) permit a more accurate determination of working capital. b) reflect overdue installments of bonds payable. c) represent cash that has been set aside for debt payments due within a year. d) are classified with long-term debt.
answer
a) permit a more accurate determination of working capital.
question
A working capital loan will generally: a) not have an interest rate. b) require that interest (if any) be paid monthly. c) be classified as a noncurrent liability. d) not affect working capital.
answer
d) not affect working capital. (working captial is asset -current liability)
question
The payment of a current liability will: a) increase working capital. b) not affect working capital. c) decrease net income. d) decrease working capital.
answer
b) not affect working capital.
question
Many current liabilities are affected by accrual accounting entries. This happens because: a) accrual accounting involves recognizing liabilities before they are paid. b) the only way to reduce a liability account balance is with an adjusting entry. c) accrual accounting frequently involves recognizing liabilities before they are incurred. d) liabilities are usually paid when they are incurred.
answer
a) accrual accounting involves recognizing liabilities before they are paid.
question
Financial leverage refers to which of the following? a) The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. b) The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE). c) Decreasing fixed costs per unit by increasing production. d) The leverage a firm obtains from increasing production.
answer
b) The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE).
question
Which of the following is not usually associated with bonds? a) Maturity rate. b) Maturity value. c) Coupon rate. d) Face amount.
answer
a) Maturity rate
question
Which of the following is(are) a true statement(s) pertaining to bonds? a) The SEC sets the market price of a bond. b) Bonds can be sold at a discount, par, or premium. c) Bonds can be sold at a discount, par, or payable. d) The issuing firm sets the price of a bond.
answer
b) Bonds can be sold at a discount, par, or premium.
question
When a company issues a bond at a premium: a) the company is more profitable than most companies in its industry. b) the company's interest expense will be more than the interest paid each year. c) investors perceive the bond to be a very safe investment. d) the company's interest expense will be less than the interest paid each year.
answer
d) the company's interest expense will be less than the interest paid each year.
question
When a company issues a bond at a discount: a) the company will pay less than the face amount of the bond at its maturity. b) the company will pay more than the face amount of the bond at its maturity. c) the company's interest expense will be less than the interest paid each year. d) the company's interest expense will be more than the interest paid each year.
answer
d) the company's interest expense will be more than the interest paid each year.
question
Which of the following is true regarding bond discounts and/or premiums? a) Bond premium is amortized but bond discount is not. b) Bond discount is amortized but bond premium is not. c) Neither bond discount nor premium is amortized. d) Both bond discount and premium are amortized.
answer
d) Both bond discount and premium are amortized.
question
Retained earnings represents: a) the total net income of the firm since its beginning. b) cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends. c) cash that is available for dividends. d) net income plus gains (or minus losses) on treasury stock transactions.
answer
b) cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.
question
Factors that usually affect retained earnings directly include: a) extraordinary items and losses from discontinued operations. b) stock dividends and gains or losses from the sale of treasury stock. c) net income or loss, and the issuance of stock at an amount in excess of par value. d) net income or loss, and dividends.
answer
d) net income or loss, and dividends.
question
Which of the following is not a stockholders' equity account? a) Paid-in-capital in excess of par. b) Retained earnings. c) Accumulated depreciation. d) Common stock. e) Capital stock.
answer
c) Accumulated depreciation.
question
The declaration of a cash dividend by the directors results in: a) a decrease in cash and a decrease in retained earnings. b) a decrease in retained earnings and an increase in current liabilities. c) a decrease in net income and a decrease in cash. d) a decrease in net income and an increase in current liabilities.
answer
b) a decrease in retained earnings and an increase in current liabilities.
question
Another term frequently used to describe stockholders' equity is: a) net assets b) gross assets c) paid-in captial d) capital stock
answer
a) net assets
