Primary objective of financial accounting

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1. The primary objective of financial accounting is:

To serve the decision-making needs of internal users

To provide financial statements to help external users analyze and interpret an organization's activities

To monitor and control company activities

To provide information on both the costs and benefits of managing products and services

To know what, when and how much to produce

2. Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include:

Assets increase by $75,000 and expenses increase by $75,000

Assets increase by $75,000 and expenses decrease by $75,000

Liabilities increase by $75,000 and expenses decrease by $75,000

Assets decrease by $75,000 and expenses decrease by $75,000

Assets increase by $75,000 and liabilities increase by $75,000

3. Source documents include all of the following except:

Sales tickets

Ledgers

Checks

Purchase orders

Bank statements

4. Ethical behavior requires:

That an auditors' pay not depend on the figures in the client's reports

Auditors to invest in businesses they audit

Analysts to report information favorable to their companies

Managers to use accounting information to benefit themselves

That an auditor provides a favorable opinion

5. A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser's books at:

$95,000

$137,000

$138,500

$140,000

$150,000

6. An asset created by prepayment of an expense is:

Recorded as a debit to an unearned revenue account

Recorded as a debit to a prepaid expense account

Recorded as a credit to an unearned revenue account

Recorded as a credit to a prepaid expense account

Not recorded in the accounting records until the earnings process is complete

7. Which of the following accounting principles dictates when expenses are recognized?

Revenue recognition principle

Monetary unit principle

Business entity principle

Matching principle

Full disclosure principle

8. Risk is:

Net income divided by average total assets

The reward for investment

The uncertainty about the expected return that will be earned from an investment

Unrelated to expected return

9. Fast-Forward had cash inflows from operations of $62,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:

$40,500 increase

$40,500 decrease

$134,500 decrease

$134,000 increase

10. If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:

Decreased $105,000

Decreased $45,000

Increased $30,000

Increased $45,000

11. Net Income:

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners' claims against assets

12. Assets created by selling goods and services on credit are:

Accounts payable

Accounts receivable

Liabilities

Expenses

13. Of the following accounts, the one that normally has a credit balance is:

Cash

Office Equipment

Sales Salaries Payable

Dividends

Sales Salaries Expense

14. Prepaid expenses are:

Payments made for products and services that do not ever expire

Classified as liabilities on the balance sheet

Decreases in retained earnings

Assets that represent prepayments of future expenses

15. Generally Accepted Accounting Principles:

Focus on the review of a situation

Does not require financial statements

Never change

Intend to make information on the financial statements relevant, reliable and comparable

Oversees Security and Exchange Commission

16. A company purchased a new truck at a cost of $42,000 on July 1, 2011. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. How much depreciation expense will be recorded for the truck for the year ended December 31, 2011?

$3,250

$3,500

$4,000

$6,500

$7,000

17. On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. What is the amount that should be recorded as depreciation on December 31?

$27,000

$24,900

$29,100

$135,000

18. The Retained Earnings account has a credit balance of $17,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800 and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made?

$8,000

$15,400

$23,400

$17,000

$32,400

19. The length of time covered by a set of periodic financial statements is referred to as the:

Fiscal cycle

Natural business year

Accounting period

Business cycle

Operating cycle

20. A classified balance sheet:

Measures a company's ability to pay its bills on time

Organizes assets and liabilities into important subgroups

Presents revenues, expenses and net income

Reports operating, investing and financing activities

21. The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Cash basis accounting

The matching principle

The time period principle

Accrual basis accounting

Revenue basis accounting

22. The adjusted trial balance contains information pertaining to:

Asset accounts only

Balance sheet accounts only

Income statement accounts only

All general ledger accounts

Revenue accounts only

23. A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

2%

20%

200%

500%

$8,000

24. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

$75

$125

$175

$250

$325

25. Unearned revenue is reported on the financial statements as:

A revenue on the balance sheet

A liability on the balance sheet

An unearned revenue on the income statement

An asset on the balance sheet

An operating activity on the statement of cash flows

26. An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n):

Accrued expense

Contra account

Accrued revenue

Intangible asset

Adjunct account

27. On April 30, 2011, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31, 2011?

$500

$4,000

$6,000

$14,000

$18,000

28. On June 30, 2011, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2011 for Apricot would include:

A debit to an expense for $1,250

A debit to a prepaid expense for $1,250

A credit to an expense for $3,750

A debit to a prepaid expense for $3,750

29. On April 1, 2011, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2011?

$1,350

$450

$1,012.50

$337.50

$37.50

30. A trial balance prepared after adjustments have been recorded is called a(n):

Balance sheet

Adjusted trial balance

Unadjusted trial balance

Classified balance sheet

Unclassified balance sheet

31. The conservatism principle:

Requires that when there are more than one equally likely estimate of amounts expected to be received or paid in the future, then the less optimistic amount should be used

Requires that a company use the same accounting methods period after period

Requires that revenues and expenses be reported in the period in which they are earned or incurred

Requires that all items of a material nature be included in financial statements

Requires that all inventory items be reported at full cost

32. Merchandise inventory includes:

All goods owned by a company and held for sale

All goods in transit

All goods on consignment

Only damaged goods

Only items that are on the shelf

33. A merchandising company:

Earns net income by buying and selling merchandise

Receives fees only in exchange for services

Earns profit from commissions only

Earns profit from fares only

Buys products from consumers

34. A company has sales of $1,500,000, sales discounts of $102,000, sales returns and allowances of $123,000, shipping charges of $15,000, sales commissions of $34,000,net income totaled $263,500, and cost of goods sold of $420,000. What is the net sales amount for the period?

$1,500,000

$1,275,000

$1,725,000

$1,521,000

$1,479,000

35. During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Specific identification method

Average cost method

Weighted-average method

FIFO method

LIFO method

36. A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that were sold?

$120

$124

$128

$130

$140

37. Which of the following is the most serious limitation of internal controls?

Computer error

Human fraud or human error

Cost-benefit principle

Cybercrime

Management fraud

38. The inventory valuation method that tends to smooth out erratic changes in costs is:

FIFO

Weighted average

LIFO

Specific identification

WIFO

39. A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods sold equal:

$(217,000)

$375,000

$157,500

$217,500

40. The quick assets are defined as:

Cash, short-term investments and inventory

Cash, short-term investments and current receivables

Cash, inventory and current receivables

Cash, noncurrent receivables and prepaid expenses

Accounts receivable, inventory and prepaid expenses

41. Cost of goods sold:

Is another term for merchandise sales

Is the term used for the cost of buying and preparing merchandise for sale

Is another term for revenue

Is also called gross margin

Is a term only used by service firms

42. A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is:

$3,725.00

$3,925.00

$3,995.00

$4,000.50

$4,075.00

43. Which of the following procedures would weaken the control over cash receipts that arrive through the mail?

After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender's name, the amount and an explanation of why the money is sent

The bank reconciliation is prepared by a person who does not handle cash or record cash receipts

For safety, only one person should open the mail and that person should immediately deposit the cash received in the bank

The cashier should not also be the record keeper who records the amounts received in the accounting records

All of the above are good internal control procedures over cash receipts that arrive through the mail

44. The full disclosure principle:

Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made and its effect on net income

Requires that companies use the same accounting method for inventory valuation period after period

Is not subject to the materiality principle

Is only applied to retailers

Is also called the consistency principle

45. J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million and its net income was $997 million. Its gross margin ratio equals:

3.5%

5.2%

33%

67%

149.3%

46. A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

$2,550

$2,600

$2,700

$3,000

$3,200

47. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 4239 for November's rent was correctly written and drawn for $7,390, but was erroneously entered in the accounting records as $3,790. When preparing the November bank statement, the company should:

Deduct $3,600 from the book balance of cash

Add $3,600 to the bank statement balance

Add $7,390 to the book balance of cash

Deduct $3,600 from the bank statement balance

Add $3,600 to the book balance of cash

48. Cash equivalents:

Are short-term, highly liquid investments

Include 6-month CDs

Include checking accounts

Are recorded in petty cash

Include money orders

49. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale?

$140

$160

$210

$380

$590

50. Given the following information:

Petty cash balance $ 450.00 Courier receipt $ 82.50

Postage receipt $ 48.00 Office Supplies receipt $ 56.22

Business Meal receipt $ 102.34 Cash on hand at the end of the month $ 76.21

What is the amount of cash over and short?

debit $84.73

credit $84.73

debit $160.94

credit $160.94

no cash over or short would be recorded